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Precision Drilling (PDS) Exits Mexico With the Sale of Rigs

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Precision Drilling Corporation (PDS - Free Report) has announced the sale of five drilling rigs and ancillary equipment based in Mexico.

The cumulative value of these transactions is $48 million. Till date, the company has received $30 million from the sale of three rigs. It will receive $10 million and $8 million from due delivery of the fourth and the fifth rig in March and April 2019, respectively. On completion of the transaction, Precision Drilling will have no assets in Mexico.

Also, the company inked a deal to divest the water treatment business, Terra Water Systems. The price of the sale has not been disclosed. The company is considering sales of other non-core assets and businesses to focus on land drilling business as well as efficiency driven technology initiatives.

Moreover, the company has inked three-year contract renewals for two rigs in Saudi Arabia. The transaction is effective on Mar 1, 2019. The original contracts for these rigs expired in August 2018. Since then, the rigs have been working on shorter-term extensions. Currently, Precision Drilling’s third rig is operating in Saudi Arabia and is contracted through 2022.

Precision Drilling was awarded one-year extensions on two rigs in Kuwait. The contracts for these rigs were set to expire in the middle of this year. The delivery of the company’s sixth new build rig is due on July, 2019. On delivery, the company will have nine rigs functioning in the Middle East on long-term contracts. These awards provide the company with steady stream of cashflows and cushion amid macro volatilities.

Separately, Precision Drilling commenced the redemption of $30 million of its 6.50% senior notes due 2021 on a pro-rata basis. The available cash in hand will be used for this purpose. The redemption payment will be made on April 16, 2019. This reiterates the company’s commitment toward debt reduction and enhances shareholders’ value.

Zacks Rank & Key Picks

Currently, Precision Drilling carries a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space are Antero Resources Corporation (AR - Free Report) , CrossAmerica Partners L.P. (CAPL - Free Report) and Lonestar Resources US Inc . While Antero Resources and CrossAmerica Partners sport a Zacks Rank #1 (Strong Buy), Lonestar Resources carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Antero Resources’ is an independent explorer, primarily engaged in the acquisition and development of natural gas, natural gas liquids and oil resources in the Appalachian Basin. The company earnings beat the Zacks Consensus Estimate in two of the last four quarters.

CrossAmerica Partners is involved in the wholesale distribution of motor fuels, comprising gasoline and diesel fuel. The company delivered an average positive earnings surprise of 452.2% in the last four quarters.

Lonestar Resources is a Fort Worth, TX-based exploration and production company. The top line for 2019 is expected to increase 4.3% year over year. It currently has a Zacks Rank of 2.

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