Patterson Uti Energy Inc (PTEN)

[Timothy Smith]

By transforming its asset portfolio, Patterson-UTI has prepared itself well for the current downcycle.

The underlying asset value has substantial upside defined by equipment replacement cost.

However, for such a scenario to materialize, one needs to assume a material improvement in oil price, substantially above what is suggested by the current futures curve.

Ultimately, the greatest risk is the duration of the downcycle. In the event the commodity price trough lasts several years, the stock price recovering to a level corresponding to replacement cost economics may represent only a moderate return relative to the stock's risk.