Onshore contract driller Patterson-UTI Energy Inc. (PTEN) has reported mixed third quarter 2011 results.

Earnings per share (adjusted) of 55 cents failed to match the Zacks Consensus Estimate of 57 cents but jumped significantly from the year-ago profit of 19 cents.

Quarterly revenue of $673.8 million shot up 77.9% from the year-earlier level of $378.7 million. The revenue also surpassed our projection of $672.0 million. The performance was driven by enhanced drilling activities in the fertile oil and liquids plays across the country plus utilization of highly advanced equipments.

Rig Fleet Analysis

The number of rigs operating during the quarter averaged 209 in the U.S. and 12 in Canada, netting 221, up 24.1% year over year.

During the quarter, the company completed seven new Apex rigs under long-term contracts. Patterson-UTI targets to complete 7 new Apex(TM) rigs in 2011 and 30 rigs in 2012.

Additionally, management aims at operating an average of approximately 124 rigs and 96 rigs, respectively, under long-term contracts during the fourth quarter of 2011 and first quarter 2012.

Segmental Performance

Contract Drilling: Contract Drilling revenue leaped 50.2% year over year to $436.8 million in the third quarter. Average revenue per operating day was $21,440 (up 20.9%) while average direct costs per operating day were $12,980 (up 21.6%). The segment recorded an operating profit of $85.7 million as against $41.5 million in the year-ago quarter.

Pressure Pumping: The segment reported revenue of $225.2 million, much higher than $81.1 million generated in the prior-year period. Consequently, the segment posted an operating profit of $50.4 million, which increased considerably over $17.6 million in the prior-year quarter.

Oil & Natural Gas: Revenue generated from the Oil & Natural Gas business climbed 73.5% year over year to $11.8 million. The segment’s operating income of $4.7 million increased from $2.5 million earned in the prior-year quarter, on improved oil drilling activity.

Capital Expenditure & Balance Sheet

During the third quarter, Patterson-UTI incurred a capital expenditure of $283.8 million, with approximately 79% targeted toward the Contract Drilling segment. As of September 30, 2011, the company had $10.6 million in cash.

Outlook

We believe that in the near term, Patterson-UTI stands to benefit from the current boom in pressure pumping services given its growing premium land rig fleet and robust financial position (positive free cash flow and a debt-free balance sheet).

We also believe the company’s earnings will continue to climb, aided by the growing premium land rig fleet and increased operations in the unconventional oil and liquids-rich plays in the region.

As such, we believe Patterson-UTI Energy is well positioned going forward and will perform better than its peer Nabors Industries Ltd. (NBR). We maintain a long-term Outperform rating on the stock.

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