PTEN - Earnings call transcript Q3 2018 | Patterson-UTI Energy, Inc.

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Operator

Good morning. My name is Emily and I will be your conference operator today. At this time, I would like to welcome everyone to the Patterson-UTI Energy, Incorporated Third Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session . you. Thank President, may Vice your Relations, Investor Drickamer, begin you conference. Mike

Mike Drickamer

financial state made company's discuss reminder on subject Emily. and included Act our Mark or you in Securities press this Siegel the of Financial measures. to this And opening Patterson-UTI prior to Mark? XXXX. the call Participating Reform the release the Good and be September are other XXXX. of results conference risks within and include you, the over Officer; that the call risks Siegel, EDGAR intentions, Litigation in the Form are to months behalf or from that company and to differ call be results revise any beliefs, no could or statements company's A filing uncertainties the it's and and in by suggested nine three The as Officer. non-GAAP morning. Exchange SEC's pleasure filings call and for financial available in on welcome XXXX, SEC Thank Executive meaning XX, SEC, those or predictions forward-looking to statements this GAAP required the to Act such are obligation These may to in Chairman; issued obtained call forward-looking Chief management's forward-looking through expectations And materially disclosed of of publicly my through The company the the conference the company's Andy to Andy the plans, the expects. ended Chief some conference Securities www.patenergy.com, now, of of in future for company's statements XX-K the to Smith, U.S. like XXXX, Energy, Private for update today's or System. quick with remarks. and turn made what Statements SEC. cause These and will company's The today's to call. website, Report actual are the company's undertakes uncertainties the Act Securities company reconciliations statements forward-looking Annual website Mark measures I'd the statement. Hendricks, contacting

Mark Steven Siegel

Good quarter Patterson-UTI's welcome Mike. XXXX. Thanks, morning, to call conference the and for third of

on This ended We Andy XX. are quarter will turn call share today. pleased He Andy the call operational questions. results the the comments, Hendricks us highlights, comments who to you over remarks financial closing as Andy? the outlook. morning, that to our over will as will provide who September our some review I turn turning will join can Smith well the to I for over before Andy's call then will some After

C. Andrew Smith

morning. good and Mark, you, Thank

set As morning, our million $X.XX earnings forth quarter of charges. non-cash on the third impairment in net loss million our Included per we for this release reported of pre-tax a revenues $XX or issued $XXX in $XX.X million. of is net share loss

million $XX.X loss and equipment share. and charges related third million include million $X.XX rigs or quarter These pressure $XX.X non-APEX of legacy $XX.X pumping for retirement been these related the would our net charges the have impairment XX Excluding equipment. drilling from per to

for related pressure the replaced the equipment been has handling was quarter across and limited preference customer adjusted rigs commercial EBITDA primarily shift million. $XXX these diminishing As impairment drilling more to efficient have pumping, industry XX solutions. sand the third obsolete was to to In super-spec continued Consolidated rigs, with opportunity. that

of company's price repurchases This or outstanding million the at or of year beginning we our brings X.X% X.X XXXX. of million. During shares additional stock repurchased total X.X our million the to total quarter, an common the the shares of for million $XXX shares a at $XX

In buybacks, additional an shareholders quarterly $X.X the paid we return million regular quarter. addition of to the per during which $X.XX to in resulted dividend our share,

buybacks evaluate level had under cash September remaining to expected our $XXX share continue million approximately will At repurchase given XXXX, of competing our We XX, free we capital flow needs. authorization. and

we of our quarter, practice continued expenditures of XX.X%. the unchanged of net quarter financial During with the and $XXX Projected million. leverage use prudent capital XXXX remained for debt-to-capital approximately ended at

planned near redirected However, some last as term reflecting both to the opportunity discussed spending from we set quarter, capital drilling, we of pumping pressure for our businesses.

be that, depreciation With the be million, million, over $XXX quarter, is to be turn fourth is call approximately expected For and to to SG&A $XX expected the rate I'll effective is approximately now to Hendricks. expense our XX%. expected tax Andy

William A. Hendricks, Jr.

contract the rigs sequential rig the we as the rigs' our in count compared two second to to In quarter increase Andy. rig XXX materialize. increase XXX than The expected less Canadian quarter. was not count third during opportunities Thanks, our did drilling, averaged

Average operating under fourth million September rigs major of have quarter sequential on XX million. ending rigs contracts XX Since the XXXX. the this approximately $XXX term for year, day of $XX,XXX. margin we term including increased during an revenue. months day backlog future rig upgrades during dayrate June costs approximately fourth in With sequential by than in rigs strong thus count rig quarter super-spec completed revenue our increase was This U.S. rig line currently At we $XXX to XX, average super-spec per XX the $X,XXX. third at of third of of $XXX than expectations the in per increase one compared the XX, for a third XX% the quarter. with remains XX expect place, to Based contracts rigs strong. we the U.S. XXX of $XXX per average during for beginning during Our contracts demand one drilling rig average far with quarter our operating rig $XX,XXX. under Accordingly, providing higher to and for operating market for and day expected quarter was rigs, in matched the September quarter had term contracts a we an at more our drilling average expectation is

are the We to have rigs early use a quarter customer later while rigs for the the these note movement referred upgrades the are original to two the primarily By with upgrades, two towards built new drilling commonly with deeper Shale. which they term Barnett hookload, that longer and The can a upgrades we rigs rigs of provide these pound undersized like being current like to fourth in and for major center drill major center deliver section I'd in contracts the with the lower rigs the are wells the specification we to rated industry to given the additional are XXXX. in were major with that built a collectively capacity market as the essentially receiving customers condition. upgrade pipe and as rigs new of shallower such substructure, drilling These capacity replacing laterals. require. wells our in XXX,XXX the setback in mast a super-spec rig, section rig

as at capital major either on rig major investment. life rig, specifications replace rig our drilling useful resulting component a an every we for in or the system refurbish and substantially expected newbuild Additionally, upgrades lower upgraded but a with an similar

the current XX rigs APEX be in XXX XXX well super-spec still is to now we markets U.S. available Patterson-UTI that as fleet supply approximately rigs upgraded leaders one rigs. our as outlook, in drilling super-spec is rigs the Turning the our estimate of can super-spec to of contract with capabilities.

consider for upgrades and However, they economics. believe plan upgrade. across rigs ahead upon industry higher-priced in to to further sold-out get customer incremental reliant and the an We contracts realize would queue are compelling contracts order these be need super-spec in and largely the operators longer-term

We Rates rise us super-spec will average that will already continue continue to rigs conversations and having contract visibility super-spec This durations grow. are confidence activity XXXX. drilling about to will customer lengthen. incremental in gives

For our drilling prospects. on day will $XXX our the our quarter. with quarter, fourth increase very primarily business optimistic We by the average per continuing approximately margin Based and we rigs. are rig about increasing to remain XXX expect rig its expect during fourth pleased dayrates, we average count

the in and Turning of pumping with ended the the expected quarter quarter. to gross pumping marketed revenues market filled XX were Despite third third pressure $XX.X work revenues in were was $XXX market the $XXX deteriorating consolidating the the the during now number profit profit pumping, compared gross to Pressure conditions third quarter. the and and space marketed reducing we the second white both by in pressure better of some space we We million oversupply to quarter, the expected spreads the remaining the spreads. second among $XX.X million than responded white quarter third spreads quarter we the as the quarter reduce million in during the calendar. to million to compared during for

quarter. levels have calendar making an their customers difficult regular this quarter it on white and quarter, manage the plan maintain adequate head count space been assess to fourth For personnel. the we the in of fourth a uncertainty, level With on to activity the plans experienced fourth our basis changing to for

will incremental slowdown respond on activity to maintenance in positioned to well use in Additionally, will so this equipment perform temporary be we our demand we XXXX. pressure to pumping

to pumping $XXX pumping pressure expected million. refresh $XXX profit be increasing budgets. The to approximately with For pressure a million of currently million XXXX operators activity approximately year-end $XX we is fourth quarter, million, of slowdown revenues their with to in the temporary expect $XX in as gross

XXXX within see completion given to as drilling for have pipeline operators pressure coming operators conditions in quickly drawdown accelerate a increasing as months the DUC to higher. wells ready positive to fill rig drilled demand. DUC count the no slowdown market well increase stand activity We activity improve. to over intention slow on spreads work The super-spec significant as DUC budget. are have their impact XXXX, capacity, remain incremental A drive count of so count on We reactivate in the we positive the or count until but should outlook pumping but year-end doing would continues the in the in uncompleted complete the

a pumping While we in demand term, challenging uptick the in believe creating in XXXX. short foresee that positioned pressure we which market we for well an the activity slowdown in is are

a for quarter. to XX.X% quarter to quarter. drilling, quarter for for million for the was XX.X% margin, $XX.X $XX.X revenues, third as directional third revenues Turning now second of percentage to compared were million second the drilling compared Directional gross the the

items line. certain operating reclassified quarter, During negatively SG&A impact on we margin, which the segment from not did have the but an to gross cost, impacted third direct bottom

both expenses term, is by for increases maintenance. directional the long were increasing higher that of tear more third expense needs directional the repairs today. leading frequent industry and is wear harder impacted in in prevalent the on maintenance in these a from operating directional Additionally, drilling rigs to We challenge to across expenses increasing and pricing personnel modern and offset intensity super-spec drilling drilling and expenses. drilling repairs The including systems quarter order believe increase equipment high-pressure to believe repairs. downhole circulating higher drilling over We

drilling For quarter, to the similar we third directional fourth quarter. results to expect be the

now third quarter Technologies the other E&P was Turning Plains as operations Great margin increased include the million percentage sequentially to Rental, XX.X%. which business, and of and gross our Warrior during a $XX revenues Rig revenues Oilfield to

fourth I quarter the that, With results expect for remarks. the we For similar to to turn will quarter. third call his Mark concluding back now the

Mark Steven Siegel

onshore Andy. remain U.S. for drilling Fundamentals Thanks, activity. and strong completion

the fourth growth has of drilling DUC bodes demand. increase super-spec cause The in activity expected slowdown future in to should the This pumping growth pressure Continued in accelerate. in drilling DUC an in increasing combined completion increase activity for the well count with DUCs. driving been the growth count activity in number rate quarter

while new macro demand the a issues impacted to Global materialize for year. negatively expect gas than reset being projects. years under-investment We this in of budgets continues in prices sector. capital and pressure on increasing E&P to oil economic supply will prior large-scale pumping XXXX This in in supported growth early based drive demand oil favorable XXXX higher several growth expected by also is begin by is in geopolitical increase current the commodity as backdrop demand energy for and

to in available apparent already dwindling value offset in as two-thirds The amount environment the is disruptions leading of EBITDA. and our accounts for is approximately provider of both great super-spec drilling favorable macro a rigs. spare which supply oil capacity position our Additionally, contract of We production unproven. see

rig. wait sold operators an and comments if they'd out are and get Let super-spec the the like longer-term This strong plans rigs to about largely conversations that upgrade to queue the Andy's drilling me reiterate in in requiring for rig future queue an add is super-spec us allowing incremental demand. visibility super-spec resulting

I remain should stock December a to in rising for thank be record of open X, share drilling like Operator, up who I announce strong. Emily, holders today declared women super-spec contracts common to would a the confirms cash paid this the would Additionally, on efforts. dayrate to both as quarterly make of we to appreciate its term men of $X.XX customer environment With dividend We that am appetite activity hard-working that, company. XX, to December XXXX. XXXX call and your per to pleased questions. company the commend and now like on continuing

Operator

your Certainly. question line Adkins James. first Raymond And from with with comes the Marshall

line ahead. Your is please open, go

J. Marshall Adkins

Good guys. morning,

but achieve And little color Your than it frac know two for also give us that of average, recovery meaningfully speculation I you happens that. have you my those picture year. Number to questions as outperformed for brought that? us guidance probably XXXX pumping one. just it broader how half see then competitive you have market pressure Two you helped down second some have which do business count remained QX, gave margins on to or a more one, number sooner? has peers how you a thank give you curious I a that. think Is unfolding two, the of I this bit most the number next So, more quarter reported. could able on the you on great us all questions. you're am how on are

William A. Hendricks, Jr.

morning, Good Marshall. Hey.

So, thanks for question. the

call, our oversupplied. were if saying of pressure quarter in earnings we and already market, to terms back what that seeing go was In we are market second we that seeing pumping are the the you

space space how we The had understand uncertainty see. a of white going third a of And to much was were amount It calendar. quarter with kind fair in to really the white challenge sure what third our did we to as job the are as quarter a that happening in respond the trying make things teams materialize. through we work to great quarter, right-sized was and

job space than calendar well, we revenue a for teams gave we as great to filling we some call third white July on in Our of quarter. do to that the that quarter the us more allowed did also the you in thought do, the which second that going were projections little

lot through So, right-sized try of really and just that's it was. quarter. what business make we in were a as blocking It we to that basic pumping pressure to was worked that the tackling sure

down of the down so, And brought the XX quarter the end spreads of from at beginning we number quarter. to spreads of at third the the XX

J. Marshall Adkins

where Were space? out spot those curiosity. white there, those – able you just a the just quick market follow-up actually fill were assume it's spot or I but dedicated fleets to of

William A. Hendricks, Jr.

be quarter. and Yes, but The the majority spot especially pulling down see inserting where do dedicated agreements. is or spot basically may current picking have or we of on back delays on in spending just work customers fourth breaks slowing now your right those dedicated schedule spread delays our agreements, breaks and work on up white do right it space now or you and could on filling in

J. Marshall Adkins

Okay.

Sorry, go Mark. ahead,

Mark Steven Siegel

I no would I – a just just in little I thought yes, jump bit. problem. Marshall,

to you complete have of E&Ps the We as of in seen, DUC the probably for to the reasons. count as that going want feel in DUC delay those various during well they're quarter January approximately count fourth to and XXXX. XX% early increase an We through is third that from going wells end increase the completions quarter know,

particular a day, year think half month, but of kind is And we so, exactly XXXX timing the prospect. that it's do first they hard definitely

J. Marshall Adkins

thank you, it turn and That's Perfect. helpful, back all. I'll guys, over,

William A. Hendricks, Jr.

Thanks.

Operator

the next JPMorgan. line Sean Meakim Your from of comes question with

go please open, is line ahead Your

Sean C. Meakim

Hey, you. Thank morning. good

William A. Hendricks, Jr.

Morning.

C. Andrew Smith

Morning.

Sean C. Meakim

do higher But that say of your that maybe into to than fight think to decision similar to earlier is to takes compared in – some activity to the you year-end. you XQ, to And for applaud had it forward it stack back XQ asked look investors we the way, activity that to given – environment would rather operational your we in all as XXXX. delivered, type different guess levels? say, are able it does equipment what to long when profitability type a XXXX think going best expect would in work get XQ of what get for be so challenges of So, I question for pumping a be fair year that you how

William A. Hendricks, Jr.

activity So, what how going in the of is activity. in still to drilling we're upbeat this of of we some yet seeing but just timing on XXXX, are in materialize completion to very the XXXX terms is unfold based on

Our drilling us on lot knowledge business the in industry. gives happening of what's foresight a marketing and

the in really reset. have starts going wells completion starting feel year XXXX. into in that acceleration right So, some going the We an quarter the in is say and but budgets to that be going and fourth of inventory they on to of like XXXX after be customers drilled uncompleted the early are the start we the there do side the

already discussion we're getting of the So, with customers. some of some that

are and have how predict. we in higher the I as a price several things Now, commodity you at fast difficult how think There resetting it's discussed. happening much XXXX, to budgets

in have that the improves takeaway some not the takeaway budget U.S. are as to of takeaway completion across course prepare capacity onshore. get in for But Permian, And you're increased capacity as the going the advance. of also Permian to issues and to You as well the improve. is limited the operators an continuing uplift that

Sean C. Meakim

does year? in you that any comments up type relative profitability you then it environment what how of on materialize to this whenever expect your And other to shape did

William A. Hendricks, Jr.

that. on spread trying to We think it's said, XXXX very pressure market pumping. pressure all to remain going do profitability through the in We it's per and profitability our focused maintain been Yes, don't and we share. pumping have on focused about improve about as trying to I we're think

Sean C. Meakim

allocation upgrade you you thinking on being higher in other see capital the next the maybe you – to other potential so will You prioritization then Thank that experienced be of the year, end CapEx lower? some about you spend than CapEx about that reactivation of just XXXX. you then or unfold, us walk the some for perhaps through course how continuing less what you uses? do and up you cash can in for think think but of Directionally, pumping of got just

of today. see maybe kind what know based you where on Just things you

Mark Steven Siegel

we to and give I by December have December, our company the our our guess that feel time so typically like expenditures We could late in budgets have plans in capital rule for on I the results. of operating sort fourth and set a we February we XXXX as that of response maximum is that capital visibility our call in into capital set announce late that would at quarter announcing doing budgets we that followed have. a

said, So, our part year. I the of as important analyst to same I me we gone that three continue approach very for and think buyback I expect and very frankly, is of return we are follow that of to year. returns that this that and relatively being that quite well return that are With capital focused quarters call focus on to to that going really think causing capital forms of have out dividends amounts that point buyback have. of seriously unnoticed every a I'd think as through also and amount substantial the dividends. out always returned investors of year we I dollar as we to already in story community and us just the about want the And the this this have we shareholders to as seems that to by spend substantial fact And

Sean C. Meakim

guys. enough. Fair you, Thank

Operator

with Your Wicklund Suisse. the next Credit question from of James comes line

cheaper? where Wicklund on LLC timing at sure on is - cash obviously keep an Have go just morning, considered deciding Suisse cheap this But buy you criticize. market guys we back guys just Mark, and What as any I episodic you back buying for shareholders, it please comment Credit or guys. line gets guys to it you Your (USA) Good statement, constant the that you it's of Securities returning the James you if have buyback was of it than is the aren't open, year, ahead. look bought the to you are, at you buyback higher. stock? instead having so methodology stock buy when do can't better a

Mark Steven Siegel

would we doing kind are are it I your so each quarrel, stock done – of I even company. during top. we three doing is of that period year where Jim, a the and relative historically far What we market and at the regular is in for months, very that quarters across Well, guess of it with concept program episodically during have open buy this the time we the done so a days, been has the that have

we the facing think reverse part lower such the quite of it in honestly been The in a more year that bought are early year. year. trended in is strategic rising which stock you whole bought the price uptick, of figures has the were I an pretty the if the market stock the So, half later has we stock the It been the market. true would in in a as expensive one than have you

LLC involved James than as so, say And am and and don't not I it's to things those there are better latter. one see just a several Suisse to can is be one Credit any is I you options. that not buy the that who's arguing - is No, I where episodic, market. it companies Securities (USA) it the Wicklund no, do in And stated, different it time don't always it's anybody and am back one like it's program been – us. regular buyback I decide just saying episodic, One seems of

stock bell a What you and X to is price in to our at quarter ring look Y? stock buy what's the use am whether row. then this Y, quarters you just back wondering tomorrow? decide decide I guys methodology what your on bought You do stock to three is

Mark Steven Siegel

multiple but was guess it factor Jim, it is decision. a I a just I two-factor decision wish

about our what is thinking generation. cash are free We

expected about are expenditures. is capital our what We thinking

about thinking M&A We opportunities. possible are

to lines price. kinds We well other as about available amount variables, situations all of kinds that variables all are thinking credit, cash of of sort, of us, as stock

board And next and each what approach execute quarter so, then given conclude our right or management and we collectively think is for they it. what the point, think the at

William A. Hendricks, Jr.

we're add comes discipline, maintain I'll when about and we to trying especially or it's on capital we're capital the side And know. is de-risk focused spend Jim, where maintenance that running minimizing around expenditures, investing really CapEx the to that trying on to growth and you growth smart on it we're cash into business, how returning well trying to that. be dollars history the as of the whether maintenance company to shareholders

And and could your cash stock – so, business find make free we to It return stock and based mechanism then any help if that it done returns. of of to job capital we can was sorry, follow-up, opposed of some we have on focusing was expenditures to to parts I the was like capital on sounded return of sure really to allocating capital the more it's Suisse the do best My as I'm great part metric different And after ahead. cash and LLC just go my so only where generate point. - price That Securities availability price. that. to of James Wicklund minimize a shareholders and you've my that (USA) flow job and Credit

William A. Hendricks, Jr.

given Wicklund and follow-up, guidance really you Securities was know some as done we to we cash reallocated you Suisse our could, that It XX%. is James adjusted after you isn't is what believe was I it was free guess your back I bought I envelope you on have I it thing if if expectations. put up just to margins a Credit - and a well. this of was But to this LLC quarter function kind get the can living flow during closer XX%. guys drilling. (USA) at say to XX% Okay. going that costs wouldn't quarter certainly My When of of directional – CapEx that the first this, it's

expected on that note pricing. you You business that where your plan need been to – in you Has you drilling now? are directional be right behind

William A. Hendricks, Jr.

been with that to are run management think we're to still price? are this XX% teams to the safe to in There's - margins hasn't margins to aiming been the for say in to it's improve also It that efforts count and make you that. plan. improve (USA) harsher some the generating we I of to yes that rigs. with operating make the XXXX Suisse working the behind we've every we cost LLC underway going effort improve super-spec as as to push Can continues doing get environment Wicklund equipment the James Securities every to Credit We're rig well. pricing without effort

William A. Hendricks, Jr.

it. call here improving we're on LLC James certainly margins. on Suisse from but Where Credit - I to Wicklund working (USA) out difficult think goes in a we're the the Securities that focused on based today challenges XXXX Understand. is little more bit

guys. Appreciate thanks Okay, it.

Operator

of question from next West line the ISI. comes Evercore James Your with

Your open. line is

James West

guys. Good Hey. morning,

William A. Hendricks, Jr.

Morning.

James West

quarters, the particularly, the wanted focus earnings of over here business. the I to next and of driver on main couple rig

I upgraded the rigs going quickly? XX inventory XX order you are there to can as super-spec contracts. when customers, market can want so or be developing items, you on think get go do got be to discussions So, starting think – out and have these into APEX careful long-lead-time you to said But recently. have to that are very so so I down from contracts Andy, they on you're hit with capital and you know to what going I you you've that you now guys put an

William A. Hendricks, Jr.

order with CapEx to at and with be major want current to the at the Yes, this, we investments these as de-risk we budget and upgrades to have gives you the to within able to gave James, know, it course contract of long-term that and do some thanks, good a look as items economics. do these that we takes us you. the keep process in But we this long-lead dayrates that's dollars

rigs, large upgrade we do into are items for spec spares. overall the a long-lead rig items These longer-lead not up of build to are want to spec. ordering or slightly end we but wouldn't the we'll XXXX. on stay So, hold on compared to on delivery we don't those budget, we dollars them as rig but a If ahead some upgrade using

James West

or should should XX then expect, of industry plus we've I the it's mean I we having two? for so. the And per year the conversations the on XX, as just type we overall, of upgrading Okay. year guess last expect cadence been seen the same based you're or rigs outlook

William A. Hendricks, Jr.

XXXX Well, we're we on what the items in too early like mentioned tell order. early getting it's XXXX. and going to already discussed that as we we cadence is I to exactly some have look in deliver long-lead to But two think

I beyond news with I think is XXXX that two early cadence discussions like, it's year. is deliver in good But for what think the major look plan to to as still upgrades we're the a the that in early. bit we going customers that to

James West

Andy. Okay, got right. Thanks it, all

Operator

comes Your next Bianchi line with from the question Marc of Cowen.

Your open, go line ahead. is please

Marc Bianchi

Thank you.

look done? here do upgrade like contract these and for going Following market got on do fourth these rigs what payback the of more into and first. periods the conversation, What term four upgrade in have investment you've that are the you've the kind rigs

William A. Hendricks, Jr.

signed we and those those major Yes, of that period those four-year payback contracts so the contracts. QX dayrates years each for based announced the of upgrades call, within on we that is that period margins four and we earning said the for that on four rigs for

Marc Bianchi

you... Andy And when

William A. Hendricks, Jr.

end being early two this and Those at XXXX. that in delivered are rigs the are year of the two rigs delivered

Marc Bianchi

right. All

that's additional Okay. getting – on making? you're on upgrade And because you're or the the when you margin investment on margin payback, is the the that total is that of calculate that that

William A. Hendricks, Jr.

We look at on upgrade separate the rig that of it for on that spent. and we payback what in the based dayrate I don't two. we're the terms getting the guess that cash is

Marc Bianchi

And in Okay. then look similar seeing you four, as four-year be say you differently? you beyond would opportunities things evolve that with that payback they are these or at would term

William A. Hendricks, Jr.

upgrades do more how past to to some it's But I think long-term and suffice to finish that contracts. say good are these rigs. evolve order these do we things it early think dayrates of too in more those I say need contracts at of to going

Marc Bianchi

it. Got

fleets ask if that on on just The pumping four the sidelines. got the in I XX Maybe put more you've and Okay. one field the now you side. could

over say the space be unlikely to the field right additional to is Given as there utilization see would be on kind activity is curious what much the you white fleets? here – back two, comes quarter it what And would absorbed maybe how up? is say you next or of you that in fair have stacking you XX now, that the opportunity

William A. Hendricks, Jr.

because want who with the during plan the on we some have. projections There challenging a in already built XX predict. but first in calendar you that could into it space variability, to That's the from change we in the in that customers that white get but to fourth quarter so resets are the So, and some quarter same the some likely have at bit quarter. we on restart some likely That is of of budget to the workload. continues to fourth based into discussions customers time operate not early the is fourth it just spreads some that's seasonality quarter

focus per So, we that we to and intend an are and we certainly hold as to our to make maximizing respond. activate in in going spread experienced Again, personnel want effort we're to be we on to every XXXX. margin be that ready on to upturn is make going so sure to

Marc Bianchi

for thanks that. turn Well, it Okay. I'll back.

Operator

comes Wells question Bailey Your from line Fargo. of next with Jud the

Your line is open. Please go ahead.

Judson E. Bailey

If like on I pumping, are a in I'm there reasonable drivers keep you the level doing rationalizing into pressure on at to as the well the math said follow-up to what said know you to visibility revenue And of cost trying Is probably guidance you A if such recover. you given the a of could. up back I the would correct, kind right. magnitude but that's think side? the morning. profit revenue be drop? when the keep I something decrementals mid-twenties and guidance the decremental I'm you're I on Good doing if cost at as gross Thanks. pricing look you're I staffed ready can assume things best are or it

quarter? suggesting of a think you decremental for could what margin of fourth kind through kind us So, standpoint the from help the you're

William A. Hendricks, Jr.

line we're to our that. As way trying we we the to third cost XX in do to are ensure we work from when XX, quarter down that the keeping

of that quarter the to fourth keeping are moving in and in and the We've shift as having on mix well in quarter. the of in So, and there. customers got there we're XX, lot with there's various the again spending fourth going so the be XX parts is into tight from quarter, a emphasis a cost to space going that white shrinking the some fourth

Judson E. Bailey

a guidance tell Okay. what this lower is from or quarter in And any weakness are pretty that or much and there rollover set pricing can into today? from you is standpoint a pricing you there – contemplated,

William A. Hendricks, Jr.

we part most spreads It's dedicated dedicated to under our we're those currently are seeing working of dedicated white some we only and the on of on see when the a the pressure spot agreements try that in interval crews not that terms now. pricing. our as right saying space crews in pressure renegotiating not lot pricing. of differential and a fill But For grab short agreements want the to calendar work we're term a for for we most

Judson E. Bailey

kind of you am year Okay, head to top probably as want that thinking that more baseline of of kind one then sure squeeze question that about I could of and CapEx, the think activity level great. this we a fair if just kind in, as one of to more exit And I XXXX I be on around your maintenance million at growth? that on make is CapEx $XXX any would correctly? number into as I'm

William A. Hendricks, Jr.

really that a CapEx comment look us the things it's we're activity maintenance call and spending. out going too the exactly of to or now early number to tighten for right to on what changes some think like to because of I in try that's doing up

So, have back just get that. you later to on to we

Judson E. Bailey

I'll turn thanks. it back. Okay,

Operator

from Your Moll the line of Tommy next with comes Stephens. question

go is ahead. Your open. line Please

Tommy Moll

questions. morning. my taking Thanks Good for

William A. Hendricks, Jr.

morning. Good

Tommy Moll

at that then idle, And lower a have idle are it for versus perform $XX similar got of looking that XX CapEx a you active, upgrade? So, piece or many And currently level? are level active? are those how left, for then opportunities we upgrade million on CapEx that the of roughly is the those to those rigs a are

William A. Hendricks, Jr.

of is number. Yes, me XX are those currently – that the Mike So, of idle. are just active XX some rigs currently right fit are But currently some up those working a Mike working the the rigs relative working, now. APEX pulling on market. for of are and gave the they're which numbers those then some If are

a So, system. that XX we ones may of that working add system. a XX walking idle. have add are need the They only But to the high-pressure circulating are only to need may

may you're that So, the to idle $X on a talking $X million. million there rig. that a range in ones the much upgrade larger depending $XX million are investment The about need of

very that XXXX in see with again do to of super-spec so would upbeat continuing to contract that into for long-term customers see that for tight. us rig economically we want about super-spec business. that in we're makes XXXX. some discussions kind is we good And and is The sense do drilling We that. we market the demand and rigs news The some are

Tommy Moll

that I a you're depleted, gross might the Because to stack are your terms the not payback today incentive the something a versus need the that to assume power? of up you would batch and from more to good when once active suppose, already there likely be pricing would it's look generating fair of next rig, side therefore different, but margin and meaningful margin into on in is pretty come a would leg of is perform because most an upgrade, upgrades get it then under pricing fair? zero calculation idle that contract Is a upgrading function

William A. Hendricks, Jr.

schedule an is working some to having front working. me of APEX and likely rigs just assumptions there, if in rig it's making the individual So, today, without keep

rigs probably So, to for stay about the do that any likely and in and major talking are condition not working, the some If incremental that likely are bring They're to we're to do and upgrades. in rig rig count, those them the that APEX we'd we they idle working that. becomes upgrades. in be

market the then improve, you and those those for to in working we're would So, long-term the continue contracts existing have then as continue that to rigs rig count. to conditions would be incremental able APEXs if will XXXX, sign

Tommy Moll

That's Okay, from me. thank you. all

Operator

Lynch. the America question with next Your from Merrill of Bank line of Mulvehill Chase comes

is line go ahead. open. Your Please

Chase Mulvehill

good Hey, morning.

William A. Hendricks, Jr.

Hey, Chase.

Chase Mulvehill

announced the land see quarter. keeping the Hey. to just theme, during I on guess I surprised rig the first question, upgrades not new was any

And is for has do how of just bids today? recently? driving you upgrades, talk major number that bids less started if of could to number lower there down? think Has a so, trended the what the trend that number you So, outstanding maybe bids, about out of

William A. Hendricks, Jr.

their The on likely internal next operators' discuss are I them think approvals to and contracts we further higher operators organization, their situation. goes the are more Yes, with cycle. right departments bid yet type working that's adds, dayrates necessarily the they are of But the function where what necessarily their what have and got cycle of of a budgets to first plans although announce timing off we pricing. It's before wouldn't I into rig of budget to really potential we're just because level contracts to discussion gets talking have us now to have so really the you They've about get that department reason level and positive when consider year. the and bids. more discussions between not we the we drilling operators operating customer is so approval. now at than long-term characterize and more don't a These is get drilling customers. budget bid which that and are entering that don't the as a discussion is up negotiations to of a are right an for It

from definitive the information line. in understand are this got don't I if until But later discussions get the is think going because and to rig, more this in market operators they again now Operators year. to so, they've with tight. And they next they hear want is a us in out we're understand not there there a queue early year,

Chase Mulvehill

and want to a upgrade rigs, today to your come you of you you of if be to deliver were to upgrade, able would major one when Okay. And it? somebody

William A. Hendricks, Jr.

would today second discussion available first a from be or quarter in one early the first That late quarter.

Chase Mulvehill

guided then down? of [$XXX [rig that? (sic) gross to day a Is be is per (XX:XX) (sic) the going up OpEx to was what's day] component And kind be flat (XX:XX), $XXX,XXX per OpEx of Great. that margin margin or day]

William A. Hendricks, Jr.

drilling the roughly fourth In expect the be rig level from OpEx to in quarter. business quarter third the we

Chase Mulvehill

Great. Okay.

William A. Hendricks, Jr.

(XX:XX)

Chase Mulvehill

starting up that's you in, of some edge dayrates just on actually more talk can lower-spec those then if have kind bringing And about a and super-spec bit I'll yet? rigs the dayrates? impact to squeeze little of one leading an

William A. Hendricks, Jr.

seeing and edge on for at terms of I still said last So, that edge mid-XXs was edge little we pushing signed a and that that leading would leading the contracts mid-XXs quarter from around that the bit in were there. leading and this in say what delivery early XXXX up is we're we

from discussions we So, up without level. mid-XX still those particularly levels I pinning see level mid-XX a think we are from their seeing from that to number down that moving pricing

Chase Mulvehill

as Okay. starting rigs Is and of the impact this those rigs to an pull spec high lower on well? have spec, some

William A. Hendricks, Jr.

the non-APEX rigs demand other generate I super-spec the for rigs year the the on market the up, for market the other as super-spec instance in we'll on rest tightness of in our as it's lifting the probably the pricing some is interest and pricing in the XXXX. rigs moves well there no is Yes, the in think keeping and question through that active

Chase Mulvehill

Great.

If you squint the at those two narrowed? differential, dayrates have that that has

William A. Hendricks, Jr.

hasn't in I XXXX. as move would it it's yet we but say into to direction move likely narrowed that

Chase Mulvehill

over. Okay. Awesome. I'll Thanks, turn it Andy. back

William A. Hendricks, Jr.

Thanks.

Operator

the Pickering from Tudor Zurcher Your line comes next Holt. Taylor of question with

ahead. open. go Your line Please is

Taylor Zurcher

those the Northeast you are Midcon, and one geographics, Ford, about Eagle versus basins working? the QX, high think Thanks. across morning. previously operating pressure some being to us pumping, that Permian, four more similar were color other? and could as the primary Good we Hey. which more all softness plays four is softness level you Andy, in And spreads stack spreads seeing during in then or you the those four you maybe give for acute as regions

William A. Hendricks, Jr.

around recovery seeing we Texas drilling XXXX Oklahoma not So, is But in spreads we're as softness of think have we're slow the that and I really because count down. in the for rig discussed we marketing for terms that not potential today part. most the

to rig On going in the acceleration fourth second for what the move an drive up sorry, part I inventory. that the drilling and And we're of quarter ourselves seeing that's the DUC was your count contrary, in am question?

Taylor Zurcher

on today was that That sounds just space versus relatively the I maybe market today? pricing if follow-up, spot than softer basically was the I answered some today one it the a And it. region white it. curious side least just other but pricing at like as your spot answered of dedicated stayed sort has the what you consistent. just market of in dedicated fill in the between wonder pricing delta your is

William A. Hendricks, Jr.

in of on think what calendar for in I it's kind what we're and on out. call gaps to pricing we In between spot, actually a terms getting delta hard of fill the dedicated me the

a essentially That's think is price of that there. you very to a can but up There the I don't lower. is can agreements pleased holding now. we more a pricing vary is with have. Definitely I and competition that give within spot a number good dedicated the I range lot see challenging, right think bit it

Taylor Zurcher

Okay, appreciate it. I'll turn it back.

Operator

The the next of from Wolfe Gendron comes Blake question line Research. with

Please open. go ahead. is line Your

Blake Gendron

to efficiencies drilling of as the gotten that pressure maybe edge. at we rig playing if are the seeing that comments. side Wondering lateral guys. that to starting guess, starting kind side, pushback some leading see we've on stagnant you're here, DUC the investors clarity out is Thanks, you're offsetting get can lengths I Hey. from appreciating that on trends efficiency The the pumping both and

about perhaps rigs. into pressure spreads the hearing pumping You're running more and becoming efficient

forward? maybe guys both what on you're So, what to given through how on the would just count you you field at moving play both and follow level say that seeing DUC the markets, sides does

William A. Hendricks, Jr.

seen a and that's can cetera, efficiencies efficiencies have efficiencies how at at a period, look stages per in know and and do per quarter, in month, we You whether XXXX we we think have look how we efficiencies spread et improve given within time I it's many terms of seen so how improve.

shift a the zippers while, to uptime of Northeast, But do Other West by doing especially we're sure to a make have when Texas takes location is and a that zipper everything for be the non-zipper operation. you're has that we move been able consuming more primarily seeing is of the do zippers horsepower horsepower spread fracs, more more South more the zipper Some Texas. than also a little operation because that fracs. per it driven bit in so proper to more pumping on in to continuous basins

you in So, I'm not shift to see Permian, the you're continue how but seeing sure the shift much past the XXXX.

to the to to are much that So, again so there. and some and we'll driven the how wait see seeing moves on and we we'll how of have see year. consumed have that E&Ps gets commentary it's shift zipper, been by But rest the wait for and the

Blake Gendron

to Okay. market can Great. that improving, into do as on then you And And up just sidelines what look work or to you we far horsepower to active and as you you as then remind see a rationalize number fewer are goes? have us beef guys horsepower the have nameplate incremental spreads? perhaps back and XXXX the horsepower add you same or consolidate of of going going those spreads spreads number going to to are

William A. Hendricks, Jr.

more reactivations as was X. a zippers that. do a to have to But doing rationalization move when have as zippers to it's be per it the the our mentioned, from able XX little reactivations, if in to time we quarter dropped into we spread as to on for do spread, at side occurred going third start think horsepower I before So, going and if it's not the same we XXXX, to those doing we bit

it's terms to into. those agreements to where that's in of project which exactly look go So, land, going to may think hard of what they're going kind operators, spreads I like which

started early mentioned, year. early in some reactivations get than in as some don't fourth think bit talk XX are to I I working anticipate in little quarter spreads it's to So, a we we again the about. for about discussions But XXXX the more but

Blake Gendron

helpful. Thanks, guys. That's Awesome.

Operator

the SunTrust Robinson next Sill your comes of question Humphrey. line with And Ken from

Please line ahead. go is open. Your

Ken Sill

was I wondering going in to get I Yes, thanks. whether here. was

down XX So, just or you you're ask from horsepower the what's per How again. that fleet want active much to the a do question fleets? horsepower to have now average time last

William A. Hendricks, Jr.

be out where now. it's one spreads agreement we're right working that Even I not over within Yes, of not a spreads for that's might fourth spread. that the might be depending quarter, the on move then and amount on type if it the working per a going are a we're in these even to working. it – moving – zipper same in it and where mean the is zipper shift customer calling XX we're the pad could we same spreads it's – pad doing the the and to where horsepower same different of

have. it's right within that So, we that now, shifting even something see agreements dedicated we

Ken Sill

is average the on per fleet horsepower extent a expect of that to in bit zippers for more then guess I to the go to we moving the just part from should the you're where going was average XXXX. Permian, it first little up

William A. Hendricks, Jr.

they're per increase to when look doing, think us increases zippers as you as Permian I amount an from an amount standpoint, it does the of require at of industry industry the horsepower spread. it

Ken Sill

of it's of for Okay. time to or saying just exhausted And are much capacity sequentially. year; holidays? into How the off people down constraints we're is that actually guys we've XX% kind of budgets then a decline kind slowing the just looking just because you a of it's they're slowdown, going been parsing in or at revenue long take some

William A. Hendricks, Jr.

recognize aren't the are but that it's the know within You of majority of now, broadcast they've what to of are seeing hold and right part end to but we're there's and the as say and a has stay not going to constraints. seasonality, we're capacity capacity a do Permian get here not above but budgets down back U.S. of they year, mix in Street the of to it. trying We lot trying we think and just spending and doing they're seeing their pull constraints E&Ps constraints the the through across the all at certainly the it their back we part to But that of with periods slowing et that through cetera. towards we're Permian, budget that the holiday

Ken Sill

lot slowdown. but you how rigs, of they versus out Yes, the rigs is constraint figure have haven't do seen XX wrote yet idle? left Last because definitely that's non-APEX that's one been a are many saying there's hard working many question and off a are non-APEX people those of here to much how after

William A. Hendricks, Jr.

rigs, that's and So, XXX in XXX leave fleet, the that XX non-APEX. APEX would us with

of are working, the that terms XX that non-APEX we rigs are In have working non-APEX today.

Ken Sill

Okay. Great. needed. all That's Thanks. I

William A. Hendricks, Jr.

Thanks.

Operator

of next line Your from the Colin comes Davies with question Research. Bernstein

Your open. ahead. is line Please go

Colin Davies

you. Thank

Just Can a more and the more and give strategy a the or in if to frac that may talking the a early than XXXX. the what around of some the of little perhaps half the idled variable different perhaps around in you or question you're in second on first people Texas Obviously, color done laid-down for related the cost? Permian variable about you've be a side ramp reactivations year, us it's if the perhaps cost quarter fleets. just

William A. Hendricks, Jr.

Yes.

want we've activity count job not but in in We That's the had third turnover still head to The turnover the industry. that's high. the we are our relatively specific, Patterson-UTI reduced certainly to U.S. something we XX, has across have this that the industry markets tight the that's line. amount in do to just the XX as try of So, costs from keep quarter

that have down believe the So, be to we want believe in experienced we in will it at on because the to XXXX same personnel upside bring can reactivating we and some at compensation our hang point to do but time allow turnover the cost XXXX. we spreads we

cost spending, and the count. of to around it but are doing that we different So, things head some manage is

Colin Davies

by comments Yes. just And was then around intrigued Directional. your I

I services? for around mean mean increase in the you're obviously is more there's foot. than over whether problem any if structural the there mechanisms the thoughts being day massive the whether in industry of makes perhaps the the challenge paid directional pricing pricing a last for years by structural I wondering rather efficiency few the terms it more of a is Just drilling problem?

William A. Hendricks, Jr.

do we over. it's we have periods that's moved industry charge interesting back between what have the we and don't have depends how directional control it's really over forth at No, the on able of the what we the and in do foot, and question has charge different the time we by kind industry by an changed and operations to to control day be in risk and manage in

think to at I So, industry. continue we'll that look as an

needs I mentioned think the think that pricing the in as directional I come sector. to up we drilling

out flow rigs circulating rates super-spec with the there system, X,XXX are the much the psi With higher.

across to their as cover costs. am with rigs materialize be price tear that seeing additional those are year So, don't I the be for pushing of that the well result super-spec think higher industry. others percentage the only in and ones the is and I this sure directional that the downhole as in the wear we'll equipment drilling of higher on a maintenance that repair increasing side and cost will

Colin Davies

That's much. really Thanks very helpful.

Operator

Simmons comes John from of Company. question with next Your the line Daniel and

Please is line go Your open. ahead.

John Daniel

Guys, program. existing the speak your keeping going. more to the methodical Andy, of see newbuild/replacement thanks frac buy equipment begin equipment of you warrant in new which business, the you to do replace And perhaps you or any XXXX decision equipment to or rebuild technology for call new as part would can legacy? for sort budget putting a designs specifically, me either the component some

William A. Hendricks, Jr.

good So, a really question. John, that's

the able process in even weeks is certainly available trying be We've technology. know You you look is power-end, what think of what whether that a what us early cost our of and some various the et testing us of terms that's to fluid-end, we teams at in it might to to the is been but for as ownership technologies few our the new understand is answer transmission, cetera. cost to that be been budget engine,

early cycle a of for kind at again as budget we rebuild that But And so, it's that have looking will get be but that fourth as too the quarter discussion. for do overall will to we really we into for and think in I process budget new rebuild versus those XXXX. new looking get cost be into individual for complete the buying at buying pump ownership, things all we the trailer, versus components, of us

John Daniel

enough. Okay. Fair

assume varies. more suspect I two Just me. profitability across to fleet safe your that from company it's

So, idle when you're you are you to from dropping customer fleets your move impacted XX XX, specific simply by fleets the able to worst-performing specific a fleets or slowdown? that's

William A. Hendricks, Jr.

of really I optionality say an on don't customers' have certain in here event. today, that the would budgets, we capacity a a in is industry have the this to and market I into on and that respond that have what customers to our doing can customer-driven we lot this fourth as as we and kind are It's takeaway we basins, with based to would move have say really as customers' that manage we side just we side cost quarter. and the move best of

just some a do business. have by more potential XXXX there yet So, we on others bit the and side knowing the driven of because in slowdown activity that this for activity customers have some fourth the it's drilling again very quarter of the and of we likely in the visibility of challenging half accelerating is than XXXX in time first market a

John Daniel

Yes.

trying one discussions? back new price a just they'll pay and characterize guess budgets. you get for you noted price the Are possibility how need once trying these back current me, you about those – fleet going work or we now tell reactivate higher fleets? at you not understand would basically or QX Because at that as release conditions. fleets higher counts should put just the current you're if am QX modeling into I do they from would curious Okay. they go per take fleet pricing? in higher to to think implicitly customers I for said to we them customers not to assuming advantage market final to work I'm us to you're you prices you of have them indicated the lower start rev be

William A. Hendricks, Jr.

discussions think are I yet those come.

on our will how those it up. go some will industry is activity the – think ramping in that side fast and negotiations I on how depend of

from really too look it's had unfortunate we've From And we're quarter, kind fourth strongly we increase to unfortunate yet. XX. we But that's shrink in of XXXX, early pushing will, focus so, know to to to we as slowing my XX want were think going we pricing the to feel the can. I on for standpoint, what that margin activity we in which spread like activity

John Daniel

it. Got

for you your thank Guys, time. Okay.

William A. Hendricks, Jr.

Thanks.

Operator

from Brad next of Jefferies. Your line Handler the the question from comes line with

open. Please go ahead Your line is

Brad Handler

Thanks to have much for was trying but the thank you for been squeezing I answered Actually, opportunity. me unqueue. in, guys. questions very My

William A. Hendricks, Jr.

Thanks. problem. No

Operator

from comes Boyd Markets. question line BMO with Capital of Daniel the next Your

open. go ahead. Your Please line is

Daniel J. Boyd

Yes. Thanks.

but down am will a on I I give question it think I XX list to shot. my

the on you Given guys during returns I'm use cutting this in able focus cost maintenance are period cash pressure the environment. lower those at the and wondering in this to that or of repair to things just that and have pumping you idle on those all you're weakness, on crews anything crews, and do really working

William A. Hendricks, Jr.

OpEx would in operating is I a nothing for a usage for equipment say to that the going maintenance, spend that is to CapEx not, and of piece of hour of in per or there have terms spend on what we there quarter. repair fourth is shift

manage cost keep try just the are what and in to line not in fourth overspend going we We can quarter. to to the

Daniel J. Boyd

about then to come idling you think cost in And fleets XXXX? on back that any these we they how should Okay. when reactivation are work

William A. Hendricks, Jr.

into to so that the think to going to going take got to P&L We through over opportunity are condition some the those we've that's flow on next think and I of side the built already. I quarters, projections some – it's sure OpEx don't to of couple these the of be reactivated they on are make spreads just in just be that able

Daniel J. Boyd

Thanks. Great. Okay.

William A. Hendricks, Jr.

Thanks.

Operator

we And have no this questions further time. at

Mark Steven Siegel

February. Thanks joining we XXXX of thank for for you. report forward to of third for and everybody. Thank conference We you the with fourth in speaking quarter look quarter XXXX Patterson-UTI's us like to everybody as

Operator

conference your participation. today's concludes you for This call. Thank

disconnect. day. You good a may Have now

Patterson-UTI Energy (PTEN) 25 Oct 182018 Q3 Earnings call transcript