Patterson-UTI Energy, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the supplied text does not provide a complete standalone fourth-quarter income statement. Amounts below are in U.S. dollars unless noted.
Business context and operating environment
Patterson-UTI provides U.S. land contract drilling, pressure pumping and directional drilling services, alongside smaller oilfield rental, equipment, automation and oil-and-gas working-interest businesses. At year-end, it had 192 marketed land rigs (184 in the U.S. and eight in Colombia) and approximately 1.19 million fracturing horsepower.
Management described 2022 demand and pricing as improving, with limited availability of high-spec rigs and premium pressure-pumping equipment. Average U.S. active rigs rose to 124 for the year from 82 in 2021; the fourth-quarter average was 131, versus 128 in the third quarter.
Financial and operating performance
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $2,647.6 million | $1,357.1 million |
| Operating income (loss) | $211.0 million | $(677.8) million |
| Net income (loss) | $154.7 million | $(654.5) million |
| Diluted earnings (loss) per share | $0.70 | $(3.36) |
| Adjusted EBITDA (non-GAAP) | $691.7 million | $171.2 million |
| Cash provided by operating activities | $566.2 million | $95.5 million |
| Cash capital expenditures | $436.8 million | $166.3 million |
Revenue increased approximately 95%. Operating margin was approximately 8.0% and net margin approximately 5.8%. Combined segment adjusted gross margin was approximately $801 million, or 30.2% of revenue, versus approximately $275 million, or 20.3%, in 2021; adjusted gross margin is a company-defined non-GAAP measure. Operating cash flow less cash capital expenditures was approximately $129 million, a derived measure.
- Contract drilling: Revenue increased 98% to $1,316.7 million; segment operating income was $140.2 million versus a $423.0 million loss. Average U.S. revenue per operating day increased 27% to $27.57 thousand.
- Pressure pumping: Revenue increased 95% to $1,022.4 million; segment operating income was $134.1 million versus a $118.9 million loss. Adjusted gross margin increased to $241.0 million from $47.8 million, reflecting more and higher-revenue fracturing work, improved pricing and utilization.
- Directional drilling: Revenue increased 94% to $216.5 million; segment operating income was $15.5 million versus a $35.3 million loss.
At December 31, 2022, cash and cash equivalents were $137.6 million and working capital was approximately $278 million. Long-term debt had a carrying value of $830.9 million, representing $488.5 million principal of 3.95% notes due 2028 and $347.9 million principal of 5.15% notes due 2029. The $600 million revolving facility had no borrowings outstanding and was reported fully available; separate insurance-related letters of credit totaled $65 million. The company reported compliance with debt covenants.
Changes, outlook and notable items
- Compared with 2021, the company returned to profitability as activity and pricing improved. Comparisons are affected by Pioneer, acquired in October 2021; acquired well-servicing and wireline businesses were sold at year-end 2021.
- Cash capital expenditures rose substantially, to $436.8 million, principally for rig reactivations, upgrades and maintenance. Management forecast approximately $550 million of capital expenditures for 2023.
- Management expected an average of 130 U.S. rigs in Q1 2023, with modest growth thereafter; approximately 87 rigs were expected to operate under term contracts in Q1 and 56 on average during 2023. It expected about 12 active pressure-pumping spreads in Q1 and anticipated activating a 13th toward year-end.
- U.S. contract-drilling backlog was approximately $830 million at year-end, up from $325 million a year earlier; about 32% was expected to remain after 2023. Backlog is not guaranteed: contracts may be terminated or renegotiated, and realization depends on customer performance and operations.
- Inflation in labor, services and supplies, supply-chain disruption, and challenges attracting and retaining employees increased costs and complicated equipment reactivation. Management said 2022 service pricing increased in response to market tightness and higher costs.
- Unusual items included an $11.5 million pre-tax gain from substantially exiting Canadian operations and $2.5 million of gains on debt extinguishments. The company recorded $4.5 million of impairment related to oil-and-gas properties in 2022; 2021 included substantial fleet impairments.
- The board approved a $0.08-per-share dividend for March 2023. The company repurchased $70.1 million of stock in 2022 and had approximately $243 million of authorization remaining at year-end. Future dividends and repurchases remain discretionary.
Risks and contingencies
Results depend heavily on oil and gas prices, customer spending and access to capital, and are exposed to industry cycles, equipment oversupply, competition and potential customer payment or contract issues. Inflation, labor and supply constraints, weather, operational hazards, environmental and climate regulation, hydraulic-fracturing restrictions, cybersecurity events and changes in investor or lender attitudes toward the industry are additional risks. Revenue concentration is significant: one customer contributed approximately 18% of 2022 revenue, and the five largest contributed approximately 34%. The company said ordinary-course legal proceedings were not expected to have a material adverse effect; it also cautioned that insurance and customer indemnities may not cover all losses.
Management reported effective disclosure controls and internal control over financial reporting at year-end. The independent auditor gave unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether 2023 rig and pressure-pumping activity, pricing and utilization meet management’s outlook, and whether cost inflation is offset by pricing.
- Whether the $830 million drilling backlog converts to revenue as expected, including the impact of termination rights and customer creditworthiness.
- Whether forecast 2023 capital spending of approximately $550 million is funded by operating cash flow while maintaining liquidity and shareholder returns.
- Debt maturity, covenant and liquidity details, including the separate $65 million of letters of credit and actual availability under the revolving facility.
- The sustainability of earnings and cash flow after considering the Canadian exit gain, debt-extinguishment gains, non-GAAP adjustments and working-capital movements.
- Exposure to the largest customer and other major customers, as well as potential changes in customer spending, commodity prices and regulatory conditions.