Precision Drilling lowers capital spending plan, sells part of U.S. operation

CALGARY – Precision Drilling Corp. (TSX:PD) says its 2014 capital spending plan has been reduced by another $23 million to $885 million while its capital spending plan for 2015 will be substantially lower than this year at $493 million — as it gears down plans for building new rigs until commodity prices improve.

It’s the second reduction in the Calgary-based company’s 2014 capital spending plan in a matter of weeks, but still well above the $515 million capital plan outlined in February. It announced in late October that the 2014 capital spending plan had been reduced to $908 million from $934 million, which was the peak estimate for this year.

The latest announcement comes as the oilfield services industry and energy producers grapple with a dramatic decline in crude oil prices, mainly due to an oversupply amid higher production from the U.S. Midwest.

Precision Drilling has one of North America’s biggest fleets of rigs and other equipment used by oil and gas producers. It also has significant operations in other parts of the world.

The company announced Monday that it sold its U.S. coil tubing operations for $44 million in a transaction dated Nov. 28.

It had previously said in October that costs associated with the U.S. coil tubing business had pushed up average hourly operating costs within its completion and production services segment by about five per cent from a year earlier.

The company said Monday that its remaining completion and production services in Canada and the United States will be focused on higher value, higher performance business lines.

The 2015 capital spending plan includes $361 million for expansion capital, including the completion and deployment of 16 previously announced new drilling rigs — most for delivery to the United States and one to Kuwait.

“Following the delivery of the 16 rigs, I expect our rig building activity will be idled until we see an improved commodity price environment and rising customer new build demand,” CEO Kevin Neveu said in a statement.

“We remain focused on generating strong cash flow from our existing asset base, prudently selecting the most attractive capital projects and returning value to shareholders in the form of share price appreciation and dividends.”

The company announced on Oct. 27, with its third-quarter financial results, that its dividend would increase by a penny to seven cents per share.

Precision Drilling has adjusted its 2014 capital spending plans several times this year as conditions changed . It was increased to $934 million in July from $883 million in April, $634 million in March and $515 million in February.