10/25/2012 07:04 EDT | Updated 12/25/2012 05:12 EST

Precision Drilling Q3 falls to $39 million on weak prices, cautious spending

CALGARY - Precision Drilling Corp. third-quarter profits dropped by more than half as customers with Canada's biggest oil and gas services company tightened their spending.

The Calgary-based company (TSX:PD), which operates drilling rigs throughout Canada and the United States, said its net income fell to $39 million or 14 cents per share, down from $83 million or 29 cents per share in the third quarter of 2011.

Precision Drilling's revenue fell to $484.8 million from $492.9 million a year earlier.

"Customer demand for our services ebbed as our customers have drilled deep into the 2012 budgets," chief executive officer Kevin Neveu told a conference call with analysts Thursday.

"Any spending additions that might have been anticipated failed to materialize as global economic concerns, political issues, oil transportation bottlenecks all caused our customers to hesitate when it came to increasing 2012 spending."

Precision entered 2012 expecting to spend $1.14 billion, but has since reined its capital budget back to $921 million to adjust to the changing industry conditions, said chief financial officer Rob McNally.

"During the third quarter, we, along with the rest of the North American oil service industry fought the headwinds of weak natural gas prices and (natural gas liquids) prices and volatile oil prices, which caused continued softening in North American drilling activity," said McNally.

"The lower Q3 results primarily reflect constrained activity and higher costs both in Canada and the United States versus the third quarter of 2011."

That was partially offset by higher rates charged to Precision's customers.

Precision said the quarter included a foreign-exchange loss that reduced net earnings by $4 million or one cent per share.

In the comparable period of 2011, the company's bottom line was helped by a foreign-exchange gain that added $25 million or nine cents per share to profit.

During times of weakness, drillers tend to lower their prices in order to attract new business, but Precision said it's not caving in to that competitive pressure.

"While at times it may be tempting at Precision, we are reluctant to support or drive up utilization by lowering the price of our Tier 1 assets," said Neveu, referring to high-tech rigs geared toward drilling in technically challenging areas.

"We believe Precision's superior value demands a premium price in the market and most importantly, we know that when the cycle turns and customer demand strengthens, lifting our price from a higher base delivers far better full-cycle returns to precision and our investors."

Precision shares fell four cents to $7.48 on the Toronto Stock Exchange.