Precision Drilling soars on strong US revenue, considers more rig moves
The Canadian Press
Prince George Citizen
February 14, 2019
CALGARY — Shares in Precision Drilling Corp. closed up almost 15 per cent Thursday on the Toronto Stock Exchange after it reported strong operational results from its U.S. branch in the fourth quarter.
Shares in Precision traded as high as $3.30 before closing up 42 cents or 14.8 per cent at $3.25. It posted a 52-week high close of $5.28 last August.
The company is investing in technology and getting ready to move equipment from Canada to the United States if that is the best path to increased revenue and market share, CEO Kevin Neveu said on a conference call with analysts.
"We believe we will continue to capture growth opportunities led by U.S. and international markets, through (rig) automation technology, low-cost rig upgrades and geographic repositioning of our high-performance, high-value services," he said.
Precision said it has added five of its top-rated AC Super Triple 1500 drilling rigs to its U.S. fleet over the past year by relocating two from Canada and building three new ones.
Precision has three more similar rigs that are "candidates" to be moved to the U.S., Neveu said on the call, and 23 lower-rated rigs that could also go if activity drops off further in Canada, although he added the company won't go to the expense of redeploying unless work has been contracted.
Rig movements south are an ongoing trend — the Canadian Association of Oilwell Drilling Contractors said Wednesday the industry relocated 16 Canadian rigs to the U.S. in 2018, up from just six in 2017. So far this year, four rigs have been moved south of the border.
Precision reported fourth-quarter revenue of $427 million, up from $347 million in the same period of 2017, as drilling rig working days jumped 36 per cent in the U.S. and fell nine per cent in Canada.
Drilling activity in Canada is down about 30 per cent this winter compared to last year and is not expected to improve through the first six months of 2018, Neveu said, explaining customers have cut budgets due to a lack of pipeline export capacity and price volatility.
Activity is expected to strengthen in the second half of the year as Alberta's oil production curtailment program that began Jan. 1 — and is already credited with lowering oil price discounts — helps to reduce a storage glut, he said.
Precision's operational results in the last three months of 2018 came in well above expectations because of its ability to maintain a high number of working rigs in the United States, according to a research note from analysts at Tudor Pickering Holt & Co.
Precision said its current U.S. active rig count is 81, 16 more than at this time last year, but it said clients remain cautious about their 2019 budgets.
The poor outlook for activity in Canada and in its U.S. directional drilling division led to Precision taking a $208-million goodwill impairment charge on the quarter, resulting in a net loss of $198 million.
That compared with a loss of $47 million in the same quarter a year earlier.
Excluding the impairment charge, the company said it would have had net earnings of $1 million for the quarter.
Precision's results were buoyed by receipt of a break fee from Calgary rival Trinidad Drilling Ltd. after it cancelled an October takeover deal with Precision in favour of being acquired by another Calgary company, Ensign Energy Services Inc.
Net of transaction costs, the fee amounted to $14 million, Precision said.