CALGARY - Precision Drilling Corp. said Thursday about three quarters of its rigs are chasing after oil, as the outlook for natural gas activity in North America remains dismal.
"The overabundance of natural gas is once again pervading all thinking, but what truly surprises me is it took a warm winter to bring this to most peoples' attention," chief executive officer Kevin Neveu told a conference call to discuss Precision's fourth quarter results, which included a $28-million profit.
"Today's dismal natural gas drilling environment comes as no surprise to Precision."
As a result, 75 per cent of Precision's (TSX:PD) 274 rigs are drilling wells that are licensed for oil, and the many of the rest are drilling for natural gas liquids, which fetch a price more akin to oil than to dry natural gas.
Neveu said he expects drilling in the dry gas-prone Marcellus region of the eastern U.S. to slow down. Precision only has seven rigs running in other dry gas regions in Louisiana and Texas from a peak of 28 a few years ago.
Natural gas finished at US$2.48 per 1,000 cubic feet on the New York Mercantile Exchange on Thursday — well below the break-even point for most natural gas producers.
Despite the current lacklustre outlook, Neveu said he expects a combination of reduced drilling activity, increased consumption and production shut-ins will bring the natural gas market into balance.
"The axiom 'low gas prices fix low gas prices' — the song is still the same," he said.
Earlier in the day, Canada's largest oilfield drilling company said it earned a profit of $28 million, or 10 cents a share during the fourth quarter of 2011.
That reversed a loss of about $250,000 for the fourth quarter of 2010.
Revenue rose to $587 million from $436 million.
Analysts polled by Thomson Reuters were on average expecting Precision to report earnings of 28 cents per share and revenues of $564 million in the fourth quarter.
The company booked a charge of $76 million during the quarter on the decomissioning of assets, reducing earnings per share by 26 cents for the period.
For the year, Precision's net profits jumped to $193 million or 67 cents a share from $44 million or 15 cents.
Annual revenue increased to $1.95 billion from $1.4 billion.
Precision has a presence in Canada, the United States and Latin America.
It said in December it plans to boost its capital budget by 54 per cent to $1.14 billion in 2012, including carry-over costs from last year.
The figure includes $738 million for expansion capital, $232 million for sustaining and infrastructure expenditures and $173 million for upgrades and long-lead-time item expenditures.
About $964 million is targeted for the company's contract drilling segment and $179 million for the completion and production services segment.
Precision shares rose four cents to close at $11.36 on the Toronto Stock Exchange on Thursday.
