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Patterson-UTI (PTEN) Q4 Loss Wider Than Expected on Costs

Nilanjan Choudhury

Patterson-UTI Energy Inc. PTEN shares plunged 14.3% Thursday after the onshore contract driller reported adjusted net loss per share of 10 cents, 2 cents wider than the Zacks Consensus Estimate on soaring expenses.

The company is already grappling with the aftermath of the recent explosion in a well in Quinton, OK, owned by Red Mountain Energy. The tragedy, one of the deadliest oil and gas related accidents in the last few years, occurred at one of Patterson-UTI's APEX 1500 rigs and killed five workers.

However, Patterson-UTI’s performance improved from the year-ago loss of 53 cents per share as shale drilling picked up amid rebounding oil prices.

Revenues of $787.3 million compared with $246.9 million in the year-ago quarter and were also higher than the Zacks Consensus Estimate of $760 million.

Patterson-UTI Energy, Inc. Price, Consensus and EPS Surprise


Patterson-UTI Energy, Inc. Price, Consensus and EPS Surprise | Patterson-UTI Energy, Inc. Quote

Segmental Performance

Contract Drilling: This segment’s revenues totaled $309.6 million, soaring 127.5% year over year.

Average revenues per operating day decreased to $20,950 from $21,640 in the fourth quarter of 2016. However, average direct costs per operating day came in at $12,940, down from $13,770 in the year-ago quarter. The segment was also boosted by a jump in both the operating days (from 6,288 to 14,776) and the number of rigs operational (from 68 to 161) on the back of resilience in Patterson-UTI’s operations amid an improving market.

Consequently, the segment recorded operating loss of $16.4 million – significantly narrower than the loss of $62.5 million incurred in the year-earlier quarter.

Pressure Pumping: Revenues of $406.7 million almost trebled from the year-ago sales of $105.6 million. Moreover, the segment reported a profit of $22.4 million, turning around from a loss of $40.1 million in the prior-year quarter. Pricing gains and higher activity led to the improvement.

Directional Drilling: Directional Drilling – Patterson-UTI’s newest unit following the acquisition of MS Directional – lost $21,000 on revenues of $45.6 million.

Other Operations: Revenues came in at $25.5 million compared to $5.2 million in the year-ago quarter. However, the rebound in commodity prices notwithstanding, the unit incurred a wider quarterly loss of $7.8 million, as against the loss of $1.1 million recorded in year-ago quarter. The deterioration was mainly on account of steep rise in direct operating costs – from $2.8 million to $20.9 million.

Direct Operating Costs

The company – whose larger rival Helmerich & Payne Inc. HP also reported a loss but managed to outperform estimates – incurred direct operating expenses of $567.9 million, reflecting a 200% jump from $189.4 million reported in the year-ago quarter.

Capital Expenditure & Balance Sheet

During the quarter, Patterson-UTI spent approximately $237.2 million on capital programs (as against $39.3 million in the fourth quarter of 2016). Capital expenditure for the full-year 2017 came in at $567.1 million.

As of Dec 31, 2017, the company had $42.8 million in cash and $598.8 million in long-term debt.

Guidance & Outlook

Patterson-UTI management remains upbeat over its business following the recovery in land rig count and the recent bullishness in activity and pricing. In fact, the company sees 2018 as an exciting year for super-spec rigs. The company has 130 of them in its fleet with 98% under contract.

While Patterson-UTI sees an average rig count of 169 in the first quarter, it also expects average rig revenue per day to increase $300 sequentially, driven by favorable repricing of short-term contracts. At the same time, average rig operating cost per day is also expected to go up in the first quarter.

Patterson-UTI expects an average of 96 rigs to be operational under term contracts during the first quarter and 67 for the entire 2018.

In pressure pumping, the company expects first quarter revenues to fall slightly from the fourth quarter due to weather-related disruptions. Still, gross margins are likely to increase by approximately $5 million sequentially.

Directional Drilling revenues are expected to be roughly $47 million with a gross margin of 28%.

Zacks Rank & Stock Picks

Patterson-UTI holds a Zacks Rank #3 (Hold).

Meanwhile, one can look at a better-ranked energy players like Concho Resources Inc. CXO and Occidental Petroleum Corporation OXY – both sporting Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Concho Resources, based in Midland, TX, is an independent oil and gas exploration and production company with producing properties mainly in the Permian Basin of southeast New Mexico and west Texas. It has a 100% track of outperforming estimates over the last four quarters at an average rate of 118.6%.

Based in Houston, TX, Occidental is an integrated oil and gas company, with significant exploration and production exposure. The 2017 Zacks Consensus Estimate for this company is 89 cents, representing some 188.1% earnings per share growth over 2016. This year’s average forecast is $2.47, pointing to another 177.3% growth.

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