Patterson-UTI Energy Q2 2025 Earnings Report

Patterson-UTI Energy EPS Results

• Actual EPS: -$0.06
• Consensus EPS: -$0.04
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: $0.03

Patterson-UTI Energy Revenue Results

• Actual Revenue: $1.22 billion
• Expected Revenue: $1.24 billion
• Beat/Miss: Missed by -$22.39 million
• YoY Revenue Growth: -9.60%

Patterson-UTI Energy Announcement Details

• Quarter: Q2 2025
• Date: 7/23/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 24, 2025
• Conference Call Time: 10:00AM ET

Patterson-UTI Energy (NASDAQ:PTEN), through its subsidiaries, engages in the provision of contract drilling services to oil and natural gas operators in the United States and internationally. It operates through three segments: Drilling Services, Completion Services, and Drilling Products. The Contract Drilling Services segment provides contract and directional drilling services in onshore oil and natural gas basins, as well as engages in the service and re-certification of equipment for drilling contractors, and provision of electrical controls and automation to the energy, marine and mining industries. The Completion Services segment offers services for hydraulic fracturing, wireline and pumping, completion support, and cementing; and involved in the power solutions natural gas fueling, and logistics and storage businesses. The Drilling Products segment manufactures and distributes drill bits for energy and mining markets. It also provides software and services, such as MWD Survey FDIR, a data analytics technology to analyze MWD survey data in real-time and identify the position of a well; HiFi Nav, which enhances FDIR by targeting improved vertical placement of the directional well within the reservoir; HiFi Guidance, utilizes trajectory optimization to determine optimal steering recommendations and placement within the reservoir; and rents oilfield tools. The company was founded in 1978 and is headquartered in Houston, Texas.

Patterson-UTI Energy Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Digital and automation investments through P10, Cortex and Vertex are poised to drive efficiency and differentiate Patterson UTI in the market.
• Positive Sentiment: Strong balance sheet with $186 M cash, an undrawn $500 M revolver and investment grade rating positions the company to generate free cash flow well above dividends in H2.
• Positive Sentiment: U.S. Contract drilling margins remain significantly above historical levels, supported by digital rig products, and $312 M of future day-rate revenue under term contracts.
• Positive Sentiment: Completion Services activity is steady into Q3, with Emerald gas-powered fleets fully utilized and fleet-wide Vertex automated frac controls on track by end-2025.
• Negative Sentiment: The company recorded a $49 M net loss (-$0.13/share) in Q2, including a $28 M impairment on its Colombian drilling operations.

Presentation

[Operator]

Hello, and thank you for standing by. My name is Lacey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Patterson UTI Second Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[Operator]

We ask that you limit to one question and one follow-up. Thank you. I would now like to turn the call over to Michael Sabella. You may begin.

[Michael Sabella, VP - Investor Relations at Patterson-UTI Energy]

Thank you, operator.

[Michael Sabella, VP - Investor Relations at Patterson-UTI Energy]

Good morning, and welcome to Patterson UTI's earnings conference call to discuss our second quarter twenty twenty five results. With me today are Andy Hendricks, President and Chief Executive Officer and Andy Smith, Chief Financial Officer. As a reminder, statements that are made in this conference call that refer to the company's or management's plans, intentions, targets, beliefs, expectations or predictions for the future are considered forward looking statements. These forward looking statements are subject to risks and uncertainties as disclosed in the company's SEC filings, which could cause the results the company's actual results to differ materially. The company takes no obligation to publicly update or revise any forward looking statements.

[Michael Sabella, VP - Investor Relations at Patterson-UTI Energy]

Statements made in this conference call include non GAAP financial measures. The required reconciliations to GAAP financial measures are included on our website, patenergy.com, and in the company's press release issued prior to this conference call. I will now turn the call over to Andy Hendricks, Patterson UTI's Chief Executive Officer.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Thank you, Mike, and welcome to our second quarter earnings conference call. The second quarter saw several macro events take place that raised the volatility in the oil markets. At the start of the quarter, there were fears that evolving trade policies could start to negatively impact global oil demand, while at the same time, OPEC plus was signaling to the market that it would be raising oil production and looking to retake market share. Elevated geopolitical risk emerged later in the quarter, which resulted in a wide range of oil prices between the mid-50s and the mid-70s per barrel that made it very difficult for our customers to forecast and make decisions. As we start the third quarter, the macro for oil remains unsettled.

[William Hendricks, President & CEO at Patterson-UTI Energy]

In a typical market, today's oil prices in the mid-sixty dollars per barrel range would support higher drilling and completion activity than we are currently seeing. But customers have remained cautious as they look to better understand these macro events. Through all the noise in the markets over the past quarter, the fact that oil prices have stabilized in the mid-sixty dollars per barrel range is encouraging. With regards to U. S.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Oil production, we believe that until oil directed activity recovers, will likely see a larger negative impact on U. S. Oil production than we have seen so far, which is encouraging for long term outlook relative to current activity. On the natural gas side, we are starting to see early indications from customers that additional activity will start to be added as LNG facilities come online and begin to call for more U. S.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Natural gas. While natural gas prices have at times this year supported higher levels of activity, the demand from new LNG facilities was further out and customers were hesitant to add additional natural gas volumes to the market while takeaway was still being built. We believe we are now approaching that physical call for higher U. S. LNG volumes, and we expect we will see incremental demand for more drilling and completions activity in natural gas basins as we enter 2026.

[William Hendricks, President & CEO at Patterson-UTI Energy]

As the market finds its footing, we expect that we will have opportunities to create value for our shareholders with our differentiated and leading edge commercial strategy. Our operational footprint, growing technology portfolio and financial position should allow us to improve our position across our core markets. Volatility will create opportunities for companies like Patterson UTI and we are prepared to take advantage of these opportunities by prioritizing capital allocation decisions that create long term value for PTEN shareholders. From a capital equipment perspective, we are operating high quality fleets of drilling rigs and completions equipment. But it is the investments we've been making to support that equipment that create our long term competitive edge.

[William Hendricks, President & CEO at Patterson-UTI Energy]

We are growing our digital portfolio and it allows customers to take our top quality assets and layer in automation and machine learning to deliver a more efficient and cost effective solution. Our P10 Digital Performance Center, which just opened this spring, is an integrated digital platform that our customers are using to help optimize their entire drilling and completion process. And the benefits of these investments are only just starting to emerge. As the shale market begins to look beyond the current volatility and prepare for the future, we see an oilfield services market that is poised for change. The companies that help drive this change stand to benefit and we have positioned Patterson UTI to lead the industry into the next phase of development.

[William Hendricks, President & CEO at Patterson-UTI Energy]

It has now been almost two years since we closed the merger of Patterson UTI and NexTier and the acquisition of Ultera. The operational integrations were completed in 2024, but the ultimate strategic vision for the company went far beyond simply being satisfied with the cost synergies that came from those transactions. We are at the early stages of realizing the benefits of this strategic vision. Over the next several years, we see upside relative to the market as we move further down the path of more integration, automation, closer connectivity between the service provider and the customer, and a smarter and savvier shale industry that relies more on data to create value. We have built a company that can deliver value to the customers beyond just the capital equipment, which should allow us to continue to deliver strong free cash flow for our investors.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Our strong balance sheet will allow us to be opportunistic as we navigate the market and should help us improve our returns. We closed the quarter with $186,000,000 in cash and an undrawn $500,000,000 revolver, low leverage and an investment grade credit rating. We are poised to see free cash flow in the second half of the year well beyond what it will take to fund our dividend and we are exploring ways to best put that cash to work. Our U. S.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Contract drilling business largely tracked industry activity during the quarter and we continue to see margins hold at levels significantly higher than we have seen in previous periods of moderating activity. Our margins have remained resilient, which we believe shows the technology edge we have built with the Patterson UTI rig and digital drilling platform. Even as industry activity moderated, we increased revenue from our drilling automation technologies. Customer demand remains strong for our proprietary products that enhance the drilling process, including our Cortex automation platform, which enables our advanced machine learning auto driller application and our REX cloud based early alert field monitoring system, which we are using these technologies to support a broader customer base as we advance the use of artificial intelligence to improve the efficiency of our drilling operations. Increased acceptance of these technologies is creating a more sustainable customer relationship as we prove out the growing performance advantage of our high performing rigs compared to other similar capital assets in the market that lack equivalent digital products.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Moving on to Completions. Our Completion Services segment saw slightly reduced activity during the quarter, which was largely the function of some customer gaps in the calendar on several of our larger dedicated fleets. We filled most of these gaps with spot work for new customers, which helped to offset some of the changes in customer activity. Our Emerald fleet of 100% natural gas powered equipment has grown to more than 225,000 horsepower. Our Emerald fleets and our Tier four dual fuel fleets remain fully utilized.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Our completions business achieved a key technology milestone on our automated hydraulic fracturing, which we call Vertex. There is growing acceptance for automated frac pump controls and we are already working in the Bakken and in Appalachia and are on track to complete fleet wide deployment of this technology by the end of twenty twenty five. Through Vertex, we see the potential for our equipment to get to rate faster and run at the optimal rate for each pump, which should reduce costs, lower our maintenance capital and also improve the overall use of natural gas as a fuel. Our P10 Digital Performance Center is the backbone for the entire company as we make significant strides to uniquely help our customers better their plans, execute and optimize drilling and completions design based on real time information. Our Drilling Products segment had another very strong quarter with sequentially higher adjusted gross profit.

[William Hendricks, President & CEO at Patterson-UTI Energy]

The U. S. Market saw revenue improve compared to the prior quarter even as the industry activity declined, delivering another quarter of record U. S. Revenue per U.

[William Hendricks, President & CEO at Patterson-UTI Energy]

S. Industry rig. The business made big strides as it grows its presence across The U. S. International revenue was steady, although we did see higher revenue in several key markets including The Middle East.

[William Hendricks, President & CEO at Patterson-UTI Energy]

The Canadian markets, which represents just under 10% of segment revenue, had a great quarter despite the impact of normal seasonal spring breakup. One of our latest technology advancements, our Maverick drill bit continues to have significant traction in the market as we have had success in our drilling products business through constant innovation and through downhole tool technology. For Patterson UTI, our businesses have come together to create what we believe is one of the most formidable companies in our industry. Our foundation remains our top quality capital equipment and our breadth of offerings at the well site. But the long term strategic vision has been to build a company with an unmatched operational digital edge and the investments we have made are only just starting to bear fruit.

[William Hendricks, President & CEO at Patterson-UTI Energy]

It has been a multi year journey for our company to execute the vision that we set out for at the time of the merger and we believe the commercialization of these initiatives is perfectly timed as our customer base becomes larger and more sophisticated. We expect this should lead to continued strong free cash flow and better returns profile for our investors. I'll now turn it over to Andy Smith, who will review the financial results for the quarter.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

Thanks, Andy. Total reported revenue for the quarter was $1,219,000,000 We recorded a net loss attributable to common shareholders of $49,000,000 or $0.13 per share, which included a $28,000,000 impairment related to our drilling operations in Colombia. Adjusted EBITDA for the quarter totaled $231,000,000 Our weighted average share count was $385,000,000 shares during Q2 and we exited the quarter with $385,000,000 shares outstanding. During the first half of the year, we generated $70,000,000 of adjusted free cash flow. We saw a working capital headwind of roughly $119,000,000 through the end of the second quarter, which is typical of our business in the first half.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

We expect working capital will be a tailwind in the second half of the year. During the second quarter, we returned $46,000,000 to shareholders including an zero eight dollars per share dividend and $16,000,000 for share repurchases. Since we closed the NexTier merger and Ultera acquisition through 06/30/2025, we have repurchased more than 37,000,000 P10 shares in the open market, which exceeds the shares we issued for the Ultera acquisition. Including the impact of dilution, we have reduced our share count by 8% since that time. This is in addition to reducing net debt, including leases, by nearly $200,000,000 and paying a dividend that is currently an annualized 5% of our share price.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

In our Drilling Services segment, first quarter revenue was $4.00 $4,000,000 and adjusted gross profit totaled $149,000,000 In U. S. Contract drilling, we totaled nine thousand four hundred and sixty five operating days for an average operating rig count of 104 rigs with our sequential change in activity roughly in line with the industry trend. On June 30, we had term contracts for drilling rigs in The U. S.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

Providing for approximately $312,000,000 of future day rate drilling revenue. Based on contracts currently in place, we expect an average of 48 rigs operating under term contracts during the 2025 and an average of 27 rigs operating under term contracts over the four quarters ending 06/30/2026. For the third quarter in drilling services, we expect an average rig count in the mid-90s. We expect adjusted gross profit of approximately $130,000,000 Revenue for the second quarter in our Completion Services segment totaled $719,000,000 with an adjusted gross profit of $100,000,000 We saw calendar gaps on multiple long term dedicated fleets during the quarter, although we filled most of those gaps on spot pads for new customers. We also saw higher revenue from several of our key customers and saw improvements in natural gas basins relative to the first quarter.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

For the third quarter, we expect completion services adjusted gross profit to be relatively steady sequentially. Second quarter drilling products revenue totaled $88,000,000 with an adjusted gross profit of $39,000,000 Drilling products revenue improved in The U. S. Even as industry activity moderated and we also made gains in several of our key international markets including The Middle East. Our Canadian business saw typical seasonality from spring breakup, although sequential results were much better than the industry activity as we made gains in several key markets in the country.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

For the third quarter, we expect Drilling Products adjusted gross profit to improve slightly sequentially with our results in The U. S. Seeing some impact from the lower rig count. Our expected activity in Canada should benefit as that region comes out of normal spring breakup while international revenue is expected to improve slightly. Other revenue totaled $8,000,000 for the quarter with $2,000,000 in adjusted gross profit.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

We expect other adjusted gross profit in the third quarter to be steady compared to the second quarter. Reported selling, general and administrative expenses in the second quarter were $64,000,000 For Q3, we expect SG and A expenses will decline slightly sequentially. On a consolidated basis for the second quarter, total depreciation, depletion, amortization and impairment expense totaled $262,000,000 which included the previously mentioned $28,000,000 impairment related to our Colombian drilling business. For the third quarter, we expect total depreciation, depletion, amortization and impairment expense of approximately $230,000,000 During Q2, total CapEx was $144,000,000 including $55,000,000 in drilling services, dollars 69,000,000 in completion services, dollars 15,000,000 in drilling products and $5,000,000 in other and corporate. With regards to our capital budget for the remainder of the year, we expect capital expenditures net of proceeds from the sale of assets of less than $600,000,000 in 2025.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

We are reducing our full year 2025 maintenance capital expenditures given slightly lower activity. However, we are still seeing strong demand for new technology in both our drilling and completions businesses related to digital and automation services and for advancements in technology to more cost effectively drill and complete longer laterals at higher temperatures and pressures. These investments should improve our competitiveness over the next several years and we expect these investments to earn a strong long term return on capital. We believe that our level of integration will uniquely position us to capitalize on these investments. As we approach our 2026 capital budget process, we have significant flexibility within our future capital spend and will reassess market dynamics later this year.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

We closed Q2 with $186,000,000 in cash on hand. We do not have any senior note maturities until 2028 and we do not have anything drawn on our 500,000,000 revolving credit facility. Through the first half of twenty twenty five, we have already returned almost $100,000,000 to shareholders through dividends and share repurchases. Free cash flow is likely to accelerate in the second half as working capital needs decrease. We expect free cash flow in the second half should significantly exceed our dividend and we are continuing to explore the best use of cash to create the most long term value for our shareholders.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

Our Board has approved an $8 per share dividend for the 2025 payable on September 15 to holders of record as of September 2. I'll now turn it back over to Andy Hendrix for closing remarks.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Thanks, Andy. Our second quarter results reflected a moderation in activity across our core markets and we are pleased with the way our business has responded to the changing macro. They're all sometimes difficult in delivering on the high expectations that we set across the entire company for our teams, but we're fully confident in our team's ability to rise to the challenge. Operationally, we are seeing more opportunities to use our technology and unique operating footprint to enhance efficiency for our customers and deliver free cash flow to our investors. The volatility in the market will create long term opportunities for the top tier service providers like Patterson UTI and the investments we've made over the past several years into our P10 digital performance center, combined with our top quality capital equipment, will differentiate us relative to our peers.

[William Hendricks, President & CEO at Patterson-UTI Energy]

As the market settles and macro uncertainties subside, our suite of digital and automation products have positioned our company as a long term leader. We are excited about the company we have built and believe we are just beginning to see the strategy play out. From a financial perspective, our balance sheet remains solid. We closed the quarter with a substantial cash balance and see the opportunity for significant free cash flow in the back half of the year. This is allowing us to reinvest in multiple leading edge technologies that will extend our operational edge and create value for our shareholders long term.

[William Hendricks, President & CEO at Patterson-UTI Energy]

And finally, on the macro, current oil production has yet to see the impact of the latest round of activity moderation. While customers have remained cautious, we also do not believe the current level of activity can be sustained without a larger negative impact to production volumes than we've seen so far. This gives us some encouragement on our long term outlook relative to what we are seeing today. On the natural gas side, we believe global LNG markets are nearing a higher call on U. S.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Natural gas physical volumes. And we believe customers are already starting to make plans and partner with service companies that can most effectively help them satisfy that call. Patterson UTI has made investments over the past couple of years to prepare the business for what we saw as the next phase in shale development, where more digital services and automation will be used to drive further efficiency. We believe we are just at the beginning stage of realizing the benefit of those investments. We remain excited about the future of our industry and our company.

[William Hendricks, President & CEO at Patterson-UTI Energy]

With that, I'd like to turn it over to Lacey to open the calls for Q and A.

[Operator]

Your first question comes from the line of Scott Gruber with Citigroup. You may go ahead.

[Scott Gruber, Director - Oilfield Services & Equipment Research at Citi]

Yes. Good morning, Andy and Andy.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Good morning, Scott.

[Scott Gruber, Director - Oilfield Services & Equipment Research at Citi]

Wanna start on the the completion side. You know, the the flat three q outlook is definitely solid in in light of the the macro here. What's your early look into 4Q telling you? Halliburton suggested a pretty steep year end decline. You guys sound pretty booked up at least for 3Q, but how does that look for 4Q?

[Scott Gruber, Director - Oilfield Services & Equipment Research at Citi]

Are you thinking it could be a pretty steep year end decline or with weaker activity in 2Q, 3Q for the industry is kind of a more normal seasonal pattern and and 4Q the more likely result?

[William Hendricks, President & CEO at Patterson-UTI Energy]

Yeah. First off, you know, when it comes to completion activity, I wanna congratulate the team on what they were able to do in the second quarter. As, you know, we had said, you know, earlier in the quarter that we were going to have some white space in the calendar towards the end and they did a great job filling that. And then also on what they're doing in the third quarter and really just keeping the calendar full. And so we're going to be relatively steady in the third quarter and so that bodes well for us for the year.

[William Hendricks, President & CEO at Patterson-UTI Energy]

I think it's too early to call what the fourth quarter looks like, but I would say based on some of the things that we're hearing from the customers for some of the long term plans and even as we discussed LNG physical volume takeaways in '26, I think there could be moderation in Q4, but I'm not sure yet it's a steep decline for us. So I think, you know, it's a little early to call q four. We do think it softens a little bit, but we're not sure to what degree yet in terms of completion. And

[Scott Gruber, Director - Oilfield Services & Equipment Research at Citi]

No. I see.

[William Hendricks, President & CEO at Patterson-UTI Energy]

You know, because we operate a large fleet of drilling rigs, we have some visibility on the overall market. And I think that's, you know, really kind of plays a key in how we look at things. And while our rig count's going to come down, you know, in the mid nineties in the third quarter, you know, looking out farther in the year, I think it could stabilize after that as well, which would be encouraging for completion.

[Scott Gruber, Director - Oilfield Services & Equipment Research at Citi]

Got it. And that that I was gonna ask about the rig count too. So stabilization, it sounds like it's possible in the in the four q. Is that, you know, some gas activity coming back or some some oil activity coming back if if oil stays, you know, here in the in the mid sixties? And what's the what's the complexion of the drilling work that could hold steady in the 4Q?

[William Hendricks, President & CEO at Patterson-UTI Energy]

Yes. And I'll caveat everything on today's commodity prices as well. But when look at what we've got going forward, there's different movement in different basins across The U. S. So you've got some rigs going up in some basins, some rigs going down in some basins.

[William Hendricks, President & CEO at Patterson-UTI Energy]

So we've got movement to deal with that aren't concurrent in the same basin. And so that's what we've got to work with. But, you know, it does have the potential to be steady in the fourth quarter, and it was steady in the fourth quarter last year as well. So we'll again, we'll have to see how that plays out. But I would say, you know, overall, I'm encouraged for what we see for this year versus what we were trying to deal with back in May.

[Operator]

Your next question comes from the line of Derek Potheiser with Piper Sandler. You may go ahead.

[Derek Podhaizer, Director & Senior Research Analyst at Piper Sandler Companies]

Hey, good morning. Just wanted to follow-up on Scott's question about third quarter specifically with the completion activity. You've obviously talked about steady here, which has been a converse from some of your peers. Maybe just if you can unpack that a little for us, Andy, the different puts and takes. Is that a gas versus oil common?

[Derek Podhaizer, Director & Senior Research Analyst at Piper Sandler Companies]

Is it spot versus dedicated? Just maybe a little bit more on the third quarter outlook for completion.

[William Hendricks, President & CEO at Patterson-UTI Energy]

For us right now, it's just kind of steady in the basins. We'll have a little bit of movement between some fleets moving to different places, but overall just kind of steady. No real commentary on one basin for another on completions right now. We're working for some really solid customers both in gas basins and oil basins. We're applying a lot of digital technology.

[William Hendricks, President & CEO at Patterson-UTI Energy]

The new Emerald fleets are out there burning 100% natural gas and we've grown that this year. And so we're in a good position there from a technology standpoint and I think that's keeping us busy.

[Derek Podhaizer, Director & Senior Research Analyst at Piper Sandler Companies]

Got it. That's helpful. Maybe on the the the a lot of digital commentary and technology commentary in the release, which was great to see. You know, you talked about being strategic with your cash balance and how you can deliver long term returns for your shareholder. Maybe can you talk to us about what we could potentially see with how you scale that, whether it's technology, bolt on, tuck ins, you could bring these types of assets onto the Patterson platform and scale?

[Derek Podhaizer, Director & Senior Research Analyst at Piper Sandler Companies]

Maybe just give us an idea of what you're thinking about growing your technology in digital and potentially some M and A related to that?

[William Hendricks, President & CEO at Patterson-UTI Energy]

Yes. And it's the technology across the board. In drilling services, we continue to roll out new technologies especially on the digital platforms. You know, when we talk about Cortex automation, there's the teams are writing more applications every week, every month to work on the drilling rigs and we continue to expand our ability to be able to run those automation applications on the drilling rig fleet. And so we've seen the revenues, direct revenues from those digital applications continue to move up.

[William Hendricks, President & CEO at Patterson-UTI Energy]

And all that gets supported by our digital performance center here where our Rex Alert system has advanced technology to be able to flag performance at different levels of the organization and even for our customers who sign in and use it. And so it's really improving our ability to perform for the customers overall and be more consistent on how we drill wells. On the completion side, we've been testing and now running automated frac capabilities in Appalachia and The Bakken and we're going be expanding that across The U. S. And the interesting thing for us, it's not limited to any one particular technology.

[William Hendricks, President & CEO at Patterson-UTI Energy]

We can run automated frac systems on all of our technologies and we'll have that out and deployed later in the year. And so we anticipate that that improves our ability to compete in the markets, which we have to be able to do in a market like today, but also layer in some extra revenue at times with some customers as well for the benefits that they're seeing.

[Operator]

Your next question comes from the line of Akeedra Modak with Goldman Sachs. You may go ahead.

[Atidrip Modak, Vice President - Energy Services & E&Ps at Goldman Sachs]

Hey. Good morning, team. Andy, you noticed you noted, increased conversations around gas directed activity. Can you give us any more color on those conversations and the implied trajectory trajectory as we should think about maybe early thoughts in the '26 maybe both on oil and gas then?

[William Hendricks, President & CEO at Patterson-UTI Energy]

Yes. So the gas discussions have been interesting because I think this year there was a lot of talk early in the year that there'd be some uptick in gas towards the end of the year. We've seen some small increases in gas activity this year and it's been material for us. But we're expecting more gas activity next year just based on the discussions that we're having. Now when you look at the overall physical LNG volume demands that we're going to see in 2026, 2027, 2028, some of that's initially going to come from wells that are already behind pipe, behind the valves, ready to go.

[William Hendricks, President & CEO at Patterson-UTI Energy]

But we have a you know, we have customers at well that wanna increase their activity, and they're talking to us about drilling rigs. They're talking to us about completion equipment. They're talking to us about technologies and upgrades and additions and and both digital equipment as well to be able to handle this. So we're in those discussions for 2026. And so I think we're going to see some further increase in the activity in 2026.

[William Hendricks, President & CEO at Patterson-UTI Energy]

In all markets right now and today's oil prices are just kind of holding steady for us towards the end of the year. But I think that it will be gas that shows some uptick next year and then we'll see what the oil markets do in terms of the price or our oil producing customers get more confident around where where oil prices are today and the stability in that oil price. So we'll have to see how that plays out, you know, later this year and early next year.

[Atidrip Modak, Vice President - Energy Services & E&Ps at Goldman Sachs]

Thanks, Andy, for that. And then on the private exposure, can you can you give us any color there, thoughts around what you're seeing? Because you're hearing, obviously, on the gas side, maybe track engagements and rig engagements are probably stronger there, but private oil also matters a lot to you. So thoughts there on the private side?

[William Hendricks, President & CEO at Patterson-UTI Energy]

Sure. We don't necessarily work for some of the smaller privates that are private equity backed that are really focusing on cash flow or proving out some acreage for a flip. We tend to work for the larger companies and especially in oil products and that's been relatively steady for us. And so really pleased with what we do for those companies, the level of technology that they operate, the efficiencies they get. One very large private that we work for actually drills wells for large public operators as well because they're that efficient.

[William Hendricks, President & CEO at Patterson-UTI Energy]

And so that keeps us steady and pleased with our position in that part of the market. But again, you may hear different stories from what private equity backed E and Ps are going to do, but that's a small exposure for us.

[Operator]

Your next question comes from the line of Stephen Gengaro with Stifel. You may go ahead.

[Stephen Gengaro, Managing Director at Stifel Financial Corp]

Thanks. Good morning, everybody. So I know it's probably early, Andy, and I was curious if you could kind of give me your thoughts. When you gave some guidance on the rig count for the third quarter, seems like gas activity should start to get a little bit better maybe late this year, early next year. Can you talk about where you think the rig count or maybe at least activity for you sort of bottoms on the drilling side?

[William Hendricks, President & CEO at Patterson-UTI Energy]

I'm really hesitant to call a bottom. It's always a little bit tough when you're trying to project out and determine what's happening. But our view for the year is that we're going to see some a little bit of decline in the rig count into the mid-90s, but it has the potential to stabilize in the fourth quarter. And we saw some stability in the rig count in the fourth quarter last year. So it may play out that way for us this year.

[William Hendricks, President & CEO at Patterson-UTI Energy]

And I think that's positive for the completion industry as well and what we do on the completion side. So I think that's just all based on our belief in discussions with customers at current oil prices. But some stability the fourth quarter wouldn't be a bad thing at all. And so we would certainly welcome that. So we'll have to see how it plays out.

[Stephen Gengaro, Managing Director at Stifel Financial Corp]

Thanks. And then the other question was on the completion side. And you touched a little bit about this. But when we think about the makeup of the fleet and the percentage of assets that you and the industry have that are low emission gas burning assets, how is that pricing dynamic right now sort of old versus new assets? Are the newer assets still getting feels like they're still getting hit with the market, but but where are you seeing are you seeing resiliency there?

[Stephen Gengaro, Managing Director at Stifel Financial Corp]

And how should we sort of think about the pricing dynamics for the clean burning fleets as we kind of go forward here?

[William Hendricks, President & CEO at Patterson-UTI Energy]

Yeah. So that let me explain how we see that and, you know, how the market's actually reacting to that and and why we're investing in in what we're investing in. So when you look at, you know, our Emerald fleet that burns a 100% natural gas, and that's a mixture of electric fleets. We have some turbine direct drive in there and we have a growing fleet of natural gas recip direct drive in there as well, which we think is going to be more capital efficient over the longer term. And so all of that, because it can burn 100% natural gas, is in high demand.

[William Hendricks, President & CEO at Patterson-UTI Energy]

And all these types of systems, you know, by the end of this year, and we'll have the ability to be part of the digital automation that we're implementing on the frac as well, which will improve their their operational capabilities. And so all that's still getting premium pricing, and it's not being pulled down by lower tier services in the sector. And so, you know, we still have a fleet of more of the Emerald 100% natural gas that we're going to receive later in the year and be deploying that towards the end of this year and early next year. And it gets a premium price and margin compared to everything else. Now there is some competition in the 100% natural gas area and we have to compete in that area.

[William Hendricks, President & CEO at Patterson-UTI Energy]

But the good news is it's not being pulled down by the competition at the lower frac technologies. And so that's why we still continue to invest and plan to receive more of the Emerald 100% natural gas systems later this year.

[Operator]

Your next question comes from the line of Saurabh Pant with Bank of America. You may go ahead.

[Saurabh Pant, Director & Equity Research Analyst at Bank of America]

Hey. Good morning, Andy and Andy.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Good morning, Saurabh.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

Good morning.

[Saurabh Pant, Director & Equity Research Analyst at Bank of America]

Andy, maybe I'll ask a big picture question. Right? We've asked a lot of question on on on activity and pricing, but before that, right, just looking big picture spot oil price, like you said, looks attractive. Activity should have been higher. Right?

[Saurabh Pant, Director & Equity Research Analyst at Bank of America]

But it tells us that maybe operators are are are afraid oil prices may go down. Right? So in that environment, Andy, look, in a few months, we'll win the budgeting season, RFP season for 2026. Right? So as you talk to customers right now, right, what are you hearing, Andy?

[Saurabh Pant, Director & Equity Research Analyst at Bank of America]

What what kind of oil price do they're gonna plan at? Do you think they are planning at right now?

[William Hendricks, President & CEO at Patterson-UTI Energy]

Yes. And so we think that today's oil price activity can be higher than it is, but because of all the fluctuation in the markets, I'm talking about the oil markets over the last couple of months, our customers are just looking for some stability. And if that stability remains, then I think it puts us in a better position to have some upside. But that's what our customers are really kind of looking for some stability and some certainty in what those oil markets look like and those that's what we're hearing from the customers. I think that as we move through the year, we're certainly going to get more feedback and more comfort in whether or not oil prices are stable at this level.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Now going into say the tender season, which a lot of it is on the completion side, which we see every fall, it's interesting that we're going to go into that season right now essentially sold out of our highest quality frac equipment. Our Emerald fleets, Tier four DGBs are all working. And so, you know, we're going into that tender season with that position. And so I think that, you know, it'll still be a competitive season, but we are sold out of that level equipment today.

[Saurabh Pant, Director & Equity Research Analyst at Bank of America]

Right. Right. No. That's good color, Andy. And, Andy Andy Smith, maybe a couple of quick ones for you.

[Saurabh Pant, Director & Equity Research Analyst at Bank of America]

One, Andy, if you can help us on, CapEx. How should we think about 26 CapEx? I know maintenance CapEx is coming down this year. Right? But maybe give us the big pieces and 25 CapEx budget to help us think about '26.

[Saurabh Pant, Director & Equity Research Analyst at Bank of America]

And then a quick one on, I see the, I think, 8 and change million in other operating income in the drilling services results in the second quarter. Can you just tell us what that is?

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

Yeah. So on CapEx for '26, we're not ready to kinda give anything with the guidance number out there yet. With activity coming down, obviously, you'll you'll see maintenance come down, but we haven't gone through a budgeting cycle, so I don't wanna get too far out ahead of that. So I'd I'd prefer to maybe talk about that either at the next call or even in the fourth quarter. On the $8,000,000, there's a couple of things.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

One, we had an insurance settlement on a, some equipment damage from, you know, to be honest, a couple years ago. That and then we also that's where we account for, income and and and some of our JVs, goes through that line item as well. So that number will go through, or that's what goes through that line item within our Drilling Services segment.

[Operator]

Your next question comes from the line of Keith Mackey with RBC. You may go ahead.

[Keith Mackey, Analyst at RBC Capital Markets]

Hi, good morning.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

Hey, Keith.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Good morning.

[Keith Mackey, Analyst at RBC Capital Markets]

Hey, just wanted to follow-up on your comments, Andy, on the Emerald fleets. Recognize there's some different technologies built into there, and you mentioned the direct drive recip is starting to look more capital efficient relative to some of the other technologies. Can you just give us a little bit more color on what you're seeing with as you work as you build out that technology fleet? How does it compare in terms of capital efficiency or operational proficiency versus some of the more conventional technologies as well?

[William Hendricks, President & CEO at Patterson-UTI Energy]

Sure. When we started down the path of 100% natural gas you know, several years ago, even as a combined company, we were looking at different technologies and we've tried different things because we've got customers that benefit from burning a 100% natural gas for various reasons. And, you know, there's there's several different technologies that you can use to achieve that. And, certainly, electric frac powered by a 100% natural gas turbine is, you know, an effective way to do that from an operational standpoint, but it's also very expensive. It's very capital heavy.

[William Hendricks, President & CEO at Patterson-UTI Energy]

So you've got all the pumps on locations, but then you've got the power systems on location, you've the cable systems, and you've got switchgear. And when I say switchgear, you can say it quick and it sounds easy, but switchgear on a location with a 35 megawatt turbine can be one or two eighteen wheeler trailers of breakers and switch and handling equipment to distribute the power. And this is all capital intensive when you get into the power system attached to the electric pumps on the trailers. And 35 megawatt turbine capital out for that can be in the $40,000,000 range. And with Turbine Technology and Turbine Power, you're also coming up against the demand for bigger systems for other industries as well, which everybody is talking about.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Now when you move on into turbine direct drive, we run a little bit of that and we'll use that to boost natural gas demand on some of our tier four dual fuel and, you know, boost that this, you know, demand for the natural gas and and improve the efficiency of how that operates with natural gas. So we'll do some of that. We also intermixed some electric with tier four dual fuel, so sometimes the electric's not deployed all by itself. Then we've also started moving to the, you know, 100% natural gas recip engine. So we've been testing that engine for a couple years.

[William Hendricks, President & CEO at Patterson-UTI Energy]

It's a high horsepower engine, 3,600 horsepower, which can, you know, drive a little bit higher horsepower overall than even some of the tier four DGB systems that we run. And so you improve the amount of horsepower on the trailer. You don't have all the electrical handling equipment. You don't have to worry about, you know, a $40,000,000 gas turbine on location. And some of our some of our frac fleets on the electric are even growing to the point where we're running, you know, 35 megawatt gas turbine at 40,000,000 and then maybe another six megawatt gas turbine, you know, on or, you know, another $20,000,000.

[William Hendricks, President & CEO at Patterson-UTI Energy]

And so that's a lot of capital location on location. And so when you can package that the way we're doing now on the natural gas reset, and it just becomes more capital efficient in deploying, you know, high horsepower, 100% natural gas operations. And so we're excited about how that's that's working. You know, over the two year period, sure, we've broken a few things on the system, but this is, know, a great partner in Caterpillar who we've been working with now for a couple of years to shake things down and they've made some modifications to some transmission pieces and some other things. And so we're we're really confident in the ability to have a partner that's that big in the industry that has experience running these types of engines and a combination in in how they're recommending it all be packaged and the reliability that we can potentially get out of this on top of the capital efficiency for deploying at the well site.

[William Hendricks, President & CEO at Patterson-UTI Energy]

And if we can be more capital efficient at deploying at the well site, then we can be more competitive in the market versus say the electrical systems. And I think this is where we're moving right now and excited about the potential for this.

[Keith Mackey, Analyst at RBC Capital Markets]

Got it. Yeah. Very helpful. Are you able or ready at this point, I guess, to give us a bit of a a bit more color on the run rate of investment in Emerald? I know you mentioned you got some more equipment coming in.

[Keith Mackey, Analyst at RBC Capital Markets]

Can you just talk a little bit more about how much of your fleet do you think that this could or should make up over the next few years?

[William Hendricks, President & CEO at Patterson-UTI Energy]

Yes. We'll take it on a year by year basis, but you can see that it's really been kind of a steady add to the fleet, steady investment over the last couple of years. This year we added some more electric emerald as we grew from normal frac to final frac and trimal frac for some of our electric customers. And then we're going to add the some more of the natural gas direct drive systems this year. And there's a potential for us to add more next year, but we'll take it on a year by year basis and make sure we understand the demand and make sure we can understand we're still getting good returns on this.

[Operator]

Your next question comes from the line of Grant Hines with JPMorgan. You may go ahead.

[Grant Hynes, Equity Research Associate at JP Morgan]

Hey. Good morning, team.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Hi, Greg. Good morning.

[Grant Hynes, Equity Research Associate at JP Morgan]

So on on the call, you've talked a lot about, you know, sort of different tech offerings, but maybe was just interested in hearing some more about sort of the integrated advantage offering where you kind of bring the full suite of services. And just thinking about the potential uptick in gas activity, kind of what customers do you think are most likely to kind of adopt this offering from you guys?

[William Hendricks, President & CEO at Patterson-UTI Energy]

Yeah. So, you know, in general over the last year or so since we've rolled this out and been doing this for customers, you know, it's been more the mid tier customers who have acreage, who have runway and drilling and completions for wells. But at the same time maybe they don't have large operational teams and we can help work with them using our teams that work in our performance center and our digital platform to pull data together and analyze their historical operations and make some recommendations on future operations to pull all this together. And so when we've done this, it's been very successful on all fronts. And I think we'll see some continued demand at that sector of the market.

[William Hendricks, President & CEO at Patterson-UTI Energy]

But I think as we get into '26, there's potential for us to work for some of the bigger customers as well that have some bigger operational teams because definitely, you know, in the Permian Basin, the word's getting out with the ones that we're working with that we are making improvements. And I think that, you there may be some of our bigger customers that might wanna try it as well and see how it goes. But it's certainly it's certainly gaining traction, and it's allowing us to even improve our own operational efficiencies and how we manage things on some of the other jobs as well. And so I'm upbeat about how that's going. In a market like this where we have softening activity, it doesn't show up as much.

[William Hendricks, President & CEO at Patterson-UTI Energy]

But I think over the next few years, you'll see that grow.

[Grant Hynes, Equity Research Associate at JP Morgan]

That's great. And and just a follow-up. I think previously, you know, you'd mentioned potentially 15% or so margin uplift from some of these projects and and, know, 20% or so higher revenue content. Do you see that being driven more by, I guess, sort of attachment rates of your technology offerings or also a combination of efficiencies just from the fully integrated project? Thanks.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Yeah. There's a couple of keys there. One is a pull through of all the different segments and sub segments that we have when we go to work for these customers. And then also, the upside on the efficiency gains and helping them pull production forward.

[Operator]

Your next question comes from the line of Eddie Kim with Barclays.

[Eddie Kim, Vice President - Equity Research at Barclays]

Hi. Good morning.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Good morning, Eid.

[Eddie Kim, Vice President - Equity Research at Barclays]

Good morning. So we've seen quite a few oil directed rigs come out of The U. S. Onshore rig count, about 45 rigs or about 10%, which I think is contributing to your 3Q guidance in drilling services. But as others have mentioned, 3Q guide and completion services to remain steady was surprisingly resilient.

[Eddie Kim, Vice President - Equity Research at Barclays]

But do we start to see some of the impact of the oil rig count declines show up in your completion services business in the fourth quarter? And so conceptually, should we think about the trajectory of completion services in the fourth quarter as kind of normal or typical seasonal decline. But on top of that, you layer in some of the impact of the oil rig count declines we've seen. Just curious if that is a reasonable assumption to make.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Yeah. Good morning. So I think let's start with a discussion on the overall industry rig count. And you've got to recognize that there's still some bifurcation in that rig count. So when you see the rig count decline like it has and we talk about 40 plus oil rigs coming out of the market, a large number of those rigs that are coming out of the market are really the lower technology rigs and rigs that are working for maybe some of the smaller private equity backed type private companies that are out there.

[William Hendricks, President & CEO at Patterson-UTI Energy]

What you're seeing is our rig count is coming down a bit, but not to the extent necessarily as the overall market. And I think that the overall rig count could even come down further this year, but that doesn't necessarily line up with what we're seeing in the higher spec rig market. And so I think towards the end of the year, could see some of the smaller private equity backed companies wanting to conserve capital and slow down drilling and completion operations. But we don't have much exposure to those companies. We're working for the larger companies that tend to have the longer runways, longer budget cycles and things like that and are running higher technology of both drilling and completions.

[William Hendricks, President & CEO at Patterson-UTI Energy]

And so that's why you're seeing us relatively steady in completions in the third quarter. And I think it's the reason that even though our rig count is going to soften some more in the third quarter that there's a higher likelihood that it stabilizes in the fourth quarter. Now in terms of completion activity in the fourth quarter, it's certainly early to call. We always see some seasonal decline unless there's a really high spike in a commodity price that were to drive some different behaviors. So I think we will see some seasonal decline.

[William Hendricks, President & CEO at Patterson-UTI Energy]

But also looking at some of the customers that we work for, maybe a softening in the market for us. I'm not sure yet it's a steeper decline as we saw in Q4 last year, but again it's still early to tell. And I'm caveating all this on today's commodity prices.

[Eddie Kim, Vice President - Equity Research at Barclays]

Got it. That's very helpful. Thank you. My follow-up is just on capital allocation. You highlighted in prepared remarks that you're focused on putting cash to work.

[Eddie Kim, Vice President - Equity Research at Barclays]

So just based on the conversations around the various opportunities you're having today, would you be more likely at this stage to invest more in kind of bolt on acquisitions in your core oil and gas services business? Or would you maybe be more inclined to perhaps purchase other nat gas resets or gas turbines for the distributed power market like some of your peers have announced in recent quarters? Just curious around your latest thoughts there.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Yes. So we're holding a good cash position right now. Really pleased with the cash flow of the company this year and what we're projecting for the second half. And we're really evaluating some organic technology growth. And some of it associated with longer laterals and more efficiencies in the Delaware Basin, some of it associated with natural gas demand, physical demand in 2026 and 2027 and some of the discussions we're in.

[William Hendricks, President & CEO at Patterson-UTI Energy]

So we do get good returns on some of these technology investments that we make whether it be upgrades on digital automation or structure on a rig or even some more of the Emerald 100% natural gas. And so we're evaluating that. We're also evaluating potential to buy back shares as well. When it comes to acquisition, I'll just say and we've said this before, really pleased with the Ultera acquisition. I think this helps change the profile of the company to a higher return basis, you know, as as Ultera is essentially a product manufacturing business and, you know, pleased with with that.

[William Hendricks, President & CEO at Patterson-UTI Energy]

And we we tried to acquire that company seven years ago and were successful a couple years ago. But we think there's, you know, opportunities to expand what they do and expand some of the technologies in, downhole solutions that they're coming up with, not just drill bits, but some of the downhole tools that they're building as well. We may be injecting some more capital and then for growth in the international market. So I think we have a lot of things to choose from and we're just trying to be careful about how we evaluate. But back to the cash position, really pleased with our cash position and the cash flow that we're looking at for the year.

[Operator]

Your next question comes from the line of Connor Jensen with Raymond James. You may go ahead.

[Connor Jensen, Senior Equity Research Associate at Raymond James]

Hey, guys. Thanks for taking my call. Morning. Just build building off what you said there, Ultera seemed like a relative bright spot to solid results and guidance for further improvement. Can you just speak to some of the the growth drivers there, maybe where it's gaining share internationally in some of the upcoming offshore prospects?

[William Hendricks, President & CEO at Patterson-UTI Energy]

Yes. If you look back at Ultera's history, which is hard for you all to do because it's been private for so long, but when we can see all the numbers and what they've accomplished as a team, they actually tend to to gain a little bit of share sometimes in these activity softens. And so what we're seeing in the market today is, you know, their customers getting focused on what can we do to improve even though, you know, we're trying to conserve capital, how can we be more efficient, and that's when they start to employ more of Ultera technology. And so we're seeing that today. And when they you know, when it's higher technology, it's higher revenue per bit for, you know, rig that's operating in the industry in terms of our internal metrics and they continue to improve on that.

[William Hendricks, President & CEO at Patterson-UTI Energy]

In the international markets, know, in The Middle East, the position continues to improve. In Saudi, you know, we're in the process of expanding our remanufacturing center to do full manufacturing. And, know, drill bits are certainly popular in The Middle East region and we've got a great team over there. And we see opportunities still to grow in offshore, North Africa and some other areas where we're just not very big in the market. So we still have upside in other markets too.

[William Hendricks, President & CEO at Patterson-UTI Energy]

So they're in a great position for growth longer term outside of some of the cycles that we're seeing in the industry.

[Connor Jensen, Senior Equity Research Associate at Raymond James]

Got it. And then, margins have held up pretty well across the whole company given the downturn in activity. Is there anything you're doing on the cost side to adjust to the softer market? Is it just general headcount reductions, or is there other things they're working on there?

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

Yeah. So, I'll address that. You know, in all of our businesses, we're you know, while we have seen some direct headcount reductions, certainly, with activity changes, We're also looking, you know, always at facility consolidations and other areas where we can take cost out of the system. You know, we're even currently undergoing, you know, an ERP conversion where we're taking three that we operate in now and converting to one. So all of that kind of operates in the background and probably not very visible to you guys.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

But it's all designed to sort of make us more efficient and take cost out of the system. So all of those efforts continue and will continue as sort of ordinary course stuff.

[Operator]

Your next question comes from the line of Doug Becker with Capital One. You may go ahead.

[Douglas Becker, Equity Analyst at Capital One Securities, Inc]

Thank you. Andy, I was hoping you'd provide a little more color on the moving parts in the Drilling Services guidance. I appreciate the reasons you're no longer reporting U. S. Drilling margin per day, but it really seems like guidance embeds a pretty sizable decline in that daily margin.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Yes. Good morning, Doug. Some of that is as we're seeing some movement in different basins in the third quarter where we've got some rigs that may be coming down in one basin, coming up in another basin. If that was all happening simultaneous in the same basin, it would be easier to manage from a cost standpoint, but it creates a little bit more cost challenge as we work through the third quarter and work through some of the movement of what we're seeing. So we've got some oil basins where some rigs may soften a little bit.

[William Hendricks, President & CEO at Patterson-UTI Energy]

We may have some natural gas basins where it's coming up a little bit. And so trying to work across those makes it tougher to get some of the cost efficiencies out. So that's really kind of what's happening in the third quarter.

[Stephen Gengaro, Managing Director at Stifel Financial Corp]

And that makes sense. Then, I guess, just how would you characterize pricing for super spec rigs today?

[William Hendricks, President & CEO at Patterson-UTI Energy]

I'd say right now pricing is still relatively steady. You know, leading edge is is still, you know, around, you know, low to mid thirties in general. But the interesting thing is we're seeing higher demand for digital products on top of just the asset. And so yeah. I mean, the asset's important, but it's what you can do with that asset and what you can layer on as well and how can you make that asset more efficient.

[William Hendricks, President & CEO at Patterson-UTI Energy]

And we're certainly getting more recognition from our customers and our ability to do that.

[Operator]

Your next question comes from the line of Jeff LeBlanc with TPH and Company. You may go ahead.

[Jeff LeBlanc, Director - Equity Research at TPH&Co]

Good morning, Andy and team.

[Jeff LeBlanc, Director - Equity Research at TPH&Co]

Thank you for taking my question. Good morning. You mentioned that your Emerald and tearful equipment is fully utilized, but how should we be thinking about the utilization for the balance of your fleet? And then additionally, how would the market have to evolve for you to consider idling this equipment or pushing it back into the broader fleet?

[William Hendricks, President & CEO at Patterson-UTI Energy]

Well, you know, let's talk about what we're doing in the in, you know, the CapEx budget. You know, we continue to invest in maintenance and maintain all of all of the equipment with the exception of, you know, lower tier tier two completion. And we have a little bit of tier two equipment still mixed in with some of the fleets here and there, but we're really not putting any dollars into that. So you'll see tier two diesel equipment continue to drop out of our fleet, but I think it's not just us. You'll see that continue to drop out of the industry as well.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Because some of the smaller companies that run that and some of the more competitive basins like the Midland Basin probably are more challenged to even generate enough cash flow to maintain that equipment. So I think, you know, you'll see a combination for us of adding some horsepower at the higher tier, but also letting horsepower come out at the lower tier. But across the industry, I think you'll see more of the lower tier horsepower drop out over the next year as well.

[Jeff LeBlanc, Director - Equity Research at TPH&Co]

Okay. Thank you very much. I'll hand the call back to the operator.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Thanks.

[Operator]

Your final question comes from the line of Dan Cuske with Morgan Stanley.

[Daniel Kutz, VP, Equity Analyst at Morgan Stanley]

Hey. Thanks for squeezing me in, and good morning.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Morning, Dan.

[Daniel Kutz, VP, Equity Analyst at Morgan Stanley]

So maybe just staying on that line of questioning around frac supply. Would love to dive in a little bit deeper there. I I remember you guys had, at one point, put out, I think, a 400 or a 400,000 diesel retirement at the end of last year. Now you guys are up to 500,000. How do you think about capacity versus the 2,900,000 horsepower you're at right now for Patterson going forward, does does roughly the the the diesel retirements or the diesel assets that you're not investing in maintaining, does that kind of offset any additions to the fleet, any Emerald investments?

[Daniel Kutz, VP, Equity Analyst at Morgan Stanley]

Like is $2,900,000 the right number moving forward? Or how do you think about how that could change over time? Thanks.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Yeah. So, yeah, we're at 2.9 now as you mentioned. If you look at where we were a year and a half ago, we were at about 3.3. We came down to three. We came down to 2.9.

[William Hendricks, President & CEO at Patterson-UTI Energy]

And that's really just by not investing in that older tier two equipment. You know, we were still running some, but we didn't invest and then eventually, you know, brought that number down from an accounting standpoint. As I mentioned, we're still adding at the higher end and we'll have to wait and see how that balances out, but we could be lowering the overall horsepower as well. But I think the industry is tightening as well. So I think it bodes well longer term for the completions and because I think people are being prudent about how they're investing And, you know, we don't see a rush to over invest in the completions across the industry right now.

[William Hendricks, President & CEO at Patterson-UTI Energy]

So, you know, I think it is balancing out, the sector. You know, as I mentioned earlier, we have all of our Emerald and our Tier four DGB working right now. And so with some of the horsepower continued to drop out over the next year or two, I think it keeps the industry relatively in balance. I mean, there's we're still going to have the competitive tender processes from time to time, but it makes it less challenging when we go through those tender processes when the industry gets closer to balance.

[Daniel Kutz, VP, Equity Analyst at Morgan Stanley]

Great. That's all really helpful.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Appreciate it.

[Daniel Kutz, VP, Equity Analyst at Morgan Stanley]

And we've we've gotten a few anecdotes on this next question, but wanted to just kind of ask it more directly. So on the on the bundled services and integration, Patterson has a lot of service lines, and and, you know, you've made clear that taking more kind of wallet share, more components of the overall, of the overall drilling and completion process has been considered initiative by the company. How how is the kind of prevailing macro backdrop made that process? Is it is it has has kind of choppiness in the market created opportunities to kinda take more wallet share to to, you know, push more Patterson services to your customers, or or has it made it more difficult? I I know you'd you'd flagged that, you know, digital demand has has really been been picking up in the big space.

[Daniel Kutz, VP, Equity Analyst at Morgan Stanley]

But, yeah, just trying to think through how how kind of pushing the bundled and integrated services has evolved as as the macro has evolved. Thanks.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Sure. So first, I'm gonna start with, you know, the investments we've made in digital because it's really kind of the backbone of everything we do, whether it's individual operations or even the p 10 advantage package that we offer. And that investment in digital is keeping us very competitive in a softening market and that's really important. It's not just about the asset. It's not just about what we charge for the asset, but what you can do with the asset.

[William Hendricks, President & CEO at Patterson-UTI Energy]

And when you layer on some of the whether it's the Cortex automation apps on a drilling rig or the new Vertex automated frac system, it allows us to be more efficient, more competitive, and even manage those assets better from a cost standpoint. And so it's the digital that's really kind of the backbone that's going to help us out and continue to drive our competitiveness. Now that also helps out in the P10 advantage package. Given the softening market, would say that it's harder to show growth in those in the type of Advantage package that we offer, but it's holding relatively steady and still having discussions with customers in that area. So still encouraged by that and a bit of a softening market right now with the uncertainties we've seen over the last few months.

[William Hendricks, President & CEO at Patterson-UTI Energy]

And if the commodity prices stabilize and show stability for our customers as we get closer to the end of the year over the next few months, That allows them to to have more confidence to take on some of the projects that they would take on, and that's positive for us as well.

[Operator]

Your final question comes from the line of John Daniel with Daniel Energy Partners. You may go ahead.

[John Daniel, Founder & CEO at Daniel Energy Partners]

Hey. Good morning. Thanks for letting me jump in here.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Good morning, John.

[John Daniel, Founder & CEO at Daniel Energy Partners]

Andy, I I know there's likely little upside for you to answer this question, but I'll try. As you think of as you think about '26, you noted you're sold out of the higher quality frac assets, yet margins within the broader frac market remain remain relatively weak. And I'm sure your your newer stuff is higher margin, but I think it's clear returns for the industry and you need to go higher. So I'm I'm curious at what point do you say to your team, hey, guys. Let's raise rates and see where the chips fall.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

Yeah. Hey, John. This is Andy Smith. You know, look, I mean, that's that's a constant conversation. Right?

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

I mean, it's not Yeah. That's not something that is you know, we don't just decide one day, hey, guys. Let's try to push rates. We're we're always trying to push rates to get the most we can in a competitive market. Now as we invest in additional equipment and look.

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

I think we're uniquely positioned to be able to invest in in technology equipment that could really lead the industry given

[Eddie Kim, Vice President - Equity Research at Barclays]

the strength

[Andrew Smith, EVP & CFO at Patterson-UTI Energy]

of our financial profile. We will, you know, kinda be holding our team's feet to the fire on pricing and saying that the we're not we're not And I'm not well, while there may be some element of spec to it, we're not doing this entirely on spec.

[John Daniel, Founder & CEO at Daniel Energy Partners]

No. And and I'm not trying to do a curveball because, like, you step back and think about it. A lot of times, you talk to you hear from folks, you know, that it does and, like, the spot market, it doesn't really make sense. It current returns it to reactivate stacked equipment. And if, you know, the if people are true to their words on that, if the industry again, not Patterson UTI.

[John Daniel, Founder & CEO at Daniel Energy Partners]

Right? Let's just say the industry starts to to were to try to change ways. I mean, like like, I'm assuming you wouldn't wanna reactivate an act a a stacked fleet at the current pricing. So I'm just I'm trying to reconcile, like, at some point, you know, the under your pricing has to go up. I'm telling I'm telling you what you know.

[John Daniel, Founder & CEO at Daniel Energy Partners]

But just who would take that work if you if someone tried to then displace you, I guess, is where I'm going.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Well, I think, you know, it gets back to bifurcation in the market as well because, you know, we're essentially sold out right now. The Emerald's 100% nat gas systems and a Tier four DGB. And there's really not anything that's going to cause me to want to activate a Tier two diesel, even though I might have some on the sideline right now. We haven't been investing in it. It's parked.

[William Hendricks, President & CEO at Patterson-UTI Energy]

We'll make some accounting judgments on that later. But you know, we're working everything we've got essentially right now, which is also relatively positive, you know, as we get into the tender season too. And so, you know, I think that, you know, the industry is relatively tight on the higher end equipment working for the hires, you know, you know, the more sophisticated larger E and Ps. And so I think that market is still relatively tight. I mean, it's competitive and, yes, you know, the high spec rig count is coming down a little bit right now, but it's it's still a relatively tight market in Q3.

[Operator]

This concludes today's question and answer session. I would now like to turn the call back over to Andy Hendricks for closing remarks.

[William Hendricks, President & CEO at Patterson-UTI Energy]

Thanks, Lacey. I want to thank everybody who dialed into the call today. I also want to thank the ladies and gentlemen of Patterson UTI for everything you do every day to help our customers drill and complete wells, and that wraps it up for this quarter. Thank you very much.

[Operator]

This concludes today's conference call. You may disconnect.

Participants

Executives

• Michael Sabella, VP - Investor Relations
• William Hendricks, President & CEO
• Andrew Smith, EVP & CFO

Analysts

• Scott Gruber, Director - Oilfield Services & Equipment Research at Citi
• Derek Podhaizer, Director & Senior Research Analyst at Piper Sandler Companies
• Atidrip Modak, Vice President - Energy Services & E&Ps at Goldman Sachs
• Stephen Gengaro, Managing Director at Stifel Financial Corp
• Saurabh Pant, Director & Equity Research Analyst at Bank of America
• Keith Mackey, Analyst at RBC Capital Markets
• Grant Hynes, Equity Research Associate at JP Morgan
• Eddie Kim, Vice President - Equity Research at Barclays
• Connor Jensen, Senior Equity Research Associate at Raymond James
• Douglas Becker, Equity Analyst at Capital One Securities, Inc
• Jeff LeBlanc, Director - Equity Research at TPH&Co
• Daniel Kutz, VP, Equity Analyst at Morgan Stanley
• John Daniel, Founder & CEO at Daniel Energy Partners