October 22, 2009 / 11:42 AM / 9 years ago

REFILE-UPDATE 3-Precision Drilling profit down in 'poor' cycle

(Fixes spelling of analyst’s name in 11th paragraph to Kevin Lo from Kevin Low)

* Q3 EPS C$0.25 vs C$0.61 year ago

* Revenue down 11 pct at C$253.3 mln

* Operating profit of C$0.06 matches expectations

* Units rise 4.6 pct (Adds comments, details)

By Scott Haggett

CALGARY, Alberta, Oct 22 (Reuters) - Precision Drilling Trust PD_u.TO, Canada’s largest oil and gas drilling contractor, posted a 13 percent fall in quarterly profit on Thursday as demand for its services slumped because of weak commodity prices.

The company, which expanded into the United States last year with the $2 billion acquisition of Grey Wolf Inc, posted net earnings of C$71.7 million ($68.3 million), or 25 Canadian cents a unit, down from C$82.3 million, or 61 Canadian cents, in the third quarter of 2008.

The trust said its December purchase of Grey Wolf helped shore up weak Canadian activity, particularly as it established a position in the massive Marcellus shale gas play centered in Pennsylvania, where it soon expects to have 12 rigs working, up from two a few months ago.

But despite saying that he believes the company has now seen the worst of the downturn, Precision Chief Executive Kevin Neveu said he expects the upcoming Canadian winter drilling season to be no better than the one past, saying customers may leave their drilling budgets for 2010 unchanged.

“In Canada we have just completed the slowest summer after the weakest spring following the poorest winter in the last two decades. I’m going to run out of adjectives for the word ‘poor’ if this cycle continues much longer,” he said on a conference call. “It’s hard to find much optimism in this outlook.”

Still, Neveu said that he expected that customers could ramp up spending if natural gas prices rise.

Canadian activity has plunged because of low natural gas prices, down 62 percent from the year-prior average, and the company’s rig utilization days in the quarter fell by more than half.

Precision said the earnings included a one-time gain of C$63 million, or 19 cents a unit, dropping operating earnings to 6 Canadian cents a unit, matching the average profit forecast of analysts polled by Thomson Reuters I/B/E/S.

Revenue fell 11 percent to C$253.3 million.

Drilling activity in Canada has slumped as petroleum producers cut back to cope with a 42 percent drop in average oil prices from the third-quarter of 2008 and a 62 percent plunge in natural gas. But analysts say Precision may be able to quickly respond if prices improve.

“They kept margins in check (in the quarter), which in this environment is good,” said Kevin Lo, an analyst with FirstEnergy Capital. “And the fundamentals of the industry are getting better.”

Precision units rose 34 Canadian cents, or 4.6 percent, to C$7.94 late afternoon on Thursday on the Toronto Stock Exchange. The units have dropped 43 percent over the past 12 months.

$1=$1.05 Canadian Additional reporting by Ashutosh Josh; editing by Rob Wilson

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