Precision Drilling bumps 2011 spending

CALGARY — Precision Drilling Corp. said Tuesday that it is boosting 2011 capital spending in order to keep up with a growing appetite for new rigs in Canada’s oilpatch.

CALGARY — Precision Drilling Corp. said Tuesday that it is boosting 2011 capital spending in order to keep up with a growing appetite for new rigs in Canada’s oilpatch.

Canada’s largest oilfield services company (TSX:PD) said it expects to invest $514 million this year, up from its earlier forecast of $423 million.

The Canadian winter drilling season was the busiest it’s been since 2006, leading to a shortage of the most powerful, high-tech rigs in Precision’s fleet.

During the first quarter, Precision signed contracts to build seven new rigs for its Canadian customers, bringing the company’s new build rig program to 12 rigs so far this year.

Chief executive officer Kevin Neveu said he expects to see similar demand increases south of the border.

This past winter’s strong activity levels have left Precision with a big backlog of work to be completed in the coming year.

“We have several clients working with us to secure crews through the summer, fall and next winter drilling season. We’ve already begun to reserve rigs for the fall,” Neveu told analysts on a conference call.

“All of these indicators suggest a continuation of the strong oil-driven momentum through 2011 summer, and into the winter of 2012.”

That, and the demand for new and refurbished equipment, “all strongly suggest we are likely in the early innings of a sustained long-term oil growth cycle for Canada and North America,” Neveu added

The majority of the new rigs announced Tuesday are headed to oil projects, which isn’t surprising given the much more robust pricing crude is enjoying versus natural gas.

“Although some deterioration in gas drilling is feared, oil should continue to pick up the slack,” UBS Investment Research analyst Chad Friess said in a note to clients.

Earlier Tuesday, Calgary-based Precision posted net earnings of $66 million, or 23 cents per share, for the first three months of 2011. That compared with net earnings of $57 million, or 20 cents per share, in the first quarter of 2010.

Revenue for the quarter totalled $525 million, up from $373 million for the same period of 2010.

Analysts polled by Thomson Reuters were, on average, expecting earnings of 26 cents per share and revenues of $503 million.

The company had an average of 139 rigs operating during the quarter, up from 106 rigs in the fourth quarter of 2010 and 113 rigs in the first quarter of 2010.

Across North America, approximately 70 per cent of Precision’s working rigs during the first quarter were drilling for oil or liquids-rich natural gas targets and over 80 per cent were drilling complex horizontal or directional wells.

Precision’s current active rig count in Canada is 34, as wet spring weather prompts a pause in drilling across the region.

Precision shares dropped 17 cents to $14.63 in afternoon trading Tuesday on the Toronto Stock Exchange.