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Patterson-UTI (PTEN) Q2 Loss Lower than Expected, Sales Top

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Onshore contract driller Patterson-UTI Energy Inc. (PTEN - Free Report) delivered better-than-expected results in second-quarter 2017. This is the company’s first earnings release as a combined entity after its merger with Seventy Seven Energy. All the financial results for this quarter are based on the post merger effect, while the comparisons with the prior-year quarter reflect the financial figures of Patterson-UTI on a standalone basis.

Patterson-UTI reported loss per share of 21 cents for second-quarter 2017, narrower than the Zacks Consensus Estimate which was pegged at a loss of 28 cents. Results were driven by strong demand for high-spec rigs and higher revenues especially from the Pressure Pumping segment. Further, the bottom line also improved from the year-ago period loss of 58 cents per share.

With the completion of merger with Seventy Seven Energy on Apr 20, Patterson-UTI has bolstered its scale and customer base. The merger has strengthened its position in both contract drilling and pressure pumping and added a new line of business in oil field rentals.

The company reported quarterly revenues of $579.2 million in the quarter out of which $190 million is contributed by Seventy Seven Energy. The total revenue figure was above the Zacks Consensus Estimate of $558 million.  Moreover, revenues in the quarter jumped 198% from the prior-year figure of $194 million.

Patterson-UTI Energy, Inc. Price, Consensus and EPS Surprise

 

Segmental Performance

Contract Drilling: This segment’s revenues totaled $270.1 million (46.6% of total revenue), up 134.4% year over year.

Average revenues per operating day decreased to $20,270 from $23,070 recorded in first-quarter 2016, while average direct costs per operating day was $13,560, up from the $12,770 recorded figure in the year-ago quarter. Consequently, the segment recorded operating loss of $73.4 million – wider than the loss of $70.4 million incurred in the year-earlier quarter.

Operating days increased to 13,323 from 4,996 in the year-ago quarter. Further, the number of operational rigs increased from 55 in the prior-year quarter to 146 in the reported quarter. On a standalone basis, Patterson-UTI averaged 100 rigs in the U.S. and one rig in Canada during the second quarter.

Pressure Pumping: Revenues of $290 million were higher by 292.2% year over year. The growth is attributed to the acquisition of Seventy Seven Energy, increased utilization and better-than-expected pricing. The segment reported an operating profit of $4.6 million when compared to the prior-year quarter loss of $46 million. Pressure pumping gross margin as a percentage of revenues increased to 19.4% for the second quarter from 6% in the first quarter.

Other Operations: Revenues came in at $19 million, 303% higher than the year-ago quarter. However, the segment reported an operating loss of $4.5 million as against a profit of $740,000 in the year-ago quarter. 

Costs & Expenses

Total costs and expenses increased by 126% to $719.4 million in the reported quarter. The increase was mainly driven by higher direct operating costs which were up 216% from the prior-year quarter.

Capital Spending and Balance Sheet

During the quarter, Patterson-UTI which counts Nabors Industries Ltd. (NBR - Free Report) , Helmerich & Payne Inc. (HP - Free Report) and Precision Drilling Corporation (PDS - Free Report) as its peers – spent approximately $118.4 million on capital programs (as against $30.5 million in second-quarter 2016).

As of Jun 30, 2017, the company had $40.1 million in cash and $598.6 million in long-term debt. The debt-to-capitalization ratio of the company is about 16.5%.

Dividend and Share Issue

Patterson-UTI declared a quarterly dividend on common stock of 2 cents per share, to be paid on Sep 21, to holders of record as of Sep 7.

Outlook

The company expects the rig count to average 160 rigs in the United States and three rigs in Canada in the third quarter. Average rig margin per day is expected to decrease to approximately $400 per day in the third quarter due a slightly lower revenue per day and increasing costs on the back of lower proportion of rigs on standby.

Revenues from the pressure pumping segment are expected to increase 25% sequentially in the third quarter. Pressure pumping gross profit as a percentage of revenues is expected to improve to more than 21%, despite the carrying cost associated with reactivation. The ‘other operations’ segment is estimated to generate revenues of $23 million in the third quarter.

Depreciation costs are expected to decrease while Selling, general and administrative costs are expected to increase in the third quarter. Capex for 2017 is estimated at $580 million, an increase of $130 million from the prior guidance. The increase consists of an additional $70 million for rig upgrades, $50 million for pressure pumping and $10 million for E&P, Warrior, Great Plains and general corporate capex.

Zacks Rank

Patterson-UTI is one of the leading providers of domestic land drilling services to major and independent oil & natural gas companies. The company focuses its operations in Texas & southeast New Mexico. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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