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 (NYSE:PDS). With a fleet of more than 240 drilling rigs, Precision is the largest contract driller in Canada, commanding almost one-third of its market share. That was great during the "two years of bliss" that are now firmly behind us, but it doesn't help now. With natural gas storage running high, and spot contracts changing hands at around $5, all the market share in the world can only stem so much suffering.

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 (NYSE:NBR) on its recent call. Precision's plain-spoken chairman, Hank Swartout, who will unfortunately be retiring once a new CEO is hired, described his view as "extremely bearish." With two decades of experience behind him, I don't take Swartout's view lightly. He sees the Canadian drilling market going to breakeven conditions. That's going to wipe out a lot of weaker hands.

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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Fool contributor Toby Shute doesn't own shares in any company mentioned. Precision Drilling Trust is a Motley Fool Global Gains recommendation. The Motley Fool has a sterling disclosure policy.