Patterson-UTI Energy Inc. (PTEN), one of the largest onshore contract drillers in the U.S., has declared its June 2010 drill rig count to average 163, up from 155 in the previous month. The company operated 160 rigs in the U.S. and 3 in Canada in June, compared with 155 rigs in the U.S. and no rigs in Canada during May.
Patterson-UTI’s activity levels in the U.S. peaked in early October 2008 with a rig count of 275. Since then, till the second quarter of 2009, the company witnessed a steep and rapid decline in rig count on the back of decreased demand, largely caused by lower commodity prices for natural gas and tighter access to credit.
However, during the last few quarters, there have been signs that companies were beginning to bring rigs back on line amid signs of economic stabilization that could drive up energy demand. This is reflected in Patterson-UTI’s monthly rig count numbers, which has recovered from a low of 60 in May 2009 to the current level of 163.
Patterson-UTI is one of the largest onshore contract drillers in the U.S. with approximately 350 land-based rigs that operate primarily, in the oil and natural gas producing regions of North America. The company primarily operates in Texas, New Mexico, Oklahoma, Arkansas, Louisiana, Mississippi, Colorado, Utah, Wyoming, Montana, North Dakota, Pennsylvania, West Virginia and western Canada. Additionally, Patterson-UTI is engaged in the exploration and production business and provides pressure pumping services.
The company is currently rated as Zacks #3 Rank (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months. This is supported by our long-term ‘Neutral’ recommendation (6+ months time period).
We remain concerned about North American natural gas price weakness and its impact on Patterson-UTI, whose business is heavily biased to domestic gas drilling. We believe that the current supply overhang in the natural gas market will continue to weigh on the company’s dayrates and margins during the next few quarters.
On the positive side, Patterson-UTI’s premium newbuild fleet and stellar financial health (free cash flow positive and a debt-free balance sheet) should help it weather the downturn better than most of its peers. Considering these factors, we believe that Patterson-UTI shares are fairly valued at current levels. As such, we see the stock performing in line with the broader market.
Read the full analyst report on “PTEN”
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