Patterson-UTI Earnings: Average Day Rates Approach $35,000 Amid Tight Drilling Market

Patterson-UTI PTEN commenced 2023 on solid footing, with total revenue up 55% year over year, driven by continued strength in North American drilling and pressure pumping markets. Elevated equipment demand facilitated further pricing gains, which bolstered Patterson-UTI’s overall profitability. The firm’s adjusted EBITDA margin reached 32% (compared with 20% last year), approaching the mid-2010 average of roughly 35%. We’ll incorporate the firm’s full financial and operating results shortly, but after this first look, we maintain our no-moat rating and $15 fair value estimate.

Super-spec rig utilization remains well above 90% in North America, which has granted Patterson and peers a significant degree of pricing power. The firm’s average rig day rates approached $35,000 this quarter, nearly $12,000 more per day than last year. We expect Patterson will maintain elevated day-rates into at least 2024, even when considering a modest pull back in drilling activity following recent softness in natural gas markets. It will take a significant drop in utilization before drillers cede pricing power. Generally, utilization exceeding 80% tilts pricing power in favor of oilfield service firms. By our estimate, this would require the U.S. rig count to fall well below 700, which we view as unlikely in the near term given the current count of more than 750 rigs. Furthermore, oil-directed drilling remains strong as ever, and we view any near-term declines in rig count as transitory while drillers shift capacity from gas basins to oil basins.