Despite charting a net loss for the third quarter, management of contract drilling services provider Patterson-UTI Energy Inc. sees the industry turning a corner as more of its rigs are turning to the right.
"On our second quarter conference call with investors we spoke about seeing the first green shoots, the first signs of spring in the drilling business" (see NGI, Aug. 3), Chairman Mark S. Siegel told financial analysts during an earnings conference call last week. "During the third quarter we saw our U.S. rig count increase sharply, albeit from a low starting point. Most significantly, this occurred during the third quarter when natural gas prices averaged $3.18 and oil prices averaged $68.14...
"The upward trend has continued in October in a steady manner, and we have recently seen a marked further increase in customer inquiries...We expect this increase in customer inquiries will translate into increased activity in November and December..."
Siegel noted that the increase in drilling activity is happening in both natural gas and oil and across "virtually all of the regions in which we operate." Additionally, traditional markets and shale plays are seeing the upswing in activity, Siegel said.
The company reported a net loss for the third quarter of $18.6 million (minus 12 cents/share), compared with net income of $109 million (69 cents) for the year-ago quarter. Revenues were $176 million, compared with $609 million for the year-ago quarter.
"We are continuing to experience an increase in demand for our rigs as customers prepare for increased drilling activities in 2010. Consistent with the increase in demand, our spot market dayrates stabilized during the third quarter and have recently started to increase," Siegel said.
The Houston-based company's average number of rigs operating increased in the third quarter to 73, including 70 in the United States and three in Canada. This compares to an average of 63 rigs operating in the second quarter, including 61 in the United States and two in Canada. Patterson-UTI currently has 93 rigs operating, including 88 in the United States and five in Canada.
Average revenue per operating day for the quarter was $16,800, compared with $17,780 for the second quarter. Average direct operating costs per operating day for the third quarter were $10,630, compared with $9,960 for the second quarter. As a result, average margin per operating day in the third quarter was $6,170 compared with $7,820 for the second quarter.
"Our average rig count in the third quarter included four rigs that earned standby revenues of $3.4 million. This compares to an average of seven rigs that earned standby revenues of $7.5 million in the second quarter, said CEO Douglas J. Wall. "These rigs earned a discounted dayrate as they did not have crews and incurred lower costs than our working rigs. Accordingly, standby rigs reduced both average revenue and direct operating costs per operating day.
"During the third quarter of 2009 we had an average of approximately 28 rigs operating under term contracts (including the four rigs earning standby revenues). We expect to have an average of approximately 33 rigs (including one rig earning standby revenues) under term contracts for the remainder of the year. We expect to have an average of approximately 34 rigs in 2010 and 21 rigs in 2011 under existing long-term contracts."
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