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.