Why Precision Drilling Corporation Surged on Wednesday

The well-drilling business in the oil & gas sector has lagged the broader sector, and the market overall, for some time now. With companies like Precision Drilling Corporation (TSX:PD) now trading near all-time lows, investors looking for a contrarian play with the potential for massive returns have begun looking at the well-drilling business as one which may be poised for a nice reversion toward the longer-term mean.

Drilling wells for the oil industry has turned out to be a no-growth or negative-growth business of late, with oil prices stagnating at levels which simply do not introduce enough new demand for wells into the market for Precision Drilling’s share price to increase substantially and hold such an increase. Despite oil market fundamentals which appear to be improving following two very solid reports released by the Department of Energy in recent weeks relating to inventory drawdowns, the market has not yet responded in a big way in favor of companies such as Precision Drilling, at least, not until Wednesday.

On Wednesday, shares of one of North America’s most prominent drilling operators surged nearly 13%, factoring in much of the upside related to the aforementioned positive inventory results of late. The fact remains that the oil & gas industry has been one of the hardest-hit in recent years, and the argument that a reversion toward the mean is impending remains an attractive one. Investors are always looking for a rebound play, and making 12% or more in one trading session is likely to induce a significant amount of additional interest in this company moving forward.

Whether or not a sustained rally takes place, Precision Drilling will be an interesting company to watch, and an even more interesting one to trade, in the coming days and weeks.

Invest wisely, my friends.