Patterson-UTI Energy, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The company provides land drilling, pressure pumping, directional drilling, oilfield rentals and related services, primarily in North America.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $2.471 billion | $3.327 billion |
| Operating loss | $461.6 million | $322.2 million |
| Net loss | $425.7 million; $2.10 per diluted share | $321.4 million; $1.47 per diluted share |
| Adjusted EBITDA (non-GAAP) | $560.5 million | $806.0 million |
| Cash provided by operations | $696.2 million | $730.7 million |
| Capital expenditures | $347.5 million | $641.5 million |
| Cash and working capital at year-end | $174.2 million cash; $231.2 million working capital | $245.0 million cash; $423.9 million working capital |
| Debt at year-end | $975 million principal; $966.5 million net carrying value | $1.125 billion principal |
Revenue fell 25.7% year over year. The calculated consolidated operating margin was approximately negative 18.7%; net margin was approximately negative 17.2%. Operating cash flow less capital expenditures was approximately $348.7 million, before other investing and financing activity.
All three reportable operating segments recorded losses in 2019: contract drilling $151.3 million, pressure pumping $102.7 million and directional drilling $52.7 million. Other operations lost $54.7 million. Pressure pumping revenue declined 44.8%; contract drilling revenue declined 8.5%, and directional drilling revenue declined 9.8%.
At year-end, the company reported approximately $600 million of available borrowing capacity under its revolving credit facility, with no revolver borrowings outstanding. It had $100 million outstanding under its term loan. Working capital and cash declined from 2018.
Changes, outlook and material items
- Activity weakened through 2019: U.S. average operating rigs declined from 174 in the first quarter to 122 in the fourth quarter. The year-end U.S. rig count was 121, versus 183 a year earlier. Pressure pumping markets were oversupplied; the company reduced active spreads to 11 by year-end.
- Fourth-quarter revenue was $492.3 million and net loss was $85.9 million, compared with third-quarter revenue of $598.5 million and net loss of $261.7 million. The third quarter included a substantial impairment charge.
- The company issued $350 million of 5.15% notes due 2029 and used proceeds and cash to prepay its Series A and Series B notes, including make-whole premiums. It also repaid $50 million of term-loan borrowings; $100 million remained outstanding. Debt refinancing resulted in a $24.0 million early-extinguishment loss.
- Management expected approximately $250 million of cash capital expenditures in 2020. Based on contracts then in place, it expected an average of 77 rigs operating under term contracts in first-quarter 2020 and 58 on average throughout 2020; it expected to average ten active pressure pumping spreads in first-quarter 2020. These are disclosed expectations, not guaranteed results.
- Management said current liquidity and expected operating cash flows should fund planned equipment maintenance and improvements, debt service and dividends for at least 12 months. It cautioned that commodity prices, customer spending and access to capital could materially affect demand and cash flows.
- Significant asset charges included $173 million related to retiring 36 legacy drilling rigs, $20.5 million for pressure-pumping equipment and $8.4 million for directional-drilling equipment. The company also recorded $17.8 million of goodwill impairment in other operations; in 2018, it had recorded $211.1 million of goodwill impairment in pressure pumping and directional drilling. Management’s asset recoverability forecasts assumed activity would begin recovering in late 2020 or 2021; a longer downturn could lead to further material impairments.
- Other unusual items included a $12.7 million write-down of a sand capacity-reservation deposit and a $6.6 million out-of-period adjustment, primarily related to directional-drilling inventory. The company said the adjustment was not material to any period presented.
- Legal and operating risks include a 2018 Oklahoma drilling-site accident that killed five people, including three company employees. Most citation items were settled with the Department of Labor in October 2019; one remained pending before an administrative law judge. The company also cites oil-and-gas price volatility, oversupply and pricing pressure, customer concentration, environmental and hydraulic-fracturing regulation, operational hazards, insurance limitations, cybersecurity exposure and debt covenant risks.
- The board approved a $0.04-per-share dividend for payment in March 2020. The company repurchased $255.5 million of shares during 2019. Future dividends and repurchases remain subject to board discretion and financial conditions.
Key facts for investors to verify
- Whether the anticipated recovery in customer activity and oil prices materializes, and its effect on rig utilization, pressure-pumping spreads, pricing and backlog realization.
- Whether 2020 capital expenditure plans, operating cash generation and liquidity remain sufficient to support debt service, dividends and operations.
- How sensitive the remaining $395.1 million of goodwill and other long-lived assets are to changes in management’s commodity-price, activity, growth and discount-rate assumptions.
- The terms and covenant headroom of the term loan and revolving credit facilities, including the impact of any credit-rating downgrade on distributions and debt obligations.
- The outcome of the remaining OSHA citation item and any material developments in other legal, environmental, insurance or customer-collection matters.
The filing includes audited financial statements and an unqualified auditor’s opinion; management and the auditor reported effective internal control over financial reporting as of December 31, 2019.