PRECISION DRILLING CORP. $7.37(Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 292.9 million; Market cap: $2.2 billion; Price-to-sales ratio: 1.6; Dividend suspended in March 2016; TSINetwork Rating: Extra Risk; www.precisiondrilling.com) provides contractdrilling services to land-based oil and gas producers, mainly in North America. It operates 251 rigs.
Low oil and natural gas prices continue to hurt drilling activity. As a result, Precision lost $19.9 million, or $0.07 a share, in the first quarter of 2016. A year earlier, it earned $24.0 million, or $0.08. Cash flow per share dropped 47.9%, to $0.38 from $0.73.
Overall revenue fell 41.1%, to $301.7 million from $512.1 million. Average drilling revenue per day increased 7.8% in the U.S., but declined 2.8% in Canada and 3.2% for the international operations.
Precision now plans to spend $202 million on new rigs and upgrades in 2016. That’s down 56.0% from $459 million in 2015.
The company rents out its rigs under long-term contracts. That will continue to give it steady cash flow while it waits for drilling activity to improve. Demand for Precision’s Super Triple rigs should also remain strong, as they can reach deeper pockets of oil and gas than regular rigs.
Precision’s sound balance sheet helps temper its risk. As of March 31, 2016, the company held cash of $476.4 million, or $1.63 a share. Long-term debt of $2.0 billion is a high 91% of its currently depressed market cap. However, it doesn’t have to start repaying those loans until 2019.
The company will probably report a loss for 2016. However, the stock trades at just 4.8 times its annualized cash flow, based on the latest quarter.
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