A Narrow Miss for Patterson-UTI - Analyst Blog


Onshore contract driller Patterson-UTI Energy Inc. ( PTEN ) reported slightly weaker-than-expected fourth-quarter results, hamstrung by the soft pressure pumping market in the northeast region.

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 $728.0 million.

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.

Segmental Performance

Contract Drilling: 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).

Pressure Pumping: 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 contractor after Nabors Industries Ltd. ( NBR ) , 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 sheet).

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 earnings surprises.

NABORS IND ( NBR ): Free Stock Analysis Report
PATTERSON-UTI ( PTEN ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: NBR , PTEN



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