Three months ago, I called out Unit Corp (NYSE:UNT) for spinning the heck out of a bum quarter in the title of its press release. This time around, Unit is letting its results do the talking. This is looking a lot more like the company that impressed me back in May. To answer my own crankily rhetorical question -- no, Unit is not losing it.
In the drilling segment, Unit still had more rigs mobilized than the market had use for. Of course, the oversupply is not just a Unit issue -- Patterson-UTI (NASDAQ:PTEN) noted that it has 90 rigs available to reactivate whenever clients are ready to rock 'n' roll. In Unit's case, this translated to a sequential dip in utilization. Once again, Unit's dayrates were the lowest of the half-dozen drillers that have reported, save for Precision Drilling Trust (NYSE:PDS), which is dealing with Canadian cratering.
Here's the interesting thing, though. Once we subtract the daily cash costs of operating those rigs, Unit starts to look less unseemly. Unit's reported margin of $9,465 per day translates to 51% of drilling revenues, which is an outstanding figure, and conversely, the very best I've seen among the landlubbers. Nabors Industries (NYSE:NBR), Grey Wolf (AMEX:GW), and Bronco Drilling (NASDAQ:BRNC) have all reported lower rig margins for their U.S. fleets. Margin speaks louder than simple dayrates, and I've been remiss in overlooking profitability when it comes to these operators.
On the E&P side, the success rate of commercial well completions bounced back to the usual range. Production growth isn't going to make you leap out of your seat, like it might if you looked at Southwestern Energy's (NYSE:SWN) recent results. The E&P business is a solid source of cash flow for the company, not a place for fireworks.
Finally, the midstream segment is on something of a tear. Margins are about the same as last year, but the increases in gas processing volume and liquids recoveries (for sale in the form of premium-priced natural gas liquids) have boosted profits in absolute terms. All in all, this was a very fine quarter, and I regret losing sight of Unit's unique qualities in a stormy moment.
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