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Patterson-UTI (PTEN) Reports Massive Decline in Rig Count

Onshore contract driller, Patterson-UTI Energy Inc.PTEN declared that its May 2016 drill rig count averaged 53 in the U.S. and less than one in Canada. The company further added that its rig count averaged 55 in the U.S. and less than one in Canada for the two months ending May 31.

The latest rig count marks a substantial decrease from the company's year-ago average rig count of 122 in the U.S. and one in Canada. Also, the rig count for the two months ending May 31saw a massive decline from the prior-year level of 126 rigs in the U.S. and two in Canada.

Patterson-UTI, like other oil services and equipment suppliers, is directly exposed to crude prices. The freefall in crude price since Jun 2014 owing to excess supply in the face of lackluster global demand has had an adverse impact on most energy sector companies. In fact, the commodity price has plummeted from the $100 per barrel mark to the current trading level of around $49 per barrel.

The weak crude pricing environment has forced most drillers to cut back on the number of rigs. New rig contracts are expected to be signed at rates that are 30-40% below the pre-downturn levels. This will result in lower rig margins. Also, fewer new contracts and declining dayrates have made maintaining profitability a challenge. Retiring rigs, therefore, is an effective way to curb operating expenses. Moreover, Patterson-UTI has been undertaking measures like lowering capital spending to tackle the pricing woes. Notably, the company has pegged its 2016 capital spending projection at $170 million even though the capital expenditure budget is assigned at $190 million for 2016.

Patterson-UTI is a major onshore contract driller in the U.S. with over 184 land-based rigs that operate primarily in the oil and natural gas producing regions of North America.

On the earnings front, the company delivered better-than-expected numbers in the last reported quarter on reduced costs and good execution. The company has a large, high quality fleet of drilling rigs, which include the technologically advanced 'Apex' rigs - the key to its success.

However, the decline in the company's rig count is likely to affect earnings and cash flows in the upcoming quarters. Negative earnings estimate revisions for the current quarter as well as the current year suggest further bearishness ahead.

Currently, Patterson-UTI carries a Zacks Rank #3 (Hold).

Some better-ranked players from the broader energy sector are Braskem S.A. BAK , Murphy USA Inc. MUSA and EP Energy Corporation EPE . All these stocks sport a Zacks Rank #1 (Strong Buy).

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MURPHY USA INC (MUSA): Free Stock Analysis Report

BRASKEM SA (BAK): Free Stock Analysis Report

PATTERSON-UTI (PTEN): Free Stock Analysis Report

EP ENERGY CP-A (EPE): 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 Nasdaq, Inc.


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

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