Don't Pity Patterson

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Land driller Patterson-UTI (Nasdaq: PTEN) doesn't get a lot of love. The firm's reputation of having a lower-quality fleet stems from both its excess supply of rigs and its sub-par drilling margins (compared to some competitors). In its most recent investor conference call, the company pretty convincingly challenged some of these misperceptions.

Clearly, Patterson's daily per-rig revenue of $19,250 is a far cry from Helmerich & Payne's (NYSE: HP) $24,000 fourth-quarter dayrate, but we already know H&P is in a class of its own. Relative to Unit Corp. (NYSE: UNT) and Precision Drilling Trust (NYSE: PDS), Patterson actually reported the highest rate.

How is this solid pricing possible? There are two things that Patterson has done to shore up its fleet's competitiveness. First is the straightforward approach of ordering new iron, such as National Oilwell Varco's (NYSE: NOV) IDEAL rigs. Between newbuilds and major refurbishments, the firm's "new and like-new" rig count will rise from 70 to somewhere around 90 by year's end.

Perhaps subtler is Patterson's steady overhaul of its existing rigs' capacity over the years. Management noted that big efficiency gains have been achieved by simply equipping rigs with big, high-horsepower pumps. This is a reference to mud pumps, which circulate a heavy fluid, or mud, during drilling. More power makes for more pleasant pumping.

Complementing Patterson's drilling competency is its powerful position in Appalachian pressure pumping. Pressure pumping has been no picnic for BJ Services (NYSE: BJS), and Schlumberger (NYSE: SLB) has also suffered price erosion. Patterson, however, has managed to grow this segment's earnings significantly, without sacrificing profitability. In fact, the company enjoyed both higher average revenues and margins per job performed.

So don't pity Patterson. Its performance is way beyond passable.

Related Foolishness:

• Embezzlement? It's payback time.
• NOV is good enough for me.
• One driller's advice: Go East, young man.