Improved demand for drilling rigs in the U.S., plus rising oil prices, led to an 8.2% revenue increase for this industry leader in the most-recent quarter.
At the same time, the company needs to bring down its debt.
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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 operates 232 rigs in Canada, the U.S. and the Middle East.
In the three months ended March 31, 2019, overall revenue rose 8.2%, to $434.0 million from $401.0 million a year earlier. The higher revenues are mainly because rising oil prices spurred strong demand for drilling rigs in the U.S.
The company recently sold five idle rigs and a water treatment business in Mexico for $48 million U.S. If you exclude a gain on that sale and other one-time items, Precision earned $1 million, or nil per share, in the quarter. A year earlier, the company lost $18 million, or $0.06 a share.
The proceeds of the Mexican sale went to pay down debt. As a result, Precision’s long-term debt fell 4.2%, from $1.71 billion at the end of 2018 to $1.65 billion on March 31, 2019. That’s a high 2.4 times its depressed market cap. Still, the company expects to cut another $400 million to $600 million of debt by the end of 2021.
In November 2018, Precision ended its $1.03 billion, all-stock bid for rival Trinidad Drilling Ltd (Toronto symbol TDG) after the majority of Trinidad investors accepted a competing all-cash offer from Ensign Energy Services Inc. (Toronto symbol ESI). As a result, Trinidad paid Precision a $20 million termination fee.
Meanwhile, rising oil and gas prices should spur demand for Precision’s rigs. Moreover, its Super Series rigs, which reach deeper pockets of oil, continually enjoy strong demand.
The company will likely lose $0.16 a share in 2019, but earnings could rebound to $0.01 a share in 2020.
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