CALGARY - North American demand for drilling services failed to meet "even the most pessimistic forecasts" in the first quarter and it's going to take much higher oil prices for it to pick up again, the CEO of Precision Drilling Corp. said Monday.
"While oil prices have improved from 2015 lows, we believe a substantial oil price increase would be needed to stimulate a significant improvement in overall activity and customer demand," Kevin Neveu told analysts on a conference call.
Crude prices languished around the US$50 a barrel mark in the first quarter, causing a pullback among the oil and gas producers that hire Precision to drill wells. Prices have since been firming and on Monday the contract for U.S. benchmark crude closed at US$56.99.
Canadian industry activity usually slows every spring when the ground thaws, but this year it was worse — 53 per cent below 2014 levels, Precision said. In the United States activity is less than half the peak activity in November.
The Calgary-based oil and gas driller (TSX:PD) said its profit plunged by 76 per cent in the first three months of 2015 to $24 million.
Precision has consolidated three operating facilities in North America, cut its salaried employee head count by 14 per cent and cut 2,500 positions in the field.
"At Precision we deal with this challenge head on. We do the best we can for our staff and field crews during the downturn. But we also do what is necessary to ensure the company's stability," said Neveu.
While Canadian and U.S. activity has plummeted, Precision's international operations have held up "remarkably well." A new rig is expected to start working in Kuwait in mid-2015.
"We've got the bid book right now that's as long as it's ever been. We have active bids in three or four different countries where we have, we think, a reasonable shot."
Neveu cautioned, however, that bid awards tend to slow down when commodity prices soften.
"But I know we have guys over there right now working on two different prospects and both look pretty interesting." One of those opportunities might involve sending North American rigs elsewhere.