Patterson-UTI Energy Q3 2024 Earning Call Summary

1. Historical and Forward-Looking Drilling Rig, Frac Crew Numbers, and Completion Process

• Historical Rig Activity:

  • The company started Q4 2024 with 107 rigs but was operating 105 rigs as of late October, showing a slight decrease.

  • In Q3 2024, the rig count dropped due to customer-specific mergers and some slowdown in oil basins. The company retired 42 non-Tier 1 rigs, reflecting a focus on high-spec assets.

• Forward-Looking Rig Activity:

  • Rig count is projected to remain steady through Q4 2024 and into 2025 for high-spec Tier 1 rigs, despite potential industry-wide declines driven by weaker demand for older rigs.

  • 58 rigs are expected to operate under term contracts in Q4 2024, compared to an average of 33 rigs under term contracts over the next four quarters ending September 30, 2025.

• Frac Crews and Completion Process:

  • Completion activity rose in Q3 2024 compared to the previous quarter, especially in gas-heavy basins. However, Q4 is expected to see a decline due to seasonal factors and budget management by customers.

  • Approximately 400,000 horsepower of older Tier 2 diesel frac equipment is set to be retired by the end of 2024, and the company is focused on deploying high-spec electric frac equipment.

2. State of the Natural Gas Market and Impact on Operations

• Market Conditions:

  • Natural gas prices have stabilized in recent months, leading to a more optimistic outlook for 2025.

  • The company anticipates a gradual rebalancing of the natural gas market, with possible improvements in late 2025 as domestic demand increases and LNG export capacity expands.

• Operational Adjustments:

  • Drilling activity in natural gas basins showed a slight uptick in Q3 2024, with expectations for stable activity levels going forward.

  • There has been increased completion activity in natural gas-heavy regions, but a sequential decline is forecasted for Q4 2024.

3. State of the Oil Market and Impact on Operations

• Market Observations:

  • A modest decline in oil drilling activity was noted in Q3 2024, primarily attributed to customer-specific mergers and natural gas takeaway constraints in the Permian Basin.

  • Oil activity is projected to remain steady into 2025, with customers displaying less responsiveness to short-term fluctuations in oil prices compared to prior years.

• Customer Sensitivity:

  • Customers are maintaining a disciplined approach, with no significant changes in drilling plans unless there are substantial and sustained shifts in oil prices.

4. New Pipelines, LNG Projects, and Energy Infrastructure

• LNG Projects and Takeaway Capacity:

  • The company discussed the potential impact of LNG facility delays on the market outlook for 2025, suggesting that some natural gas market improvements might be deferred.

• International Expansion:

  • Signed a joint venture with ADNOC in the UAE to drill and complete 144 unconventional wells. This agreement represents a significant expansion into the Middle Eastern market.

5. New Technology

• Electric Frac Equipment:

  • Expanded electric frac equipment capacity to 155,000 horsepower in Q4 2024, focusing on high-spec market demands.

• Natural Gas Reciprocating Pump:

  • Introduced a new natural gas reciprocating pump, which is currently undergoing field testing.

• Mixed Fleet Configurations:

  • The company is utilizing a mix of electric and traditional pumps across different operations, allowing for flexibility based on site-specific needs.

• Digital P10 Performance Center:

  • Enhancements to real-time monitoring and tracking capabilities for well pad operations through the P10 performance center.

6. Customers and Regional Focus

• Customer Base:

  • The company primarily serves large and mid-tier exploration and production (E&P) companies.

• Regional Focus:

  • Operations are concentrated in North American shale plays, with particular emphasis on the Permian Basin and natural gas-heavy basins.

• International Ventures:

  • The ADNOC joint venture provides a platform for Middle Eastern expansion, with a focus on unconventional drilling.