Q3 2020 Patterson-UTI Energy Inc Earnings Call
Ladies and gentlemen, this is the conference operator.
Conference will begin momentarily.
It began to be placed in musicals. Thank you for your patience.
[music].
Third quarter 2020 earnings conference call.
This time, all participants are no listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session you'll need to press star one on your telephone. Please be advised that todays conference is being recorded if you require any further assistance. Please press star zero I would now like turn the call over to Mike Drickamer.
Vice President Investor Relations. Please go ahead.
Thank you Denise.
Good morning.
And on behalf of Patterson UTI energy I'd like to welcome you to today's conference call to discuss the results of the three nine months ended September Thirtyth 2020.
Participating on today's call will be Andy Hendricks, Chief Executive Officer, and Andy Smith, Chief Financial Officer.
A quick reminder, that statements made this conference call the state the company's or management's plans intentions beliefs expectations or predictions for the future are forward looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, The Securities Act of 933, and the Securities Exchange Act of 934. These forward.
These forward looking statements are subject to risks and uncertainties as disclosed in the company's annual report on form 10-K, and other filings with the SEC.
These risks and uncertainties could cause the company's actual results to differ materially from those suggested in such forward looking statements for the company expects the company undertakes no obligation to publicly update or revise any forward looking statement.
The company's SEC filings may be obtained by contacting the company or the FCC and are available through the company's website and through the Fccs Edgar system.
Statements made in this conference call include non-GAAP financial measures the required reconciliations to GAAP financial measures are included on our website Www Dot P 80 energy Dot com and in the company's press release issued prior to this conference call.
And now it's my pleasure to turn the call over to Andy Hendricks for some opening remarks Andy.
Thanks, Mike good.
Good morning, and welcome to Patterson UTI <unk> third quarter Conference call. We're pleased you can join us today.
Our financial results during the third quarter exceeded consensus estimates as her contract drilling business continues to prove its resilience in a downturn and our pressure pumping a directional drilling businesses showed improvement in the third quarter.
Based on our customer engagement, we expect activity will continue to improve through at least the first quarter of 2021.
Assuming commodity prices remain around current levels, we expect our profitability will be at or near an inflection point in the fourth quarter and we've hired an early 2021.
I will now turn the call over to Andy Smith, who will review the financial results for the quarter ended September 30.
Ended September Thirtyth.
I'll then comment on our operational highlights as well as our outlook before opening the call to Cuda Andy.
We have Uh huh.
Fourth our earnings press release issued this morning for the third quarter, we reported a net loss of $112 million or 60 cents per share.
Adjusted EBITDA was $43.3 million, which significantly exceeded capital expenditures of $13.4 million.
Our operating results combined with a further working capital release led to a 57 million dollar increase in our cash balance our cash balance at the end of the third quarter was $304 million.
Activity levels have recently improved across all of our business segments.
The increased activity levels are drilling capex forecast, which was expected to be $100 million. In 2020 is now expected to be $110 million. All other capex expectations remain the same bringing our total capex expectation to $150 million for 2020.
Of the $110 million of drilling Capex $49 million was spent in the first quarter before the downturn began.
I'd turn the call back to Andy for the fourth quarter, we expect industry and <unk> of approximately $22 million, we expect depreciation depletion and amortization and impairment expense to be flat quarter over quarter at $157 million and the effective tax rate of approximately 13%.
Lastly, we will be paying our quarterly cash dividend of two cents per share on December 17th 2020 to holders of record as of as of December 30, 2020 with that.
With that I will now turn the call back over 900.
Thanks Eddie.
While the second quarter for our industry saw historic decline in active.
Thesis.
Nice to see the U.S. rig count stabilized in the third quarter.
Completion activity increase in the low at the end so for Patterson UTI die, even though our activity has declined significantly from the beginning of the year I'm also pleased with the operational performance of each of our business segments, and our continuing rollout of new technologies.
In contract drilling our average rig count for the third quarter was 60 rigs, including 17 rigs there were idle but contracted.
Proportion of rigs that were idle, but contracted increased to 28% in the third quarter from 20% in the second quarter.
This is dilutive to both average revenue per day at an average cost per day during the third quarter is idle, but contracted rigs generally receive rudi's day rate, but also carry minimal associated cost.
Average revenue per day during the third quarter was $20920 down from $22970 in the second quarter.
In addition to the dilution from the higher proportion of rigs receiving reduce rates revenue per day was also impacted by less lump sum early termination revenue during the third quarter.
Average would cost per day during the third quarter was $10750 down from $11690 per day in the second quarter.
In addition to the dilution from the higher proportion of rigs on standby at minimal cost operating cost benefited from a credit for sales and use tax during the quarter.
Average rig margin per day of $10170 in the third quarter benefited from unexpected lump sum early termination revenue and the credit to operating cross for sales and use tax.
Excluding both of these benefits average rig margin per day would have been approximately $9000, which exceeded our expectations.
As of September Thirtyth 2020, we had term contracts for drilling rigs, providing for approximately $305 million of future day rate drilling revenue.
[noise] based on contracts currently in place, we expect an average of 43 rigs operating under term contracts during the fourth quarter and an average of 35 rigs operating under term contracts during the four quarters ending September Thirtyth 2021.
Drilling activity stabilized during the third quarter and started to improve late in the quarter. Our rig count has improved to 61 rigs today from a low of 57 rigs in late August.
We are optimistic about the outlook for drilling activity in the fourth quarter and expect to see an increase in activity later in the quarter.
We expect to average 61 rigs for the fourth quarter with the proportion of rigs idle, but contracted in the mid teens.
By the end of the fourth quarter, we expect to be at 63 rigs of which approximately 10% will be idle but contracted.
Average revenue per day in the fourth quarter is expected to decline by approximately 2% to 3% due primarily to the expected absence lump sum early termination revenue in the fourth quarter.
Average cost per day in the fourth quarter is expected to be negatively impacted by having a lower proportion of idle but contracted rigs.
Additionally, our expected fourth quarter rig operating costs include approximately $500 per day of rig reactivation expenses.
In total average rig margin per day is expected to be approximately $7500 per day in the fourth quarter.
Going forward, our focus is shifting from stacking to reactivating rigs in the fourth quarter and the first quarter of 2021.
We're in a great position to do so given our broad customer base and our fleet of Super spec walking rigs such as our advanced apex XK that we expect to be in demand as operators returned to work.
Across the U.S. contract drilling industry, we believe that while pricing will be competitive as the industry emerges from the rig count bottom, we expect the financial hurdle a rig reactivation expenses should promote pricing discipline as we move into next year.
Looking ahead, our expectation for the contract drilling industry that pricing discipline will be similar to what we saw in 2016 and 17.
As the rig count moved up from the bottom of the cycle drilling rig day rates also increased and it.
And in this cycle, we expect to see more performance based contracts, which create a better balanced economic win win with operators.
Turning now to pressure pumping.
We averaged five active spreads during the third quarter up from four active spreads in the second quarter.
Pressure pumping revenue for the third quarter increased to $72 million 59, and a half a million dollars in the second quarter and pressure pumping adjusted EBITDA improved to $6.2 million.
Our active spreads were more highly utilized during the third quarter, which when combined with further improvement in efficiency led to more than 30% increase in average stages per spread in the third quarter.
This efficiency improves our competitive position within the pressure pumping landscape.
For the fourth quarter, we expect to average six active spreads and pressure pumping revenues expected to improve by approximately 10% sequentially.
However, with lower utilization during the fourth quarter due to expected slowdowns around the holidays. Adjusted EBITDA is expected to decrease to approximately $4 million.
We are encouraged by the attrition occurring throughout the pressure pumping industry through mergers bankruptcies in consumption moving the industry directionally closer to a supply and demand balance.
Turning now to directional drilling revenues were $10.3 million and the gross margin was approximately a half million dollars.
We were able to increase activity and gain market share and what was essentially a flat rig market during the third quarter.
Our market share increase was a result of the enhanced performance of our new technology, the Mercury measurement, while drilling system and the new impact directional drilling motor sizes, which were introduced in the first quarter of the year.
We also continue to make great progress in the area of remote measurement, while drilling operations, whereby we were able to take an MWD technician off the rig and perform the job from our real time piece in plus performance center here in Houston.
During the third quarter, we performed remote MWD operations on 28 wells, which equated to 109 MWD runs.
And 328000 feet, a wellbore footage drilled.
For the fourth quarter, we expect directional drilling revenue of approximately $14 million and we expect gross margin of approximately one and a half million dollars.
Turning now to our other operations, which includes our rental technology and MP businesses revenues improved during the third quarter to $9.8 million from $8 million in the second quarter gross profit during the third quarter was $1.2 million.
The fourth quarter, we expect revenues and gross profits to be similar to the third quarter.
Before we open the call for questions I'd like to give you an update on our technology and DST progress.
Technology and performance would be an increasing differentiator as we move into a recovery and we continue to move forward with the remote operations capabilities for reduced costs and automation technologies for improved performance wellbore quality and repeatability.
These improvements are enabled by the Digitization of the high frequency data and meditator originating from the well site operations.
As well as by Digitalizing, our processes and workflows.
These technology investments, our capital light and operate in a cloud data environment, where for example in contract drilling and directional drilling they can be added to our existing high performance Super spec rigs such as our popular apex XK as.
As well, we believe that we have a leadership position in the technologies that enable the use of alternative fuels for cost savings and for reducing emissions were.
We're seeing increased interest through more operator focus on U.S.G. and carbon emissions in a number of our technology solutions.
For example in contract drilling we have the largest fleet of 100% natural gas engines available in the us.
We are the first contract to operate a rig with lithium battery hybrid hardware and energy management software and automated energy transfer systems that can replace a complete generator using energy storage.
Our electrical engineering and Technology Division current power, we offer a solution and have experienced tying directly into highline utility power for an emissions free drilling operation at the well site.
In our pressure pumping division Universal is one of the most experienced frac companies operating natural gas dual fuel engines.
All this combined Patterson UTI, our technology leadership position in the increasing importance of DST in our industry and with an eye on the future energy transition.
We can continue these capital light and technology focus investments with a long term perspective, because at Patterson UTI, we have a strong balance sheet produce positive cash flow and have highly effective operational teams.
With that we'd like to thank the hardworking men and women who make up. This company is they have worked diligently and effectively through a very challenging time, both in our industry and in general we appreciate your continuing efforts.
Denise with that I'd like to open the call up for questions.
Ladies and gentlemen to ask a question. Please press Star then the number one on your telephone keypad well pause for just a moment how the kuni roster.
Your first question comes from Sean Meakim with Jpmorgan. Your line is open.
Thanks, Good morning.
Commercial.
So as we think about.
The first part of 21 yeah.
You indicated that we expect to see continued activity in that time that is consistent with what we what we've heard.
You're moving up your spread count in the fourth quarter in anticipation of that and so there will be a little bit of a low around the holidays.
Can we just talk about.
Confidence level in terms of being able to drive improving profitability for pressure pumping in the first quarter and if we look beyond that.
As.
Assuming that the that the Frac crew count for the lower 48 moves towards a maintenance level, which is substantially higher than where it is today and you would love to get your thoughts around how the industry will progress from being able to currently reactivate fleets at minimal cost versus requiring some form of medium ration from your.
Customers or to reactivate crews that have a higher spread.
Threshold to bring them back to market.
Hey, good morning, Sean So Oh I'll try to circle back on all that so in pressure pumping first off our philosophy is if we're looking at activating a spread we need is to be cash flow accretive to the business.
And when you look at the Activations that we've made we've been improving the margin in the business and so.
And so the increase in activity in the the other spread that will activate where we'll average up to six.
In the fourth quarter is not so much we're looking forward to 2041, but it's because of the work that we have in the fourth quarter now certainly will go forward and a 21 as well I believe just because of the increasing activity in general and increasing rig count that were saying, but.
But you know we're activating another spread going into the fourth quarter, because we believe it's going to be cash flow accretive to that business.
In terms of 2021, we have some visibility going into the fourth quarter, and we don't normally call out projections that far but we thought because we have visibility. We would go ahead and discuss that today.
You know I think though in terms of pressure pumping margin.
As we continue to activate spreads and it's accretive to cash flow.
Also improves the margin and we have more fixed cost coverage in that business as well in terms of the gionee for that business. So I think that helps and I'm certainly causes an upbeat on how our teams at universal pressure pumping is performing these days.
Okay fair enough I appreciate that context.
And then so on the drilling side.
You will see improving activity not the same magnitude maybe a completions early on.
And you indicated that you think it will be similar to the last cycle in which directionally as activity improves you will see a commensurate improvement in rates as we think about how that flows through the model, where you've got a mix of near term idle idle rigs going back and they're on rate going back.
To work eventually be adding new rigs, there's only at lower day to day rates and the average there's nothing that points like where your average rate may actually come down for a period of before it reverts higher just love to hear how you see those competing forces unfolding in the first half of next year.
Yeah. There are certainly a number of moving parts you know as we come off the bottom and go into more recovery mode with our rig count increasing in the fourth quarter in the first quarter. As you mentioned, we've got the the rigs that are idle, but contracted those would go back to work cost roughly neutral.
As activity in our drilling business moves up we get better fixed cost coverage. So thats positive for the margins. We also have all the ancillary charges that we have on the rigs as well and so theres a number of things happening sure.
Leading edge day rates are going to get more competitive for a period, but like we saw in in 16 and 17 as we came off the bottom there that happens for a period of time, but then as the rig count moves up we see those day rates move up as well we.
We said that we're.
We're basically going to get to an inflection point in the fourth quarter and profitability moves up in the first quarter next year, primarily driven by the drilling business because of its relative size within our organization.
Got it great. Thanks Sandy.
Your next question comes from across the Board with Wells Fargo. Your line is open.
Thanks, Good morning.
Good morning.
So on rig I guess I wonder if you can comment on the nature of day rate discussions currently it sounds like you have visibility for an increase in the fourth quarter in the first quarter are we still talking mostly direct negotiations are there any competitively bid kind of rigs coming to market at this point.
So just to clarify we have visibility that activity is moving up in the fourth quarter and the first quarter I think that.
Because we are at a essentially a bottom in in us rig count activity as an industry, there's still going to be some competitive pricing out there.
But with the activity improvements, we're seeing that's why we see an inflection in the profitability in the fourth quarter and moving up in the first quarter, but there will be some competitive day rates out there that are that are bid.
But remember we also have our ancillary services that we provide provide on top of those day rates. So we see.
So we see that as a positive.
Sure.
And then when I think about the last cycle and the tailwind to rates I think upgrade piece of that was a pretty big driver the need to create more super spec rigs. Just curious is there any more of that.
Horizon for you guys as more rigs go back to work and other new technologies that anything along the lines of the SG or other stuff that operators are going to want to put onto rigs that might be a tailwind rates going forward.
I certainly don't see it as a tailwind for well it's it's.
It's certainly positive for rates, let me clarify that anything that customers want us to do in the air.
In the area of U.S.G. and technology is positive for those day rates, whether it's adding a 100% natural gas engines or its adding our ecost cell lithium battery hybrid energy storage solution. That's positive for the day rates and I think we'll have to wait and see how much interest it moves into in 21, but theres certainly into.
For us today and were in those types of discussions and we're operating some of that equipment today.
I think that.
You know the ancillary equipment that we provide not just the new technology, but the ancillary equipment that we've been providing for years.
Has still been very supportive.
And that's why you know for the fourth quarter were seeing average revenue per day still above $20000.
Great. Thank you.
Your next question comes from Matt Taylor merger with Judy freight Tudor Pickering. Your line is open.
Hey, Thanks, and good morning first question is on some of this or the.
Or the wave of upstream consolidation, we've seen over the past few months on the one hand, it's creating a fewer customers for you which is not going to be a good thing on the other hand, you've got larger well capitalized are better capitalized players that probably are more interested in the higher technology in it and efficiency improvement.
Service offering that you have and so as you put that altogether I'm. Just curious how you think this way the upstream consolidation is going to impact your business over the next 12 to 24 months.
Well, we're very fortunate Patterson UTI, our teams have done a great job, where we have a very broad customer base from the largest oil and gas companies that you buy gasoline from at the corner down to private companies that you may have never heard of and this broad customer base has always been a positive for us.
As a positive in the downturn until rig count stabilized in the third quarter is going to be a positive for us in the recovery.
Sure. The some consolidation creates some near term challenges, but we still have a very large number of customers that we work for and I think well that does create some near term challenges with consolidation it probably create some long term stability in the market as well so.
I think it's neutral for us to have the consolidation that we're seeing when I look at our customer base. So I don't don't see a big concern there for us.
Okay. Thanks.
All of us on free cash flow over the past I really several quarters, you've been generating some pretty healthy healthy free cash flow growing the cash balance and a lot of that's been.
We went through some legacy contract drilling backlog and working capital benefits moving for both of those benefits or are likely to turn the other way and so I was hoping you could help us think about how free cash flow.
Free cash flow expectations over the next six to 12 months and what do you think you can stay positive free cash flow perspective in that timeframe.
Okay.
Yes, I mean look near term I, certainly think that our results.
You know should out performed our capex on the working capital side as activity trends up we will invest a little bit more in working capital.
And I don't suspect that it will be enough to overwhelm.
So one of the spread between what are sort of operating results in our capex.
So I would expect to remain free cash.
Got it thanks guys.
Yes.
Your next question comes from Scott Gruber with Citigroup. Your line is open.
Yes, good morning.
Good morning.
I want to come back to the.
Right and completion comments during the upcoming cycle.
Andy you touched on the technology and ancillary service benefits.
But do you think that quality companies such as Patterson will also need to be more demanding in terms of pushing for improved pricing at a certain point in their recovery and I know, we're not there today that a certain point.
Do you think you need to be more demanding do you think what do you think that pricing power could swing.
Could swing back your way.
Without demanding price increases.
I'm, just wondering whether you really need to show a willingness that you're willing to lose share.
Obviously, the the first request for any type of price increase will end.
Terribly be denied but do you do you think that you and another quality peers, just due to a certain point sit back and say you know, we're just not going to work for.
With these rates any longer and show a willingness to lose share.
So I think it's interesting because we've never been a company that focused on market share we've always focused on the margin.
In doing so we ended up gaining share in the downturn in Oliver product lines, but we're always focused on the margins. So yes, there will be times during 2021 that we actually lose out because we are pushing pricing and else. Our teams. There are always doing the best they can to push pricing.
To where it makes sense and so I think that we're going to.
We're going to keep that same focus to stay focused on the margins.
Yes, I'm, just wondering whether there's a point.
Point, where.
You kind of put a little more emphasis on on the pricing side say, hey, we need more we can go to work and put up but if we go back to work at a positive cash margin here, but it's just not giving us the the returns.
We're really looking for you on a on a long term basis as it is there an inflection point, where do you get to certain recounting just say less than us we need to step up in pricing to move beyond this level and what that level could be.
It'll happen in 2021, I think similar to how it happened in 2016 and 17, when we're coming off the bottom.
Theres always that competitive nature, everybody wants to get their rigs back to work, but once you start putting rigs out then discussions start to change and I think pricing will move up in 2021.
Gotcha.
And then just in terms of the the cadence of that.
I agree I guess, one do you think there's there's going to be inflection in the cadence on a budget refresh in one Q and then secondly.
Yeah, I think the current forward strip for oil and gas, but when do you think we can get back to those maintenance levels of activity as possible in the first half is 21 is a more second half of two uncertainty there.
It appears that the first half of 21 and the activity increases that we're seeing are really about a mixture of different philosophies at different customers. You've got some customers that just need to go back and drill some wells and maintain some production you got some customers that feel like they're profitably.
Economic at this point on some of their fields and some of the pad that we're going to go back and drill so its two different mindsets. So I think that drives the first half of 2021, I think that the second half of 21.
It's really more about the macro water global economies doing are we finally, starting to open up and move past all this mess that we've all been dealing with and Im hopeful there I think we're all tired of it but I'm hopeful that as we get into the second half of 21.
The economies are more open and that's going to drive energy demand.
We're all hoping thanks for the color I appreciate it thanks.
Your next question comes from Kurt Hallead with RBC. Your line is open.
Hey, good morning.
Morning Curt.
So so Andy you made.
Reference earlier on about you know increase.
Increased.
Performance related.
The base.
Drilling contracting revenue streams, and so and so forth so sort of if you give us an update on that I think you referenced some percentage I think in the last quarter I want to see how that was progressing here in the third quarter, then maybe how you see that evolving as you get into 2021.
So this quarter, we have about the same percentage of non traditional day rate contracts as we had last quarter, which is about 30%.
I think that's you know will be similar in the fourth quarter. It will be more into 2021 as a rig count improves a little bit more of that I think we'll have that kind of opportunity I think that in the discussions we're having with customers today. They are intently focused on.
The day rates in trying to get the best deal. They can but I think that will shift in 2021 is more rigs go back to work and I see that we're going to have more opportunity to have more of these non traditional day rate contracts, which I think are more of a win win not just for us but drilling contractors in general so I can see that happening.
As we get further into 2021.
Okay, Great that's great and you meet you made a reference both in your prepared commentary in the press release about the lithium battery power and energy.
Storage dynamic.
I think that that relates to drilling rate itself right.
So what.
Yes, it's always been a fairly slow evolution for the industry to adopt new ways of doing things right and it to what a full almost 10 year period for the industry to fully embrace the 18, great dining.
Dynamic and made that the rig of choice for virtually every every player.
So I don't think you put this lithium battery powered dynamic into context towards historic context for us and give us some sense of how quickly maybe this this go round, if there's going to be index celebration in that adoption and when that when that acceleration might start to occur.
So some of these changes don't happen very fast at the bottom of the cycles, but since we have visibility that were coming off the bottom I think we're going to see some nice uptake in in a number of these technologies.
The the eco cell lithium battery hybrid storage system that we have it. It also comes with energy transfer automation system.
Musi energy between the engines and the lithium battery storage system and this can be put on any of our apex rigs and the good news is this is all relatively capital light investments competitor to the investments that we've made in past years, and so that technology as well as others, which are even lighter on the capital side are.
Exciting for us because we can improve the performance of the operation we can save an operator money on cost.
We can reduce emissions at a number of these technology cases.
And I think these are all be plusses for us it makes us very competitive out there and it allows us to push rates in places as well.
And thanks, maybe as a follow up are you seeing that.
The oil and gas operators are now starting to require lower emission standards from their frac and drilling contractors.
I think it depends on the operator, I think you see some operators moving in that direction I think that way we will continue.
I think it's still very early days and so there's there's still upside there.
For years.
Okay. Thank you.
Your next question comes from Jacob Lundberg with Credit Suisse. Your line is open.
Hey, good morning, guys. Thanks for taking my question.
I wanted to start off by just kind of following up on the performance based contracts could you could could you remind us how you structure your performance based contracts first and then secondly.
Any color in terms of how it daily margin on those contracts looks relative to traditional would be helpful.
Yes in terms of structure, what I've said before is we do various things and it really depends on the operator and what their focus is.
In some cases these are indexed to commodity in some cases they might be about.
Footage per day, how many wells per month, you know.
In that kind of term in other cases, it might be tied to reduce downtime reduce nonproductive time at the well site. So it really depends on the focus of the operator, and what they're trying to accomplish and what they're trying to improve and I certainly wouldn't want to get into a discussion about what it can do for our margins but.
We wouldn't do it if it wasn't accretive to margins.
Okay fair enough.
<unk>.
Yes.
Second unrelated question then.
Curious, what you're seeing in terms of appetite to add rigs kind of bucketed by customer type.
So is there a particular type of customer, we're seeing more or less.
Willingness or or aggressiveness and their plans to kind of add rigs over the next couple of months.
Well I think this is similar to previous downturns, where your largest MP companies out there have very I'll say.
Ill say large budgeting process is to go with their size and so they take some time to make some decisions in Riyadh and it's going to be your more nimble private companies in your more nimble publicly mid tier companies that are going to move quicker off the bottom and and I think that's what we're going to see and I think you'll see that in the rig count data as things become more public.
But you know overtime that you start to see the larger companies kick into gear as well. So we're fortunate in the broad base of customers that we have today and like I said before hats off.
Hats off to our marketing and operations teams who.
Put that customer base in place in all of our businesses.
All right. Thanks, a lot I'll turn it back thanks.
Your next question comes from Blake Gendron with Wolfe Research Your line is open.
Yeah. Thanks. Good morning. So so my question is kind of on the same lines a lot of other questions that have been asked.
But the exercise in the last cycle or maybe last several cycles was this.
This is what a tier one rig is a this is what demand is and so we kind of back into utilization if we were to.
I appreciate the fact that tier one and those goal posts have have shifted even from cycle the cycle and now you're starting to layer on these digital and media Street type consideration.
I know that these are capital light add ons, but I would imagine you've been doing this a long time not all these digital and he or she offerings are really the same if you were to designate sort of a call. It smart rig contingent have you tried to itemize or tried to figure out how.
Figure out how many of these rigs are actually in the market being.
Marketed today, just so we could maybe try to back into a utilization level needed to.
To start seeing some bifurcation pricing.
Yeah, I think it's you know it's still early and I think it's probably difficult to get visibility on especially across the industry, what's out there and whats happening I will say this I think that the rig the rig discussions today begin with the structure of the rig and you guys know I keep calling out the apex X.
Okay. We also have Rx CMP today, but it really starts with the discussion on what the rig structure looks like and whats the clearance under the floor can we get back on the pads that we were on previously can we walk.
Over and across various wellhead production equipment on a pad and what's the flexibility there and that's why you know Arctic our apex XK has been so popular in the market because you have a draw works up design, we have a lot of clearance underneath and you can move around the pad and Thats really the base of where all these discussions star and after that you start to get.
It into what can you do to reduce fuel costs, what can you do to improve emission.
Emissions and healthy operator on there you see score and then.
And then what is remote operations do reduce costs and what is automation due to improved performance efficiency and repeatability and drill better quality Wellbores and so every operator has a different take on what's important for them right now and so.
It's hard to Itemizer bucket technologies for those various reasons and you're going to see rigs that are out there working with various levels of technology, depending on the operator.
So so just following on that that answer there with the emergence of Simon Frac, how the nascent crude.
Cruise sizes are getting bigger on the frac side or the wellheads and the production stacks or are they getting bigger as well, where you know clearance becomes an even bigger issue here in the coming quarters and years.
I think Clarence is a bigger issue this year, because you've let Pat did you want to get back on you've done things on those pads, we've gone back and Fracked Wells, maybe you Havent completed all the drilling on those wells and so now you've got to give back around wellheads and trees and production equipment and so that's why I think a lot of these discussions really start.
Let's talk about the clearance and how you can walk around these various systems on a pad and have that mobility in place and then it then the discussion is around later on technology.
Understood and one more quick follow up I can just on the directional drilling side.
We've seen obviously rotary steerables become a a more invoke technology, but in the lower 48 on it seems like motors are becoming increasingly capable to do the same things you have a bundled solution. Some of your drilling cures of a bundled solution how how can the third party directional drilling companies really compete in this lower.
Tivity environment, what are you seeing competitive lead that would suggest that they'll hang around or that we could see some attrition on on that side of the market.
Well I think the you know the most compelling data right now is it we'd be gaining share and we've been gaining share in a flat rig environment.
You know the new technology has proven to be very reliable and when other companies are having challenges and we get a phone call. We replace him and we keep that rig and we keep that operation and so that team has been performing great and I'm still very optimistic about their growth potential you know even.
Even though our drilling activities moving up in the fourth quarter. The first quarter I think our directional drilling business can grow at a faster rate than the rig count again, that's still a capital light business. So.
I think.
With what we're doing there in terms of performance on the technology. We introduced this year combined with the technologies of remote operations and automation that will tie directional closer to the rig I think it will be tougher for smaller directional companies to compete the U.S. market.
Got it thanks.
Your next question comes from Gil merchant with me to Columbus. Your line is open.
Hi, Thanks for accepting my question.
Just was wondering with the bonds trading at a.
Somewhat stress level that you are contemplating using.
Some of your cash.
To do so.
Optimization.
Yes, Hi Gil.
You know obviously earlier in the year with the sort of severe downturn, we sort of made a concerted effort to focus on liquidity throughout the year and you know look as the.
As the outlook has brightened and we.
And we have done a little bit more visibility.
You know we have entered into it.
Sort of a time, where we look at our liquidity. It's okay. Maybe you know weve got plenty.
I don't want to suddenly expectations on this call, but know that we are thinking about a number of different things.
But just not ready to sort of publicly said an expectation for what we'll do.
Thanks, That's fair and then a one stupid question I I just picked it to release in the debt seemed like it was about the same level as last year, but your interest expense.
It seemed like it was cut in half.
What's behind that or am I reading that wrong.
No again.
Well. Thank you probably had some early retirement.
Hi, Michael.
Our interest expense last year.
Thank you.
Yep.
Again to ask a question. Please press Star then the number one on your telephone keypad.
Your next question comes from Chris Boy with Wells Fargo. Your line is open.
Thanks for letting me back in just.
Just to expand on an earlier line of thought there.
There's been discussion of pricing moving up but not really from what level.
I don't know if you can comment on where you think these big rigs will be is that going to be like mid single digit thousand per day, and if not maybe if we could get some color on the 43 rigs that are on term in the fourth quarter.
Versus the 7500 margin per day like how many of those rigs predate 220, if there's some kind of pieces you can give us there.
Yeah, no the day rates will be competitive at the leading edge as we come off the bottom just like they have in the past cycles.
I don't want to go in and really discuss what levels I think those are up because they are competitive and we want to stay competitive. We also want to try to push pricing, where we can too.
But remember as we also have all those ancillary services as well, which really reduced.
The revenue per day, and that's why I said I just.
We expect our average revenue per day in the fourth quarter to still be over $20000 per day.
I don't have in front of me those that you know the numbers that would help you understand.
You know what those rigs would look like on.
On the contracts, but.
So I can't help you there.
That's fair and then this one is a bit of kind of like.
Kind of like a crystal ball kind of question, but you have visibility for activity going up I Wonder if you have any thoughts on that kind of range that the rig count for you guys might be at exiting the first quarter I understand that it's guesswork, but do you think it could be 10, 20% growth or any any way to bucket what the opportunity is.
I think right now it's still early for us to call what the overall first quarter looks like outside of just the visibility we have their rig counts going up when that happens for us earlier in the first quarter. So I really can't speak to what happened later in the first quarter yet.
Okay fair enough. Thank you.
I appreciate it.
There are no further questions queued up at this time turn the call back over to Mr. Hendrix for closing remarks.
Well I'd like to thank everybody for joining in today, Denise Thanks for managing our call and on behalf of Patterson UTI energy and all.
And all the people that are working hard every day to do the great things. They do we appreciate your time thanks.
This concludes today's conference call you may now disconnect.
[laughter].
Yes.
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