Like its peers, Patterson-UTI Energy Inc. has responded to market conditions by scaling down its frac spreads, cutting costs and reducing dividends. The Houston-based oilfield service provider has also closed some facilities and shed some management layers, according to its CEO.
“We actually have made structural changes to the tune of an annualized cost savings of $65 million a year,” Patterson-UTI CEO Andy Hendricks said, referring to pressure pumping cost cuts.
Hendricks believes those changes will be sustainable “on the other side of this downturn,” saying “it actually becomes more difficult to add those layers back in as you should grow.”
Service companies have suffered as oil and gas operators have drastically cut spending in response to lower oil prices and less demand amid an oversupplied market and a global pandemic.
Patterson-UTI is counting on its balance sheet to get it through tough times and its technology to push toward potential market share gains. Speaking on a recent webinar with James West, senior managing director and partner of Evercore ISI, Hendricks said the company remains focused on liquidity. It also sees opportunity for new technology.
The company took a leap forward on its technology focus in 2017 when it acquired MS Energy Services, a provider of drilling services and downhole surveying, for about $262 million. Earlier this year Patterson-UTI also introduced new technology: the Mercury Impulse MWD tool and the Mpact motor design, which Hendricks said has a tougher lower bearing section and transmission section.
“We were having really good uptake from those new two pieces of technology into the market. Customers were very happy with the service quality, the reliability of those tools. You’re not having to trip out of the hole as frequently and performance was up from our directional team,” he said. “If it hadn’t been for this downturn, there’s no question that our teams would be growing the rig count and increasing market share.”
Similar to other downturns in recent years, the rig count has fallen but not as fast as it did in 2015-2016, he said. Another key difference this time is the reaction from operators.
“We really didn’t see operators shutting in wells back in ‘15-‘16, but we’re seeing it today,” he said.
While the shut-ins are tough for the industry and its workers, Hendricks added he sees them potentially accelerating the rebalancing effort. “If there’s any bright side it’s the fact that we’re getting to the bottom a little bit quicker and we’re seeing U.S. production come down,” he said.
IHS Markit said May 21 it expected operating cash losses, lack of demand and storage prices and an unwillingness to sell resources at low prices would lead U.S. producers to shut in about 1.75 MMbbl/d of existing production by June.
“Customers are stressed. No question about that. I would say they’re probably more stressed when commodities were zero and going negative,” Hendricks said, noting some of its customers were forced into some transactions at negative WTI.
Patterson-UTI’s communications with customers wanting to decrease or stop activity have slowed, he added, calling that a “positive sign.” Still, he said he doesn’t know whether the industry is at the bottom in terms of activity, specifically the rig count. “But we must be getting closer.”
The U.S. rig count dropped by 21 to 318 in the week of May 22, according to the latest Baker Hughes Co. rig count. A year earlier the count was 983.
The SCR (silicone-controlled rectifier) and mechanical rigs were the first to get dropped, according to Hendricks.
Post downturn, he sees high-spec and super-spec rigs making up a higher percentage of the overall U.S. rig count.
As for Patterson-UTI’s share of the market, Hendricks said the company gained share this year and stands a good chance of holding onto it through the recovery and longer term with technology. The company has been investing in technology. Its strategy is to own the hardware, integrating directional drilling and the drilling rig.
Hendricks also sees opportunity in remote operations, reducing field headcounts and having one person watching rigs on the MWD or directional drilling side from an office in Houston.
“We’re engineering the technology platform from a hardware standpoint to be able to do that and the next round of hardware that will come up within the next year or so will aid that even further,” he said. “It is a catalyst because …with this slowdown we can actually have those kinds of discussions with the operators” as efficiency and getting costs down remain priorities for both operators and service contractors.