CALGARY — Precision Drilling Trust is in no hurry to delve back into the international arena, since tough-to-access oil and gas plays in North America are currently more attractive, the firm’s chief executive officer said Tuesday.
“I know we’ve missed a few opportunities in Latin America, particularly Mexico. Frankly, we’re getting better margins in the U.S. right now,” Kevin Neveu told reporters after the company’s annual general meeting Tuesday.
Earlier at the meeting, an overwhelming majority of investors approved Precision’s (TSX:PD.UN) plan to convert from an income trust into a corporation.
Like many income trusts, Canada’s biggest oilfield services firm wants to change its business model ahead of new federal rules that will see trusts taxed like corporations starting in January 2011. The changes should come into effect at the end of the month.
When Precision first adopted the trust model 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.
But Precision had a rough time digesting the acquisition, as it took place just as the financial crisis took hold and credit markets froze.
“The company’s now refocused on making sure its business is moving in the right direction,” said John Tasdemir, an analyst with Canaccord Adams.
“For them, that is making sure the drilling rig assets that they have are the assets that are most suited for North American drilling activity.”
That means placing their newer, more high-tech rigs in promising shale natural gas formations like the Horn River Basin in northeastern British Columbia, as well as in promising U.S. plays like the Marcellus in Pennsylvania or the Haynesville in Louisiana.
In order to extract gas from the rock in those regions, companies need to drill more complicated horizontal wells, which takes more technical savvy and time than conventional natural gas reservoirs.
Precision’s top-tier rigs — that can drill virtually any kind of well — have been in high demand. But only 20 per cent of its lowest-tier rigs, which are really only suited to drill shallow wells, are at work.
Many of Precision’s Tier-3 rigs have already been put out to pasture, but some are being upgraded to handle tougher, more complicated wells, Neveu said.
In the longer term, Precision is eager to return to the international market, where there are opportunities in Latin America and the Middle East. But lately those markets have been lacklustre, Neveu said.
“None of our competitors right now that are well placed internationally are particularly excited about the results,” he said.
Continental Europe’s nascent shale gas potential is also enticing, but its development is “years, not quarters away,” he added.
Precision units rose six cents to $7.14 on the Toronto Stock Exchange on Tuesday afternoon.