Patterson-UTI Energy, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Although the request references 2020 Q4, this is an annual filing; selected fourth-quarter results are included below. Patterson-UTI provides U.S. land drilling, pressure pumping and directional drilling services, plus oilfield rentals and related operations.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $1.124 billion | $2.471 billion |
| Operating loss | $892.3 million | $461.6 million |
| Net loss | $803.7 million; $4.27 per share | $425.7 million; $2.10 per share |
| Adjusted EBITDA | $174.5 million | $560.5 million |
| Cash from operating activities | $278.9 million | $696.2 million |
| Capital expenditures | $145.5 million | $347.5 million |
| Cash and cash equivalents at year-end | $224.9 million | $174.2 million |
| Working capital at year-end | $204.2 million | $231.2 million |
Revenue fell 54.5% year over year. All three principal service segments reported operating losses in 2020. The reported operating loss included a $395.1 million goodwill impairment; depreciation, depletion, amortization and impairment expense was $670.9 million. The company reported no remaining goodwill at year-end. Adjusted EBITDA is a non-GAAP measure.
- Contract drilling: Revenue of $669.1 million, down 48.9%. Segment margin (revenue less direct operating costs) was $288.3 million, or about 43.1% of revenue, versus $523.0 million, or about 40.0%, in 2019. Average operating rigs fell to 82 from 149.
- Pressure pumping: Revenue of $336.1 million, down 61.3%. Segment margin was $25.9 million, or 7.7% of revenue, versus $143.9 million, or 16.6%, in 2019. The company completed 265 fracturing jobs versus 505.
- Directional drilling: Revenue of $73.4 million, down 61.1%; operating loss was $40.6 million versus $52.7 million in 2019.
- Fourth quarter: Revenue was $220.8 million, operating loss $124.2 million and net loss $106.5 million. Third-quarter revenue was $207.1 million and net loss was $112.1 million.
Debt and liquidity
At December 31, 2020, long-term debt, net of discounts and issuance costs, was $901.5 million; stated debt principal totaled $908.8 million. This consisted principally of $509.5 million of 3.95% notes due 2028, $349.3 million of 5.15% notes due 2029 and $50 million under a floating-rate term loan due June 2022. The company had no revolver borrowings and reported approximately $600 million of available revolving capacity. It also had $60.8 million of letters of credit outstanding under a separate reimbursement agreement; no amounts had been drawn.
During 2020, Patterson-UTI repaid $50 million of term-loan borrowings and repurchased portions of its 2028 and 2029 notes, retiring $16.3 million in principal and recording $3.6 million of net extinguishment gains. The company reported compliance with its debt covenants at year-end. Operating cash flow less capital expenditures was approximately $133.4 million, calculated from reported figures.
Material changes, outlook and notable items
- The COVID-19 pandemic and related oil-market disruption sharply reduced customer activity. WTI averaged $42.45 per barrel in Q4 2020; the U.S. rig count at year-end was 65, down from 121 a year earlier. A significant portion of pressure-pumping horsepower remained stacked, and the market was described as oversupplied.
- Contract drilling backlog declined to approximately $301 million at year-end from $605 million in 2019; about 21% of the 2020 backlog was expected to remain after 2021. Backlog is an estimate and may not be realized, including where customers terminate or renegotiate contracts.
- Based on contracts in place, management expected an average of 42 rigs operating under term contracts in Q1 2021 and 34 during 2021. It expected seven active pressure-pumping spreads in Q1 2021. These are expectations, not guarantees.
- Management forecast 2021 capital expenditures of approximately $135 million, subject to its activity outlook. The 2020 restructuring plan was estimated to generate about $94 million in annual cost savings; $38.3 million of restructuring charges were recorded in 2020, including contract termination costs, severance and asset abandonments. The company also closed its Canadian drilling operations and recorded an $8.3 million impairment related to the closure.
- 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 capital may not be available on reasonable terms if additional funding is needed. The quarterly dividend was reduced during 2020; a $0.02-per-share dividend was declared for payment in March 2021.
- Key risks include volatile commodity prices and customer spending, industry oversupply and pricing pressure, customer credit and contract performance, asset impairments, environmental and climate regulation, hydraulic-fracturing restrictions, operating hazards and incomplete insurance or indemnification. The company also disclosed $13.4 million of remaining minimum proppant and chemical purchase obligations for 2021–2022, with potential liquidated damages for shortfalls.
- The filing identifies no material adverse expected outcome from its ordinary-course legal proceedings. The independent auditor reported an unqualified opinion on the financial statements and internal controls, and identified the March 2020 long-lived asset recoverability assessment as a critical audit matter.
Important facts for investors to verify
- Whether drilling activity, rig rates and pressure-pumping utilization recover enough to support management’s 2021 operating and capital-spending outlook.
- How much of the $301 million drilling backlog converts to revenue, and how exposed it is to customer termination, renegotiation or nonpayment.
- Whether the estimated $94 million of annual restructuring savings is achieved and sustained, given the restructuring costs and remaining vendor commitments.
- The assumptions behind asset recoverability and future impairment risk, particularly the narrow 3% cash-flow cushion reported for the directional-drilling asset group in the March 2020 assessment.
- Available liquidity after letters of credit, debt maturities and operating needs, and continued compliance with debt covenants.
- Customer concentration and collection risk: the ten largest customers generated about 54% of 2020 revenue, while the year-end allowance for credit losses was $10.8 million.