The Calgary-based Ensign, one of Canada's top contract drillers, said revenues from its Canadian division fell just one per cent despite an overall 12 per cent companywide decline.
Bob Geddes, president and chief operating officer, said on a conference call with analysts that the company was surprised by the strong result of the Canadian division, and attributed the performance to higher activity levels in unconventional oil plays such as the Bakken in southeast Saskatchewan and the Cardium in Alberta, along with higher heavy oil drilling.
"The first quarter was very much dead-on with our expectations, but we were quite surprised by the demand strength, particularly in the Canadian market, right through to the end of the Canadian winter drilling season," he said, noting that 15 per cent of the company's domestic rig fleet remains active despite the seasonal thaw. "After breakup, we're fully booked on our oil play rigs."
Canada accounted for about 51 per cent of the company's revenues in the quarter compared with about 45 per cent in the same period last year, Ensign said in a news release.
By contrast, U.S. revenues were down 19 per cent due to the weaker American dollar and lower levels of natural gas drilling. Other international revenues, which include Australia, Venezuela and the Middle East, were down about 25 per cent.
Quarterly profits however, dipped 45 per cent to $40.03 million, or 26 cents a share, from $70.15 million, or 46 cents a share, in the first quarter of last year due to lower day rates.
Andrew Bradford, who heads Raymond James' research division, said Canadian oil drilling outpaced natural gas for the first time in almost a decade and he expects the trend will continue through the balance of the year if oil prices hold around $75 US per barrel.
"We haven't seen a percentage mix (oil versus gas wells) like this since the late '90s," he said. "I think that's durable for the rest of the year."
Dana Benner with Thomas Weisel Partners in Calgary said drillers failed to anticipate the demand for rigs heading into the winter and were unable to capture higher pricing. He agreed much of the demand was fuelled by the success of multi-stage drilling technology in older oilfields like Pembina and Viking, but suggested the Alberta government's overtures to the industry also helped unlock pent-up demand.
"That's the irony, it was really quite busy this winter, but the rate these rigs went out at really wasn't that great. It was an industry-wide phenomenon, none of the drillers saw it coming."
According to the Canadian Association of Oilwell Drilling Contractors 96 of 797 rigs were working last week, down from 102 the week before. Despite the onset of spring breakup, the number of working rigs has held relatively steady since the first week of April, when 157 rigs were working.
While oil drilling is expected to hold strong, the recovery will be uneven and geographically isolated to oil-producing regions like southeast Saskatchewan and northeastern Alberta while natural gas drilling and especially shallow gas in the southeastern part of Alberta, is expected to remain weak. On the conference call Geddes said the shallow drilling market is "getting battered . . . there's just no work there."
Benner said he expects the worst is over for the oilfield services sector, but suggested some areas will take longer than others.
Ensign's shares rose 20 cents on the Toronto Stock Exchange Monday, to close at $13.51.
Source: Calgary Herald