THP comments on PTEN (Keep in mind that pressure pumping generates about a third of PTEN's revenues):
PTEN Q4 update ($18.89 – B) – Like the land rig exposure and not paying anything for pressure pumping right now. Raising 2012 eps 16c (becomes $2.28) on lower opex as Q3 issues subside. Stock at 3x our $1.08B 2012 EBITDA; remains cheap and $3.3B in investments over past 5 years have renewed PTEN's rig base. Like lower risk profile cycle to cycle with greater contract coverage. Rig utilization continues to improve. Pressure pumping still strong but Northeast more balanced than Southwest and remaining capacity additions (~140k hp) tilted towards Texas.
Patterson-UTI Q4 follow up (PTEN – $18.89 – B) Joe Hill
jhill@tudorpickering.com<
https://webmail.smu.edu/owa/UrlBlockedError.aspx>, John Lawrence
jlawrence@tudorpickering.com<
https://webmail.smu.edu/owa/UrlBlockedError.aspx>
· Stock thoughts – Stock has lagged dramatically the last three months (-16%, vs. -8% for NBR and +4% for HP) as investors flee/pair up PTEN’s pressure pumping exposure. What was an asset last year has turned into a millstone as the market waits for the inevitable overcapacity driven downturn. The land rig business looks much better, with only 167 rigs in the public company newbuild pipeline, or 7% of working capacity. Valuing just land rigs/E&P, investors are paying 4.5x 2012 EBITDA for the biz, which we think is reasonable in and of itself (and it could be potentially cheaper than this, if the forecast rig count reduction we have modeled does not come to pass), but are getting pressure pumping for FREE. When taken in the context of a 14% net debt/capitalization ratio, and contract coverage of 94 rigs average for 2012 (41% of our active rig forecast for the company), we think the market is overly bearish on PTEN’s prospects.
