Energy Prospectus

Here's why PTEN Q4 EPS came in below my forecast. Keep in mind this is a non-cash charge that will actually help future earnings since it will reduce future DD&A. My updated forecast model for PTEN will be posted under the S-16 Tab in a couple hours. - Dan

The financial results for the three months ended December 31, 2011 include pretax impairment charges of $11.3 million ($7.1 million after-tax) from the retirement of thirty-one of the Company's rigs. The financial results for the twelve months ended December 31, 2011 include pretax impairment charges of $15.7 million ($10.0 million after-tax), from the retirement of fifty-three of the Company's rigs. Components from these rigs are available as spare parts to support other rigs in the fleet. These retirements reduced net income per share for the three and twelve months ended December 31, 2011 by $0.05 and $0.06, respectively.

Douglas J. Wall, Patterson-UTI's Chief Executive Officer, stated, "Activity in our drilling business continued to increase in the fourth quarter, as our average number of rigs operating increased to 232 (hit the forecast on the nose), including 220 in the United States and 12 in Canada. This compares to an average of 221 rigs operating in the third quarter of 2011, including 209 in the United States and 12 in Canada."

Mark S. Siegel, Chairman of Patterson-UTI, stated, "Highlights of 2011 included: a 75% increase in revenue, an 80% increase in EBITDA and 176% increase in net income. We also completed construction of 25 new Apex™ rigs and took delivery of approximately 200,000 horsepower of pressure pumping equipment. The continued highgrading of our rig fleet and growth in our pressure pumping business, combined with appreciable investments in people, safety and training, have had a transformational effect on the Company over the past few years.

"As we look forward, we know that our investors and customers are concerned about the effects on our industry of current unusually low gas prices. As we now see it, increased activity in oil and liquids rich areas, driven by high oil prices, is likely to offset most if not all of the rigs and pressure pumping equipment that may become available as a result of lower natural gas related activity.

"Our exposure to low natural gas prices is mitigated by our long-term contract coverage. We currently have less than 30 rigs drilling for dry gas under contracts that are well-to-well or that have an initial term of less than one year. Moreover, in pressure pumping, the majority of our fracturing horsepower is located in oil and liquids rich areas. In addition, approximately 30% of our fracturing horsepower is under take-or-pay term contracts.

Important comments from PTEN during their Q4 CC:

Finally, we estimate that roughly 60% of our rig fleet is drilling either oil or liquids rich wells. Our greatest exposure to dry gas is within our East Texas and Marcellus regions. In the Haynesville we currently have 23 rigs drilling for gas 12 of which are under term contract. While we expect that only a handful of the 11 rigs in the spot market will move to other markets primarily more focused on oil or liquids rich activity let me point out that all 11 of the spot rigs in this market are 1000 horsepower or greater and therefore we think they are in the sweet spot of demand for other markets such as the Permian, the Eagle Ford and Mid-Continent.

In Appalachians, which includes both the Marcellus and the (Inaudible) shale our term contract coverage is even stronger. 29 of the 34 rigs drilling in this market are currently under term contract just as important four of these are drilling in the liquids rich plays and another 15 are drilling in the more liquids rich targets in Southwest Pennsylvania. Of the remaining 15 rigs drilling in Northeast Pennsylvania only two are in the spot market. We are not expecting a meaningful decrease in our drilling activity in Appalachians given our low spot market exposure.

Overall we feel quite confident that our term contract position and the uptick of spot market rigs from the dry gas areas to the liquids rich plays will keep our activity levels below. Let me make a couple of quick comments on the revenue and cost side relating to the quarter. Average revenues per operating day for the fourth quarter were $21,980 a sequential improvement of $540 per day. Rig pricing continued to improve during the quarter and the impact of new build contracts help push our revenues higher.