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Lower natural gas prices hit Precision Drilling

Workers tap deep into North Dakotas Bakken formation, on a Precision Drilling rig.

Nathan VanderKlippe/The Globe and Mail

Precision Drilling Corp.'s first-quarter results slipped as a result of lower natural gas prices, oil transportation bottlenecks and economic uncertainty.

The Calgary-based company – which, as a major services provider to the oil and gas industry, is a bellwether stock for how the sector is performing – posted net profit of $93-million or 33 cents per share, down from $111-million or 39 cents in the year-earlier period.

Revenue in the quarter came in at $596-million, down from $640.1-million, largely because of reduced activity in North America that was partly offset by higher average dayrates and increased international activity.

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Dayrates are contracts in which an agreed-upon daily amount is paid to the drilling contractor until a well is drilled to a predetermined depth.

Activity in the quarter was off 10 per cent in Canada and 23 per cent in the United States compared to the first quarter of 2012.

"The plummet in gas directed drilling activity in the United States which began in late 2011 and continued through the first quarter of this year has put pressure on industry utilization and dayrates," Precision president and chief executive officer Kevin Neveu said in a news release.

Precision's drilling activity fell 23 per cent during the quarter, he said.

On the international side, Precision had almost four times the operating days in the quarter compared with the year-earlier period, said Mr. Neveu.

The bottlenecks in oil shipments in North America will eventually be resolved, resulting in "compelling economics" for oil development, he said.

"And with natural gas, we are encouraged that the North American market is moving closer to a balanced state, yet an increase in drilling activity may still be some time away."

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Net earnings per share of 32 cents in the quarter – after adjusting for foreign exchange – were just shy of the consensus estimate of 33 cents and slightly above the 31-cents estimate of Desjardins Securities analyst Jamie Murray.

First-quarter revenue topped Mr. Murray's $589-million estimate and was in line with the consensus estimate of $595-million.

"We believe the market's reaction to the quarter will be neutral, given the results are in line and given the absence of new announcements," he said in a research note.

Earnings before income taxes, finance charges, foreign exchange and depreciation and amortization (adjusted EBITDA) in the first quarter were $215-million or 12 per cent lower than in the first quarter of 2012, the company said.

Net capital spending was off 41 per cent in the quarter, to $128.1-million from $216.6-million.

Spending on expansion alone fell 44 per cent, to $76.5-million from $136.5-million.

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About the Author
Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More

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