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Here's Why Shares of Precision Drilling Are Up 14% Today

Tyler Crowe, The Motley Fool

What happened

Shares of oil rig owner and lessor Precision Drilling (NYSE: PDS) are up 14.1% as of 4 p.m. EST today. The share-price spike comes after the company announced its capital expenditure plan for 2019.

So what

Capital spending plans tend to be dull affairs where companies talk about business as usual. Precision's was unique in the sense that it addressed the most pressing issue for investors right now: debt. The company has been carrying an extraordinarily large debt load in recent years, and the interest payments to cover that debt have been eating away at profits.

Drilling rig in winter.

Image source: Getty Images.

Today, though, the company announced it had made 174 million Canadian dollars ($132 million) in debt repayments for 2018, which was higher than management's estimated target for the year and will save CA$10 million annually in interest payments. Management also announced it was increasing its debt reduction targets between now and 2021. It now expects to reduce its debt load by CA$400 million to CA$600 million over the next three years, about CA$100 million more than originally targeted. 

Now what

Precision's proposed acquisition of Trinidad Drilling got canceled when Trinidad took a competing offer. The deal, according to management, was going to allow management to accelerate its debt reduction because of operational synergies and better presence in the high-specification rig market. It would appear, though, that it didn't necessarily need the deal to increase its debt reduction. 

North America's oil and gas industry is hitting a bit of a rough patch, and near-term earnings results could be weak. However, the company has a set of attractive high-specification rigs and some international presence that should help it generate enough cash to meet its debt reduction targets. The plan is still on paper, but it certainly makes Precision Drilling's stock look more attractive today. 

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Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.