Precision Drilling's New Direction

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.


Read/Post Comments (0) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 539334, ~/Articles/ArticleHandler.aspx, 4/24/2014 5:27:16 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement