Patterson-UTI Energy, Inc. — Q1 2021 Form 10-Q
Business context and reporting period. The filing covers the unaudited three months ended March 31, 2021, compared with the three months ended March 31, 2020. Patterson-UTI provides land drilling, pressure pumping and directional drilling services, primarily in North America. Results remain highly exposed to oil and gas prices, customer spending and industry equipment oversupply.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $240.9 million | $445.9 million |
| Operating loss | $117.5 million | $494.4 million |
| Net loss | $106.4 million; $0.57 per share | $434.7 million; $2.28 per share |
| Adjusted EBITDA | $35.4 million | $87.5 million |
| Cash from operating activities | $8.6 million | $73.3 million |
| Capital expenditures | $18.5 million | $71.9 million |
| Cash and cash equivalents, at period end | $214.1 million | $152.2 million |
Revenue fell 46% year over year as activity declined across the business. The smaller operating and net losses compared with 2020 primarily reflect the absence of the prior-year $395.1 million goodwill impairment; Q1 2021 remained loss-making. Operating cash flow less capital expenditures was approximately negative $9.9 million. The company paid $3.8 million in dividends, or $0.02 per share, during the quarter.
- Contract drilling: Revenue was $133.5 million, down 50%. Average rigs operating fell to 69 from 123; average revenue per operating day declined 9% to $21,590. Segment margin was $54.1 million, or about 40.5% of revenue.
- Pressure pumping: Revenue was $75.8 million, down 39%. The segment recorded a $0.7 million direct margin loss, versus a $10.3 million margin in Q1 2020; the market remained oversupplied.
- Directional drilling: Revenue was $19.7 million, down 43%; the segment reported a $4.9 million operating loss.
Balance sheet, debt and liquidity
At March 31, 2021, total assets were $3.17 billion, total liabilities $1.26 billion and stockholders’ equity $1.91 billion. Working capital was approximately $215 million. Debt principal totaled $908.8 million: $50 million under a term loan due June 2022, $509.5 million of 3.95% senior notes due 2028 and $349.3 million of 5.15% senior notes due 2029. The balance-sheet carrying value of long-term debt was $901.7 million, net of discounts and issuance costs.
No revolving-credit borrowings were outstanding; approximately $600 million of borrowing capacity was available. The company reported compliance with debt covenants. Outstanding letters of credit totaled $60.8 million, with none drawn. Management stated that cash, expected operating cash flow and available credit should fund current plans, debt service and dividends for at least the next 12 months.
Changes, outlook and risks
- Compared with Q1 2020, operating activity was lower across drilling, pressure pumping and directional drilling. Capital expenditures were also substantially lower. The 2020 comparison includes the $395.1 million goodwill impairment; Q1 2021 results include no goodwill impairment.
- Management expected the active rig count to reach approximately 80 over the following three months, with much of the increase in June and July. It expected an average of 39 rigs under term contracts in Q2 2021 and 27 over the 12 months ending March 31, 2022. Contract drilling backlog was approximately $240 million; about 19% was reasonably expected to remain at March 31, 2022. Term contracts may be terminated on short notice, and backlog is not assured revenue.
- Management expected approximately seven active pressure pumping spreads in Q2 and planned to reactivate one additional spread late in the quarter. It cautioned that the pressure pumping market remained oversupplied. These are operating expectations, not formal earnings guidance.
- Unusual items included $2.3 million of early-termination revenue recognized in Q1 2021 after collectability concerns were resolved, and a $6.0 million sales-and-use-tax refund benefit in contract drilling direct costs. The company reported no 2021 restructuring charges; its 2020 restructuring plan was completed in Q3 2020.
- Key risks cited include volatile oil and gas prices, COVID-19-related and broader economic conditions, weak customer spending or payment defaults, excess service-equipment supply, pricing pressure, operational and supply-chain disruptions, and the ability to realize backlog. The company also disclosed $17.0 million of equipment-purchase commitments and $12.2 million of remaining minimum proppant and chemical purchase obligations. It said ordinary-course legal proceedings were not expected to have a material adverse effect.
- The board declared a further $0.02-per-share dividend on April 28, payable June 17, 2021, subject to the terms disclosed. The stockholder rights agreement expired April 21, 2021.
Important facts for investors to verify
- Whether the expected rig-count recovery and term-contract activity materialize, and whether backlog converts to revenue without cancellations or rate reductions.
- Whether pressure-pumping utilization and pricing improve enough to restore positive segment margins in an oversupplied market.
- Operating cash generation, liquidity usage and the ability to meet the $50 million term-loan maturity in June 2022 while sustaining capital spending and dividends.
- Debt covenant compliance, available revolver capacity and the renewal or potential drawing of outstanding letters of credit.
- Customer credit quality and whether commodity-price, industry and operational conditions alter the company’s outlook or deferred-tax-asset assumptions.