Patterson-UTI Energy, Inc. — FY2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports unaudited fourth-quarter results. Unless noted otherwise, financial amounts below are in U.S. dollars.
Business context
Patterson-UTI provides land-based contract drilling and pressure pumping services, and holds non-operating oil and gas working interests. At year-end it had 328 marketable drilling rigs and approximately 631,000 hydraulic horsepower of pressure-pumping equipment. Its drilling and completion fluids business and acquired electric wireline business are reported as discontinued operations; the wireline business was sold in January 2011.
Financial performance and liquidity
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $2,565.9 million | $1,462.9 million |
| Operating income | $525.6 million | $200.9 million |
| Operating margin | 20.5% | 13.7% |
| Net income | $322.4 million | $116.9 million |
| Diluted earnings per share | $2.06 | $0.76 |
| Cash from operating activities | $868.6 million | $525.7 million |
| Capital expenditures | $1,011.6 million | $738.1 million |
- Revenue grew approximately 75%; management attributed the improvement primarily to higher drilling activity and dayrates, and increased pressure-pumping activity and pricing. Cash from operations less capital expenditures was approximately negative $143 million.
- Contract drilling revenue was $1,669.6 million and segment operating income was $346.1 million. Average rigs operating rose to 216 from 168, while revenue per operating day increased to $21,200 from $17,670.
- Pressure-pumping revenue increased to $845.8 million from $350.6 million, with segment operating income of $193.4 million versus $62.2 million. The 2010 acquisition contributed $456 million of 2011 revenue and $106 million of operating income.
- Year-end working capital was $346.2 million, including cash of $23.9 million. Total debt was $502.5 million, versus $398.8 million in 2010; approximately $249 million remained available under the revolving facility after letters of credit. The company reported compliance with its debt covenants.
- The company paid $0.20 per share in 2011 dividends and approved another $0.05-per-share dividend for March 2012.
Fourth-quarter results and material changes
Unaudited Q4 2011 revenue was $724.6 million, operating income $143.9 million, and net income $87.6 million (diluted EPS $0.56). Q4 2010 revenue was $505.7 million, operating income $94.8 million, and net income $53.9 million (diluted EPS $0.35).
Full-year revenue and earnings improved materially from 2010. Drilling activity and dayrates increased, while pressure-pumping growth reflected the acquired business, larger multi-stage fracturing jobs, and higher pricing. Capital spending also rose substantially. The company removed 53 rigs from its marketable fleet in 2011 and recorded $15.7 million of related impairment charges.
Outlook, risks, and unusual items
- Management expected to complete 30 additional APEX rigs in 2012. Year-end drilling-contract backlog was approximately $1.6 billion, of which $898 million was expected to be realized in 2012; backlog is subject to customer termination provisions and is not a guarantee of revenue.
- Management noted unusually low natural-gas prices at the start of 2012, but expected high oil prices to support activity in oil- and liquids-rich areas. No specific consolidated revenue or earnings guidance was provided.
- Key risks include commodity-price volatility, excess drilling-rig and pressure-pumping capacity, competitive pricing, labor and supply constraints, customer concentration, and potential regulation of hydraulic fracturing and environmental matters.
- Operational incidents may create significant liabilities: insurance and customer indemnities may not fully cover losses. The company cites a $2 million per-occurrence general-liability self-insured retention and limited coverage for reservoir damage.
- Near-term investment and supply commitments are significant: approximately $351.7 million for major equipment and $42.5 million for proppant purchases remained at year-end. The filing reports no material adverse expected outcome from pending ordinary-course legal proceedings and no off-balance-sheet arrangements.
- Goodwill was not impaired under the company’s qualitative assessment; management cautioned that weaker market conditions could require a potentially material impairment. The company also reported $15.7 million of drilling-rig impairment charges and $3.0 million of oil-and-gas property impairment in 2011.
Investor verification points
- Verify backlog composition, 2012 realization, contract cancellation protections, and current rig utilization and dayrates.
- Assess whether the planned rig and pressure-pumping investment earns adequate returns given the negative operating-cash-flow-less-capex result and outstanding purchase commitments.
- Track natural-gas and oil prices, customer spending, equipment supply additions, and pressure-pumping pricing and margins.
- Review debt maturities, floating-rate exposure, covenant headroom, and the availability of the revolving facility.
- Confirm the effect of hydraulic-fracturing and environmental rule changes, insurance recoverability, and any developments in legal or operational contingencies.