Precision Drilling returns to profitability as oil and gas sector picks up pace

CALGARY — Increased activity in the North American oil and gas sector helped Calgary-based Precision Drilling Corp. return to profitability during the third quarter of 2022, even as the drilling and service sector as a whole struggles with ongoing labour shortages.

Precision — the largest drilling rig contractor in the country — reported a third-quarter profit of $30.7 million for the three months ended Sept. 30, compared with a loss of $38 million a year ago, as its revenue gained 69 per cent.

The profit amounted to $2.03 per diluted share for the quarter, compared with a loss of $2.86 per diluted share in the same quarter last year.

"Our business performance in every service line in every region is strong and continues to improve," said Precision's chief executive Kevin Neveu on a conference call with analysts Thursday.

Neveu added Precision's financial results have been improving since 2020, when the COVID-19-related oil price crash saw oilpatch activity shudder to a near halt. He said while the company remains mindful of the possibility of an economic recession, the combination of low oil and gas inventories as well as elevated commodity prices and a tight rig market bodes well for Precision's outlook.

"The outlook for Canadian drilling activity is strong. Based on our customer expectations, we expect to see peak winter activity levels approach and likely exceed 80 rigs," Neveu said.

In the U.S., Precision averaged 57 active drilling rigs during the third quarter and is currently operating 61 rigs, a 20-per-cent increase from the beginning of the year.

In Canada, the company averaged 59 active rigs during the third quarter, a 16-per-cent increase over the same period last year. Precision currently has 73 active rigs in Canada, its highest activity level for 2022.

Precision's international drilling activity outlook is improving as well. Earlier this month, the company announced it had been awarded four rig contracts in Kuwait, increasing its active rig count there from three rigs to five. Combined with three recent contract extensions in Saudi Arabia, Precision now has eight Middle East rigs under long-term contracts, representing approximately $820 million of contracted revenue into 2028.

But Precision, along with the rest of the North American drilling and service sector, continues to deal with labour shortages. Neveu said he expects the issue to be a significant challenge across the industry this winter.

"It's really a huge issue for the industry," Neveu said. "I think (Precision has) been able to manage that a little better, particularly with contracted rigs where you can attract crews because they know they've got a stable work for a long period of time, and it's a structured, not call-out, style of work."

The day rates Precision's customers pay for its drilling rigs continue to trend steadily upward. In Canada, the company's average revenue per utilization day for contract drilling for the quarter was $26,927 compared with $19,427 in 2021, an increase of 39 per cent and the result of higher day rates and increased labour and cost recoveries.

Neveu said oil and gas companies are struggling with cost inflation on the services side, so part of Precision's task is to help them understand why rig rates are going up. He said due to labour and supply inflation, Precision's cost to operate a rig has risen by more than $1,000 per day.

Cost inflation is also being driven by the necessary increased maintenance that results from the higher pace of drilling right now and accelerated wear on equipment, he said, adding modern rigs are also more efficient and can complete jobs faster than older-style equipment.

Precision Drilling's third-quarter revenue totalled $429.3 million, up from $253.8 million a year ago.

However, Precision Drilling noted in its outlook that broad economic concerns exist with respect to recession risk, rising interest rates and geopolitical instability.

This report by The Canadian Press was first published Oct. 27, 2022.

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Amanda Stephenson, The Canadian Press