Stung by low demand for land drilling services across North America, Precision Drilling Corp. has consolidated three operating facilities, reduced its salaried workforce by 14% and cut its field employees by 2,500, but CEO Kevin Neveu said Monday he's hopeful he can bring back many of those laid off once activity levels improve.
The Calgary-based oilfield services operator, like its peers, experienced an "abrupt collapse in customer demand" toward the end of 2014.
"During the first quarter, demand for North American land drilling services failed to meet even the most pessimistic forecasts as our customers continue to seek ways to reduce spending and budgets in this low commodity price environment. Nowhere is this more apparent than in Canada, where the industry spring break-up activity is 53% below 2014 levels, and in the U.S., most oil-weighted regions are more than 50% below November 2014 peak activity levels."
As of Friday, Precision had term contracts in place for an average of 47 rigs in Canada, 51 in the United States and 12 internationally. For the year, it has contracts in place for 45 Canadian rigs and 48 in the Lower 48. In Canada, term contracted rigs normally generate 250 utilization days/year because of the seasonal nature of well site access. In most regions in the United States and internationally, term contracts normally generate 365 utilization days/year.
The U.S. average rig count in 1Q2015 was 80, down 14 year/year and 20 sequentially. Precision today has 56 active U.S. rigs. In Canada, the average active rig count in quarter was 69, a decrease of 57 year/year and down 24 rigs sequentially; it now has 18 active Canadian rigs.
Within its contract drilling rig fleet, utilization days year/year slumped mostly in Canada to 6,230 from 11,384, down 45%. U.S. days fell 15% to 7,197 from 8,473. The international rig days actually were 14.5% higher at 1,134. Service rig operating hours across its operations fell by almost 42% to 48,001 from 82,564.
Neveu laid out Precision's strategic priorities for this year, noting that the company is working with customers to lower well costs. It also is maximizing cost efficiencies throughout the organization. In addition, Precision plans to "reinforce our competitive advantage" to gain market share as the Tier 1 rig assets "remain most in demand..." Management also plans to manage liquidity and focus activities on cash flow.
It's a dog eat dog world in the fight for customers, said Neveu. At the end of last year, Precision had 7,834 field employees; now it's down to about 5,300. His comments echoed some made last week by Basic Energy Service Inc.'s CEO Roe Patterson (see Shale Daily, April 24).
"Through the first quarter and continuing today, competitive pricing tension remains a dominant feature in virtually every customer conversation," Neveu said. "Despite the challenging environment, and while at times our utilization may suffer, Precision has held firm on our strategy to defend field margins. Notably and despite these headwinds, our take or pay term contracts continue to demonstrate integrity with our customers honoring commitments."
Reporting in Canadian dollars, Precision earned $24 million (8 cents/share) in the quarter, compared with $102 million (35 cents) in the year-ago period. Revenue fell 24% to $512 million. Revenue from contract drilling services was down 22% year/year, while completion and production services profits fell 36%.
"Our current expected capital plan for 2015 is $506 million, an increase of $39 million compared to the $467 million capital plan announced in February 2015," said Neveu. "The increase relates to changes in the forecasted foreign exchange rate on U.S. dollar denominated capital."
Precision delivered 10 of 17 newbuild contracted rigs during the quarter, with 13 in the United States, three in Canada and one overseas. The 2015 capital plan includes "minimal rig upgrades" and is going to vary depending on customer demand.