For the second time this year, Precision Drilling (PD.UN, NYSE: PDS) has trimmed its monthly distribution. The new rate begins with the June 15 payment to shareholders of record May 31 and is 13 cents Canadian.

Canada’s gas-producing regions remain weak, as majors such as Encana and Canadian Natural Resources curtail their drilling activity. Precision’s management had warned slack demand for its drilling rigs was likely to continue past the first quarter report, in which it reported a sharp slowdown in activity. This distribution cut is confirmation that it expects weak results at least to the second half of the year.

Drilling stocks are always doubly leveraged to changes in energy prices because ups and downs determine how much demand they’ll have for rigs, as well as what they can charge to rent them and provide services. Drillers like Precision were in the catbird seat for much of the past two years, as energy prices soared and demand for rigs surged. They’ve been hurt by the drop in energy prices during the past year or so, which has depressed drilling activity and rig rates.

Precision’s dividend actions seem to be taking a lot of future bad news into account. On the one hand, management’s prior statements had indicated it expected to be able to hold the distribution after the first reduction. The fact that it had to cut again so soon is a pretty clear sign all isn’t within their control.

On the other hand, Precision’s key appeal isn’t as a dividend play, as is the case with the Canadian Edge Conservative Portfolio holdings. Rather, it’s a bet on energy prices, like the rest of the Aggressive Portfolio recommendations. In fact, it’s even more leveraged than a typical corporate driller because its share price depends on a dividend, which in turn depends on energy prices and energy patch activity.

We’ve seen the bottom for natural gas for the next few years at least, and the bull market that began in the late 1990s is now resuming. It may be a while before Precision’s customers step up to the plate again in a big way.

But the trust remains uniquely positioned to deliver to them, with its fleet of state-of-the-art rigs, commanding position in deep drilling and growing presence on both sides of the border. And it surely has the financial power and flexibility to wait out bad times and continue investing in growth, particularly with the savings from the distribution reduction.

The bottom line: There’s nothing fundamentally wrong with Precision that rising energy prices won’t fix in the coming months. That’s why I’m content to wait out its current difficulty.

Also, the trust remains very cheap and a likely takeover target as the drilling industry consolidates further. I’m holding Precision Drilling’s buy target at USD30 to reflect the lower distribution rate.

Two other points of interest: First, we’ll be updating results of other recommendations in this week’s Maple Leaf Memo, which will be e-mailed tomorrow. If you haven’t yet signed up for this free service for Canadian Edge readers, go to Maple Leaf Memo.

Second, many of you have received solicitations to exchange shares in certain trusts for those in a fund called Strategic Energy. My advice is to ignore them and keep your shares.

This is a common way closed-end funds in Canada grow. Rather than issuing shares in their own funds—as a US closed-end fund would do—they simply offer to exchange their shares for those of a trust they wish to buy. That way, they avoid paying underwriting fees and can expand assets (and their management fees) rapidly.

Unfortunately, there’s little benefit to the unitholder. You wind up swapping shares you want to own for those in a fund that holds a range of shares you have no control over and may not want to own. The terms of the deal are set by the fund, not you, and only the most naïve would imagine they were done for the seller’s benefit.

Tell Strategic Energy no thanks on its offer.