Trinidad Drilling

Source: Energy Digital

Date :10/31/2007 9:49:01 AM

Incoming Energy

Investment in start-of-the art equipment and commitment to effective management strategies are the route to customer, stakeholder and employee satisfaction for Trinidad Drilling

Written by Ruari McCallion and Produced by Nick Ledue

Let’s get something clear from the start. Trinidad Drilling Ltd isn’t a Caribbean-based company; it’s headquartered in Calgary, AB, Canada. It’s an energy income trust, traded on the Toronto Stock Exchange (TSX) as TDG.UN – the nearest US equivalent structure would be a mutual fund. But an Energy Income Trust is a corporate vehicle that actively trades on its own account, rather than investing in the shares of other companies.

Trinidad Drilling’s business is, unsurprisingly, drilling. One of the US Companies, Trinidad Drilling LP, is based in Houston, TX, and has locations in Shreveport ,La; Fort Worth and Odessa, TX; Woodward, Ok; and Garden City, Ka.

As an income trust, Trinidad’s prime requirement is to pay dividends to its stockholders. In the extreme, that could lead to a drive to lowest cost operations to maximize profit, which can be something of a short-term game, if distribution is put ahead of investment for long-term prosperity.

But Trinidad describes itself as a ‘growth-oriented income trust, focused on creating and capitalizing on market opportunities within the oil and gas drilling and well servicing sector’.

It began operations in 1996 and immediately started building four identical 2800 meter depth capacity heavy telescopic double drilling rigs. Not buying old stock – building its own, new equipment. It was an approach that appealed to Tyson Seeliger, business development manager, based in Houston.

TOO GOOD TO MISS

“I previously worked for a manufacturing company, which sold assets to Trinidad and competitors. I saw the way they operated and the name they created for themselves in short time, and I wanted to be part of it,” he said. He gave up a long-tenured position to join, so he really put his money where his mouth is. Any number of new companies come along in the energy business, but Seeliger believed there was something different about Trinidad Drilling.

“The management team is young and aggressive. I think everyone’s under the age of 45, which is refreshing and always exciting in this line of business. Although it’s an investment company, the big decision-makers all ‘come from the rig’ – the people driving the company understand how important the people are. There’s a lot of emphasis and focus on people. We believe that if we treat our people right and look after them well, we’ll attract and retain good people. It’s a company with drillers, led by drillers and focused on drillers and drilling.”

The parent company offers drilling and well servicing and has a couple of manufacturing arms. Trinidad Drilling LP, one of the US Companies, is essentially a contract drilling service provider, focused on onshore natural gas plays. The rigs operate out of each of its satellite offices.

“We’re active in the Barnett shale play, near Fort Worth; the Cotton Valley and Bossier sands in East Texas, the Permian Basin in West Texas; the Hugoton gas field and Granite Wash play in the Oklahoma and Texas panhandle including south western Kansas.

We also have a rig working in the Piceance Basin in Colorado,” he explained. “We’re a contract drilling company. We’re contracted by the operating company, the oil and gas principal – to come in and drill the well until we reach TD (total depth), the point the geologists and the oil and gas company asked us to get to – and then assist with setting casing, logging, cementing and other services required when drilling an oil and gas well.

We work mostly on day-work contracts, with some on footage. We take drilling orders from the operator; our primary focus is to drill their well safely, and efficiently keeping in mind that everything below surface is their responsibility and drilling the well, along with maintaining our asset, is ours . If we drill to the estimated total depth given to us in our drilling orders and the bit hasn’t quite reached the gas formation, we’ll keep drilling until we get there, based on the type of contract that is in place prior to spudding the well. We may get asked to do exploratory work, re-entry or drill additional productive wells into known reserves. We work under a variety of different programs.”

FOCUS ON SAFETY

Drilling is a dirty, difficult and dangerous activity, where industrial accidents are not unknown. As Seeliger noted, Trinidad is focused on its people, so it makes a point of ensuring that its operations are as safe as possible.

That means investing in modern machinery, which makes both for a good working environment and good business sense. “Drilling is a big part of the operating companies’ costs: we bring assets and labor. The work we do isn’t easy – it’s a 24-hour-a-day job in a difficult environment,” he said. “Part of our advantage in the US market is that most of our assets are new and technologically-advanced. That helps us control repair and maintenance costs, improves working conditions and enables us to deliver reliable services, on time and to budget.”

As the market is in a more active phase, competition for experienced staff is keen. “We have to be creative in the way we give incentives, but one of the big issues is performance and safety – there’s a direct relationship between staff turnover and safety and performance. We put all our crews through OSHA compliance training, and we also make sure they are certified for first aid, CPR and AED (automated external defibrillators).

Our drillers and tool pushers are certified and trained in the fundamentals of well control, so they’re familiar with what to do if a well gets out of control – it unexpectedly hits a pocket of gas, for example. We also put them through various equipment maintenance and operational classes that are conducted by the equipment manufactures. Training people in the highest techniques protects them, the assets and everyone on location.”

Trinidad Drilling has grown through direct investment in its own drilling assets and through acquisition. Its first takeover was in 1999, when it bought Can-Am Drilling Ltd.

Progressive Well Servicing Ltd. became Trinidad Well Servicing the following year, and they were followed into the fold by another eleven drilling and energy servicing companies. As a premium service provider focused on deeper drilling, Trinidad saw major opportunities in the US market in 2005 - and moved before its competitors.

Trinidad has taken a two-pronged approach to its expansion in the United States. The Trust has built and operates rigs for several major US oil and gas companies.

In addition to new construction, the Trust acquired Cheyenne Drilling, a US based drilling company, adding infrastructure and experienced operational management to support the expansion and capital investment. The diverse, year round, US sector supports high margins and adds stability to cash flow. The latest purchase was Axxis Drilling, in July 2007 based out of Broussard, LA. That was an important acquisition, as it brought with it four new land-based rigs and one barge drilling rig, along with its related inventory, crew boats and spares, and a second barge rig that’s currently under construction which is anticipated to be brought into service in January 2008.

STABILITY THOUGH EXCELLENCE

“Trinidad Drilling LP is made up of 42 land rigs, 22 of which are brand new and technologically-advanced compared to the majority of the working US rig fleet,” Seeliger said.

While we may never see oil below $50 a barrel again, or even $60, the energy business is notoriously volatile. How does Trinidad ensure it has a steady stream of business over the longer term – especially when drilling activities tend to be short-term?

“Typically, contracts handed out over the past couple of years have been two-to three-year terms. At the moment, we have 24 rigs on these types of term contracts. We have to prepare for the time when demand slackens off and have implemented processes for it; day rates will go down and labor rates go down to adjust. We make hay while the sun shines, clearly, but we’re doing things now that will benefit us in the future.

We’re upgrading our assets, making sure we have the best people, and ensuring we deliver services and support to customers that will have them coming back to Trinidad, whenever and wherever they want wells drilled efficiently, safely and effectively.”