CALGARY — Precision Drilling Trust has bumped up its capital spending program for 2010, with the expectation that strong oil and natural gas liquids activity will keep its rig fleet busy this year.
Canada’s largest energy services firm had previously pegged its budget at $75 million, but said Thursday it now stands at $122 million.
“Precision’s capital budget increase displays our confidence in our view of the sustainability of the current activity levels,” chief executive Kevin Neveu told analysts on a conference call to discuss his company’s first-quarter results. “However, we remain fully poised for either a sharp pullback in activity, or, for that matter, a rapid increase in demand.”
Precision (TSX:PD.UN) reported stronger-than-expected activity in Canada and the United States during the first three months of the year, when the firm booked an eight per cent increase in profits.
“The backdrop for Precision’s improved utilization during the first-quarter was the oil and gas-liquids-based work performed by our customers,” Neveu said.
Late last year, Precision had expected winter drilling activity Canada to be flat compared with the first quarter of 2009.
However, the company ended up having 38 per cent more rigs at work in the first quarter of 2010 compared with a year earlier.
The increase was led by a ramp up in oil-related activity, as crude prices traded around the robust US$80 per barrel mark. Natural gas liquids tend to track crude prices more closely than natural gas prices.
The top-tier rigs in Precision’s fleet are the ones that would be exploiting conventional oil pools like the Cardium in west-central Alberta and the Bakken in southeastern Saskatchewan.
Dry natural gas, on the other hand, is hovering around US$4 per 1,000 cubic feet, a level at which most drilling makes little economic sense.
But that resource isn’t a lost cause, since many producers are still drilling in order to hang onto their land leases or take advantage of lower drilling service costs, Neveu said.