Patterson-UTI Energy, formed through the merger of Patterson Energy and UTI, is the largest provider of contract drilling services in the US with 2006 revenues of $2.55B. The Texas based company provides onshore contract drilling services to major independent oil and natural gas providers. It owns 325 land rigs and operates mainly in Texas, New Mexico, Utah, Oklahoma, North Dakota, South Dakota, Wyoming, Montana, Louisiana and Western Canada.
In recent years, PTEN has also managed to increase it's fleet size relatively inexpensively, mainly by acquiring other companies in the business. This has been a major driver of the firm's profitability. However, the US drilling industry has been consolidating over the last few years, and increased competition has driven up the price of oil rigs.
Although company operates in the U.S., it has also benefited from the tremendous growth of energy demand sparked by China and other developing countries. As their demand has driven up the price of oil and natural gas across the globe, Oil and gas companies have increased their drilling activity substantially. The increased demand for its services combined with the company's selectivity- only accepting day contracts and very profitable long-term contracts has led to growing profitability over the last few years. PTEN's 2006 revenue was more that 5 times that of its 2002 revenue.
The company provides services under daywork, footage or turnkey basis. Most of its contracts are daywork -- PTEN provides the drilling rig and crew to the customer and charges the customer on a per day contracted rate. Under footage contracts, the Company contracts to drill a well to a certain depth under specified conditions for a fixed price per foot. Finally, turnkey contracts span over longer time horizons and the company provides additional services along with regular drilling. The company commits to drill a well for a customer to a specified depth and under specified conditions for a fixed price regardless of the time and expense required to drill the well.
Technically, turnkey contracts are riskier for PTEN than daywork contracts but can prevent the company from under-utilization during periods of lower demand. However under the current environment the company prefers daywork contracts. In fact, in 2006, 98 percent of the drilling revenues were generated from such contracts.
Industry observers have noted that while most of Patterson-UTI's fleet is comprised of older commodity land rigs, the company has invested $800 million over the last three years. Moreover, even though PTEN owns 19 percent of the land rigs in the US, these rigs remain highly competitive and account for roughly 30 percent of total footage drilled.
PTEN's revenues and profitability has increased dramatically since 2002. This is in part do to increased demand for oil and natural gas. PTEN is more selective than its peers and tends to select only the most profitable jobs. As a result it has a utilization rate of around 50%, but has been extremely profitable.
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