Patterson-UTI Energy, Inc.

Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Patterson UTI Energy third quarter 2022 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 during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Mike Drickermer, Vice President, Investor Relations. Please go ahead.

Thank you, Dennis. Good morning. And on behalf of Patterson UTI Energy, I'd like to welcome you to today's conference call to discuss results for the three months ended September 30th, 2022. Participating in today's call will be Andy Hendricks, Chief Executive Officer, and Andy Smith, Chief Financial Officer. Quick reminder that 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. Required reconciliations to GAAP financial measures are included on our website, patenergy.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 thank you for joining us today for Patterson UTI's third quarter conference call. I'm very pleased with our third quarter results as we continue to deliver growing profitability. We remain focused on generating returns on our invested capital, while maintaining the high level of service quality and technology enhancements that customers expect from Patterson UTI. As our profitability continues to improve, we are increasing our forecast for 2022 consolidated adjusted EBITDA to more than $650 million, up from $600 million. We are also increasing our 2022 CAPEX forecast to approximately $425 million, up from the previous $390 million. The increase includes the acceleration of rig upgrades for delivery in 2023, where this capex is being largely funded by customers. We also had an opportunistic purchase of an additional tier four pressure pumping horsepower in order to continue to upgrade the quality and earnings power of our fleet. Looking forward, we remain encouraged by our outlook and our potential to deliver free cash flow. We believe the industry is in the early stages of a multi-year up cycle given the capital discipline and moderated growth of EMPs, which are tempering production increases in the U.S. We believe drilling activity continues to increase through next year, thereby driving increases in completion activity. There's been a lot of discussion and reports in the industry over the last few months regarding what EMPs may or may not do with their drilling plans in the fourth quarter and next year. As part of our 2023 planning process, we recently completed a survey of a large representative sample of our customers across each of our major businesses to better understand their drilling plans. I believe you will find the results enlightening. Our broad customer base represents a diverse cross-section of the U.S. drilling and completions market ranging from the largest supermajors to public independents to small private operators. Interestingly, the more than 70 customers we recently spoke with and who primarily drill and complete horizontal wells plan to add an additional 40 drilling rigs in the fourth quarter and almost 50 rigs in 2023. We believe this is a good cross-section of EMPs working in the U.S. and an indication of the activity strength in the U.S. market. And while there has been a lot of discussion about what private EMPs will and won't do, the ones we spoke with plan to add a total of almost 20 rigs in the fourth quarter of 2022 and another 20 rigs in 2023. And interestingly enough, the increase by private EMPs is led by those backed by private equity. In summary, based on recent commodity prices, most of the customers we had discussions with expect to add rigs through next year. with no real discernible differences among the different classes of operators. So turning now to my review of operations. First, again, I'm very proud of the solid execution at each of our businesses as we successfully increased both activity and pricing this quarter, while continuing to provide excellent customer service. In contract drilling, our average U.S. rig count for the third quarter increased by seven rigs to 128 rigs, As of today, we have 131 active drilling rigs in the U.S., along with two additional rigs that are committed to return to work before the end of the year, and four that are already contracted to be activated next year. Across the industry, pricing continues to grow as rig demand remains strong. Supply continues to be limited due to the dwindling availability of Tier 1 SuperSpec drilling rigs, combined with the overall tight labor market and challenged supply chains. Leading edge pricing for these rigs is approximately $40,000 per day, including all ancillary services. At Patterson UTI, we are taking advantage of the current strength in pricing by increasing the number of rigs under term contract, thereby improving our earnings visibility and reducing our earnings volatility. During the third quarter, our U.S. contract drilling backlog increased by 61% to $710 million as we signed 27 term contracts. including three-year contracts for five rigs with a major operator. Our drilling business continues to have a leadership position in reduced emissions technologies, where our EcoCell lithium battery hybrid solution combined with our automated engine management system has eliminated almost 700,000 gallons of diesel consumption from drilling operations in the first three quarters of this year. In the area of automation, our Cortex operating system continues to be deployed in our drilling operations, which enables the functionality of key applications for improved drilling performance on our Apex rigs. In pressure pumping, we saw consistent and repeatable execution across the various functions in our pressure pumping business, from marketing to operations execution and support functions as well. I would like to commend our team for what has been achieved. We have increased our organizational efficiency and scaled the business with a focus on reducing the overall cost structure. The benefits of this strategy were apparent in the third quarter, where we achieved historically high adjusted EBITDA per spread. Additionally, we've been financially disciplined in terms of pressure pumping investments, which, when combined with a strong cash flow generation from this business, is driving very favorable financial returns. We recently completed the opportunistic purchase of 35,000 frac horsepower with Tier 4 engines. These pumps were previously used for lower pressure pump-down work and will allow us to upgrade existing spreads as well as to possibly activate a 13th frac spread in 2023. Additionally, our pressure pumping business continues to invest in specific technologies to improve our services, such as a new digital platform that will enhance field operations and our new EcoStart technology to further reduce emissions at the well site. In directional drilling, we remain focused on technology with many new developments to improve wellbore placement and quality. With regards to the downhole tools used by our teams to steer the wells, we continue to benefit from the vertical integration of engineering key components for our performance drilling impact motors and also our in-power measurements and data transmission systems. This approach has improved our ability to drill wells faster and with better consistency, and also to have better control of our costs and supply chain. Additionally, our well placement data analytics business, Superior QC, continues to lead the industry in improving horizontal well placement, accuracy, and quality. utilizing proprietary survey correction algorithms. A recent third-party validation process showed that Superior QC's data analytics calculations are approximately three times more accurate than standard industry algorithms for well placement, allowing for greater precision in the placement of the horizontal section of our customers' wells. With that, I will now turn the call over to Andy Smith, who will review the financial results for the third quarter.