Houston-based Patterson-UTI Energy Inc., which provides contract drilling, pressure pumping and directional drilling services in North America, reported slower activity during the first three months of the year even as oil prices strengthened.
The oilfield services contractor in its quarterly results issued on Thursday, saw its rig count fall sharply from the final three months of 2018, and more rigs will be dropped through June as exploration and production (E&P) customers remain “fiscally conservative,” CEO Andy Hendricks said.
"Drilling and completion activity slowed during the first quarter as E&P companies reacted to the sharp drop in oil prices at the end of 2018,” he said. “In contract drilling, our rig count averaged 175 rigs during the first quarter, compared to an average of 183 during the fourth quarter.”
Oil prices strengthened and operator cash flow has improved, but “operators have remained fiscally conservative and demand levels remain subdued. For the second quarter, we expect our rig count to average approximately 160 rigs.”
Today the company has 166 rigs deployed across the Lower 48, with most (52) in the Permian Basin of West Texas. Another 31 are deployed in Appalachia, with 23 in the Midcontinent, 22 in South Texas, 14 each in the Rockies and East/North Texas, and nine in North Dakota.
"In pressure pumping, as expected, completion activity slowed in the first quarter,” Hendricks said.
The company ended March with 16 active spreads, compared to 20 at the end of December.
“As we remain focused on reducing costs and improving cash flow, we took the proactive step of removing spreads from the market until we can redeploy them at attractive economics…While we have reduced our spread count, we expect our second quarter activity to be similar to the first quarter.”
Average rig revenue/day increased during 1Q2019 by $620 to $23,590, “more than offsetting a $310 increase in average rig operating costs/day to $13,880,” Hendricks said. “Accordingly, the average rig margin/day increased $310 to $9,700.”
At the end of March, term contracts for drilling rigs provided about $650 million of future dayrate drilling revenue. Based on contracts now in place, an average of 104 rigs will be operating under term contracts through June, and an average of 59 rigs would be working under term contracts through next March.
“Oil prices in the mid-$60s have historically been sufficient to support increasing activity levels,” Chairman Mark S. Siegel said. “While drilling and completion activity is currently subdued, we expect the strength in commodity prices will eventually lead to higher activity levels. Nonetheless, we remain resolute in our focus on efficient and high-quality services, our operational flexibility, a strong balance sheet, and prudent capital allocation."
The company reported a quarterly net loss of $28.6 million (minus 14 cents/share), versus a year-ago net loss of $34.4 million (minus 16 cents). Revenue fell year/year to $704 million from $809 million.
As free cash flow improved in the first three months, share repurchases were accelerated and it bought back $75 million of stock. Even with the share repurchases and $8.5 million of dividends paid in 1Q2019, the cash balance improved to $249 million.