Additionally to the modifications in term, day rates on the contracts were adjusted to more accurately reflect the present operating environment. The impact of somewhat lower day rates will be considerably mitigated by specific reductions in operating costs that Trinidad Drilling has identified and is presently implementing. Using the new day rate and operating cost expectations, average gross margin (on a percentage basis) on the rigs involved is estimated to be 3% to 5% lower. Trinidad Drilling believes that the benefit of assured work over the contracted period more than outweighs the slightly lower gross margins the rigs are anticipated to achieve.
The terms of the new contracts came into effect on May 1, 2009. Additionally, Trinidad Drilling has agreed with the customer to terminate the construction of one of the rigs included in the 2009 rig construction program. This rig, a 16,000 feet Candrill 1500ac drilling rig, was originally planned to be delivered in the second quarter of 2009. Trinidad Drilling will keep the components of the terminated rig in inventory and utilize them within the rest of the construction program or for repairs and maintenance of existing equipment.
Following these contract modifications, Trinidad Drilling will have about 45% of its fleet under long-term, take-or-pay contract, with an average term of more than 2.5 years remaining.
