Precision Drilling Trust reported net earnings of $22 million or $0.17 per diluted unit for the quarter ended June 30, 2008, a decrease of $4 million or 15% compared to $26 million or $0.20 per diluted unit in the second quarter of 2007. The decrease in net earnings was primarily attributable to higher year over year incentive compensation expense accruals of $9 million as 2007 was in a $4 million expense recovery position. The 2008 second quarter results were as anticipated. Precision's strategy to diversify into the United States drilling market generated strong revenue and earnings growth and served to offset Canadian price weakness carried over from 2007. Customer pricing trends in Canada began to improve in 2008 due to strengthening industry fundamentals associated with higher natural gas pricing. Precision's Canadian equipment activity in the second quarter essentially held at prior year levels with stronger customer demand in 2008 held at bay due to weather conditions.
For the six months ended June 30, 2008, net earnings were $128 million or $1.02 per diluted unit, a decrease of $56 million or 30% compared to $184 million or $1.46 in the first half of 2007. The decrease in net earnings was due to lower first quarter industry demand and pricing for both operating segments in Canada and was partially mitigated by new market growth. During the first half, geographical diversification outside Canada strengthened as drilling rig operating days grew by 374% over the first half of 2007 with 19 rigs operating in the United States and one rig in Latin America as at June 30, 2008.
Revenue in the second quarter was 14% higher than the prior year period at $139 million, increasing 18% in the Contract Drilling Services segment and 6% in the Completion and Production Services segment. Revenue in Precision's United States operation grew 17% over the first quarter of 2008 and 198% over the same quarter in the prior year. In Canada, Precision realized a slight decrease in operating activity in the Contract Drilling Services segment while activity in the Completion and Production Services segment was moderately higher.
"Precision's strategy to deliver high-performance, high-value services was demonstrated through accelerating our United States organic growth and delivering three new-build rigs on time and under budget, while continuing to enhance our Target Zero safety program. Sustained strength in commodity pricing and commodity supply tightness is already driving an increase in Canadian activity which we see continuing to build through the second half of 2008 and into 2009," said Kevin Neveu, Precision's Chief Executive Officer.
In the Contract Drilling Services segment, revenue for the second quarter increased by 18% to $93 million while operating earnings decreased by 1% to $24 million compared to the same period in 2007. Revenue growth in Precision's United States operation was partially offset by lower pricing in Canadian operations. Activity in the WCSB was at low levels as wet weather restricted access to drilling locations.
For the second quarter, average drilling operating day rates for Precision in Canada stabilized, declining 4% to $17,877 compared to the second quarter of 2007 as low demand and high industry rig capacity carried over from 2007 fostered a competitive pricing market. The operating day rates in the comparative quarter of 2007 were stronger as rates carried forward from robust demand in 2006.
Drilling rig operating days, spud to rig release, in Canada during the second quarter of 2008 were 3,066 a decrease of 3% compared to 3,175 in 2007. Drilling rig activity for Precision in the United States was 249% higher than the same quarter of 2007 as the average number of rigs operating during the second quarter of 2008 was 17 compared to five in the prior year quarter. During the quarter Precision's Latin America based drilling rig realized a total of 54 operating days with completion of a second well.
In the Completion and Production Services segment, revenue for the second quarter increased 6% from 2007 to $48 million while operating earnings remained consistent at $9 million. The increase in revenue is attributed to an increase in industry activity, particularly in oil producing regions, offset by a moderate decrease in average service rates which occurred in the fourth quarter of 2007 as a result of a competitive pricing environment.
Service rig activity increased 6% from the prior year period, with the fleet generating 55,631 operating hours in the second quarter of 2008 compared with 52,680 hours in 2007 for utilization of 27% and 24%, respectively. The increase was a result of higher production work in oil producing regions in the WCSB and the performance of completion work from wells drilled in the first quarter of 2008. New well completions accounted for 20% of service rig operating hours in the second quarter compared to 17% in the same quarter in 2007.
Higher variable operating expenses and lower revenue rates led to an increase in operating expenses as a percent of revenue from 65% in the second quarter of 2007 to 69% for the same period in 2008. On a per operating hour basis, costs for the service rig division increased 3% over the same quarter in 2007 primarily due to the rising cost of fuel.
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