EUR 850.00 For Business Accounts Only

Morningstar | PTEN Updated Forecasts and Estimates from 15 Apr 2019

The downturn in U.S. oil and gas drilling and completions activity has weighed heavily on profitability in Patterson's primary business lines: contract drilling and pressure pumping.Despite the recovery in U.S. shale activity, the U.S. land rig market today is still marked by overcapacity and low day rates and margins. We expect utilization for even Tier 1 rigs (high-quality AC rigs with 1.5k-plus horsepower and multiwell pad drilling capabilities) to remain below 80% at midcycle. While our view is that incremental global oil supply needs will largely be met by U.S. tight oil in 2017-18, fewer rigs will be needed to meet this requirement than in the past, owing to increased efficiencies. This limits the scope for improved pricing and utilization for all U.S. land drillers even as overall industry fundamentals recover.We expect Patterson to have average performance among land drillers. While utilization for its Tier 1 APEX 1500 series rigs has held up well during the downturn, utilization for several of its other classes of rigs (even some of its newer-built rigs) has been abysmally low. We believe that the underperformance of these classes of rigs will persist.Meanwhile, we expect the pressure pumping utilization to be nearly fully recovered by early 2018. Horizontal well completions have continued to trend toward increased need for pressure pumping services, and this will combine with sharply rising well completions in 2018 to lift demand to near its prior peak. Moreover, rapid equipment attrition means that the marginal horsepower of pressure pumping will be supplied by new-build capacity, meaning that pricing should recover to the point that adding capacity is an NPV-positive decision.