(Adds CEO comments, details)
By Jeffrey Jones
CALGARY, Alberta, April 23 (Reuters) - First-quarter profit at Precision Drilling Trust PD_u.TO, Canada’s biggest oil and gas driller, fell by a third as drops in demand and rates pressured results, the company said on Wednesday.
Precision blamed the fall on weak natural gas markets last year that led Canadian producers to chop spending as they formulated their 2008 budgets.
Gas has since rebounded in a big way, but that may not translate into a return to robust drilling activity unit next year, Chief Executive Kevin Neveu said.
Precision, which runs a quarter of Canada’s onshore drilling rigs, has resisted chasing contracts at bargain-basement rates, he said. That meant its fleet operated at just 50 percent of capacity in the first quarter.
“Our Q1 results came in exactly as we expected. While others may be surprised, we were not,” Neveu told analysts. “As I’ve stated before, Precision will not pursue utilization at the expense of margin.”
The trust drilled 1,450 wells during the quarter, down 16 percent from the same period last year.
Precision earned C$106 million ($104 million), or 84 Canadian cents a unit, down from year-earlier C$158 million, or C$1.26 a unit.
The result lagged an average forecast among analysts polled by Reuters Estimates by 10 Canadian cents.
Revenue fell 17 percent to C$342.7 million.
Precision trust units closed down C$1.41 at C$25.58 on the Toronto Stock Exchange on Wednesday. They had jumped 60 percent so far this year.
After a cold North American winter that drained gas inventories, Canadian gas prices are now above C$9 a gigajoule, 37 percent higher than a year ago, and crude oil has set successive records to come just below $120 a barrel.
In addition, the government of the oil- and gas-rich province of Alberta recently softened the blow of its plan a 20 percent royalty rate hike by offering breaks for deep oil and gas wells under the heading of dealing with “unintended consequences”.
But demand for rigs and day rates will not likely fully rebound until 2009, Neveu said.
The current quarter could represent the bottom of the cycle, he said.
“We’ve certainly experienced a significant uptick in optimism in the marketplace. However, this is coming too late to have a meaningful impact on Q2 results,” Neveu said. “The industry is still operating with the budgets, spending plans and spending profiles outlined by our customers in late 2007.
Precision reduced capital spending expectations to C$330 million this year, down C$40 million from its previous figure.
Much of the drop was because the company realized it will take longer to complete its current 19-rig building program, pushing some of the spending beyond 2008, Neveu said.
Precision said its U.S. expansion is moving ahead, having logged 1,016 operating days in the quarter, a sevenfold increase from the same period in 2007.
He also said his company is poised to benefit from shale gas activity in northeastern British Columbia, where prospects of multitrillion cubic feet gas finds have created a buzz around the industry.
“Precision will be a significant player as drilling programs unfold in 2009 and forward. We have rigs geographically well-positioned to support this region,” he said.
$1=$1.02 Canadian Additional reporting by Jonathan Spicer; Editing by Peter Galloway