Onshore contract driller
Patterson-UTI Energy Inc. (
reported slightly weaker-than-expected fourth-quarter results,
hamstrung by the soft pressure pumping market in the northeast
Earnings per share, excluding rig retirement impairment charges,
came in at 61 cents, a penny below the Zacks Consensus Estimate.
Revenues at $724.6 million also fell short of our projection of
However, compared with the year-ago period, Patterson-UTI's
adjusted earnings per share improved by a handsome 64.9% (from 37
cents to 61 cents), while revenues were up 43.3%, reflecting
improved rig activity on the back of continued strength in the oil
and liquids rich plays.
For its fiscal year ended December 31, 2011, Patterson-UTI
reported profit (excluding one-time items) of $2.12 per share on
revenues of $2,565.9 million.
Rig Count Statistics
The number of rigs operating during the quarter averaged 232
(220 rigs located in the U.S. and 12 in Canada), compared with 194
average rigs operating in the fourth quarter of 2010. The count was
also up from 221 rigs operating in the September quarter.
Contract Drilling revenue totaled $468.9 million (65% of total
revenue), up approximately 37.7% year over year. Average revenue
per operating day was $21,980, up 15.1%, while average direct costs
per operating day increased by 15.5% to $12,700. Additionally, the
average number of rigs operating jumped year over year, from 194 to
232, driving the segment operating profit to $94.7 million (as
against $68.2 million in the year ago quarter).
The Pressure Pumping business recorded revenues of $240.8 million,
a rise of 54.0% year over year, mainly reflecting ramped-up
customer demand in the southwest region that more than made up for
soft activity in the northeast. Consequently, the Pressure Pumping
business' operating profit of $51.3 million was a significant
improvement over the prior-year's income of $33.4 million.
Oil & Natural Gas:
Revenue generated from the Oil & Natural Gas business was $14.9
million, up 67.9% from the year-ago quarter. This segment posted an
operating income of $7.3 million, up from $4.2 million earned in
the prior year quarter, benefiting from improved oil and liquids
rich drilling activity.
Capital Expenditure & Balance Sheet
During the quarter, Patterson-UTI spent approximately $300.1
million on capital programs (as against $224.4 million in the
fourth quarter of 2010), of which approximately 76% went to the
Contract Drilling segment. As of December 31, 2011, the company had
$23.9 million in cash and no long-term debt.
Recommendation & Outlook
Patterson-UTI, the second-largest North American land drilling
Nabors Industries Ltd. (
, currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. We are also maintaining our long-term
Neutral recommendation on the stock.
There is considerable tightness in the market for shale-suitable
rigs, and dayrates across the rig fleet have been going up. In the
near term, Patterson-UTI stands to benefit from the current boom in
pressure pumping services. Additional positives in the company's
story include its growing premium land rig fleet and stellar
financial health (free cash flow positive and a debt-free balance
However, with natural gas fundamentals remaining weak, we see no
significant price upside for Patterson-UTI stock in the
near-to-medium term. Plus, increased labor costs for contract
drilling may put a brake on the segment's margin expansion, which
could further limit the company's ability to generate positive
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