Precision optimistic about its prospects
Second quarter predicted to be a 'cyclical turning point'
LAUREN KRUGEL
The Canadian Press
theglobeandmail.com
April 24, 2008
CALGARY -- It will take a few quarters for renewed optimism in the oil and gas drilling sector to filter down to Precision Drilling Trust's bottom line, chief executive officer Kevin Neveu said yesterday as the trust said its first-quarter profit fell by a third.
Mr. Neveu predicted that the second quarter of 2008 will be a "cyclical turning point" in the sector in Western Canada, which has been beleaguered by dismal natural gas prices and the uncertainty surrounding Alberta's new royalty regime.
With commodity prices looking up and Alberta announcing it will ease some of the unintended consequences of its changes in royalties, the natural gas and oil producers that Precision caters to are reworking their spending plans.
"However this is coming too late to have a meaningful impact on [second-quarter] results. The industry is still burdened with the budgets, drilling plans and spending profiles outlined by our customers in late 2007," Mr. Neveu said.
"It's no stretch to say that 2009 is looking significantly more active as 2008 and we're anticipating 2009 utilization growth and day rates more indicative of the optimism we see in today's commodity prices."
Precision said its first-quarter profit was $106-million or 84 cents a unit, down from $158.1-million or $1.26 a year earlier.
The results were 10 cents below analyst's expectations of 94 cents a share.
Precision Drilling units fell 5 per cent on the Toronto Stock Exchange.
Revenue for the quarter was $342.7-million, markedly below the $410.5-million that was tallied during the first three months of 2007.
Quarterly revenue declined 14 per cent from a year earlier in the contract drilling services segment and 21 per cent in the completion and production services division.
Operating cash flow slumped 63 per cent to $57.3-million and capital spending was cut by 59 per cent to $22.2-million.
A reassessment in provincial income taxes cost Precision $55-million during the quarter that chief operating officer Doug Strong said Precision will challenge.
The company also cited lower demand in Canada and competitive pricing for its dip in profits. But Neveu said Precision managed to keep its margins intact by not giving in to pressure to lower its day rates.
"Our Q1 came in exactly as we expected. And while others may be surprised, we were not. Precision will not pursue utilization at the expense of margin," he said.
Precision is plotting a return to the U.S. and international market, which it abandoned in 2005 when it converted to the income trust model. Non-compete agreements with Weatherford International Ltd., the Houston-based company that bought Precision's international division, are set to expire in August.
Neveu said expansion in the U.S. and beyond will start off slowly because the company will need to organically grow its market share.
"I think we're in a good position to be ready if the right kind of opportunity comes up. But the fact of the matter is we can't make an acquisition that would close before the end of our non-compete," he said.
"I'm frustrated right now that in a very buoyant market for rigs, that we're having to just get ready." The company currently has 14 rigs deployed in the United States and plans to build 19 more for that market. PRECISION DRILLING (PD.UN)
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