Patterson-UTI Energy Inc. (PTEN) is a leading provider of drilling and completion services to oil and natural gas exploration and production companies in the United States and other select countries. With a rich history spanning over four decades, the company has established itself as a prominent player in the oilfield services industry, offering a comprehensive suite of services that cater to the evolving needs of its customers.
Business Overview
The company's business operations are divided into three reportable segments: Drilling Services, Completion Services, and Drilling Products. Through these segments, Patterson-UTI offers a diverse range of services, including contract drilling, integrated well completion, directional drilling, and specialized drill bit solutions. This diversification has allowed the company to navigate the cyclical nature of the oil and gas industry, delivering value to its customers and shareholders alike.
Company History
Patterson-UTI Energy, Inc. was founded in 1978 and is headquartered in Houston, Texas. In its early years, the company focused primarily on contract drilling services, building a fleet of drilling rigs to serve customers in the United States. As the company grew, it expanded its service offerings by entering the pressure pumping business through a series of acquisitions in the 2000s. This strategic move allowed Patterson-UTI to provide a wider range of oilfield services to its growing customer base.
The company has demonstrated resilience in the face of industry challenges throughout its history. For instance, during the industry downturn in 2020, Patterson-UTI implemented cost-cutting measures, preserved liquidity, and rationalized its asset base. These proactive steps positioned the company to capitalize on the subsequent recovery in activity levels, showcasing its ability to adapt to changing market conditions.
Strategic Acquisitions and Growth
Over the years, Patterson-UTI has demonstrated its ability to adapt to market conditions and capitalize on industry trends. In 2023, the company made two strategic moves that have significantly transformed its business – the acquisition of Ulterra Drilling Technologies and the merger with NexTier Oilfield Solutions. These transactions have solidified Patterson-UTI's position as a leading player in the oilfield services sector, providing the company with enhanced scale, expanded capabilities, and a broader customer base.
The acquisition of Ulterra Drilling Technologies, a global provider of specialized drill bit solutions, marked a significant milestone for Patterson-UTI. This transaction not only strengthened the company's drilling products segment but also expanded its international footprint. The merger with NexTier Oilfield Solutions, a U.S. land-focused oilfield service provider, further solidified Patterson-UTI's position in the industry. However, these strategic moves also presented operational and logistical challenges, which the company has been diligently working to overcome in the years following the acquisitions.
Operational Performance
As of September 30, 2024, Patterson-UTI operated a fleet of 152 marketed land-based drilling rigs, with a strong focus on Tier-1, super-spec rigs that cater to the evolving needs of its customers. The company's Drilling Services segment has maintained a relatively steady rig count, with an average of 107 rigs operating in the U.S. during the fourth quarter of 2024. This stability has been driven by the company's long-term customer contracts and its ability to provide high-quality services that meet the demands of its client base.
In the Completion Services segment, Patterson-UTI has navigated the challenges posed by industry dynamics, including fluctuations in activity and pricing pressures. The company has maintained a disciplined approach to capital deployment, upgrading its fleet while prioritizing free cash flow generation. As a result, the Completion Services segment has contributed significantly to the company's overall financial performance, with revenue of $832 million and an adjusted gross profit of $128 million in the third quarter of 2024.
The Drilling Products segment, which includes the Ulterra acquisition, has also demonstrated resilience in the face of market conditions. This segment has continued to gain market share, both domestically and internationally, leveraging its expertise in specialized drill bit solutions and its ability to capitalize on the growing demand for high-performance drilling equipment.
Financials
Patterson-UTI's financial position remains strong, with a well-structured capital structure and a commitment to prudent capital allocation. As of September 30, 2024, the company had $115 million in cash and cash equivalents, and $613 million in available borrowing capacity under its revolving credit facility. This financial flexibility has enabled Patterson-UTI to navigate the industry's challenges, while also returning capital to shareholders through dividends and share repurchases.
For the fiscal year 2023, Patterson-UTI reported revenue of $4.15 billion, net income of $246.29 million, operating cash flow of $1.01 billion, and free cash flow of $390.22 million. In the most recent quarter (Q3 2024), the company reported revenue of $1.36 billion, a net loss of $978.76 million (which included an $885 million goodwill impairment charge, a $114 million asset retirement charge, and $7 million in merger and integration expenses), operating cash flow of $296.29 million, and free cash flow of $115.70 million. Excluding the special items, the company's adjusted net income for Q3 2024 was $2 million.
The company's revenue increased 34% year-over-year in Q3 2024, driven by the acquisitions of Ulterra and NexTier. In the first four quarters since these acquisitions closed, Patterson-UTI generated almost $570 million of free cash flow, which was used to make $346 million of share repurchases while paying a steady dividend and reducing net debt, including leases, by 7%.
Liquidity
The company's liquidity position is robust, with a combination of cash on hand and available credit facilities providing a solid foundation for operations and strategic initiatives. The $613 million in available borrowing capacity under its revolving credit facility offers additional financial flexibility, allowing Patterson-UTI to pursue growth opportunities and weather potential market fluctuations.
As of September 30, 2024, Patterson-UTI had a debt-to-equity ratio of 0.345, a current ratio of 1.517, and a quick ratio of 1.316, indicating a strong financial position and ability to meet short-term obligations.
Segment Performance
Drilling Services Segment: This segment represents the company's contract drilling, directional drilling, oilfield technology, and electrical controls and automation businesses. As of September 30, 2024, Patterson-UTI had 152 marketed land-based drilling rigs deployed across various regions, including West Texas, Appalachia, Oklahoma, the Rockies, South Texas, East Texas, and South America. Of these, 134 rigs were classified as Tier-1, super-spec. For Q3 2024, the segment generated revenue of $421.56 million and adjusted gross profit of $170.69 million.
Completion Services Segment: This segment provides well completion services, including hydraulic fracturing, wireline and pumping, completion support, and cementing. In Q3 2024, the segment generated revenue of $831.57 million and adjusted gross profit of $127.76 million. However, the segment faced challenges due to unplanned gaps in several completion services fleets, which impacted fixed cost leverage.
Drilling Products Segment: This segment serves energy and mining markets by manufacturing and distributing drill bits. In Q3 2024, the segment reported revenue of $89.10 million and adjusted gross profit of $41.96 million, showing growth due to market share gains in the U.S. and Canadian markets.
Future Outlook
For the fourth quarter of 2024, Patterson-UTI expects U.S. Contract Drilling to average 106 active rigs with adjusted gross profit per operating day of slightly less than $15,000. The company anticipates Completion Services adjusted gross profit to be approximately $85 million, while Drilling Products revenue and adjusted gross profit are expected to see a slight sequential increase compared to the third quarter.
Looking ahead to 2025, Patterson-UTI expects average activity levels to be slightly lower than 2024, with rig count essentially steady from current levels. The company anticipates total capital expenditures for 2025 to be lower than the 2024 figure of around $690 million.
Conclusion
Despite the volatile market conditions, Patterson-UTI has demonstrated its resilience and ability to adapt. The company's focus on operational excellence, technological innovation, and strategic positioning has positioned it well to capitalize on future opportunities as the industry evolves. As the oilfield services landscape continues to transform, Patterson-UTI's diversified business model and commitment to value creation make it a compelling investment proposition for those seeking exposure to the dynamic energy sector. With its strong financial position, strategic acquisitions, and focus on generating free cash flow, Patterson-UTI is well-positioned to navigate the challenges and opportunities in the oilfield services industry.