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Precision Drilling reports Q1 profit, revenue up from year ago as rigs continue moving south

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Precision Drilling Corp. says it earned a profit in its latest quarter compared with a loss a year ago, as its revenue improved eight per cent.

The Calgary-based company says it earned $25 million, or eight cents per diluted share, for the quarter ended March 31. That compared with a loss of $18.1 million, or six cents per diluted share, in the same quarter a year ago.

Revenue for the three-month period grew to $434 million, compared with $401 million.

Excluding the sale of drilling assets in Mexico and restructuring charges, Precision Drilling says it earned $1 million or zero cents per diluted share in the quarter.

Analysts on average had expected a loss of five cents per share and revenue of $408.6 million for the quarter, according to Thomson Reuters Eikon.

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Canadian oil companies bringing in more revenue from U.S. operations

The news comes a month after analysts said Canadian oilfield services companies with operations in the U.S. are now earning more of their revenue south of the border than they have for at least six years.

In a report, AltaCorp Capital said that trend is expected to continue, as ongoing oil and gas spending weakness in Canada is balanced against steady activity in the United States.

The analysts said 12 of the largest Canadian energy services companies with U.S. operations earned 54 per cent of their revenue in the U.S. in 2018 — the first time the percentage climbed above half since at least 2013, when it was just over 40 per cent.

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They forecasted a 16 per cent decline in Canadian drilling rig activity this year to an average of 159 active rigs, while the U.S. average rig count will be 1,009, largely flat versus 2018.

The survey includes large drilling companies like Precision Drilling and Ensign Energy Services, as well as completion firms such as Calfrac Well Services.

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Precision Drilling considers more rig moves

In February, Precision Drilling CEO Kevin Neveu said the company was investing in technology and getting ready to move more equipment to the U.S. if that is the best path to increased revenue and market share.

FILE: Precision Drilling CEO Kevin Neveu is pictured in Calgary, May 7, 2008.
FILE: Precision Drilling CEO Kevin Neveu is pictured in Calgary, May 7, 2008. THE CANADIAN PRESS/Jeff McIntosh

Precision said it had added five of its top-rated AC Super Triple 1500 drilling rigs to its U.S. fleet over the past year by relocating two from Canada and building three new ones.

Precision had three more similar rigs that were “candidates” to be moved to the U.S., Neveu said on a conference call with analysts, and 23 lower-rated rigs that could also go if activity drops off further in Canada, although he added the company wouldn’t go to the expense of redeploying unless work had been contracted.

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Rig movements south are an ongoing trend — the Canadian Association of Oilwell Drilling Contractors said in February the industry relocated 16 Canadian rigs to the U.S. in 2018, up from just six in 2017.

Drilling activity in Canada was down about 30 per cent this winter compared to last year and was not expected to improve through the first six months of 2019, Neveu said, explaining customers have cut budgets due to a lack of pipeline export capacity and price volatility.

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Activity is expected to strengthen in the second half of the year as Alberta’s oil production curtailment program that began Jan. 1 — and is already credited with lowering oil price discounts — helps to reduce a storage glut, he said.

Alberta oil production curtailments appear to be working

On Wednesday, Cenovus Energy said the oil curtailment program was working.

On a conference call to discuss the company’s latest financial results, chief executive Alex Pourbaix said his company paid more than $190 million in provincial royalties in the three months ended March 31.

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But, he doesn’t mind because a reduction of price discounting of western Canadian oil has more than made up for the five per cent reduction in Cenovus production the program caused.

“In the fourth quarter of 2018, when light-heavy differentials reached record highs, peaking at more than US$50 per barrel, Cenovus had a net royalty credit with the province of Alberta of approximately $30 million.

“So, in other words, not only did we not pay royalties, the government in fact owed us for the royalties,” he said.

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READ MORE: Alberta oil production curtailments are working, Cenovus says

The curtailment program which started Jan. 1 was designed to keep 325,000 barrels per day off the market to clear up a glut of oil that had overwhelmed pipeline capacity and lowered prices. It is to fall to about 175,000 bpd by June.

— With files from Dan Healing, The Canadian Press