Patterson-UTI Energy's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Patterson-UTI Energy (PTEN)

Q1 2012 Earnings Call

April 26, 2012 10:00 am ET

Executives

James Michael Drickamer - Director of Investor Relations

Mark S. Siegel - Chairman of the Board and Member of Executive Committee

Douglas J. Wall - Chief Executive Officer and President

John E. Vollmer - Chief Financial Officer, Treasurer and Senior Vice President of Corporate Development

Analysts

Robin E. Shoemaker - Citigroup Inc, Research Division

Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division

Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

J. Marshall Adkins - Raymond James & Associates, Inc., Research Division

Waqar Syed - Goldman Sachs Group Inc., Research Division

David Wilson - Howard Weil Incorporated, Research Division

John M. Daniel - Simmons & Company International, Research Division

Brian Uhlmer - Global Hunter Securities, LLC, Research Division

James D. Crandell - Dahlman Rose & Company, LLC, Research Division

Andrea Sharkey - Gabelli & Company, Inc.

Kurt Hallead - RBC Capital Markets, LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Patterson-UTI Energy Inc. Earnings Conference Call. My name is Fab, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Mike Drickamer, Director of Investor Relations. Please proceed.

James Michael Drickamer

Thank you, Fab. Good morning, and on behalf of Patterson-UTI Energy, I'd like to welcome you to today's conference call to discuss the results of the 3 and 12 months ended March 31, 2012. Participating in today's call will be Mark Siegel, Chairman; Doug Wall, President and Chief Executive Officer; and John Vollmer, Chief Financial Officer. Again, just a quick reminder that statements made in this conference call which state the company's or management's intentions, beliefs, expectations or predictions for the future, are forward-looking statements. It's important to note that actual results could differ materially from those discussed in such forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to, deterioration of global economic conditions; declines in customer spending and in oil and natural gas prices that could adversely affect demand for the company's services and their associated effect on rates, utilization, margins and planned capital expenditures; excess availability of land drilling rigs and pressure pumping equipment, including, as a result of reactivation or construction, adverse industry conditions, adverse credit and equity market conditions; difficulty in integrating acquisitions; shortages of labor, equipment, supplies and material; supplier issues; weather; loss of key customers; liabilities from operations; government regulation and ability to retain management and field personnel.

Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the company's SEC filings, which may be obtained by contacting the company or the SEC. These filings are also available through the company's website and through the SEC's EDGAR system.

The company undertakes no obligation to publicly update or revise any forward-looking statements. Statements made in this conference call include non-GAAP financial measures. The required reconciliations to GAAP financial measures are included on our website, www.patenergy.com, and in the company's press release issued prior to this conference call.

And now it's my pleasure to turn the call over to Mark Siegel for some opening remarks. Mark?

Mark S. Siegel

Thanks, Mike. Good morning and welcome to Patterson-UTI's conference call for first quarter 2012. We are pleased that you're able to join us today.

As is customary, I will start by briefly reviewing the financial results for the quarter ended March 31, and then I will turn the call over to Doug Wall, who will share some detailed comments on each segment's operational highlights for the quarter, as well as our outlook. After Doug's comments, I will share some closing remarks before turning the call over for questions.

Before I start, I'd like the take a moment to welcome Andy Hendricks to our team. Andy recently joined the company as our Chief Operating Officer and we are delighted to have him. We believe Andy's experience and leadership abilities will help us to continue to execute on our goal of delivering exceptional shareholder value.

Turning now to the first quarter, as set forth in our earnings press release issued this morning, we reported net income of $97.3 million or $0.62 per share for the first quarter ended March 31, 2012. EBITDA for the quarter improved to $281 million, marking the 11th consecutive quarter of EBITDA growth.

There were many challenges during the first quarter. As you are all aware, the weak pricing environment for natural gas led many of our customers to reallocate their capital spending plans towards oil and liquids-rich basins. On the Contract Drilling side, we have moved people and equipment out of natural gas basins to better align ourselves with our customers' drilling plans. In the Pressure Pumping business, the slowdown in natural gas activity, some seasonal weakness in the Northeast and the overall excess supply of frac equipment have combined to create a difficult Pressure Pumping market in terms of both utilization and pricing. Despite these challenges, our first quarter results are actually slightly better than the expectations we had in the beginning of February 2012.

In terms of revenue, we saw sequential growth at both of our core businesses, but the majority of the growth came from our Contract Drilling, in which day rates continue to improve and activities levels benefited from 5 new Apex rigs that were added to the fleet. In Pressure Pumping, despite the challenges in this market, we were able to achieve a slight sequential increase in revenues as our growth in our Southwest market offset the decline in the Northeast. In the current natural gas pricing environment, our customers in the Northeast seem to be delaying well completions, which accentuated the problems arising from the oversupply of equipment in this market. The lower utilization, combined with some pricing erosion in the Northeast, negatively impacted our margins. But because of the strength in the Southwest, our overall gross margin percentage only fell by approximately 80 basis points, outperforming our internal expectations.

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