TORONTO (miningweekly.com) – Owing to a prolonged drop in oil and natural gas prices causing significantly reduced demand for drilling services in Canada and the US, Calgary, Alberta-based drilling services provider Trinidad Drilling has had to book significant impairments for 2015.

The TSX-listed company on Wednesday advised that, though it managed its operations through challenging industry conditions in 2015, adjusting costs and operations where possible to improve efficiencies, the weak commodity prices and slowing customer demand throughout the year led to lower activity levels and reduced profitability, compared with 2014.

"The duration and extent of the current downturn has been more severe than most industry participants expected at its outset; however, we have taken control of the aspects of our business that we can. By resizing our business to meet current conditions, we have been able to reduce our costs and maintain reasonable operating margins. We have also taken steps to manage our financial flexibility with a very small capital budget planned for 2016, a relaxation of our debt covenants and the suspension of our dividend,” stated CEO Lyle Whitmarsh.

The impact of these challenging conditions was partly offset by the addition of CanElson Drilling's operations, which Trinidad acquired in the third quarter, and a continued strong performance from the company's international joint venture operations.

Trinidad noted that standby and early termination revenues recorded in 2015 positively impacted revenue and operating income.

Commodity prices weakened significantly during 2015, leading to a dramatic pullback in capital spending by oil and gas producers and sharp reductions in drilling activity. Crude oil prices dropped throughout the year, with a brief rally during the second quarter, but ended the year below $40/bl. Natural gas prices also lowered sharply in 2015, limiting the number of economic projects available for oil and gas producers.

Industry activity levels in 2015 were directly impacted by the reduction in capital spending as activity levels across North America lowered, mainly in tandem with decreasing commodity prices. In the fourth quarter of 2015, commodity prices dropped to the lowest level during the year and activity levels fell further in both Canada and the US.

Trinidad advised that it evaluated its rig fleet to identify rigs that would be considered lower-specification equipment with high costs to maintain, which resulted in 15 rigs being decommissioned at the end of 2015, ten included in the Canadian operations and five included in the US and international operations.

Trinidad also implemented several measures to lower overall general and administrative expenses, including a head-count reduction, a 20% reduction in salaries and board fees for all executives and directors and a company-wide average wage rollback of 12% for salaried employees.

For the year ended December 31, Trinidad recorded total impairment expenses of $317.5-million, comprising $34.4-million relating to decommissioning 15 rigs, $144.3-million relating to other lower-specification assets including capital inventory, $26.9-million relating to its barge rig assets no longer being marketed by the company, and $111.8-million relating to goodwill from previous-period acquisitions.

Trinidad recorded a net loss of $218.3-million, or $1.30 a share, for 2015, down $224.9-million from a net income of $6.6-million in 2014, mostly owing to a larger impairment expense recorded in 2015, as well as lower adjusted earnings before interest, taxes, depreciation and amortisation, and higher finance and transaction costs, offset partly by a larger recovery recorded on deferred tax expenses in the current period.

The company’s full-year revenue was 41.4% lower at $551.9-million.

Trinidad’s TSX-listed stock on Wednesday gained about 6% to close at C$1.67 apiece.

Other drilling services providers such as Boart Longyear, also reported negative results for 2015. The Australian firm on Monday reported that its consolidated revenue fell 15% to $735-million and net cash flow generated by operating activities fell 387% to negative $55-million. It also reduced its number of employees by 20% to 4 725.