A rebounding global economy continues to push up resource prices. That has helped raise the prices of Canadian oil stocks and companies that serve them, including Precision Drilling Corp. (symbol PD on Toronto). Precision provides contract-drilling services to oil and natural gas producers, mainly in western Canada.
Precision recently converted from an income trust to a conventional corporation. The Canadian oil stock’s investors received one common share for each trust unit they held. In light of that and other changes at the company, we’ve updated our buy/sell/hold advice on Precision in the current issue of The Successful Investor.
(Read on to find out how you can get a free copy of this issue. Along with our latest buy/sell/hold advice on Precision, the issue contains our full analysis of 19 other investments that could be suitable for your portfolio.)
This Canadian oil stock’s conversion came in response to looming income-trust tax
Precision converted to a conventional corporation before Ottawa’s new tax on income trusts comes into effect on January 1, 2011. The new tax will put trusts on an equal footing with regular corporations.
Like Precision, many other income trusts have already converted to conventional corporations in response to the new tax, or plan to do so later this month or in early 2011. Others will continue to operate as trusts.
But regardless of whether they convert to conventional corporations, trusts will have less cash to distribute to unitholders once they begin paying corporate taxes. That will prompt some to cut their distributions.
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Debt repayment a main focus for Precision
Paying corporate taxes won’t affect Precision’s payout. That’s because the trust suspended its monthly distributions in February 2009 to focus on cutting its debt following its $2-billion purchase of U.S.-based contract driller Grey Wolf Inc. in late 2008.
The company has now lowered its long-term debt to $679.3 million, down 9.3% from the start of 2010. That’s a much more manageable level, and could prompt Precision to resume its payout (which would now be classified as a dividend).
Grey Wolf’s U.S. location is letting Precision take advantage of rising demand for drilling rigs because of new shale-gas discoveries. Extracting gas from shale requires specialized rigs, so Precision can charge more for these rigs than its regular models.
The Canadian oil stock’s revenue and earnings have been erratic in the past few years. That’s mainly due to its high exposure to fluctuating oil and gas prices. In the latest issue of The Successful Investor, we look to see if Precision’s recent moves, including its acquisitions and the prospects for shale gas, are enough to let it keep increasing its share price.
You can get our latest analysis, including our clear buy/sell/hold advice, on Precision and dozens of other Canadian stocks in The Successful Investor. What’s more, you can get one month free when you subscribe today. Click here to learn how.
Comments
Michael
Your opinion on where interest rates are going.Also what do you think of Pref shares.
Thanks
Thanks for your question. However, the comments space after each article is intended for reactions to the article.
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Your opinion on where interest rates are going.Also what do you think of Pref shares.
Thanks
Thanks for your question. However, the comments space after each article is intended for reactions to the article.
Our free TSI Network dailies aim to educate you on best practices in investing. They cover a wide range of investment topics. They explain conservative strategies you can use to build the best portfolio for you, and expand your wealth with less risk.
They also zero in on the risks and drawbacks of investing practices you should avoid.
We provide specific investment recommendations in our paid publications which you can access on the Newsletters tab at the top of the screen.
If you do have specific investment questions you’d like to address to Pat and our research staff, you should consider joining Pat McKeough’s Inner Circle. One of the benefits of membership is that you can ask those questions and get a specific, expert recommendation. Click the Membership tab at the top of your screen for more information.
Regards,
Alex Conde
Online Editor
TSI Network