Executive Summary / Key Takeaways

• Patterson-UTI has strategically transformed through recent acquisitions, creating a unique, integrated drilling and completion service offering designed to drive customer efficiency and capture value beyond traditional pricing models.
• The company possesses differentiated technology, including Tier-1 Apex rigs, Cortex automation, and a growing fleet of 100% natural gas-powered Emerald frac equipment, positioning it favorably against competitors and enabling higher operational performance.
• Despite navigating a challenging and uncertain market environment characterized by commodity price volatility and customer budget management, PTEN is focused on cost discipline, asset rationalization, and generating strong free cash flow.
• Management expects a relatively steady U.S. rig count for its high-spec assets in the near term, with potential upside in natural gas basins and international markets, while committing to returning at least 50% of adjusted free cash flow to shareholders.
• Key risks include sensitivity to volatile commodity prices, potential impacts from trade policies and tariffs, and the execution risk associated with integrated service delivery and new technology adoption.

A Transformed Entity in U.S. Shale

Patterson-UTI Energy, Inc. stands today as a significantly transformed entity within the U.S. onshore oilfield services landscape. Founded in 1978, the company has a long history rooted in contract drilling, a foundation that has evolved dramatically, particularly following the transformative merger with NexTier Oilfield Solutions (NEX) and the acquisition of Ulterra Drilling Technologies, both closing just after September 30, 2023. These strategic moves were not merely about increasing scale; they were designed to create a uniquely integrated service and product offering spanning drilling, completion, and drilling products, aiming to provide value-accretive solutions to exploration and production (E&P) companies.

At its core, PTEN's strategy is built on leveraging this expanded operational footprint and comprehensive suite of services to touch more of the well site than nearly any of its competitors. This integrated approach, encompassing everything from high-spec drilling rigs and directional drilling to hydraulic fracturing, wireline, cementing, and drill bits, is intended to enhance efficiency and unlock value for customers. The company believes this differentiated position is difficult for rivals to replicate, providing a sustainable competitive advantage, particularly with larger, more stable operators who prioritize long-term value creation over short-term price concessions.

Setting the scene further, the broader industry landscape remains cyclical and subject to volatile commodity prices, geopolitical factors, and E&P spending discipline. Recent trends include customer consolidation, which can lead to temporary activity pauses, and a persistent focus on efficiency gains and technology adoption. Despite these dynamics, PTEN's strategic response centers on optimizing core operations, maintaining disciplined capital allocation, and focusing on its high-end assets and integrated offerings.

Technological Edge and Operational Excellence

A critical component of Patterson-UTI's strategy and competitive positioning is its technological differentiation. In the Drilling Services segment, the company's fleet includes 135 Tier-1, super-spec rigs as of March 31, 2025. These rigs are defined by high specifications (1500+ HP, AC-powered, 750k+ lb hookload, 7500+ psi circulating system, pad-capable, often with a third mud pump and raised drawworks) and are considered premier capital assets. Complementing the hardware is the Cortex automation platform, which integrates advanced data science for real-time analytics, pattern recognition, and intelligent control logic, automating functions like auto drilling and directional control. This technology enables the company to drill faster, better, and safer wells, delivering improved cycle times and demonstrating value over lower-priced options.

In Completion Services, PTEN has made significant investments in natural gas-powered equipment, including electric, direct drive, and dual fuel pumps. The Emerald line of 100% natural gas-powered equipment is highlighted as performing exceptionally well, with growing demand, including for larger Emerald simul frac operations. The company expects to surpass 200,000 horsepower of Emerald assets by mid-2025. Management notes that equipment capable of running on natural gas is effectively sold out across the industry, underscoring the value of this investment. The company is also field testing direct drive technologies, which could enable fleets to run entirely on natural gas without large external power generation. This flexible approach to technology deployment allows adaptation to changing market demands. More than 80% of PTEN's active fleet can be powered by natural gas, and its frac plus fuels integration is stated to lead the industry in diesel displacement on dual-fuel fleets, offering over 40% more displacement compared to competitors. The natural gas fueling business, originally launched by NexTier, has reached critical mass, providing CNG and field gas for approximately 2 million horsepower of equipment, with 2024 volumes expected to be up over 25% from 2023.

The Drilling Products segment, primarily Ulterra drill bits, contributes through manufacturing and distribution. The team focuses on delivering high-quality innovative products, with new product innovation revenue (beyond drill bits) more than doubling in 2024 at strong margins, partly driven by new Maverick cutter and drill bit designs. The trend towards longer laterals benefits this segment as rigs drill more footage, requiring more bits. Since the Ulterra acquisition, the market share of drill bits on PTEN's own rigs has increased by over 10%.

Beyond traditional oilfield services, PTEN is increasingly excited about its Power Services potential. Leveraging its electrical engineering and controls business (acquired in 2018) and its natural gas fueling capabilities, the company offers a broad suite of power services. This includes mobile power generation (operating assets generating over half a gigawatt per day of electricity and supplying natural gas for ~1 gigawatt of constant power generation), microgrid components, battery energy storage solutions, and new technology for blending CNG with field gas. This expertise positions PTEN to support E&P customers electrifying production pads and potentially explore opportunities in adjacent markets like data centers, where demand for off-grid power is growing significantly (estimated >4 gigawatts over the next 10 years in the Permian alone).

This technological foundation and operational focus are central to PTEN's ability to execute its integrated service strategy and differentiate itself in a competitive market. While competitors like Helmerich & Payne (HP) boast high-spec rigs and Nabors Industries (NBR) focuses on automation, PTEN's strength lies in the integration of these capabilities across the well construction lifecycle. Halliburton (HAL) offers global scale and digital tools, and Precision Drilling (PD) emphasizes cost leadership, but PTEN's ability to combine drilling, completions, and products with its proprietary technology and power solutions provides a unique value proposition aimed at reducing overall well costs and improving productivity for customers.

Financial Performance and Capital Discipline

Patterson-UTI's financial performance in early 2025 reflects the prevailing market conditions and the company's strategic adjustments. For the three months ended March 31, 2025, total operating revenues were $1.28 billion, a decrease from $1.51 billion in the prior-year period. This was primarily driven by a year-over-year decrease in Drilling Services revenue (down to $413 million from $458 million) due to lower U.S. operating days, and a decrease in Completion Services revenue (down to $766 million from $945 million) due to lower fracturing activity compared to Q1 2024. Drilling Products revenue remained relatively steady at $86 million compared to $90 million in Q1 2024, demonstrating resilience despite a lower industry rig count over the period.

Operating income for Q1 2025 was $16.9 million, a significant decline from $87.0 million in Q1 2024. This was impacted by lower revenues and changes in operating costs across segments. Completion Services adjusted gross profit in Q1 2025 was $108 million, a rebound from $95 million in Q4 2024 due to seasonal recovery and increased activity (pumping hours up 23% sequentially), but down significantly from $199 million in Q1 2024 due to lower year-over-year activity. Drilling Services adjusted gross profit was $165 million in Q1 2025, relatively flat sequentially ($16.2k/day vs $15.7k/day in U.S. contract drilling) but down from $186 million in Q1 2024. Drilling Products adjusted gross profit improved slightly sequentially to $39 million in Q1 2025 from $37 million in Q4 2024, driven by operational efficiencies, and was relatively flat year-over-year compared to $41 million in Q1 2024.

The company maintains a strong balance sheet and robust liquidity. As of March 31, 2025, cash, cash equivalents, and restricted cash totaled $225.2 million. Working capital stood at $499.0 million. The company has access to a $500 million senior unsecured revolving credit facility, which was undrawn as of March 31, 2025, providing approximately $498.0 million in available capacity. Total long-term debt was $1.20 billion, consisting primarily of Senior Notes maturing in 2028, 2029, and 2033. PTEN was in compliance with all debt covenants.

Capital allocation remains a key focus. The full year 2025 net capital budget is set at approximately $600 million, lower than the 2024 CapEx, reflecting the anticipated activity levels and a disciplined approach to investment. The majority of CapEx is directed towards maintenance and targeted investments in next-generation equipment. The company is committed to returning at least 50% of adjusted free cash flow to investors through dividends and share buybacks. In Q1 2025, $30.9 million was paid in dividends ($0.08 per share), and $20.3 million was used for share repurchases. Since the NexTier merger and Ulterra acquisition closed (Sept 30, 2023), the company has used $346 million to repurchase shares, reducing the share count by 7% by Q3 2024, in addition to paying dividends and reducing net debt. As of March 31, 2025, approximately $741.0 million remained authorized under the stock buyback program.

Outlook and Strategic Initiatives

Management's outlook for the near term anticipates a relatively steady U.S. market, particularly for its high-spec assets, while positioning for potential upside later in 2025 and beyond. For the second quarter of 2025, the Drilling Services segment is expected to see a relatively steady average daily rig count compared to Q1 2025. Adjusted gross profit is expected to decline slightly sequentially due to legacy contracts rolling off and normal seasonal cost increases. The Completion Services segment is expected to see activity remain relatively steady compared to the exit rate of Q1 2025, although potential white space could emerge later in Q2 if oil prices remain near current levels. Sequential adjusted gross profit for Completion Services is also expected to decline slightly. The Drilling Products segment is expected to see sequential adjusted gross profit remain relatively flat, with steady U.S. activity offsetting seasonal declines in Canada and higher international revenue.

Looking further ahead, management anticipates average activity in 2025 will be slightly below 2024 levels, with the rig count for PTEN's assets essentially steady from current levels. There is a constructive outlook for natural gas basins, with potential for increased drilling and completion activity later in 2025 and into 2026, driven by growing demand for U.S. natural gas (LNG exports, data centers). While acknowledging uncertainty in oil markets, particularly if prices remain in the low $60s for an extended period, management believes operations remain stable for now and expects a relatively steady outlook in oil basins through the rest of the year.

A key strategic initiative is the growth of integrated work. The initial fully-integrated P10 Advantage project, combining drilling and completion services under a performance-based agreement, exceeded expectations, delivering performance bonuses and accretive margins while benefiting the customer. This model is expected to grow as a proportion of the overall business. The company is also focused on streamlining costs and enhancing efficiencies across the enterprise, including integrating back-office functions.

Internationally, the Drilling Products segment is in the early stages of realizing anticipated growth, particularly in the Middle East and offshore markets. The company is moving a remanufacturing facility to a full manufacturing facility in Saudi Arabia and is gaining traction in offshore markets. The joint venture in the UAE with ADNOC Drilling and SLB (SLB) to drill and complete unconventional wells represents an opportunity to provide expertise and gain presence in the region with limited capital contribution, potentially leading to multiple years of activity.

PTEN is also actively rationalizing its asset base, retiring 42 legacy non-Tier 1 rigs in Q3 2024 and decommissioning nearly 400,000 horsepower of older Tier-2 diesel frac equipment in 2024, reducing the completions fleet by about 10% by year-end. This is seen as a leadership role in reducing supply in an oversupplied market and focusing on competitive assets.

Risks and Challenges

Despite its strategic positioning and technological advantages, Patterson-UTI faces several risks and challenges. The most significant is the inherent volatility of oil and natural gas prices, which directly impacts customer spending and demand for services. While PTEN's exposure to larger, more stable operators mitigates some of this, a prolonged downturn could still adversely affect activity, profitability, and cash flows. Subsequent to March 31, 2025, global economic conditions and OPEC decisions have introduced increased uncertainty and contributed to lower crude oil futures prices, which could impact the future outlook.

Operational risks, competition, labor issues, weather, product availability, and supplier delays are ongoing concerns. The oilfield services industry is cyclical and prone to periods of oversupply, which can pressure pricing and margins, particularly for less differentiated services or older equipment. PTEN's strategy to retire older assets and focus on high-spec equipment is a direct response to this, but execution is key.

The company is also involved in legal proceedings, including a claim related to patents acquired in the Ulterra acquisition, which could have a material impact if not resolved favorably and covered by indemnity. Inflationary pressures and changes to international trade policies and tariffs could increase operating costs.

Furthermore, while the integrated service model and new technology adoption are strategic strengths, they also carry execution risk. Successfully integrating workflows across segments and ensuring the reliability and adoption of new technologies like direct drive frac systems are crucial for realizing their full potential.

Conclusion

Patterson-UTI has strategically repositioned itself through recent acquisitions and organic investments, creating a differentiated offering centered on integrated drilling and completion services, advanced technology, and capital discipline. The company's fleet of Tier-1 rigs, coupled with its Cortex automation, and its growing natural gas-powered frac fleet, including the Emerald line and emerging direct drive technology, provide a strong operational and technological foundation. The Ulterra acquisition has added a resilient segment with international growth potential, and the burgeoning Power Services business offers exciting long-term upside both within and outside the oilfield.

While navigating a near-term market characterized by volatility and customer caution, PTEN is focused on cost management, rationalizing its asset base, and leveraging its integrated model to deliver value and capture performance-based upside. The company's strong balance sheet and commitment to returning at least 50% of adjusted free cash flow underscore its focus on shareholder value. Although challenges remain, including commodity price sensitivity and competitive pressures, Patterson-UTI's strategic evolution positions it to potentially outperform in a cyclical industry and capitalize on future growth trends, particularly in natural gas basins and integrated service delivery. Investors should monitor the execution of its integrated strategy, the uptake of its new technologies, and the broader market dynamics, especially regarding natural gas demand and oil price stability.