Upstream operators’ capex cut
Some of the major US upstream and integrated companies have gradually reduced their capex (capital expenditure) following crude oil’s sharp price fall since mid-2014. From 1Q16 to 1Q17, 19 of the most prominent names in this space, in aggregate, lowered their capex by 21.0%. Lower upstream capex led to lower prices for OFS (oilfield services and equipment) companies’ services and products. That lowered OFS companies’ operating revenues and margins.
Patterson-UTI Energy’s EBITDA margin
As you can see in the above graph, from 1Q16 to 1Q17, PTEN’s EBITDA (earnings before interest, tax, depreciation, and amortization) margin (or EBITDA as a percentage of revenues) fell to 22.5% from 30.3%. The average EBITDA margin for 11 of the most prominent names in the OFS industry didn’t change much during that period. EBITDA margin is a measure of a company’s operating earnings. PTEN makes up 0.01% of the iShares Dow Jones US (IYY). PTEN and IYY both rose ~15.0% in the past year.
EBITDA margin for PTEN’s peers
Core Laboratories’ (CLB) EBITDA margin was 19.4% in 1Q17. Schlumberger’s (SLB) EBITDA was 22.0% that same quarter, while Fairmount Santrol Holdings’ (FMSA) EBITDA margin was 12.0%. You can read more on Schlumberger’s performance in Market Realist’s Schlumberger: Bumpy Roads Might Be in Its Future.
How dependent is Patterson-UTI Energy’s business on the US rig count? We’ll look at that in the next part of this series.