Patterson-UTI Energy, Inc.

Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to Patterson UTI Energy's third quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this session, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. Mike Drickamer, Vice President, Investor Relations, you may begin your conference.

Thank you, Julianne. Good morning, and on behalf of Patterson UTI, I'd like to welcome you to today's conference call to discuss the results for the three and nine months ended in September 30th, 2021. Participating in today's call will be Andy Hendricks, Chief Executive Officer, and Andy Smith, Chief Financial Officer. A quick reminder of statements made in this conference call that state the company's or management's plans, intentions, beliefs, expectations, or predictions for the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties as disclosed in the company's SEC filings, which could cause the company's actual results to differ materially. The company undertakes no obligation to publicly update or revise any forward-looking statement. Statements made in this conference call include non-GAAP financial measures. The required reconciliation to get financial measures are included on our website, patsenergy.com, and in the company's press release issued prior to this conference call. And now, it's my pleasure to turn the call over to Andy Hendricks for some opening remarks. Andy? Thanks, Mike.

Good morning, and welcome to Patterson UTI's third quarter conference call. We are pleased that you can join us today. This is an exciting time for Patterson UTI and the industry in general as we expect robust demand for drilling and completion into 2022. In this rising market, we completed the acquisition of Pioneer Energy Services on October 1st, which added 25 drilling rigs to our fleet, including 17 in the US. These rigs enhance our position as a leading provider of contract drilling services in the US and expand our footprint into Latin America. We are excited about this acquisition and welcome the Pioneer employees to the Patterson UTI family. I am also excited to state that the market for the most capable rigs in the US is officially tight. For example, we are essentially sold out of XK and PK rigs in the Permian. As a result, we have seen leading edge day rates take a move up over the last month, and I expect this trend to continue. It's been a few years since we've had this level of utilization and increasing leading edge rates. Turning now to the third quarter, I'm very pleased with our consolidated results, which benefited from higher activity and better pricing as total adjusted EBITDA increased by 44% to $51 million on a 23% increase in the revenues. In contract drilling, demand for drilling rigs in the fourth quarter and into 2022 continues to be robust. For example, we have a total of 46 Apex XK and PK class rigs in the Permian Basin, of which 41 are currently working. Of the remaining five rigs, four are already committed to return to work. We are effectively sold out of these rigs in the Permian Basin. Demand also remains strong for rig-based technologies that help our customers meet their goals of reducing emissions. These technologies include natural gas-fueled engines, high-line utility power, and our EcoCell lithium battery hybrid energy management system. EcoCell, which uses stored energy to provide power to the rig when needed, has demonstrated the capability to reduce rig fuel consumption by more than 20%, thereby reducing both fuel costs and emissions. I'd like to take a moment to commend our people in both the drilling segment and our electrical engineering and control segment, Current Power, who were recently awarded a meritorious award for engineering innovation for the EcoCell. We currently have six EcoCell units deployed and driven by strong customer demand. We are ramping our production capacity to increase the size of our EcoCell fleet. I'm proud of the work that we are doing to help our customers achieve their goals of emissions reductions. With the growth in rig demand we've seen, we've activated 32 rigs this year. While restocking and re-crewing these rigs has been challenging, our team has managed it very well. For the past year, the cost to reactivate a rig has been approximately half a million dollars. But with the impact that general oil fuel inflation has had on supply costs, the need to increase inventory levels of consumables, and the impact of the tight labor market on wages, the cost to reactivate a rig is increasing. Also to help address labor challenges, we initiated a wage increase for rig-based employees in September to retain our highly skilled and efficient crews and also to attract new employees to the industry to support further increases in the rig count. It's unusual to have to increase wages this early in the recovery, but it's also very indicative of the overall U.S. labor market conditions. With the increasing market tightness for premium equipment, we expect day rates to continue to move higher and more than offset cost inflation. In pressure pumping, our business continues to improve. During the third quarter, we were able to achieve better pricing based on our outstanding service quality. We also benefited from a higher level of simulfrac work and the full quarter impact of two spreads that were reactivated during the second quarter. Pressure pumping adjusted EBITDA more than doubled on a 36% increase in the revenues. During the third quarter, we introduced our first EcoPlus spread, which is a tier four technology spread designed to optimize natural gas substitution up to 85%. With strong demand for lower emissions technologies and consistent with our disciplined approach to capital spending, we plan to continue to upgrade engines on existing pump trailers to dual fuel. Late in the fourth quarter, we plan to add our 11th spread. In the first quarter, we expect to add our 12th spread, which will be another EcoPlus spread. With the activation of our 12th spread in the first quarter, over half of our active spreads will be dual fuel capable. In directional drilling, demand for our impact directional drilling motors and mercury measurements while drilling system remains strong. During the third quarter, we benefited from the full quarter impact of the growth in the activity we saw in the second quarter. So the strong growth in activity we've seen this year, delays in receiving ordered equipment, we are effectively sold out of the equipment at the moment. We have orders in place for the components necessary to expand our fleet of motors and MWD kits, but it seems to be common across the entire economy. Supply chains are stretched, and it just is taking longer for things to be delivered. While waiting for additional components to further increase activity, we will continue to focus on improving pricing. Before I turn the call over to Andy Smith, I would like to discuss our recent announcement to collaborate with Corva on data analytics and visualization across all of our businesses. Corva is a leading provider of real-time drilling and completions analytics and has become the go-to for operators to collect, analyze, and visualize data across all the contractors that they use. We expect this collaboration will leverage our advanced well site and cloud-based data capabilities and give our customers more options. including combining our capabilities with Corva's extensive suite of more than 100 drilling and completions apps. Utilizing data from our Cortex KeyEdge server available from the well site, we plan to work with Corva to further develop solutions to help operators drill more productive and profitable wells while hitting lower emissions targets. One such solution is the ability for Corva to display the P10 Plus power management page, which is a real-time application that allows operators to remotely monitor fuel consumption and emissions. We have successfully completed initial tests of this app and expect it will soon be deployable to customers. We are pleased to collaborate with Corva as they share a similar view as to the incredible potential made possible through the use of advanced data analytics in the drilling and completion businesses. With that, I will now turn the call over to Andy Smith, who will review the financial results for the third quarter.