Patterson-UTI Energy, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited results cover the company’s contract drilling, pressure pumping, directional drilling, and other operations. The company compares results with the prior quarter and year-ago quarter where relevant. The Pioneer acquisition, completed in October 2021, expanded its drilling fleet; acquired well-servicing and wireline businesses were sold in December 2021.
Financial performance and position
| Metric | Q1 2022 | Comparison / context |
|---|---|---|
| Revenue | $509.4 million | Up 9.2% from Q4 2021 ($466.5 million) and 111.4% from Q1 2021 ($240.9 million). |
| Operating loss | $18.9 million | Compared with $117.5 million in Q1 2021; Q4 2021 included substantial asset impairments. |
| Net loss | $28.8 million; $0.13 per diluted share | Versus a $106.4 million loss and $0.57 per diluted share in Q1 2021. |
| Adjusted EBITDA | $99.6 million | Non-GAAP; versus $49.3 million in Q4 2021 and $35.4 million in Q1 2021. |
| Cash from operations | $33.7 million | Versus $8.6 million in Q1 2021. |
| Capital expenditures | $94.8 million | Versus $18.5 million in Q1 2021; included equipment upgrades, reactivations, and maintenance. |
| Cash and liquidity | $48.3 million cash; approximately $137 million working capital | Approximately $600 million available under the revolving facility; no revolver borrowings outstanding. |
| Debt | $858.8 million principal; $852.5 million net carrying amount | Senior notes due 2028 and 2029. The company reported compliance with debt covenants. |
| Dividend | $0.04 per share paid in Q1 | Board approved another $0.04 per share dividend for payment June 16, 2022. |
Operating revenue rose across the main service lines year over year: contract drilling to $256.6 million, pressure pumping to $189.6 million, and directional drilling to $43.3 million. Companywide operating margin was approximately negative 3.7%. Segment adjusted gross margins, a non-GAAP measure, totaled approximately $126.2 million, or 24.8% of revenue. Pressure pumping’s adjusted gross margin was $32.1 million, or 16.9% of segment revenue.
Cash declined by $69.3 million during the quarter, largely reflecting capital spending and dividends, partly offset by operating cash generation. The filing reports $71.5 million of letters of credit outstanding, primarily supporting insurance obligations; none had been drawn.
Material changes and management commentary
- Revenue increased sequentially as drilling operating days and pricing improved; average U.S. active rigs rose to 115 from 106 in Q4 2021. Pressure pumping revenue increased 3.4% sequentially, while directional drilling revenue rose 23.1%.
- Management attributed the improved year-over-year activity and pricing environment to stronger oil-and-gas fundamentals and limited availability of high-quality equipment. Average oil prices cited were $94.45 per barrel in Q1 2022, versus $77.45 in Q4 2021 and $58.09 in Q1 2021.
- Q4 2021 included impairment charges of approximately $220 million for legacy drilling rigs and equipment and $32.2 million for pressure-pumping equipment. These charges reduced the asset base and contributed to lower depreciation and impairment expense in Q1 2022.
- Pressure pumping benefited from a $9.9 million sales-and-use-tax refund in Q1; management said direct costs per job would otherwise have been consistent with the prior quarter.
- Management cited inflation in labor, services, and supplies, supply-chain disruption, and difficulty attracting workers as operating pressures and obstacles to equipment reactivation.
Outlook, risks, and contingencies
- Management expected 2022 capital expenditures of approximately $350 million, subject to its activity outlook.
- Based on contracts in place, management expected an average of 57 U.S. rigs operating under term contracts in Q2 2022 and 43 over the 12 months ending March 31, 2023. It expected to end Q2 with 12 active pressure-pumping spreads, versus 11 at Q1 end.
- U.S. contract-drilling backlog was approximately $400 million at March 31, 2022; approximately 27% was reasonably expected to remain at March 31, 2023. Backlog is an estimate, and contracts may be terminated or affected by standby, variable pricing, and other terms.
- The company said current liquidity and expected operating cash flows should fund planned equipment investment, debt service, and dividends for at least 12 months. Future dividends remain at the board’s discretion and may be reduced or suspended.
- Key risks include volatile commodity prices and customer spending, competition and equipment availability, inflation and labor constraints, supply interruptions, customer credit risk, operational hazards, weather, regulation, and uncertainty in realizing acquisition synergies. The filing also identifies the effects of the Ukraine conflict and COVID-19 developments as risks.
- Equipment-purchase commitments were approximately $93.6 million. The company was party to ordinary-course legal proceedings and did not expect them to have a material adverse effect.
Important facts for investors to verify
- Whether higher service pricing and activity persist enough to offset inflation, reactivation costs, and elevated capital spending.
- Whether the $350 million 2022 capital-spending expectation and the stated rig and pressure-pumping outlook are maintained.
- How much of the $400 million drilling backlog converts to revenue, given contract termination and pricing provisions.
- Whether operating cash generation can support planned investment and dividends while cash remains below its year-end 2021 balance.
- Debt covenant headroom, the status of $71.5 million in letters of credit, and the use of available revolving-credit capacity.
- The effects of the Pioneer integration and divestiture, including remaining transition-services obligations through June 30, 2022.