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Will High-Pressure Pumping Revenue Help PTEN’s Returns?

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PTEN’s returns and ETFs

In the past year, Patterson-UTI Energy’s (PTEN) stock has risen 6% (as of June 5, 2017), outperforming the VanEck Vectors Oil Services ETF’s (OIH) -13% returns. OIH is an ETF tracking an index of 25 OFS (oilfield equipment and services) companies.

In the past year, the Energy Select Sector SPDR ETF (XLE) has returned -4%. PTEN has underperformed the SPDR S&P 500 ETF (SPY), which has returned 15% in the past year. The Dow Jones Industrial Average (DJIA-INDEX) has risen 18% over the same period.

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PTEN and crude oil price

Meanwhile, the price of WTI (West Texas Intermediate) crude oil has fallen ~10% YTD (year-to-date), after making a strong recovery in 2016. (You can read the latest on crude oil prices in Market Realist’s series Are Energy Commodities Entering a Bearish Zone?)

The previously steady price of crude oil led to a 125% rise in the US rig count over the past year, but top OFS companies including Schlumberger (SLB) and National Oilwell Varco (NOV) have seen their stock prices decline in 2017, largely led by the more recent fall in the price of crude oil.

Will PTEN’s pressure pumping revenue increase in 2Q17?

PTEN’s management expects its 2Q17 revenue from the pressure pumping business to come in at $275 million. This figure would be a 95% rise in revenue from the segment, led by higher shale activity and improved pricing for PTEN’s services.

PTEN’s 2Q17 revenue could also see a boost from Seventy Seven Energy, which it completed acquiring in April 2017. The gross margin from its pressure pumping segment is expected to remain nearly unchanged in 2Q17 over 1Q17.

In the next part, we’ll discuss Patterson-UTI Energy’s historical valuation multiples.

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