Patterson-UTI Earnings: Subdued Land Activity in North America Weighs on Results

No-moat Patterson-UTI PTEN posted solid second-quarter results, with revenue up 22% year over year, but down 4% sequentially as oil and gas activity growth continues to decelerate across North America. The firmwide adjusted EBITDA margin was similarly affected, expanding nearly 600 basis points year over year, but contracting 150 basis points versus last quarter. We’ll incorporate Patterson’s full operating and financial results shortly, but after this first look, we maintain our $18 fair value estimate.

Reduced pressure pumping activity was the key driver behind Patterson’s weaker results this quarter, reflecting lower frac demand throughout North America. Pressure-pumping contracts typically span very short durations and tend to capture changing market dynamics fairly quickly. As such, the drop in revenue reflects lower capacity utilization and lower contract pricing. Management indicated further contractions in the pressure pumping space are likely over the next few months, but should start to improve around fiscal year-end and beyond.

Patterson’s drilling operations fared better this quarter, with revenue expanding 3% quarter over quarter despite a 10% drop in the North American rig count. Patterson’s own active rig count has decreased 3% in the last three months, but the firm continues to capture a higher average day rate as it rolls over older drilling contracts incorporating much lower prices. At quarter-end, each of Patterson’s active rigs earned $36,000 per day on average, up more than $10,000 since last year. Though we’re confident the firm will maintain elevated day rates in the future, we expect Patterson’s active rig count will continue to decline over the next few months, constraining performance from its drilling operations through year-end. As with pressure pumping, however, management expressed optimism that rig counts will start to recover in early 2024.