Icy weather idled crews and equipment across the United States during the first quarter, but demand for specialized rigs remained strong, Patterson-UTI Energy Inc. (PTEN) management reported Thursday.

The onshore contract driller saw earnings slump in the first period as icy weather permeated the U.S. producing basins, but demand for specialized rigs continued to be strong. PTEN CEO Andy Hendricks said Thursday the weather dinged profits and gross margins, but the Houston-based operator still increased revenues.

Net income fell 38% year/year to $34.8 million (24 cents/share) from $56.2 million (38 cents). Revenues climbed to $678 million from $667 million. PTEN had flagged the profit slump in advance.

The oilfield services company provides contract drilling and pressure pumping services exclusively to North American explorers, and today has more than 275 marketable land-based rigs. Subsidiaries Universal Pressure Pumping Inc. and Universal Well Services Inc. provide pressure pumping primarily in Texas and Appalachia.

Despite the icy weather, PTEN “experienced strong growth in our rig count, which averaged 193 rigs in the United States during the first quarter of 2014, an increase of 10 from 183 rigs in the fourth quarter of 2013,” said Hendricks. “In Canada, our average rig count increased to 10 rigs in the first quarter from nine rigs in the fourth quarter.

“Our rig count in the United States continues to grow, and we expect to average 199 rigs operating during April, while in Canada our rig count is being impacted by the annual seasonal decline in activity and is expected to average one rig during April.”

The average U.S. rig count in December rose to 187 rigs from 178 in October (see Shale Daily, Feb. 7).

In the first three months, rig revenue per day averaged $23,380. Excluding the impact of contract roll-offs, the average revenue was $210/day more than in 4Q2013. Average rig operating costs per day in 1Q2014 were $13,780, an increase of $270/day from 4Q2014 on additional costs related to rig reactivations and typical taxes. Average rig margins per day fell slightly to $9,600 from 4Q2013’s $9,660.

PTEN’s Apex rigs, a specialized walker, continue to be in high demand, Hendricks said. PTEN began to build its Apex rig in the mid-2000s. The high-spec rigs literally are flying off the shelf.

“We completed three new Apex rigs during the first quarter, bringing our Apex rig fleet to 127 rigs.” Since the end of 2013, the company has secured contracts on four of the rigs to be completed in 2014 and one rig to be completed in 2015.

“We expect to complete 20 rigs in 2014 and all either have signed contracts, or are committed and awaiting signature by customers. We will continue to build rigs to meet customer demand.

“Given the recent surge in demand for high-spec Apex rigs, we have increased the number of rigs in our construction program by adding six rigs. We now expect to complete 23 rigs through the four quarters ending March 2015.

At the end of March, PTEN had term contracts for drilling rigs that provided around $1.04 billion of future dayrate drilling revenue, said the CEO. “Based on contracts currently in place, we expect an average of 137 rigs operating under term contracts during the second quarter, and an average of 111 rigs operating under term contracts during the remaining three quarters of 2014.”

Appalachian operations particularly were impacted by the unusually severe weather during the latest period, but “nonetheless, revenues increased sequentially to $240 million…from $234 million in the fourth quarter,” Hendricks said. “Our gross margin decreased sequentially to 16.8% of revenues as a result of having crews and equipment on location that were unable to provide revenue generating services during the unusually severe weather.

“While on location, we continued to incur labor, demurrage and other costs, including fuel costs to run our equipment in order to protect it in these extraordinary weather conditions.”

Since the horizontal rig count in the United States bottomed in July 2013, it has “increased by more than 150 rigs, leaving high-spec rigs in short supply across the industry,” said Chairman Mark Siegel. “Having transformed the company, we are well positioned to benefit from the strong demand for our growing fleet of high-spec rigs. During the first quarter, our fleet of Apex rigs achieved better than 97% utilization.

“The increase in horizontal drilling activity and fracture intensity is increasing demand for pressure pumping. While the pressure pumping industry continues to be oversupplied, we believe the incremental demand is moving the industry toward equilibrium.

“Within our fleet, we expect activity will recover in the Northeast, as weather in the second quarter is expected to be more accommodating. Additionally, in the Southwest, activity is expected to remain strong due to increasing horizontal activity in the Permian.”

Commodity oil and gas prices “remain favorable for increasing activity levels, and we remain positive about the outlook for both contract drilling and pressure pumping,” said the chairman. “We believe that with the short supply of high-spec rigs, the industry is at the point where in previous cycles dayrates accelerated.”

One major reason for the shift to more high spec rigs is simply that more and more wells in the United States are being drilled horizontally, and those wells tend to require more horsepower and drilling capabilities, everything else being equal. Horizontal and directional focused rigs have grown from 40% of total active drilling rigs at the beginning of 2006 to nearly 80% today.