Patterson-UTI Energy Inc. (PTEN), one of the largest onshore contract drillers in the U.S. , has declared its July 2010 drill rig count to average at 172, up from 163 in the previous month. The company operated 165 rigs in the U.S. and 7 in Canada in July, compared with 160 rigs in the U.S. and 3 rigs in Canada during June.
Patterson-UTI’s activity levels in the U.S. peaked in early October 2008 with a rig count of 275. Since then, till the second quarter of 2009, the company witnessed a steep and rapid decline in rig count on the back of decreased demand, largely caused by lower commodity prices for natural gas and tighter access to credit.
However, during the last few quarters companies were trying to bring rigs back on line amid signs of economic stabilization that could in turn drive up energy demand. This is reflected in Patterson-UTI’s monthly rig count numbers, which recovered from a low of 60 in May 2009 to the current level of 172.
As a result, the company recently reported significantly better-than-expected second-quarter results. Patterson-UTI’s outperformance was driven by strong contribution from its ‘Contract Drilling’ segment on the back of improvement in rig count.
Earnings per share, excluding an after-tax profit associated with the sale of certain rights in oil and gas working interests, came in at 11 cents, well ahead of the Zacks Consensus estimate of 6 cents. In the year-ago period, the company lost 12 cents. Quarterly revenue of $307.0 million was up 118.5% from the year-earlier level and was 1.3% above our projection.
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 also stated that there is considerable tightness in the market for shale-suitable rigs and dayrates across the rig fleet have been going up. The company activated seven new technologically-advanced ‘Apex’ rigs during the first half of 2010 and expects to activate another 16 during the remainder of the year. Patterson-UTI has entered into long-term contracts for all 23 of these new rigs.
Patterson-UTI is currently rated as Zacks #2 Rank (Buy), implying that the stock is expected to do better than the broader U.S. equity market over the next one-to-three months. Our positive recommendation on Patterson-UTI reflects its premium newbuild rig fleet. The demand for the newbuilds have remained far more robust compared with older commodity units, given their ability to drill the more challenging wells in the emerging resource plays. As such, the dayrates for these rigs are expected to hold up much better.