Shares of Patterson-UTI Energy Inc. (PTEN - Free Report) reached a new 52-week high of $25.82 on Dec 24, 2013. In fact, the Houston, Texas-based onshore contract driller has seen its stock price climb some 31.8% during the past six months.
Why the Bullishness?
Patterson-UTI Energy is the second-largest North American land drilling contractor, having a large, high-quality fleet of drilling rigs. The company’s technologically advanced ‘Apex’ rigs are the key to its success. Patterson-UTI’s proprietary design makes the rigs move faster than conventional rigs, drill quicker and more efficiently than conventional rigs, and allows for a safer operating environment. As such, these rigs are better suited for the new demands of the exploration business and, therefore, command higher dayrates and utilization than rigs from other land drillers.
Moreover, the company spent more than $1 billion during the last few years to build new land drilling rigs, as well as to modify, upgrade and maintain its drilling fleet. We believe the new rigs and efficient equipment should give Patterson-UTI Energy an edge over competitors and help it weather the current volatile environment better than some of its peers. Demand for the newbuilds remains far more robust than older commodity units given their ability to drill the more challenging wells in the emerging resource plays. As such, dayrates for these rigs are expected to hold up much better.
We also like Patterson-UTI Energy’s recent decision to retire 48 mechanical drilling rigs from its fleet, owing to lower demand. The company will use major components of the rigs for maintaining its high specification drilling rigs.
Although, the shares of Patterson-UTI rose to a 52-week high, we remain concerned over the abundance of land drilling rigs as well as pressure pumping equipment in the competitive market. Hence, the company has lost out some of its market share to competitors who offer better products and services at a cheaper rate.
Patterson-UTI holds 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.
Stocks to Consider
One can consider better-ranked players in the oil and gas drilling sector like Tesco Corporation (TESO - Free Report) , Helmerich & Payne Inc. (HP - Free Report) and Pacific Drilling SA . Tesco sports a Zacks Rank #1 (Strong Buy) while Helmerich & Payne and Pacific Drilling carry a Zacks Rank #2 (Buy).