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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
(
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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☑ |
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Accelerated filer |
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☐ |
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Smaller reporting company |
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Non-accelerated filer |
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☐ |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Page |
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ITEM 1. |
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3 |
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4 |
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Unaudited condensed consolidated statements of comprehensive income (loss) |
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5 |
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Unaudited condensed consolidated statements of changes in stockholders’ equity |
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6 |
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7 |
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Notes to unaudited condensed consolidated financial statements |
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8 |
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ITEM 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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22 |
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ITEM 3. |
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31 |
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ITEM 4. |
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31 |
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ITEM 1. |
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32 |
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ITEM 2. |
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32 |
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ITEM 6. |
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33 |
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PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements
The following unaudited condensed consolidated financial statements include all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented.
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED C ONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share data)
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March 31, |
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December 31, |
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2023 |
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2022 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable, net of allowance for credit losses of $
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Federal and state income taxes receivable |
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Inventory |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Right of use asset |
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Intangible assets, net |
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Deposits on equipment purchases |
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Other |
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Deferred tax assets, net |
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Total assets |
$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
$ |
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$ |
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Federal and state income taxes payable |
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Accrued liabilities |
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Lease liability |
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Total current liabilities |
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Long-term lease liability |
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Long-term debt, net of debt discount and issuance costs of $
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Deferred tax liabilities, net |
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Other |
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Total liabilities |
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Stockholders' equity: |
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Preferred stock, par value $
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Common stock, par value $
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Additional paid-in capital |
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Retained deficit |
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(
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(
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Accumulated other comprehensive income |
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Treasury stock, at cost,
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(
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(
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED C ONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
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Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Operating revenues: |
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Contract drilling |
$ |
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$ |
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Pressure pumping |
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Directional drilling |
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Other |
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Total operating revenues |
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Operating costs and expenses: |
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Contract drilling |
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Pressure pumping |
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Directional drilling |
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Other |
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Depreciation, depletion, amortization and impairment |
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Selling, general and administrative |
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Merger and integration expenses |
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Other operating income, net |
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(
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(
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Total operating costs and expenses |
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Operating income (loss) |
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(
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) |
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Other income (expense): |
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Interest income |
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Interest expense, net of amount capitalized |
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(
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(
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Other |
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Total other expense |
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(
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) |
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(
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Income (loss) before income taxes |
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(
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Income tax expense |
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Net income (loss) |
$ |
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$ |
(
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Net income (loss) per common share: |
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Basic |
$ |
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$ |
(
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) |
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Diluted |
$ |
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$ |
(
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Weighted average number of common shares outstanding: |
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Basic |
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Diluted |
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Cash dividends per common share |
$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STAT EMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
|
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Three Months Ended |
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|||||
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March 31, |
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|||||
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2023 |
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2022 |
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Net income (loss) |
$ |
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$ |
(
|
) |
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Other comprehensive income (loss): |
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Foreign currency translation adjustment, net of taxes of $
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Total comprehensive income (loss) |
$ |
|
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$ |
(
|
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED C ONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
|
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Common Stock |
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Additional |
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Accumulated Other |
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Number of |
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Paid-in |
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Retained |
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Comprehensive |
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Treasury |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income |
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Stock |
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Total |
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|||||||
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Balance, December 31, 2022 |
|
|
|
|
$ |
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$ |
|
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|
$ |
(
|
) |
|
$ |
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$ |
(
|
) |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Vesting of restricted stock units |
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(
|
) |
|
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— |
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— |
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— |
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— |
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Stock-based compensation |
|
— |
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— |
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(
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) |
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— |
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— |
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— |
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(
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) |
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Payment of cash dividends ($
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— |
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— |
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— |
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(
|
) |
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— |
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— |
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(
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) |
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Dividend equivalents |
|
— |
|
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— |
|
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— |
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(
|
) |
|
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— |
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— |
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(
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) |
|
Purchase of treasury stock |
|
— |
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— |
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— |
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— |
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— |
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(
|
) |
|
|
(
|
) |
|
Balance, March 31, 2023 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
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$ |
(
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) |
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$ |
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|||||||
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Common Stock |
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Additional |
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Accumulated Other |
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Number of |
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Paid-in |
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Retained |
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Comprehensive |
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Treasury |
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|||||||
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Shares |
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Amount |
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Capital |
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Deficit |
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Income |
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Stock |
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Total |
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|||||||
|
Balance, December 31, 2021 |
|
|
|
|
$ |
|
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|
$ |
|
|
|
$ |
(
|
) |
|
$ |
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$ |
(
|
) |
|
$ |
|
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Net loss |
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— |
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— |
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— |
|
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(
|
) |
|
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— |
|
|
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— |
|
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|
(
|
) |
|
Foreign currency translation adjustment |
|
— |
|
|
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— |
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— |
|
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— |
|
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Vesting of restricted stock units |
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(
|
) |
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|
— |
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— |
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— |
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— |
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|
Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Payment of cash dividends ($
|
|
— |
|
|
|
— |
|
|
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— |
|
|
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(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Dividend equivalents |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
Purchase of treasury stock |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(
|
) |
|
|
(
|
) |
|
Balance, March 31, 2022 |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
PATTERSON-UTI ENERGY, INC. AND SUBSIDIARIES
CONDENSED C ONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
||
|
Net income (loss) |
$ |
|
|
|
$ |
(
|
) |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
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||
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Depreciation, depletion, amortization and impairment |
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Dry holes and abandonments |
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|
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Deferred income tax expense |
|
|
|
|
|
|
|
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Stock-based compensation |
|
(
|
) |
|
|
|
|
|
Net (gain) loss on asset disposals |
|
|
|
|
|
(
|
) |
|
Gain on early debt extinguishment |
|
(
|
) |
|
|
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Amortization of debt discount and issuance costs |
|
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|
|
|
Changes in operating assets and liabilities: |
|
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||
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Accounts receivable |
|
|
|
|
|
(
|
) |
|
Income taxes receivable/payable |
|
|
|
|
|
|
|
|
Inventory and other assets |
|
(
|
) |
|
|
|
|
|
Accounts payable |
|
|
|
|
|
|
|
|
Accrued liabilities |
|
(
|
) |
|
|
(
|
) |
|
Other liabilities |
|
(
|
) |
|
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|
|
Net cash provided by operating activities |
|
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||
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Cash flows from investing activities: |
|
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|
|
|
||
|
Purchases of property and equipment |
|
(
|
) |
|
|
(
|
) |
|
Proceeds from disposal of assets |
|
|
|
|
|
|
|
|
Other |
|
(
|
) |
|
|
(
|
) |
|
Net cash used in investing activities |
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
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||
|
Cash flows from financing activities: |
|
|
|
|
|
||
|
Purchases of treasury stock |
|
(
|
) |
|
|
(
|
) |
|
Dividends paid |
|
(
|
) |
|
|
(
|
) |
|
Repayment of senior notes |
|
(
|
) |
|
|
|
|
|
Net cash used in financing activities |
|
(
|
) |
|
|
(
|
) |
|
Effect of foreign exchange rate changes on cash |
|
|
|
|
|
(
|
) |
|
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
(
|
) |
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
||
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
||
|
Net cash received (paid) during the period for: |
|
|
|
|
|
||
|
Interest, net of capitalized interest of $
|
$ |
(
|
) |
|
$ |
(
|
) |
|
Income taxes |
|
(
|
) |
|
|
(
|
) |
|
Non-cash investing and financing activities: |
|
|
|
|
|
||
|
Net increase in payables for purchases of property and equipment |
$ |
|
|
|
$ |
|
|
|
Net increase in deposits on equipment purchases |
|
(
|
) |
|
|
(
|
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
PATTERSON -UTI ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Basis of presentation — The unaudited interim condensed consolidated financial statements include the accounts of Patterson-UTI Energy, Inc. and its wholly-owned subsidiaries (collectively referred to herein as “we,” “us,” “our,” “ours” and like terms). All significant intercompany accounts and transactions have been eliminated. Except for wholly-owned subsidiaries, we have no controlling financial interests in any other entity which would require consolidation. As used in these notes, “we,” “us,” “our,” “ours” and like terms refer collectively to Patterson-UTI Energy, Inc. and its consolidated subsidiaries. Patterson-UTI Energy, Inc. conducts its business operations through its wholly-owned subsidiaries and has no employees or independent operations. The U.S. dollar is the functional currency for all of our operations.
The unaudited interim condensed consolidated financial statements have been prepared by us pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted pursuant to such rules and regulations, although we believe the disclosures included either on the face of the financial statements or herein are sufficient to make the information presented not misleading. In the opinion of management, all recurring adjustments considered necessary for a fair statement of the information in conformity with GAAP have been included. The unaudited condensed consolidated balance sheet as of December 31, 2022, as presented herein, was derived from our audited consolidated balance sheet but does not include all disclosures required by GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year.
Recently Adopted Accounting Standards — In October 2021, the FASB issued an accounting standards update, which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. Generally, this new guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. Historically, such amounts were recognized by the acquirer at fair value in acquisition accounting. The amendments should be applied prospectively to acquisitions occurring on or after the effective date. The amendments in the update are effective for public business entities for fiscal years beginning after December 15, 2022, with early adoption permitted. We adopted this new guidance on January 1, 2023, and there was no material impact on our consolidated financial statements.
Recently Issued Accounting Standards —In March 2020, the FASB issued an accounting standards update to provide temporary optional expedients that simplify the accounting for contract modifications to existing debt agreements expected to arise from the market transition from LIBOR to alternative reference rates. The amendments in the update are effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications from the beginning of an interim period that includes or is subsequent to March 12, 2020. In December 2022, the FASB issued an update, which deferred the sunset date to December 31, 2024. We do not expect this new guidance will have a material impact on our consolidated financial statements.
2. Revenues
ASC Topic 606 Revenue from Contracts with Customers
Revenue is recognized based on our customers’ ability to benefit from our services in an amount that reflects the consideration we expect to receive in exchange for those services. This typically happens when the service is performed. Services that primarily generate our earned revenue include the operating business segments of contract drilling, pressure pumping and directional drilling, which comprise our reportable segments. We also derive revenues from our other operations, which include our operating business segments of oilfield rentals, equipment servicing, electrical controls and automation, and oil and natural gas working interests. For more information on our business segments, including disaggregated revenue recognized from contracts with customers, see Note 13.
Within each of our operating segments, the services we provide represent a series of distinct services, generally provided daily, that are substantially the same, with the same pattern of transfer to the customer. Because our customers benefit equally throughout the service period and our efforts in providing services are incurred relatively evenly over the period of performance, revenue is recognized over time as we provide services to the customer.
8
We are a non-operating working interest owner of oil and natural gas properties primarily located in Texas and New Mexico. The ownership terms are outlined in joint operating agreements for each well between the operator of the well and the various interest owners, including us, who are considered non-operators of the well. We receive revenue each period for our working interest in the well during the period. The revenue received for the working interests from these oil and gas properties does not fall under the scope of the new revenue standard, and therefore, will continue to be reported under current guidance ASC 932-323 Extractive Activities – Oil and Gas, Investments – Equity Method and Joint Ventures .
Reimbursement Revenue — Reimbursements for the purchase of supplies, equipment, personnel services, shipping and other services that are provided at the request of our customers are recorded as revenue when incurred. The related costs are recorded as operating expenses when incurred.
Operating Lease Revenue — Lease income from equipment that we lease to others is recognized on a straight-line basis over the lease term. Lease income recognized during the three months ended March 31, 2023 and 2022 was not material.
Accounts Receivable and Contract Liabilities
Accounts receivable is our right to consideration once it becomes unconditional. Payment terms typically range from
Accounts receivable balances were $
We do not have any significant contract asset balances. Contract liabilities include prepayments received from customers prior to the requested services being completed. Once the services are complete and have been invoiced, the prepayment is applied against the customer’s account to offset the accounts receivable balance. Also included in contract liabilities are payments received from customers for reactivation or initial mobilization of newly constructed or upgraded rigs that were moved on location to the initial well site. These payments are allocated to the overall performance obligation and amortized over the initial term of the contract. Total contract liability balances were $
Contract Costs
Costs incurred for newly constructed rigs or rig upgrades based on a contract with a customer are considered capital improvements and are capitalized to drilling equipment and depreciated over the estimated useful life of the asset.
Remaining Performance Obligations
We maintain a backlog of commitments for contract drilling services under term contracts, which we define as contracts with a duration of six months or more. Our contract drilling backlog in the United States as of March 31, 2023
was approximately $
9
3
Inventory consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
|
Finished goods |
$ |
|
|
|
$ |
|
|
|
Work-in-process |
|
|
|
|
|
|
|
|
Raw materials and supplies |
|
|
|
|
|
|
|
|
Inventory |
$ |
|
|
|
$ |
|
|
4. Other Current Assets
|
|
March 31, 2023 |
|
December 31, 2022 |
|
Workers' compensation receivable |
$
|
|
$
|
|
Prepaid expenses |
|
|
|
|
Other |
|
|
|
|
Other current assets |
$
|
|
$
|
5.
Property and equipment consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
|
Equipment |
$ |
|
|
|
$ |
|
|
|
Oil and natural gas properties |
|
|
|
|
|
|
|
|
Buildings |
|
|
|
|
|
|
|
|
Land |
|
|
|
|
|
|
|
|
Total property and equipment |
|
|
|
|
|
|
|
|
Less accumulated depreciation, depletion, amortization and impairment |
|
(
|
) |
|
|
(
|
) |
|
Property and equipment, net |
$ |
|
|
|
$ |
|
|
On a periodic basis, we evaluate our fleet of drilling rigs for marketability based on the condition of inactive rigs, expenditures that would be necessary to bring inactive rigs to working condition and the expected demand for drilling services by rig type. The components comprising rigs that will no longer be marketed are evaluated, and those components with continuing utility to our other marketed rigs are transferred to other rigs or to our yards to be used as spare equipment. The remaining components of these rigs are abandoned. We had
We review our long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of certain assets may not be recovered over their estimated remaining useful lives (“triggering events”). In connection with this review, assets are grouped at the lowest level at which identifiable cash flows are largely independent of other asset groupings. We estimate future cash flows over the life of the respective assets or asset groupings in our assessment of impairment. These estimates of cash flows are based on historical cyclical trends in the industry as well as our expectations regarding the continuation of these trends in the future. Provisions for asset impairment are charged against income when estimated future cash flows, on an undiscounted basis, are less than the asset’s net book value. Any provision for impairment is measured at fair value.
10
6
Accrued liabilities consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
|
Salaries, wages, payroll taxes and benefits |
$ |
|
|
|
$ |
|
|
|
Workers' compensation liability |
|
|
|
|
|
|
|
|
Property, sales, use and other taxes |
|
|
|
|
|
|
|
|
Insurance, other than workers' compensation |
|
|
|
|
|
|
|
|
Accrued interest payable |
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Accrued liabilities |
$ |
|
|
|
$ |
|
|
7
Long-term debt consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less deferred financing costs and discounts |
|
(
|
) |
|
|
(
|
) |
|
Total |
$ |
|
|
|
$ |
|
|
Credit Agreement
— On
The Credit Agreement is a committed senior unsecured revolving credit facility that permits aggregate borrowings of up to $
On November 9, 2022, we entered into Amendment No. 3 to Amended and Restated Credit Agreement (“Amendment No. 3”) which, among other things, (i) revised the capacity under the letter of credit facility to $
Loans under the Credit Agreement bear interest by reference, at our election, to the SOFR rate or base rate. The applicable margin on SOFR rate loans varies from
None of our subsidiaries are currently required to be a guarantor under the Credit Agreement. However, if any subsidiary guarantees or incurs debt in excess of the Priority Debt Basket (as defined in the Credit Agreement), such subsidiary is required to become a guarantor under the Credit Agreement.
11
The Credit Agreement contains representations, warranties, affirmative and negative covenants and events of default and associated remedies that we believe are customary for agreements of this nature, including certain restrictions on our ability and the ability of each of our subsidiaries to incur debt and grant liens. If our credit rating is below investment grade at both Moody’s and S&P, we will become subject to a restricted payment covenant, which would require us to have a Pro Forma Debt Service Coverage Ratio (as defined in the Credit Agreement) greater than or equal to
As of March 31, 2023
, we had
2015 Reimbursement Agreement
— On March 16, 2015, we entered into a Reimbursement Agreement (the “Reimbursement Agreement”) with The Bank of Nova Scotia (“Scotiabank”), pursuant to which we may from time to time request that Scotiabank issue an unspecified amount of letters of credit. As of March 31, 2023
, we had $
Under the terms of the Reimbursement Agreement, we will reimburse Scotiabank on demand for any amounts that Scotiabank has disbursed under any letters of credit. Fees, charges and other reasonable expenses for the issuance of letters of credit are payable by us at the time of issuance at such rates and amounts as are in accordance with Scotiabank’s prevailing practice. We are obligated to pay to Scotiabank interest on all amounts not paid by us on the date of demand or when otherwise due at the LIBOR rate plus
We have also agreed that if obligations under the Credit Agreement are secured by liens on any of our or our subsidiaries’ property, then our reimbursement obligations and (to the extent similar obligations would be secured under the Credit Agreement) other obligations under the Reimbursement Agreement and any letters of credit will be equally and ratably secured by all property subject to such liens securing the Credit Agreement.
Pursuant to a Continuing Guaranty dated as of March 16, 2015, our payment obligations under the Reimbursement Agreement are jointly and severally guaranteed as to payment and not as to collection by our subsidiaries that from time to time guarantee payment under the Credit Agreement. None of our subsidiaries are currently required to guarantee payment under the Credit Agreement.
2028 Senior Notes and 2029 Senior Notes
—
On January 19, 2018, we completed an offering of $
During the first quarter of 2023, we elected to repurchase portions of our 2028 Notes and 2029 Notes in the open market. The principal amounts retired through these transactions totaled $
The 2028 Notes and 2029 Notes (together, the “Senior Notes”) are our senior unsecured obligations, which rank equally with all of our other existing and future senior unsecured debt and will rank senior in right of payment to all of our other future subordinated debt. The Senior Notes will be effectively subordinated to any of our future secured debt to the extent of the value of the assets securing
12
such debt. In addition, the Senior Notes will be structurally subordinated to the liabilities (including trade payables) of our subsidiaries that do not guarantee the Senior Notes. None of our subsidiaries are currently required to be a guarantor under the Senior Notes. If our subsidiaries guarantee the Senior Notes in the future, such guarantees (the “Guarantees”) will rank equally in right of payment with all of the guarantors’ future unsecured senior debt and senior in right of payment to all of the guarantors’ future subordinated debt. The Guarantees will be effectively subordinated to any of the guarantors’ future secured debt to the extent of the value of the assets securing such debt.
The indentures pursuant to which the Senior Notes were issued include covenants that, among other things, limit our and our subsidiaries’ ability to incur certain liens, engage in sale and lease-back transactions or consolidate, merge, or transfer all or substantially all of their assets. These covenants are subject to important qualifications and limitations set forth in the indentures.
The indentures also provide for events of default which, if any of them occurs, would permit or require the principal of, premium, if any, and accrued interest, if any, on the Senior Notes to become or to be declared due and payable.
Debt issuance costs — Debt issuance costs, except those related to line-of-credit arrangements, are presented in the balance sheet as a direct reduction of the carrying amount of the related debt. Debt issuance costs related to line-of-credit arrangements are included in “Other non-current assets” in our unaudited condensed consolidated balance sheets. Amortization of debt issuance costs is reported as interest expense.
Presented below is a schedule of the principal repayment requirements of long-term debt as of March 31, 2023 (in thousands):
|
Year ending December 31, |
|
|
|
|
2023 |
$ |
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
$ |
|
|
8
As of March 31, 2023
, we maintained letters of credit in the aggregate amount of $
As of March 31, 2023
, we had commitments to purchase major equipment totaling approximately $
Our pressure pumping business has entered into agreements to purchase minimum quantities of proppants and chemicals from certain vendors. As of March 31, 2023
, the remaining minimum obligation under these agreements was approximately $
13
We are party to various legal proceedings arising in the normal course of our business. We do not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition, cash flows or results of operations.
9
Cash Dividend
—
On
Share Repurchases and Acquisitions
— In September 2013, our Board of Directors approved a stock buyback program. In October 2022, our Board of Directors approved an increase of the authorization under the stock buyback program to allow for an aggregate of $
Treasury stock acquisitions during the three months ended March 31, 2023 were as follows (dollars in thousands):
|
|
Shares |
|
|
Cost |
|
||
|
Treasury shares at January 1, 2023 |
|
|
|
|
$ |
|
|
|
Purchases pursuant to stock buyback program |
|
|
|
|
|
|
|
|
Treasury shares at March 31, 2023 |
|
|
|
|
$ |
|
|
10
We use share-based payments to compensate employees and non-employee directors. We recognize the cost of share-based payments under the fair-value-based method. Share-based awards include equity instruments in the form of stock options or restricted stock units that have included service conditions and, in certain cases, performance conditions. Our share-based awards also include share-settled performance unit awards. Share-settled performance unit awards are accounted for as equity awards. In 2020, we granted performance-based cash-settled phantom units, which are accounted for as a liability classified award. We issue shares of common stock when vested stock options are exercised and after restricted stock units and share-settled performance unit awards vest.
Stock Options
— We estimate the grant date fair values of stock options using the Black-Scholes-Merton valuation model. Volatility assumptions are based on the historic volatility of our common stock over the most recent period equal to the expected term of the options as of the date such options are granted. The expected term assumptions are based on our experience with respect to employee stock option activity. Dividend yield assumptions are based on the expected dividends at the time the options are granted. The risk-free interest rate assumptions are determined by reference to United States Treasury yields.
Stock option activity from January 1, 2023 to March 31, 2023 follows:
|
|
|
|
|
Weighted |
|
||
|
|
|
|
|
Average |
|
||
|
|
Underlying |
|
|
Exercise Price |
|
||
|
|
Shares |
|
|
Per Share |
|
||
|
Outstanding at January 1, 2023 |
|
|
|
|
$ |
|
|
|
Exercised |
|
|
|
|
$ |
|
|
|
Expired |
|
|
|
|
$ |
|
|
|
Outstanding at March 31, 2023 |
|
|
|
|
$ |
|
|
|
Exercisable at March 31, 2023 |
|
|
|
|
$ |
|
|
14
Restricted Stock Units — For all restricted stock unit awards made to date, shares of common stock are not issued until the units vest. Restricted stock units are subject to forfeiture for failure to fulfill service conditions and, in certain cases, performance conditions. Forfeitable dividend equivalents are accrued on certain restricted stock units that will be paid upon vesting. We use the straight-line method to recognize periodic compensation cost over the vesting period.
Restricted stock unit activity from January 1, 2023 to March 31, 2023 follows:
|
|
|
|
|
|
|
|
Weighted |
|
|||
|
|
|
|
|
|
|
|
Average Grant |
|
|||
|
|
Time |
|
|
Performance |
|
|
Date Fair Value |
|
|||
|
|
Based |
|
|
Based |
|
|
Per Share |
|
|||
|
Non-vested restricted stock units outstanding at January 1, 2023 |
|
|
|
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
$ |
|
|
|
Vested |
|
(
|
) |
|
|
|
|
|
$ |
|
|
|
Forfeited |
|
(
|
) |
|
|
|
|
|
$ |
|
|
|
Non-vested restricted stock units outstanding at March 31, 2023 |
|
|
|
|
|
|
|
|
$ |
|
|
As of March 31, 2023
, we had unrecognized compensation cost related to our unvested restricted stock units totaling $
Performance Unit Awards —
We have granted share-settled performance unit awards to certain employees (the “Performance Units”) on an annual basis since 2010. The Performance Units provide for the recipients to receive a grant of shares of common stock upon the achievement of certain performance goals during a specified period established by the Compensation Committee. The performance period for the Performance Units is generally the
The payout under the Performance Units shall not exceed the target number of shares if our absolute total shareholder return is negative or zero.
The total target number of shares with respect to the Performance Units for the awards granted in 2019-2022 is set forth below:
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
||||
|
|
Performance |
|
|
Performance |
|
|
Performance |
|
|
Performance |
|
||||
|
|
Unit Awards |
|
|
Unit Awards |
|
|
Unit Awards |
|
|
Unit Awards |
|
||||
|
Target number of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In April 2022,
Because the Performance Units are share-settled awards, they are accounted for as equity awards and measured at fair value on the date of grant using a Monte Carlo simulation model.
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
||||
|
|
Performance |
|
|
Performance |
|
|
Performance |
|
|
Performance |
|
||||
|
|
Unit Awards |
|
|
Unit Awards |
|
|
Unit Awards |
|
|
Unit Awards |
|
||||
|
Aggregate fair value at date of grant |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
15
These fair value amounts are charged to expense on a straight-line basis over the performance period.
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
||||
|
|
Performance |
|
|
Performance |
|
|
Performance |
|
|
Performance |
|
||||
|
|
Unit Awards |
|
|
Unit Awards |
|
|
Unit Awards |
|
|
Unit Awards |
|
||||
|
Three months ended March 31, 2023 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
NA |
|
|
|
Three months ended March 31, 2022 |
NA |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
As of March 31, 2023
, we had unrecognized compensation cost related to our unvested Performance Units totaling $
Phantom Units
— In May 2020, the Compensation Committee approved a grant of long-term performance-based phantom units to our Chief Executive Officer and President, William A. Hendricks, Jr (the “Phantom Units”). The Phantom Units were granted outside of the 2014 Plan. Pursuant to this phantom unit grant,
11. Income Taxes
Our effective income tax rate fluctuates from the U.S. statutory tax rate based on, among other factors, changes in pretax income in jurisdictions with varying statutory tax rates, the impact of U.S. state and local taxes, the realizability of deferred tax assets and other differences related to the recognition of income and expense between GAAP and tax accounting.
Our effective income tax rate for the three months ended March 31, 2023 was
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized, and when necessary, valuation allowances are provided. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We assess the realizability of our deferred tax assets quarterly and consider carryback availability, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In the first quarter of 2023, the effective tax rate takes into consideration the estimated valuation allowance based on forecasted 2023 income.
We continue to monitor income tax developments in the United States and other countries where we have legal entities. We will incorporate into our future financial statements the impacts, if any, of future regulations and additional authoritative guidance when finalized.
12. Earnings Per Share
We provide a dual presentation of our net income (loss) per common share in our unaudited condensed consolidated statements of operations: basic net income (loss) per common share (“Basic EPS”) and diluted net income (loss) per common share (“Diluted EPS”).
Basic EPS excludes dilution and is determined by dividing the earnings attributable to common stockholders by the weighted average number of common shares outstanding during the period.
16
Diluted EPS is based on the weighted average number of common shares outstanding plus the dilutive effect of potential common shares, including stock options and non-vested performance units and non-vested restricted stock units. The dilutive effect of stock options, non-vested performance units and non-vested restricted stock units is determined using the treasury stock method.
The following table presents information necessary to calculate net income (loss) per share for the three months ended March 31, 2023 and 2022 as well as potentially dilutive securities excluded from the weighted average number of diluted common shares outstanding because their inclusion would have been anti-dilutive (in thousands, except per share amounts):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
BASIC EPS: |
|
|
|
|
|
||
|
Net income (loss) attributed to common stockholders |
$ |
|
|
|
$ |
(
|
) |
|
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
Basic net income (loss) per common share |
$ |
|
|
|
$ |
(
|
) |
|
DILUTED EPS: |
|
|
|
|
|
||
|
Net income (loss) attributed to common stockholders |
$ |
|
|
|
$ |
(
|
) |
|
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
Add dilutive effect of potential common shares |
|
|
|
|
|
|
|
|
Weighted average number of diluted common shares outstanding |
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share |
$ |
|
|
|
$ |
(
|
) |
|
Potentially dilutive securities excluded as anti-dilutive |
|
|
|
|
|
|
|
13. Business Segments
At March 31, 2023
, we had
17
The following tables summarize selected financial information relating to our business segments (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
Revenues: |
|
|
|
|
|
||
|
Contract drilling |
$ |
|
|
|
$ |
|
|
|
Pressure pumping |
|
|
|
|
|
|
|
|
Directional drilling |
|
|
|
|
|
|
|
|
Other operations (1) |
|
|
|
|
|
|
|
|
Elimination of intercompany revenues - Contract drilling (2) |
|
(
|
) |
|
|
(
|
) |
|
Elimination of intercompany revenues - Other operations (2) |
|
(
|
) |
|
|
(
|
) |
|
Total revenues |
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
||
|
Income (loss) before income taxes: |
|
|
|
|
|
||
|
Contract drilling |
$ |
|
|
|
$ |
(
|
) |
|
Pressure pumping |
|
|
|
|
|
|
|
|
Directional drilling |
|
|
|
|
|
|
|
|
Other operations |
|
|
|
|
|
|
|
|
Corporate |
|
(
|
) |
|
|
(
|
) |
|
Interest income |
|
|
|
|
|
|
|
|
Interest expense |
|
(
|
) |
|
|
(
|
) |
|
Other |
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
$ |
|
|
|
$ |
(
|
) |
|
|
|
|
|
|
|
||
|
Depreciation, depletion, amortization and impairment: |
|
|
|
|
|
||
|
Contract drilling |
$ |
|
|
|
$ |
|
|
|
Pressure pumping |
|
|
|
|
|
|
|
|
Directional drilling |
|
|
|
|
|
|
|
|
Other operations |
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
Total depreciation, depletion, amortization and impairment |
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
||
|
Capital expenditures: |
|
|
|
|
|
||
|
Contract drilling |
$ |
|
|
|
$ |
|
|
|
Pressure pumping |
|
|
|
|
|
|
|
|
Directional drilling |
|
|
|
|
|
|
|
|
Other operations |
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
Total capital expenditures |
$ |
|
|
|
$ |
|
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
|
Identifiable assets: |
|
|
|
|
|
||
|
Contract drilling |
$ |
|
|
|
$ |
|
|
|
Pressure pumping |
|
|
|
|
|
|
|
|
Directional drilling |
|
|
|
|
|
|
|
|
Other operations |
|
|
|
|
|
|
|
|
Corporate (3) |
|
|
|
|
|
|
|
|
Total assets |
$ |
|
|
|
$ |
|
|
18
14. Fair Values of Financial Instruments
The carrying values of cash and cash equivalents, trade receivables and accounts payable approximate fair value due to the short-term maturity of these items. These fair value estimates are considered Level 1 fair value estimates in the fair value hierarchy of fair value accounting.
The estimated fair value of our outstanding debt balances as of March 31, 2023 and December 31, 2022 is set forth below (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
||||
|
|
Value |
|
|
Value |
|
|
Value |
|
|
Value |
|
||||
|
3.95% Senior Notes |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
5.15% Senior Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The fair values of the
19
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) and other public filings, press releases and presentations by us contain “forward-looking statements” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995, as amended. As used in this Report, “we,” “us,” “our,” “ours” and like terms refer collectively to Patterson-UTI Energy, Inc. and its consolidated subsidiaries. Patterson-UTI Energy, Inc. conducts its operations through its wholly-owned subsidiaries and has no employees or independent business operations. These “forward-looking statements” involve risk and uncertainty. These forward-looking statements include, without limitation, statements relating to: liquidity; revenue, cost and margin expectations and backlog; financing of operations; oil and natural gas prices; rig counts and frac spreads; source and sufficiency of funds required for building new equipment, upgrading existing equipment and acquisitions (if opportunities arise); demand and pricing for our services; competition; equipment availability; government regulation; legal proceedings; debt service obligations; impact of inflation and economic downturns; and other matters. Our forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and often use words such as “anticipate,” “believe,” “budgeted,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “potential,” “project,” “pursue,” “should,” “strategy,” “target,” or “will,” or the negative thereof and other words and expressions of similar meaning. The forward-looking statements are based on certain assumptions and analyses we make in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances.
Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from actual future results expressed or implied by the forward-looking statements. These risks and uncertainties relate to:
20
We caution that the foregoing list of factors is not exhaustive. Additional information concerning these and other risk factors is contained elsewhere in this Report and in our Annual Report on Form 10-K for the year ended December 31, 2022 and may be contained in our future filings with the SEC. You are cautioned not to place undue reliance on any of our forward-looking statements. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to update publicly or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise. In the event that we update any forward-looking statement, no inference should be made that we will make additional updates with respect to that statement, related matters or any other forward-looking statements. All subsequent written and oral forward-looking statements concerning us or other matters and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements above.
21
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management Overview and Recent Developments in Market Conditions — We are a Houston, Texas-based oilfield services company that primarily owns and operates one of the largest fleets of land-based drilling rigs in the United States and a large fleet of pressure pumping equipment.
Our contract drilling business operates in the continental United States and internationally in Colombia and, from time to time, we pursue contract drilling opportunities in other select markets. Our pressure pumping business operates primarily in Texas and the Appalachian region. We also provide a comprehensive suite of directional drilling services in most major producing onshore oil and gas basins in the United States, and we provide services that improve the statistical accuracy of directional and horizontal wellbores. We have other operations through which we provide oilfield rental tools in select markets in the United States. We also service equipment for drilling contractors, and we provide electrical controls and automation to the energy, marine and mining industries, in North America and other select markets. In addition, we own and invest, as a non-operating working interest owner, in oil and natural gas assets that are primarily located in Texas and New Mexico.
Crude oil prices and demand for drilling and completions equipment and services increased in 2022, and industry supply of Tier-1, super-spec rigs remains constrained. We currently expect our average rig count to be down two to three rigs in the second quarter as activity transitions more to oil from natural gas. The current demand for equipment and services remains dependent on macro conditions, including commodity prices, geopolitical environment, inflationary pressures, economic conditions in the United States and elsewhere and continued focus by exploration and production companies and service companies on capital discipline. Oil prices averaged $76.08 per barrel in the first quarter of 2023, as compared to $82.79 per barrel in the fourth quarter of 2022. Natural gas prices (based on the Henry Hub Spot Market Price) averaged $2.65 per MMBtu in the first quarter of 2023 as compared to an average of $5.55 per MMBtu in the fourth quarter of 2022.
Our average active rig count in the United States for the first quarter of 2023 was 131 rigs, consistent with the fourth quarter of 2022. Based on contracts in place in the United States as of April 26, 2023, we expect an average of 79 rigs operating under term contracts during the second quarter of 2023 and an average of 53 rigs operating under term contracts during the four quarters ending March 31, 2024.
Our average active spread count was 12 spreads in the first quarter, consistent with the fourth quarter of 2022. We calculated average active spreads as the average number of spreads that were crewed and actively marketed during the period. We expect to end the second quarter with 12 active pressure pumping spreads.
With the recent slowdown in market activity, we have lowered our 2023 capital expenditure forecast from $550 million to $510 million, including approximately $30 million of customer-funded rig upgrades.
Recent Developments in Financial Matters — On November 9, 2022, we entered into Amendment No. 3 to Amended and Restated Credit Agreement (“Amendment No. 3”), which amended our amended and restated credit agreement, dated as of March 27, 2018 (as amended, the “Credit Agreement”), among us, as borrower, Wells Fargo Bank, National Association, as administrative agent, letter of credit issuer, swing line lender and lender and each of the other letter of credit issuers and lenders party thereto.
Amendment No. 3, among other things, (i) revised the capacity under the letter of credit facility to $100 million; (ii) revised the capacity under the swing line facility to the lesser of $50 million and the amount of the swing line provider’s unused commitment; (iii) changed the LIBOR reference rate to a SOFR reference rate; and (iv) extended the maturity date for $416.7 million of revolving credit commitments of certain lenders under the Credit Agreement from March 27, 2025 to March 27, 2026. As a result, of the $600 million of revolving credit commitments under the Credit Agreement, the maturity date for $416.7 million of such commitments is March 27, 2026; the maturity date for $133.3 million of such commitments is March 27, 2025; and the maturity date for the remaining $50 million of such commitments is March 27, 2024.
As of March 31, 2023, we had no borrowings outstanding under our revolving credit facility. We had no letters of credit outstanding under the Credit Agreement at March 31, 2023 and, as a result, had available borrowing capacity of $600 million at that date.
During the fourth quarter of 2022, we elected to repurchase portions of our 3.95% Senior Notes due 2028 (the “2028 Notes”) and our 5.15% Senior Notes due 2029 (the “2029 Notes”) in the open market. The principal amounts retired through these transactions totaled $21.0 million of our 2028 Notes and $1.4 million of our 2029 Notes, plus accrued interest. We recorded corresponding gains on the extinguishment of these amounts totaling $2.3 million and $0.1 million, respectively, net of the proportional write-off of associated deferred financing costs and original issuance discounts.
22
During the first quarter of 2023, we elected to repurchase portions of our 2028 Notes and 2029 Notes in the open market. The principal amounts retired through these transactions totaled $6.0 million of our 2028 Notes and $3.0 million of our 2029 Notes, plus accrued interest. We recorded corresponding gains on the extinguishment of these amounts totaling $0.8 million and $0.3 million, respectively, net of the proportional write-off of associated deferred financing costs and original issuance discounts. These gains are included in “Interest expense, net of amount capitalized” in our unaudited condensed consolidated statements of operations.
Impact on our Business from Oil and Natural Gas Prices and Other Factors — Our revenues, profitability and cash flows are highly dependent upon prevailing prices for oil and natural gas and upon our customers’ ability to access capital to fund their operating and capital expenditures. During periods of improved oil and natural gas prices, the capital spending budgets of oil and natural gas operators tend to expand, which generally results in increased demand for our services. Conversely, in periods when oil and natural gas prices are relatively low or when our customers have a reduced ability to access capital, the demand for our services generally weakens, and we experience downward pressure on pricing for our services. Even during periods of historically moderate or high prices for oil and natural gas, companies exploring for oil and natural gas may cancel or curtail programs or reduce their levels of capital expenditures for exploration and production for a variety of reasons, which could reduce demand for our services. We may also be impacted by delayed customer payments and payment defaults associated with customer liquidity issues and bankruptcies.
The North American oil and natural gas services industry is cyclical and at times experiences downturns in demand. During these periods, there has been substantially more oil and natural gas service equipment available than necessary to meet demand. As a result, oil and natural gas service contractors have had difficulty sustaining profit margins and, at times, have incurred losses during the downturn periods. We cannot predict either the future level of demand for our oil and natural gas services or future conditions in the oil and natural gas service businesses.
In addition to the dependence on oil and natural gas prices and demand for our services, we are highly impacted by operational risks, competition, labor issues, weather, the availability, from time to time, of products used in our pressure pumping business, supplier delays and various other factors that could materially adversely affect our business, financial condition, cash flows and results of operations. Please see Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
For the three months ended March 31, 2023 and December 31, 2022, our operating revenues consisted of the following (dollars in thousands):
|
|
Three Months Ended |
|
|||||||||||||
|
|
March 31, |
|
|
December 31, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||
|
Contract drilling |
$ |
419,026 |
|
|
|
52.9 |
% |
|
$ |
399,402 |
|
|
|
50.7 |
% |
|
Pressure pumping |
|
293,268 |
|
|
|
37.0 |
% |
|
|
306,783 |
|
|
|
38.9 |
% |
|
Directional drilling |
|
56,263 |
|
|
|
7.1 |
% |
|
|
59,468 |
|
|
|
7.5 |
% |
|
Other operations |
|
23,245 |
|
|
|
3.0 |
% |
|
|
22,823 |
|
|
|
2.9 |
% |
|
|
$ |
791,802 |
|
|
|
100.0 |
% |
|
$ |
788,476 |
|
|
|
100.0 |
% |
Contract Drilling
We have addressed our customers’ needs for drilling horizontal wells in shale and other unconventional resource plays by improving the capabilities of our drilling fleet. The U.S. land rig industry has in recent years referred to certain high specification rigs as “super-spec” rigs, which we consider to be at least a 1,500 horsepower, AC-powered rig that has at least a 750,000-pound hookload, a 7,500-psi circulating system, and is pad-capable. Due to evolving customer preferences, we refer to certain premium rigs as “Tier-1, super spec” rigs, which we consider as being a super-spec rig that also has a third mud pump and raised drawworks that allow for more clearance underneath the rig floor. As of March 31, 2023, our rig fleet included 172 super-spec rigs, of which 120 were Tier-1, super-spec rigs.
We maintain a backlog of commitments for contract drilling services under term contracts, which we define as contracts with a duration of six months or more. Our contract drilling backlog in the United States as of March 31, 2023 was approximately $890 million. Approximately 26% of the total contract drilling backlog in the United States at March 31, 2023 is reasonably expected to remain at March 31, 2024. See Note 2 of Notes to unaudited condensed consolidated financial statements for additional information on backlog.
Pressure Pumping
23
As of March 31, 2023, we had approximately 1.2 million horsepower in our pressure pumping fleet. We provide pressure pumping services to oil and natural gas operators primarily in Texas and the Appalachian region. Substantially all of the revenue in the pressure pumping segment is from well stimulation services, such as hydraulic fracturing, for completion of new wells and remedial work on existing wells. We also provide cementing services through the pressure pumping segment.
Directional Drilling
We provide a comprehensive suite of directional drilling services in most major producing onshore oil and gas basins in the United States. Our directional drilling services include directional drilling, measurement-while-drilling and supply and rental of downhole performance motors. We also provide services that improve the statistical accuracy of directional and horizontal wellbores.
Other Operations
Our oilfield rentals business, with a fleet of premium oilfield rental tools, along with the results of our ownership, as a non-operating working interest owner, in oil and gas assets located in Texas and New Mexico, provide the largest revenue contributions to our other operations. Other operations also includes the results of our electrical controls and automation business and the results of our drilling equipment service business.
Results of Operations
The following tables summarize results of operations by business segment for the three months ended March 31, 2023 and December 31, 2022:
|
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
|
March 31, |
|
|
December 31, |
|
|
|
|
|||
|
Contract Drilling |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
|
|
|
(dollars in thousands) |
|
|
|
|
||||||
|
Revenues |
|
$ |
419,026 |
|
|
$ |
399,402 |
|
|
|
4.9 |
% |
|
Direct operating costs |
|
|
230,358 |
|
|
|
232,142 |
|
|
|
(0.8 |
)% |
|
Adjusted gross margin (1) |
|
|
188,668 |
|
|
|
167,260 |
|
|
|
12.8 |
% |
|
Selling, general and administrative |
|
|
1,450 |
|
|
|
2,306 |
|
|
|
(37.1 |
)% |
|
Depreciation, amortization and impairment |
|
|
86,866 |
|
|
|
86,734 |
|
|
|
0.2 |
% |
|
Other operating (income) expenses, net |
|
|
22 |
|
|
|
(30 |
) |
|
NA |
|
|
|
Operating income |
|
$ |
100,330 |
|
|
$ |
78,250 |
|
|
|
28.2 |
% |
|
Operating days - U.S. (2) |
|
|
11,751 |
|
|
|
12,072 |
|
|
|
(2.7 |
)% |
|
Average revenue per operating day - U.S. |
|
$ |
34.76 |
|
|
$ |
31.83 |
|
|
|
9.2 |
% |
|
Average direct operating costs per operating day - U.S. |
|
$ |
18.88 |
|
|
$ |
18.38 |
|
|
|
2.7 |
% |
|
Average adjusted gross margin per operating day - U.S. (3) |
|
$ |
15.88 |
|
|
$ |
13.45 |
|
|
|
18.1 |
% |
|
Average rigs operating - U.S. (2) |
|
|
131 |
|
|
|
131 |
|
|
|
(— |
)% |
|
Capital expenditures |
|
$ |
80,149 |
|
|
$ |
86,195 |
|
|
|
(7.0 |
)% |
Generally, the revenues in our contract drilling segment are most impacted by two primary factors: our average number of rigs operating and our average revenue per operating day. Our average revenue per operating day is largely dependent on the pricing terms of our rig contracts. Revenues increased primarily due to improved pricing.
The decrease in capital expenditures was primarily due to the timing of order placement and spending on committed deliveries that more heavily impacted the fourth quarter of 2022.
24
|
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
|
March 31, |
|
|
December 31, |
|
|
|
|
|||
|
Pressure Pumping |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
|
|
|
(dollars in thousands) |
|
|
|
|
||||||
|
Revenues |
|
$ |
293,268 |
|
|
$ |
306,783 |
|
|
|
(4.4 |
)% |
|
Direct operating costs |
|
|
220,116 |
|
|
|
220,758 |
|
|
|
(0.3 |
)% |
|
Adjusted gross margin (1) |
|
|
73,152 |
|
|
|
86,025 |
|
|
|
(15.0 |
)% |
|
Selling, general and administrative |
|
|
2,695 |
|
|
|
2,465 |
|
|
|
9.3 |
% |
|
Depreciation, amortization and impairment |
|
|
26,025 |
|
|
|
24,918 |
|
|
|
4.4 |
% |
|
Operating income |
|
$ |
44,432 |
|
|
$ |
58,642 |
|
|
|
(24.2 |
)% |
|
Average active spreads (2) |
|
|
12 |
|
|
|
12 |
|
|
|
(— |
)% |
|
Fracturing jobs |
|
|
147 |
|
|
|
142 |
|
|
|
3.5 |
% |
|
Other jobs |
|
|
153 |
|
|
|
157 |
|
|
|
(2.5 |
)% |
|
Total jobs |
|
|
300 |
|
|
|
299 |
|
|
|
0.3 |
% |
|
Average revenue per fracturing job |
|
$ |
1,959.10 |
|
|
$ |
2,124.44 |
|
|
|
(7.8 |
)% |
|
Average revenue per other job |
|
$ |
34.51 |
|
|
$ |
32.56 |
|
|
|
6.0 |
% |
|
Average revenue per total job |
|
$ |
977.56 |
|
|
$ |
1,026.03 |
|
|
|
(4.7 |
)% |
|
Average direct operating costs per total job |
|
$ |
733.72 |
|
|
$ |
738.32 |
|
|
|
(0.6 |
)% |
|
Average adjusted gross margin per total job (3) |
|
$ |
243.84 |
|
|
$ |
287.71 |
|
|
|
(15.2 |
)% |
|
Adjusted gross margin as a percentage of revenues (3) |
|
|
24.9 |
% |
|
|
28.0 |
% |
|
|
(11.0 |
)% |
|
Capital expenditures |
|
$ |
21,425 |
|
|
$ |
23,266 |
|
|
|
(7.9 |
)% |
Generally, the revenues in our pressure pumping segment are most impacted by the number and design of fracturing jobs (including whether or not we provide proppant and other materials). Direct operating costs are also most impacted by these same factors. Our average revenue per fracturing job is largely dependent on the pricing terms of our pressure pumping contracts and the design of the jobs.
Revenues decreased primarily due to lower utilization.
|
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
|
March 31, |
|
|
December 31, |
|
|
|
|
|||
|
Directional Drilling |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
|
|
|
(dollars in thousands) |
|
|
|
|
||||||
|
Revenues |
|
$ |
56,263 |
|
|
$ |
59,468 |
|
|
|
(5.4 |
)% |
|
Direct operating costs |
|
|
48,046 |
|
|
|
48,298 |
|
|
|
(0.5 |
)% |
|
Adjusted gross margin (1) |
|
|
8,217 |
|
|
|
11,170 |
|
|
|
(26.4 |
)% |
|
Selling, general and administrative |
|
|
1,938 |
|
|
|
1,733 |
|
|
|
11.8 |
% |
|
Depreciation, amortization and impairment |
|
|
4,171 |
|
|
|
4,169 |
|
|
|
0.0 |
% |
|
Operating income |
|
$ |
2,108 |
|
|
$ |
5,268 |
|
|
|
(60.0 |
)% |
|
Capital expenditures |
|
$ |
9,074 |
|
|
$ |
4,486 |
|
|
|
102.3 |
% |
Revenue decreased due to decreased job activity. We averaged 41 jobs per day during the three months ended March 31, 2023 as compared to 44 jobs per day during the three months ended December 31, 2022.
The increase in capital expenditures was primarily due the purchase of rotary steerable system tools and the timing of order placement that more heavily impacted the first quarter of 2023.
25
|
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
|
March 31, |
|
|
December 31, |
|
|
|
|
|||
|
Other Operations |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
|
|
|
(dollars in thousands) |
|
|
|
|
||||||
|
Revenues |
|
$ |
23,245 |
|
|
$ |
22,823 |
|
|
|
1.8 |
% |
|
Direct operating costs |
|
|
14,139 |
|
|
|
14,619 |
|
|
|
(3.3 |
)% |
|
Adjusted gross margin (1) |
|
|
9,106 |
|
|
|
8,204 |
|
|
|
11.0 |
% |
|
Selling, general and administrative |
|
|
692 |
|
|
|
806 |
|
|
|
(14.1 |
)% |
|
Depreciation, depletion, amortization and impairment |
|
|
7,579 |
|
|
|
6,259 |
|
|
|
21.1 |
% |
|
Operating income |
|
$ |
835 |
|
|
$ |
1,139 |
|
|
|
(26.7 |
)% |
|
Capital expenditures |
|
$ |
5,279 |
|
|
$ |
5,647 |
|
|
|
(6.5 |
)% |
Other operations revenue increased primarily due to a $1.6 million increase in our oilfield rentals business revenues, which was offset by a $1.0 million decline in oil and natural gas revenues primarily as a result of lower crude oil and natural gas market prices. The average WTI-Cushing price for the first quarter of 2023 was $76.08 per barrel as compared to $82.79 per barrel in the fourth quarter of 2022. Natural gas prices (based on the Henry Hub Spot Market Price) averaged $2.65 per MMBtu in the first quarter of 2023 as compared to $5.55 per MMBtu in the fourth quarter of 2022.
Depreciation, depletion, amortization and impairment increased primarily due to a $2.0 million impairment in our oil and natural gas business recorded in the first quarter of 2023 as compared to a $0.8 million impairment recorded in the fourth quarter of 2022.
|
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
|
March 31, |
|
|
December 31, |
|
|
|
|
|||
|
Corporate |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|||
|
|
|
(dollars in thousands) |
|
|
|
|
||||||
|
Selling, general and administrative |
|
$ |
23,791 |
|
|
$ |
27,267 |
|
|
|
(12.7 |
)% |
|
Depreciation |
|
$ |
3,539 |
|
|
$ |
1,224 |
|
|
|
189.1 |
% |
|
Other operating (income) expenses, net |
|
|
|
|
|
|
|
|
|
|||
|
Net gain on asset disposals |
|
$ |
538 |
|
|
$ |
(1,517 |
) |
|
NA |
|
|
|
Legal-related expenses and settlements |
|
|
38 |
|
|
|
(546 |
) |
|
NA |
|
|
|
Research and development |
|
|
136 |
|
|
|
250 |
|
|
|
(45.6 |
)% |
|
Other |
|
|
(6,300 |
) |
|
|
(184 |
) |
|
|
3,323.9 |
% |
|
Other operating (income) expenses, net |
|
$ |
(5,588 |
) |
|
$ |
(1,997 |
) |
|
|
179.8 |
% |
|
Interest income |
|
$ |
1,240 |
|
|
$ |
273 |
|
|
|
354.2 |
% |
|
Interest expense |
|
$ |
8,826 |
|
|
$ |
8,058 |
|
|
|
9.5 |
% |
|
Other income (expense) |
|
$ |
1,486 |
|
|
$ |
(629 |
) |
|
NA |
|
|
|
Capital expenditures |
|
$ |
1,674 |
|
|
$ |
(350 |
) |
|
NA |
|
|
Selling, general and administrative expense decreased primarily due to the fair value remeasurements of the phantom unit awards. See Note 10 of Notes to unaudited condensed consolidated financial statements for additional information on phantom unit awards.
Other operating (income) expenses, net includes net losses associated with the disposal of assets. Accordingly, the related gains or losses have been excluded from the results of specific segments. Other operating (income) expenses, net increased due to a $6.5 million reversal of cumulative compensation costs associated with certain performance-based restricted stock units.
The $2.1 million change in other income (expense) was primarily due to foreign currency adjustments related to our Colombian operations.
Income Taxes
Our effective income tax rate fluctuates from the U.S. statutory tax rate based on, among other factors, changes in pretax income in jurisdictions with varying statutory tax rates, the impact of U.S. state and local taxes, the realizability of deferred tax assets and other differences related to the recognition of income and expense between GAAP and tax accounting.
26
Our effective income tax rate for the three months ended March 31, 2023 was 16.8%, compared with 7.7% for the three months ended December 31, 2022. The change in our effective income tax rate for the three months ended March 31, 2023 compared to December 31, 2022, was primarily attributable to the impact of valuation allowances on deferred tax assets.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized, and when necessary, valuation allowances are provided. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We assess the realizability of our deferred tax assets quarterly and consider carryback availability, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In the first quarter of 2023, the effective tax rate takes into consideration the estimated valuation allowance based on forecasted 2023 income.
We continue to monitor income tax developments in the United States and other countries where we have legal entities. We will incorporate into our future financial statements the impacts, if any, of future regulations and additional authoritative guidance when finalized.
Liquidity and Capital Resources
Our primary sources of liquidity are cash and cash equivalents, availability under our revolving credit facility and cash provided by operating activities. As of March 31, 2023, we had approximately $293 million in working capital, including $157 million of cash and cash equivalents, and $600 million available under our revolving credit facility.
Our Credit Agreement is a committed senior unsecured revolving credit facility that permits aggregate borrowings of up to $600 million, including a letter of credit facility that, at any time outstanding, is limited to $100 million and a swing line facility that, at any time outstanding, is limited to the lesser of $50 million and the amount of the swing line provider’s unused commitment. As of March 31, 2023, we had no borrowings outstanding under our revolving credit facility, and no letters of credit outstanding under the Credit Agreement and, as a result, had available borrowing capacity of approximately $600 million at that date. Of the revolving credit commitments, $50 million expires on March 27, 2024, $133.3 million expires on March 27, 2025, and the remaining $416.7 million expires on March 27, 2026. Subject to customary conditions, we may request that the lenders’ aggregate commitments be increased by up to $300 million, not to exceed total commitments of $900 million. Additionally, we have the option, subject to certain conditions, to exercise one one-year extension of the maturity date.
Loans under the Credit Agreement bear interest by reference, at our election, to the SOFR rate or base rate, as described in “Item 3” below. If our credit rating is below investment grade at both Moody’s and S&P, we will become subject to a restricted payment covenant. The Credit Agreement also contains a financial covenant that requires our total debt to capitalization ratio, expressed as a percentage, not exceed 50%.
We also have a Reimbursement Agreement (the “Reimbursement Agreement”) with The Bank of Nova Scotia (“Scotiabank”), pursuant to which we may from time to time request that Scotiabank issue an unspecified amount of letters of credit. Under the terms of the Reimbursement Agreement, we will reimburse Scotiabank on demand for any amounts that Scotiabank has disbursed under any letters of credit. Fees, charges and other reasonable expenses for the issuance of letters of credit are payable by us at the time of issuance at such rates and amounts as are in accordance with Scotiabank’s prevailing practice. We are obligated to pay to Scotiabank interest on all amounts not paid by us on the date of demand or when otherwise due at the LIBOR rate plus 2.25% per annum. A letter of credit fee is payable by us equal to 1.50% times the amount of outstanding letters of credit.
We had $65.0 million of outstanding letters of credit at March 31, 2023, which was comprised of $65.0 million outstanding under the Reimbursement Agreement and no amounts outstanding under the Credit Agreement. We maintain these letters of credit primarily for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which could become payable under terms of the underlying insurance contracts. These letters of credit expire annually at various times during the year and are typically renewed. As of March 31, 2023, no amounts had been drawn under the letters of credit.
Our outstanding long-term debt at March 31, 2023 was $827 million and consisted of $482 million of our 2028 Notes and $345 million of our 2029 Notes. We were in compliance with all covenants under the associated indentures at March 31, 2023.
For a full description of the Credit Agreement, the Reimbursement Agreement, the 2028 Notes and the 2029 Notes, please see Note 7 of Notes to unaudited condensed consolidated financial statements.
27
Cash Requirements
We believe our current liquidity, together with cash expected to be generated from operations, should provide us with sufficient ability to fund our current plans to maintain and make improvements to our existing equipment, service our debt and pay cash dividends for at least the next 12 months.
If we pursue opportunities for growth that require capital, we believe we would be able to satisfy these needs through a combination of working capital, cash flows from operating activities, borrowing capacity under our revolving credit facility or additional debt or equity financing. However, there can be no assurance that such capital will be available on reasonable terms, if at all.
A portion of our capital expenditures can be adjusted and managed by us to match market demand and activity levels. With the recent slowdown in market activity, we have lowered our 2023 capital expenditure forecast from $550 million to $510 million, including approximately $30 million of customer-funded rig upgrades.
The majority of these expenditures are expected to be used for normal, recurring items necessary to support our business.
During the three months ended March 31, 2023, our sources of cash flow included:
During the three months ended March 31, 2023, our uses of cash flow included:
We paid cash dividends during the three months ended March 31, 2023 as follows:
|
|
Per Share |
|
|
Total |
|
||
|
|
|
|
|
(in thousands) |
|
||
|
Paid on March 16, 2023 |
$ |
0.08 |
|
|
$ |
16,916 |
|
On April 26, 2023, our Board of Directors approved a cash dividend on our common stock in the amount of $0.08 per share to be paid on June 15, 2023 to holders of record as of June 1, 2023. The amount and timing of all future dividend payments, if any, are subject to the discretion of the Board of Directors and will depend upon business conditions, results of operations, financial condition, terms of our debt agreements and other factors. Our Board of Directors may, without advance notice, reduce or suspend our dividend in order to improve our financial flexibility and position our company for long-term success. There can be no assurance that we will pay a dividend in the future.
We may, at any time and from time to time, seek to retire or purchase our outstanding debt for cash through open-market purchases, privately negotiated transactions, redemptions or otherwise. Such repurchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
In September 2013, our Board of Directors approved a stock buyback program. In October 2022, our Board of Directors approved an increase of the authorization under the stock buyback program to allow for an aggregate of $300 million of future share repurchases. All purchases executed to date have been through open market transactions. Purchases under the buyback program are made at management’s discretion, at prevailing prices, subject to market conditions and other factors. Purchases may be made at any time without prior notice. There is no expiration date associated with the buyback program. As of March 31, 2023, we had remaining authorization to purchase approximately $169 million of our outstanding common stock under the stock buyback program. Shares of
28
stock purchased under the buyback program are held as treasury shares. On April 26, 2023, our Board of Directors approved another increase of the authorization under the stock buyback program to allow for an aggregate of $300 million of future share repurchases.
Treasury stock acquisitions during the three months ended March 31, 2023 were as follows (dollars in thousands):
|
|
Shares |
|
|
Cost |
|
||
|
Treasury shares at beginning of period |
|
88,758,722 |
|
|
$ |
1,453,079 |
|
|
Purchases pursuant to stock buyback program |
|
5,629,117 |
|
|
|
74,307 |
|
|
Treasury shares at end of period |
|
94,387,839 |
|
|
$ |
1,527,386 |
|
Commitments — As of March 31, 2023, we had commitments to purchase major equipment totaling approximately $129 million for our drilling, pressure pumping, directional drilling and oilfield rentals businesses. Our pressure pumping business has entered into agreements to purchase minimum quantities of proppants and chemicals from certain vendors. As of March 31, 2023, the remaining minimum obligation under these agreements was approximately $17.5 million, of which approximately $14.5 million and $3.0 million relate to the remainder of 2023 and 2024, respectively.
See Note 8 of Notes to unaudited condensed consolidated financial statements for additional information on our current commitments and contingencies as of March 31, 2023.
Operating lease liabilities totaled $23.4 million at March 31, 2023. There have been no material changes to our operating lease liabilities since December 31, 2022.
Trading and Investing — We have not engaged in trading activities that include high-risk securities, such as derivatives and non-exchange traded contracts. We invest cash primarily in highly liquid, short-term investments such as overnight deposits and money market accounts.
Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) is not defined by accounting principles generally accepted in the United States of America (“GAAP”). We define Adjusted EBITDA as net income plus income tax expense, net interest expense, and depreciation, depletion, amortization and impairment expense. We present Adjusted EBITDA as a supplemental disclosure because we believe it provides to both management and investors additional information with respect to the performance of our fundamental business activities and a comparison of the results of our operations from period to period and against our peers without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be construed as an alternative to the GAAP measure of net income. Our computations of Adjusted EBITDA may not be the same as similarly titled measures of other companies. Set forth below is a reconciliation of the non-GAAP financial measure of Adjusted EBITDA to the GAAP financial measure of net income.
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
|
Net income |
$ |
99,678 |
|
|
$ |
100,097 |
|
|
Income tax expense |
|
20,185 |
|
|
|
8,294 |
|
|
Net interest expense |
|
7,586 |
|
|
|
7,785 |
|
|
Depreciation, depletion, amortization and impairment |
|
128,180 |
|
|
|
123,304 |
|
|
Adjusted EBITDA |
$ |
255,629 |
|
|
$ |
239,480 |
|
29
Adjusted Gross Margin
We define “Adjusted gross margin” as revenues less direct operating costs (excluding depreciation, depletion, amortization and impairment expense). Adjusted gross margin is included as a supplemental disclosure because it is a useful indicator of our operating performance.
|
|
Contract Drilling |
|
|
Pressure Pumping |
|
|
Directional Drilling |
|
|
Other Operations |
|
||||
|
|
(in thousands) |
|
|||||||||||||
|
For the three months ended March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Revenues |
$ |
419,026 |
|
|
$ |
293,268 |
|
|
$ |
56,263 |
|
|
$ |
23,245 |
|
|
Less direct operating costs |
|
(230,358 |
) |
|
|
(220,116 |
) |
|
|
(48,046 |
) |
|
|
(14,139 |
) |
|
Less depreciation, depletion, amortization and impairment |
|
(86,866 |
) |
|
|
(26,025 |
) |
|
|
(4,171 |
) |
|
|
(7,579 |
) |
|
GAAP gross margin |
|
101,802 |
|
|
|
47,127 |
|
|
|
4,046 |
|
|
|
1,527 |
|
|
Depreciation, depletion, amortization and impairment |
|
86,866 |
|
|
|
26,025 |
|
|
|
4,171 |
|
|
|
7,579 |
|
|
Adjusted gross margin |
$ |
188,668 |
|
|
$ |
73,152 |
|
|
$ |
8,217 |
|
|
$ |
9,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
For the three months ended December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
||||
|
Revenues |
$ |
399,402 |
|
|
$ |
306,783 |
|
|
$ |
59,468 |
|
|
$ |
22,823 |
|
|
Less direct operating costs |
|
(232,142 |
) |
|
|
(220,758 |
) |
|
|
(48,298 |
) |
|
|
(14,619 |
) |
|
Less depreciation, depletion, amortization and impairment |
|
(86,734 |
) |
|
|
(24,918 |
) |
|
|
(4,169 |
) |
|
|
(6,259 |
) |
|
GAAP gross margin |
|
80,526 |
|
|
|
61,107 |
|
|
|
7,001 |
|
|
|
1,945 |
|
|
Depreciation, depletion, amortization and impairment |
|
86,734 |
|
|
|
24,918 |
|
|
|
4,169 |
|
|
|
6,259 |
|
|
Adjusted gross margin |
$ |
167,260 |
|
|
$ |
86,025 |
|
|
$ |
11,170 |
|
|
$ |
8,204 |
|
Critical Accounting Estimates
Our consolidated financial statements are impacted by certain estimates and assumptions made by management. A detailed discussion of our critical accounting estimates is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There have been no material changes in these critical accounting estimates.
Recently Issued Accounting Standards
See Note 1 of Notes to unaudited condensed consolidated financial statements for a discussion of the impact of recently issued accounting standards.
Volatility of Oil and Natural Gas Prices and its Impact on Operations and Financial Condition
Our revenue, profitability and cash flows are highly dependent upon prevailing prices for oil and natural gas and expectations about future prices. Crude oil prices and demand for drilling and completions equipment and services increased in 2022, and industry supply of Tier-1, super-spec rigs remains constrained. We currently expect our average rig count to be down two to three rigs in the second quarter as activity transitions more to oil from natural gas. The current demand for equipment and services remains dependent on macro conditions, including commodity prices, geopolitical environment, inflationary pressures, economic conditions in the United States and elsewhere and continued focus by exploration and production companies and service companies on capital discipline. Oil prices averaged $76.08 per barrel in the first quarter of 2023, as compared to $82.79 per barrel in the fourth quarter of 2022. Natural gas prices (based on the Henry Hub Spot Market Price) averaged $2.65 per MMBtu in the first quarter of 2023 as compared to an average of $5.55 per MMBtu in the fourth quarter of 2022.
In light of these and other factors, we expect oil and natural gas prices to continue to be volatile and to affect our financial condition, operations and ability to access sources of capital. Higher oil and natural gas prices do not necessarily result in increased activity because demand for our services is generally driven by our customers’ expectations of future oil and natural gas prices, as well as our customers’ ability to access sources of capital to fund their operating and capital expenditures. A decline in demand for oil and natural gas, prolonged low oil or natural gas prices, expectations of decreases in oil and natural gas prices or a reduction in the ability of our customers to access capital would likely result in reduced capital expenditures by our customers and decreased demand for our services, which could have a material adverse effect on our operating results, financial condition and cash flows. Even during periods of historically moderate or high prices for oil and natural gas, companies exploring for oil and natural gas may cancel or curtail programs
30
or reduce their levels of capital expenditures for exploration and production for a variety of reasons, which could reduce demand for our services.
I TEM 3. Quantitative and Qualitative Disclosures About Market Risk
We may be exposed to certain market risks arising from the use of financial instruments in the ordinary course of business. For quantitative and qualitative disclosures about market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes in our exposure to market risk.
As of March 31, 2023, we would have had exposure to interest rate market risk associated with any outstanding borrowings and letters of credit that we had under the Credit Agreement and amounts owed under the Reimbursement Agreement.
Loans under the Credit Agreement bear interest by reference, at our election, to the SOFR rate or base rate. The applicable margin on SOFR rate loans varies from 1.00% to 2.00% and the applicable margin on base rate loans varies from 0.00% to 1.00%, in each case determined based on our credit rating. As of March 31, 2023, the applicable margin on SOFR rate loans was 1.75% and the applicable margin on base rate loans was 0.75%. A letter of credit fee is payable by us equal to the applicable margin for SOFR rate loans times the daily amount available to be drawn under outstanding letters of credit. The commitment fee rate payable to the lenders varies from 0.10% to 0.30% based on our credit rating. As of March 31, 2023, we had no borrowings or letters of credit outstanding under our revolving credit facility.
Under the terms of the Reimbursement Agreement, we will reimburse Scotiabank on demand for any amounts that Scotiabank has disbursed under any letters of credit. We are obligated to pay Scotiabank interest on all amounts not paid by us on the date of demand or when otherwise due at the LIBOR rate plus 2.25% per annum. As of March 31, 2023, no amounts had been disbursed under any letters of credit.
The carrying values of cash and cash equivalents, trade receivables and accounts payable approximate fair value due to the short-term maturity of these items.
I TEM 4. Controls and Procedures
Disclosure Controls and Procedures — We maintain disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), designed to ensure that the information required to be disclosed in the reports that we file with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10‑Q. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2023.
Changes in Internal Control Over Financial Reporting —There were no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.
31
PART II — OTHER INFORMATION
I TEM 1. Legal Proceedings
We are party to various legal proceedings arising in the normal course of our business. We do not believe that the outcome of these proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition, cash flows and results of operations.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below sets forth the information with respect to purchases of our common stock made by us during the quarter ended March 31, 2023.
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar |
|
|
||||
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Value of Shares |
|
|
||||
|
|
|
|
|
|
|
|
|
Shares (or Units) |
|
|
That May Yet Be |
|
|
||||
|
|
|
|
|
|
|
|
|
Purchased as Part |
|
|
Purchased Under the |
|
|
||||
|
|
|
Total |
|
|
Average Price |
|
|
of Publicly |
|
|
Plans or |
|
|
||||
|
|
|
Number of Shares |
|
|
Paid per |
|
|
Announced Plans |
|
|
Programs (in |
|
|
||||
|
Period Covered |
|
Purchased |
|
|
Share |
|
|
or Programs |
|
|
thousands) (1) |
|
|
||||
|
January 2023 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
242,827 |
|
|
|
February 2023 |
|
|
2,336,676 |
|
|
$ |
14.07 |
|
|
|
2,336,676 |
|
|
$ |
209,945 |
|
|
|
March 2023 |
|
|
3,292,441 |
|
|
$ |
12.58 |
|
|
|
3,292,441 |
|
|
$ |
168,520 |
|
(2) |
|
Total |
|
|
5,629,117 |
|
|
|
|
|
|
5,629,117 |
|
|
|
|
|
||
32
ITEM 6. Ex hibits
The following exhibits are filed herewith or incorporated by reference, as indicated:
|
3.1 |
|
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3.2 |
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3.3 |
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3.4 |
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3.5 |
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3.6 |
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10.1 |
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31.1* |
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31.2* |
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32.1* |
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101.INS* |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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The cover page from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, has been formatted in Inline XBRL. |
* filed herewith
33
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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PATTERSON-UTI ENERGY, INC. |
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By: |
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/s/ C. Andrew Smith |
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C. Andrew Smith |
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Executive Vice President and |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer and Duly Authorized Officer) |
Date: May 1, 2023
34