Q1 2021 Patterson-UTI Energy Inc Earnings Call
Ladies and gentlemen, thank you for standing by today's conference is scheduled to begin momentarily until that time your lines will remain on music hold and thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Patterson UTI Energy first quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
And so ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any assistance. Please press star zero for the operator.
Thank you and just now my pleasure to turn the call over to your host Mr. Mike Comer, Sir the floor is yours.
Thank you Sylvia.
Good morning, and on behalf of Patterson UTI energy I'd like to welcome you to today's conference call to discuss the results for the first quarter of 2021 and participating in today's call will be Andy Hendricks, Chief Executive Officer, and Andy Smith, Chief Financial Officer.
A quick reminder, our statements May and this conference call that state the company's from 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 debt Securities Act of $19 33, and the Securities Exchange Act of 1934. These forward looking statements are subject.
The 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 company's actual results to differ materially from those suggested and such forward looking statements for what 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 SEC and are available through the company's website and through the SEC's Edgar system statements May and this conference call include non-GAAP financial measures the required reconciliations to GAAP financial measures are included on our website Www Dot P. A T energy dot com and.
And 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, Mark good morning.
And welcome to Patterson Utis first quarter conference call. We are pleased that you can join us today.
For the first quarter revenues and adjusted EBITDA increased sequentially and exceeded our expectations. Despite challenges from the extreme winter storm and the southwest.
Both contract drilling and directional drilling posted better than expected results, while pressure pumping was impacted by downtime associated with the storm.
Excluding the impact from the winter storm pressure pumping results would have been consistent with our expectations.
Crude oil prices trading and a tight band around $60 have been supportive of increasing activity and looking forward based on conversations with customers. We now have greater confidence and further improvement and drilling and completion activity.
We expect our rig count will reach approximately 80 rigs over the next three months with most of that growth coming late in the second quarter and early in the third quarter.
Additionally, the pricing on most of our currently active rigs has been reset since the beginning of the downturn and as such we believe the second quarter margin per day will be the low for this cycle and drilling.
And pressure pumping we are encouraged by signs of pricing improvement.
We have been successful and pushing through to our customers higher input costs for things such as sand and trucking.
And Additionally, and where I would like to congratulate our leadership team and this business, we're starting to achieve better pricing for our high level of service quality.
Our focus and pressure pumping remains squarely on improving pricing and margins.
As demand continues to improve we now expect to activate and eight spread late in the second quarter.
Within our directional drilling segment and there are a lot of exciting things happening are spoken for several quarters now of the market share we have captured and directional drilling due to the reliability and performance of our Mercury measurement, while drilling system and our impact directional drilling motors.
This reliability and performance combined with strong alignment with our contract drilling business has allowed us to broaden our customer base and.
Additionally, and directional we have worked with customers on a number of different performance based contracts.
We continue to innovate to meet our customers' demand to drill higher quality wells during the first quarter, we successfully field tested and five inch drilling motor design and completed the design of a new six and five eighths inch motor for higher performance.
Additionally, we successfully field tested our new M. W. D data compression algorithms that allow for higher quality wellbore placement and the reservoir for more productive wells.
With that I will now turn the call over to Andy Smith, who will review the financial results for the first quarter. Thanks, Andy.
For the first quarter, we reported a net loss of $106 million or <unk> 50 per share at <unk> 57 per share while adjusted EBITDA grew 20% sequentially to $35 $4 million on a 9% sequential increase in revenues.
Turning now to our segments and contract drilling our average rig count for the first quarter improved to 69 rigs from 62 rigs and the fourth quarter.
We ended the quarter with three rigs that were idle, but contracted one of which went back to work in early April.
Average rig revenue per day from the first quarter was $21590. This included a $2 $3 million benefit from revenue that was earned during the downturn in 2020, but not recognized at that time due to concerns about the ultimate Collectability of this revenue.
Compared to the fourth quarter average rig revenue per day also benefited during the first quarter from a lower proportion of idle, but contracted rigs on reduced rates and higher than expected revenues from ancillary services.
Contract drilling operating costs included a $6 million benefit from a refund of sales and use taxes.
Excluding this benefit average rig operating cost per day was better than we expected.
With higher than expected revenue and lower than expected operating costs average rig margin per day, even excluding the favorable benefits I previously discussed exceeded our expectation during the first quarter.
At March 31, 2021, we had term contracts for drilling rigs, providing for approximately $240 million and future day rate drilling revenue base.
Based on contracts currently in place, we expect an average of 39 rigs operating under term contracts during the second quarter and an average of 27 rigs operating under term contracts during the four quarters ended March 31.
Two.
For the second quarter, we expect our rig count to improve to 73 rigs from 69 and the first quarter.
Average rig revenue per day is expected to be approximately $20900 and the second quarter with an average rig margin of approximately $6200.
And pressure pumping we averaged seven active spreads during the first quarter with and effective utilization of five five spreads.
Downtime during the quarter was primarily associated with the winter storm and the mobilization during the quarter of one of our spreads from the northeast to Texas.
The startup of the spreads and mobilized to Texas was also delayed due to the winter storm.
Pressure pumping revenues during the first quarter decreased to $75 $8 million and gross margin was a loss of approximately $700000.
But for the effects of the winter storm first quarter results were consistent with our expectations.
And.
For the second quarter, we expect to average seven active spreads with utilization improving from the first quarter level.
Pressure pumping revenues are expected to improve to $120 million and gross margin is expected to improve to $9 million.
Turning now to directional drilling revenues for the first quarter improved to $19 $7 million and the gross margin improved to $3 million for the second quarter, we expect directional drilling revenues to improve to 22 and $5 million with gross margin of $3 2 million.
Turning now to our other operations, which includes our rental technology and E&P businesses.
Revenues for the first quarter improved to $11 9 million and gross margin improved to $1 7 million for the second quarter. We expect other operations revenues to improve to approximately $13 million with a gross profit of approximately $3 5 million.
Before I turn the call back to Andy for the second quarter, we expect depreciation depletion and amortization and impairment expense of approximately $145 million.
Selling general and administrative expense is expected to be approximately $22 million for the second quarter and.
And for the full year 2021, we expect and effective tax rate of approximately 17%.
Also we will be paying a quarterly cash dividend of <unk> <unk> per share on June 17, 2021 to holders of record as of June 32021, with that I'll now turn the call back to Andy Hendricks.
Across the industry. The U S land rig count has nearly doubled over the past nine months over this timeframe private operators have increase the rig count by more than 150%, while publicly traded operators who've had a more modest growth rate as they were balancing capital discipline relative to budget and crude oil prices.
The pressure on our customers and on the industry to exercise capital discipline and work with and cash flow has been growing and is a shift from the majority of the years and the U S unconventional revolution.
As we exited 2020 and moved into 2021, we continue to see greater capital discipline from operators and a more orderly progression and activity the.
The interesting point is that this capital discipline is relative to 2021 budgets, which were based on lower commodity prices than we've had over the last few months.
And I believe that with improving operator cash flow, we will see further increases in activity through the year.
This is still in line with capital discipline is increasing activity can be funded within cash flow.
We are encouraged by this capital discipline across the energy sector that still allows for further increases and industry activity, where premium contractors with superior performance and technology offerings will be rewarded for the value they create for the customers.
And where there will be opportunity to increase pricing as the industry activates more equipment.
Within this environment as a premium service provider, we are well positioned where the only drilling contractor and the U S with a significant presence and directional drilling.
Through the use of technology be it remote operations or the automation of certain operations, we are uniquely positioned to better integrate directional drilling operations into the drilling rig and improved wellbore quality and performance.
We are also well positioned to benefit from our leadership position and the use of alternative fuels and power sources to help our customers reduce costs and emissions at the well site.
For example, we have the ability to substitute cleaner burning natural gas for diesel and many of our drilling rigs and frac spreads.
Additionally, we have the ability with our eco cells lithium battery hybrid energy management system to more efficiently manage the power generated at the rig, thereby reducing fuel consumption and emissions.
As well as to further minimize emissions at the well site, we have the ability to run drilling rigs on highline power from the utility.
For more information on these technologies. Please refer to our updated corporate sustainability report that we published during the first quarter.
We see 2021 as a year of steadily increasing activity driven initially by private and agile public operators and then by major operators and we are encouraged by the opportunities that we are hearing from our customers per Patterson UTI.
With that we would like to thank all of our employees for their hard work efforts and successes through a very challenging time, both in our industry and in general and we look forward to a much better year ahead.
Sylvia we'd like.
To open the call for questions now.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypads and again to ask a question. Please press star one on your telephone keypad, well pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Mike Sabella from Bank of America.
Just real quick on the margin guidance did you all give it or did I just miss it.
For <unk> and what was the question.
And just on the margin on the margin guidance for for drilling and <unk> did you all give it and I just missed it or.
Yeah. It was $6200 per day 6200, okay. So when we think about and when we think about kind of <unk> and I know and you mentioned and <unk> being.
The low point for the year.
And one of your one of your peers is out talking about.
Possibly pushing pricing you all seem like maybe that's possible as well.
Can we talk about how pricing plays into that and maybe where where spot rates are leading edge day rates are today relative to the overall total.
And where we think they can go to and second half.
We don't typically get into what we think they are publicly for competitive reasons, but I'll tell you there's still a bit of a range of day rates on the spot price out there.
But we believe that as we start to put up more rigs later in the second quarter that we will have opportunities for pricing to move up at the end of the second quarter and into the third quarter and then through the rest of the year and we've seen this and other downturns in the past where.
Especially with the Super spec rigs that we offer and the industry.
As the rig count starts to move our pricing has the opportunity to move up as well.
Got it and and then just kind of a I guess a higher level question several years away from.
The last big M&A move or from the company.
And we sit here you know kind of the outlook internationally and it looks a little better.
If we think about Patterson over the next couple of years is there anything internationally you guys are interested in.
Actually there anything and the U S. You could see kind of fitting well and the portfolio.
I think the best way for me to answer that question is just to say, we maintain a healthy balance sheet, that's our history and we try to find opportunities to exercise.
The strength of our balance sheet, when we come out of these cycles and we will just have to see what happens at this point.
Understood. Thanks, guys.
Once again and I would like to remind everyone in order to ask a question. Please press star one on your telephone keypad.
Again star one to ask a question.
Your next question comes from the line of Taylor Zucker from.
Tudor Pickering Holt.
Hey, good morning, and and thank you in and pressure pumping.
The Q2 guidance looks really strong and revenues, obviously up a huge and you'll get much better utilization following the winter storm I'm curious it doesn't seem like and the Q2 guidance just based on the implied incrementals that theres, a whole lot of pricing uplift baked into there.
Curious if you could frame for us your if you normalize for some of this weather related noise, and what sort of and efficient efficiency improvement.
You might be seeing from a however, you want to define and stages per day metric.
And then looking longer term for pressure pumping or maybe exiting 2021 and when do you think you can get back to sort of a double digit gross margin run rate without a whole lot of pricing improvement just as activity continues to trend higher.
Yes, I think the pressure pumping sector is starting to become structurally and a better place.
Certainly seen attrition through various companies over the last year and it becomes more challenging for companies.
Companies to put spreads back to work.
That being said, we're going to put and other spread back to work towards the end of the second quarter. We may put a couple more out before the end of the year.
Every spread we've put out has been forecasted on our plan to be accretive.
And cash flow positive.
And so that's the only reason, we would put a spread out or even consider putting a spread out and so when we look at that we believe that there's opportunity for pricing to continue to move up through the rest of the year as activity moves up.
Having the opportunity to talk about pricing moving up and pressure pumping has been a rare thing I think the last time I did this was third quarter of 2017 so.
Market has had a lot of equipment and a lot of overhang for few years, but I think it's tightening up this year and.
And.
As we continue to put out some spreads then we see that as accretive and we think that the pricing will move up.
Yeah.
And the second quarter, we had the chance to move some pricing on a couple of spreads I don't want to get into the numbers.
But it was certainly a positive force as we haven't seen that and a while and the industry.
Okay, that's encouraging and and contract drilling.
It looks like the Opex guidance, if you just.
Take the revenue less the margin that you guided to is about 14000 and $700. A day could you remind us where you expect that number to trend as activity continues to trend higher and you get better fixed cost absorption.
I don't think we'll see a big change and that number.
But I think we will have the opportunity to push day rates on rigs towards the end of the year. So I see that that's why we're projecting that we're going to have margin improvement through the rest of the year and that Q2 is a bottom and this cycle force and drilling for the margin per day.
Okay and good to hear thanks, guys.
I show no further.
Sir you have a question from the line of Waqar Syed from ATB capital markets.
Thank you for taking my question and.
Andy the incremental demand that you're seeing.
Both and drilling and pumping.
And.
And just coming from public E&ps privates or is it.
Is this a mix of both could you maybe characterize that.
Yes, it's really been kind of a change and the landscape where as coming out of the downturn. The first out of the gate, where really the privates that put up a lot of rigs initially and.
And then some of the more nimble and what we refer to as nimble publics, but some of the larger publics and even some of the iOS sees or are discussing and putting up rigs and the U S as well and so we're encouraged by these discussions.
Through the rest of this year and even somewhat into 2022. So that's that's our view of the market debt.
And while it's been a transition it seems like all of the various customers or classifications of operators that we have are talking about putting up rigs and again like I mentioned I think this is still working within the capital disciplined debt investors want from these companies because the ines.
<unk> rig forecast that they've made that they were considering doing for 2021 were based on a lower commodity price and then there and they actually have today. So our customers. The operators are seeing better cash flows and potentially better cash flow projections for the year and they are reconsidering, what their activity levels might be and we have a.
Large number of customers that are discussing putting up more rigs towards the throughout the year.
Yes, David.
Have you and the industry debt.
You need about let's say 500 and Rick.
Rigs working from maintenance type production and.
And.
And I'll keep you and it Glen 'twenty eight 'twenty type pressure pumping active crews to keep production flat.
Based on your discussions do you think that.
Debt overall industry activity is going to get ahead of those numbers and two as you look into 2022, and we kind of cap around debt those kind of numbers.
Yes.
It's really a basin by basin and economic discussion, where we're seeing Permian operators improve the economics of what theyre doing and where they can afford to increase activity a little bit and increase production.
WT is moving up to a level that is starting to interest Bakken producers and picking up rigs and even south Texas. So it's really a basin by basin discussion and then you've got of course.
And the Haynesville gas and East, Texas, and North, Louisiana, which is completely separate from that and even and a lot of cases separate from Henry hub commodity because you've got a number of our customers over there that have contracts for LNG export or they're drilling to hold land and that area. So.
And you really have to look at it on a basin by basin case, these days and the economics and each one.
Just from that question of LNG.
What's your what's the opportunity set in terms of additional and rig activity.
And.
On debt LNG team for the next next day 12 to 24 months have you had any long term discussions with operators and.
About blocking up high and rigs for that.
I would say overall activity in that area is steady and slightly increasing.
The best way to characterize that and I think debt.
Paul you Havent seen operators lockup necessarily long term contracts.
The economics for that could improve over the year as well.
Okay, and then just a final question on the Super spec rig fleet given.
And your activity has been and go up quite a bit some of yet.
<unk> is also seeing debt, where do you think utilization is right now for the Super spec kind of high and really rigs.
And then weighted could be and when do you see pricing kind of move up.
And decent increments.
Yeah, I don't have the numbers for what utilization of Super spec is right now, but I'll also throw out that it doesn't really matter. So much the super spec rig is a hot commodity rig item and what we've seen historically as those rigs start to go to work and pricing tends to move up and there also.
And it creates a phenomenon and which could likely happen towards the end of this year, where you have operators and the fear of missing out and not getting the rig they want and that's always good for us too.
And certainly.
Alright, Thank you very much and depreciate to the comments.
And I show no further questions at this time I will now turn the call back to Mr. Andy Hendricks.
Thanks, Sylvia I just want to thank everybody at Patterson UTI for all the great work, they did and the first quarter, especially navigating the winter storms and.
Thanks for the team and a good quarter. Thank you.
Ladies and gentlemen that does conclude today's conference. Thank you again for your participation you may now all disconnect.
Okay.
Energy.
[music].
Yes.
[music], Inc.
Yes.
Yes.