Business Context and Reporting Period
Company: Patterson Energy, Inc. (Patterson UTI Energy Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 1999
Business Overview: The Company operates in three segments: contract drilling of oil and natural gas wells, oil and natural gas exploration/production, and drilling fluid services. As of November 12, 1999, 32,680,678 shares of common stock were outstanding.
Key Financial Metrics (Nine Months Ended Sept 30, 1999)
| Metric | 1999 (in thousands) | 1998 (in thousands) |
|---|---|---|
| Total Operating Revenues | $97,094 | $154,160 |
| Net Income (Loss) | $(9,359) | $5,725 |
| Operating Income (Loss) | $(11,284) | $11,141 |
| Net Cash from Operating Activities | $16,781 | $25,169 |
| Cash and Cash Equivalents (End of Period) | $10,582 | $10,948 |
| Working Capital | $21,335 | $30,531 |
| Total Debt (Notes Payable) | $49,285 | $55,714 |
Note: Debt figures represent current maturities plus long-term notes payable. Working capital is calculated as Current Assets minus Current Liabilities.
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenues decreased 37% to $97.1 million from $154.2 million. Contract drilling revenue dropped 39% to $83.8 million, driven by a 36% decrease in rig utilization (39% in 1999 vs. 61% in 1998) and weakened commodity prices.
- Profitability Shift: The Company reported a net loss of $9.4 million compared to net income of $5.7 million in the prior year. The contract drilling segment swung from a $12.0 million operating profit to a $10.9 million operating loss.
- Segment Performance:
- Contract Drilling: Direct costs rose as a percentage of revenue to 88% from 76% due to lower utilization rates.
- Oil & Natural Gas: Improved from a $1.4 million operating loss to a $1.0 million operating income, aided by a 24% increase in crude oil prices ($16.06/bbl in 1999 vs. $12.93/bbl in 1998) and reduced production costs.
- Drilling Fluids: Revenues fell 30% to $7.5 million, resulting in a $1.3 million operating loss compared to $0.7 million income in 1998.
- Acquisitions: On January 27, 1999, the Company acquired five drilling rigs from Padre Industries, Inc., for approximately $4.0 million paid in common stock.
Guidance, Outlook, Risks, and Contingencies
- Liquidity and Covenants: As of September 30, 1999, the Company was in violation of the Cash Flow Coverage covenant in its credit agreement with Norwest Bank Texas, N.A. A waiver was obtained as of the reporting date. Management believes current cash and operating cash flow are sufficient for immediate needs.
- Market Volatility: Operations are heavily dependent on oil and natural gas prices. While prices improved in mid-1999, management expects continued volatility which could materially affect financial condition.
- Year 2000 Compliance: The Company has spent approximately $1.75 million on Y2K compliance. While systems are largely converted, risks remain regarding external agents (suppliers/customers). No formal contingency plan is deemed necessary at this time.
- Forward-Looking Risks: Key risks include intense competition, potential drill-pipe or labor shortages, and the loss of key personnel (Chairman Cloyce A. Talbott and President A. Glenn Patterson).
Investor Verification Checklist
- Covenant Compliance: Verify the status of the waiver obtained for the Cash Flow Coverage covenant violation and any ongoing restrictions on capital expenditures or dividends.
- Rig Utilization Trends: Monitor if rig utilization rates (39% for the nine months) can sustainably improve to restore profitability in the contract drilling segment.
- Commodity Price Exposure: Assess the sensitivity of the contract drilling segment to future declines in oil and natural gas prices, given the historical correlation between commodity prices and service demand.
- Debt Structure: Review the terms of the Norwest Bank Texas, N.A. credit agreement, specifically the maturity date (January 1, 2001) and interest rate (LIBOR + 2.375%).
- Acquisition Contingencies: Track the stock price performance relative to the $5.00 threshold for the contingent cash payment on the Padre Industries acquisition.