Precision Drilling Trust (NYSE: PDS ) has a new captain at the helm, and if there's one thing he knows, it's the quality of the world's rig fleet. That's because Kevin Neveu hails from National Oilwell Varco (NYSE: NOV ) , drill-builder to the stars. The new CEO provided some comforting comments on the quarterly conference call, which is important, because the numbers were ugly.
Revenue in the quarter dropped 35% on a 12% slip in dayrates and, more significantly, Canadian field activity was one-third lower. Operating income was cut nearly in half, and cash distributions to unitholders were cut by 58%. With the weakness in Precision's shares, the stock still boasts quite the outsized yield, north of 8%. That should make it a bit easier to wait out the Western Canadian weakness, which doesn't look set to reverse course anytime soon.
Alberta's new taxation gambit doesn't help matters much. Everyone from EnCana (NYSE: ECA ) to Nexen (NYSE: NXY ) to Canadian Natural Resources (NYSE: CNQ ) has warned of possible spending cuts in response to the plan, which was put forward Thursday in a version that was somewhat pared back from the original. Despite protestations from the powerhouses, it now appears that small, marginal producers will be hardest hit.
Though Precision has a commanding market share in Canada, it's not bound to keep its rigs there. The U.S. fleet has grown from two to eight rigs working near full utilization. That number will jump to a dozen by year's end. Neveu stated clearly that U.S. growth will not slow down going forward, and may even heat up.
The lower 48 is no promised land, but it's still promising. There remains a strong market for those with "smart iron" -- newer rigs than can drill faster, safer, and cheaper. Precision's Super Single can go toe-to-toe with the best that Helmerich & Payne (NYSE: HP ) and Nabors Industries (NYSE: NBR ) have to offer, so as Precision's rigs head south, I don't expect its shares to follow suit.