Patterson-UTI Energy, Inc.

Thank you for standing by. My name is Rebecca and I will be your conference operator today. At this time, I would like to welcome everyone to the Patterson UTI fourth quarter 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 would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Michael Sabella, Vice President of Investor Relations. Please go ahead.

Thank you, Rebecca. Good morning, and welcome to Patterson UTI's earnings conference call to discuss our fourth quarter 2024 results. With me today are Andy Hendricks, 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 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 our fourth quarter earnings conference call. In 2024, Patterson UTI delivered on our goal to differentiate ourselves amongst the shale service peer group by using our broad service and product portfolio to deliver value accretive results for our customers and strong free cash flow for our investors. We balance the return of capital to shareholders with organic investments that position the company to extend our sustainable operating advantage over much of our competition. and demonstrated the durable cash conversion profile of our company. As U.S. shale continues to evolve, we believe service companies that deliver value-accretive solutions to the customer, not just the lowest price, will continue to lead the industry in long-term returns. With our high-quality assets and skilled operating and commercial teams, we are confident in our ability to deliver industry-leading performance. Ultimately, this should allow us to deliver improving returns for our own shareholders in the coming years, even if U.S. onshore activity remains steady at current levels. In the fourth quarter, we delivered relatively steady adjusted gross profit per day in our U.S. contract drilling business, effectively managed year-end operator slowdowns across the entire U.S. completions market, and we delivered results in the drilling product segment that outperformed industry activity for the year. We concluded 2024 with very strong free cash flow for Patterson UTI. We returned significant capital to our shareholders, which reduced our total share count by more than 6%. We paid a cumulative dividend equal to 4% of our current market cap. In addition, we reduced our net debt, including leases, by almost $100 million. Our long-term strategy to create shareholder value will continue to focus on three key pillars. First, on the commercial side, our goal is to monetize our value-based solutions. We believe our integration strategies within the drilling and completions business can drive significant efficiencies, helping to reduce well costs and elevate returns for our customers, while also benefiting our own returns. As a leader across multiple service and product lines, our offering is difficult to replicate, which should deliver a sustainable competitive advantage. Second, internally, we are focused on managing our own cost structure. Over the past year, both our industry and our company have seen a slowdown in activity. As we prepare for a relatively steady market in the coming year, we are streamlining our costs to better align with current activity levels. And finally, capital allocation. We expect significant free cash flow generation in 2025. We remain committed to return at least 50% of our adjusted free cash flow to shareholders through dividends and share buybacks. Beyond this, we expect to allocate the remainder of the free cash flow into the higher returning projects while protecting our strong capital structure. Our strategy to deliver unique value-based services for our customers is driving deeper integration of our core assets. This approach is paving the way for a commercial model that will allow us to capture more of the performance-driven upside. Last year, we disclosed our first fully integrated drilling and completion arrangement with performance incentives. We recently completed the drilling portion of this program, delivering wells significantly faster than historical averages. This success resulted in performance bonuses for Patterson UTI while also delivering a significantly better outcome for the customer, including bringing production forward. This project only marks the beginning of a strategy that should have good growth potential. Because we touch more of the well site than we have historically, we believe we have reduced the risk of relying on third parties, which should allow us to more closely control our own density and operations. Moving forward, our commercial strategy will emphasize more integrated and performance-based agreements, which we believe will drive enhanced margins in the years ahead. During 2025, the macro environment should remain relatively supportive for our business, and we continue to expect steady drilling activity through most of the year. On the oil front, commodity prices are supportive of continued drilling and completion activity in the major U.S. oil basins. Our oil-directed customers are increasingly focused on value drivers, resulting in a high grading of our service providers and equipment. Our position as a high-quality service provider with top-tier assets allows us to outperform. On the natural gas side, we see a positive outlook over the next several years with a clear need for more natural gas-directed drilling and completion activity to satisfy growing natural gas demand. We could potentially start to see natural gas activity come back late this year and definitely into 2026. Our U.S. contract drilling business continues to deliver strong adjusted gross margins per day, driven by the efficiencies of our Tier 1 Apex rigs and the quality of the service that we offer. Over the past several years, we have invested to develop a very technical drilling team that integrates automation and performance data analysis into the process and strives for continuous improvement to drill a more efficient shale well for our customers. These people and investments have set our company apart, making it uniquely capable of handling the complexities of the modern shale well, such as extended laterals and faster drilling speed. We are positioned to monetize these investments and unlock the value of our advanced rig technology. We are transitioning more of our drilling services to an integrated commercial and operating model, combining our tier one apex drilling rigs with directional drilling, downhole tools like our drill bits and mud motors, well placement data analytics, and ancillary services such as drill pipe rentals and electrical engineering. This approach helps us to capture a greater share of the drilling spend while also enabling our customers to deliver faster, more efficient wells. For Patterson UTI, this will likely result in our company adopting more performance-based agreements. We see potential for margin accretive growth with this approach. In the U.S., we are currently operating 107 rigs with activity expected to remain relatively steady across both oil and natural gas basins through the rest of the year. Our completion services segment navigated year-end slowdowns with several of our customers by securing work with a few new customers during the quarter while also managing costs. This effort was complemented by expansion of our well site integration services, particularly profit sourcing and logistics. In our CNG power and fueling business, we've successfully launched our new fuel gas technology, delivering excellent results by allowing customers to use more of their trapped fuel gas through our patented technology that improves gas quality and blending. This innovation addresses historical challenges in using fuel gas to fuel frack fleets, such as reduced diesel displacement and increased downtime because of inconsistent fuel gas quality or volume. The industry continues to transition to natural gas-powered frac fleets, and our completions team has led the way in adopting and deploying new solutions. While electric frac is a great option for some of our customers, Tier 4 dual fuel can be more cost-effective for others, as the high capital cost of power generation on electric frac remains a significant hurdle. As each customer evaluates their own needs, our full suite of offerings will fit essentially every situation. As we expand our fleet of Emerald 100% natural gas powered equipment, we've decided to support multiple technologies to retain flexibility and maximize the service offering for our customers. This is the prudent approach when technology options are expanding. And this gives us the ability to offer the best technical solution for 100% natural gas, depending on specific customer applications. In 2024, we worked with our OEM engine supplier to field test direct drive technologies, and we intend to deploy more of this new technology into our Emerald fleet this year. Direct drive systems offer a breakthrough by enabling fleets to run entirely on natural gas without requiring large capital investments for external power generation. These systems are generating strong commercial interest from our customers, and we anticipate these direct drive technologies will gain market share in the coming years. Our flexible approach to technology deployment enables us to adapt quickly to the changing market demands. We operated more than 150,000 horsepower of Emerald 100% natural gas power completion equipment to start the year, and we expect to surpass 200,000 horsepower by mid-2025. Across the industry, we believe all equipment that can be powered by natural gas is effectively sold out, including our dual fuel assets. Roughly 80% of our active fleet can be powered by natural gas. Our drilling product segment concluded a very successful year in 2024 that saw the business outperform industry activity both in the U.S. and internationally. In the U.S., revenue was down less than 5% year-over-year despite a more than 10% decline in the industry rig count. demonstrating the resiliency of a business driven by superior technology and a laser focus on customer service. Revenue improved year over year in our international markets as the company continues to do a great job penetrating new geographies. While our drilling product segment is mostly known for our Altera drill bits, the team has also done a great job developing new products. Our downhill tools and product innovation revenue, which is essentially everything besides the drill bits, more than doubled in 2024 at very strong margins. We have been very pleased with the entrepreneurial spirit of our drilling products business, and we expect to continue to outperform the industry. When speaking with investors and analysts, one of the most frequent topics is the outlook for power, both inside and outside the oil field. and Patterson UTI's role in this evolving market. With power demand expected to grow exponentially over the next decade, the oilfield services industry is well positioned to capitalize through rising natural gas demand and our capabilities as a provider of power generation assets. Patterson UTI has a long history in oilfield power generation. The drilling industry transitioned to electrification decades before the frac sector, and each of our rigs operates with over four megawatts of our own power generation. At peak times, our drilling operations alone have utilized more than a total of 500 megawatts of mobile power. Today, we also operate nearly 150 megawatts of power alongside our electric frac fleets. Mobile power generation is already a core competency of Patterson UTI, and we are prepared to deploy capital to satisfy increasing power demand, but only when opportunities align with return thresholds for our investors. We see significant potential to support our customers as they continue to electrify their compression systems and production pads that cannot be reached by the grid. Combined with our ability to supply natural gas to these systems, our expertise positions us to expand this business profitably as the industry evolves. I'll now turn it over to Andy Smith, who will review the financial results for the fourth quarter.