Canada’s Precision Drilling Corporation said it was awarded a five-year contract for a new build drilling rig in Kuwait.
The take or pay contract has an optional one year extension for the rig which will add to the existing five active rigs in Kuwait on long-term contracts, Precision said in a statement.
The company expects the sixth rig to commence operations in the third quarter of 2019.
All six rigs have standardised rig design features and specifications delivered within the last five years. In line with prior new builds, the rig has attractive internal return metrics and a payback period within the initial contract term.
The rig addition allows Precision to leverage existing scale in country with no additional overhead required to support the expanded fleet, the company said, adding that the capital cost for the new build is approximately US$60 million with approximately $10 million expected to be spent in 2018 and the remainder in 2019.
“One of Precision’s three strategic priorities for 2018 is to reduce debt by generating free cash flow while continuing to fund only the most attractive investment opportunities. We communicated a firm goal to reduce debt by $75 to $125 million in 2018, and have successfully achieved the low end of that range in the first half of this year,” the company said.
Capital expenditures for the year are expected to be funded with free cash flow, with debt repayment remaining a key priority, it added. Precision’s expected cash balance for the end of the second quarter is approximately $95 million.
Precision currently has 54 active rigs in Canada as it emerges from the lows of spring breakup. “Despite a fairly flat industry rig count, our activity levels are tracking ahead of last year with visibility to exceed 60 active rigs by mid-August, surpassing our peak rig count in the third quarter of last year,” it said.
In the U.S., demand for Precision’s rigs continues to strengthen with 78 rigs currently active and visibility to reach 80 rigs by the end of July.