Patterson-UTI Energy, Inc.

Thank you for standing by. At this time, I'd like to welcome you to the Patterson UTI Energy fourth quarter 2023 earnings conference call. All lines have been placed on mute to prevent 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 time, press star 1 on your telephone keypad. If you'd like to withdraw your question, just press star 1 again. Thank you. I'll now hand the floor over to Mike Stabella, VP of Investor Relations. Please go ahead.

Thank you, operator. Good morning and welcome to Patterson UTI's earnings conference call to discuss our fourth quarter 2023 results. With me today are Andy Hendrix, President and Chief Executive Officer, and Andy Smith, Chief Financial Officer. As a reminder, statements that are made in this conference call that refer to the company's or management's 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 at patenergy.com and in the company's press release issued prior to this conference call. I will now turn the call over to Andy Hendricks, Patterson UTI's Chief Executive Officer.

Thank you, Mike, and welcome to Patterson UTI's fourth quarter conference call. In the first full quarter following our combination with Nextier and Altera, we showcased the earnings power of the new company and delivered a quarter of strong results for our investors. Our leadership position in both U.S. onshore drilling and completions is allowing us to strengthen partnerships with the leading U.S. shale operators that place a high value on our technology and on our top-tier assets. which in turn is allowing us to outperform the industry. We are very pleased with our results, and the fourth quarter profitability and free cash flow highlights the benefit of the combined company. As we reflect on this past year, we take great pride in our achievements. In U.S. contract drilling, we outperformed our peer group, both in activity and adjusted gross profit per operating day. In completions, we maintained a focus on returns while actively contributing to the advancement of lower cost and emission reducing assets. We delivered extremely strong results while at the same time successfully closing and integrating two transactions. Our team performed a very high level in what was a challenging year for the industry, which reflects our ability to successfully manage our business through the cycle and consistently create value for our shareholders. All that is to say our business is performing very well, and we have high conviction that we have the right strategy in place. We anticipate 2024 will be another year of strong results and considerable free cash flow, and we remain committed to our policy returning at least half of our free cash flow to our shareholders on an annual basis. As our customers look to maximize their own returns, they are consolidating their drilling and completions budgets to fewer higher quality service providers And the divergence in financial results in our sector last year's highlights the widening differential in service quality across the industry. This high grading process positions Patterson UTI favorably and aligns us with our customers as the industry transitions to manufacturing mode. The acquisitions of next year in Altera will significantly strengthen Patterson UTI's competitive position over the long term, as we realize the benefits of our combined expertise and continue to advance our technology lead over much of the oil field. This should offer a tailwind for our company as the entire industry looks to grow returns in a capital-constrained environment. We have played a critical role in enhancing the efficiency of our customers. For Patterson UTI, the benefit from these efficiency gains can largely be seen through our own improved capital efficiency, and we have worked to reduce our capital intensity even as we have improved operationally. We expect total capex for Patterson UTI to decline in 2024 relative to what the combined company spent in 2023. This reflects our commitment to optimize long-term financial performance as we navigate the evolving energy sector landscape. Over the near term, the outlook for U.S. shale activity continues to reflect the expected reduced cyclicality in our sector. The steady outlook presents us with opportunities to enhance our returns and grow our profits in the most capital efficient manner. While we do not see a benefit to adding drilling or completion capacity into the U.S. shale market, we do have several levers we will focus on this year that should help us improve our returns as the year progresses. Our rig technology offerings have momentum with growing demand for our process and equipment automation packages. alternative power solutions that use natural gas and high-line electricity to power our rigs, and numerous other applications that improve efficiencies, minimize the environmental footprint, and add value to the drilling process. Our customers value the uplift provided by these technology offerings, and given the value that can be unlocked, we expect our rig count will continue to outperform the industry. In FRAC, we are investing to convert more of our fleet to electric and other natural gas-powered technologies at a measured pace over the next several years. These new technologies consistently earn a higher return over the diesel equipment that they are replacing, which should allow us to grow profits even at steady activity levels. By mid-2024, we expect to be operating around 140,000 electric horsepower, with nearly 80% of our active fleets capable of using natural gas by then. We are making this transition to electric and other natural gas powered assets, even as CapEx for the combined completions company is expected to be down significantly from 2023. Also on the frac side, we still have considerable upside relative to where we are today as we capture synergies from the next year transaction. At the start of the year, we were roughly halfway to our $200 million annualized target, and we are confident we should be able to fully realize those synergies by the first quarter of 2025. Internationally, Altera offers long-term growth potential to expand our footprint. Altera is expected to grow revenue in EBITDA in 2024 compared to 2023, with potential for record-free cash flow generation that surpasses any period in the company's history prior to our acquisition. Altera's drill bits were used to drill over 82 million feet in 2023, for more than 625 different operators across 25 countries. The presence in these global markets will be a long-term opportunity for our company and should offer our investors growth for the next several years or more. Non-US revenue has accounted for roughly 30% of Altera's revenue since we closed the acquisition in August and for 2024. Altera's international revenue is expected to grow in the high teens percent year over year. highlighting strong prospects in various global markets across the world. By 2024, Altera's revenue from the Middle East is likely to have doubled over the past three years, with additional upside potential over the next several years. In addition to the international opportunities for Altera, in the U.S., revenue per industry rig was up more than 5% sequentially, a function of steady pricing and strong market share gains and reflecting our strong performance in the U.S., complementing the international opportunity. Aside from these operational growth opportunities, our capital allocation strategy should offer our investors an added benefit to earnings per share and return on capital. We are committed to returning at least 50% of our free cash flow to investors, including through stock buybacks, which should help grow earnings per share in the coming years as we reduce the share count. We have committed to return at least 50% of our free cash flow to shareholders on an annual basis. And given our current share price, we are likely to exceed that commitment in 2024, as we believe investing in our own shares at this price is one of the most attractive opportunities available. We expect to return at least $400 million to shareholders in 2024 through the combination of dividends and share repurchases, which would considerably lower our share count by the end of the year. Our board of directors just increased our stock repurchase authorization to a total of $1 billion. As we said previously, the macro outlook appears to be relatively stable through 2024. Current oil prices should support current oil basin activity, although we do see some potential downside in the natural gas basins. On the oil front, according to various data sources, including the EIA, U.S. shale oil production appears to have stabilized. function of the decline in activity over the past year. We do not believe current commodity prices will prompt a reduction in activity to levels that result in production declines. Therefore, a steady activity outlook in the oil basins seems reasonable. Given that 80% of the U.S. rigs are targeting oil, this should contribute to a relatively stable outlook for the entire industry in the coming year. In the near term, the outlook for natural gas is less certain, but we do not think the downside potential will have a material impact on our business over the long term. We are working for some of the best and steadiest operators in the natural gas basins, which should help limit the downside if activity slows. It is also worth noting that the Patterson UTI rig count in the Northeast and the Haynesville combined is down just five rigs total over the past year, even as the industry has reduced activity in those basins by more than 30 rigs over that same time. Our resilience demonstrates our ability to navigate challenges in those basins even in the face of declining industry activity. Further, even as our natural gas customers are slightly reducing activity in the near term, we are already having conversations with those same customers about the potential to add rigs possibly later this year, but also into next year as LNG demand comes closer into focus. Over the long term, we do not anticipate a material impact to our business from the near-term softness in natural gas prices. In drilling, if natural gas activity does fall slightly, we would anticipate only a slight decline to our own activity levels, although we are halfway through this first quarter and we haven't seen much change from our customers. In the US, we started the year operating 121 rigs, and we are currently operating 122 rigs. In 2023, our rig count significantly outperformed the industry, and we achieved this while still improving our margins. The industry rig count exited 2023 over 20% lower than it started. But in contrast, Patterson TI's rig count was down just 8%, while our average daily margins in the most recent quarter were up more than 20% compared to the fourth quarter last year. We are constantly aligning ourselves with partners that offer stable drilling programs and exhibit less sensitivity to commodity prices compared to smaller operators. Our customers benefit greatly from our Tier 1 drilling rigs, which can deliver 35% more lateral footage on average per year compared to a standard super spec rig. More than 90% of our active rigs are Tier 1 with nearly 90% utilization for this category of rig. Given the high demand and the significant value that this class of rig and technology add-ons create, average pricing on recent term contracts has been steady at close to the mid $30,000 per day, and we do not anticipate our rates changing in a flat activity market. We believe the trend towards Tier 1 rigs should continue through 2024. On the completions front, the business is performing well through the ongoing integration. In the fourth quarter, completion services revenues exceeded $1 billion and meaningfully outperformed the completions industry average. We aligned ourselves with the right customers, which helped activity remain steady through the holidays and into the year end. Our natural gas dual fuel assets continue to have success in the market, and we are confident that these assets will maintain competitiveness over the long term even with the increasing market share of natural gas-powered electric equipment. Notably, on several recent occasions, we have displaced a third-party 100% natural gas-powered electric fleet with one of our natural gas dual-fuel fleets. We believe there are multiple technology winners, including natural gas dual-fuel, as the completions industry transitions. The market for horsepower remains relatively tight, and any equipment that can be powered by natural gas is effectively sold out. This should help limit potential downside from current natural gas prices. We are confident in our ability to achieve our goals for 2024 with a significantly reduced capex budget. We expect total company capex of $740 million for 2024. This represents a significant reduction compared to the combined capex budgets of Patterson UTI, Next Year, and Altera that we all had in 2023. We believe we can achieve this while still maintaining our activity throughout 2024 and building on the strong technological advantage that we have over many other players in our industry. This positions us to generate strong free cash flow for the year and return significant cash to shareholders while still building on our competitive advantage over the long term. I'll now turn it over to Andy Smith, who will review the financial results for the fourth quarter.