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No. of Recommendations: 5
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.


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.


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