Precision Drilling (PD.TO)

The trend line cracked last year. His rule of thumb is “don’t buy anything that looks like oil” until we see the base on oil that proves that oil is at a bottom.

No dividend any more. You are looking for a turn in commodity prices. The downside is that the wells are getting more productive. He stays away from drillers.

A little bit early, but not a lot if you have a long enough view. You want the drillers. They tend to get hit more, they react quicker, and have bottomed in rig count. This is pretty well managed and would probably be okay.

Not all rigs are the same in this world. Some are getting to be old technology. The utilization rate is much better for their rigs. They have fantastic tier one blue chip clients.

(Market Call Minute.) Sold her holdings very early on during the energy correction. If you are Long on this one, she would continue to hold, but she wouldn’t Buy as she expects there is more volatility coming.

This is part of the oil service sector, and historically the sector does very, very well from January right through until May of each year. Chart shows a gorgeous reverse head and shoulders pattern. The trend is there and it is above its 20 day moving average and outperforming the market. Today, the Philadelphia oil service sector broke out on the charts on a beautiful double bottom pattern. We are just getting started on the seasonal service trend. Seasonality is positive until the end of May, so at that point in time you will probably want to take some profits.

Drilling companies are totally dependent on the E&P companies. Doesn’t think we have seen the price declines on the server side yet. This sector is dependent on the fortune of others, and he expects it will go lower rather than higher in the near term.

Oil services companies are going through difficult stress and strain, but this one has a good enough balance sheet to withstand this. They are the largest drilling contractor in Canada and getting into foreign ventures. The efficiency of their current North American rigging is tremendous. They help oil and gas companies lower their costs. You have to time it for when there is definitely a bottom in global oil prices and they are going back up again. We need to see oil go back up.

$15 as a target is a little aggressive because earnings forecasts have collapsed. It is looking on the expensive side. Around $6 for a long term hold it would look okay because the balance sheet looks okay.

He doesn’t own any of the drillers and hasn’t since 2008-2009. This is challenged like all of the drillers because the producers are cutting back CapX. There are not only the cutbacks, but there is big pressure on them to cut their drilling costs 20%-25%. There is no hurry to get into this.

Way too early. The rig count is dropping rapidly, and fields around Edmonton are filling up with rigs just sitting there. You really want to stay away from the drilling sector in the oil patch, both in the US and Canada.

Has a very strong balance sheet, so she thinks that the dividend is safe enough. It hasn’t really gone through the hurt that the oil/gas producers have yet. Just reported quite healthy, because Q4 was not too bad. Once Q1 rolls off, you are going to see a lot of these oil service companies are going to be hurt quite badly. If she were interested in a driller, this would be a name to go to because it is very liquid with a good balance sheet and good management.

In a low oil price environment, drilling companies are sometimes being asked to take large price cuts, anywhere from 15% to 30%. Generally speaking the drilling rigs are usually one of the first service companies to take price cuts. On the optimistic side, this is trading below BV, so if you have a longer-term horizon of 5 years, and you can stomach the volatility over the next 6-9 months, it might not be a bad time. On the other hand, you might need a five-year window. He owns some of their bonds.

A name he would choose as a dividend paying driller would be Canelson Drilling (CDI-T). Precision is going to be a survivor. If this cycle persists much longer, drillers are going to continue to see further weakness. His sense is that when energy prices start to bounce, you are going to get the 1^st response in the exploration/production companies, and there will be a delayed response in the drillers. Company has quite a bit of debt, and if he were them he would reduce the dividend.

On the service companies in general, this is a little too early to be buying right now. Very dependent on producer cash flows, which he feels is lacking.