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Onshore contract driller Patterson-UTI Energy Inc. (PTEN) reported that it might bear a significant cost for its mechanically powered rig fleet.  The Houston, Texas-based company has estimated the pre-tax non-cash expenses of roughly $37.8 million.

Out of the total charge, $7.9 million can be attributed to the retirement of Patterson-UTI’s 48 mechanical drilling rigs during the current quarter. The rigs – having capacity of roughly 731 horsepower – are not expected to work again due to lower demand in the international market. The company reveals that a portion of the parts of those rigs will likely be auctioned, while the major remaining components will be utilized for maintaining other rigs.

The residual $29.9 million will be borne by the company, as presently 55 mechanical rigs are out of contract.

Patterson-UTI believes that there is almost no demand for mechanical drilling rigs as most customers look for high specification electric powered drilling rigs. Hence, all 103 mechanical drilling rigs are not expected to provide any utility to the company, adding to its burden.

Patterson-UTI is one of the largest onshore contract drillers in the U.S. with approximately 275 land-based rigs that operate primarily in the oil and natural gas producing regions of North America. The company’s technologically-advanced ‘Apex’ rigs are the key to its success. Patterson-UTI’s proprietary design makes the rigs move faster, drill quicker and more efficiently than conventional ones and also provides a safer operating environment.

However, with a strong competitive market, there is an over availability of land drilling rigs as well as pressure pumping equipment. Hence, the company has lost market share to competitors who offer better products and services at a cheaper rate.

Patterson-UTI currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at better-ranked players in the oil and gas drilling sectors like Pacific Drilling SA (PACD), Tesco Corp. (TESO) and Helmerich & Payne Inc. (HP). Pacific Drilling and Tesco carry a Zacks Rank #1 (Strong Buy) while Helmerich & Payne holds a Zacks Rank #2 (Buy).

 
HELMERICH&PAYNE (HP): Free Stock Analysis Report
 
PACIFIC DRILLNG (PACD): Free Stock Analysis Report
 
PATTERSON-UTI (PTEN): Free Stock Analysis Report
 
TESCO CORP (TESO): Free Stock Analysis Report
 
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