Patterson UTI at Johnson Rice Energy Conference Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Contract drilling

“we’re one of the leaders of contract drilling and pressure pumping in the U.S.”

some people are worried but we’re still excited actually

“We’re actually excited still about the business we’re in right now. It’s still good times for us. I know there is a lot of challenges and people are worried about where the price of oil has come from, and where it could potentially go, but, I can tell you that our business still remain strong.”

139 rigs

“We operate a very high quality fleet of APEX rigs, we have 139 out there working today. We’re a leader in the walking rig technology, we came out with the first walking rig back in 2006, in the lower 48. We’ll talk a little bit more about, what that means for rig technology today. And we have a very large footprint across North-America including Western-Canada”

2/3 of revenue comes from drilling, the pressure pumping

” two thirds of our revenue stream comes from contract drilling. Now, we’ll jump into pressure pumping.”

774m on 25 rigs

“We continue to invest in our drilling fleet. In our 2014 estimate for capital spend is $775 million. We started off by saying in 2014, we were going to build 12 rigs, we increased that up to 20 rigs in 2014. At the last call in July, we said, we’re going to build 25 rigs across the next four quarters.”

four year payback for rigs

“If you look at how we were contracting rigs over the last couple years, we were saying that our terms were in the period of two to three years. Now for the rigs that are being contracted into 2015. We’re talking about terms that are almost all three years. And if we look at the paybacks, since we’re talking about capital here, for the last couple of years with the pricing we were getting, the payback was in that four year to five year range. But now that we’re contracting out into 2015, we’re pushing Apex rig pricing. The paybacks had moved to a little bit over four years at the EBITDA level.”

High spec rigs mean less volatility in downturn

“If you look at what happened in 2009 when the rig count overall in the U.S. came down because of commodities and other reasons, you saw the Patterson UTI dropped to 42 rigs that wouldn’t happen tomorrow if commodity prices came down. With all these 139 rigs that we have out there that are high spec, we get term contracts”

Industry is pushing us for more high spec rigs

“The industry is pushing us to build more high-spec rigs. The demand from the customers, the operators out there is saying look, we need more of the high-spec rigs. We don’t want to drill all these horizontal wells or mechanical and the older SCRs. That is why the demand is out there. Even though oils trading in this range down to 91, up a little bit to 93, it has not slowed down the demand for the high-spec rigs in the market.”

pressure pumping 2-3 year paybacks

“pressure pumping for the 155,000 horsepower that we’re ordering going forward of new equipment. We’re looking at roughly two-year paybacks to three-year paybacks and this equipment has a seven-year to 10-year lifespan. So, compared to drilling, it’s very good. It’s still good. It’s a good use of our capital to put it in both businesses, both drilling and pressure pumping and so where the market demand is, we’re able to do that.”

Pressure pumping maybe 10% oversupplied now

“when all this is done by middle of next year, we’ll have over 1 million horsepower, frac horsepower, very excited about the growth here. This is a good business to be in. You can see that this industry has started to tighten up with what you’re hearing from others like ourselves. At the beginning of 2014, we said this industry was probably 20% oversupplied. You’ve heard some big company say in the second quarter that it is down to maybe 10% oversupplied.”