Patterson-UTI Energy Inc.'s (PTEN) stock rose dramatically Thursday after it reported not only high demand for its specialized onshore walking rigs, but customers taking rigs without updated equipment to keep up with rising Permian Basin activity.
The stock rose 13% on Thursday, with more than 10 million shares trading hands, three times the normal volume. The stock opened Thursday at $25.80; it was still climbing Friday morning, averaging around $28.40.
Chairman Mark S. Siegel and CEO Andy Hendricks told analysts during a conference call that earnings this year should be 7% higher following an above-average fourth quarter improvement in the rig fleet. The pressure pumping business in the final three months rose 10% sequentially on a building backlog of hydraulic fracturing work.
The Houston-based oilfield services operator has more than 275 marketable land-based rigs that operate primarily in North America's onshore. It also provides pressure pumping services, primarily in Texas and Appalachia.
PTEN's average U.S. rig count in December "increased to 187 rigs...from 178 in October," said Hendricks.
Demand is particularly strong, he said, for the high-specification Apex rigs, a business line that offers electric rigs that walk, or move quickly, on multi-pad drilling sites. Many of the rigs also run on natural gas.
PTEN could barely keep up with demand, said Hendricks.
"Additionally, demand has improved for our fleet of non-Apex electric rigs. In total, during the fourth quarter, our average operating rig count in the United States increased to 183 rigs from 181 in the third quarter and our average operating rig count in Canada increased to nine from eight in the third quarter."
Average rig revenue per day increased $520 to $23,170 in 4Q2013 from $22,650 in the third quarter. Average rig operating costs per day fell $240 sequentially to $13,510. Average rig margin per day increased $760 to $9,660 from $8,900 in 3Q2013.
"We completed three new Apex rigs during the fourth quarter, for a total of 11 new Apex rigs during 2013," said the CEO. "We plan to complete 20 new Apex rigs in 2013, including three in the first quarter. Since our last earnings release, we have contracted seven new Apex rigs," giving the company contracts on 10 of the new planned rigs.
Based on contracts now in place, PTEN is expecting an average of 124 rigs operating under term contracts through March, and an average of 93 operating under contracts through the year.
There was seasonal decline in the pressure pumping business, but the gross margin still modestly improved to 21.5% of revenues.
"We significantly reduced our pressure pumping spending in 2013 as we transitioned from growing our fleet to focusing on improving the facilities and infrastructure necessary for us to profitably compete in what was a very competitive market," Siegel said.
"As customer demand increased during the fourth quarter, we were quickly able to respond by reactivating non-Apex electric rigs to satisfy this need. The increasing demand for high-specification rigs to drill complex, horizontal wells continues."
More recently, he said, "the focus on horizontal wells in the Permian Basin has accelerated, and we are well positioned as a market leader in this region and in walking rig technology for pad drilling."
Pressure pumping remains competitive, said Siegel. "The increase in complex, horizontal wells should positively impact activity in 2014. Our focus on well-site execution and customer relationships has generated competitive advantages for us, and allowed us to activate equipment at the beginning of 2013 and keep our equipment active during the year."
PTEN reported fourth quarter net income of $16.6 million (11 cents/share), down from $58.9 million (40 cents) in the year-ago period. Revenues rose slightly to $659 million from $653 million.
The quarterly results included a one-time charge of $37.8 million related to the mechanically powered rig fleet. It also included the retirement of 48 mechanical drilling rigs, which have been less appealing to customers. For the year, net income was $188 million ($1.28/share) from $299 million ($1.96) in 2012. Revenues were flat at $2.7 billion.
Siegel said the fourth quarter results "exceeded our expectations because of the higher-than-expected rig count and average margin per day. Rising rig demand in November and December caused 2013 to end on a positive note."
The stronger results heading out of the final period is "really just incremental demand for rigs," said Hendricks. "And there's a shortage of high-spec rigs like our Apex out there right now...And so with that kind of demand, we're also seeing demand for the non-Apex electrics.
"And we haven't had to spend a lot of money. We haven't done any major work on these rigs. They were in good shape and pretty much has put them back to work. Some of them already had upgrades..."