Patterson-UTI Energy(PTEN) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net income of $84.6 million or $0.40 per share for the second quarter, which included $7.9 million of merger and integration expenses and $3.8 million of impairment expenses in the E&P business [73] - Average adjusted rig margin per day in the U.S. increased by $1,030 sequentially to $16,910, driven by a $1,190 increase in average rig revenue per day to $35,940 [49] - The company expects to lower its 2023 CapEx forecast to $485 million, which includes approximately $280 million for contract drilling, $140 million for pressure pumping, $20 million for directional drilling, and $45 million for other businesses and general corporate purposes [74] Business Line Data and Key Metrics Changes - In contract drilling, the average rig count is expected to be 119 rigs for the third quarter, with average rig revenue per day expected to be approximately $35,500 and average rig operating cost per day expected to be $19,400 [37] - Pressure pumping revenues for the second quarter were $250 million with an adjusted gross margin of $53.8 million, while for the third quarter, revenues are expected to be approximately $230 million with an adjusted gross margin of $37 million [75] - Directional drilling revenues were $55.1 million in the second quarter with an adjusted gross margin of $7.8 million, and for the third quarter, revenues are expected to decrease to $52 million [50] Market Data and Key Metrics Changes - The company noted that the Northeast gas market has experienced some stress, but the overall U.S. onshore market is expected to remain steady and strong [40][66] - The company anticipates that the rig count and frac activity will improve later in the year and into 2024, driven by recent strength in oil prices and natural gas futures [33][52] - The company expects that some operators will increase their activity in drilling and completions by year-end and into 2024, particularly in gas basins due to upcoming LNG export capacity [77] Company Strategy and Development Direction - The merger with NexTier is expected to strengthen the company's position as a leading provider of drilling and completion services, creating a platform at the forefront of innovation [40] - The company continues to prioritize margins over activity, focusing on maintaining pricing where possible [81] - The company plans to convert its Tier 2 diesel spreads to Tier 4 dual fuel to better position itself for increasing completion activity later in the year and in 2024 [72] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the overall U.S. onshore market, with expectations for improved well economics for E&P operators due to favorable commodity prices [52] - The company believes that pressure pumping activity has already reached a trough and expects additional work to begin later in the quarter [34] - Management indicated that while there is some softness in the market, they expect improvements in rig count and activity levels as commodity prices stabilize [81] Other Important Information - The company has returned approximately $126 million of cash to shareholders through the first half of 2023, including $33.5 million in dividends [48] - The company has $281 million remaining under its share repurchase authorization, although repurchases may be limited due to the pending merger with NexTier [36] Q&A Session Summary Question: What is the outlook for day rates in 2024? - Management is focused on maintaining day rates and margins, expecting improvements later in the year and into next year [81] Question: How many oil rigs could be recovered next year? - Management indicated that a recovery in gas could push the rig count over 700 rigs in the first quarter next year [82] Question: What are the pricing dynamics in the drilling market? - Management noted that pricing dynamics have stabilized, with day rates in the low to mid-30s, and they expect steady pricing moving forward [85] Question: How should we think about frac revenue progression into the fourth quarter? - Management explained that while there was significant white space in the calendar, they expect more dedicated work to layer in towards the end of the third quarter, justifying the increase in spreads for the fourth quarter [87] Question: What is the expected CapEx distribution for the second half of the year? - Management stated that the remaining CapEx is spread out over the back half of the year, with maintenance CapEx returning as activities pick up [100]