UPDATE 2-Layne Christensen Q1 profit tumbles on weak demand

* Q1 EPS $0.05 vs $0.55 a year ago

* Q1 revenue down 17 percent to $204.2 mln

* Sees modest improvement in Q2

* Shares drop 10 pct (Recasts; adds conference call details, analysts' comments)

By Antonita Madonna Devotta

BANGALORE, June 2 (Reuters) - Drilling and construction services provider Layne Christensen (LAYN.O) posted a 91 percent drop in first-quarter profit, hurt by weak demand in its key mineral, water and energy markets coupled with low natural gas prices.

On a conference call with analysts, the company attributed a more than 50 percent drop in revenue from its mineral exploration segment to tightening credit conditions and economic uncertainty for customers in this sector.

The downturn in the commodities market also reduced the demand for mineral exploration drilling, while low natural gas prices led to lower revenue from unhedged production and a depletion in the value of its reserves.

"Twenty-five percent of production which had not been forward-sold was at the lowest spot prices we've seen," Chief Executive Andrew Schmitt said on the call.

Layne said its water business suffered as a result of lower demand for new water supply, while it also experienced difficulties on several projects and had to deal with pricing pressures from increased competition.

"This is the first full quarter of results reflecting the commodities market downturn which began late last year... Looking forward, we should experience some modest improvement in the second quarter," Schmitt said in a statement.

WEAK FIRST-QUARTER

In the latest quarter, the company posted a net income of $1 million, or 5 cents a share, compared with $10.6 million, or 55 cents a share, a year ago.

Excluding gains from the settlement of a litigation, the company posted a loss of 3 cents a share compared with analysts' estimates of a profit of 16 cents a share.

Total revenue for the quarter fell 17 percent to $204.2 million. Mineral exploration revenue more than halved in the quarter and revenue from the company's energy segment dipped 13 percent, partly due to a ceiling test impairment charge.

"It was mostly driven by macro-related events that are beyond the control of the management- weak housing-construction, a slowdown in industrial spending… all recession related events," analyst James Lykins of Hilliard Lyons said.

"They're in for more of the same in the second quarter," he added, discounting the CEO's expectation of a modest improvement in the next quarter as a "best case scenario."

STRESS ON GOLD EXPLORATION

The company, which has suffered from a downward trend in revenue from its mineral exploration segment in the recent quarters, said it has now shifted its focus towards gold, away from base metals.

Operations in North America, the only geographical location profitable to the company in the quarter, has held up well as a gold and silver market.

Layne said it has now begun to focus 70 percent on gold in the segment where it has historically maintained the balance at 50 percent for the two areas.

The company expects to get some relief from the government spending around the world.

"We're seeing some of it in early stage in commodity prices but the longer term metric... will be the return of real demand, a reduction in inventories and not geared so much by currency swings or inflation fears," Schmitt said.

Shares of the Mission Woods, Kansas-based company dropped 10 percent to $20.37 in early trade, but later pared some of its losses to trade down 4 percent at $21.77 Tuesday on Nasdaq. (Editing by Anil D'Silva, Jarshad Kakkrakandy)