|
Precision Drilling to leave income trust fold
Gary Park For Petroleum News
Calgary-based Precision Drilling Trust, one of North America’s largest land drilling contractors, is joining the exodus from the income trust sector to the ranks of traditional corporations.
It is one of the largest entities to make the switch in response to the Canadian government’s decision in 2006 to start taxing trusts like corporations, starting in 2011.
Precision said the move will remove limitations on non-Canadian ownership, expand its investor base and give it greater freedom to make acquisitions.
“The clarity and administrative simplification of a corporate structure is expected to reduce administrative costs and make capital markets more accessible,” said Chief Financial Officer Doug Strong.
But Precision did not indicate whether it intends to pay dividends to shareholders, which are similar to the monthly cash distributions by trusts that Precision halted a year ago pending a sustained recovery in cash flow.
High-performance rigs Precision said indications of a recovery in land drilling markets have prompted it to enter negotiations with E&P companies about building new high-performance rigs.
Chief Executive Officer Kevin Neveu said deals are in sight for new Tier 1 rigs, likely starting in Canada, to drill shale and other new unconventional oil and natural gas plays.
Precision is looking for contract terms of two to four years for rigs that would cost $18 million to $20 million each to build.
Neveu said all of Precision’s Tier 1 rigs are utilized, while Tier 2 rigs are 60 percent utilized for horizontal wells in shale plays such as the Barnett in north Texas, the Haynesville in east Texas and northwest Louisiana and the Marcellus in Pennsylvania.
He said converting Tier 2 rigs could cost up to $4 million per rig, a course Precision intends to follow if the market stays where it is today.
Rig count ahead of forecast Neveu said the company is currently running 130 to 140 rigs in Canada, ahead of its December forecast of 110, and 70 rigs at work in the United States, eight more than forecast two months ago.
He said Precision underestimated the desire by E&P companies to get back to the drill bit, but he cautioned that the recovery is “fragile and fraught with risk” because of the potential for a “dramatic” reversal in gas storage levels, commodity prices and shifts in the global economy.
Alberta royalty structure Neveu said that if the Alberta government does make effective changes to its royalty structure and stimulates gas drilling “we could see some very good leverage in our completions production business, not to mention our drilling operations.”
Revenue in the fourth quarter of 2009 fell 15 percent to C$286 million, net earnings dropped 47 percent to C$161.7 million and cash flow dipped 8 percent to $123.7 million.
During the quarter, Precision decommissioned 38 drilling rigs and 30 well servicing rigs.
| 