Precision Drilling's North American activity slows due to lower natural gas prices – Winnipeg Free Press

CALGARY – Low natural gas prices have dampened North American drilling activity by the end of 2023, but Canada's largest rig contractor is confident the industry will pick up later this year.

On Tuesday, Calgary-based Precision Drilling Corp. Revenue for the final three months of 2023 was $146.7 million, up from a profit of $3.5 million a year ago, even as its revenue declined.

CEO Kevin Neveu told analysts on a conference call that while Precision's revenue rate and well service activity rose in the quarter, rig days — a measure of overall oil and gas drilling activity — fell.

In Canada, rig days were down 2.5 percent year-over-year, and in the U.S., they were down 24.5 percent in the fourth quarter.

The main reason for the slowdown in activity is falling natural gas prices in North America, due to a combination of factors such as oversupply and warm winter weather. Last year, US natural gas prices averaged $2.57 per mmBtu, about 62 percent below the annual average price in 2022.

In the U.S., Precision's active rig count has been in the low 40s since mid-2023, compared with near 60 for much of the latter half of 2022. Neveu said the decline in rigs reflects a decline in natural gas drilling, but could increase in the near term based on current customer requests and the need to replace inventory.

“I'm not interested in (our current) 39 rigs operating,” he said.

“At the pace of current customer orders, recently signed contracts and planned activations, we expect to return to the low 40s in the coming weeks and expect our activity to increase slightly in the second quarter.”

North of the border, the situation looks more positive, Neveu said. There are 80 rigs operating in Canada right now, surpassing the peak number of Canadian rigs reached at any point in 2023, he said.

Canadian natural gas producers, like their American counterparts, have been hit by low prices, but they expect things to improve when Canada's first liquefied natural gas export plant under construction in Kitimat starts operating later this year. .

The facility would give Canadian natural gas companies access to the global LNG market and reduce their dependence on cyclical, weather-driven North American prices.

A final investment decision on Canada's second potential LNG facility, the proposed Cedar LNG project, is expected in 2024.

Meanwhile, 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 about 590,000 barrels per day.

“For much of the last decade, the Canadian market has been constrained by the challenges and constraints of hydrocarbon removal,” Neveu said.

The completion of LNG Canada and Trans Mountain “builds a long-term thesis that fundamentally supports the Canadian oil and gas market with global energy prices without any constraints,” he said.

On the international front, Precision's rig days were up 25.5 percent year over year as the company restarted four rigs in Kuwait.

The company's fourth-quarter revenue was $506.9 million, down from $510.5 million a year ago.

Precision Drilling said its adjusted earnings before interest, taxes, depreciation and amortization were $151.2 million in the latest quarter, up from $91.1 million a year earlier.

The company also announced Tuesday that it intends to reduce its debt from $150 million to $200 million in 2024 and allocate 25 percent to 35 percent of free cash flow to stock buybacks before paying down debt.

Precision shares were up 5.26 percent on Tuesday at $84.07.

This report by The Canadian Press was first published on February 6, 2024.

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