Sunday, October 20, 2013

Patterson-UTI: Outlook Of This Underappreciated Oilfield Services Firm With +25% Upside

Patterson-UTI Energy is an underappreciated oilfield services firm that is poised for significant growth in the long term due to rise in drilling activity, strong demand for APEX rigs, improving avg revenue/op day and avg revenue/job numbers, continuous growth in pressure pumping market, the management’s positive attitude towards innovation (e.g. bi-fuel rigs) and potential for growth in the Canadian market. 

Patterson-UTI Energy (PTEN) is an oilfield services firm which provides drilling and pressure pumping services to E&P companies operating in North America. Patterson specializes in using walking rigs for pad drilling applications. The company, and its subsidiaries, has a large fleet of more than 300 land drilling rigs, including 120 high-quality APEX ® rigs. For the month of August 2013, Patterson had an average of 190 rigs operating in North America of which 182 were in the United States while 8 were in Canada. 
The company has a strong footprint in all American drilling markets.

The company has two main operating areas; contract drilling and pressure pumping. It usually earns ~60% of its operating revenues from contract drilling and more than 35% of its operating revenues from pressure pumping. The rest, nearly 2%, comes from some of its E&P activities.

(table 1)

The slump in natural gas prices had an adverse impact on the drilling and pressure pumping market as the E&P firms cut back on their expenditure. The recovery of the industry has been quite slow and as a result, Patterson has suffered with little top and bottom line growth.

(figure 1)

Contract Drilling

The profitability of this segment depends on the average number of rigs operating and the average revenue per operating day.

Despite the persistent weakness in the market, the company is now showing signs of improvements with the uptake in contracting activity. This was also evident in the most recent average rig count (August 2013) which dropped …. Read full article