Patterson-UTI Energy(PTEN) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q3 2019, the company reported a net loss of $262 million or $1.31 per share, which included charges totaling $260 million pretax or $209 million after tax. Excluding these charges, the net loss would have been $52.9 million or $0.27 per share [8][9] - Capital expenditures totaled $68 million, a 30% reduction from the second quarter, with full year 2019 CapEx expected to be approximately $350 million, down from previous expectations of $400 million [13][16] - The outstanding gross debt balance was $975 million, a $150 million reduction from the end of the prior quarter, with a net debt-to-capital ratio of 21.6% at September 30, 2019 [15] Business Line Data and Key Metrics Changes - In contract drilling, the average rig count during Q3 was 142 rigs, with average rig revenue per day increasing to $24,240 from $24,200 in Q2. Average rig operating cost per day increased to $14,440 due to lower fixed cost absorption [21][23] - Pressure pumping gross margin was $32.3 million on revenues of $209 million, lower than expected due to decreased activity. The company ended the quarter with 14 active spreads and expects Q4 pressure pumping margin to be approximately $8 million with revenues of approximately $150 million [28][30] - Directional drilling gross margin was $7.8 million with revenues of $47 million in Q3, with expectations of $39 million in revenues and $8 million in gross profit margin for Q4 [33] Market Data and Key Metrics Changes - The overall decrease in U.S. industry rig count was noted, with Patterson-UTI's rig count decrease in line with expectations. The company anticipates further declines in drilling and pressure pumping activity in Q4 [18][19] - The company has retired 36 non-APEX rigs and expects rig count to average 126 rigs in Q4, stabilizing near current levels [24][25] - The pressure pumping market is oversupplied, with pricing at unsustainably low levels, leading to equipment rationalization [30][32] Company Strategy and Development Direction - The company remains capital disciplined and focused on optimizing its fleet, having permanently retired 300,000 horsepower of pressure pumping equipment to improve utilization and returns [31][32] - The company is adjusting its business according to market conditions, with a focus on debt reduction and share buybacks, having repurchased 8.2 million shares in Q3 [39] - The company is investing in technology to enhance operational efficiency, with a focus on capital-light investments [77][78] Management's Comments on Operating Environment and Future Outlook - Management indicated limited visibility for 2020 activity, with operators currently working on their budgets. There is potential for a modest increase in rig activity in early 2020 [19][20] - The company expects Q4 to be challenging due to seasonality and budget constraints, but anticipates some improvement in Q1 as operators finalize their budgets [95][96] - Management expressed confidence that supply-side adjustments, including equipment retirements, will help address underutilization in the market over time [50] Other Important Information - The company declared a quarterly cash dividend of $0.04 per share to be paid on December 19, 2019 [40] - The company published its corporate sustainability report, highlighting various initiatives [40] Q&A Session Summary Question: Customer actions in the first half of next year for pumping and drilling activity - Management noted that visibility for 2020 is limited, but discussions with operators suggest potential rig activity increases towards the end of December and into early Q1 [44] Question: Confidence level regarding supply-driven solutions to underutilization - Management believes that supply-side adjustments will help improve utilization, but it will take time [50] Question: CapEx needed to reactivate retired horsepower - Management indicated that the decision to retire 300,000 horsepower was based on market needs and the oversupply situation [52] Question: Pricing environment in land drilling - Management acknowledged pressure on leading-edge dayrates but emphasized the value of super-spec rigs [57] Question: Potential for incremental rig activity - Management indicated that there is potential for a modest increase in rig activity, but specifics are uncertain [65] Question: Impact of retired frac pumps on CapEx - Management noted that the use of components from retired equipment could provide some savings, but it would be relatively small [67] Question: Maintenance CapEx expectations - Management stated that it is too early to determine maintenance CapEx levels for 2020 due to uncertainty in rig counts and schedules [85]