Executives at drilling and pressure pumping contractor Patterson-UTI Energy Inc. have experienced a seasonal slowdown in the northeastern U.S. energy patch, they told financial analysts during an earnings conference call.
"...[W]e have seen a shift to greater seasonality in the pressure pumping business in the Northeast..." said Patterson Chairman Mark Siegel.
The company's Marcellus Shale business has been "fundamentally changed" by the advent of long horizontal wells, CEO Doug Wall said. "For the second year in a row we have witnessed a slowdown in the fourth quarter and well into the first quarter as our customers continue to grapple with logistics issues related to completing these types of wells in the wintertime. In general, the inefficiencies and the higher cost brought on by the winter weather are creating a new seasonality effect in the Northeast.
"In general, I believe it's fair to say that the Northeast market has changed considerably over the last couple of years. It appears the backlog of work waiting on completion has declined substantially, providing fewer options for short-notice work."
The number of rigs actively targeting oil and gas in the Marcellus is increasing again after declining for much of December and January. According to NGI's Shale Daily Unconventional Rig Count for the week ending Feb. 3, there are158 rigs active in the play, which is up six rigs, or 4% from the previous week, and 9% higher than the 145 rigs operating during the same week one year ago.
Wall hastened to add that Patterson-UTI customers have indicated that activity will step up late in the first quarter and all of the company's hydraulic fracturing (fracking) crews in the Northeast are scheduled to be active by the end of the quarter.
In Patterson-UTI's Southwest region activity remains "strong" and is expected to remain so, Wall said. However, operating cost increases are creeping in both in the Northeast and Southeast. "...[I]n particular, sand and hydrochloric acid, as well as logistics costs, continue to weigh on our overall margins, although we believe these costs will level off," he said.
Patterson-UTI Energy Inc. reported net income of $87.6 million (56 cents/share), for the fourth quarter, compared to net income of $53.9 million (35 cents/share) for the year-ago quarter. Revenues for the fourth quarter of 2011 were $725 million, compared to $506 million for the fourth quarter of 2010. The company reported net income of $322 million ($2.06/share) for all of 2011, compared to net income of $117 million (76 cents/share) for 2010. Revenues for 2011 were $2.6 billion, compared to $1.5 billion for 2010.
"Activity in our drilling business continued to increase in the fourth quarter as our average number of rigs operating increased to 232, including 220 in the United States and 12 in Canada," said Wall. "This compares to an average of 221 rigs operating in the third quarter of 2011, including 209 in the United States and 12 in Canada.
"Demand for our rigs continues to be strong and our rig count has continued to increase. We expect to average approximately 241 rigs operating in January, comprised of 225 in the United States and 16 in Canada."
As for the continuing weak prices for dry gas and the effect they're having on drilling activity, Patterson-UTI's take is similar to that of Tulsa-based contract driller Helmerich & Payne Inc.: most of the rigs being pulled from dry gas activity are finding work targeting gas liquids and oil (see Shale Daily, Feb. 2).
"As we now see it, increased activity in oil and liquids-rich areas, driven by high oil prices, is likely to offset most if not all of the rigs and pressure pumping equipment that may become available as a result of lower natural gas-related activity," Siegel said. "Our exposure to low natural gas prices is mitigated by our long-term contract coverage. We currently have less than 30 rigs drilling for dry gas under contracts that are well-to-well or that have an initial term of less than one year.
"Moreover, in pressure pumping, the majority of our fracturing horsepower is located in oil and liquids-rich areas. In addition, approximately 30% of our fracturing horsepower is under take-or-pay term contracts."