PRECISION DRILLING CORP. $7.48 (Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 276.3 million; Market cap: $2.1 billion; Price-to-sales ratio: 1.0; No dividends paid since February 2009; TSINetwork Rating: Extra Risk; www.precisiondrilling.com) provides contract-drilling services to land-based oil and gas producers, mainly in North America. It had 363 rigs in service as of September 30, 2012.
The company is slowly expanding its international operations: it now has a total of eight rigs in Mexico and Saudi Arabia. Precision’s overseas business now accounts for 5% of its revenue, up from just 1% a year ago.
In the three months ended September 30, 2012, the company’s earnings fell 52.8%, to $39.4 million, or $0.14 a share. A year earlier, it earned $83.5 million, or $0.29 a share.
The drop is largely because the year-earlier results included a $25-million foreign-exchange gain, compared to a loss of $4 million in the latest quarter. The extra costs of expanding overseas also weighed on the company’s latest earnings.
Revenue fell 1.7% to $484.6 million from $492.9 million. However, cash flow per share jumped 104.0%, to $0.51 from $0.25.
Low natural gas prices have hurt demand for Precision’s rigs. However, demand from oil producers remains strong: about 84% of Precision’s active rigs are now drilling for oil.
The company recently agreed to build two specialized rigs for drilling in the Alberta oil sands. As a result, Precision now expects to spend $921 million on capital upgrades in 2012, up from its earlier forecast of $875 million.
Even with these extra outlays, the company’s balance sheet remains sound. Precision holds cash of $226.8 million, or $0.82 a share. The company’s long-term debt of $1.2 billion is a high 57% of its market cap, but it doesn’t have to start repaying these loans until 2019.
Uncertainty over natural gas prices adds to Precision’s risk. Still, the company is a leader in its field, and expanding internationally improves its long-term prospects. Moreover, it trades at just 9.8 times its likely 2012 earnings of $0.76 a share.
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