Newspaper article The Canadian Press

Precision Drilling Bumps Up Capital Spending on Strong Customer Demand

Newspaper article The Canadian Press

Precision Drilling Bumps Up Capital Spending on Strong Customer Demand

Article excerpt

Precision Drilling raises capital budget

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CALGARY - Precision Drilling Corp. is bumping up this year's capital spending by nearly a third in response to strong customer demand for its high-tech drilling equipment.

The Calgary-based oil and gas service firm (TSX:PD) said Monday its budget this year will be $833 million, up from its previous forecast of $634 million.

The additional spending will go toward four additional new rigs to be delivered in the United States in the second half of 2014 and five more to be delivered in early 2015.

Over the past five years, Precision has been turning a greater focus to providing equipment that's geared toward tapping technically challenging reservoirs. Its so-called "Super Series" fleet consists of "highly efficient, highly mobile" rigs that are designed to drill wells horizontally.

With the nine new rigs announced on Monday -- eight of which are covered by firm, long-term contracts with U.S. customers -- Precision expects to have 222 Super Series rigs operating by early next year.

"We will not deliver, nor will we complete rig construction, unless we have long-term customer contracts which meet or exceed Precision's internal financial hurdles. We also believe this production rate can be increased or decreased depending on customer demand," CEO Kevin Neveu told analysts on a conference call.

BMO Capital Markets analyst Michael Mazar said the new builds send a positive signal.

"These guys just don't build rigs willy nilly. They only will build to the extent that there's customer demand," Mazar said.

"It's non-speculative building," he added. "The reason that distinction is important is because the mere fact that they're building them indicates that demand is strong."

Neveu said it's too soon to get excited by a recent boost in natural gas prices -- a result of the colder-than-normal winter experienced in much of North America.

"Despite the cold winter and the resulting very low natural gas storage levels and firm natural gas commodity price, we've seen very little reaction by our customers to increase dry gas activity in either Canada or the United States," Neveu said.

"We believe Precision's extremely well positioned with both available rig assets and the right customer relationships, should the industry decide to apply some capital to dry gas drilling. …

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