Patterson-UTI Energy, Inc.

Ladies and gentlemen, welcome to the Patterson UTI first quarter 2024 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'd like to ask a question during that time, please press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star followed by the number one. As a reminder, today's call is being recorded. I will now hand today's call over to Mike Sabella, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning and welcome to Patterson UTI earnings conference call to discuss our first quarter 2024 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 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 reconciliation to GAAP financial measures are included on our website. and in the company's press release issued prior to this conference call. I will now turn the call over to Andy Hendrix, President, Patterson UTI's Chief Executive Officer.

Thank you, Mike, and welcome to Patterson UTI's first quarter conference call. The first quarter unfolded largely as we anticipated, with another quarter of strong free cash flow. The steady environment continued in the oil basins, with activity and production relatively consistent with late last year. In natural gas basins, our customers are being impacted by weak natural gas prices, and they are responding by reducing activity as we expected. Against this backdrop, Patterson UTI delivered strong results during the quarter, and we met our guidance in each of our operating segments. The results in the first quarter demonstrate the free cash flow generating capabilities of the company, even as we invest to maintain our position as a long-term winner in the U.S. shale drilling and completion. and we expect to continue returning a significant amount of cash to shareholders. Bifurcation amongst oil field product and service providers is presenting an opportunity for high-quality companies to generate strong free cash flow, even in a slightly softening market. We are investing in technologies that enhance the efficiency of the U.S. shale model, and this should improve the returns and free cash flow profile of our company over the long term. Our customers are recognizing and rewarding providers that have a differentiated service offering, and Patterson UTI stands amongst the leaders across multiple product and service lines. Differentiation has defined this cycle, and we believe that if we invest in the right technologies and deliver a consistent and repeatable top quality product for our customers, we will be rewarded with higher activity and utilization, and our results are the best evidence. We delivered another strong quarter in Q1 and both our drilling and completions businesses again outperform. We expect this outperformance will continue over the long term. On the macro outlook in oil basins, activity has remained steady, supported by high oil prices. In the near term, customer consolidation is muting the market's response to strong oil prices. This should resolve over time, and at current oil prices, we anticipate some modest demand upside in oil basins starting later this year. Weak natural gas prices are impacting industry activity in the near term. So far, activity in natural gas basins has held up better than we had anticipated, particularly in the Northeast. But we are seeing more natural gas activity reductions continuing in Q2, and we expect natural gas activity is likely to then remain steady with second quarter levels through the rest of the year. Nevertheless, our long-term positive view on natural gas is unchanged. New LNG exports and growing demand for power in the U.S. will require increased production, with natural gas remaining part of the industry growth narrative for 2025 and beyond. In our drilling services segment, we had another strong quarter, with our rig count again outperforming the industry average. Pricing on recent-term contracts remains stable, and margins have been resilient. In the U.S., we started the second quarter operating 118 rigs, and we are currently operating 116 rigs, although we have line of sight for a couple more rig drops as our customers respond to natural gas prices and as customer consolidation creates some potential reduction in near-term activity. We continue to see very high demand for our Tier 1 drilling assets, and we believe our rig fleet is positioned to outperform the market with upside even if the overall market is flat. Customer consolidation will create a period of churn, which we are starting to see in the second quarter, but this should be followed by a high grading process, and that transition is when Patterson UTI should see the most benefit. We are excited about the way the market is taking shape over the long term. On the technology front, we're seeing great results from the investments we've made to add automation systems to the drilling rig controls. Over half of our rigs today are running our Cortex operating system and our Cortex key edge devices. Demand is high and we've allocated a portion of our capex to continue adding these systems. The growing presence of these products on our rigs is enhancing the value of our service offerings. We're also advancing the way we power our rigs by beginning to integrate our grid assist package with our EcoCell lithium battery technology. Often high line power is accessible, but not in adequate quantities to fully power the rig by itself. Our grid assist package can complement the grid power to fully power the rig, even when the utility is only providing a fraction of the electricity. GridAssist has shown the ability to substantially decrease the cost of powering a rig and slash emissions by up to 90% compared to rigs that are still using diesel generators. Our technologies differentiate Patterson UTI's drilling business and should give our rigs a sustainable advantage over many peers in the industry. In completion services, we had another strong quarter. The operational integration with Next Year is largely complete, marking a significant milestone for the company. The team's dedication and expertise has been exceptional. The leadership within the group has shown skill and commitment through this process, and we extend our sincerest gratitude for everyone's outstanding efforts. Looking ahead, we remain focused on identifying additional synergies to further enhance our position as well as completion leader. The benefits so far have been obvious, with relatively steady financial performance compared to the pre-merger entities, even as the market has slowed. This is evidence that the merger is creating value. We have achieved our $200 million annualized energy target faster than we initially expected. During this integration process, the team has continued to advance our transition to natural gas powered frac equipment in a capital efficient manner. We deployed our latest round of Emerald electric frac equipment throughout the month of April with the fleet integrated with our power solutions and going to work in West Texas for a large established customer. So far, the results have been fantastic, with the equipment averaging over 21 hours per day since it started up, a great achievement for a new fleet. We remain on track to grow our electric frack horsepower to 140,000 by the middle of the year, and upon delivery, we still expect that almost 80% of our fleets will be able to be powered by natural gas. We are also field testing other 100% natural gas-powered frack technologies, and the flexibility is one of the biggest benefits of not overly relying on one solution. We think our full suite of natural gas-powered frac assets, including our dual-fuel equipment, is as competitive as any company in the industry. Overall, we expect our nameplate horsepower will continue to decline as we retire older diesel assets. We suspect others are taking a similar approach to retiring older assets as the industry is getting more disciplined with capital deployments. We are also excited by what we have seen from our submitting business following the integration of legacy Patterson UTI and next year operations. We have seen strong market penetration, and as our customers are extending laterals, they are asking for higher quality submitting equipment, leading to bifurcation in this market, similar to what we are seeing in FRAC. We believe our submitting business is well positioned to continue to improve results. Regarding our customer base, we believe much of the churn has already occurred for this year, and we think the rest of the year should be relatively steady, with a steady customer book and a likelihood that frack activity will improve somewhat in Q3. We think Q2 is likely the low point for our company this year in terms of frack activity. We've had some customer-specific gaps that opened up on our calendar during Q2, and those customers should resume normal activity by Q3. Our drilling product segment continues to perform exceptionally well. Altera reached a new company record for revenue generated per industry rig in the US, highlighting the strength of our offerings in the domestic market. Internationally, we saw strong growth with revenue abroad of more than 15% compared to the first quarter a year ago. These results highlight the effectiveness of our drilling products in meeting the evolving needs of our global customer base. We remain optimistic about the growth prospects of the drilling product segment, even in a flattish U.S. onshore market. And Altera's international business is expected to achieve high teens revenue growth this year, primarily driven by strong performance in the Middle East. Altera also had its first successful run in the North Sea, which is a market where the company has not historically participated. Early results in that region have been great, and we have been awarded other sections of the project. This is a great example of an expansion into a new market. The strategic investments we are making will set us up for profitable growth even in a relatively flat market. At the same time, we are delivering strong free cash flow and returning a significant amount of cash back to our investors. We consider this balanced capital allocation strategy critical for enhancing shareholder value over the long term, and we are optimistic that we can continue delivering on this approach. I'll now turn it over to Andy Smith, who will review the financial results for the first quarter.