Patterson-UTI Energy, Inc. (NASDAQ:PTEN) Q4 2023 Earnings Call Transcript

Patterson-UTI Energy, Inc. (NASDAQ:PTEN) Q4 2023 Earnings Call Transcript February 15, 2024

Patterson-UTI Energy, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. At this time. I’d like to welcome you to the Patterson-UTI Energy Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions]. Thank you. I’ll now hand the floor over to Mike Sabella, VP of Investor Relations. Please go ahead.

Mike Sabella: Thank you, operator. Good morning and welcome to Patterson-UTI’s earnings conference call to discuss our fourth quarter 2023 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 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 company’s actual results to differ materially and the company takes no obligation to publicly update or revise any forward-looking statements.

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

Andy Hendricks: Thank you, Mike, and welcome to Patterson UTI’s fourth-quarter conference call. In the first full quarter, following our combination with NexTier and Ulterra, we showcased the earnings power of the new company and delivered a quarter of strong results for our investors. Our leadership position in both US onshore drilling and completions is allowing us to strengthen partnerships with the leading US shale operators that place a high value on our technology and on our top-tier assets, which in turn is allowing us to outperform the industry. We are very pleased with our results and the fourth quarter profitability and free cash flow highlights the benefit of the combined company. As we reflect on this past year, we take great pride in our achievements.

In US contract drilling, we outperformed our peer group, both in activity and adjusted gross profit per operating day. In completions, we maintained a focus on returns while actively contributing to the advancement of lower cost and emission reducing assets. We delivered extremely strong results while at the same time successfully closing and integrating two transactions. Our team performed at a very high level in what was a challenging year for the industry, which reflects our ability to successfully manage our business through the cycle and consistently create value for our shareholders. All that is to say our business is performing very well and we have high conviction that we have the right strategy in place. We anticipate 2024 will be another year of strong results and considerable free cash flow.

And we remain committed to our policy of returning at least half of our free cash flow to our shareholders on an annual basis. As our customers look to maximize their own returns, they are consolidating their drilling and completions budgets to fewer to higher-quality service providers and the divergence in financial results in our sector last year’s highlights the widening differential in service quality across the industry. This high-grading process positions Patterson-UTI favorably and aligns us with our customers as the industry transitions to manufacturing mode. The acquisitions of NexTier and Ulterra will significantly strengthen the Patterson-UTI’s competitive position over the long term as we realize the benefits of our combined expertise and continue to advance our technology lead over much of the oilfield.

This should offer a tailwind for our company as the entire industry looks to grow returns in a capital constrained environment. We played a critical role in enhancing the efficiency of our customers. For Patterson-UTI, the benefit from that as these efficiency gains can largely be seen through our own improved capital efficiency, and we have worked to reduce our capital intensity even as we have improved operationally. We expect total CapEx for Patterson-UTI to decline in 2024 relative to what the combined company spent in 2023. This reflects our commitment to optimize long-term financial performance as we navigate the evolving energy sector landscape. Over the near term, the outlook for US shale activity continues to reflect the expected reduced cyclicality in our sector.

This steady outlook presents us with opportunities to enhance our returns and grow our profits in the most capital-efficient manner. While we do not see a benefit to adding drilling or completion capacity into the US shale market, we do have several levers that we will focus on this year that should help us improve our returns as the year progresses. Our rig technology offerings have momentum with growing demand for our process and equipment automation packages. Alternative power solutions that use natural gas and high-line electricity to power our rigs and numerous other applications that improve efficiencies, minimize the environmental footprint and add value to the drilling process. Our customers value the uplift provided by these technology offerings and given the value that can be unlocked, we expect our rig count will continue to outperform the industry.

In frac, we’re investing to convert more of our fleet to electric and other natural gas powered technologies at a measured pace over the next several years. These new technologies consistently earn a higher return over the diesel equivalent that they are replacing, which should allow us to grow profits even at a steady activity level. By mid-2024, we expect to be operating around 140,000 electric horsepower with nearly 80% of our active fleets capable of using natural gas by then. We are making this transition to electric and other natural gas-powered assets, even as CapEx for the combined completions company is expected to be down significantly from 2023. Also on the frac side, we still have considerable upside relative to where we are today as we capture synergies from the next two-year transaction.

At the start of the year, we were roughly halfway to our $200 million annualized target, and we are confident we should be able to fully realize those synergies by the first quarter of 2025. Internationally, Ulterra offers long-term growth potentials, expand our footprint. Ulterra is expected to grow revenue and EBITDA in 2024 compared to 2023 with potential for a record free cash flow generation that surpasses any period in the company’s history prior to our acquisition. Ulterra’s drill bits were used to drill over 82 million feet in 2023 for more than 625 different operators across 25 countries. The presence in these global markets will be a long-term opportunity for our company and should offer our investors growth for the next several years or more.

Non-US revenues accounted for roughly 30% of Ulterra’s revenues since we closed the acquisition in August and for 2024. Ulterra’s international revenue is expected to grow in the high-teens percent year over year, highlighting strong prospects in various global markets across the world. By 2024, Ulterra’s revenue from the Middle East is likely to have doubled over the past three years with additional upside potential over the next several years. In addition, to the international opportunities for Ulterra, in the US, revenue per industry rig was up more than 5% sequentially, a function of steady pricing and strong market share gains and reflecting our strong performance in the US, complementing the international opportunity. Aside from these operational growth opportunities, our capital allocation strategy should offer our investors an added benefit to earnings per share and return on capital.

We are committed to returning at least 50% of our free cash flow to investors, including through stock buybacks, which should help grow earnings per share in the coming years as we reduce the share count, we have committed to return at least 50% of our free cash flow to shareholders on an annual basis. And given our current share price. We are likely to exceed that commitment in 2024 as we believe investing in our own shares at this price is one of the most attractive opportunities available we expect to return at least $400 million to shareholders in 2024 through the combination of dividends and share repurchases, which would considerably lower our share count by the end of the year. Our Board of Directors just increased our stock repurchase authorization to a total of $1 billion.

As we said previously, the macro-outlook appears to be relatively stable through 2024. Current oil prices should support current oil basin activity, although we do see some potential downside in the natural gas basin. On the oil front, according to various data sources, including the EIA, US shale oil production appears to have stabilized, a function of the decline in activity over the past year. We do not believe current commodity prices will prompt a reduction in activity to levels that result in production declines. Therefore, steady activity outlook in the oil basins seems reasonable. Given that 80% of the US rigs are targeting oil, this should contribute to a relatively stable outlook for the entire industry in the coming year. In the near term, the outlook for natural gas is less certain but we do not think the downside potential will have a material impact on our business over the long term.

We are working for some of the best and steadiest operators in the natural gas basins, which should help limit the downside if activity slows. But it’s also worth noting that the Patterson-UTI rig count in the Northeast and the Haynesville combined is down just five rigs total over the past year, even as the industry has reduced activity in those basins by more than 30 rigs over that same time. Our resilience demonstrates our ability to navigate challenges in those basins, even in the face of declining industry activity. Further, even as our natural gas customers are slightly reducing activity in the near term, we are already having conversations with those same customers about the potential to add rigs possibly later this year, but also into next year as LNG demand comes closer into focus.

Over the long term, we do not anticipate a material impact to our business from the near term softness in natural gas prices. In drilling, if natural gas activity does fall slightly, we would anticipate only a slight decline to our own activity levels, although we are halfway through this first quarter and we haven’t seen much change from our customers. In the US, we started the year operating 121 rigs, and we are currently operating 122 rigs. In 2023, our rig count significantly outperformed the industry, and we achieved this while still improving our margins. The industry rig count exited 2023 over 20% lower than historical. But in contrast, Patterson-UTI’s rig count, we’re down just 8%, while our average daily margins in the most recent quarter were up more than 20% compared to the fourth quarter last year.

We are constantly aligning ourselves with partners that offer stable drilling programs and exhibit less sensitivity to commodity prices compared to smaller operators. Our customers benefit greatly from our Tier 1 drilling rigs, which can deliver 35% more lateral footage on average per year compared to standard super-spec rigs. More than 90% of our active rigs are Tier 1 with nearly 90% utilization for this category of rig. Given the high demand and the significant value that this class of rig and technology add-ons create, average pricing on recent term contracts has been steady at close to the mid $30,000 per day. And we do not anticipate our rates changing in a flat activity market. We believe the trend towards Tier 1 rigs should continue through 2024.

On the completions front, the business is performing well through the ongoing integration. In the fourth quarter, completion services revenues exceeded $1 billion and meaningfully outperform the completions industry average. We aligned ourselves with the right customers, which helped activity remained steady through the holidays and into the yearend. Our natural gas dual fuel assets continue to have success in the market, and we are confident that these assets will maintain competitiveness over the long term, even with the increasing market share of natural gas powered electric equipment. Notably, on several recent occasions, we have displaced the third party 100% natural gas-powered electric fleet with one of our natural gas dual fuel fleets.

We believe there are multiple technology winners, including natural gas dual fuel as the completions industry transitions. The market for horsepower remains relatively tight and [Technical Difficulty] equipment that can be powered by natural gas is effectively sold out. This should help limit potential downside from current natural gas prices. We are confident in our ability to achieve our goals for 2024 with a significantly reduced CapEx budget. We expect total company CapEx of $740 million for 2024. This represents a significant reduction compared to the combined CapEx budgets of Patterson-UTI, NexTier, and Ulterra that we all had in 2023. We believe we can achieve this while still maintaining our activity throughout 2024 and building on the strong technological advantage that we have over many other players in our industry.

This positions us to generate strong free cash flow for the year and return significant cash to shareholders while still building on our competitive advantage over the longer term. I’ll now turn it over to Andy Smith, who will review the financial results for the fourth quarter.

Andrew Smith: Thanks, Andy. Total reported revenue for the quarter was $1,584 million. The reported net income attributable to common shareholders of $62 million or $0.15 per share in the fourth quarter, which included $20 million in merger and integration expenses. Our adjusted net income attributable to common shareholders, excluding the merger and integration expenses, was $78 million, or $0.19 per share. This adjustment excludes the previously mentioned merger and integration expense and assumes a 21% federal statutory tax rate on those charges. Adjusted EBITDA for the quarter totaled $409 million, which also excludes the previously mentioned merger and integration expenses. Our weighted average share count was 416 million shares during Q4, and we exited the quarter with 411 million shares outstanding.

Our free cash flow for the fourth quarter was $247 million. During the fourth quarter, we returned $110 million to shareholders, including an $0.08 per share dividend and $76 million to repurchase 7 million shares. Annualized, the shareholder return amounted to almost 10% of the market cap at the end of the fourth quarter. For the full year, we returned $301 million to shareholders, which was approximately 77% of our free cash flow. Our Board has approved an $0.08 per share dividend for Q1 and approved an increase in our stock repurchase authorization up to $1 billion. We expect to return over $100 million to shareholders again in the first quarter, including approximately $75 million to repurchase shares. For 2024, we expect to use at least $400 million to pay dividends and repurchase shares, which represents more than our commitment to return 50% of free cash flow to shareholders.

In our drilling services segment, fourth-quarter revenue was $464 million. Drilling services adjusted gross profit totaled $187 million during the quarter. In US contract drilling, operating days totaled 10,841 days. Average rig revenue per day was $36,280. A sequential decline of $1,830 per day was primarily attributable in the absence of the benefit of $2,630 per day from the recognition of previously deferred revenue in the prior quarter. Excluding the impact of this previously deferred revenue last quarter, average revenue per day would have increased $800 sequentially. Average rig operating costs per day were $19,940, which increased $70 sequentially. Although the prior quarter included $790 per day in insurance reserve adjustments and inventory write-down.

The average adjusted rig gross profit per day was $16,330, a $1,910 per day decrease from the prior quarter. Excluding the previously mentioned revenue and costs in the prior quarter, adjusted rig gross profit per day would have declined just $70 from the prior quarter. At December 31, we had term contracts for drilling rigs in the US, providing for approximately $700 million of future day rate drilling revenue. Based on contracts currently in place, we expect an average of 79 rigs operating under term contracts during the first quarter of 2024 and an average of 52 rigs operating under term contracts over the four quarters ending December 31, 2024. And our other drilling services businesses besides US contract drilling, which is mostly international contract drilling and directional drilling, fourth quarter revenue was $70 million with an adjusted gross profit of $10 million.

For the first quarter in US contract drilling, we expect to average 120 active rigs compared to 118 active rigs in the fourth quarter. We expect drilling services adjusted gross profit to be relatively flat compared to the fourth quarter with relatively flat adjusted gross profit in US contract drilling. Reported revenue for the fourth quarter in our completions services segment totaled $1,014 million with an adjusted gross profit of $232 million. We saw improved returns in the quarter, even on slightly lower revenues, a function of the ongoing merger synergies as well as strong operations. Segment revenue was just 2% lower than the pro forma results for the segment in the third quarter, and notably outperformed the industry. Completion activity was relatively steady throughout the fourth quarter, with strong fundamentals for natural gas power equipment as well as strong demand for our wellsite integration services with good customer alignment that kept us working through more of the holidays than we anticipated.

So far in the first quarter, activity has been mostly steady, although we are seeing some white space as we strategically reposition our fleets in response to natural gas prices. After finishing a stronger than expected fourth quarter — for the first quarter, we expect completion services revenue of $940 million to $950 million with an adjusted gross profit of $190 million to $200 million. Fourth quarter drilling products revenue totaled $88 million, which was up 1% compared to the third quarter for that business. Adjusted gross profit was $39 million. In the US, drilling product revenue outperformed the rig count as the company continued to deliver strong results domestically. Internationally, revenue was relatively steady, sequentially. Direct operating costs included a non-cash charge of $5 million associated with the step-up in asset value of the drill bits that were on the books at the time Ulterra transaction closed.

The same purchase price accounting adjustment increased reported segment depreciation and amortization by $10 million during the quarter. We expect these non-cash charges will continue through 2024. We continue to see growth potential for Ulterra even in a flattish US onshore market with opportunities to expand internationally. For the first quarter, we expect drilling products revenue of$ 90 million with an adjusted gross profit of $40 million. We expect $5 million in noncash direct operating costs associated with the step-up in drill bit value at Ulterra, without which the segment adjusted gross profit expectation would be $45 million. Other revenue totaled $18 million for the quarter, with $8 million in adjusted gross profit. We expect other first quarter revenue and adjusted gross profit to be flat with the fourth quarter.

Reported selling, general, and administrative expenses in the fourth quarter were $61 million. For Q1, we expect SG&A expenses of $65 million. On a consolidated basis for the fourth quarter, total depreciation, depletion, amortization, and impairment expense totaled $279 million. For the first quarter, we expect total depreciation, depletion, amortization, and impairment expense of approximately $280 million. For 2024, we expect an effective tax rate of 24% with annual cash taxes expected to be $35 million to $45 million after utilizing tax attributes to offset a portion of our taxable income. During Q4, total CapEx was $205 million, including $74 million in drilling services, $107 million in completion services, $17 million in drilling products and $8 million in other and corporate.

Our CapEx in 2024 is expected to be $740 million, comprised of $285 million for drilling services, $360 million for completion services, $55 million for drilling products, and $40 million for other and corporate. On the drilling side, we expect to fund limited rig upgrade programs, which are for specific customers. On the completion side, we will continue to invest at a measured pace to expand our fleet of electric and natural gas powered assets with fleet additions serving as replacements for retired diesel assets. Of the $360 million in completion services CapEx, we expect CapEx of roughly $220 million in the first half of the year as we fund investments in next-generation frac equipment as well as growth in our power solutions natural gas fueling business.

We expect completions capex will largely focus on maintenance in the second half of the year. Next year, in our legacy universal pressure pumping business have now been consolidated into one legal entity and are operating as one completions business, which is a big step as we continue to move through the integration process. We entered 2024, having achieved approximately half of the anticipated$ 200 million in annualized synergies and remain highly confident that we will achieve at least $200 million in synergies by the first quarter of 2025. We closed Q4 with nothing drawn on our $600 million revolving credit facility as well as $193 million in cash on hand. We do not have any senior debt maturities until 2028. We expect to generate another quarter of strong free cash flow in the first quarter, although not quite at the same level we saw in the fourth quarter, firstly, as we need to fund seasonal working capital adjustments and cash merger and integration costs.

I’ll now turn the call back to Andy Hendricks for closing remarks.

Andy Hendricks: Thanks, Andy. I want to close the call by quickly reiterating how we see 2024 unfolding. Macro conditions give us confidence for relatively stable near-term industry activity, considering both the oil and natural gas markets. US oil production is expected to have stabilized according to EIA and others, which should be a positive for global oil markets. At current oil prices, we do not anticipate much change in the oil rig count with oil-focused activity about 80% of the industry activity. On the natural gas side, yes, there could be some decline in industry activity in the near term, but we do not expect it will be material to our business over the long term. The outlook for natural gas activity could improve later this year and into next year as LNG demand comes closer into focus.

For Patterson-UTI, this relatively steady industry environment in 2024 should give us opportunities to focus on high-return capital efficient ways to grow our profitability. We expect to enhance our technology offerings in both drilling and completions. We still have runway to benefit from the synergies associated with the next year merger and Ulterra’s long-term growth prospects in the Middle East are very promising. And our current expectations is that we will return at least $400 million to shareholders this year through dividends and share repurchases, which should improve our earnings per share and return on capital through a steady reduction in share count. We believe these profitability growth initiatives are achievable even in a steady recount environment.

We’re excited about the year ahead and expect to deliver another year of strong results for our investors. Before we go to Q&A, I’d like to thank the women and men of Patterson-UTI for all of your hard work and all of your accomplishments. You had a record year performance in 2023. You transformed the company and you knocked it out of the park. So thank you. With that, I’ll turn it over to Adam for questions.

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Q&A Session

Operator: [Operator Instructions]. Our first question comes from the line of Arun Jayaram with JPMorgan.

Arun Jayaram: Good morning, Andy. I wanted to maybe focus on the completion services segment. Your outlook is for $195 million of gross profit in 1Q. I was wondering as you think about the full year, do you think that as a good baseline for — as you think about the full year with and you’re adding some capacity by midyear. How should we think about kind of a baseline for that segment in relatively steady state environment in US shale?

Andy Hendricks: Yeah. We’re really excited about how the completions business has been performing. I mean, you see it in the Q4 results. The teams who have had to integrate and come together are just doing a fantastic job. And it is one company today. It is next year. And they’re just doing a great job. I can’t say enough for the teams that are performing every day. When you look at Q1, what we’re projecting on Q1 in terms of revenue and profitability is relatively steady activity, but also some whitespace in there as we move some fleets around. And so I think as I look out across 2024 for completions and it holds for drilling as well, we’re seeing relatively steady. And I realize that natural gas is trading at a low level, and there’s probably some concerns over that market.

But I think we’ve shown that last year, whether it’s drilling or completions that we’re working for the right customers in these basins and that we can keep things relatively steady. So when it comes to the profitability on completions, I think as we continue to roll out some new technology, even in steady activity, there’s some potential to improve the profitability as we work towards the end of the year. So we’ve got, as I mentioned earlier, we’ve got various levers that we can pull through both technologies, through integration, through performance. And I still think that we can still work to some higher profitability even in a steady environment.

Arun Jayaram: Great. Andy, my follow up is just kind of an industry question. One of your peers in earnings season highlighted how they expect to get caught 40% of their frac fleets to be e-fleets by the end of this year. Another of your peers mentioned that 25% of their fleets would be next-generation e-fleets and dual fuel by the end of the year. How does that influence your strategy? and talk to us maybe about the types of returns on capital you’re seeing on some of the fleet horsepower you’re expected deployed by midyear.

Andy Hendricks: So as we mentioned, we are deploying thee- fleets this year and we’re going to start to grow our presence in that. But our strategy is more of a measured pace because our focus is returning cash to shareholders. We do see the opportunity to improve the profitability in the completions business by rolling out the e-fleets. But we also have other things we’re doing in ’24 to improve profitability, including integrating some of the vertical services that NexTier has been offering for years on some of the fleets that aren’t currently operating those. When you look at specifically at the e-fleets, there’s also some other technologies that we’re going to be looking at rolling out later this year too that are 100% natural gas, and there’s just going to be a variety of solutions.

So it’s not a one size fits all. We don’t think the entire industry converts over to electric. We think there’s still solid markets for high-performing dual fuel natural gas-powered systems. But we will continue to push technology. We will continue to invest in both electric and other new technologies. But for us, it’s going to be more of a measured pace as we focus on returns to shareholders.

Operator: Your next question comes from the line of Scott Gruber with Citigroup.

Scott Gruber: Yes, good morning. I want to come back to the completion outlook, if you don’t mind. It’s just the focal point today for folks. Within the white space, does that start to emerge early in the first quarter? Or is that more of a second half of the quarter impact? And then as you reposition fleet, those getting picked up in the oil basins. Yeah. I’m just trying to think about the trend into the second quarter, assuming gas activity stays weak. Does the second quarter activity end up looking better than the first quarter? Can you get some more oil activity or is it potentially down versus the first because gas is weak and that’s a full quarter impact? Are you able to provide some more color there?

Andy Hendricks: I think, you know, there’s given that natural gas has only recently dropped below . We don’t know the full impact of that yet, but we are working for some good customers in these gas basins, and we are repositioning some of our horsepower into more liquids, more oil. So we’re going to have some exposure to gas, but we had exposure to gas last year and we still had strong performance. So we still think that we’re going to have some relatively steady activity. If I had to make a guess right now in Q2, I’d say just consider it relatively steady to what we’re seeing in Q1, including the whitespace. I think there still is some uncertainty out there. But also, I think we have the potential to improve some profitability as we roll out some new technology and enhance some of the integration.

Scott Gruber: That’s great. And just on that point, wondered debating points post deal was your ability to secure revenue synergies and can do so in a timely fashion. Can you just speak to what you’re seeing on that front? What type of revenue synergies you’ve already achieved? And then what do you think occurs in ’24?

Andy Hendricks: Yeah, so if you go back to pre-closing, which go back to the summer of 2023, Patterson-UTI universal division was operating in a 12 frac fleets. And those frac fleets were performing well. But the market softened. But look at what next year was doing with vertical integration and all the other services they provide. They provide the wireline services. They’re providing power solution CNG. Creating CNG, transporting to wellsite, blending it with natural gas that’s available in the fuel gas. And look at the trucking and logistics operation that next year has. We’re well over 600 people in that business alone. And so there’s a lot of verticals that we didn’t have at Patterson-UTI. So one of the first things that we did as part of the synergies will start to reach out to customers to say, look, we believe we can improve your service if we have control of some of these other services that are affecting logistics and efficiencies and performance at the wellsite.

And so we have added wireline. We have added trucking and logistics. We have added some power solutions onto some of those fleets that didn’t have that pre-close. And so that’s been progressing. And we had some quick early wins, but we think we’ll have continued wins on that from a revenue and profitability standpoint throughout 2024. So that’s really how it’s playing out. And our teams are doing a great job working together to make this happen.

Andrew Smith: Yeah, I would also point out on that one again and Andy mentioned but I would just highlight it that really the productivity gains that we’re getting, again, kind of pushing that fully integrated wellsite offering onto the legacy EPP fleets is really improvement as well and overall profit.

Scott Gruber: Appreciate the color. I’ll turn it back.

Operator: Our next question comes from the line of Derek Podhaizer with Barclays.

Derek Podhaizer: Hey, good morning, guys. I want to talk about your shareholder returns and maybe just how you’re thinking about the remaining free cash flow over that 50%. Talk about maybe some of your M&A, whether it be tuck-ins or bolt-ons or what can we expect out of that debt? I know the maturities are far out to 2028, but a servicing of debt that you’re looking at. And really just trying to get at what the upside to that return number could look like.

Andrew Smith: Yeah, so look on the return to number that we’ve given the $400 million that we expect for the year, that’s above our 50% commitment. I would say that right now, M&A is not a high priority. Again, it’s hard to predict when it comes, and we’ll certainly look at a lot of things, but it’s not the highest priority for us right now, Neither is in this market just yet, I think in account of significant debt reduction, from time to time, we remain nimble with debt. If we think there’s a good buy to buy some back on the open market, we’ll do that. But I don’t see anything right now that warrants us making any kind of a large debt reduction.

Derek Podhaizer: Okay. That’s helpful. Switching over to the to the drilling side, can you just walk us through the daily margin trajectory that you’re thinking about for first quarter and for the rest of the year? The cost per day had a big step up there. Could that come back a little bit? Just curious what’s going on there. And then how should we think about the revenue per day as you have some contract churn and you’ve talked about leading price in that mid-30s, but just little help to break apart those two, the revenue per day and the cost per day?

Andy Hendricks: Yeah, so really pleased with this team on the drilling side. You know what they did year over year, ’23 over ’22, was huge in terms of improving our performance in the field to sustain the activity levels that we had and outperform the others, but also raised the profitability per rig at the same time. So that was just amazing what that team accomplished As we work through this year, there was some softening in leading edge in rigs towards the end of last year, in the second half, and we acknowledged that on some previous calls. So we will have some leading edge come down, but we’re still running around the mid-30s for all the performance and ancillary technology options that we’re offering on the rigs. So I think that while the costs went up — costs, I think you’re going to be relatively steady, but I think margins will be relatively steady as well.