Patterson-UTI Increases Average Rig Count, Moves Closer to Merger
On February 9, 2017, Patterson-UTI Energy, Inc. (NASDAQ: PTEN) reported financial results for the three months and twelve months ended December 31, 2016.
In the fourth quarter of 2016, Patterson’s average rig count in the United States increased by six to a total of 66 rigs. As a result of the decrease in the proportion of rigs on standby, total average rig operating costs per day during Q4’16 increased to $13,770, compared to the previous quarter of $13,180. Without the decrease in rigs on standby, total average rig operating cost per day would have decreased as a result of fixed costs being spread over more operating days.
Other highlights cited in the earnings call included the following:
Reactivating Frac Spreads
During Q4, Patterson began the process of hiring crews and preparing two frac spreads that have since returned to work. These two spreads were reactivated at a cost of approximately $2 million per spread, including both operating and capital expenditures, of which a total of approximately $1.7 million was included in operating expenses during Q4.
Capital expenditures to reactivate idle equipment have been relatively low but are expected to increase in the future. Patterson expects to be able to activate the remaining idle spreads in its fleet for an average of approximately $3 million per spread, including both CapEx and operating costs.
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Meeting Demand for Super-Spec Rigs
In response to strong demand for super-spec rigs, Patterson has signed contracts for the completion of two new APEX® rigs, including one APEX-XK 1500® and one featuring the new APEX-XC™ rig design.
The latest evolution of the APEX Walking Rig, the APEX-XC offers greater clearance for walking over and around wellheads on a pad, larger drill pipe racking capacity for longer laterals, and a higher-torque top drive from Patterson’s recently acquired technology company, Warrior.
Within its own fleet, Patterson has 65 super-spec rigs, of which 62 currently have contracts. If demand continues to grow, the company has 39 additional 1,500-horsepower APEX rigs that can be upgraded to super-spec at a cost of $1-3 million per rig.
Moving Towards a Merger
Patterson made progress in Q4 towards a merger with Oklahoma City–based wellsite services and equipment provider Seventy Seven Energy, Inc., which is expected to be completed in Q1 or early Q2 of 2017. Patterson recently completed an equity offering of 18.17 million shares, the net proceeds of which are intended to fund the repayment of Seventy Seven’s outstanding net indebtedness upon closing.
Looking Ahead to 2017
During the first quarter of 2017, Patterson expects its rig count to average 80 rigs in the United States, a 21 percent increase over Q4 2016. Average rig operating cost per day is expected to increase to $14,100, reflecting a further reduction in standby days to about 1% of total rig operating days.
With a growing average rig count, two reactivated frac spreads, and strong demand for super-spec rigs, Patterson appears to be poised for a strong start in 2017.