We have upgraded onshore contract driller Patterson-UTI Energy Inc. (PTEN) shares to Outperform from Neutral, reflecting its promising future prospects.
The company, which had a heavy spot market exposure, was hit badly by the financial crisis with operators tending to release land rigs to preserve cash. However, Patterson-UTI Energy has recovered almost all its lost market share, benefiting from its growing premium land rig fleet and the current boom in pressure pumping services (an umbrella term used to describe a number of vital services performed on new and existing wells).
During the second quarter earnings release, management indicated that U.S. drilling activity is picking up, reflected by the sequential improvement in rig count. Patterson-UTI Energy also stated that there is considerable tightness in the market for shale-suitable rigs, and dayrates across the rig fleet have been going up.
Additionally, the company’s stellar financial health (free cash flow positive and a debt-free balance sheet) stands it in good stead. As such, we believe Patterson-UTI Energy is well positioned going forward and view it as an attractive investment.
Patterson-UTI Energy, which currently retains a Zacks #2 Rank (short-term Buy rating), is one of the largest onshore contract drillers in the U.S. with approximately 350 land-based rigs that operate primarily in the oil and natural gas producing regions of North America. The company is also engaged in the exploration and production business and provides pressure pumping services.