Oil patch drillers on the rebound

Sun Mar 9, 2008 10:51am EDT
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By Scott Haggett

CALGARY, Alberta (Reuters) - After two bleak years, shares of Canada' oil field service firms are rising again as buoyant natural gas prices get rigs back into the field.

Precision Drilling Trust PD_u.TO, Ensign Energy Services Inc ESI.TO, Savanna Energy Services Corp SVY.TO, and their peers are now trading well above their early winter lows, backed by a new enthusiasm for natural gas as futures prices rise to two-year highs on cold winter temperatures and big drops in storage inventories.

"Natural gas prices on (the New York Mercantile Exchange) are now, on average, $10, the highest we've seen in a long time," said Kevin Lo, an analyst with FirstEnergy Capital. "Everything is shaping up for a pretty decent 2008 and 2009 and that's way better that what most people, including me, have forecast."

Just a few weeks ago, there was little reason to be optimistic about the fate of the drilling companies.

At the end of January the Toronto Stock Exchange's oil and gas equipment and services index .GTSX10101020 dropped to a three-year low as gas prices looked to have stalled around $7 per million British thermal units.

Around the start of the year, Canadian producers were threatening budget cutbacks because of the low price and fears that Alberta's planned royalty hikes would raise costs.

Indeed, in late December, Precision Drilling units touched C$14.82, their lowest since June 2004, and Ensign shares touched $12, a level they hadn't seen since June 2005.

Things have looked up since, though.   Continued...