Q1 2025 Patterson-UTI Energy Inc Earnings Call

John Daniel, Waqar Syed, Kurt Hallead

Speaker Change: . . . . . . . . . . . . . .

Van: Thank you for standing by. My name is Van and I will be your conference operator today. At this time I would like to welcome everyone to the Patterson UTI first quarter 2025 earnings conference call.

Speaker Change: All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad.

Speaker Change: If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Michael Sabella, Vice President of Investor Relations. Please go ahead.

Michael Sabella: Thank you, operator. Good morning and welcome to Patterson-UTI's earnings conference called to discuss our first quarter of 2025 results.

Speaker Change: With me today, our Andy Hendricks President and Chief Executive Officer, and Andy Smith, Chief Financial Officer. As a reminder, statements that are made in this conference call that refer to the companies or management's plans.

Speaker Change: Intentions, Targets, Beliefs, Expectations, or Predictions for the future are considered forward-looking statements.

Speaker Change: These four-looking statements are subject to risks and uncertainties as disclosed in the company's SEC filings, which could cause the company's actual results to differ materially. The company takes no obligation to publicly update or revise any four-looking statements.

Statements made in this conference call include non-GAAP financial measures.

Speaker Change: The required reconciliation to GAAP financial measures are included on our website, pateenerg.com and in the company's press release issued prior to this conference call. I will now turn the call over to Andy Hendricks, Patterson-UTI's Chief Executive Officer.

Speaker Change: Thank you, Mike, and welcome to our first quarter earnings conference call.

Andy Hendricks: The first quarter of 2025 unfolded largely as anticipated with steady drilling activity across US and a strong recovery in completions activity following fourth quarter EMP budget constraints.

Andy Hendricks: As the first quarter progressed, we started to see some positive momentum in the natural gas basins and that momentum has carried into the second quarter. In oil basins we have continued to see steady demand as our customers monitor recent macro events.

Andy Hendricks: At Patterson-UTI, our focus on optimizing our core operations and discipline capital allocation is delivering results [inaudible]

Andy Hendricks: Our scale, our strong customer relationships, and comprehensive service and product offerings set us apart operationally, positioning us for sustained success.

Andy Hendricks: At the core of our strategy is our commercial offering that can deliver a suite of services and products that is unique to Patterson-UTI, with an operational footprint that allows us to touch more of the well-side than nearly any of our competitors.

Andy Hendricks: We believe this can enhance efficiency and unlock value for our customers while positioning us for relative market outperformance.

Andy Hendricks: All Patterson-UTI segments performed well in the first quarter, which is a testament to the quality of our assets as well as our people and our technology.

Andy Hendricks: Our integrated agreements in both the drilling and the completion businesses leverage our full capabilities and our commercial strategy is benefiting the entire company.

Andy Hendricks: We continue to believe that controlling more of the wellseye will allow us to drive greater efficiencies for our customers while also maximizing returns for our investors.

Andy Hendricks: The initial fully integrated PETIN Advantage Project exceeded expectations, delivering performance bonuses and accreted margins for Patterson-UTI, while also delivering a better outcome for the customer, truly a win-win.

Andy Hendricks: We expect integrated work on both the drilling and completion side will continue to grow as a proportion of our overall business [inaudible]

Andy Hendricks: For USShare, we believe that service companies that can deliver value accretive services, not just the lowest price, will be positioned for sustainable returns.

Andy Hendricks: Our differentiated position in the market is difficult to replicate, and we remain confident in our ability to drive long-term capital-efficient value for both our customers and investors.

Andy Hendricks: Our size, scale, and breadth of our offerings positions us favorably with larger, better capitalized customers that maintain a long-term strategic focus and are less reactive to short-term moves and commodity prices.

Andy Hendricks: We have an outsides exposure to the industry's largest and most stable operators relative to the broader market.

Andy Hendricks: Feedback from our largest customer so far has focused on goals for long-term value creation rather than short-term reactionary decisions.

Andy Hendricks: These objectives are fully aligned with our own, providing a strong foundation for collaborative, sustainable relationships.

Andy Hendricks: Financially, our strong balance sheet and liquidity provide the flexibility to pursue high-return opportunities, and we will remain targeted with our capital deployment and protect our capital rebutture we will remain targeted with our capital deployment and protect our capital rebutture

Andy Hendricks: We close the quarter with $225 million in cash and an undrawn $500 million revolver.

Andy Hendricks: Low leverage and investment grade credit rating, with an outlook to still see significant, uncommitted free cash flow in 2025.

Andy Hendricks: From a capital perspective, we are operating from a position of strength and using our capital to drive long-term shareholder value is our key priority.

Andy Hendricks: On the macro, external factors have created an uncertain outlook, although we have yet to see any impact to activity levels from recent commodity volatility .

Andy Hendricks: Regardless of how the market develops, Patterson-UTIs prepare to adapt and execute our strategy across a range

Andy Hendricks: On the old front, recent commodity softness created by macroeconomic concerns has introduced some uncertainty.

Andy Hendricks: If oil prices remain near current levels for an extended period, we could see some of our customers re-evaluate their plans. At present, operations remain stable.

Andy Hendricks: On the natural gas side, the outlook is increasingly constructive. We have added multiple rigs and refractal leads in natural gas focus basins already this year.

Andy Hendricks: and we continue to believe that the industry needs higher natural gas drilling and completion activity over the next several years to satisfy a call for more U.S. shale natural gas production to supply global LNG and domestic demand.

Andy Hendricks: Our US contract drilling business delivered another quarter of strong results with sequential improvements in average daily rig count and margins and higher returns.

Andy Hendricks: The performance is a testament to the quality of our drilling assets combined with the people and processes we have in place, allowing us to deliver for our customers and show them value over lower priced options.

Andy Hendricks: Patterson-UTI's Cortex Automation Platform is setting a new standard and drilling automation by integrating advanced data science throughout its applications.

Andy Hendricks: By leveraging real-time analytics, pattern recognition, and intelligent control logic, core text delivers both high operational efficiency, and an intuitive user experience.

Andy Hendricks: The platform automates key functions such as auto drilling and directional control enabling drillers to focus more on critical safety and performance measures

Andy Hendricks: With Cortex, the operator's benefit from greater repeatability and a scalable advantage that expands across multiple rigs, and our investors are seeing the benefit through higher returns and margins.

Andy Hendricks: We believe our technology allows us to drill faster, better, and safer wells for our customers [inaudible]

Andy Hendricks: We believe that our apex drilling rigs are the premier capital assets in the drilling market and that our people and our technology are critical to unlocking value for our customers and investors. We continue to deliver improved cycle times and the relative demand for our rigs and stability of our margins confirms our customers are recognizing our unique capabilities. Thank you very much.

Andy Hendricks: Demand for our Fract Services was healthy, supported by favorable commodity prices across both oil and natural gas basins.

Andy Hendricks: Notably, as the first quarter progressed and activity ramped up quickly, we saw growing demand in natural gas basins. The Hainesville was the biggest beneficiary so far, although we would expect to see gains in other regions if macro conditions hold. [inaudible]

Andy Hendricks: With our solid footprint and the key natural gas plates, we are well positioned to benefit as demand improves.

Andy Hendricks: We continue to make technical strides in our completions business. Our fleet of emerald 100% natural gas powered equipment is performing exceptionally well, delivering strong results and receiving positive feedback from our customers.

Andy Hendricks: In the first quarter, we again saw our emerald fleets grow as a proportion of our overall frack activity, with increasing demand for larger emerald simile frack operations.

Andy Hendricks: We believe we operate one of the highest-quality fleets in the industry today. Importantly, we continue to migrate our asset base in a measured pace, remaining disciplined with our capital, generating significant free cash flow, and returning substantial cash to shareholders at the same time.

Andy Hendricks: Balancing between new technology investments and capital stewardship remains a cornerstone of our capital allocation strategy.

Andy Hendricks: We expect our natural gas powered equipment will continue delivering strong returns through the cycle, including our dual fuel equipment. More than 80% of our active fleet can be powered by natural gas.

Andy Hendricks: Across the industry, we believe equipment capable of running on natural gas is effectively sold out, a clear indicator of both current demand and the value of our investment in this technology.

Andy Hendricks: Our drilling product segment continues to perform well in all regions, and the team has done a great job in anticipating customer needs by delivering the highest quality innovative products in areas where we see the best opportunities to improve efficiencies.

Andy Hendricks: Our new product innovation revenue has continued to grow its strong returns, partly driven by our new Maverick cutter and drill business lines.

Andy Hendricks: Overall, we are pleased with the company's performance in the first quarter across all segments and remain focused on execution for our customers and investors while outperforming the market.

Andy Hendricks: I'll now turn it over to Andy Smith, who will review the financial results for the first quarter. Thanks, Andy.

Andy Hendricks: Total reported revenue for the quarter was $1,281,000. We reported a net income attributable to common shareholders of $1,000,000.

Andy Hendricks: Our weighted average share count was 387 million shares during Q1, and we exited the quarter with 386 million shares outstanding.

Andy Hendricks: During the first quarter, we generated $51 million of adjusted free cash flow.

Andy Hendricks: We saw a working capital headwind of roughly $37 million in the first quarter, which is typical of our business in the first half as we come out of the fourth quarter slowdown.

Andy Hendricks: We expect working capital will be a tailwind in the second half of the year.

Andy Hendricks: During the first quarter, we returned $51 million to shareholders, including an $8 per share dividend and $20 million for share repurchases.

Andy Hendricks: Over the 18 months from September 30, 2023, which was the first reporting period following the close of the next year merger and Altera acquisition.

Andy Hendricks: Through March 31st, 2025, we have used approximately $387 million to repurchase shares, and we have reduced our share count by 8% since we closed those transactions.

Andy Hendricks: This is in addition to reducing net debt, including leases by over $200 million since that time and paying a dividend that is currently an annualized 5% of our share price.

Andy Hendricks: In our drilling services segment, first quarter revenue was $413 million, and adjusted gross profit to the $165 million.

In U.S. contract drilling, we totaled 9573 operating days.

Andy Hendricks: Average Rig Revenue per day was $35,700 with an average rig operating cost per day of $19,600 [inaudible]

The average adjusted rig gross profit per day was $16,200 [inaudible]

Andy Hendricks: On March 31st, we had term contracts for drilling rigs in the US, providing for approximately $407 million, a future day rate drilling revenue.

Andy Hendricks: based on contracts currently in place, we expect an average of 62 rigs operating under term contracts during the second quarter of 2025, and an average of 35 rigs operating under term contracts over the four quarters ending March 31, 2026.

Andy Hendricks: In our other drilling services businesses, which is mostly international contract drilling and directional drilling First quarter revenue was $71 million with an adjusted gross profit $1 million

Andy Hendricks: Our U.S. contract drilling business is the majority of our drilling services segment. And historically, we have disclosed revenue per day and adjusted gross profit per day specific to this business line.

Andy Hendricks: Moving forward, while we continue to report US contract drilling operating days, we will no longer report revenue per day or just a gross profit per day.

Andy Hendricks: As we further integrate our drilling operations and shift more towards performance-based agreements, we no longer plan to isolate and report individual components of the segment [inaudible]

Andy Hendricks: Instead, we will focus on providing details at the segment level to better reflect the integrated nature of our operations.

Andy Hendricks: For the second quarter, in drilling services, we expect a relatively steady rig count compared to the first quarter.

Andy Hendricks: We expected Jesse Gross' profit to decline slightly, with the sequential change driven by a reduction in average contracted revenue as legacy contracts roll, as well as some normal seasonal increase in costs.

Andy Hendricks: Revenue for the first quarter in our Completion Services segment, totaled $766 million when the Adjusted Gross Profit of $108 million.

Andy Hendricks: Activity increased from the 4th quarter slowdown, and we saw strong demand and high utilization with increased activity sequentially in both oil and natural gas basins.

Andy Hendricks: Average pricing was down compared to the fourth quarter, although we partially offset lower pricing with some cost reduction initiatives.

Andy Hendricks: Pricing was mostly steady throughout the quarter, and we actually did the quarter with roughly the same pricing as we entered.

Andy Hendricks: For the second quarter, we expect completion services adjusted to gross profit to decline slightly sequentially.

Andy Hendricks: Currently, activity levels are steady compared to where we exited the first quarter, and we have not seen any change in strategy from our customers [inaudible]

Andy Hendricks: However, if oil prices remain near current levels, we could see some white space later in the quarter [inaudible]

Andy Hendricks: First quarter drilling products revenue totaled $86 million with an adjusted gross profit of $39 million.

Andy Hendricks: Segment Adjusted Gross Profit Improved on Lower Operating Costs, which was driven by operational efficiencies.

Andy Hendricks: For the second quarter, we expect drilling products suggested gross profit to be relatively steady, sequentially, with steady results in the US.

Andy Hendricks: Other revenue totaled $16 million for the quarter with $7 million in the Justice Gras' profit.

Andy Hendricks: Subsequent to the clones of the first quarter, we absorbed a portion of the assets of our great Plains oilfield rental business into our other business units, and the best for the remainder of the business.

Andy Hendricks: Great Plains comprise roughly two-thirds of the revenue and adjusted gross profit in our other businesses' foreign items on our income statement. [inaudible]

Andy Hendricks: As a result, we expect other adjacent gross profit in the second quarter to decline proportionally as compared to what we reported in the first quarter . . . . . . . . . .

Andy Hendricks: Reported, Selling General and Administrative Expenses in the First Quarter were $67 million.

For Q2, we expect SGNA expenses of approximately $65 million

Andy Hendricks: On a consolidated basis for the first quarter, total depreciation, depletion, amortization, and impairment expense total $232 million.

Andy Hendricks: For the second quarter, we expect total depreciation, depletion, amortization, and impairment expense of approximately $230 million.

Andy Hendricks: During Q1, Total Caffex was $162 million, including $73 million in drilling services, $62 million in completion services, $18 million in drilling products, and $8 million in other incorporates.

Andy Hendricks: As a reminder, our full year 2025 net capital budget was set at approximately $600 million dollars.

Andy Hendricks: Based on what we see today, with our activity level steady into the second quarter, we are not revisiting our budget. However, we also feel it is important to point out the flexibility we showed last year in adjusting our budget to changes in our outlook.

Andy Hendricks: The line share of our capex budget is for maintenance and repair of our equipment, and if for some reason the activity outlook changes from our base case, we have the flexibility to decrease our budget just as we have done in the past [inaudible]

Thank you.

Andy Hendricks: We close Q1 with $225 million in cash on hand. We do not have any senior note maturities until 2028. We do not have anything drawn on our $500 million revolving credit facility.

Andy Hendricks: We still expect to generate significant pre-cash flow again in 2025, and we again expect to return at least half of our adjusted pre-cash flow to investors through shared by Max and dividends.

Andy Hendricks: Re-cash flow is likely to be waited to the second half as working capital needs decrease [inaudible]

Andy Hendricks: Our board has approved an 8 cent per share dividend for the second quarter of 2025, payable on June 16th to holders of record as of June 2nd, June 2nd. I'll now turn it back to Andy Hendricks for closing remarks [inaudible]

Speaker Change: Thank you, Andy, and I want to close with a few key takeaways. We are very pleased with our performance in the first quarter where each of our core businesses perform very well. As we enter the second quarter, we are operating at a high level. The first quarter, we are operating at a high level where each of our core businesses perform very well.

Speaker Change: At Patterson-UTI, maintaining a strong balance sheet has always been central to our strategy. It is enabled us to navigate periods of uncertainty and positions us to act decisively when opportunities arise

Speaker Change: Today, we have an investment grade credit rating and net debt including any operational or financial leases. It's just one time's trailing 12 months adjusted to EBITDA.

Speaker Change: We have no material near-term debt maturities, and robust liquidity with a sizeable cash balance and an undrawn revolver.

Speaker Change: We expect to generate another year of solid adjusted free cash flow in 2025 and our capital allocation plans are flexible.

Speaker Change: We will look to use our capital to maximize our long-term returns.

Speaker Change: Operationally, remain focused on enhancing our core businesses through capital-efficient initiatives.

Speaker Change: We believe we should outperform the broader market driven by our differentiated product offering a unique commercial strategy. At the same time, we continue to pursue opportunities to write-size costs and drive greater corporate level efficiency.

Speaker Change: And finally, on the macro, while the outlook in the oil markets remains somewhat uncertain, we are encouraged by early signs of recovery in the natural gas basins with some activity increases that were greater than previously anticipated.

Speaker Change: While customers remain cautious, it is clear to us that meaningful increases in drilling and completion's activity in natural gas basins will be required to meet growing commodity man, particularly as U.S. natural gas plays an expanding role in supporting global LNG needs.

Speaker Change: Overall, current activity levels remain steady, and although oil commodity markets have been volatile in recent days, we remain optimistic about delivering another solid year of strong operational performance and robust adjusted pre-cash flow.

Speaker Change: Patterson-UTI is in a great position for the current market and ready for any future activity increases in the natural gas patients.

Speaker Change: With that, we'd like to thank all of our employees for their hard work, their efforts and successes to drill and complete wells safely and efficiently each day.

Van: We'd now like to open the lines for Q and A. Van will hand it over to you.

Van: At this time, I would like to remind everyone in order to ask a question, press star to the number one on your telephone keypad.

Van: We ask that you please limit your questions to one and one follow-up. We will pause for just a moment to compile the Q&A roster.

Speaker Change: Your first question comes from the line of Arun Jayaram from JP Morgan

Let's go ahead.

Arun Jayaram: Good morning, Andy and team. Andy, first I wanted to talk a little bit about...

Speaker Change: The evolution of your commercial model and some of the integrated services you're offering. As you know, I cover the E&P's as well and have noted...

Speaker Change: How you are making some inroads with some of my key coverage.

Speaker Change: So, let me know if you can make a comment on what you're kind of offering at the well side and what are some of the benefits that you can give me in fees as they're all focused on efficiency and lower cost particularly in these times.

Speaker Change: Hearing Good Morning. Yeah, you know, it's been an evolution for us. It's also, you know, part of the evolution of the company as we've grown.

Speaker Change: Service Lines and Products is part of what we can offer to the EMPs.

Speaker Change: So, you know, we now have a breadth of offering that's really unmatched in US shale today, you know, from drilling rigs to submitting services to directional drilling to drill bits during the drilling operations [inaudible]

Speaker Change: and then on the completion side, it's not just hydraulic fracturing, it's wireline, it's logistics to move sand and equipment, it's logistics to move natural gas from compression stations and bring it out to the field with...

Speaker Change: with Field Gas Blending, and so many different things. And then when you connect the digital aspect across all of that and we can look at all the data across everything we're doing, we can pull all that together for the EMPs and help them be more efficient at what they're doing. [inaudible]

Speaker Change: and certainly we have a number of EMPs that recognize our ability to do that.

Speaker Change: and we've seen a growing number that has some interest to talk to us about doing more integrated type projects where we can take advantage of having all the digital data and systems that we can provide and then pull all that together into operations in the field. [inaudible]

Speaker Change: Great. And my follow-up is just a little bit, Andy, how are you thinking about...

Speaker Change: You know, replacement capex on the frackside, you know, obviously you're highlighting really strong demand trends for your natural gas burning equipment on the emeral side. But how are you thinking about...

Component costs and things like that. [inaudible]

Speaker Change: Yeah sure, so you know part of our capex budget includes

Speaker Change: more of the Emerald 100% natural gas driven equipment. And so, you know, while we continue to maintain everything that we own, we certainly recognize that the older equipment that we've owned for a while is not necessarily going to be the most interesting.

Speaker Change: But what is interesting is the uptick and the uptake on our activity with the Emerald 100% natural gas systems.

And so...

Speaker Change: You'll see us grow the amount of horsepower over the next few quarters.

Speaker Change: and especially with an addition towards the end of the year.

Speaker Change: of a full fleet of increased capability on the Emerald 100%. And that's still part of the CapEx budget, so no change in that CapEx budget. And we expect—

Speaker Change: You know, even with the potential fluctuations in the market, that will still be the most attractive equipment for the EMPs to maintain their level of efficiencies that they're looking for.

Speaker Change: Not just operational efficiencies but cost efficiencies as well. Andy, you want to add anything to that? Yeah, Arun, I would just say to look on kind of the replacement as you asked about, I would say that I would describe our patients who are going to be pretty measured.

Over, again, the foreseeable future.

Speaker Change: And then on the tariff side, you know, it's still pretty early to put to find a point on it so I won't but I will say that we're trying to cultivate where we feel like we need to all turn of suppliers.

Speaker Change: and also all of our groups who are keenly focused on other costs that ultimately, if they show up, we can pass the group.

Speaker Change: through pricing. So I would say we're addressing it, but right now it's probably a little too soon to put a fund.

point on it.

All right, great. Thanks, gentlemen. Thanks

Scott Gruber: Your next question comes from the line of Scott Gruber from Syedigruber

Please go ahead

Yes, good morning and a nice quarter, especially in completion

Speaker Change: But I guess I'm a bit confused by the completion guide, you know, typically activity ramps up over one cues such that you just hold the exit rate.

into the second quarter, completion tense derives. [inaudible]

Speaker Change: and a decent amount called mid-single digits historically. But you guys are forecasting a slight profit decline.

Speaker Change: So can you provide some color just on how much white space you're kind of baking into completion later this quarter and are you getting any indications that

Speaker Change: You know, that level materialized, is this just, you know, some conservatism that you're building in right now, just giving the pull back and crude. Some color there was great.

Speaker Change: Yeah, good morning. So first, you know, I mentioned that the first quarter actually ramped up probably faster than we thought it would.

So things really, really ramped quickly in the first quarter. [inaudible]

Speaker Change: So we hit a level of activity that I think at the end of the quarter even surprised us and even the first part of the second quarter [inaudible]

Speaker Change: You know, as we look across the quarter, it's relatively steady from an activity level standpoint, although, you know, we are being a little bit conservative as to how we look at the end of the quarter. We might see a little bit of white space based on some decisions some of our customers make. [inaudible]

Speaker Change: But it's really kind of relatively steady at the same time.

Speaker Change: And then you mentioned pretty steady demand on the oil side here, but we do know that the EMPs have been planning for a range of potential outcomes.

Speaker Change: on the oil price side. And there seems to be that, you know, if the oil city and the oil of 60s is probably some adjustment. Do you have a sense, Andy, for just how large?

Speaker Change: That adjustment could be if oil was just caught flat from here. I guess it's a two-part question. One is, you know, how large could that adjustment be for the market? And then, you know, as we saw, you know, last downturn to the pandemic, you guys picked up. [inaudible]

Speaker Change: The good amount of shares, so two is kind of, you know, what could that adjustment be for Patterson, specifically?

Speaker Change: Yeah, so when you look at the portfolio of EMPs that we work for, about 60% of our revenue comes from the 15 most active EMPs in the US

Speaker Change: So, we're heavily weighted to essentially people that have large programs in terms of multi-year plans for what they want to do. And so, what we've seen is that...

Speaker Change: You know, the executive teams from these companies are really kind of waiting to see what happens and if there is any recovery in a while to the upper 60s. I think when we see oil in the upper 60s, that pretty much normalizes everything for what we're doing. [inaudible]

Speaker Change: In the lower 60s, we could see some softening of it stays in there, but I would still just refer to it as softening in the market and doesn't change our ability to continue to produce strong free cash flow in the year [inaudible]

Speaker Change: You know, certainly there would be some EMPs that make some decisions to reduce their budgets, but even in the low 60s I wouldn't expect a drastic response from the customer base that we work for.

I got it. Appreciate it. Thank you

You're next, uh...

Speaker Change: A call comes from the line of Atid Modak from Goldman Sachs.

Please go ahead.

Speaker Change: I would say in the gas basins, our expectation right now is that things are going to remain relatively steady. I mean, we seem to be with the commodity prices and gas approaching the shoulder season.

Speaker Change: So I don't expect any real change in what we're doing in natural gas at today's commodity price. It did ramp up a little bit faster in the Haynesville than we saw especially on the completion side. We did deliver a couple rigs but they had been in the plan, a longer term plan where we had done some...

Some customization to some specific specifications on those drilling rigs [inaudible]

Speaker Change: But completions ramped up a little bit quicker, so we've been very busy [inaudible]

Groud of our East Texas Operations covering the Haynesville.

Speaker Change: And I think that a number of our customers also did some hedging earlier on in the year at higher natural gas prices so financially our customers and natural gas seem to be very healthy.

Speaker Change: That's very helpful. And then you guys spoke about the flexibility around capex, but you also mentioned that you have the opportunity to right-size costs and drive corporate efficiency. So maybe if you can provide any color on that depending on how the year plays out.

Speaker Change: and not only out at the field level but also corporately. So I think you'll see progress on that front kind of rateably throughout the year. I don't want to give any targets right now, but certainly I think you'll see our costs come in somewhat over the course of this year.

That's very helpful. Thank you.

Speaker Change: Your next question comes from the line of Saurabh Pant, from Back of America. Please go ahead.

Hey, good morning, Andy and Adi. Good morning, Saurabh [inaudible]

Speaker Change: Adia, I want to just maybe pass on your perspective on the drilling versus completion side of things because you're the only one who does both and both it's scaled.

Speaker Change: From your perspective, Andy Wright, when you see times like these uncertainties, some risks to E&T Cup X activity rate, how do you think drilling and completions would trend relative to each other? Is there a scenario under which?

Speaker Change: If you take completion, your fall is faster than drilling, and you see some ENP's building ducts, right? But just making your thoughts on how you think that it's laid out [inaudible]

Speaker Change: You know, I think this is an interesting time in the industry the way the commodity prices have been moving and you've had this kind of separation between how oil is moving versus how natural gas is moving . . .

Speaker Change: So you really have to look at the two markets somewhat separate [inaudible]

Speaker Change: I really believe that where natural gas is trading today, it'll keep us steady in that market, so I'm not expecting any real change there [inaudible]

Speaker Change: And, you know, the things that are happening at the macro level in the economy don't really seem to be moving the natural gas [inaudible]

Speaker Change: Number as much as it has on the oil, so I do expect relatively steady markets there and we have a very large position in natural gas, not just the Hainesville but of course the northeast of the east.

Speaker Change: So with the increasing activity that we've had in that market in the first quarter, our exposure to the gas has moved up from 25% maybe closer to 30% now and so we're well weighted to the natural gas and the steadiness of that market.

Speaker Change: On the oil side, of course, we've seen more fluctuation, we've seen it move around, we're in the low 60s right now for WTI

Speaker Change: You know, that could cause slight softening in the market. And so if we see it trend that way, the softening, maybe there's a little bit of a slowdown and drilling and completion at the same time.

Speaker Change: But I wouldn't necessarily expect those to diverge much or see any duck building in that area. But again, you know, where we are trading of WTI, potential for a softening, but I think we just have to wait for the macro and see how the commodities markets play out.

Speaker Change: Right, now a very interesting dynamic for sure on the gas horses also, Andy. And then a second question for me, Andy is on pricing, right? The industry has been really disciplined and has a really good job on pricing the cycle, which is drier cycles.

Speaker Change: Right, and we know pricing hurts profitability much more than activity that's right. So in this kind of environment and the $60, $60 oil price, how should we as investors think about pricing risks going forward through the remainder of the year? [inaudible]

Speaker Change: Down the drilling side, we did have some contracts that are going to roll and some adjustments in the market that we'll make there

Speaker Change: So it's coming down just a little bit, but not much, you know, low single digit percentile [inaudible]

Speaker Change: On the completion side, the majority of those agreements and contracts were all negotiated at the end of last year and are really kind of locked in place for where we are right now. So I'm not expecting any real change on the completion pricing.

on Drilling Product,

Speaker Change: Our product pricing has been inching up with the increased percentage of new technology that we're running there, especially with the Maverick Cutters and drill bit design that's setting new records out in the field, especially in the Permian. [inaudible]

and I'll even just mention our directional drilling sub-segment.

Speaker Change: which has shown increased reliability and equipment over the last year and a half.

Speaker Change: and that's really being recognized in the market. We're getting premium prices for our high performance drilling motors and the reliability of the MWD. We've actually...

Speaker Change: You know, increased market share and margin in that business over the last year. So, you know, I'm feeling really good about all of our businesses. I know there's some concern about the macro out there.

Speaker Change: But I think natural gas for us is steady, maybe there's a little bit of suffering in oil business, but I think we just have to wait and see.

Speaker Change: Yeah, yeah, yeah, no, that sounds very brilliant. Like, I'm beside the five percent dividend yield and if there's not that much downside, clearly the market may be looking for too much downside. But we'll see. Okay, Andy, I'll turn it back. Thank you.

Speaker Change: Your next question comes from the lines of Eddie Kim from Barclays. Please go ahead.

Eddie Kim: Take a morning. I just wanted to ask about potential activity declines in the second half of the year. You mentioned that it will remain at current levels.

Eddie Kim: customers could reduce the activity in the oil basins. So current U.S. land rig count stands at about 570 rigs or so today.

Eddie Kim: Could you see, maybe 20 or 30 rigs come out of the market by year end? If oil kind of holds in this low 60s level, just wanted to get your stuff there.

Eddie Kim: Yeah, like I said, if all stays at this level in the low 60s, I think you'll see a softening in the activity.

Eddie Kim: But the other aspect of this is that you're going to see a bifurcation in the market, and…

What will happen is you'll see... [inaudible]

Eddie Kim: You know some of the lower spec rigs come down first even before ours have, we've seen this in previous years, previous quarters [inaudible]

when we've had these softening in the market. [inaudible]

Eddie Kim: And so while the overall rig count that everybody looks at may come down, the high-spec rigs don't necessarily come down at the same rate and so...

Eddie Kim: But that's not necessarily our customer. We don't work for a lot of those types of EMPs. And so you're going to see this bifurcation in the market.

Eddie Kim: And for us, that's on the drilling and the completion side. So, you know, you'll see, you know, EMPs in the Midland Basin maybe slow down quickly but that's not where we do a lot of completion work.

Eddie Kim: So, you'll see some of the smaller companies slow down, but the larger higher tier companies will stay more relatively busy compared to them.

Speaker Change: Just in light of recent events, do you think there's maybe less urgency from the EMPs to to electrify those systems than there was three months ago? And has that kind of opportunity set in the distributed power market maybe been pushed out of it?

Speaker Change: So we've never airmarked any specific amount of capital for power but what we do is we analyze each of the projects that come our way and we've had a number of discussions with our EMP customers both on looking at production facilities and midstream facilities.

Speaker Change: and trying to see if there's something that we can provide that's differentiated in those markets. [inaudible]

and in some cases there is.

Speaker Change: and so we'll continue to look at those projects but again we analyze those on specific case-by-case basis, you know, we very well understand, you know, our return of capital hurdle and you know, our need to, you know, produce a return and we'll only year mark capital for those projects if we think it makes sense.

Speaker Change: Got it, got it, appreciate the colors, I'll turn it back. Thank you.

Speaker Change: Your next question comes from the line of Keith MacKey from RBC Capital Markets. Let's go ahead.

Keith McKee: Can you just talk about the adoption of performance-based contracts, what type of uplift you're seeing?

Keith McKee: and ultimately, how should the market assess the success of these given that you're not going to report the revenue per day anymore?

Keith McKee: And finally, do you see the performance-based contracts extending maybe beyond drilling into completions and in a larger adoption model? Any color around that stuff would be helpful.

Keith McKee: We've been excited about the performance that we've been able to provide and running these types of operations where we've integrated the services, we've added services in some cases where an EMP might not have run the majority of our services.

Keith McKee: and then using the digital aspect of everything we do to improve the efficiency and improve not just our chance of success but the overall outcome for the EMP as well.

Keith McKee: We're up to, you know, around 10 percent of what we do has integration in it these days and performance basis on these types of contracts. You know, I think that will continue to grow, but this is a multi-year process.

Keith McKee: It also depends on a little bit of the macro and any headwinds that we have there, but we're thinking about this in terms of the long-term [inaudible]

Keith McKee: You know, we see our drilling products group continue to set records with new technology and that's at the front end of what we're trying to do with

Keith McKee: You know, integrating things and, you know, proud to have them as part of what we do.

Keith McKee: because if the industry is going to continue to drill faster and complete faster, we need to be at the leading edge of that and that will help us maintain and increase our market share and improve our opportunity for improved margins as well as we can provide positive impacts to our customers.

Keith McKee: So, I think that will continue to grow. It's hard to say exactly what pace that is but again we're taking a multi-year look at this [inaudible]

Speaker Change: Okay, that's helpful. And maybe just around the Q2 guide, and I expect drilling and completion to be down slightly, hoping you can put a little bit more of a goalpost around that in terms of the percentage decline that you'd expect slightly to approximate. Yeah, Keith, I would say low single, low to mid single digit declines.

Speaker Change: Okay, got it. Thanks very much. Yeah, Keith, you know, in terms of...

Speaker Change: Drilling, it's really about just making some market adjustments with some contracts rolling and in completions it's just a little bit of uncertainty at the end of the quarter on how much twice space we're going to have but again you know just a slice off.

Okay, that's helpful. Appreciate it.

Speaker Change: Your next question comes from the line of Stephen Gengaro, from Steeville .

Let's go ahead

Speaker Change: Thanks, good morning, everybody. I guess just two quick words from me. When you talk about legacy drilling contracts rolling off, can you give us a sense for kind of the price difference

Where they are versus where the spot market is.

Speaker Change: You know, I think that it really depends on when we sign some of these.

Speaker Change: You know, anything, of course, it's, you know, a year and a half or more, it's going to be signed when the market was at a higher level of activity versus say six months ago. So it's hard to put a number just on that in general, but I'd say that it's, you know, less than a 10% adjustment.

Speaker Change: Okay, great, no, that helps. And the second question, it has to do with sort of capital allocation and how you sort of thinking about the world.

Speaker Change: is, as you look out to the second half, I mean, if we do see

Speaker Change: Reduction and Activity, and it seems like a lot of the service companies are talking about the US being down 10 to 15% this year, give or take.

Speaker Change: and I know your customer base maybe helps mitigate some of that, but how do you balance buying back stock with...

Speaker Change: with sort of balance sheet strength over the next year. Have you guys sort of thought about how to balance that based on how the market evolved?

Speaker Change: Yes, Stephen, I think as you get into that and look, if-

Speaker Change: As you become more certain about what not only the sort of magnitude and the longevity of any downturns going to be I think you can

Speaker Change: You can be pretty specific about what you want to allocate to which I think, right, I think the uncertainty is the tough thing and not knowing how long something will last and how deep it might go and so I think in terms of uncertainty people tend to maybe fall back and-

Speaker Change: You know, maybe protect their balance sheet a little bit more, but once you have a little bit more visibility you can be pretty constructive about your capital allocation plans. [inaudible]

Speaker Change: Again, I don't know what the second half's going to bring specifically yet but if we get into something where the outlook is a little bit more certain, I think we can be pretty constructive [inaudible]

Speaker Change: We committed to returning 50% of our pre-cash flow to shareholders and we certainly stand by that. We may be sitting on more cash than that this year, and if we don't have a need for that cash, we'll look to return that to shareholders as we've done in the past.

Speaker Change: Okay, great. And then, if you remind one final one, the decision on the drilling side to stop breaking out some of the components, including revenue per day, can you talk a little bit about kind of why that is? And I kind of understand it at a high level, but it always sort of worries...

Speaker Change: I think people from our side when you disclose less and I'm just kind of curious about how you thought it came to that conclusion and now is the right time to do that.

I'll start with and then I'll let Andy.

Speaker Change: Phil in some of this as well. You know, we've looked at this for years. We've been disclosing more than our peers have for years. And as we've continued to add service lines and integrate things, you know, just doesn't make sense anymore just to break out a sub-segment like we have. [inaudible]

Speaker Change: Contains more than one business line now. So, you know, we're just trying to align the reporting with how we're operating the business as well. Yeah, I would just add to that. I think the more you focus on, you know, one individual metric, whether it's a day rate or something like that. It's sort of undervalued the...

Speaker Change: The integrated offering and really the performance based offering that we're trying to, you know, offer to our customers. So, we think it's the right thing and again it aligns us a little bit more with what some of our competition is doing as well.

Speaker Change: Okay, now that's there. Thank you. Thanks for all the details.

Thanks.

Speaker Change: Your next question comes from the lines of Dan Kutz from Morgan Stanley . Please go ahead.

Hey, thanks. Good morning. Morning.

Speaker Change: So I wanted to, Andy, you kind of made some comments earlier about the kind of relative resilience of

Speaker Change: The higher spec assets that the Patterson fleet is comprised of both on the drilling side and the fracks outed, I wanted to dive in a little bit more.

Speaker Change: on the drilling side. So I think that you guys have done a great job of highlighting the fact that they're potentially the old ones.

Speaker Change: The number of rigs that you have to meet that definition. I was hoping maybe you could...

Speaker Change: You could, if there's any chance you have an estimate of what maybe that tier one super-spec [inaudible]

Speaker Change: Class would look like for the broader industry, maybe what supply and demand of what you guys define as tier one super spec looks like, you know, at an industry level. Thanks.

Speaker Change: Yeah, good morning. So, you know, over the last decade, that's just been a moving description that's gone from high-spec to super-spec to tier one super-spec as the specifications on the rigs have gone up.

Speaker Change: And, you know, we've even deployed some rigs that we've customized for some key customers that I would say are even at a higher spec than what we've...

Speaker Change: Traditionally called as Tier 1 Superspex, so I'm not sure we've got good definitions anymore that describe what we do. It's really about performance at the end of the day and it's about what our people do with that technology and the field and the operations. . . .

Speaker Change: And that's what matters at the end. And so I think as an industry we're going to look less at trying to say it's a certain horsepower, a certain low capacity or pump size or anything like that and really look at the performance of the entire package and what we're doing. [inaudible]

Speaker Change: and you combine that with digital and what we do in our P-10 Performance Center which you know will unveil the new and here soon to the public that we've built out on the entire third floor of the building when you combine all that at the end of the day it's really about performance.

Speaker Change: And, you know, when I get back to talking about, you know, majority of our revenue comes from the largest operators in the US and that's for a reason because we're delivering performance for these operators.

Speaker Change: They know that we're going to be efficient. They know that we're going to continue to focus and work to improve what they do at the same time. And so I don't think we can really kind of break it down into a name on the specification anymore like we used to. And so we're going to continue to focus and work to improve what they're going to do at the same time.

Speaker Change: Yeah, I think at the end of the day, you know, the mechanical capability of the rig is still important.

Speaker Change: But I think what's becoming a bigger portion, maybe even more important, is the embedded technologies and the people that we have operating them in the processes that we're operating with. So it sort of separates

Speaker Change: And again, it separates kind of across the board, but I do think that it's a little too easy just to break it down into the mechanical capabilities because that's maybe not the thing that's really the differentiator anymore.

Speaker Change: Spring Breakup at Lyndon Canada, and then that UC growth across kind of rest of world was hoping you could maybe unpack the rest of world growth comment into maybe what regions you're you're kind of seeing

Speaker Change: seeing growth versus, you know, yeah, just probably the kind of global activity trends you're seeing.

Across the rest of the world. Thanks

Speaker Change: Sure, so, you know, outside of the Spring Breakup in Canada, really pleased about the performance in Canada. We were just talking about it.

Speaker Change: When we look at the rest of the world outside of North America, our teams are very well positioned in various countries.

Speaker Change: The growing rig count that we're going to see in Argentina over the years, and I'm just going to start with Latin America, it's going to be...

Speaker Change: Our remanufacturing center in Saudi Arabia is being upgraded to a manufacturing center so we'll be able to build some of our drill bit product lines.

Speaker Change: New there, that market is shifting over from a purchase market to a rental market, and that's where we excel in the US.

Speaker Change: We know the brittle market very well. We understand that model. Our teams do a great job here in the U.S. and I'm highly confident that they'll be able to transfer that process over to Saudi as well. You know, you go to a mall and we have a remanufacturing facility there.

Speaker Change: and I think will be well positioned to take advantage of that as well.

Great. All helpful. Thanks a lot. I'll turn it back.

Thanks

Speaker Change: Your next question comes from the line of Connor Jensen from Raymond James. Please go ahead.

Connor Jensen: Hey guys, thanks folks, we can mean at the end here [inaudible]

Connor Jensen: You called for flat rig guidance for Q2, saw the websites kind of been trending a little bit above that to start the quarter, but obviously with oil prices down here, that might have some impact. Do you have any line of sight on rigs that might get idle or let go during the quarter? No.

Connor Jensen: You know, we do have some line of sight on a small number of rigs that could be idled over the next quarter or so, but you know, I would say, you know, overall we're going to be relatively steady here in the second quarter

Connor Jensen: Again, you know, at this level of WTI as it could be some slight softening in the market, and we could see a little bit of a downward trend on our rig count, but I don't expect this to be a large downward trend

Connor Jensen: Got it. That makes sense. And then you highlight some cost controls in the business over the last couple quarters specifically in completions, wondering if you could expand on what you're doing there on the cost side and some of the different levers you could pull given different activity scenarios.

Connor Jensen: Yes, sure. So, you know, from an operational standpoint in the field our completion teams are doing a great job. You know, as we worked through integration last year, you know, there was still some opportunities to take some more costs out of the system and...

Connor Jensen: and you'll see that materializing the numbers relatively speaking here in the first and second quarters this year.

Connor Jensen: They did a great job getting some cost out in the first quarter, a little bit more in the second quarter, so on a relative basis, just looking at our cost line, they're continuing to improve and the teams doing a great job [inaudible]

Connor Jensen: It's all supported by the level of technology and performance that we offer in the field and that's what keeps that business relatively steady outside of a little bit of white space we could see towards the end of this quarter. The end of this quarter is the end of this quarter.

Great, thanks. I'll turn it back.

Connor Jensen: Thanks. Your next question comes from the line of Jeff LeBlanc from TPH and Cole. Please go ahead.

Jeff LeBlanc: Good morning, Indian team. Thank you for taking my question. I just said one. You mentioned earlier that the majority of your cat-back system directed towards maintenance.

Jeff LeBlanc: Could you quantify the amount of managed cat-backs for risk-reliant completion? [inaudible]

is a little bit more specifically. Thank you.

Yeah, so um...

Jeff LeBlanc: Let me, I don't have it at my finger tips, but I can kind of give you an idea. On the drooling side, probably looking at maintenance capex.

Jeff LeBlanc: You know, approaching $175 million or so, and then on the completion side, I would say we're probably yeah, around probably $200 million or so of...

of Maintenance Capix

Jeff LeBlanc: And those numbers trend lower in a more downward scenario, or those relatively steady even at low prices. They're very linear with activity, right? So, you know, as activity falls off.

Jeff LeBlanc: You'll see those numbers trend down and, you know, in a severe downturn, you see them trend way down. So certainly, we adjust that kind of based on where the market is, but you're typically going to see a good, pretty linear with activity.

Speaker Change: Awesome. Thank you for the call. I'll hand the call back to the operator.

Thank you.

Speaker Change: Your next question comes from the line of Dawn Christ from Johnson Rice. Please go ahead.

Speaker Change: Hey guys, just one quick one for me, and it's more on visibility than anything else, as I understand the business on the drilling side, you pretty much know two pads ahead of time when that rig

Speaker Change: I don't know if that's correct or not in today's market, but could you translate that into the press pumping side for us? I mean...

Speaker Change: What I'm driving at is, can the pressure pumping side within two weeks notice start dropping crews? I don't think that's the case, but just wanted to know if that was clarification. Thank you very much.

Don: Hey Don, good morning. So, as you mentioned in drilling, that's the part of our business. It usually gets the first call or notification to pick up a rig or lay down a rig. And it's usually with a fair amount of notice and we've got line of sight on that. And so we can work that into projections.

Don: But, you know, I would say even today, completions is at that longer-term notice in a lot of cases too because of the quality of the EMPs that we're working for, the longer-term programs that they're working on. We know there are plans.

Don: Further in advance as well, and if there's going to be any changes, we typically have-

Don: A fair amount of notice on that as well, and can talk about that. So when we talk about what we think is going to happen in the upcoming quarter, we can talk with a relative degree of certainty around that outside of macroeconomics and any changes in the commodity.

Speaker Change: Okay, I appreciate that color. So I'll turn it back. Thanks for everything. Thanks, John . Thanks

Speaker Change: Your final call comes from the line of Sean Mitchell from Daniel Energy Partners, let's go ahead.

Sean Mitchell: Hey, good morning guys. Andy, just, you may have mentioned this earlier and I might have missed it, but how much of the completion fleet that is natural gas capable today is actually working in oil basins versus gas basins?

Sean Mitchell: So, yeah, 80% of what we have out there today can burn natural gas.

I would say it's probably, you know...

Sean Mitchell: It's the same kind of split as our overall split, roughly 70-30 percent. So we actually have a lot of equipment that burns natural gas working out in the Permian these days just because of them.

Sean Mitchell: You know, the ability to get low-cost natural gas and truck it through our own systems, you know, we have...

Sean Mitchell: We have two compression stations for C&G. We have well over 100 trucks that can deliver C&G and blend it with field gas, so there's a huge opportunity.

for our customers out in West Texas.

Sean Mitchell: and New Mexico to use natural gas. And so it's not just weighted to the gas basins, but we're using a lot out the Permian too.

Speaker Change: Yeah, and look, I know drilling products is a little bit smaller, but that segment continues to grow with pretty strong returns. Are there any, mm, M&A opportunities there as we kind of head into a softer period here that you guys were thinking about or do you think there will be opportunities there?

Speaker Change: Yeah, Sean, look, I think that the drilling products platform is great and they do a fantastic job and really, you know, they market their products as well as

Speaker Change: As anyone, and so I do think there are opportunities to push more through that if we can find something that fits right You know we don't necessarily have anything in mind but certainly we we see a lot of things and we think about a lot of things

Speaker Change: The acquisition of Ulterra was part of a bigger plan to add a segment that was relatively low capex compared to everything else we did, and we're certainly pleased with that performance.

Yep, I agree. All right, thanks guys. Thanks, Sean.

Speaker Change: I will now turn the call back over to Andrew Hendricks for closing remarks.

Speaker Change: Thanks, man. Listen, I just want to thank everybody that dialed into the call today, especially our employees. You guys are doing a great job out there, so thanks for everything everybody does. Appreciate it.

Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Thank you.