Onshore contract driller
Patterson-UTI Energy Inc. (
declared that its March 2012 drill rig count averaged 232, down
from 240 in the previous month. The company operated 225 rigs in
the U.S. and 7 in Canada in March, compared with 224 rigs in the
U.S. and 16 rigs in Canada during February this year.
Patterson-UTI's activity levels in the U.S. peaked in early
October 2008 with a rig count of 275. Since then through the second
quarter of 2009, the company witnessed a steep and rapid decline in
rig count on the back of decreased demand, largely caused by lower
commodity prices for natural gas and tighter access to credit.
However, during the last few quarters, there have been signs
that companies were beginning to bring rigs back on line amid signs
of economic stabilization pushed by energy demand. This is
reflected in Patterson-UTI's monthly rig count numbers, which
recovered substantially from a low of 60 in May 2009 to reach
around 240 few months back.
Notwithstanding the slight decline in the company's March rig
count, we believe the bullish near-term U.S. land drilling trends,
where activity is being driven by horizontal drilling and
liquids-rich plays, will be able to make up for the weak natural
gas fundamentals. Going forward, Patterson-UTI is likely to benefit
from demand improvements in select North American basins, as
operators continue to make the exploitation of unconventional
resources the focus of their investment.
Additionally, the growth in global energy demand has continued
to boost drilling activity, with the employment of technology to
find and recover oil/gas resources. With it, opportunities for
oilfield services companies like Patterson-UTI has also improved,
as it captures the economic benefit of this trend.
Rating & Recommendation
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 (an umbrella term used to describe a
number of vital services performed on new and existing wells).
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
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