With North American rig activity expected to remain steady or dip slightly in 2024, Patterson-UTI is optimistic that its high-spec fleet will remain in demand.
Still, the rash of large-scale consolidations seen in 2024 could affect the oilfield service company.
M&A often results in a pause in activity following a wave of consolidation, Patterson-UTI President and CEO Andy Hendricks said in a Feb. 15 earnings call.
“For some customers that we’re working for, that might be a pause for us. For some other customers, it might be kind of a net-neutral for us in the near term,” Hendricks said.
During the pause, operators will decide what resources they want to use.
“I think we’re in great shape for this wave of consolidation that's happening on the E&P side,” he said citing the combination of services and technologies the company is rolling out.
He said he expects steady activity in U.S. shale oil basins in 2024 and noted that about 80% of the U.S. rigs — and about 70% of Patterson-UTI’s rigs — are targeting oil.
“The outlook for natural gas is less certain,” Hendricks said, although he noted that LNG demand could prompt an uptick in gas activity later in the year.
While about 30% of Patterson-UTI’s rigs are operating in gas basins, some are on gas-liquids, meaning about 20% to 25% are targeting dry gas, Hendricks said.
“I think you’re going to see it relatively steady in those oil and gas liquid spaces for us in natural gas,” he said. “Sure, we’re anticipating some softness. We could be down maybe three rigs over the next few months, maybe five rigs based on where natural gas is trading today, but again, that's off the base of 122 rigs.”
Patterson-UTI won’t necessarily move any rigs out of gas basins, either, he said.
“If you look at the longer term, we’re going to probably need them there in 2025,” Hendricks said.
Patterson-UTI’s 2023 M&A is helping the company realize new business opportunities and synergies. The company’s acquisitions of NexTier Oilfield Solutions and Ulterra Driling Technologies acquisitions have helped Patterson-UTI deliver strong fourth quarter results, he said.
The deals “significantly strengthened Patterson-UTI's competitive position over the long term,” he stated.
Completions opportunities, price softening
Patterson-UTI is rolling out natural gas and electric frac fleets (e-fleets) at a measured pace, Hendricks said. With some already in its fleet, the company is adding more in the second and third quarters to improve profitability over the diesel fleets they will replace.
“There’s also some other technologies that we’re going to be looking at rolling out later this year too that are 100% natural gas,” he said, noting there will be “a variety” of solutions. “It’s not one size fits all. We don’t think the entire industry converts over to electric. We think there’s still solid markets for high-performing dual-fuel natural gas powered systems.”
Patterson-UTI will continue to invest in both electric and other new technologies, he said.
In addition to rolling out electric frac fleets, “we also have other things we’re doing in ‘24 to improve profitability, including integrating some of the vertical services that NexTier has been offering for years onto some of the fleets that aren’t currently operating those,” he said.
Hendricks noted completions pricing softened in the second half of 2023.
“I think from where we are this year, it’s going to be relatively steady for us,” he said even as the company moves assets around later this year. “Part of that is just because we don’t feel like we want to take lower rates. And so we’re going to work to protect pricing in the market to protect our margins.”
Drilling opportunities
On the drilling side, he added, the Ulterra acquisition positions the company for double-digit growth internationally, with the possibility of increasing market share.
And new technology packages the company is rolling out to improve drilling performance will also help, he said.
“There are various components that we upgrade on rigs… adding a pump for better hydraulics for longer laterals, which also includes adding a gen-set transitioning to lithium battery hybrids for more fuel efficiency and savings on the rigs,” he said.
Other elements that improve performance include the real-time data centers and methods to share that information across rigs and throughout the field, he said.
Data analytics also plays a part, he said, and those teams work with the rigs “to make sure that we’re maximizing that performance.”
Additionally, Patterson-UTI is layering in new software and automation technology during upgrades.
“We’re doing it on a number of rigs today, but we’re going to work at a steady pace to continue to roll that out,” he said.
Net income rebounds
Patterson-UTI reported a net income of $61.9 million on revenues of $1.58 billion for fourth-quarter 2023, compared to a net income of $100 million on revenues of $788.5 million in fourth-quarter 2022. The company rebounded from a net loss of $278,000 on revenues of $1 billion in third-quarter 2023.
For full-year 2023, Patterson reported net income of $245.9 million on revenues of $4.1 billion, up about 58% from 2022 net income of $154.7 million.
Hendricks said the company aims to return at least 50% of its free cash flow to investors including through stock buybacks.
“Given our current share price, we are likely to exceed that commitment in 2024 as we believe investing in our own shares at this price is one of the most attractive opportunities available,” he said.
In all, Patterson expects to return at least $400 million to shareholders in 2024 through the combination of dividends and share repurchases, Hendricks said. The company’s board of directors increased its stock repurchase authorization to $1 billion.
“Operationally, we expect total capex for Patterson-UTI to decline in 2024 relative to what the combined companies spent in 2023,” Hendricks said.