Precision Drilling has five active rigs in Kuwait on a long term contract and the Calgary-based company says they sixth rig should begin operations in the third quarter of 2019.  Company photo.

Precision Drilling capital costs for new build is US$60 million

On Monday, Precision Drilling Corporation announced the award of one new build ST-3000 drilling rig in Kuwait.  The agreement is a five year take-or-pay contract and has an optional one year extension.

The Calgary-based company has five active rigs in Kuwait on long-term contract.  The sixth rig should be online by the third quarter of 2019.

All of the company’s rigs have standardized rig design features and specifications delivered within the last five years.  Precision says the rig has attractive internal return metrics and a payback period within the initial contract term.

The new rig will allow the company to leverage its existing scale in country with no additional overhead required to support the expanded fleet.

Capital cost for the new build is approximately US$60 million with approximately US$10 million expected to be spent in 2018 and the remainder in 2019.

In a press release, the company said one of its three strategic priorities in 2018 is to cut debt by generating free cash flow while funding the most attractive investment opportunities.

In 2018, Precision set a goal of reducing debt by $75 to $125 million.  So far, the company says it has achieved the low end of that range.

Capital expenditures for the year are expected to be funded with free cash flow, with debt repayment remaining a key priority. Precision Drilling reports that its expected cash balance for the end of the second quarter is approximately $95 million.

With Canadian drilling operations picking up after spring breakup, Precision currently has 54 active rigs in Canada.

Despite a fairly flat industry rig count, the company says its activity levels are tracking ahead of last year and is expected to exceed 60 active rigs by mid-August, surpassing its peak rig count in the third quarter of last year.

In the United States, Precision is currently operating 78 rigs and is forecast to hit 80 rigs by the end of July.