CALGARY – Precision Drilling Corp. said Friday that it will send three of its drilling rigs to Saudi Arabia and signalled further international expansions could be on the horizon.
“We are pleased that our brand has become recognized in this important region and this provides Precision with a revenue base and credible presence to continue our growth in the Arabian Gulf region,” chief executive officer Kevin Neveu told a conference call after the company reported strong third-quarter earnings.
Precision sold its non-Canadian assets in 2005 to Houston-based Weatherford International. A non-compete agreement prevented Precision from re-entering international markets until it expired in 2008. Shortly thereafter, Precision gained a significant U.S. foothold through a $2.1-billion acquisition of Grey Wolf.
Precision is now active mainly in Canada and the United States, with a small presence in Latin America. The rigs destined for Saudi Arabia are to be delivered in early 2012 and Precision will look at entering Poland and Romania later in the year.
“We believe this kick-starts Precision’s international expansion strategy, which is likely to focus on the Middle East, South America and Russia,” said Desjardins Securities analyst Jamie Murray in a research note.
The Saudi customer was looking to hire a driller that had the right equipment and know-how to help it tap a deep and high-pressure oil reservoir.
“It would be a bit of a stretch for some of the other drillers, maybe,” Neveu said.
“Clearly they’re anxious to get us in and see what we can do. We know we’ll do well. It’s an excellent market entry for us.”
Get weekly money news
Precision is upgrading the rigs it’s sending to Saudi Arabia, but down the line it sees the opportunity to build all-new ones for that market.
Canada’s largest oilfield services company also expects to see an uplift as proposals to ship liquefied natural gas off Canada’s West Coast to Asia gain momentum.
“The likelihood of that happening now has gone up dramatically over the past quarter, two quarters. I’m a believer now it’s going to happen,” Neveu said.
A proposal by Encana Corp. (TSX:ECA), Apache Corp. and EOG Resources recently received an export licence from the National Energy Board. Shell Canada Ltd. is looking at a similar project, and this week said it bought an old marine terminal on the northern B.C. coast.
Those projects will spur an increase in drilling activity in northeastern British Columbia and Neveu said that means more business for Precision.
“And I’ll tell you right now those rigs don’t exist,” he said. “So we’re keeping our eyes on that – a little too early for us to project new builds for those, but we certainly have the rig designs in our back pocket right now.”
Earlier Friday, Precision reported sharply higher third-quarter net profits and revenues.
The Calgary-based company said it earned $83 million, or 29 cents per diluted share for the three months ended Sept. 30, compared to net earnings of $56 million, or 20 cents per diluted share, a year earlier.
Revenues rose 37 per cent to nearly $493 million from $359.1 million.
The figures included a tax settlement with the Canada Revenue Agency and an Alberta provincial income tax reassessment which lowered profits by $26 million.
However, Precision benefited from a foreign exchange gain of $25 million on its books.
Precision’s earnings came in above analyst expectations of 21 cents per share, according to Thomson Reuters, but revenues were below predictions of $511 million.
Although wet weather hurt drilling in Canada in the early summer, Precision said its business increased rapidly in August and September.
With producers chasing unconventional oil and gas reservoirs throughout North America, demand has been high for the powerful, high-tech drilling rigs Precision has in its fleet.
Earlier this month, Precision announced it would build eight new rigs, bringing its total 2011 program to 38 rigs. On Friday, Precision announced four additional new builds. Virtually all the new rigs are set to be delivered over the next 12 months.
Precision expects to spend $880 million this year on its capital program, with another $413 million carried forward into 2012.
In September, Precision (TSX:PD) announced the acquisition of Axis Energy Services holdings, a private company that provides drilling services to the western Canadian oil and gas industry.
It also purchased two related Texas companies in March – Drake Directional Drilling LLC and Drake MWD Services LLC – that operate in Texas, Louisiana, Oklahoma and Colorado.
Precision shares were down 46 cents, or nearly four per cent, at $11.14 in afternoon trading Friday on the Toronto Stock Exchange.
Comments
Want to discuss? Please read our Commenting Policy first.