Patterson-UTI Energy, Inc.

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Patterson UTI Energy Third Quarter 2023 Earnings Conference Call. Today's conference is being recorded. 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 the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I will turn the conference over to Mike Sabella, Vice President of Investor Relations. Please go ahead.

Thank you, Audra. Good morning, and welcome to Patterson UTI's earnings conference call to discuss our third quarter 2023 results. With me today are Andy Hendrix, President and Chief Executive Officer, Andy Smith, Chief Financial Officer, Mike Holcomb, Chief Business Officer, and Matt Gillard, President of Next Year Completion Solutions. As a reminder, Statements that are made in this conference call that refer to the company's or management's plans, intentions, targets, beliefs, expectations, or predictions for the future are considered 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 takes no obligation to publicly update or revise any forward-looking statements. 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. I will now turn the call over to Andy Hendrix, Patterson UTI's Chief Executive Officer.

Thank you, Mike. Good morning and welcome to Patterson UTI's third quarter conference call. Our third quarter was a monumental one as we closed on two transactions that reshaped our company. Today, we are positioned as one of the market leaders across multiple U.S. onshore service lines with a diverse suite of products and services and a strong presence across the entire U.S. land drilling and completions value chain. We believe these transactions create a long-term competitive advantage for our company, and our wide-reaching digital strategy will help us maximize the value potential for all stakeholders. We will look to use our integrated offering to deepen the partnerships with our customers and further differentiate ourselves on service quality and efficiency. It's becoming increasingly difficult to replicate the success of the larger oilfield services providers, and the market should continue to become more bifurcated going forward than it has been historically. We are looking for ways to help keep U.S. shale oil and natural gas competitive on a global basis. and a competitive U.S. shale is important to the success of our company. Helping our customers reach their goals is critical to allowing us to reach our own goals for a strong return on capital and to return a significant amount of capital back to our shareholders through the cycle. The Next Tier and Altera transactions will help maximize our company's potential. We'd like to welcome the Next Tier and Altera employees to the Patterson UTI team, In the short time we've all been together, we've been impressed by the talent at all levels of both organizations and excited about our shared future. We're working to ensure that we put our people in the right places to succeed. Our employees have worked tirelessly to make the integration a success and have remained dedicated to our company through what has certainly been a stressful period. We believe we've made Patterson UTI an employer of choice in the oil field, which is already helping us attract and retain top talent and further driving our operational advantage. Operationally, we've already seen several successes by extending the next-year well site integration footprint. We now have a next-year power solutions natural gas fueling system working on a legacy universal dual fuel fleet. On another universal fleet, we've added next year's wireline and last mile logistics. We are confident completion's well site integration will lead to improved well site efficiency, lower costs, and a safer environment for our employees, which will benefit both our company and our customers. It's been just two months since we closed the transaction, and we are already starting to see operational synergies. There are many other areas we see potential to create additional value through the merger for both Patterson UTI and our customers. From the next tier transaction alone, we have line of sight of at least $200 million in annualized synergies by the first quarter of 2025. And we are increasingly confident in our ability to meet or even exceed that target. We brought together two of the industry's leading well completion companies and strong collaboration is already underway. On the Altera side, we also see opportunities for revenue synergies between our drilling services and Altera products. As you heard us say before, we cannot ignore the benefit of size and scale that comes with these transactions. This is true not only from an operational perspective, but also as we navigate capital markets that are starting to take another look at our sector. The larger market cap and market trading liquidity has expanded the universe of potential investors that can make or grow an investment in Patterson UTI. We think this is a positive for all of our stakeholders. While our company is much bigger, our commitment to capital discipline is unchanged. Our capital allocation strategy is a major reason why we're excited to be considered by a broader group of investors. We like our strategy and we think the message is being well received. For those who follow Patterson UTI previously, our capital allocation strategy is largely unchanged. The foundation starts with a strong balance sheet as well as organic investing strategy that helps us offer our customers differentiated products, technologies, and services. On the balance sheet, we have an investment grade credit rating at all three major rating agencies, a testament to the low leverage and significant free cash flow generating potential of the new company. We will use our strong capital structure to be opportunistic at all points in the cycle. On CapEx, we will always be disciplined in our investments and only look to put capital to work where we see opportunities to build or expand our differentiated technologies and services for our customers. We've already seen bifurcation in service quality amongst the peer group, and our CapEx strategy will look for ways to further advance our core competencies. This should mean a more repeatable return and free cash flow profile for our company through the cycle with a focus on both short-term and long-term free cash flow generation. To reiterate, we are committed to return at least 50% of our free cash flow to shareholders annually, and we have returned more than $1.2 billion to our shareholders over the past 10-plus years. We remain committed to our dividend, and we have $281 million remaining on our share repurchase authorization. We believe this is an attractive capital allocation strategy that will allow us to invest in the future of Patterson UTI to grow our competitive advantage, while also offering our investors a shareholder return program with both income through the dividend and accretion through any buyback. Now moving on to the macro, we are extremely excited about the outlook and we think the behavior we've seen from our competitors and customers this year is yet another sign that we are operating in a more stable U.S. shale industry. Our customers are obviously still sensitive to commodity prices, but they are looking through volatility more than they have in the past. This allows us to better prepare and relative to prior cycles, it creates a far more predictable outlook for our operations and we think a more investable sector. For the third quarter, Patterson UTI's U.S. drilling activity was in line with expectations, with an average of 120 rigs, including one rig that earned 44 standby days after the customer changed its drilling schedule. We ended the quarter with 117 active rigs in the U.S., and have seen our rig count improve to 118 today. We expect to exit the year with 120 rigs and average 118 for the fourth quarter. Positive momentum should continue into 2024. Our revenue per day is still in the mid to low 30s, an acknowledgment from our customers that they see value in our premium assets and high quality services. Super spec rig utilization remains very high, with activity for this class of rig outperforming the overall rig count. We think super spec rig activity recovers before the idle lower spec rigs, which should position Patterson ETI to outperform the expected recovery over the next several quarters. even as we outperformed the market when the rig count moved lower this past year. On the frac side, there was slightly more white space in Q3 than we were anticipating, as we saw one-off disruptions from several customers. We continue to mostly see pricing discipline in the frac market, particularly among the dedicated natural gas-powered portion of our fleet, where we have the highest returns. As we have said previously, out of our fleet of 3.3 million horsepower, We are choosing to stack some equipment before working at pricing that does not meet our threshold, and we continue to believe that is the right thing for our company. We are using any downtime to maintain our equipment where appropriate and prepare for an increase in activity in 2024. This should put us at an advantage as we enter 2024 with a fleet that is more readily available for deployment relative to its peers. The long-term outlook remains positive in our view, even more so considering the delay in activity recovery we have so far seen for our customers. Oil prices have risen on the back of OPEC supply cuts, but importantly, absent a major macro event, we believe that global balance will need U.S. shale production to grow modestly over the next several years, and U.S. shale activity likely needs to stabilize just to keep production flat. The delayed activity response so far should mean activity will have to catch up with deferred activity, which should be a tailwind in 2024. On the natural gas side, we believe the shape of the forward strip is telling us that there needs to be more activity in the gas basins just to meet current natural gas demand. And as we get closer to completion of new LNG export capacity later next year and into 2025, we will likely need to see natural gas activity rise again. In short, we remain optimistic for both the drilling and completions markets given current commodity prices and the view that we will need a modest increase in U.S. shale oil and natural gas production over the next several years. Meanwhile, the recent slowdown of fracked activity is likely to accelerate attrition beyond what service providers were otherwise preparing for this year across the industry. Additionally, we believe the slowdown has deferred some investments in new equipment. Roughly two-thirds of the industry fleet operating in the U.S. today can be powered by natural gas, and the slowing pace of investment by service providers likely means there's a longer runway to fully replacing the diesel portion of the industry asset base. For our next year completion segment, if we continue to see strong returns, we will still plan to continue to invest to upgrade our fleet at a measured pace. In any new capacity we bring into the market, would likely be 100% natural gas powered and would be replacement horsepower for equipment that is reaching the end of its useful life. More broadly, the industry likely needs to see around 1.5 million horsepower of new builds per year just to keep horsepower flat and has been considerably below that over the past several years combined. In short, the FRAC fundamentals appear to be positioned to remain very strong over the next several years. Regarding international opportunities, I want to be clear that our priorities remain continued capital discipline and returning cash to shareholders. Within our drilling and completion businesses, we occasionally participate in discussions for opportunities in international markets, as we have for years. But for us to deploy capital, we would need to see a compelling opportunity that has a strong probability of acceptable and accretive returns for our differentiated products and services. And to date, we have not found an opportunity that makes sense for our company and for our shareholders. Therefore, our current pace of international expansion will be primarily focused on Altera's previously announced plans in the Middle East and South America, as we believe that is in the best interest of our shareholders. I'll now turn it over to Andy Smith, who will report financial results for the third quarter. Thanks, Andy.