Patterson-UTI Energy, Inc.

Good morning. My name is Colby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Patterson UTI Energy Fourth 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 followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press star 1. Thank you. I will now turn the call over to Mike Drickemer, Vice President of Investor Relations. You may begin.

Thank you, Colby. 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 December 31st, 2022. Participating in today's call will be Andy Hendricks, Chief Executive Officer, Andy Smith, Chief Financial Officer, and Mike Holcomb, Chief Operating Officer. Quick reminder that statements made in this conference call that state the company's or management's plans and intentions, targets, 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 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 fourth quarter conference call. We are pleased to report another quarter of solid financial results with improving profitability. Adjusted EBITDA grew every quarter in 2022, with fourth quarter adjusted EBITDA almost five times our fourth quarter 2021. Our fourth quarter results were driven by continued improvement in pricing and exceptional execution. Also, during the fourth quarter, we returned $74 million to shareholders through our regular quarterly dividend and $57 million of share repurchases. Additionally, we retired $22 million of long-term indebtedness through open market purchases. As we look ahead, we remain optimistic that we are in a multi-year upcycle. Tier 1 super spec rigs and premium pressure pumping equipment are effectively sold out due to the strong growth in activity over the past two and a half years. The high demand led to a notable increase in leading-edge pricing in 2022, and high utilization continues to support current pricing levels. We anticipate a significant increase in earnings and cash flow during 2023 as we continue to reprice drilling rig contracts higher to current leading-edge rates. From a big picture perspective, we expect oil will continue to be the primary driver of our industry, and we expect oil prices to remain at acceptable levels to support activity for the foreseeable future. With respect to natural gas drilling activity, which is a much smaller part of the total industry rig count, our primary exposure is in the Northeast. Due to constraints on gas takeaway capacity in the Northeast, operators have been careful to align their drilling and completion plans with long-term goals and have tightly managed their production growth, making the Northeast less volatile than other gas markets. As a result, our customers in the Northeast are typically well hedged and have our drilling rigs under long-term contracts. In the near term, we expect some rigs in gas basins outside of the Northeast will be let go while other rigs are reactivated to go to work in the oil basins. This may have the short-term effect of moderating growth in the rig count, but we expect utilization of Tier 1 super spec rigs to remain very high, positively supporting pricing. Turning now to my review of operations. During the fourth quarter, our average rig count in the U.S. rose by three rigs to 131 rigs, and average revenue per day increased by $3,160. Our marketing team deserves recognition for their effort in achieving this growth, which was the sharpest sequential increase in quarterly revenue per day that we have seen. Looking forward, our technology will continue to play a key role in helping customers meet their objectives, whether it's in low carbon solutions, where Patterson UTI has a leadership position with our various technology offerings, or in data analytics and forms of automation and remote operations. We expect that our EcoCell lithium battery system and automated engine power management for drilling rigs will continue to see uptake in 2023 as they have shown to reduce both fuel usage and emissions outputs from drilling operations. We even recently tested hydrogen as a fuel and believe that we were the first to blend hydrogen on an operating drilling rig. We are excited about the potential this has to significantly reduce emissions in the future. In pressure pumping, we saw exceptionally high utilization in the fourth quarter, with limited weather disruptions and minimal downtime during the holiday season, despite the weather. This outcome has achieved through our strategic alignment with key customers and our focus on efficient operations, which allowed us to capitalize on strong demand and secure favorable pricing for our services. We anticipate the demand for pressure pumping services will remain robust, while the supply of equipment will continue to be constrained. The lead times for new equipment, particularly for advanced Tier IV dual fuel engines, are still longer than usual, which makes it difficult to quickly add to existing capacity. Additionally, as customers' demands for higher flow rates grow, the amount of horsepower per spread is also increasing, which will further limit the availability of pressure pumping spreads. In 2023, we will continue to convert engines to Tier 4 dual fuels so that they can use natural gas as the primary fuel and reduce operational costs and emissions. In directional drilling, we remain focused on technology and service quality, with many new developments to improve wellbore placement and quality. With regards to the downhole tool use of our teams to steer wells, we continue to benefit from the vertical integration of engineering key components for our performance drilling impact motors, and our MPower measurements and data transmission systems. This approach has improved our ability to drill wells faster and with better consistency, and to have better control of our costs and supply chain. We are also benefiting from the strategic shift towards higher margin rotary steerable work. In 2022, revenues from rotary steerable work increased to approximately 20% of our directional drilling revenues, up from approximately 13% in 2021. We expect our rotary steerable work will continue to grow in 2023. With that, I will now turn the call over to Andy Smith, who will review the financial results for the fourth quarter.