Is Precision Drilling Corporation a Bellwether for Canadian Energy Stocks?

Precision Drilling Corporation’s (TSX:PD)(NYSE:PDS) quarterly results reflect sharply reduced drilling demand. How will this impact other Canadian energy stocks?

| More on:
The Motley Fool

Calgary-based Precision Drilling Corporation (TSX:PD)(NYSE:PDS) released its first-quarter earnings results on Monday. Profit plunged 76% as drilling demand fell well below expected forecasts. With major Canadian energy companies releasing their own quarterly results starting later this week, is Precision a sign of things to come?

Precision’s Q1 net earnings were $24 million or $0.08 per diluted share, compared to earnings of $102 million of $0.35 per diluted share in Q1 2014. Revenue sank 24% to $512 million, mainly due to lower drilling activity in the U.S. and Canada, Precision said. Still, the results beat analysts’ estimates, which had EPS of $0.04 per share and revenue of $491.5 million.

“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,” said Precision CEO Kevin Neveu.

Neveu said the company has been able to mitigate the full impact of the industry slowdown through a number of measures including adopting a variable pricing model, cost management, and guarantees for some of its customer rig contracts. “We have consolidated three operating facilities across our North American operations and we have reduced our salaried headcount by approximately 14% and field headcount by approximately 2,500.”

Industry activity in Canada during this year’s spring breakup was 53% below 2014 levels, Neveu added. In the U.S., most oil-weighted regions are more than 50% below November 2014 peak activity levels, he added.

Corporate spending in the oil patch is expected to decline significantly as more Q1 earnings results start to roll in this week, starting with Cenovus Energy Inc. on April 29 and Suncor Energy on April 30. Macquarie Group estimates that 47 Canadian energy companies are expected to spend a collective $38.7 billion this year, down 30% from $55.2 billion in 2014.

Precision’s poor results had little impact on the driller’s stock price, which was up 1% Monday morning. That’s due to a couple of factors: the results beat analyst estimates and Precision maintained its quarterly dividend at $0.07 per share. But it’s hard to recommend a stock in an industry relying on crude oil prices, which many industry watchers believe could still decline even further, despite a recent bump to the plus side. This is a play for bargain hunters only.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Doug Watt has no position in any stocks mentioned.

More on Dividend Stocks

protect, safe, trust
Dividend Stocks

The 2 TSX Stocks to Buy for Decades of Safe Passive Income

Stable dividend stocks are common, but companies that you can safely hold in your portfolio for decades for their passive-income…

Read more »

TFSA and coins
Dividend Stocks

TFSA Investors: How to Earn $2,500 Per Year on $40,000

Investors have an opportunity to secure high yields while reducing risk in their TFSA portfolios.

Read more »

Path to retirement
Dividend Stocks

Retirement Wealth: 2 Top Dividend Stocks for TFSA Investors

Parking a sizable portion of your savings in reliable dividend stocks is a time-tested wealth-building strategy appropriate for a wide…

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

CPP Disability Benefits: Are You Eligible?

Fortis Inc (TSX:FTS) stock could provide you with passive income if you can't get CPP disability benefits.

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

2 of the Best Canadian Dividend Stocks to Buy in September 2023

These two of the best Canadian stocks could help you receive dividend income, even in difficult economic environments.

Read more »

Canadian Dollars
Dividend Stocks

TFSA Passive Income: 3 Amazing Stocks That Earn $1,600/Year

Are you looking how to earn $1,600 a year tax-free? These three Canadian stocks are a good bet for passive…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

2 Great Canadian Dividend Stocks to Buy Now for High Yields

TC Energy and Bank of Nova Scotia are good examples of top TSX stocks paying attractive dividends that should continue…

Read more »

Man considering whether to sell or buy
Dividend Stocks

DND Stock: Buy, Sell, or Hold?

DND stock (TSX:DND) fell by 17% after producing earnings that once again fell below analyst estimates. But does that mean…

Read more »