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Patterson-UTI Energy’s Strategy: Will It Outperform the Industry?

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Patterson-UTI Energy’s returns and key drivers

OFS (oilfield service) companies such as Patterson-UTI Energy (PTEN) are affected by rig counts and energy prices. In the past year, the WTI (West Texas Intermediate) crude oil price has dropped ~19%.

Patterson-UTI Energy’s one-year return (7.7% return net of dividends) is better than the industry ETF’s. The VanEck Vectors Oil Services ETF (OIH) has returned a negative 15.5%. PTEN makes up 2.9% of OIH. The Energy Select Sector SPDR ETF (XLE), the broader energy industry ETF, has produced a negative 9% return. PTEN significantly outperformed the US rig count, which fell 51% in one year. PTEN’s peer Weatherford (WFT) has also underperformed PTEN, producing a negative 55% one-year return. Patterson-UTI Energy has also outperformed the SPDR S&P 500 ETF (SPY), which returned ~1% during the same period.

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Analyzing PTEN’s strategies and performance

By the end of fiscal 1Q16, PTEN’s drilling rig count totaled 61, 71% lower than its peak in October 2014. PTEN expects an average of 54 rigs to be operating under term contracts in fiscal 2Q16. Reduced spending by customers and downward pressure on pricing will continue to affect PTEN’s pressure pumping business negatively in fiscal 2016. Contract terminations could lead to lower spot prices for PTEN’s rigs, which could lead to lower revenue and income. PTEN’s management believes that its fiscal 2016 capex could fall significantly.

PTEN will reduce its fiscal 2Q16 dividend and 2016 capex significantly. This will improve PTEN’s liquidity. PTEN’s management expects that the crude oil market could start recovering by late 2016. Patterson-UTI Energy is expected to perform shakily in the medium-to-long term.

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