Precision Drilling boosting capital spending

CALGARY — Precision Drilling Corp. is bolstering its capital spending to build new rigs and upgrade existing ones, as demand grows for the firm’s high-tech equipment across North America.

CALGARY — Precision Drilling Corp. is bolstering its capital spending to build new rigs and upgrade existing ones, as demand grows for the firm’s high-tech equipment across North America.

Canada’s largest oil and gas driller (TSX:PD) said Thursday it plans to build seven new rigs this year on top of the two it had already planned, bringing total new-builds to nine.

“I think it’s rather remarkable that considering what we’ve been through that there’s even one new rig being talked about yet,” Precision chief executive Kevin Neveu said on a conference call Thursday to discuss the company’s second-quarter results.

The company aims to spend $106 million on the new rigs and $16 million to retool old ones to drill complicated horizontal wells — now widely used in the oil and gas industry to tap into new energy sources or improve output from depleted or older wells.

Total capital spending for 2010 is expected to hit $189 million, up from its previous budget of $122. Another $55 million will be spent in 2011.

The spending bump was announced as Precision reported a $67 million second-quarter loss.

“Reporting a loss in the second quarter — be it cash or non-cash — is very disappointing for me. Clearly our operating margins have room for improvement,” Neveu said.

Precision shares dropped 3.6 per cent to $7.52 on the Toronto Stock Exchange late-afternoon Thursday.

The loss, which amounted to 24 cents per share, compared with a profit of $57 million or 22 cents per share in the second quarter of 2009.

Precision’s second quarter included a $26-million foreign exchange loss and $52 million in finance charges.

Revenue was up $52 million to $262 million from $210 million.

Analysts had been expecting Precision to eke out three cents per share of net income, although the estimates compiled by Thomson Reuters often exclude one-time items and the impact of currency exchange rates.

The picture for oil and gas drillers is gradually brightening, Precision said.

In Canada, 77 rigs are currently at work versus 51 at the same time a year ago. In the United States, 91 rigs are being used, compared to only 52 at the same time in 2009.

Precision’s high-tech rigs are well-suited to drilling emerging oil and gas plays in Canada and the United States.

Drilling for oil and natural gas liquids has been strong in the Cardium resource play in Alberta, the Bakken zone in Saskatchewan and North Dakota and the Eagle Ford play in Texas.

Precision said more of its rigs are working in oil-related plays than at any time in the past two decades, since oil prices are so much stronger than natural gas prices. Still, more than half of Precision’s active rigs are drilling for natural gas.

“There should be no doubt in anyone’s mind that oil-based drilling is very strong indeed,” said Neveu.

Earlier this year, Precision shed its income trust model ahead of new federal rules that will see trusts taxed like corporations starting in January 2011.

When Precision first became a trust in 2005, it sold its non-Canadian assets to Houston-based Weatherford International Ltd. A non-compete agreement with Weatherford prevented Precision from growing its presence in U.S. and international markets until August 2008.

Soon after the non-compete agreements expired — and after a protracted hostile takeover battle — Precision and U.S. driller Grey Wolf Inc. agreed to a $2.1-billion deal, which substantially increased Precision’s presence south of the border.