Unit Corporation Q1 2025 Results: Navigating Mixed Performance in Energy Markets

Unit Corporation (OTCMKTS:UNTC) delivered a modest earnings beat in its first quarter of 2025, reporting GAAP diluted EPS of $1.80 against revenue of $63.5 million. While net income rose 11% year-over-year, the results highlight a challenging environment for energy companies grappling with volatile commodity prices and operational headwinds. Below, we dissect the key drivers, risks, and opportunities for this Oklahoma-based oil and gas producer and contract driller.

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Key Financials: A Fragile Balance Between Gains and Losses

Unit Corporation’s Q1 2025 earnings reflect a split between its two core segments: oil and natural gas production and contract drilling.

• Net Income: The $17.9 million profit (up 11% from $16.1 million in Q1 2024) was buoyed by tax savings and a $2.3 million net gain from commodity derivatives. However, this growth occurred alongside a 5.5% decline in total revenue to $63.5 million.
• Revenue Segments:
• Oil and natural gas revenue rose 6.7% to $28.4 million, driven by soaring natural gas prices (+64% year-over-year).
• Contract drilling revenue fell 13.6% to $35.1 million, as rig utilization dropped 7% and dayrates declined 5%.

The mixed performance underscores the company’s dual exposure to energy markets: natural gas prices surged, but oil prices weakened, and drilling activity remained subdued.

Operational Headwinds and Strategic Moves

1. Natural Gas: A Boon, But Hedging Is Critical
Natural gas prices jumped 64% to $2.94 per Mcf (excluding derivatives), but Unit Corporation’s production volumes fell 12% due to lower output from its core assets. To mitigate price swings, the company has hedged 15,000 MMBtu/day of natural gas through 2025 at a fixed $4.69/MMBtu—a move CEO Phil Frohlich called “essential” to stabilize cash flows.

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2. Contract Drilling: A Sector in Flux
The contract drilling segment faced twin challenges:
- Lower Rig Utilization: Average rigs in use fell to 12.7 from 13.7 in Q1 2024.
- Declining Dayrates: Average daily revenue dropped to $29,355 from $30,891.

This segment’s struggles reflect broader industry dynamics, as energy companies prioritize capital discipline over aggressive drilling.

Balance Sheet Strength and Dividend Sustainability

Unit Corporation’s financial position remains robust:
- Cash and Equivalents: Increased to $49.7 million, up from $48.9 million at year-end 2024.
- No Debt: The company maintained a clean balance sheet, a rarity in an industry plagued by leverage.

The dividend—$1.25 per share—remained unchanged, funded by retained cash reserves. However, investors should note that future payouts depend on oil and gas prices, which remain unpredictable.

Risks to Watch

• Commodity Volatility: Natural gas prices could drop if supply outpaces demand, undermining hedging gains.
• Drilling Rig Declines: Further drops in rig utilization or dayrates could pressure margins.
• Production Declines: Oil production fell 2%, and NGL output dropped 21%, signaling potential long-term asset challenges.

Conclusion: A Hold with Caution

Unit Corporation’s Q1 results are a microcosm of the energy sector’s current state—resilient in parts, but uneven overall. The $1.80 EPS and strong balance sheet provide a foundation for stability, but revenue headwinds and drilling sector softness warrant caution.

Investors should monitor two key metrics:
1. Natural Gas Hedging Efficacy: Whether the $4.69/MMBtu swaps offset price declines.
2. Cash Reserves: A drop below $50 million could force dividend cuts or operational retrenchment.

For now, Unit Corporation’s disciplined capital management and lack of debt position it better than many peers. However, with revenue declining and drilling activity stagnant, a hold rating seems prudent until commodity prices stabilize or drilling demand rebounds.

Final EPS growth (11%) and dividend sustainability make UNTC worth watching—but not yet a buy.