Contrasting Patterson-UTI's and Helmerich & Payne's Recent Earnings

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Includes: HP, PTEN
by: Doug Sheridan

Some companies can't get a break. On the same day Patterson-UTI (NASDAQ:PTEN) announced second quarter 2008 earnings that were generally in-line with analysts' expectations plus plans for 20 newbuild rigs substantially supported by expected three-year term contracts, Helmerich & Payne (NYSE:HP) announced better-than-expected earnings plus a comparable number of advanced newbuilds fully supported by already-executed three-year contracts.

Whether or not this constitutes an official eclipsing of PTEN's news by HP is not for us to say. However, the timing and nature of the two companies' announcements at the very least underscores the fact that progress in the oilfield business is both a relative notion and a moving target.

Given the dynamics of today's market, we believe PTEN will need to continue to improve its focus and execution in order to regain lost mindshare in the market place. Although not altogether different than those registered by certain other domestic land drillers –- including Grey Wolf (GW) and Nabors International (NYSE:NBR) –- the company's satisfaction ratings in EnergyPoint Research's independent surveys have been fairly lethargic since 2004 as hard-to-ignore ratings gaps have existed between PTEN and segment leaders HP and Precision Drilling (NYSE:PDS) over this period. Historically, PTEN's largest gaps have most notably been in technology-related categories, especially responsiveness to customer requests for new technologies and the ability to provide value-adding upgrades.

Of course, all journeys begin with a single step and does it appear PTEN is gesturing in the right direction with its fit-for-purpose newbuilds (which we read as AC rigs with the ability to handle directional, horizontal and/or pad drilling requirements with greater composure than legacy rigs) to its fleet.

Nonetheless, the real test of PTEN's resolve to truly transform itself into a more progressive competitor will lie with management's willingness to make additional changes and adjustments. At the very least, customers will need to see a newfound ability and willingness on the part of the company and its people to apply lessons learned (and there will be many with new rigs) and a desire to continually improve. In other words, while new rigs are nice, an organizational commitment to make them work for customers will be the key.

Disclosure: None