PRECISION DRILLING CORP. (Toronto symbol PD; www.precisiondrilling.com) sells contract drilling services to oil and gas producers, mainly in North America. It ended 2012 with 321 active rigs.
The company is slowly expanding its international operations: it now has a total of eight rigs in Mexico and the Persian Gulf region.
The shares fell from a March 2012 high of $12.60 (it is currently just above $9.40) due to fears that falling oil and natural gas prices will hurt demand for Precision’s rigs. However, the company operates under long-term contracts that help shield it from volatile oil and gas prices.
In 2012, Precision’s earnings fell 72.9%, to $52.4 million, or $0.18 a share. It earned $193.5 million, or $0.67 a share, in 2011. If you exclude writedowns of older rigs, earnings per share would have declined by 12.9%, to $0.81 from $0.93.
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Precision resumes dividend payments after four-year suspension
Low natural gas prices continue to hurt drilling activity in North America. However, Precision has spent the past five years replacing older rigs with new models that can reach deeper oil and gas pockets. Thanks to strong demand for these rigs, revenue rose 4.6% in 2012, to $2.0 billion from $1.95 billion.
Precision recently resumed paying dividends; it suspended its payout in 2009 to lower its debt. The new annual rate of $0.20 yields 2.1%.
In the latest edition of The Successful Investor, we look at the earnings outlook for Precision Drilling and assess its risk relative to the more conservative energy stocks we cover in The Successful Investor. We conclude with our clear buy-sell-hold advice on this stock.
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