Fracking Outlook And Acquisition Synergies: By mid-2024, Patterson-UTI Energy (PTEN) expects to operate ~140,000 horsepower of electric frac equipment. It also expects ~80% of its active fleets to be powered by natural gas. The NexTier acquisition resulted in an annualized synergy run rate of over $100 million. The management expects the Ulterra acquisition to see “significant international growth potential over the next several years.” For the drilling and completion activity, the company’s outlook signals “reduced cyclicality.” Read more about the acquisitions in our previous article here.

The Segment Results Analyzed: Quarter-over-quarter, PTEN’s revenues in the Drilling segment decreased by 5% in Q4 2023. Average rig revenue and margin per operating day also decreased. Excluding the impact of NexTier, revenues from the Completion Services segment declined by 2% in Q4 from Q3. Adjusted gross profit (including the acquisitions) more than doubled as the ongoing merger integration and the company’s wellsite integration strategy produced benefits.

Revenues from the Drilling Products segment increased by 89% following the impact of the Ulterra acquisition. However, the segment saw an adverse effect of the step-up in the value of drill bits Ulterra held at the time of the transaction. The step-up increased direct operating costs and segment depreciation and amortization costs.

Lower Capex Budget For 2024, But Returns May Improve: PTEN’s cash flow from operations increased by 78% in FY2023 compared to a year ago. Its FY2024 capital expenditure budget is down substantially from FY2023. With higher capital efficiency, it focuses on growing profitability. It plans to convert ~ 40% of its adjusted EBITDA to free cash flow. This would accelerate its shareholder returns to more than 50% of FCF over the near term. The company also plans to spend $400 million on dividends and share repurchases in FY2024.

Thanks for reading the PTEN Take Three, designed to give you three critical takeaways from PTEN’s earnings report.  Soon, we will present a second update on PTEN earnings, highlighting its current strategy, news, and notes we extracted from our deeper dive.