Precision Drilling Corp. plans to build more high-tech rigs in 2012, with the blueprints highlighting the energy industry’s drive to extract oil and products like propane from the ground.
At the same time, the Calgary-based outfit is ditching 49 of its older rigs – inefficient machinery that has largely sat idle since 2008 as oil and gas companies shied away from conventional natural gas. Precision hung on to these rigs in the hope that natural gas prices would pull out of the gutter, but has since lost patience.
Precision’s decision to alter its fleet reflects the shift to oil and natural gas liquids, also known as “wet gas,” in basins across North America. It plans to build at least seven new rigs in 2012, thanks to expansion in plays like the Cardium, Viking and Canadian Bakken, Kevin Neveu, the company’s chief executive officer said in an interview Tuesday.
The new rigs are more expensive – they cost between $9-million and $20-million a pop, depending on the design – but can drill more quickly and are more mobile. Precision has signed long-term drilling contracts for two of the seven new rigs, and expects the remaining five to be spoken for shortly.
“Canada is clearly a hot spot,” Mr. Neveu said. The U.S. Bakken, Eagle Ford shale, and Utica plays are also attracting business, he said. “We’re seeing pretty uniform demand across all those areas.”
Precision, which Alberta Investment Management Corp., a pension fund manager, rescued in the spring of 2009 with a multimillion-dollar loan and equity deal, plans to spend $1.14-billion in 2012, up from the $740-million it spent this year. However, $140-million of next year’s budget is money it earmarked for 2011, but the fiscal year will end before it spent the cash.
Precision gave up on waiting for companies to resume drilling conventional, shallow, or vertical natural gas wells, another sign the outlook for natural gas is worsening.
“The horizon for opportunity doesn’t look like it is any closer than it was a year ago,” Mr. Neveu said. “In fact, it looks farther away with commodity prices staying so weak.”
Nabors Industries Inc. and Patterson-UTI Energy Inc. are rejigging their fleets in much the same way as Precision, noted John Tasdemir, managing director of oil field services research at Canaccord Genuity.
Precision announced 49 new rigs in 2011, including the seven unveiled Tuesday. It has contracts for 44 of those rigs. About fourteen existing rigs will be upgraded in 2012, the company said. It expects to have 188 rigs in Canada, 144 rigs in the U.S., and six rigs operating internationally at the end of 2011. Precision will take a pretax charge of between $100-million and $120-million in the fourth quarter as the 49 older rigs are retired, it said in its budget announcement.
Precision’s new rigs will be ideal for horizontal directional drilling, useful in tight oil and gas reservoirs, Mr. Tasdemir said. Precision will be able to charge its customers more for these rigs, and drill quickly. Companies with new rigs can now, for example, take 10 days to drill a well that previously took between 30 or 40 days, the analyst said.
“It is really a vote in confidence for the oil and gas drilling market,” Mr. Tasdemir said. “The rigs they are writing down are not that much of a surprise...[Precision]is on the right track.”