Patterson-UTI sees at least 90 rigs added to US land-drilling fleet in next 15 months: CEO

US land driller Patterson-UTI believes E&P operators could add at least 40 rigs to the active domestic drilling fleet in the fourth quarter and potentially 50-plus rigs in 2023, based on a recent survey of 70 of its customers, the company's top executive said Oct. 27.

The survey, which was a representative sample of customers across all operator classes large and small, public and private, also showed private operators alone plan to add almost 20 rigs in Q4 and another 20 rigs in 2023, Patterson CEO Andy Hendricks said in webcast remarks during the company's third-quarter earnings conference call.

Patterson's own rig count add in 2023 "is probably in [the] 15 to 20-rig range," Hendricks said.

"We believe this is a good cross-section of E&Ps working in the US and an indication of the activity strength in the US market," he said. "I'm comfortable with these numbers."

"Most of our customers expect to add rigs through next year with no discernible differences between the different classes of operators," he added. "And interestingly enough, the increase by private E&Ps is led by those backed by private equity."

Hendricks suggested there is upside to those numbers since his company's survey didn't include upstream operators which are not Patterson-UTI customers. The driller serves super-majors, large public companies but also private upstream operators.

But the customers surveyed were users of Patterson's Tier 1 Super Spec rigs -- top-quality rigs -- to drill horizontal wells, and not users of the 140 mechanical or lower-specification rigs, he said. Many of those rigs are used to drill vertical wells, he said.

Moreover, Hendricks cautioned that E&P operators have not yet approved their 2023 capital budgets yet and won't release them until early next year.

Rig adds 'not slowing down'

"But based on what we're hearing, our customers and especially the private [companies], are not slowing down their progress" on rig adds, he said.

For the week ended Oct. 26, the US active drilling fleet totaled 890, up eight from the previous week, according to data supplied by energy research and software company Enverus. That is up from 707 at the start of 2022.

Patterson-UTI grew its US rig count in the third quarter as well, averaging 128 rigs in that period. That was up from 121 three months earlier and 115 in the first quarter. In Q3 2021, the driller averaged 80 active rigs.

Patterson expects to grow its fleet in Q4 to average 132 rigs. Hendricks said the company's own rig count on Oct. 27 – the day of the conference call -- was 131.

Furthermore, two additional Patterson rigs are committed to return to work before year-end and four more rigs are already contracted to be activated next year, he said.

Many analysts, drilling executives and others have cited the "tight" rig market this year which is becoming more so over time as availability of top-tier equipment continues to be snatched up by upstream operators to meet their production targets.

Limited availability of top-quality rigs

"Supply continues to be limited due to the dwindling availability of Tier 1 Super-Spec drilling rigs, combined with the overall tight labor market and challenged supply chain," Hendricks said. "Leading-edge pricing for these rigs is approximately $40,000 per day, including all ancillary services."

Just three months ago during the round of Q2 2022 earnings calls, US land drillers were fairly unanimous in saying roughly $35,000/d was the leading-edge rig day rate, and in Q1 2022 they had cited around $30,000/d as leading-edge for the same premium rigs and services.

In addition, Patterson aims to increase its volume of term contracts for more earnings visibility and reduced volatility, Hendricks said. During Q3 its US contract drilling backlog increased 61% sequentially as it signed 27 term contracts, including three-year contracts for five rigs with a major operator.

All told, the driller's US rig term contracts provide for future day rate drilling revenue of $710 million, up from $440 million three months ago. Patterson expects an average 81 rigs under term contracts in Q4 and an average 56 under term contracts over the next four quarters ending Sept. 30, 2023, company CFO Andy Smith said.

While the prices for drilling and pressure pumping have been rising, so have operating costs.

For example, Patterson's average rig revenue per day during Q3 increased $2,770/d sequentially to $28,670/d as day rates continued to strengthen and contract renewed at favorable pricing.

But the company's average rig operating costs increased by $1,690/d to $18,200/d during Q3 from general inflationary pressures, including wage increases for rig and support employees.