Patterson Ponders a Drilling Pickup

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I didn't get to comment on Nabors Industries' (NYSE: NBR) quarterly results last week, but here's the gist of that company's conference call: The numbers were even worse than management expected, but this looks like the bottom. Things will improve modestly for a while, and then get a whole lot better.

Yesterday, fellow land driller Patterson-UTI (Nasdaq: PTEN) reported its own soft drilling service results. While the firm's average rig count lifted to 73 from last quarter's 63, daily rig revenue fell more than 5% sequentially. Average daily costs rose, on account of fewer rigs on standby (i.e. getting paid not to drill). These effects whittled contract drilling margins down to 37%, from well over 40% last year.

Patterson's pressure pumping business, in which excess capacity and resulting price competition has impacted folks like Schlumberger (NYSE: SLB) and Halliburton (NYSE: HAL), actually fared much better. The segment performed a lot more stimulation jobs this quarter, with an emphasis on horizontal completions with more frac stages. Average revenue per job increased almost $1,000, and segment revenue popped 24% sequentially. Patterson sees momentum building in places like the Marcellus shale, which should be clear to Fools keeping an eye on E&Ps like Chesapeake Energy (NYSE: CHK) or Range Resources (NYSE: RRC). This activity bodes well for drillers like Helmerich & Payne (NYSE: HP), pressure pumpers like Superior Well Services, and of course Patterson, which does both.

Overall, Patterson says its expectations going forward are "far rosier than they were three short months ago."

That's a sentiment likely shared by many in the industry, and a lot of it has to do with the oil price rebound. I've personally got little confidence in the story told by the oil futures curve, given the preponderance of noncommercial players in the mix, not to mention the commodity's sky-high negative correlation with the dollar. We'll see how things look in another three months.