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Onshore contract driller Patterson-UTI Energy Inc. (PTEN - Analyst Report) reported disappointing third-quarter 2013 earnings owing to significant hike in direct operating expenses and unsatisfactory operating performance from the Oil & Natural Gas unit.

Patterson-UTI’s earnings per share (EPS) (excluding special items) came in at 25 cents, lagging the Zacks Consensus Estimate of 31 cents. The figure also decreased 35.9% from the year-ago adjusted profit of 39 cents.  

Revenues of $730.9 million surpassed the Zacks Consensus Estimate of $673.0 million, and were 13.6% higher than $643.6 million generated in the year-ago quarter, primarily due to greater contribution from the Pressure Pumping and Contract Drilling units.  

Patterson-UTI has inked 27 term agreements during the third-quarter. The company expects to generate revenue of roughly $967 million in the future from the term contracts signed till date.

Rig Count Statistics

The number of operational rigs of Patterson-UTI during the reported quarter averaged 189 (181 located in the U.S. and 8 in Canada) compared with 216 in the third quarter of 2012.

Segmental Performance

Contract Drilling: This segment’s revenues totaled $457.9 million (62.7% of the total revenue), up 2.5% year over year. Adjusted average revenues per operating day was $22,650, marginally up 0.9% year over year, while average direct costs per operating day increased 3.1% year over year to $13,750. The segment’s operating profit increased to $116.3 million from $78.0 million in the year-ago quarter, owing to significant decrease in selling, general and administrative expenses.

Pressure Pumping: Revenues of $259.2 million were up 42.5% year over year. Moreover, the segment’s operating profit increased to $16.9 million from $15.0 million in the prior-year quarter on increased level of activity.

Oil & Natural Gas: Revenues were $13.8 million, down 7.4% from the year-ago quarter. Moreover, operating income of $5.4 million decreased marginally by 0.3% from third-quarter 2012 due to substantial rise in direct operating costs.

Direct operating costs

The company reported direct operating expenses at $447.4 million, representing a hike of 12.6% from $397.4 million reported in the year-ago quarter.

Dividend & Share Repurchase

Patterson-UTI has approved 5 cents per share of quarterly cash dividends, which will be payable on Dec 31, 2013, to shareholders of record as on Dec 17, 2013.

In the third quarter 2013, Patterson-UTI spent roughly $63.4 million for repurchasing 3.2 million shares.

Capital Expenditure & Balance Sheet

During the quarter, Patterson-UTI spent approximately $150.7 million on capital programs (against $232.3 million in the third quarter of 2012). As of Sep 30, 2013, the company had $204.6 million in cash and $695.0 million in long-term debt (including current portion).

Guidance

Patterson-UTI is expecting $750 million of capital expenditure for 2013.

For fourth-quarter, the company anticipates rig operating expenses per day to be $13,800, in line with the third quarter. Moreover, Patterson-UTI projects revenues from pressure pumping unit to decline to $240 million in comparison to the third quarter.

Zacks Rating

Patterson-UTI, the second-largest North American land drilling contractor after Nabors Industries Ltd. (NBR - Analyst Report), currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at oil and gas drilling firms like Ocean Rig UDW Inc. (ORIG - Snapshot Report) and Pioneer Energy Services Corp. (PES - Snapshot Report) that offer better prospects. Both the stocks sport a Zacks Rank #1 (Strong Buy).

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