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No Pressure at Patterson

Given the company's share performance over the past few months, I'm pretty sure that people have stopped pitying Patterson-UTI (Nasdaq: PTEN  ) . In the company's first fiscal quarter, not everything went off without a hitch, but the firm is standing on very firm ground.

Except in Appalachia, that is. Weird weather led to wet and muddy working conditions, which gave pressure pumping a pasting. BJ Services (NYSE: BJS  ) had a pretty squishy quarter of its own, but Patterson's direct operating margins (i.e. before depreciation charges) cratered to 33%. Despite the seasonal shakedown, Patterson still looks incredibly well-positioned in this market. With Chesapeake Energy (NYSE: CHK  ) and Range Resources (NYSE: RRC  ) moving on the Marcellus shale in a major way, there are a lot of fracture stimulation jobs to be performed. In fact, head count here is up 25% in anticipation of this frac attack.

Now, Patterson is more commonly thought of as a contract driller, and rightly so. Land drilling is ultimately the company's raison d'etre. So let's look at the results there.

Dayrates declined by about 2% sequentially, with Patterson sharing the same experience as Grey Wolf (AMEX: GW  ) : contract rollovers at rates lower than those signed in a more ebullient era. Rig margins dropped a bit too, down to 42% from 47% last year.

As with pressure pumping, however, the outlook here is very bright. The Baker Hughes (NYSE: BHI  ) rig count keeps climbing, leading-edge dayrates are ticking higher, and inventories of a key rig category are quite tight. As mentioned in my note on Nabors Industries (NYSE: NBR  ) , these two companies hold most of the idle rig capacity in the 1,000-to-1,500-horsepower category. Management sees this relative shortage pushing prices up, which should also do wonders for the share price.

Finally, I should mention that Patterson only has 15% of its fleet contracted on term rates. This gives the company a ton of leverage to rising rates relative to some of its more overly committed competitors.

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Related Tickers

10/24/2016 2:11 PM
PTEN $24.00 Down -0.41 -1.66%
Patterson-UTI Ener… CAPS Rating: **
BHI $52.01 Down -0.35 -0.66%
Baker Hughes CAPS Rating: ****
BJS.DL $23.18 Down +0.00 +0.00%
BJ Services Compan… CAPS Rating: ****
CHK $6.35 Down -0.33 -4.94%
Chesapeake Energy CAPS Rating: ***
GW $3.41 Down +0.00 +0.00%
Grey Wolf CAPS Rating: *****
NBR $12.92 Down -0.14 -1.03%
Nabors Industries CAPS Rating: ****
RRC $36.01 Down -1.19 -3.20%
Range Resources CAPS Rating: ***