Onshore contract driller Patterson-UTI Energy Inc. (PTEN) declared that its May 2013 drill rig count averaged 185, down from 189 in the previous month. The company operated 184 rigs in the U.S. and 1 in Canada in May, compared with 186 rigs in the U.S. and 3 in Canada during Apr this year.
Patterson-UTI’s activity levels in the U.S. peaked in early Oct 2008 with a rig count of 275. From then through the second quarter of 2009, the company witnessed a steep and rapid decline in rig count on the back of decreased demand, largely caused by lower commodity prices for natural gas and tighter access to credit.
However, with natural gas prices looking up amid signs of economic stabilization, Patterson-UTI’s monthly rig count numbers have recovered sharply. In fact, its current rig count is up more than 3 times from a low of 60 in May 2009.
Houston, Texas-based Patterson-UTI Energy is one of the largest onshore contract drillers in the U.S. with more than 300 land-based rigs that operate primarily in the oil and natural gas producing regions of North America.
Buoyed by Patterson-UTI’s growing premium land rig fleet and the expected demand uptick for such services; we are confident about the company’s near to medium term outlook. However, we remain wary of increased labor costs for contract drilling that may lead to slower margin growth going forward.
This accounts for Patterson-UTI’s current Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can look at Newpark Resources Inc. (NR), Exterran Partners L.P. (EXLP) and Dawson Geophysical Co. (DWSN) as good buying opportunities. These energy equipment service providers – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with potential to rise significantly from current levels.
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