Patterson-UTI (PTEN) Q3 Loss Lower Than Expected, Sales Miss

Onshore contract driller Patterson-UTI Energy, Inc. (NASDAQ:PTEN) reported loss per share of 16 cents for third-quarter 2017, narrower than the Zacks Consensus Estimate which was pegged at a loss of 17 cents. Results were driven by strong contribution from the Pressure Pumping segment. Further, the bottom line also improved from the year-ago period loss of 58 cents per share.

The company reported quarterly revenues of $685 million in the quarter, slightly below the Zacks Consensus Estimate of $688 million. Moreover, revenues in the quarter jumped 232.5% from the prior-year figure of $206 million.

Segmental Performance

Contract Drilling: This segment’s revenues totaled $301.6 million (44% of total revenue), up 143.9% year over year.

Average revenue per operating day decreased to $20,320 from $21,870 recorded in third-quarter 2016, and average direct costs per operating day was $12,600, down from the $13,180 recorded figure in the year-ago quarter. The segment recorded operating loss of $20.4 million —narrower than the loss of $67.8 million incurred in the year-earlier quarter.

Operating days increased to 14,841 from 5,655 in the year-ago quarter. Further, the number of operational rigs increased from 61 in the prior-year quarter to 161 in the reported quarter. Patterson-UTI averaged 159 rigs in the United States and three rigs in Canada during the third quarter.

Pressure Pumping: Revenues of $362.4 million (53% of total revenue) were higher by 363.7% year over year. The growth is attributed to increased activities and utilization along with better-than-expected pricing. The segment reported an operating profit of $16.8 million as against the prior-year quarter loss of $46.6 million. Pressure pumping gross margin as a percentage of revenues increased to 19.9% for the third quarter from 1.2% in the year-ago quarter.

Other Operations: Revenues came in at $20.9 million, 388.6% higher than the year-ago quarter. However, the segment reported an operating loss of $6.5 million as against a profit of $228,000 in the year-ago quarter. The weaker bottom line is attributed to the increased direct operating costs, which were higher by 691.7%.

Costs & Expenses

Total costs and expenses increased by 119.4% to $723 million in the reported quarter. The increase was mainly driven by higher direct operating costs which were up 221.1% from the prior-year quarter. Depreciation costs in the reported quarter were $196.6 million, higher by 20.3%. Selling, general and administrative expenses were $27.5 million, reflecting an increase of 65.8%. Inclusion of merger and integration expenses of $9.4 million also led to increased costs in the quarter under review.

Capital Spending and Balance Sheet

During the quarter, Patterson-UTI — which counts Nabors Industries Ltd. (NYSE:NBR) , Helmerich & Payne Inc. (NYSE:HP) and Precision Drilling Corporation (NYSE:PDS) as its peers — spent approximately $143.1 million on capital programs (as against $28.7 million in third-quarter 2016).

As of Sep 30, 2017, the company had $37.8 million in cash and $598.7 million in long-term debt. The debt-to-capitalization ratio of the company is about 15.1%.

Dividend

Patterson-UTI declared a quarterly dividend on common stock of 2 cents per share, to be paid on Dec 21, to shareholders of record as of Dec 7.

Outlook

The company expects the rig count to average 160 rigs in the fourth quarter. Average rig margin per day is expected to decrease to approximately $7,300 per day in the fourth quarter as against $7,730 recorded in the third quarter. This is due to increasing average rig operating costs per day which are forecasted 3.2% higher than the current quarter.

Revenues from the pressure pumping segment are expected to increase to $390 million in the fourth quarter on the back of higher activities and better pricing. Pressure pumping gross profit as a percentage of revenues is expected to improve to about 22.5%. The other operations’ segment is estimated to generate revenues of $28 million in the fourth quarter.

Both the depreciation and selling, general /administrative costs are expected to increase in the fourth quarter. Capex for 2017 is estimated at $580 million, unchanged from the prior guidance.

Zacks Rank

Patterson-UTI is one of the leading providers of domestic land drilling services to major and independent oil & natural gas companies. The company focuses its operations in Texas & southeast New Mexico. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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