UBS Reiterates Buy on Patterson-UTI Energy (PTEN) After Traveling with Management
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UBS reiterated a Buy rating and $24.00 price target on Patterson-UTI Energy (NASDAQ: PTEN) after traveling with management.
Analyst Angie Sedita commented, "(1) Expects dayrates for high spec rigs to rise early in the cycle (potentially by mid-‘17), if oil prices remain above $50/bbl. High utilization not needed to drive dayrates, HP and PTEN historically lead the market higher. (2) Believes dayrates can return to prior highs at a 900 rig count. (3) U.S. land rig market highly bifurcated with only 700 rigs w/1,500 hp AC engines and 250 ultra-high spec rigs (1,500hp, 7,500psi circulating systems, pad-capable). Every E&P “wants these fully loaded rigs." (4) Industry-wide, around 570 rigs could be upgraded to these specs for up to $3 mil each. (5) PTEN has 128 rigs w/ 1,500hp (60% of fleet) and 49 ultra-high spec (86% utilization) and could upgrade remaining 79 rigs. PTEN is upgrading 7-10 rigs today and could upgrade remainder in 2017. E&P's will take a 1,500hp SCR rig before a 1,000 AC. (6) Large E&P’s tend to return to the mkt 3-4 months after privates. (7) PTEN unstacking rigs for 6 mo contracts today, will not take longer term at current pricing. (8) People a bottleneck for PTEN once 20-25 rigs unstacked; PTEN will have to recruit from exmilitary. (9) Rig efficiency will slow as cold rigs unstacked with new/cold crews. (10) Industry has significant levels of drill-pipe and still has pipe “shrink-wrapped.""
Shares of Patterson-UTI Energy closed at $21.22 yesterday.
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