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Author: anuragupta Big gold star, 5000 posts Top Favorite Fools Old School Fool Ticker Guide CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 132  
Subject: PDS - a sell? Date: 4/20/2013 10:42 AM
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With the continued glut of NG in the market due to new technologies, I don't think there is much future left in the near term (< 5 years) for PDS. It may be better to redeploy capital elsewhere.

Thoughts?

Anurag
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Author: veitclub One star, 50 posts Old School Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100 of 132
Subject: Re: PDS - a sell? Date: 4/21/2013 3:50 AM
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Been wondering that myself. PDS has been lagging for a number of years due to the NG glut. I'm thinking about reinvesting in places that actually profit from low prices and high volumes of natgas.

On the other hand...I'm not entirely sold on the thesis of natgas prices staying depressed. This could turn around quickly. First, there's talk about rapid depletion of fracked wells. Second, fewer wells are being drilled due to low prices. Third, consumption is picking up.

So, it seems like NG prices should tick up at some point. Maybe quite violently. But when? And is PDS the best place to be?

For now, I'm staying put. Been holding this dog for close to 5 years now. I can afford to consider for another couple of weeks.

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Author: LTInvestorJim Big red star, 1000 posts Ticker Guide Global Fool SC1 Blue Captain Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 101 of 132
Subject: Re: PDS - a sell? Date: 4/23/2013 10:53 PM
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Well, I'm not sure overall how I feel about PDS at this point, but I wouldn't sell it just based on natural gas price. For one thing, prices have been rising significantly since last spring, more than doubling since then, from below $2.00 to $4.24 on the spot market now. It's taken a major jump just in the last 2-3 months. See the spot price graph, the second one down:

http://www.eia.gov/naturalgas/weekly/#tabs-prices-1

Also, PDS rigs are used for both oil and natural gas, so their business is basically dependent on total drilling activity for either. I wouldn't focus just on natural gas.

PDS saw demand for both oil and natural gas drilling decline last year, so the question is whether that will continue. Meanwhile they have been upgrading their fleet by retiring Tier 2 and 3 rigs and adding Tier 1 rigs, resulting in an ability to charge more. So they are investing in better margins and dayrates down the road.

I guess the question is whether you want exposure to overall drilling activity (oil and gas) in North America. If you think drilling is in decline, you'll want to stay away. If you think drilling is on a long term up-trend, PDS is probably a good way to invest in that trend.

Jim

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Author: anuragupta Big gold star, 5000 posts Top Favorite Fools Old School Fool Ticker Guide CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 103 of 132
Subject: Re: PDS - a sell? Date: 4/24/2013 2:45 PM
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You have a point, Jim. But I am concerned about its low operating margins. I feel a play like NOV is better.

Anurag

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Author: TMFDoraemon Big red star, 1000 posts Old School Fool CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 108 of 132
Subject: Re: PDS - a sell? Date: 4/25/2013 1:39 PM
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With the continued glut of NG in the market due to new technologies, I don't think there is much future left in the near term (< 5 years) for PDS. It may be better to redeploy capital elsewhere.

Anurag,

I think there are lines of reasoning for considering selling PDS (worries of over expansion and building too many new rigs hurting ROIC for example), but I don't believe what's going on in natural gas is one of them at this point.

PDS has been 70%+ dependent on unconventional oil drilling for more than 2 years now and it's a booming business. It also has an expanding international business and recently reinstated a dividend.

My biggest concern is the massive capex (~700mm per year for 3 years) to build new rigs, which they are doing because companies are willing to sign three year contracts for them. In those three years PDS earns back its investment, utilization beyond those three years becomes highly profitable.

At this point natural gas is an embedded option within the shares. At some point in the future natural gas will matter again and oil will still matter, I think.

In the meantime I have been watching PDS bounce around between $7 and $10 for the better part of a year now and when it's under $8 I occasionally add a little bit more to my position. They're still the dominate driller in Canada and the US business does well, though there is more competition. I'm willing to let this one sit for a few years.

Best,

Nathan

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Author: LTInvestorJim Big red star, 1000 posts Ticker Guide Global Fool SC1 Blue Captain Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 110 of 132
Subject: Re: PDS - a sell? Date: 4/25/2013 2:35 PM
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I like NOV, and my position there is larger than my one for PDS, but I feel the companies are quite different. If I only could pick one, it would be NOV, but PDS is a very different business and performs a different role in one's portfolio.

NOV is basically a technology company. They build rigs and sell and service them. They are leaders in the field of drilling technology. PDS is a contract drilling company. NOV is a big company -- ten times bigger than PDS. They also are more levered to offshore drilling than onshore, and more to global activity than just North America. PDS has a few rigs in other places like Central Asia, but is mainly N.A. So these stocks might both be affected by market psychology around energy prices, but NOV is going to be tied to the capital investment cycles of energy companies, and PDS will be tied to the number of holes being put in the ground in N.A. NOV will tend to be a more conservative investment -- big and geographically diversified. PDS will be more volatile, responding even to things like the weather in Canada and the politics of pipelines.

Last quarter, the operating margin for PDS was 16.4% (an increase YOY of 890 basis points) and the operating margin for NOV was 16.7%. So I don't really understand your concern there. An important point is that PDS has been using the downturn to invest heavily in increasing their future margins. They are retiring their Tier and Tier 3 rigs and buying new Tier 1 rigs, which command higher prices from their customers. PDS margins are on an upswing. NOV margins declined in the most recent quarter.

So yeah, in a sense, NOV is better because it is safer. It has different characteristics as an investment, though.

Jim

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Author: anuragupta Big gold star, 5000 posts Top Favorite Fools Old School Fool Ticker Guide CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 111 of 132
Subject: Re: PDS - a sell? Date: 4/25/2013 3:27 PM
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Thanks Nate and Jim!
I will hold off on PDS for now.

Anurag

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Author: LTInvestorJim Big red star, 1000 posts Ticker Guide Global Fool SC1 Blue Captain Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112 of 132
Subject: Re: PDS - a sell? Date: 4/25/2013 3:55 PM
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Anurag --

He, he. I wasn't trying to convince you one way or another. But your question prompted me to look into this smaller position of mine for the first time in a while, and I think I convinced myself!

Nathan --

I think the capex is related to the purchase of all these new Tier 1 rigs, as they decommission older ones. I would think the investment rate will subside a bit over time. Meanwhile, I believe that if you could break out the expected ROIC for the new rigs, it would significantly exceed PDS's historical ROIC (otherwise, why would management do it?) and so, over time will help, not hurt, this metric.

Everyone --

Did you notice PDS reported this morning?

http://finance.yahoo.com/news/precision-drilling-corporation...

There's a ton of information there, which I haven't digested yet. Basically the top line declined because of a drop in drilling activity, causing fixed costs to be spread over a smaller revenue base. But dayrates are holding up because of their 70 new tier 1 rigs. Revenue dropped 7% while drilling activity dropped 23%. I don't think any of that is a surprise. Earnings were a beat -- 0.33 vs. 0.30 expectation. Revenue beat by 1%.

Jim

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Author: anuragupta Big gold star, 5000 posts Top Favorite Fools Old School Fool Ticker Guide CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113 of 132
Subject: Re: PDS - a sell? Date: 4/25/2013 5:38 PM
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I like the fact that despite debt and difficult operating conditions they brought back the dividend.

Anurag

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Author: anuragupta Big gold star, 5000 posts Top Favorite Fools Old School Fool Ticker Guide CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 125 of 132
Subject: Re: PDS - a sell? Date: 7/16/2013 9:28 AM
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Hi Nathan

It looks like a great time to buy international stocks with currencies down and expectations shorn off. I was looking at FMX pull back. What are your thought here?

Any other ideas?

Thanks

Anurag

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Author: TMFDoraemon Big red star, 1000 posts Old School Fool CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 126 of 132
Subject: Re: PDS - a sell? Date: 7/17/2013 10:38 PM
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It looks like a great time to buy international stocks with currencies down and expectations shorn off. I was looking at FMX pull back. What are your thought here?

In general -- and in the case of Femsa, too -- I think you're probably better off considering companies in emerging markets other than Mexico first.

Femsa remains a wonderful company, but it was richly valued and its pullback has been relatively small. In this particular case you can say the same for Mexico, too. Brazil and some of the markets less connected to the US have been harder hit.

Best,

Nathan

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