Patterson-UTI Energy, Inc. — FY2021 Form 10-K
Business context and reporting period
For the fiscal year ended December 31, 2021. Patterson-UTI provides U.S. land contract drilling, pressure pumping and directional drilling services, with contract drilling operations also in Colombia. The results reflect a recovery in activity from the 2020 industry downturn, continued operating losses and significant asset write-downs.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $1.357 billion | $1.124 billion |
| Operating loss | $677.8 million | $892.3 million |
| Net loss | $654.5 million | $803.7 million |
| Adjusted EBITDA (non-GAAP) | $171.2 million | $174.5 million |
| Cash from operating activities | $95.5 million | $278.9 million |
| Capital expenditures | $166.3 million | $145.5 million |
- Revenue rose about 21%, primarily reflecting recovery in pressure pumping and directional drilling activity. Contract drilling revenue was nearly flat before considering the Pioneer acquisition; Pioneer contributed $41.5 million of continuing-operation revenue after closing.
- All three reportable segments remained loss-making. Adjusted gross margin was $200.6 million in contract drilling, $47.8 million in pressure pumping, and $9.9 million in directional drilling. Pressure-pumping adjusted gross margin was 9.1% of revenue, up from 7.7%.
- The company reported $267 million of impairment charges in 2021, principally for abandoning 43 legacy drilling rigs ($220 million), pressure-pumping equipment ($32.2 million), and directional-drilling assets and technology. Net loss improved year over year, but Adjusted EBITDA was slightly lower.
- Cash and cash equivalents were $117.5 million and working capital was $148 million at year-end, down from $224.9 million and $204 million, respectively. Gross debt was $858.8 million, consisting of $509.5 million of 3.95% notes due 2028 and $349.3 million of 5.15% notes due 2029. The company repaid its remaining $50 million term loan and had no revolver borrowings; about $600 million of revolver capacity was available. It reported covenant compliance.
- Operating cash flow less capital expenditures was approximately negative $70.8 million. The company paid $15.6 million in dividends during 2021.
Material changes and unusual items
- On October 1, 2021, Patterson-UTI acquired Pioneer for approximately $278 million of consideration, including 26.3 million shares and $30 million cash. It acquired 17 U.S. AC rigs, eight Colombian rigs, and production-services assets.
- On December 31, the company sold the acquired well-servicing and wireline businesses for $43 million cash, subject to customary adjustments. Those businesses are reported as discontinued operations; continuing operations include $2.5 million of discontinued-operation income for the year.
- Revenue mix shifted: pressure pumping revenue increased 55.8% to $523.8 million; directional drilling increased 52.0% to $111.5 million; contract drilling decreased 0.8% to $664.0 million.
- U.S. average operating rigs were 106 in Q4 2021 versus 80 in Q3; the year-end active count was 111 versus 65 at year-end 2020. Pressure pumping ended the year with 11 active spreads. The company’s U.S. drilling backlog was $325 million, versus $301 million a year earlier; approximately 22% was expected to remain after 2022.
Outlook, commentary and risks
- Management expected approximately 51 U.S. rigs to operate under term contracts on average in Q1 2022 and 39 on average during 2022; it expected approximately 11 active pressure-pumping spreads in Q1.
- Management forecast approximately $350 million of 2022 capital expenditures, versus $166 million spent in 2021. It anticipated higher service pricing in 2022 as premium-equipment markets tightened, while noting that pressure pumping remained oversupplied and labor, services and supplies were becoming more expensive.
- WTI averaged $77.45 per barrel in Q4 2021. Management cautioned that oil prices and customer spending remain volatile and that activity had not returned to pre-downturn levels.
- Key risks include commodity-price and customer-spending volatility, excess equipment capacity, labor and supply constraints, customer concentration, contract termination and backlog realization, acquisition integration, climate and hydraulic-fracturing regulation, cybersecurity, and operational or environmental liabilities. The ten largest customers generated 57% of 2021 revenue; one customer represented approximately 16%.
- The company had $99 million of major equipment purchase commitments at year-end, plus minimum-purchase commitments for certain pressure-pumping materials. It is not fully insured against operational losses and self-insures some risks, including most cybersecurity exposure.
- Management said liquidity, anticipated operating cash flow and revolver availability should fund current plans, debt service and dividends for at least 12 months, while noting that future financing may not be available on acceptable terms. A $0.04-per-share dividend was approved for payment in March 2022; future dividends remain discretionary.
Important facts for investors to verify
- Whether the recovery supports the 2022 rig, pressure-pumping and pricing expectations, and whether forecast capital spending produces adequate returns and cash flow.
- How much of the $325 million drilling backlog converts to revenue and cash, given customer termination rights and the limited portion expected after 2022.
- The acquisition’s final purchase-price allocation, integration costs, realized benefits, and performance of the acquired Colombian rigs; Pioneer represented approximately 10% of year-end assets and 3% of FY2021 revenue.
- Future impairment exposure and the condition, marketability and reactivation economics of the remaining equipment fleet.
- Customer concentration, the $99 million equipment commitments, working-capital needs, and the company’s ability to maintain liquidity and meet debt covenants.
- Internal-control scope: management and the auditor excluded Pioneer from the 2021 internal-control assessment during integration, although they concluded controls for the assessed company were effective.