Precision Drilling profit down as oilfield services fall at 'unprecedented rate'

Precision Drilling painted a grim picture of the energy services business as it reported a large drop in first-quarter profit Wednesday.

"As we move through this second quarter, the sector is experiencing record low activity levels in Canada," said Kevin Neveu, president and CEO of the Calgary-based company. "The economic conditions and continuing weak commodity prices continue to drive activity down in Canada and the United States at an unprecedented rate."

Precision reported profit of $57.4 million (30 cents a diluted unit), compared to    $106.3 million (84 cents) a year earlier.

Revenue was $448.4 million, compared to $342.7 million the previous year.

The revenue increase followed the purchase of U.S. drilling company Grey Wolf Inc. in late 2008 for about $2 billion.

Costs incurred in the purchase — a $36-million rise in interest charges resulting from debt taken on for the takeover, and $34 million in foreign exchange losses —hurt Precision's profit. Unit profit was also hit by a 56 per cent increase in the weighted average diluted units outstanding.

However, Neveu said the deal was a good one.

The purchase of the 123 Grey Wolf rigs "helped Precision mitigate the worst winter drilling season in Canada for the past 17 years." Precision has 257 of its own rigs.

Of the total of 380 contract drilling rigs, 167 were working in the quarter.  That's up from an average of 134 rigs working in the fourth quarter of 2008. There were 145 rigs working in the first quarter of 2008, but that was before Precision bought Grey Wolf.

Earlier this week, Precision announced a refinancing deal with Alberta Investment Management Corp. that will save it $70 million a year by repaying high-cost bridge financing taken on to buy Grey Wolf.

Precision stock closed up 32 cents at $5.55 in TSX trading.