Patterson-UTI Energy, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. The company provides land-based contract drilling, pressure pumping and directional drilling services, primarily in the United States.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $291.8 million | $250.4 million | $532.7 million | $696.3 million |
| Operating loss | $(109.4) million | $(159.1) million | $(226.9) million | $(653.5) million |
| Net loss | $(103.3) million | $(150.3) million | $(209.7) million | $(585.1) million |
| Net loss per share | $(0.55) | $(0.81) | $(1.12) | $(3.10) |
| Adjusted EBITDA | $35.4 million | $14.1 million | $70.8 million | $101.6 million |
| Cash from operating activities | Not separately stated | Not separately stated | $44.2 million | $219.3 million |
Q2 revenue increased 16.5% year over year, while first-half revenue fell 23.5%. Q2 operating and net losses narrowed, but Adjusted EBITDA for the first half declined. Q2 operating margin was approximately negative 37.5%, versus negative 63.5% a year earlier; net margin was approximately negative 35.4%, versus negative 60.0%.
- Q2 segment revenue: Contract drilling $141.7 million, down 17.2%; pressure pumping $112.0 million, up 88.1%; directional drilling $24.9 million, up 111.8%; other $13.2 million, up 65.4%.
- Q2 pressure-pumping margin: $9.7 million, or 8.6% of revenue, compared with $3.3 million, or 5.5%, in Q2 2020. Contract drilling margin fell to $41.6 million from $84.0 million; management cited fewer operating days, lower average revenue per day, and reactivation costs.
- Cash and liquidity at June 30: Cash was $216.7 million; working capital was approximately $215 million; approximately $600 million was available under the revolving facility. Six-month capital expenditures were $56.6 million. Operating cash flow less capital expenditures was approximately negative $12.4 million.
- Debt: $908.8 million principal outstanding: $50 million term loan, $509.5 million of 3.95% notes due 2028, and $349.3 million of 5.15% notes due 2029. Net debt after cash was approximately $692 million. The company reported covenant compliance and no revolver borrowings.
- Other: Total assets were $3.07 billion. Cash dividends were $0.02 per share in Q2; a further $0.02 per-share dividend was declared for payment in September 2021.
Changes, outlook and management commentary
- Activity improved from the 2020 downturn: average active drilling rigs were 73 in Q2 versus 69 in Q1 2021; pressure pumping ended Q2 with nine active spreads versus seven at Q1-end. Management expected approximately 81 average active rigs and nine active pressure-pumping spreads in Q3, with 83 rigs expected at quarter-end.
- Management raised its 2021 capital expenditure forecast to approximately $165 million, citing customer discussions about activity increases into 2022. It said labor and oilfield cost inflation and employee recruitment challenges were increasing equipment reactivation complexity, while expecting tighter premium-service capacity to support higher pricing.
- Management described pressure pumping as oversupplied; significant pressure-pumping horsepower remained stacked and active rigs were well below the available fleet. Results remain highly sensitive to oil and gas prices, customer spending and access to capital.
- On July 5, 2021, after quarter-end, the company agreed to acquire Pioneer Energy Services for up to 26.275 million shares and $30 million cash; Pioneer debt is to be retired as part of the transaction. Closing was expected in Q4 2021, subject to approvals and other conditions. The company also disclosed plans to divest Pioneer’s well-service rig business after closing.
Risks, contingencies and unusual items
- The Pioneer transaction carries closing, regulatory, litigation, integration, cost, synergy and business-disruption risks; the filing notes conditions may not be met and transaction costs may be incurred even if it does not close.
- Other risks include commodity-price volatility, industry equipment oversupply, customer defaults, operational hazards, labor and supply constraints, weather, regulation, environmental and climate-related matters, and debt covenant or refinancing risks.
- Q2 2021 included $1.1 million of merger and integration expense and a net gain from asset disposals within other operating income. First-half 2021 also included $2.3 million of early-termination revenue recognized after collectability concerns from 2020 were resolved.
- Comparisons with 2020 are affected by prior-year items, including $395.1 million of goodwill impairment in the first half of 2020 and $38.3 million of restructuring charges in Q2 2020. The company reported no credit-loss expense in 2021.
- Letters of credit totaled $63.7 million, principally supporting insurance obligations; none had been drawn. Equipment purchase commitments were approximately $53.0 million, with an additional $8.4 million of minimum proppant and chemical purchase obligations.
Key facts for investors to verify
- Whether the expected Q3 increases in rig and pressure-pumping activity occurred, and whether utilization and segment margins improved.
- Actual operating cash generation, capital spending versus the $165 million forecast, and liquidity after dividends and acquisition-related spending.
- Pioneer closing conditions, final share and cash consideration, debt retirement, intended well-service business divestiture, integration costs and realized synergies.
- Debt maturities and refinancing plans, covenant headroom, and whether commodity, labor and equipment-market conditions support the company’s pricing expectations.
- The sustainability of reported improvement given ongoing operating losses and the effect of prior-year impairments, restructuring and other nonrecurring items.