While several operators have been hit by an atrocious quarter for Canadian natural gas activity, few stand quite as firmly in the line of fire as Precision Drilling Trust
Speaking of suffering, let's quickly run through the numbers. Overall drilling activity in Canada fell about 50%, making the 9% drop in dayrates look pretty modest. Nevertheless, operating earnings dropped a whopping 64%, reducing operating margins to 22% of revenue. The mere handful of rigs operating in the U.S. contributed 17% of operating earnings, showing just how abysmal the Canadian market was.
Did I say "was"? Make that "is." Precision does not see things improving in the balance of 2007, and maintains that negative outlook into 2008. This matches the view presented by Nabors Industries
On the upside, Precision won't be one of them. It has a great balance sheet and a sterling reputation, and the COO alluded to "interesting opportunities" as leveraged players go broke. I believe the company might want to change from its current trust structure in order to become a more active consolidator, but given the dwindling tax advantages of that setup, I wouldn't be surprised to see it abandoned over the next year or two.
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