Patterson-UTI Energy, Inc. (PTEN) on Q2 2021 Results - Earnings Call Transcript

Operator: Good day. Thank you for standing by and welcome to the Patterson-UTI Energy Second Quarter 2021 Earnings Conference Call. . I would now like to hand the call over to your host, Mike Drickamer, Vice President of Investor Relations. Please go ahead. James Drickamer: Thank you, Felita. Good morning. And on behalf of Patterson-UTI Energy, I'd like to welcome you to today's conference call to discuss the results of the 3 and 6 months ended June 30, 2021. Participating in today's call will be Andy Hendricks, Chief Executive Officer; and Andy Smith, Chief Financial Officer. A quick reminder that statements made in this conference call that state the company's or management's plans, intentions, beliefs, expectations or predictions for the future are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements are subject to risks and uncertainties as disclosed in the company's annual report and on Form 10-K and other filings with the SEC. Andy Hendricks: Thanks, Mike. Good morning, and welcome to Patterson-UTI's second quarter conference call. We are pleased that you can join us today. For the second quarter, revenues and adjusted EBITDA increased sequentially as drilling and completion activity has steadily improved from the lows of last summer. Based on conversations with customers about the remainder of this year and into early 2022, we expect increasing activity and increasing pricing. In Contract Drilling, since the beginning of the second quarter, our rig count has increased by 8 rigs. In addition to the overall increase in our industry, we continue to see increasing customer interest in reducing emissions through the use of alternative power sources, and we believe these lower emissions technologies, where we have a leadership position, are a differentiator. As an example, we were recently notified by a major international E&P that we will be increasing our activity within their drilling program and activating multiple rigs over the next year. This major customer intends to use a combination of our natural gas powered and our high-line utility powered rigs. In Pressure Pumping, we took advantage of opportunities with customers to accelerate our reactivation plans, and we activated 2 spreads late in the quarter. I'm very pleased with the performance of our team this quarter as they met margin expectations while also incurring reactivation costs for these 2 spreads at the end of the quarter. These 2 spreads are expected to be accretive to our average adjusted EBITDA per spread and will help improve our fixed cost coverage going forward. We continue to see opportunities to economically reactivate additional spreads, and as such, we expect to reactivate another spread early in the fourth quarter. Andrew Smith: Thanks, Andy, and good morning. For the second quarter, we reported a net loss of $103 million or $0.55 per share, while consolidated adjusted EBITDA was $35.4 million. Before I get into the segments, as a general comment, due to improving activity levels and increasing tightness in the overall labor market, we are starting to see general oilfield cost inflation across our segments. This inflation, combined with the increasing challenge of attracting employees to the industry, is increasing the complexity of reactivating equipment. We believe this challenge, combined with the increasing demand for premium drilling and completion services, will support higher pricing going forward. Within our segments. In Contract Drilling, our average rig count improved for the third consecutive quarter and averaged 73 rigs in the second quarter, up from 69 rigs in the first quarter. Average rig margin per day during the second quarter was $6,250. Average rig operating cost per day increased relative to the first quarter due primarily to fewer rigs on low-cost standby, higher rig reactivation expenses, and the sales and use tax refund in the first quarter that did not recur in the second quarter. Andy Hendricks: Thanks, Andy. It's been a while since we've had this level of visibility into future quarters, and I'm very encouraged by the continuing increase in E&P demand that we are seeing for our services in drilling and completions. While this was primarily driven by the trading ranges of commodities over the last 6 months, it is also driven by Patterson-UTI's overall high level of well site performance and efficiency as well as our ESG-related technologies. I expect this demand continues at least into 2022. For Patterson-UTI, as we've discussed, this means both increasing activity and increasing pricing in our businesses. Finally, let me provide a short update on our pending acquisition of Pioneer Energy Services. Subject to regulatory approvals, customary closing conditions and the approval of Pioneer Energy Services stockholders, we continue to expect this acquisition will close in the fourth quarter. Pioneer's experienced people, high-quality assets and efficient operations in the United States and Colombia will be a valuable addition to our business. With that, we would like to thank all of our employees for their hard work, efforts and successes both in our industry and in general, and we look forward to a stronger second half of the year. Felita, we would now like to open the call to questions. Operator: . And your first question comes from the line of Mike Sabella with Bank of America. Michael Sabella: So Andy, you have mentioned some upgrades on the frac fleet to Tier 4 dual fuel. Maybe you could just give us an idea, I guess, where you are today in terms of kind of capacity of next-gen frac equipment and if any of the CapEx bump that you all announced today is on the frac upgrades. And then as we think about that, maybe talk us through economics on what we see from those upgraded fleets today. Andy Hendricks: Yes. What we're doing is we're actually changing the engines from older models of engines to the new Tier 4 dual fuel. So it's not a change in the horsepower, it's an engine swap on the trailer. We started this a few months ago with Tier 4 dual fuel, and we're going to continue to invest some CapEx to do this for the rest of this year and into next year to get ready to have even another full spread ready for Q1 next year. This is -- I mean there's certainly some CapEx in there, but it's a relatively small amount compared to overall CapEx for the company. But we see this as a very cost-effective solution to upgrade the level of technology on our existing equipment without adding horsepower into the market. Michael Sabella: Understood. And then maybe you can just, I guess, talk us through just on the rig side. Maybe describe kind of where you think customer interest is coming from as we look a little further out? Obviously, this year, the rig demand -- incremental rig demand has been dominated by private E&Ps. The DUC inventory that was held by the public E&Ps, looks like it's largely been exhausted. So it seems like the setup is there, that the public E&Ps have to come back for rigs as well. would you, I guess, agree with that assessment? And if it plays out that way, just talk through what it means for Patterson kind of relative to a market that's been more dominated by private E&Ps. Andy Hendricks: Yes. Certainly, as we came off the downturn last year, it was private that moved quicker. But when you look into what we're seeing in the second half of this year and into 2022, it's really broad. I mean it's privates that are going to add rigs, it's midsized publics. It's large international E&Ps. So we're just seeing more of a broad-based uptake in rigs with the discussions that are happening going into early '22. Operator: Your next question come from the line of Vaibhav Coker -- Vaibhav Vaishnav from Coker & Palmer. Vaibhav Vaishnav: So I guess if we talk about Pressure Pumping, could you help us think about like in the market, are we today where we actually can get better pricing for ESG-friendly fleet versus conventional fleets? Andy Hendricks: Yes. We believe that with -- by changing out the engines and offering Tier 4 dual fuel on existing pump trailers that not only can pick up more work, but we can also get better pricing and margins on that particular work. I mean, it offers a lot of benefits for the customer in terms of cost savings. But as I mentioned earlier, there's also good economics for us. Vaibhav Vaishnav: Okay. Switching to land drilling. As we move from here into 2022, 2023, I'm not trying to pin you down for a number, but just generally, how do you think about where the land drilling margins could go back to versus what we saw in the prior cycles? Obviously, one change is like now you are providing more services on the same rig. So just putting that in context would be helpful. Andy Hendricks: So the way that I see this evolving because we're already in discussions for putting up rigs across the second half of this year and into '22, it's actually quite interesting. Like I mentioned, we just haven't had this level of visibility in a long while. And my concern is that we've got some of our operators, customers that are still working through their budget process and they may not even make decisions until late this year or early next year on rigs they want. And by that time, some of the rigs that they've been used to running are not going to be available. And so I think you're going to have this situation as we move into 2022 that's more of a fear of missing out. And there's going to be more of a scramble for the best super-spec rigs that are out there. And now granted, we all have a lot of high-spec rigs. But when you talk about the best-performing super-spec rigs and with some of the operators a little bit slower in their budget cycles, I think they're going to land in a space in early '22 that they're not going to have necessarily the rigs that they want to have. And when you see that happening in the cycle, that's really a big push on pricing, and that's a big push on margins. It's been a while since we've seen that, too. And so I do think it evolves into '22 that we have the possibility to get back to some of the higher margins that we've seen in the past and other cycles. And part of what may drive that is when some of these larger operators that are a little bit slower decide that they want to add rigs and they can't get all the specs that they want, they've now got to work with the drilling contractor to pay for upgrades and those kind of discussions drive pricing. And I think you'll hear more of that as we get into 2022. Vaibhav Vaishnav: So maybe what I'm hearing is really as opposed to -- correct me if I'm misinterpreting this, but what I'm hearing really is in fourth quarter, when we typically think about like a decline, given where the commodity prices are, based on your customer conversations, actually, we can see more rig increases in 4Q. Is that fair interpretation of what you're saying? Andy Hendricks: I think you can take fourth quarter decline and throw it out the window this year. If you look at where commodity prices are trading, oil WTI above $65 a barrel in natural gas above $3, we're not considering a fourth quarter decline. Operator: . Your next question is from the line of John Daniel with Daniel Energy. John Daniel: I know you can't name the E&P company. I'm not asking for that, but you talked about the international E&P, thus, presumably a large one picking up multiple rigs. I'm curious if you could just maybe hazard a guess as to what the relative change in incremental rigs versus where they are today? Just frame it for us. And when that would happen? If you can't, that's fine. I'm just trying -- we all -- and the reason I'm asking is obviously, like you see the privates going from 0 to 1, 1 to 2, I mean the percentage changes are huge. And we typically think of these large guys as being disciplined, but like everything would suggest they're going to be adding rigs and maybe significantly. So just your thoughts. Andy Hendricks: So I think this may be a situation that's specific to us because this is a large major E&P that has a drilling program that may not -- that may grow their drilling programs somewhat but we're very likely to be growing share within their existing drilling program. So I think there's still relative discipline out there. I'm not calling a lack of discipline or a big ramp-up in their particular program. But because of the technology, because of the performance and efficiency that we've been offering with this particular operator over the last few years, our team has done a great job, and we see ourselves growing share and ESG and emissions-related technology are part of that equation as well. John Daniel: Okay. Fair enough. On the frac side, I just want to make sure I've got the sequencing right, you're running 8 today. Is that right, going to 9? Andy Hendricks: Correct. 8 going to 9. John Daniel: And then did you... Andy Hendricks: We're at 9. We just finished -- we just activated number 9. And then we're going to 10 early Q4. Could be late Q3, but likely early Q4. John Daniel: Okay. Got it. And if you said this, I apologize. The number of -- let's just say, year-end. At year-end, what would be roughly the Tier 4 DGB split within your fleet, given the investment? Andy Hendricks: So we have a number of different things in our fleet. We have Tier 2 dual fuel, we have Tier 4. We have Tier 4 dual fuel by the end of this year with changing out more engines. We'll be up to a full spread of Tier 4 dual fuel and then we'll also be set up for a second tier -- or second spread of Tier 4 dual fuel next year. Operator: Your next question is from the line of Scott Levine with Bloomberg. Scott Levine: So I wanted to see if I can get a sense of your outlook for net pricing for both drilling and pressure pumping for the back half of this year. If I heard correctly in your prepared comments, you said you expected your average daily rig margins to hold about flat in the third quarter, and that's what I think we heard out of one of your competitors yesterday. But your activity levels are increasing, and we've seen the inventory of DUCs drop pretty considerably recently. So is it fair to assume that the pace of activity and drilling accelerates, but maybe the net pricing lags a bit behind the recovery net pricing in Pressure Pumping? Or are you seeing it from a different vantage point from your perspective? Just curious there. Andy Hendricks: Yes. So our view is we're seeing a steady increase in rig count throughout H2 and into 2022. We're also seeing an increase in pricing, but we've also had some cost inflation as well. So the cost inflation is keeping the margins flat quarter-on-quarter, but then we expect margins to improve after that. Scott Levine: And on the pumping side, is it a different situation? Or is the magnitude any different? Or is it roughly similar trend as far as you can say? Andy Hendricks: I'd say pumping is coming off a more challenging bottom. And as we increase the number of spreads we're operating, we're improving margins by a mixture of increasing pricing and then better fixed cost coverage as well. Operator: . There are no other questions at this time. Andy Hendricks: All right. Well, we thank everybody for dialing into our earnings call this morning, and have a good quarter. Thanks. Operator: This concludes today's conference call. You may now disconnect.
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Patterson-UTI Energy, Inc. (NASDAQ:PTEN) Sees Optimistic Price Target Amid Industry Challenges

  • Stephen Gengaro from Stifel Nicolaus sets a price target of $13 for NASDAQ:PTEN, indicating a potential increase of approximately 50.9%.
  • The adjustment of PTEN's price target from $14 to $13 while maintaining a Buy rating reflects cautious optimism in the oilfield services sector.
  • PTEN's stable stock price and significant market capitalization of approximately $3.36 billion highlight its solid market presence and potential for growth.

Patterson-UTI Energy, Inc. (NASDAQ:PTEN) is a prominent player in the oilfield services industry, providing drilling and pressure pumping services. The company operates primarily in the United States and is known for its extensive fleet of land-based drilling rigs. PTEN competes with other industry giants like Halliburton and Schlumberger, making it a significant entity in the oil services sector.

On January 6, 2025, Stephen Gengaro from Stifel Nicolaus set a price target of $13 for PTEN. At the time, the stock was priced at $8.62, suggesting a potential increase of approximately 50.9%. This optimistic outlook reflects confidence in PTEN's ability to capitalize on its market position despite current challenges in the oil services sector.

Stephen Gengaro adjusted PTEN's price target from $14 to $13, maintaining a Buy rating. This adjustment indicates a cautious optimism, acknowledging the limited macroeconomic catalysts expected to impact the sector significantly. Despite this, the potential for growth remains, as highlighted by the significant price target increase.

PTEN's stock price has shown consistency, with a current price of $8.62 and a 52-week range between $8.56 and $8.62. This stability suggests a steady market perception, even as the company navigates sector-specific challenges. PTEN's market capitalization stands at approximately $3.36 billion, underscoring its substantial presence in the industry.

As we move into 2025, the oil services sector is expected to continue its current trends. PTEN's ability to maintain a stable stock price range and a significant market cap positions it well to potentially achieve the price target set by Gengaro. Investors may find this an attractive opportunity, given the potential for a 50.9% increase.

Patterson-UTI Energy, Inc. (NASDAQ:PTEN) Sees Optimistic Price Target Amid Industry Challenges

  • Stephen Gengaro from Stifel Nicolaus sets a price target of $13 for NASDAQ:PTEN, indicating a potential increase of approximately 50.9%.
  • The adjustment of PTEN's price target from $14 to $13 while maintaining a Buy rating reflects cautious optimism in the oilfield services sector.
  • PTEN's stable stock price and significant market capitalization of approximately $3.36 billion highlight its solid market presence and potential for growth.

Patterson-UTI Energy, Inc. (NASDAQ:PTEN) is a prominent player in the oilfield services industry, providing drilling and pressure pumping services. The company operates primarily in the United States and is known for its extensive fleet of land-based drilling rigs. PTEN competes with other industry giants like Halliburton and Schlumberger, making it a significant entity in the oil services sector.

On January 6, 2025, Stephen Gengaro from Stifel Nicolaus set a price target of $13 for PTEN. At the time, the stock was priced at $8.62, suggesting a potential increase of approximately 50.9%. This optimistic outlook reflects confidence in PTEN's ability to capitalize on its market position despite current challenges in the oil services sector.

Stephen Gengaro adjusted PTEN's price target from $14 to $13, maintaining a Buy rating. This adjustment indicates a cautious optimism, acknowledging the limited macroeconomic catalysts expected to impact the sector significantly. Despite this, the potential for growth remains, as highlighted by the significant price target increase.

PTEN's stock price has shown consistency, with a current price of $8.62 and a 52-week range between $8.56 and $8.62. This stability suggests a steady market perception, even as the company navigates sector-specific challenges. PTEN's market capitalization stands at approximately $3.36 billion, underscoring its substantial presence in the industry.

As we move into 2025, the oil services sector is expected to continue its current trends. PTEN's ability to maintain a stable stock price range and a significant market cap positions it well to potentially achieve the price target set by Gengaro. Investors may find this an attractive opportunity, given the potential for a 50.9% increase.