Patterson-UTI Energy, Inc. (PTEN) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A indicate a positive sentiment. The company has a strong focus on technology investments, international expansion, and shareholder returns, which are well-received by analysts. The guidance for strong free cash flow and shareholder return plans further enhance the outlook. Despite some uncertainties in the frac market and weather impacts, the overall sentiment remains positive. The market cap suggests moderate sensitivity, leading to a predicted stock price movement of 2% to 8%.
Key Financial Performance
Adjusted Free Cash Flow $416 million in 2025, marking the highest adjusted free cash flow quarter since 2023. This reflects strong operational execution and cost control measures.
Quarterly Revenue $1.151 billion for Q4 2025. This includes contributions from Drilling Services ($361 million), Completion Services ($702 million), and Drilling Products ($84 million).
Net Loss $9 million or $0.02 per share for Q4 2025. This is attributed to seasonal factors and macroeconomic challenges.
Adjusted EBITDA $221 million for Q4 2025, showcasing operational efficiency and cost management.
CapEx $139 million in Q4 2025, with $61 million in Drilling Services, $59 million in Completion Services, $15 million in Drilling Products, and $4 million in Other and corporate. The 2026 CapEx budget is reduced by 15% to approximately $500 million.
Dividend Increase 25% increase to $0.10 per share in Q1 2026, supported by robust free cash flow exceeding dividend commitments.
Drilling Services Revenue $361 million in Q4 2025, with 8,596 operating days and an average rig count of 93 rigs. Cost reduction measures offset revenue decreases.
Completion Services Revenue $702 million in Q4 2025, with adjusted gross profit of $111 million. Activity and pricing remained steady compared to Q3 2025.
Drilling Products Revenue $84 million in Q4 2025, with adjusted gross profit of $34 million. Revenue per industry rig remained near record levels in the U.S. and Canada.
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Operating Highlights
Cortex automation applications: Nearly all rigs are now equipped with proprietary Cortex automation applications, with high demand for new software applications to improve drilling operations.
Emerald 100% natural gas equipment: Continued investment in natural gas-powered equipment, with 85% of assets expected to use natural gas as fuel by the end of 2026.
eos Completions Digital Platform: Launched a platform connecting customers with live field data, improving real-time decision-making and reducing reliance on third-party software.
Argentina expansion: Leased two high-spec rigs for work in the Vaca Muerta field, utilizing idle U.S. assets for international operations.
Saudi Arabia manufacturing: Opened a new manufacturing facility for drill bits, enhancing presence in the Middle East.
Free cash flow generation: Generated $416 million in adjusted free cash flow in 2025, with the fourth quarter being the strongest.
CapEx reduction: Reduced gross CapEx budget by 15% to $500 million for 2026, focusing on high-return projects and advanced technologies.
High utilization of frac assets: Maintained high utilization of frac assets, with a focus on natural gas-powered equipment and idling older diesel assets.
Dividend increase: Increased quarterly dividend by 25% to $0.10 per share, reflecting confidence in free cash flow generation.
Focus on advanced technology: Investing in differentiated technologies like APEX rig upgrades and automation to sustain margins and meet complex drilling needs.
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Risk or Challenges
Commodity Price Volatility: Unpredictable commodity prices, particularly crude oil and natural gas, pose a risk to operational and financial stability. The company acknowledges that commodity prices remain volatile and could impact customer activity levels and production trends.
Macroeconomic Uncertainties: Ongoing macroeconomic uncertainties, including potential declines in U.S. oil production due to reduced drilling and completion programs, could adversely affect the company's operations and financial performance.
CapEx Reduction: The company has reduced its gross CapEx budget by 15% for 2026, which, while aimed at cost control, could limit the ability to invest in growth opportunities or respond to market demands.
Winter Weather Disruptions: Severe winter weather in early 2026 disrupted operations, particularly in the Completion Services segment, negatively impacting adjusted gross profit for the first quarter.
International Revenue Decline: The Drilling Products segment experienced a decline in international revenue, particularly in the Middle East, which could impact overall financial performance if not offset by growth in other regions.
Aging Asset Base: The company is reducing capacity of older diesel-powered assets, which could limit operational flexibility and require significant investment to maintain a high-quality asset base.
Customer Hesitation in Natural Gas Activity: Despite optimism for long-term natural gas demand, customers are hesitant to increase activity until clear commodity price signals emerge, potentially delaying revenue growth in this segment.
Increased Operational Costs for Advanced Technologies: The adoption of advanced technologies, such as continuous pumping fleets and digital platforms, increases operational costs, which may not always be offset by customer willingness to pay higher prices.
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Guidance & Outlook
Dividend Increase: The company has increased its quarterly dividend by 25% to $0.10 per share in the first quarter of 2026, reflecting confidence in its free cash flow exceeding dividend commitments.
Capital Expenditures (CapEx): The gross CapEx budget for 2026 has been reduced by approximately 15% to roughly $500 million. Net of asset sales, CapEx is expected to remain below $500 million. The budget includes funding for high-return projects and new technologies to enhance operations.
Natural Gas Demand and Activity: A multiyear increase in drilling and completion activity is anticipated to meet future natural gas demand. Additional demand for services is expected in the second half of 2026 as physical demand for LNG and power generation grows.
Drilling Services Outlook: The average rig count for the first quarter of 2026 is expected to be in the low to mid-90s. Adjusted gross profit in this segment is projected to decline by less than 5% from the fourth quarter of 2025.
Completion Services Outlook: Adjusted gross profit for the first quarter of 2026 is expected to be approximately $95 million, with slightly lower activity due to winter weather disruptions.
Drilling Products International Growth: International revenue in the Drilling Products segment is expected to improve in 2026, particularly in Saudi Arabia, supported by a new manufacturing facility and increased drilling activity in the region.
Argentina Expansion: The company has entered a multiyear agreement to lease two high-spec rigs for work in the Vaca Muerta field, leveraging idle U.S. assets for international growth.
Technology Investments: Continued investments in advanced technologies, including Cortex automation applications, APEX rig upgrades, Emerald 100% natural gas fuel technology, and the eos digital platform, are expected to enhance operational efficiency and margins.
Market Trends and Activity Levels: Oil activity is expected to remain steady with oil prices near $60 per barrel. Gas markets have potential for activity upside later in 2026. The industry is evolving towards larger fleets and continuous pumping operations, which may increase costs but improve efficiency.
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Shareholder Return Plan
Quarterly Dividend Increase: The company announced a 25% increase in its quarterly dividend to $0.10 per share, effective in the first quarter of 2026.
Dividend Commitment: The company remains committed to returning at least 50% of its adjusted free cash flow to shareholders through dividends and buybacks.
Share Repurchase Program: In 2025, the company returned $119 million to shareholders through dividends and share repurchases. Since the start of 2024, approximately two-thirds of adjusted free cash flow has been returned to shareholders.
Future Share Repurchases: The company plans to continue repurchasing shares in the market where it makes sense, as part of its strategy to return cash to shareholders.
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Key Q&A
Q:How does the U.S. frac supply/demand balance look today given the enlargement of the average fleet?
A:The fleet count appears to be decreasing based on public data, but the amount of horsepower deployed has remained steady or grown due to increased use of simul-frac and trimul-frac, higher rates, and higher pressures. This has led to a tighter frac market despite the apparent reduction in fleet count.
Q:What opportunities exist for Current Power in supplying energy storage systems outside of oil and gas?
A:Current Power has an electrical engineering division that builds microgrids and battery storage for drilling rigs. There may be future opportunities in data centers, but these would be large-scale projects and are still in very early stages.
Q:How is differentiation and pricing power evolving in the market?
A:Differentiation is increasing among the top 3-4 players due to technology, execution, and breadth of services. Despite a decline in rig count, margins have not compressed significantly due to technology and operational efficiency. Pricing power remains competitive, especially in West Texas.
Q:What level of incremental demand is needed for pricing power to return to the market?
A:An increase in activity in natural gas basins, driven by LNG demand and U.S. power demand, could lead to significant pricing inflection. Currently, all equipment capable of burning natural gas is in use, and additional demand would require adding assets, driving up pricing.
Q:What was the quantified weather impact on first-quarter guidance?
A:The weather impact was quantified to be in the range of $5 million to $10 million and is already included in the guidance.
Q:What cost-saving measures have been implemented in Completion and Drilling Services?
A:Efforts include reducing maintenance CapEx by refurbishing instead of buying new parts, negotiating with suppliers, improving efficiency to do more with the same workforce, consolidating support structures, and centralizing back-office functions to reduce SG&A costs.
Q:What is the philosophy on share buybacks and capital allocation?
A:The company focuses on maximizing free cash flow and evaluates capital allocation options based on cash flow per share accretion. The pause in buybacks in Q4 was due to working capital lumpiness, but the philosophy remains unchanged.
Q:What is the strategy for international expansion, particularly in Argentina and the UAE?
A:The company is deploying rigs to Argentina due to similar rig specifications to the U.S. and growing activity in the Vaca Muerta region. In the UAE, the focus is on unconventional development through a turn-well JV. The company is open to further international opportunities where it makes economic sense.
Q:What is the outlook for the frac market in the second and third quarters?
A:If oil prices remain in the $60 range, the market is expected to stay relatively steady. Resilience in E&P budgets and activity levels could support this stability.
Q:Will there be further consolidation in the frac market, and how is technology evolving?
A:Consolidation is likely among the top 3-4 players due to technology differentiation. Investments in natural gas-burning equipment and digital platforms like the eos platform are driving this evolution.
Q:Has pricing stabilized in the North American rig market?
A:Pricing remains competitive, especially in West Texas, but the company has been able to protect margins. Stability depends on commodity prices, with current levels supporting relatively stable pricing.
Q:What is the breakdown of CapEx for 2026, and how much is allocated to Emerald equipment?
A:CapEx is allocated as follows: 40% to drilling, 45% to Completion Services, 10%+ to Drilling Products, and the rest to Corporate and Other. Approximately $65 million is allocated to new Emerald equipment.
Q:What is the trend with continuous pumping, and is it advantageous for operators?
A:Continuous pumping requires 20-30% more capital investment for additional equipment. Operators are trialing it to evaluate economic benefits, such as pulling production forward. The company charges for the extra equipment, making it economically viable for them.
Q:What is the average fleet size in terms of horsepower today?
A:There is no average fleet size as it varies by location and operation. Horsepower requirements differ based on basin, pad, and specific customer needs.
Q:What is the exposure to private versus public customers in the U.S.?
A:The company works with both large public and private E&Ps, which take a long-term view. Small private equity-backed privates represent a very small percentage of the customer base.
Q:What is the growth outlook for the Saudi manufacturing facility?
A:The facility focuses on drill bits, driven by in-country value requirements. Growth depends on rig count increases in Saudi Arabia, with potential to export to other regional countries.
Q:What technology offerings are available on rigs, and what is the view on robotics?
A:The Cortex automation system offers applications for enhanced control and efficiency. Robotics are being explored but involve significant costs. Deployment will depend on customer demand.
Q:Why was Q4 activity more resilient than expected?
A:Resilience was due to the customer base, which includes large E&Ps, and the company's ability to efficiently reallocate equipment. There were no pricing concessions involved.
Q:What is the Completion Services gross profit guidance for Q1, and what factors are influencing it?
A:Gross profit is expected to decline by 14% sequentially to $95 million, primarily due to weather-related activity declines and some mix changes, not significant pricing declines.
Q:What is the impact of Tier 1 to Tier 2 inventory transition on Patterson?
A:The transition to Tier 2 or deeper geological horizons increases service intensity, which is positive for pricing. It may require more horsepower and capacity, benefiting the company.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the question about the average fleet size in terms of horsepower today, stating that it varies significantly based on location and operation. Additionally, the response to the Saudi manufacturing facility's growth outlook was somewhat vague, with no specific growth targets or timelines provided.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
America Asia
Argentina
Asia Pacific
Contract Drilling
Eos
Latin America
Middle East
ability cash
agreement
asset base
asset sale
asset technology
capacity asset
capital way
commodity environment
customer interest
customer prepayment
cycle
date
decision making
decrease
dividend buyback
eos platform
excellence
fleet count
flow cash
focus
hour day
industry completion
industry fleet
net asset
pumping
record level
tool product
trend
winter weather
PTEN Transcript
Patterson-UTI Energy, Inc. (PTEN) Q4 2025 Earnings Call Transcript
Positive2-5
The earnings call summary and Q&A indicate a positive sentiment. The company has a strong focus on technology investments, international expansion, and shareholder returns, which are well-received by analysts. The guidance for strong free cash flow and shareholder return plans further enhance the outlook. Despite some uncertainties in the frac market and weather impacts, the overall sentiment remains positive. The market cap suggests moderate sensitivity, leading to a predicted stock price movement of 2% to 8%.
Patterson-UTI Energy, Inc. (PTEN) Q3 2025 Earnings Call Transcript
Unknown10-23
The earnings call summary indicates stable financial performance with some positive elements like strong free cash flow expectations and technology investments. However, the Q&A section reveals concerns about declining margins and uncertain future strategies, such as share repurchases and M&A. The company's outlook on oil and gas markets is cautiously optimistic but lacks immediate catalysts. The market cap suggests moderate sensitivity to these mixed signals, leading to a neutral prediction for stock price movement.
Patterson-UTI Energy, Inc. (PTEN) Q2 2025 Earnings Call Transcript
Positive7-24
The earnings call highlights strong operational performance, particularly in the Cortex automation platform and Emerald equipment, which are in high demand. The company's strategic focus on technology and digital growth, along with a solid capital allocation plan, supports a positive outlook. Although there are concerns about rig count and completion activity, management's optimistic guidance and strong shareholder return plan, including significant free cash flow generation, suggest a positive market reaction. The market cap indicates a moderate reaction, supporting a 'Positive' sentiment rating.
Patterson-UTI Energy, Inc. (PTEN) Q1 2025 Earnings Call Transcript
Unknown4-24
The earnings call presents a mixed picture: strong revenue and EBITDA growth, disciplined cost management, and significant shareholder returns are positive. However, net income is down, and management provides cautious guidance with potential declines in activity if oil prices remain low. The Q&A reveals some uncertainties, particularly regarding tariffs and activity declines. Given the market cap, these factors suggest a neutral stock price reaction over the next two weeks.
PTEN Report
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