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spk12: Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the Paterson UTI Energy fourth 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 would like to ask a question at that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. It is now my pleasure to turn today's call over to Mr. Mike Drickmer, Vice President of Investor Relations. Please go ahead, sir.
spk01: Thank you, Brent. Good morning. And on behalf of Patterson UTI Energy, I'd like to welcome you to today's conference call to discuss the results for three months and year-end of December 31st. Participating in today's call will be Andy Hendricks, Chief Executive Officer, and Andy Smith, Chief Financial Officer. A quick reminder that statements made in this conference call that state companies or management's plans, intentions, beliefs, expectations, or predictions for the future are forward-looking statements. These forward-looking statements are subject to risk 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 reconciliations to GAAP financial measures are included on our website, patenergy.com, and 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?
spk05: Thanks, Mike. Good morning and welcome to Patterson UTI's fourth quarter conference call. Thanks for joining us today. This is an exciting time for Patterson UTI and the industry in general. We expect increasing margins throughout the year due to strong pricing momentum as the availability of premium equipment has become tight. I believe it is fair to say that it's been a long time since the outlook for oilfield service pricing was this strong. Leading edge day rates for our tier one drilling rigs are increasing. For the base rig, we are now in the mid-20s for day rates, and that is where the discussions begin. And further to that, in some cases, our total revenue per day is at or above $30,000 a day when you include the revenue from technologies and ancillary services in our contract drilling business. In pressure pumping, we see further pricing improvement for both dual fuel and conventional spreads due to the lack of readily available premium equipment in the market. With increasing activity and pricing, we expect to generate more than $450 million of adjusted EBITDA in 2022, which exceeds our CapEx forecast by more than $100 million. The majority of this CapEx is for activity related to maintenance and reactivation CapEx, with growth CapEx focused on high return, quick payback opportunities that we expect to be margin accretive. Andy Smith will provide more detail on our CapEx forecast. With the improved outlook for cash flow, I am pleased to announce that we are increasing our quarterly dividend to $0.04 per share. Turning now to my review of operations. First, I'm proud of the way each of our businesses were able to achieve higher activity levels in the fourth quarter despite a tight labor market that was exacerbated by the recent surge in COVID cases and continue providing a high level of service quality for our customers. In contract drilling, our U.S. rig count in the fourth quarter increased by 26 rigs quarter on quarter, including 13 rigs that were part of the Pioneer acquisition. For perspective, the 13-rig organic growth in our rig count was more than the prior two quarters combined. This organic growth in our rig count was achieved despite a tight labor market and while integrating the acquisition of Pioneer. With the growth in activity across the industry, the market for tier one drilling rigs is tight and premium rigs are receiving a higher day rate. The market is much tighter than what is apparent by just looking at the market for super spec rigs. Operators' preferences have continued to evolve while the definition of a super spec rig hasn't changed since 2016. We see more operators increasing their requirements to include more clearance underneath the rig floor and a third mud pump for additional hydraulic horsepower and redundancy. The extra room underneath the rig floor allows the rig to walk over wellheads and around existing production equipment on the pad, and the older style rigs that have limited clearance under the rig floor because the draw works are on the ground are generally less desirable to operators. Across the industry, we believe there are less than 400 rigs in the U.S. that meet the capabilities of what we are referring to as a Tier 1 super spec rig. Within our rig fleet, we have 107 of these rigs in the U.S., of which 102 are currently contracted for 95% utilization. Furthermore, all of our Tier 1 super spec rigs in the Permian Basin are currently contracted. We believe that in the industry, approximately 300 rigs in the US can be upgraded to tier one super spec. However, over half of these rigs are of an older style, where the draw works is located on the ground, limiting the clearance under the rig floor. We believe the extensive upgrades these rigs will require to become tier one rigs is economically prohibitive in the current market, and higher day rates will be needed to justify these upgrades. With our rig fleet, we believe we have a clear operational and financial advantage when it comes to potential upgrades to Tier 1 SuperSpec, as we already have a large number of rig structures with the DrawWorks Up design and walking systems. For example, we have 34 rigs within our fleet that can be upgraded to Tier 1 SuperSpec capabilities for approximately $2 million each. In addition to the Tier 1 capabilities of our fleet, we expect our ESG and sustainability capabilities also help differentiate our rig fleet. Within our fleet, we have more than 70 rigs that are today equipped to operate with alternative power sources such as high-line power from the electric grid, dual-fuel or natural gas-powered engines, or our proprietary 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 fuel consumption by more than 20%, thereby reducing both fuel costs and emissions. We continue to see strong demand from customers who are willing to pay a higher day rate for environmentally friendly sustainability solutions that help to reduce fuel costs and emissions, and we plan to continue investing in our fleet during 2022 to increase our sustainability solutions. For instance, we ended 2021 with six Ecocell units deployed, and driven by strong customer demand, we plan to continue adding Ecocell units in our fleet throughout 2022. In pressure pumping, our spread count recovered to pre-pandemic levels during the fourth quarter, while overall industry activity levels have not yet fully recovered. More importantly, due to increased efficiency and the streamlining of our operations, our pressure pumping profitability has significantly improved. During the fourth quarter, we reactivated our 11th spread, a dual fuel spread, and we expect to reactivate our 12th spread, a Tier 4 dual fuel spread, late in the first quarter. When we reactivate this spread, seven of our 12 active spreads will be dual fuel capable, which is important as customers are willing to pay up for sustainability solutions that reduce fuel costs and emissions. Pressure pumping pricing has improved at the leading edge, and in 2022, we are focused on maximizing overall profitability of our 12 spreads. We do not have any plans to activate additional spreads after the 12th spread. Moving to new technology, during the first quarter, we expect to complete field trials and start commercialization of our new engine idle management system, EcoStart. EcoStar differs from other systems because it is integrated into our pump control systems, which allows it to monitor our pumping operations and start and stop engines in between stages, eliminating approximately 70% of the engine idle time of conventional operations, resulting in reduced fuel consumption and emissions. In directional drilling, during the fourth quarter, we benefited from increased activity and higher pricing. In 2021, we continued with the rollout of our new impact mud motors and Empower MWD systems, which helped to increase service quality, resulting also in better market share. With that, I will now turn the call over to Andy Smith, who will review the financial results for the third quarter. For the fourth quarter.
spk09: Thanks, Andy. For the fourth quarter, we reported a net loss of $362 million, or $1.68 per share. which includes pre-tax charges totaling $286 million. These charges include $267 million of non-cash impairment charges, $10 million of acquisition-related expenses, a $4.6 million loss on the sale of assets, and a $4 million non-cash write-off of directional drilling inventory. The $267 million of non-cash charges includes $220 million for the retirement of drilling rigs and other drilling equipment $32.2 million for the retirement of approximately 200,000 frac horsepower, $13.9 million for the retirement of directional drilling assets, and $1.3 million of impairments in our E&P business. The rig retirements included all of our SCR-powered rigs in the U.S., leaving us with 184 AC-powered rigs in our U.S. rig fleet. All of our rigs in the U.S. are now Apex-class rigs, including 171 super spec rigs, of which 107 are tier one super spec rigs, having added clearance under the rig floor and a third mud pump. In pressure pumping, our fleet now consists of approximately 1.1 million frac horsepower. As Andy mentioned, we are encouraged by our outlook for drilling and completion activity and pricing and expect total adjusted EBITDA for 2022 of more than $450 million to exceed our CapEx forecast of approximately $350 million by more than $100 million. I will provide more detail on our CapEx forecast as I go through each of our segments. In contract drilling, higher activity, better pricing, and the contribution from Pioneer Energy resulted in a 46% increase in total contract drilling revenue and a 26% increase in adjusted gross margins. In the U.S., on a per-day basis, the average rig margin per day during the fourth quarter decreased, as we expected, to $5,450 per day due primarily to an increase in labor and rig reactivation costs. At December 31st, 2021, Patterson had term contracts for drilling rigs in the U.S. providing for approximately $325 million of future day rate drilling revenue. Based on contracts currently in place in the U.S., we expect an average of 51 rigs operating under term contracts during the first quarter and an average of 39 rigs operating under term contracts during 2022. For the first quarter in the U.S., we expect another strong quarter of activity growth with our average rig count increasing by 10 rigs to 116 rigs. Average rig revenue per day in the U.S. is expected to increase by approximately $800 in the first quarter. and average rig cost per day is expected to decrease approximately $200 per day, leading to a $1,000 increase in average rig margin per day. In Colombia, we expect to generate approximately $16 million of revenue in the first quarter, with approximately $3.5 million of adjusted gross margin. In contract drilling, we expect approximately $215 million of CapEx spend in 2022. The majority of this CAPEX is directly tied to activity levels with maintenance and reactivation CAPEX expected to collectively total $120 million. The remaining $95 million of CAPEX is for items that increase incremental revenue opportunities from our existing rig fleet. This amount includes approximately $55 million for market upgrades, $25 million for high-demand sustainability solutions such as EcoCell and natural gas engines, and $15 million for the purchase of specialty drill pipe that we rent for an additional charge to our customers. We evaluate each of our upgrade opportunities for appropriate contract terms and economics. The majority of the CapEx for market upgrades is intended to meet strong customer demand for Tier 1 super spec rigs. We expect to upgrade approximately 20 rigs to Tier 1 status this year. Premium rigs are receiving higher day rates, and so we expect all of these upgrades to be margin accretive with quick paybacks. CapEx to be spent on our sustainability solutions includes 12 EcoCell units and additional dual fuel and natural gas engines. With strong demand from customers who are willing to pay a higher day rate for eco-friendly, cost-saving alternatives, we expect these upgrades will be margin accreted with paybacks ranging from one to three years. In pressure pumping during the fourth quarter, we effectively managed third-party delivery challenges and maintained a high level of efficiency while achieving better pricing. Pressure pumping financial results for the fourth quarter exceeded our expectations as adjusted gross margin improved by $3 million quarter on quarter to $20.9 million on $183 million of revenues. For the first quarter, we have already experienced some of the weather-related delays that are typical for the first quarter. Even when considering these delays, due to better pricing and the full quarter impact of the spread activated in the fourth quarter, We expect first quarter pressure pumping revenue to increase to approximately $200 million with an adjusted gross margin of approximately $27 million. Pressure pumping capex is expected to be approximately $100 million for 2022, of which more than three quarters is directly tied to activity levels for maintenance and reactivation capex. We do not expect any additional reactivation capex beyond that necessary for the 12th spread we are reactivating in the first quarter. The remaining CapEx is sustainability related and includes some tier four dual fuel upgrades to the engines for our 12th spread, as well as some additional engine upgrades to dual fuel to supplement our existing dual fuel spreads. Dual fuel equipment continues to garner higher pricing in the current market. Turning now to directional drilling, adjusted gross margin for the fourth quarter of $1 million included a $4 million non-cash write-off of inventory. This inventory is no longer useful as we transition to our next generation of in-house engineered MWD tools. These tools improve the quality of subsurface data acquisition and the overall reliability of our tools. Excluding this write-off, fourth quarter adjusted gross margin exceeded our expectation. For the first quarter, we expect revenues to increase to approximately $39 million with an adjusted gross margin of approximately $5.5 million. For 2022, we expect to invest approximately $15 million of CapEx in directional drilling, the majority of which is for the retooling of our fleet to next-generation mud motors and MWD systems. Turning now to our other operations, which includes our rental, technology, and E&P businesses. Revenues for the fourth quarter improved to $17.1 million, and adjusted gross margin improved to $7.3 million. For the first quarter, we expect both revenues and adjusted gross margin to be similar to fourth quarter levels. During 2022, we expect to invest approximately $17.5 million in our other operations segment, which is primarily related to maintenance capex. On a consolidated basis, we expect total depreciation, depletion, amortization, and impairment expense of approximately $121 million for the first quarter. Selling general and administrative expenses expected to be approximately $24.5 million for the first quarter. We expect both our effective tax rate and cash tax rate to be close to zero for 2022. Turning now to our balance sheet, during the fourth quarter, we repaid the $50 million balance on our term loan, leaving us with approximately $741 million of net debt outstanding at December 31st, with no principal payments due until 2028. With our expectation that 2022 adjusted EBITDA will exceed $450 million, we expect to be at approximately one and a half times net debt to trailing EBITDA by the end of 2022. With that, I'll now turn the call back to Andy Hendricks.
spk05: Thanks, Andy. First, I would like to thank our team at Patterson UTI and all the parties involved for the highly efficient work that was done to acquire Pioneer Energy Services, divest the production business, and effectively integrate the drilling business. This was a huge amount of work and was all successfully accomplished within the fourth quarter. A couple of weeks ago, I had the honor of being one of the keynote speakers at the World Oil 2022 Forecast Breakfast, where I gave some of my thoughts on the industry's macro environment outlook. If you thought I was upbeat on the third quarter call, I'm even more upbeat now. It's been a long time since, as an industry, we've had the alignment of various economic factors that have the potential to lead to a multi-year scenario of stability. On the demand side, global oil demand is projected to surpass pre-pandemic levels this year, and it will become increasingly difficult for either OPEC Plus or the US to easily fill the gap. And with US EMPs now focused on returning cash to shareholders and less free cash going towards production growth, all this leads to an interesting situation where OPEC Plus may now have more control over global oil supply and pricing, than they've had over the last decade, which could lead to more pricing stability over the next few years, geopolitical risks aside. For those of us in the contract drilling and oilfield services sectors where premium equipment is tight, this potential commodity price stability has the making of a multi-year up cycle with higher activity for a longer period than we have seen over the last decade. As a result, at Patterson UTI, we are projecting strong EBITDA growth year on year. And with the higher activity, we will increase maintenance and reactivation capex, which is the majority of our capex spend. But in addition, we are planning some capex in the areas of technology to improve our position and earnings in the market. But we are careful to ensure that capex investments have a quick payback and a high return. Overall, with our higher levels of activity, improved pricing, and stronger free cash flow, I am very upbeat for the prospects of Patterson ETI to be able to provide stronger returns to shareholders as we progress through what looks like a multi-year up cycle. We have a long history of returning cash to shareholders, over a billion dollars over the past decade. We are pleased to be able to raise the dividend at this time, and as cash flow continues to improve, we will evaluate all reasonable options to improve our cash returns and provide further value to shareholders. Again, it's an exciting time for Patterson UTI, and we are looking forward to the continuing financial growth. With that, we'd like to thank all of our employees for their hard work, efforts, and successes to drill and complete wells better each day. Brent, we'd now like to open the call for questions.
spk12: At this time, I would like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Your first question comes from the line of Chase Mulvihill with Bank of America. Your line is open.
spk08: Hey, good morning. Hope everybody's doing well today.
spk03: Good morning.
spk08: Andy, Andy. So I guess first question is really around the guidance for 2022. You know, you gave some really strong EBITDA guidance. You said, you know, greater than $450 million. So if I could kind of peel back the onion a little bit and ask you kind of some macro assumptions, you know, to get to that guidance of greater than $450 million, Where does the rig count need to go to this year? Basically, where does the horizontal rig count or total rig count, where do we need to exit the year to be able to hit that 450 mark?
spk05: Yeah, I'll start with that. So, you know, we said at the last earnings call that we think the rig count in 2022 goes somewhere between 650 to 700 for the industry. And we haven't really changed that in our thesis and the way we look at our budgets. But we do see that pricing is improving, and we've continued to become more profitable in each of the businesses throughout the year. Andy?
spk09: Yeah, I don't have a lot to add to that. I would say that as we look across our rig fleet, even with what we've given you in terms of that EBITDA projection, we're going to be pretty... I think we'll be pretty constructive as we look to put new rigs to work. Our projection isn't really based on a ton of rigs going back to work. We are showing an increase, but we're not really showing an increase that gets anywhere near the rigs that we would have available.
spk05: Yeah. When we're giving you this EBITDA, it's really based on our view that profitability continues to improve each quarter.
spk08: Okay. All right. And would you care to, you know, give us some color on kind of where you think, you know, daily gross margins can go to throughout the year? You know, are we going to, you know, be, you know, how much higher can we be than the five and a half thousand a day that you reported in the fourth quarter?
spk05: You know, at the leading edge, as I mentioned earlier, we've got some rigs that are earning in terms of revenue per day with, you know, technology and ancillary equipment that, you know, at $30,000 or over $30,000 a day. And my expectation is that, you know, some of our lesser earning rigs that were contracted, you know, last year sometime start to move up closer to that level. So, you know, that's why we see, you know, margin improvement and expansion quarter on quarter.
spk09: Yeah, I mean, you know, we've held off, and you've seen it in our term contract backlog, but we've held off sort of in this period of lower pricing, you know, signing a lot of longer term deals. And so now that pricing has come back and it's come back pretty rapidly, you know, you'll start to see our portfolio re-rate at those higher levels.
spk05: You know, we said the leading edge base day rate on the previous earnings call for the third quarter was, you know, in the low 20s. And now here we are
spk08: in uh february of 2022 and we're telling you the base rig rate is in the mid 20s and so it's moved up quick i don't think there's been an appreciation for how tight the market is for the type of rigs that people want okay perfect um so unrelated follow-up um and i know mike's there and i don't know if mike wants to comment on this or if y'all want to comment on it i know he's probably done the work but y'all noted that there was 300 tier one super spec rigs And if I recall, I think, you know, you guys have talked about 700 total super spec rigs out there. So that's obviously tier one and what I'll call tier two. So that means you've got 400 that can be upgraded. And we just heard that 20 of yours would be upgraded to tier one. It caught, you know, just less than 3 million a rig. When we think about that 400 that could be upgraded from tier two to tier one super spec rigs, what do you think those costs will be? I mean, obviously it's, you know, about 3 million for you guys. But when we look out there across the industry, you talked about it being expensive and not making a ton of sense for most people at today's day rates. But what's the cost structure look like to upgrade those 400 rigs?
spk05: So we think it's about 300 rigs in the U.S. that can be upgraded to tier one super spec. You've got a large number of rigs out there, maybe over half that have a draw works down design. And so that's a significant capital cost. to be able to make that conversion to get the draw works up. In our particular case, we've got 34 rigs that don't require that conversion, and so it's about two million each for those 34 to bring that up to tier one super spec. We find ourselves in an interesting situation where we think we have an operational and financial advantage in that area to get to tier one super spec these days because we've been building that draw works up design since 2012.
spk08: Yep, yep, makes sense. I know one of your competitors is having to spend six and a half, seven and a half million to get to tier one. So nice to see that you can do that at half the price. With that, I'll turn it over. Thanks, Andy.
spk12: Thanks.
spk07: Thanks.
spk12: Your next question comes from the line of Ian McPherson with Piper Sandler.
spk03: Your line is open. Thanks. Good morning, gentlemen. Good morning.
spk04: I was curious, are the term contracts this quarter into the second quarter, I know they're way below leading edge, but are they neutral or accretive or dilutive to your expected realized day rates and margins in the first quarter? I'm just trying to think about what contract role means for you this year as you reprice.
spk05: Yeah, everything's rolling up, so nothing's dilutive.
spk09: Yeah, if I understand your question right, certainly pricing within the term contract backlog has gone up.
spk04: But in Q1, are the rigs that are under term contract going to earn a higher rate or a below average rate relative to your total fee guidance?
spk05: That's the question. We don't have a lot of those older legacy contracts that we'd be rolling down. you know, the majority of everything we have is going to continue to push up.
spk03: Right. Okay. Okay. Got it.
spk04: And then if I'm working backwards from the paybacks that you described on your, you know, $2 million upgrade to tier one super specs, would I be right in deriving about a, you know, two or maybe a 2,500, $2,000 to $2,500 day rate premium that you would expect between a tier one super spec and a tier two super spec based on today's market pricing. Is that about right?
spk03: I think it might be even a little higher than that. Okay. Okay.
spk04: Really, I mean, I think just following up on Chase's question, we want to understand, we don't want to take your best data point with $30,000 all in revenue per day as your highest point and extrapolate that too quickly and too broadly. But if you're repricing almost your entire fleet within the next 12 months and you're upgrading most of your fleet to be a tier one super spec next year, it's not a crazy extrapolation that the market doesn't change for today's spot rates to be reflective of next year's average rates, is it?
spk05: You could certainly get there, but that's why we wanted to call out what we think the EBITDA is going to be this year and help clarify that so that you know, your extrapolation could fall in line with what we think we're going to do. You know, we don't normally call out EBITDA, but this has been such a big ramp in pricing in all our businesses, not just drilling, that we thought, you know, it was material and important to explain what we think is going to happen in 2022. Okay.
spk04: Thanks, Andy. The last one for me, if there's another higher windfall revision, would we expect that to be just methodically allocated towards another dividend bump, or how are you thinking about incremental free cash flow from here forward?
spk09: I'm not sure.
spk05: In terms of free cash flow, could it be a dividend bump is the question. I think we're going to look at all options. There could be some upside on what we're talking about in 2022 just because of when we went through our budget process. But getting back to what we're going to do with free cash and the use of free cash, we're raising the dividend as of yesterday's board meeting, and we're going to look at all options going forward, whether that's further increase of the dividend, potential special dividend, share buybacks, anything's on the table. We're highly focused on returning cash to shareholders as we continue to produce free cash flow.
spk03: Understood. Thank you, Andy. Thanks. Your next question comes from the line of Scott Gruber with Citigroup. Your line is on.
spk07: Yes, good morning. Hey, Scott. Good morning. Morning, morning. Morning, sir. The pumping, kind of similar line of questions. You guys forecast about 13.5% gross margin in one Q. Where do you think that trend's Over the course of the year, it seems like you're likely embedding kind of high teams in the second half. Is that fair?
spk09: I think that's fair.
spk05: Yeah. So we see a continued progression in gross margin of that business throughout the year, quarter on quarter, up into the high teams.
spk07: Got you. um and then you know as you think about um you you obviously said you know incremental reactivations planned from here but um you know if they were another reactivation what level of profitability you know would you would you need to see on that incremental spread um and and what type of spare capacity do you have in the business today um you know do you have uh you have the dual fuel on the sideline, or would you likely have to upgrade equipment to bring it back into the market?
spk05: Right now, when we activate spread 12, that's it in our plan. We don't have any plan to spend the reactivation capex to activate another spread, and our focus is going to be on improving profitability throughout the year. and you know pushing the pricing where we can on some of the spreads that we have agreements on that were signed you know maybe six months or nine months ago and so that's really going to be our focus and and our team's focus in the pressure pumping business is just improving the profitability when you look at our capex spend you know roughly three quarters of that is uh you know maintenance and then a quarter has to do with the growth to add the dual fuel And that's really all I'm interested in doing this year in terms of pressure pumping. The team has done a fantastic job improving the profitability of this business, becoming more efficient, not just at the well site, but in the actual operation of this business, repair and maintenance costs, et cetera. They're doing a great job. And I think this is a year of just continued improvement of profitability. we don't need to increase market share we're not chasing market share we're really trying to improve the margin and profitability and cash flow for the company in that business in terms of excess in terms of excess capacity uh we still have around five spreads we could activate i say around five spreads because it depends you know are they going to deep high pressure are they going to simulfrac but it's around five spreads uh that we could continue to activate but right now we just don't have plans to do so. Based on what we think pricing's gonna do for the rest of the year, I'm happy where we're at, and we'll just continue to move pricing on some of the spreads that we signed agreements on last year.
spk07: And embedded in the expectations that the margins go from low teens to high teens, does that reflect incremental pricing from here? or just repricing that's already been secured and getting the dual fuel kind of upgrades appropriately priced in the marketplace?
spk05: I think the market's tight. I think the market's short of high-quality equipment that's easily available and easily activated. And I think that leading edge pushes up from here still some throughout the rest of the year. but there's also a lot of repricing that we can do with, like I said, agreements signed six months, nine months ago.
spk07: Understood. Appreciate the call, Andy. I'll turn it back. Thank you. Thanks.
spk12: Your next question comes from the line of Taylor Zurcher with Tudor Pickering Holt. Your line is open.
spk06: Hey, Andy and Andy. Thanks for taking my question. I just wanted to circle back on the topic of Tier 1 super spec rigs that you talked about. You kind of called out the differentiating capital equipment items on the rigs. And I guess I'm just curious, I mean, are there well designs or pad designs that are making these rigs more in vogue such that the demand for these rigs is more basin specific? Or are you seeing broad base sort of premium demand for this sort of equipment across the various basins in place in the U.S.? ?
spk05: What we're seeing is that the operators enjoy the flexibility of being able to lay out their pads and production equipment however they want and have a rig that's capable of maneuvering around all that equipment with the draw works up. Certainly, you can engineer a pad with the draw works down and you can dig the cellars deeper and recess the wellheads and things like that, but then you're designing the pad around the rig. The industry's moved on and operators enjoy the flexibility of just having a rig that can move around their design versus designing a pad around a rig.
spk06: Got it. A follow-up on labor. It seems like you're going to have more success passing through some of the labor inflationary costs as we get into Q1 and Q2. Still, labor is an issue. I imagine staffing equipment is not the easiest thing in the world to do today, and So just curious if you'd give us an update on all things labor, specific to contract drilling, given that's where likely the most of your reactivations will be in 2022.
spk05: Yeah, labor is definitely tight. It means we have to work harder to recruit new people into the industry as we continue to grow. But we did some significant compensation increases in the field last year. And so that was already baked into the Q4 numbers, into the results. And in 2022, we're still going to increase activity. But looking forward right now, I don't think we have any kind of compensation challenges in the field that we need to address. I think we've already taken care of that. There may be some small things here and there, but nothing major in terms of the compensation for the individuals in the field. I think we did a good job addressing that last year. There are going to be some inflation items in there, consumables, various materials. but we've got that, you know, what we consider to be baked into the numbers.
spk06: Understood. And I'll squeeze one last one in. Directional drilling, smaller segment for you guys, but the growth in 2021 has been super impressive. So I know you've got some newer higher-end tools and products that you're rolling out, and just curious if you could frame for us the different dynamics that play in that business for 2022 as we think about potential top-line growth and margin trajectory in that business. Thank you.
spk05: Yeah, the team over there at MS Directional has done a fantastic job over the last few years. Can't say enough good things about them. You know, it was a few years ago that we launched some technology efforts to improve some things in the tools that we run in the wells to navigate and steer. And so we've improved reliability, improved service quality, you know, over the last year and a half. And you saw that in all the numbers, you know, in each quarter for 2021. And our market share has increased to the point where, depending on which report you look at, we're probably number three in directional drilling in the US onshore these days. And so we have a very strong position. We're not looking to increase market share at this point. And so our directional business will track with overall US rig activity. But we do think there's some opportunities to improve profitability. And we'll be rolling out some more technology this year as well. So really excited about how that business is doing.
spk06: Got it. Thanks a lot.
spk12: Your next question comes from the line of Keith Mackey with RBC Capital Markets. Your line is open.
spk02: Hi, good morning and thanks for taking my questions. Just wanted to start off maybe in pressure pumping and certainly appreciate your focus on growing the margins and profitability in that business and and sticking with the 12 fleets. But the question is, to add an incremental fleet beyond that 12, what would you need to see in terms of EBITDA per fleet kind of profitability to get another spread back into the field?
spk05: Yeah, I just don't even want to get into that discussion. It's just not in our plan. It's not on our radar. Like I said, we have the potential to activate another five spreads. But I just don't think that we need to do it. I don't think the market needs it. I think the market's tight. And I think we need to get back profitability in this sector, not just us, but everybody. And so we're happy to work on profitability in 22 and pressure pumping and not try to bring more equipment into the market.
spk03: Yeah, fair enough. Got it.
spk02: Okay. And just on the rig side now, so certainly tier one super spec capacity getting tight and regular super spec capacity or tier two super spec capacity also generally tight. And we're certainly seeing the pricing come as part of that. So when, when at all, if at all, do you think the conversation starts to happen on, on, on new builds or are we still not, not, not even close to that?
spk05: That's not even a discussion, not even on the table. We've there's, There's rigs that are out there, and I don't think the overall rig count is going to require new builds. I just don't see that happening. Don't have any visibility on that at all. We're happy with where we're at. We've got a number of rigs that we can continue to upgrade over 30 that don't cost us very much. And so we're in a good position, and I don't think you're going to see new builds. That's just not in the works, not in the discussion.
spk02: Got it. Very good. And just finally on the pad design requiring higher rig clearance, are there any particular customers or trends in customer groups where this tends to happen, or is it just more specific or one-off?
spk05: It's across the board. I mean, you've seen publics, you've seen privates, you know, change the layout of their pads, and, you know, they – you just see less operators that want to, you know, engineer the pad for the rig and more that want the flexibility of having a rig that can maneuver around all the equipment. So, it's just, it's across the board.
spk03: Perfect. All right. Thanks very much. Thanks. Thanks.
spk12: Your next question is from the line of Require SEAD with ATB Capital. Your line is open.
spk10: Thank you for taking my question. Andy, how many rigs were active in Columbia in Q4, and what's the prospects for this year?
spk05: Yeah, so we had five rigs working in Q4. We expect five, likely the majority of this year, maybe going to six. So it's basically steady from a rig count standpoint, and then the rigs work at about you know, varying number of days per month depending on the programs they're on.
spk10: Are there any prospects of price increases in the Colombian market as well?
spk05: You know, we're looking at it. We're still new to that market, still new to getting to know these customers, so I think for us that's still a wait and see, but we're very happy with the profitability that we're doing in Colombia and the programs that we're on with the customers we're on right now.
spk10: Okay. And then you talked about the rig clearance, that being an issue. What is the optimal rig clearance? What height do you need for these tier one rigs?
spk05: It's when you put the draw works up on the rig floor and it's 21 to 23 feet up. So that's the optimum rig design. And we've been building that design since 2012.
spk10: And then this last question, you mentioned that there are about 39, on average 39 RIC contracts for 2022. What's the number for 2023? Yeah, I don't have that.
spk07: I don't have that handy.
spk10: Okay. No worries. That's all I have. Thank you very much.
spk03: Thanks. Your next question is from the line of Vesnav with Coker Palmer. Your line is open.
spk11: Hey, good morning, and thank you for taking my questions. I guess first, touching on the land drilling side, we talked about 30,000 revenues per day and around 25,000 day rate, so maybe like that 5,000 in services. Is there a way you can say on how many rigs you run, you actually provide those services?
spk05: So we provide, you know, rental drill pipe, ancillary services, and, you know, different levels of technology on a large number of the rigs. And it just so happens is, you know, we're looking back at what we were doing in the fourth quarter that we've got, you know, a number of rigs that when you add everything up, revenue per day in total, you know, is at or above $30,000. And so Real pleased with how that's going, but we're a very large supplier of rental pipe in the market for premium connections as well. Got it.
spk11: And maybe then switching to daily operating costs, is there a way you can help us think about how do you guys think about normalized daily costs, either excluding or including those services?
spk05: Yeah, I mean, it's... that gets back to what we were saying we're going to do, you know, in general, or about 16 to 16 and a half in cost per day. Got it. Okay.
spk11: And maybe this last one on pressure pumping, if I can squeeze in. So first quarter, I guess, like at least the way I back into it is like around 8 million EBITDA per fleet. And if you want to get to high teens, assuming the 12 fleets, probably we are talking low, or mid-teens EBITDA. So that's a big jump. If you can help us just understand how much of that is already in the books that all the other fleets will roll up to that or how much more needs to be acquired to get to those levels in terms of pricing.
spk05: So I'm just looking at some numbers. So we're already in terms of Gross profit percent, we're already near the mid-teens in what we think we're going to do in the first quarter, and we see that steadily progress into the upper teens towards the end of the year. So I haven't backed into what adjusted EBITDA per spread is, but gross margin continues to improve.
spk11: All right. Thank you so much.
spk03: Your next question is from the line of Dan Kutz with Morgan Stanley. Your line is open.
spk13: Hey, thanks. Good morning. Good morning. So I just wanted to ask, with the retirements that you did from the rigs and the pressure pumping horsepower, I appreciate that you guys have kind of given us a lot of detail on maintenance capex, so we could probably come back into an estimate here, but I'm just wondering if... there would be any opportunities to kind of pull some parts off of that equipment to reduce your maintenance costs for your active capacity in those segments.
spk09: Yeah, so when we talk about retiring a rig as an example, you know, the way that those assets get carried are we sort of carry them as components. So not necessarily every component on that rig was retired, but the majority of that rig was retired, and it's no longer a marketable piece of kit. That doesn't mean that every component that would have been on that rig is necessarily not useful, but those weren't included in necessarily the charge, right? So those assets are still on our books, and they'll be useful going forward.
spk13: Got it. That's helpful. And I just wanted to ask about... You guys did the service league and wireline, the best insurer from the pioneer assets. I wanted to ask kind of A, is there anything else that you guys might be looking to the best or any other opportunities to bring some cash in there? And then I guess on the other side of the coin, would you guys be open to any kind of full-time acquisitions or anything maybe for, you know, from a technology perspective or sustainability? Just wondering, you know, if you guys would be open to opportunities there.
spk09: Yeah, I'll take the first part on Pioneer. You know, after the sale of the production services business, what we're left with is what we wanted when we acquired Pioneer. So there's nothing left that we would want to get rid of. On the bolt-on acquisition side, I'll let Andy address that.
spk05: Yeah, in terms of, you know, acquisition for, you know, any improved sustainability, you know, right now we're really happy with our organic engineering. projects and products and services that are coming out. You know, we continue to do things on software for engine management control. You know, we refined the output of the EcoCell and the lithium battery loads and the way that power management works to be able to maximize fuel savings and reduce emissions. So I'd say, you know, right now we're just focused on our organic processes, and that's going real well.
spk12: Again, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your next question comes from the line of John Daniel with Daniel Energy Partners.
spk00: Your line is open.
spk13: Hi, guys. Good morning. I know you don't want to bring more of the frac capacity back this year, but I'm curious hypothetical scenario, a customer comes to you and says, hey, Andy, we really want you to evaluate providing us an electric solution. What do you do?
spk05: I am not interested in an electric solution. I just don't think it, you know, so you want me to, everybody says electric. It's natural gas. Let's just call it what it is. And you've got to have a natural gas source. You've got to have some kind of turbine generator or resip engine producing electricity. You've got to have VFD houses. You've got to have cables. You've got to have wiring. It's not something that I want to do. And trust me, we know how to do it. We have an electrical engineering division. We own thousands of electric motors in our rig business with VFD controls. So we're very familiar, but I don't see the return on electric.
spk13: Fair enough. Let me try this. Let's assume you want to do more Tier 4 dual fuel upgrades. Are you better off just buying brand new trailers from the packager, or do you take one of those five fleets that's parked against the fence? What's the advantage of doing one versus the other and retrofitting it?
spk05: We've just done a write-down on equipment, and we're really happy with the high quality of the equipment that we have in the fleet as of today. Right. In a hypothetical, it would make more sense for us to do a core swap and just do new engines coming out with a dual-fuel package on if we were going to go down that path. But I'll go back to what I said earlier, which is we're at number 12 coming up, and that's it.
spk13: No, I get that. I'm just trying to understand a couple of things.
spk05: But economically for us, everybody's different, but economically for us, it would make more sense to do a core swap and just put a new engine on an existing trailer.
spk13: Okay. And I'm curious if you can answer this. I know you mentioned you're going to do some sort of engine swaps, if you will, this year, and it's in the budget. What is the lead time today on that Tier 4 engine if you called up one of the major OEMs right now?
spk05: I think – so some of the things we're going to do is just do more dual-fuel kits on – not a full engine swap, and we are going to do some engine swaps to round out the spread number 12 that's going out. But I would think on all that equipment, you're in the range of six to nine months is, I think, where we're at.
spk13: All right. And then I'm going to ask one more dumb one since I'm towards the end of the call here. The EcoCell, that concept, what's the application to the FRAC business, if any, at this point?
spk05: So, you know, the only application that I would see is if we took the blenders and turned them to electric and then you could, you know, minimize power requirements by helping with the EcoCell there. But it would take, you know, just because of the horsepower difference in a frack spread, you know, a frack spread is, you know, the equivalent of five to six drilling rigs in terms of total horsepower and power consumption. And so you would be talking about... you know, a large number of ecocells and a very large number of lithium batteries, you know, to do that on some kind of an electric system.
spk13: Okay. Fair enough. Well, I appreciate the time as always.
spk03: Thanks. There are no further questions at this time.
spk12: I will now turn the call back over to Mr. Andy Hendricks.
spk05: I'd just like to thank everybody once again for dialing in today and thank our team at Patterson UTI. Appreciate it.
spk12: Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.
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