Shares of U.S. onshore energy services provider Patterson-UTI Energy (NASDAQ:PTEN) jumped nearly 14% out of the gate on July 23. By around 10:30 a.m. EDT, the stock had pulled back a little but remained higher by about 10%. The big news driving the stock higher was earnings.
At first blush there really wasn't much to like about Patterson-UTI's headline number. It lost $0.81 per share, more than three times worse than the loss in the previous year. However, 2020 has been anything but normal in the energy sector, with oil prices actually falling below zero at one point in the first half. There has been an incredibly deep retrenchment, particularly in the U.S. onshore space that is Patterson-UTI's focus. So, in some ways, the company actually did reasonably well, given the circumstances.
Commenting on the quarter, CEO Andy Hendricks explained:
We are very pleased with our performance during the second quarter in both contract drilling and pressure pumping. With our largest business, contract drilling, we are especially pleased with our results, as we were able to act quickly to reduce costs and increase margins. We greatly appreciate our strong customer base for their support, and we believe we have seen improvements in market share in active contract drilling rigs and in pressure pumping spreads as a result of the strength of our commercial relationships. Additionally, we were able to increase our cash on hand at the end of the quarter by $95 million to $247 million.
The company noted that it expects to have an average of 59 rigs operating in the third quarter, which is roughly around the number it has working today. Since the company had an average of 82 rigs operating in the second quarter, that's not a great update. However, there appear to be strong hints that Patterson-UTI's business is starting to stabilize. Moreover, the increase in cash on the balance sheet gives it additional staying power during these troubled times. When looked at in a broader context, investors appear to approve of the quarterly update, realizing that the first half of 2020 represents a truly exceptional period in which few energy companies prospered.
The U.S. onshore drilling space is in a state of flux right now, with some very prominent drillers taking advantage of bankruptcy protections to get out from under onerous debt loads. Although Patterson-UTI's price gain today is exciting, it's probably too soon to call an all clear here. Yes, there was some good news hidden beneath the terrible earnings number. But the only thing investors can really expect with some certainty from here is that volatility is likely to remain high.