Apr 29, 2021
Operator
Ladies and gentlemen, thank you for standing by. And welcome to the Patterson-UTI Energy First Quarter 2021 Earnings Conference Call.
At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session.
Please be advised that today’s conference is being recorded. Thank you.
It is now my pleasure to turn the call over to your host, Mr. Mike Drickamer.
Sir, the floor is yours.
Mike Drickamer
Thank you, Sylvia. Good morning.
And on behalf Patterson-UTI Energy, I’d like to welcome you to today’s conference call to discuss our results for the first quarter of 2021. Participating in today’s call will be Andy Hendricks, Chief Executive Officer; and Andy Smith, Chief Financial Officer.
Andy Hendricks
Thanks, Mike. Good morning.
And welcome to Patterson-UTI’s first quarter conference call. We are pleased that you can join us today.
For the first quarter, revenues and adjusted EBITDA increased sequentially and exceeded our expectations, despite challenges from the extreme winter storm in the Southwest. Both contract drilling and directional drilling posted better-than-expected results, while pressure pumping was impacted by downtime associated with the storm.
Excluding the impact from the winter storm, pressure pumping results would have been consistent with our expectations. Crude oil prices trading in a tight band around $60 have been supportive of increasing activity, and looking forward, based on conversations with customers, we now have greater confidence in further improvement in drilling and completion activity.
We expect our rig count will reach approximately 80 rigs over the next three months, with most of that growth coming late in the second quarter and early in the third quarter. Additionally, the pricing on most of our currently active rigs has been reset since the beginning of the downturn, and as such, we believe the second quarter margin per day will be the low for this cycle in drilling,
Andy Smith
Thanks, Andy. For the first quarter, we reported a net loss of $106 million or $0.50 per share -- $0.57 per share, while adjusted EBITDA grew 20% sequentially to $35.4 million on a 9% sequential increase in revenues.
Turning now to our segments. In contract drilling, our average rig count for the first quarter improved to 69 rigs from 62 rigs in the fourth quarter.
We ended the quarter with three rigs that were idled but contracted, one of which went back to work in early April. Average rig revenue per day for the first quarter was $21,590.
This included a $2.3 million benefit from revenue that was earned during the downturn in 2020, but not recognized at that time due to concerns about the ultimate collectability of this revenue. Compared to the fourth quarter, average rig revenue per day also benefited during the first quarter from a lower proportion of idle but contracted rigs on reduced rates and higher-than-expected revenues from ancillary services.
Andy Hendricks
Across the industry, the U.S. land rig count has nearly doubled over the past nine months.
Over this timeframe, private operators have increased their rig count by more than 150%, while publicly traded operators have had a more modest growth rate as they were balancing capital discipline relative to budget in crude oil prices. The pressure on our customers and on the industry to exercise capital discipline and work within cash flow has been growing and it is a shift for the majority of the years in the U.S.
on conventional’s revolution. As we exited 2020 and moved into 2021, we continued to see greater capital discipline from our operators and a more orderly progression in activity.
The interesting point is that this capital discipline is relative to the 2021 budgets, which were based on lower commodity prices than we’ve had over the last few months. And I believe that with improving operator cash flow, we will see further increases in activity through the year.
This is still in line with capital discipline, as increasing activity can be funded within cash flow. We’re encouraged by this capital discipline across the energy sector that still allows for further increases in industry activity, where premium contractors with superior performance and technology offerings will be rewarded for the value they create for the customers and where there will be opportunity to increase pricing as the industry activates more equipment.
Within this environment, as a premium service provider, we are well-positioned. We’re the only drilling contractor in the U.S.
with a significant presence in directional drilling. Through the use of technology be it remote operations or the automation of certain operations, we are uniquely positioned to better integrate directional drilling operations into the drilling rig and improve wellbore quality and performance.
We are also well-positioned to benefit from our leadership position in the use of alternative fuels and power sources to help our customers reduce costs and emissions at the well site. For example, we have the ability to substitute cleaner burning natural gas for diesel in many of our drilling rigs and frac spreads.
Additionally, we have the ability with our EcoCell lithium battery hybrid energy management system to more efficiently manage the power generated at the rig, thereby reducing fuel consumption and emissions. As well as to further minimize emissions at the well site, we have the ability to run drilling rigs on high-line power from the utility.
For more information on these technologies, please refer to our updated Corporate Sustainability report that we published during the first quarter.
Operator
Thank you. Your first question comes from the line of Mike Sabella from Bank of America.
Mike Sabella
Just real quick on kind of on the margin guided rate, did you all give it or did I just miss it for 2Q?
Andy Smith
Mike, what was the question?
Mike Sabella
Just on the margin guide for drilling in 2Q. Did you all give it and I just missed it or…
Andy Smith
Yeah. It was $6,200 per day.
Mike Sabella
$6,200. Okay.
So when we think about kind of 2Q and I know, Andy, you mentioned 2Q being the low point for the year. One of your peers is out talking about possibly pushing pricing.
You all seem like maybe that’s possible as well. Can we talk about how pricing plays into that, maybe where spot rates are leading edge day rates are today relative to the overall total and where we think they can go to in second half?
Andy Hendricks
We don’t typically get into what we think they are publicly for competitive reasons. But I’ll tell you there’s still a bit of a range of day rates on the spot price out there.
But we believe that as we start to put up more rigs later in the second quarter that we’ll have opportunities for pricing to move up at the end of the second quarter and into the third quarter and then through the rest of the year. And we’ve seen this in other downturns in the past where especially with the super spec rigs that we offer in the industry.
As the rig count starts to move up, pricing has the opportunity to move up as well.
Mike Sabella
Got it. And then just kind of, I guess, a higher level question, you’re several years away from the last big M&A move for the company.
As we sit here, kind of the outlook internationally looks a little better. If we think about Patterson over the next couple of years, is there anything internationally you guys are interested in?
If not internationally, is there anything in the U.S. you could see kind of fitting well in the portfolio?
Andy Hendricks
I think the best way for me to answer that question is just to say, we maintain a healthy balance sheet. That’s our history.
And we try to find opportunities to exercise the strength of our balance sheet when we come out of these cycles and we’ll just have to see what happens at this point.
Mike Sabella
Understood. Thanks, guys.
Operator
Your next question comes from the line of Taylor Zurcher from Tudor, Pickering, Holt.
Taylor Zurcher
Hey. Good morning and thank you.
In pressure pumping, the Q2 guidance looks really strong. Revenues obviously up huge as you’ll get much better utilization following the winter storm.
I’m curious it doesn’t seem like in the Q2 guidance just based on the implied incrementals that there’s a whole lot of pricing uplift baked in into there. So I’m curious if you could frame for us if you normalize for some of this weather-related noise and what sort of efficiency improvement you might be seeing from a, however, you want to define it stages per day metric?
And then looking longer term for pressure pumping or maybe exiting 2021, I mean, do you think you can get back to sort of a double-digit gross margin run rate without a whole lot of pricing improvement just as activity continues to trend higher?
Andy Hendricks
Yeah. I think that the pressure pumping sector is starting to become structurally in a better place.
We’ve certainly seen attrition through various companies over the last year and it becomes more challenging for companies to put spreads back to work. That being said, we’re going to put another spread back to work towards the end of the second quarter.
We may put a couple more out before the end of the year. Every spread we’ve put out has been forecasted on our plan to be accretive and cash flow positive and so that’s the only reason we would put a spread out or even consider putting a spread out.
And so when we look at that, we believe that there’s opportunity for pricing to continue to move up through the rest of the year as activity moves up. Having the opportunity to talk about pricing moving up in pressure pumping has been a rare thing.
I think the last time I did this was third quarter of 2017. So the market has had a lot of equipment and a lot of overhang for a few years, but I think it’s tightening up this year.
And as we continue to put out some spreads then we see that as accretive and we think that the pricing will move up. In the second quarter, we had the chance to move some pricing on a couple spreads.
I don’t want to get into the numbers. But it was certainly a positive for us, as we haven’t seen that in a while in the industry.
Taylor Zurcher
Okay. That’s encouraging.
And contract drilling looks like the OpEx guidance, if you just take the revenue less the margin that you guided to is about $14,700 a day. Could you remind us where you expect that that number to trend as activity continues to trend higher and you get better fixed cost absorption?
Andy Hendricks
I don’t think we’ll see a big change in that number. But I think we’ll have the opportunity to push day rates on rigs towards the end of the year.
So I see that, that’s why we’re projecting that we’re going to have margin improvement through the rest of the year and that Q2 is a bottom in this cycle force and drilling for the margin per day.
Taylor Zurcher
Okay. Good to hear.
Thanks, guys.
Operator
I see no further -- I’m sorry, you have a question from the line of Waqar Syed from ATB Capital Markets.
Waqar Syed
Thank you for taking my question. Andy, the incremental demand that you’re seeing both in drilling and pumping, where is it coming from, public E&Ps, private or is it a mix of both?
Could you maybe characterize that?
Andy Hendricks
Yeah. It’s really been kind of a change in the landscape whereas coming out of the downturn the first out of the gate were really the privates that put up a lot of rigs initially and then some of the more nimble, what we refer to as nimble publics.
But some of the larger public and even some of the IOCs are discussing putting up rigs in the U.S. as well.
And so we’re encouraged by these discussions through the rest of this year and even somewhat into 2022. So, that’s our view of the market that, it’s -- while it’s been a transition, it seems like all of the various customers or classifications of operators that we have were talking about putting up rigs.
And again, like I mentioned, I think, this is still working within the capital discipline that investors want from these companies, because the initial rig forecasts that they made that they were considering doing for 2021 were based on a lower commodity price than they actually have today. So our customers, the operators are seeing better cash flows and potentially better cash flow projections for the year and they’re reconsidering what their activity levels might be and we have a large number of customers that are discussing putting up more rigs towards the -- throughout the year.
Waqar Syed
Now, there was a -- there’s been a view in the industry that you need about, let’s say, 500 rigs working for maintenance type production and roughly 220 type of pressure pumping active crews to keep production flat. Based on your discussions, do you think that overall industry activity is going to get ahead of those numbers into as you look into 2022 or we kind of capped around that -- those kind of numbers?
Andy Hendricks
It’s really a basin-by-basin economic discussion where we’re seeing Permian operators improve the economics of what they’re doing where they can afford to increase activity a little bit and increase production. WTI is moving up to a level that is starting to interest Bakken producers and picking up rigs and even South Texas.
So it’s really a basin-by-basin discussion. And then you’ve got, of course, the Haynesville gas in East Texas and North Louisiana, which is completely separate from that.
And even in a lot of cases, separate from Henry Hub commodity, because you’ve got a number of our customers over there that have contracts for LNG export or they’re drilling to hold land in that area. So there’s -- you really have to look at it on a basin-by-basin case these days and the economics in each one.
Waqar Syed
Just on that question of LNG, what’s your -- what’s the opportunity set in terms of additional rig activity on that LNG theme for the next, let’s say, 12 months, 24 months? Have you had any long-term discussions with the operators and -- about locking up high end rigs for that?
Andy Hendricks
I would say, overall, activity in that area is steady and slightly increasing, is the best way to characterize that. And I think that, while you haven’t seen operators lock up necessarily long-term contracts, the economics for that could improve over the year as well.
Waqar Syed
Okay. And then just final question on the super-spec rig fleet, given your activity is going to go up quite a bit, some of your peers also seeing that.
Where do you think utilization is right now for the super-spec kind of high end ready rigs? And then whether it could be and when do you see pricing kind of move up in decent increments?
Andy Hendricks
Yeah. I don’t have the numbers for utilization on super-spec is right now.
But I’ll also throw out that our -- it doesn’t really matter so much. The super-spec rig is a hot commodity rig item and what we’ve seen historically is, as those rigs start to go to work then pricing tends to move up.
And they also creates a phenomenon which could likely happen towards the end of this year where you have operators in the fear of missing out and not getting the rig they want and that’s always good for us too.
Waqar Syed
Absolutely. Great.
Thank you very much and appreciate the comments.
Operator
And I show no further questions at this time. I will now turn the call back to Mr.
Andy Hendricks.
Andy Hendricks
Thanks, Sylvia. I just want to thank everybody at Patterson-UTI for all the great work they did in the first quarter, especially navigating the winter storms and thanks for the team and a good quarter.
Thank you.
Operator
Ladies and gentlemen, that does conclude today’s conference. Thank you again for your participation.
You may now all disconnect.