October 23, 2008 / 11:36 AM / 10 years ago

UPDATE 2-Precision says committed to closing Grey Wolf deal

* Precision committed to closing Grey Wolf deal

* Upbeat on autumn and winter drilling outlook

* Shares climb 8 percent (New throughout with CEO comments)

By Jeffrey Jones

CALGARY, Alberta, Oct 23 (Reuters) - Precision Drilling Trust PD_u.TO, Canada’s biggest contract driller, remains keen on closing its $2 billion takeover of U.S.-based Grey Wolf Inc GW.A by year-end despite the credit crunch and falling oil prices, Precision’s chief executive said on Thursday.

After Precision reported a 13 percent increase in third-quarter profit, CEO Kevin Neveu said the strategic rationale for the deal is still solid, as is the financing.

“Our mid- to long-term view on North American natural gas drilling hasn’t changed,” he told analysts.

“There’s no question there’s short-term uncertainty, but this is a deal for strategic reasons, it’s got great value for us ... we’re continuing to close the deal.”

Some investors had questioned if the transaction, announced in August as a way for Precision to speed its expansion into U.S. unconventional gas plays, was in jeopardy due to crisis.

Shares in Houston-based Grey Wolf had languished well below the cash and stock offer price. A week ago, Grey Wolf stock was worth 15 percent less than the bid of $5 in cash and 0.1883 of a Precision trust unit.

Grey Wolf recovered somewhat to an 8 percent discount after Neveu’s comments on Thursday. The shares closed up 36 cents, or nearly 6 percent, at $6.48 on the American Stock Exchange.

Precision’s units gained C$1.01, or 8 percent, to C$13.72 on the Toronto Stock Exchange as crude prices rose and Neveu delivered an upbeat outlook for his company, despite fears that the economic slowdown will mean weak industry conditions as oil companies chop drilling budgets.


Helped by its U.S. expansion and busy Canadian drilling activity in the third quarter, Precision earned C$82 million ($64.4 million), or 65 Canadian cents a unit, up from year-earlier C$73 million, or 58 Canadian cents a unit.

It had been expected to earn 60 Canadian cents a share, according to a Reuters Estimates survey of analyst forecasts.

Revenue was C$286 million, up 25 percent from C$228 million.

The company said its fleet, which account for about a quarter of Canada’s land drilling rigs, was 29 percent more active in the period than a year earlier as oil and gas prices strengthened in the summer.

Neveu said he saw reason for optimism for the coming two quarters as companies develop their shale gas prospects in Texas, Louisiana and northeastern British Columbia. Many have signed long-term contracts.

The plays have garnered industry buzz due to their large reserves but need for busy drilling and rock-fracturing.

In addition, as exporters, Canadian companies will benefit from the weaker Canadian dollar, he said.

Meanwhile, Canadian natural gas prices are about 10 percent higher than last year even as oil prices have been more than halved in the past three months, Neveu said.

A recent move by the Canadian drilling industry’s association to raise recommended wages will help attract badly needed personnel after months of labor shortages, he said.

Despite market uncertainty, oil companies have paid higher rates in the past quarter for increased labor costs.

“We think these micro indicators stand in support of our view that activity this fall and winter will be crew-limited, not demand- or asset-limited,” Neveu said.

$1=$1.26 Canadian Additional reporting by John McCrank; editing by Rob Wilson

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