Precision yanks dozens of rigs

Precision Drilling Trust (TSX:PD.UN) is getting ready to take dozens of its rigs out service, leading Canada’s biggest oilfield services firm to warn it will take a charge against its fourth-quarter earnings.

CALGARY — Precision Drilling Trust (TSX:PD.UN) is getting ready to take dozens of its rigs out service, leading Canada’s biggest oilfield services firm to warn it will take a charge against its fourth-quarter earnings.

The Calgary-based company said Wednesday it is decommissioning 38 drilling rigs, of which 26 are in Canada and 12 are in the United States.

Those Tier 3 rigs are among Precision’s “least efficient, least profitable” units, said Precision chief executive officer Kevin Neveu in a statement.

“This repositioning of the Precision fleet supports our strategy of providing high performance, high value services for the rapidly changing demands of our customers,” he said. Thirty service rigs and nine snubbing units are also being put out to pasture.

The Calgary-based trust said it would incur a non-cash pre-tax charge of between $80 million and $90 million for the fourth quarter of 2009 for decommissioning the equipment.

Precision said parts of the out-of-service rigs will be used in ongoing operations, but added it had no plans to build new rigs in 2010.

Once the process is complete, Precision’s rig fleet will be made up of 352 rigs, with 203 in Canada, 146 rigs in the United States and three internationally.

UBS Investment Research analyst Chad Friess said Precision’s move will help restore some balance to what has been an oversupplied oilfield services market.

“In our view these retirements will set the tone for the industry in 2010. To date, land drillers have been reluctant to retire equipment, preferring to absorb modest fixed stacking costs in the hopes idle equipment will be put back to work in better times,” he wrote in a note to clients Wednesday.

Also Wednesday, Precision laid out a $75-million 2010 capital expenditures program, two-thirds of which will go toward sustaining upgrade and infrastructure spending.

The trust also announced it would be incurring an $8-million charge to earnings in the fourth quarter of 2009 related to the amortization of deferred financing costs associated with its debt reduction. Precision’s long-term debt at the end of November was $899 million.

Precision added that its indefinite suspension of cash distributions will continue so the trust may maintain its focus on reducing debt.

Precision, through its subsidiaries, provides contract drilling, and completion and production services to the oil and gas industry in Canada, the U.S. and internationally.

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