CALGARY — Low natural gas prices significantly reduced North American drilling activity toward the end of 2023, but Canada's largest drilling rig contracting company remains confident the industry will ramp up later this year.
On Tuesday, Calgary-based Precision Drilling Corp. reported earnings of $146.7 million for the last three months of 2023, up from a profit of $3.5 million a year earlier, even as its revenue edged lower.
CEO Kevin Neveu told analysts on a conference call that while Precision's revenue rates and well service activities increased in the quarter, drilling rig utilization days — a metric that reflects overall oil and gas drilling activity levels — fell.
In Canada, drilling rig utilization days declined 2.5 per cent year-over-year, while it declined 24.5 per cent in the U.S. in the fourth quarter.
A major reason for the slowdown in activity is North American natural gas prices, which have tumbled due to a combination of factors including over-supply and warm winter weather. Last year, U.S. natural gas prices averaged $2.57 per mmBTU, about 62 per cent below the 2022 average annual price.
In the U.S., Precision's active rig count has hovered around the low 40s since mid-2023, compared to a number closer to 60 for much of the last half of 2022. Neveu said the lower rig count reflects the downturn in natural gas drilling but is likely to increase in the near future based on current customer inquiries and the need to replace inventories.
"I'm not thrilled with (our current) 39 rigs running," he said.
"With the pace of current customer bids, recently signed contracts and planned activations, we expect we will be back in the low 40s in the coming weeks and expect to see our activity modestly increase further during the second quarter."
North of the border, the situation looks more positive, Neveu said. Precision currently has 80 rigs active in Canada, which exceeds the highest Canadian rig count achieved at any point in 2023, he said.
While Canadian natural gas producers have been impacted by the same low prices as their American counterparts, they are expecting their fortunes to improve when LNG Canada — Canada's first liquefied natural gas export facility, currently under construction in Kitimat, B.C. — begins operations later this year.
That facility will give Canadian natural gas companies access to the global LNG market, and reduce their reliance on the highly cyclical, weather-driven North American price.
A final investment decision on a potential second Canadian LNG facility, the proposed Cedar LNG project, is also expected in 2024.
In addition, Canadian oil producers are expecting a boost from the imminent completion of the Trans Mountain pipeline expansion, which will increase Canada's oil export capacity by approximately 590,000 barrels per day.
"For most of the last decade, the Canadian market has been constrained by hydrocarbon take-away bottlenecks and constraints," Neveu said.
The completion of LNG Canada and Trans Mountain "lays out a long-term thesis for the Canadian oil and gas market, fundamentally supported by global energy prices with no constraints," he said.
On the international front, Precision's drilling rig utilization days were up 25.5 per cent compared with last year as the company reactivated four of its Kuwait rigs.
Revenue for the company's fourth quarter totalled $506.9 million, down from $510.5 million a year earlier.
Precision Drilling said its adjusted earnings before interest, taxes, depreciation and amortization was $151.2 million in its latest quarter, up from $91.1 million a year earlier.
The company also announced Tuesday its intention to reduce its debt by $150 million to $200 million in 2024 and allocate 25 per cent to 35 per cent of free cash flow before debt repayments to share repurchases.
Precision's share price jumped on the news, to close 5.26 per cent higher Tuesday at $84.07.
This report by The Canadian Press was first published Feb. 6, 2024.
Companies in this story: (TSX:PD)
Amanda Stephenson, The Canadian Press
