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CEOCFO CEOCFO Monthly Analyst |
MEETING YOUR ENERGY
NEEDS!
Energy PO
Box 1416 Interview
conducted by: Company Profile
Patterson-UTI Energy,
Inc. is the second-largest provider of onshore contract drilling services to exploration
and production companies in North America. The
company owns 302 land-based drilling rigs that operate in oil and natural gas producing
regions of Texas, New Mexico, Oklahoma, Louisiana, Utah and western Canada. Patterson-UTI Energy, Inc. is also engaged in the
business of drilling and completion fluid services and pressure pumping services. CEOCFOinterviews:
Give my readers a little bit more detail on exactly what you are doing. Mr. Talbott: We
are the second largest land-based drilling contractor in the US and we drill oil and gas
wells in the US and Canada. We are second
largest in fleet size, but as far as the number of wells drilled and the amount of footage
drilled, we are first in that category. We do
have three small secondary businesses, drilling and completion fluids, pressure pumping,
and very small E&P segment. CEOCFOinterviews:
I noticed it said exploration and production for other companies. What other companies are you working for? Mr. Talbott: We
drill for other companies; we don't do exploration and production for other companies. The E&P segment is a little company we have
under the Patterson UTI umbrella that we explore for oil and gas for our own account. We do drill wells for other E&P companies,
both oil and gas. CEOCFOinterviews:
You just finished an acquisition. Do you feel
that is fully integrated within the company now? Mr. Talbott: Yes. Actually it was more of a merger of equals than it
was an acquisition. It was a merger of
Patterson Energy and UTI Energy. Now we call
it Patterson-UTI Energy. It has gone quite
well, actually far better than either management team thought would be possible in such a
short period of time. One thing that is
occurring is that we are experiencing a slow down in our industry as far as drilling is
concerned in North America. So we have quite a bit of our equipment shut down, we already
had the merger completed before the industry slowed down so it will give us time to really
stream-line our merger. CEOCFOinterviews:
How is the merger affecting your third quarter results?
Mr. Talbott: Actually
the third quarter results were quite good, better than was anticipated by the analyst on
the street. I think people were concerned when we merged the two companies together that
we would lose a little bit of the efficiency of each company, but it has turned out that
we have reported better numbers than anyone thought we would. CEOCFOinterviews:
So you feel the numbers reflected the merger? Mr. Talbott: I
think the numbers reflected it but the reason it was good was because business was so good
for the last year and a half. However, commodity prices have come down and our business
has slowed down some as of now. CEOCFOinterviews:
Did the company feel any impact from the September 11th tragedy? Mr. Talbott: I
don't think so; certainly September 11th has had some impact. I think what has
more of an impact on the reason our business slowed down was the fact that it appears that
we are going to have plenty of natural gas in storage this winter. Storage is basically full, but that is a very
short-term view. If you look at it from long term perspective the natural gas in this
country is declining and there is no question that we are going to have to drill a lot of
wells to provide natural gas for North America. Actually,
what happened last winter, we ran out of gas in North America and the price of natural gas
sky rocketed to almost $10 per thousand cubic feet. That knocked out a lot of industrial
demand, the price got so high it was actually a true scenario of supply and demand working
to set the price of the commodity. CEOCFOinterviews:
I know you operate in oil and natural gas. Which
one seems to bring in the majority of revenue? Mr. Talbott: Majority
of the revenue comes from natural gas. We
actually had more rigs drilling for natural gas in the last few months than we have ever
had in the history of the industry. There was
almost a thousand rigs drilling for natural gas. We
have never had that many rigs drilling for natural gas before. CEOCFOinterviews:
All the equipment that you are using is it yours or leased? Mr. Talbott: It's
all owned. CEOCFOinterviews:
You have all land based drilling rigs. With
the depleting of our natural gas on land do you foresee yourselves drilling out to sea? Mr. Talbott: I don't think so, at least not now. We don't have any plans to now; I'm not saying
that we won't in the future. Our strategy in
Patterson and the strategy of UTI before we merged was to concentrate in what we call mid
depth drilling, which is somewhere between 7,500 and 15,000 feet and for the time being
that is going to be the strategies of the combined companies. However, approximately 25% of our fleet is capable
of drilling 15,000 feet or deeper. CEOCFOinterviews:
The merger is done, you feel confident that everything is integrated and hopefully you
will start to see results from here. Where
do you see yourself going? Mr. Talbott: Our
strategy to grow the company has been making acquisitions.
UTI's strategy was the same. Both
companies went public in 1993. In 1995 we
almost merged the companies. There were
several reasons why we didn't put the companies together in 1995. At that time, UTI had 25 rigs and we had roughly
25 rigs and on the day we merged combined we had 302 rigs, we had 152 and UTI had 150. I think our strategy going forward will be to
continue to consolidate the industry and grow Patterson-UTI by acquiring more land-based
drilling rigs. CEOCFOinterviews:
Even with the slow down as it presents itself today? Mr. Talbott: Yes. During the slow period you make your best
acquisitions. The reason being is because we
are buying smaller operators of drilling equipment and a lot of times for whatever reason
they decide to get out in the down turns. Usually
when you are at the peak it is harder to buy something.
It is more difficult and it is a higher price. From that standpoint we feel it is better to
buy in times like we are in now. CEOCFOinterviews:
The other part of the business you mentioned, the E&P, drilling and completion fluid
services and pressure pumping service, how much of that is apart of Patterson? Mr. Talbott: It
is a very small part. The drilling fluids,
pressure pumping and E&P combined is less than 15% of the entire revenue of the company. CEOCFOinterviews:
Do you want to grow that end of it? Mr. Talbott: We
certainly are looking to grow the pressure pumping portion, the drilling fluids we may
possibly grow, we are not trying to grow E&P. CEOCFOinterviews:
In your type of business there are a lot of environmental issues. Some companies are required to replace the land
they work with, how much of the environment are you concerned with? Mr. Talbott: We
certainly are concerned with the environment and I think the E&P companies in general
are certainly concerned with the environment. I’ve
been in this business for almost 50 years and I've seen the oil and gas companies go from
not caring at all about the environment, both land and air environment, to where now the
biggest single thing everyone is concerned about is the environment. I think the oil and gas companies are very
responsible today. CEOCFOinterviews:
You are the second largest drilling company, what makes this company uniquely different
from your competitors? Mr. Talbott: I
think that we are unique because of our strategy. All
of us are controlled by the commodity prices. It
is a commodity price driven industry, both crude oil and natural gas, and when commodity
prices are good, in our opinion, most of the wells drilled are in the mid depth category. As far as us having any kind of advantage over our
competition, it would have to be from a service and quality of equipment standpoint. We compete with a couple of the larger land based
drillers and we will continue to do so. It's
really a cost sensitive service you provide to your customers that determines how well you
are doing. CEOCFOinterviews:
Do you have the cash and/or credit available to grow this company? Mr. Talbott: We
are in the best financial shape ever. We have
no debt in the company, we have $100 million dollar line of credit and we have $40 - $50
million dollars cash on the balance sheet. CEOCFOinterviews:
As far as your website, is it used strictly for informational use? Mr. Talbott: Pretty
much, yes. CEOCFOinterviews:
Everyone tries to do different things with it, whether it's communication between
different employees or different rigs. There
are many uses today for Websites. Mr. Talbott: We
use our website rather limited. CEOCFOinterviews:
Do you plan on expanding on that? Mr. Talbott: I'm
sure we may expand some at some point as we get the integration of the two companies
complete. We do have a group working in our
company now working strictly on computer networking so I'm sure as we move forward it will
be more prevalent. CEOCFOinterviews:
I know technology has enhanced a lot, especially in the field of drilling. Has this affected your company in this way as far
as what you use and the latest technology? Mr. Talbott: Very
much so. Without improved technology I think
drilling would be very slow today in this country. Both
3-D seismic technology and horizontal drilling technology have improved our business. CEOCFOinterviews:
I know between the two companies you own 302 drilling rigs and this is a slow time now
would you consider selling some now or do you see yourself expanding in the near future? Mr. Talbott: We
wouldn't consider selling any at all. Just a
short time ago we had 245 rigs working and now we have approximately 140 rigs working. We
wouldn't consider selling any now because our thoughts are and our belief is you will need
more drilling rigs to drill for natural gas in North America and it is our goal to be one
of the larger drilling contractors. CEOCFOinterviews: A potential investor is looking at your
company for the first time. What would you
say to get them excited about this company? Mr. Talbott: I
would tell anyone looking to invest in this company to look at the long-term fundamentals
of both crude oil and natural gas- crude oil for the world and natural gas for North
America. You should study the long-term
supply and demand for crude oil and natural gas. Natural
gas is a declining commodity that we in North America are becoming more dependent on for
our energy supply. If you have a long-term
investment horizon, an investor should study the decline of oil and gas production in
North America. It will not take one long to
realize that many natural gas wells will be needed in North America to supply the
increased demand for natural gas. An astute
investor will need to understand the long-term fundamentals of the industry CEOCFOinterviews:
I know where you are operating now is in Texas, New Mexico, Oklahoma, Louisiana, Utah,
Western Canada, are there other areas you feel that may benefit this company as far as
resources are concerned? Mr. Talbott: We
would certainly look at any area that may have oil and gas drilling to be done. That being said we are pretty much in all of the
basins now, not on the west coast, but in other areas we have a presence especially in
North America. I think we certainly will look
to expand in Canada, that is a frontier and will continue to be for natural gas
particularly. We will be interested in doing
something in Mexico. That is an under
explored area. I don't know when that will be
but at some point I think you will see some opportunities South of the Border. CEOCFOinterviews:
Is there anything that I may have missed or overlooked about the company in general? Mr. Talbott: I think maybe one thing since we have merged the two companies together we now have a great management team. Patterson was more operational orientated and UTI was more financially driven and we've combined the managements of the companies. Mark Siegel who was the chairman of UTI is now chairman of the combined companies. I was chairman and CEO of Patterson and now I'm CEO of the combined companies. I think we have the best of both worlds as far as a management team is concerned. I think it is rather unique for an investor to have an opportunity to invest in an oilfield service company that has the management team that Patterson-UTI Energy has. |
