Business Strategy and Outlook| Katherine Olexa |
The U.S. land rig market remains oversaturated, with drillers commanding lower day rates and margins than in the past. We expect utilization for Tier 1 rigs (high-quality AC rigs with 1.5k-plus horsepower and multiwell pad drilling capabilities) to remain below 70% at midcycle. Generally, drillers can begin to command pricing power at around 80% utilization. Even as demand for oil (and thus rigs) recovers, we expect competition among drillers will remain elevated. Improved rig technologies have increased drilling efficiency, ultimately requiring fewer rigs to meet demand. Patterson acquired Pioneer Energy Services in the fourth quarter of 2021, expanding its U.S. rig capacity and adding exposure to Colombia (where Pioneer maintained eight rigs). We see more potential for drilling growth in international markets, but Patterson's exposure would be small, representing less than 5% of its total annual revenue.