PRECISION DRILLING CORP. (Toronto symbol PD; 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 $492.9million. However, cash flow per share jumped 104.0%, to $0.51 from $0.25.
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Energy stocks: Low natural gas prices have 84% of Precision rigs drilling for oil
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.
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 and oil 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. The company has just announced it will pay an annual dividend of $0.20 a share, payable December 28 to shareholders of record on December 20. That rate gives it a current yield of 2.5%.
In the latest edition of The Successful Investor, we look at Precision’s plans for drilling in the oil sands and the effect of the company’s expanded capital spending on its balance sheet. We conclude with our clear buy-sell-hold advice on the stock.
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