UPDATE 1-Precision Drilling sees lower 2013 capital expenditure

Mon Dec 10, 2012 10:48am EST

* Sees 2013 capex of C$485 million

* Says will exit the Tier-3 drilling business

* Sees C$180 mln-C$200 mln charge in Q4

Dec 10 (Reuters) - Precision Drilling Corp, Canada's largest oil and gas drilling contractor, said it expects capital expenditure to almost halve in 2013 as weak prices continue to pressure dry-gas drilling.

The company forecast capital expenditure of C$485 million ($490 million) for 2013. It expects to spend about C$920 million this year.

"Their traditional approach is to spend capex on expansion and new rigs, if there is already customer demand for it. Given that we have seen customer demand for new drills move down, it is not surprising they have gone to a lower capex, higher cash-flow model for 2013," BMO Capital Markets analyst Michael Mazar said.

The number of rigs drilling for natural gas in the United States fell last week for the second straight week as producers continue to scale back dry-gas drilling due to soft pricing.

Precision Drilling, which operates about 150 rigs in the United States and about 200 rigs in Canada, said it will decommission 52 lower-tier drilling rigs and exit the Tier 3 contract drilling business.

The company said it will take a related charge of between C$180 million and C$200 million in the fourth quarter.

The company is decommissioning the remainder of its legacy fleet that is incapable of doing the higher spec-type drilling or would be prohibitively expensive to upgrade, analyst Mazar said.

In October, Precision Drilling reported a 53 percent drop in third-quarter profit as gas firms cut drilling in the face of weak demand and sliding gas prices.

Shares of the company, which has a market value of about C$2 billion, were up almost 2 percent at C$7.40 on the Toronto Stock Exchange on Monday.

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