Are Patterson-UTI Energy Shares Ahead of Its Fundamentals?

(Continued from Prior Part)

Patterson-UTI Energy’s revenue growth

Patterson-UTI Energy’s (PTEN) revenues have been on a downtrend from fiscal 2Q15 until fiscal 4Q15. From fiscal 4Q14 to fiscal 4Q15, Patterson-UTI Energy’s (PTEN) Pressure Pumping segment suffered the highest revenue decline of 67%. The company’s Contract Drilling segment was relatively resilient with a decline of 59%. These two segments accounted for 99% of PTEN’s fiscal 4Q15 revenues. A significant fall in PTEN’s rig count resulted in the decrease in revenue.

As for operating income, all of PTEN’s segments witnessed losses in fiscal 4Q15. Adjusted operating income for Core Laboratories (CLB), one of PTEN’s peers, decreased 57% in fiscal 4Q15 compared to fiscal 4Q14. CLB’s market capitalization stands at $4.8 billion compared to PTEN’s $2.5 billion.

Patterson-UTI Energy’s net loss

In fiscal 2015, Patterson-UTI Energy’s reported loss was ~$294 million versus $163 million net income. Its fiscal 2015 reported earnings were negatively impacted by $288 million in charges related to the goodwill impairment of PTEN’s Pressure Pumping segment, equipment write-downs, and certain oil and natural gas properties. In comparison, Oceaneering International (OII), PTEN’s larger market-cap peer, recorded ~$231 million of net income in fiscal 2015. That was 46% lower than a year ago. Halliburton (HAL) reported a $671 million net loss in fiscal 2015.

Factors that have affected PTEN’s earnings

• 58% fall in average Contract Drilling rigs in operation

• 55% fall in Pressure Pumping average margin per job

• significant fall in Oil & Natural Gas Production and Exploration margins

Better margin per operating day in Contract Drilling and higher average revenue per fracturing job partially mitigated these negative factors. Patterson-UTI Energy is 0.17% of the iShares Core S&P Mid-Cap ETF (IJH).

Expected fiscal 1Q16 value drivers

• decrease in average rig revenue per day

• increase in average rig operating cost per day

• lower pressure pumping revenues due to stacking of horsepower

• Pressure Pumping gross margin to remain flat because low margin stacked rigs won’t affect margins very much

In the next part of this series, we’ll look at Patterson-UTI Energy’s indebtedness.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Is Patterson-UTI Energy’s Share Price Gathering Strength?

• Part 2 - Where Does Management See Patterson-UTI Energy in 2016?

• Part 4 - Patterson-UTI Energy’s Indebtedness