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Helmerich & Payne, Inc. Announces Third Quarter Results

July 27, 2017

  • U.S. Land Operations contracted rig count increased by 22 rigs from March 31, 2017 to June 30, 2017 and by 95 rigs from September 30, 2016 to June 30, 2017
  • Growing U.S. Land rig market share(1) is currently at approximately 20% and AC drive rig segment market share at approximately 30%
  • U.S. Land adjusted average rig margin per day increased by over $800(2)

 
TULSA, Okla., July 27, 2017 (GLOBE NEWSWIRE) -- Helmerich & Payne, Inc. (NYSE:HP) reported a net loss of $22 million or $(0.21) per diluted share from operating revenues of $499 million for the third quarter of fiscal 2017. The net loss per diluted share includes $0.04 of after-tax income comprised of select items (3).  Net cash provided by operating activities was $90 million for the third quarter of fiscal 2017.

President and CEO John Lindsay commented, “We are pleased with the progress made in the third fiscal quarter and continue to reap the benefits of our integrated business model and the competencies the Company has developed over the past decade in designing, building, and now upgrading AC drive FlexRigs.  Additional demand for super-spec FlexRigs remains in the market even in a mid-$40’s oil price environment and we are responding with upgrades to our existing AC fleet.  H&P is perhaps the only contractor with the right AC rig fleet capacity to grow substantially in a manner that avoids the large investment in new rigs.  Despite the oil price uncertainty and the choppiness that it tends to create in the market, H&P is successfully growing market share and continuing to build its brand.  Our people remain the driving force of our success and the Company continues to place great focus on organizational effectiveness and equipping all of our employees to deliver excellence for the customer. Technology also plays a pivotal role in our success, and on June 2, 2017, the Company closed on the acquisition of MOTIVE Drilling Technologies, Inc.  MOTIVE is a software company that has developed a bit guidance system that utilizes cognitive computing to improve directional drilling decision automation and optimization. MOTIVE is a leader in this space and to date has been used to drill over three million feet of horizontal hole across all of the major U.S. shale plays.

“We believe H&P is well positioned to successfully manage the ongoing U.S. land market and any short term volatility that may exist. We have successfully maintained an industry leading cadence for upgrades which has allowed us to increase our active fleet by 98 rigs during this fiscal year, 86 of which were super-spec upgrades. The efforts undertaken over the past couple of years to enhance organizational effectiveness are paying significant dividends. We have demonstrated the ability to achieve operational scalability, maintain a strong balance sheet, and enhance a healthy team environment throughout the organization.  This is particularly apparent in our ability to respond to demand and add value to the customer. We remain confident about the future for H&P as our competitive advantages remain in our people, performance, technology, reliability and uniform FlexRig fleet.”

Operating Segment Results

U.S. Land Operations:

Segment operating loss narrowed by $44 million (85%) sequentially.  The favorable change was primarily attributable to an increase in quarterly revenue days and a higher rig margin per day average.  The number of quarterly revenue days increased sequentially by approximately 26%, as compared to an estimated 21% for the overall market (4).

Adjusted average rig revenue per day decreased sequentially by $525 to $21,676 (2), as additional rigs returned to work at spot market rates and as long-term contracts signed at higher, prior peak rates expired or reset at or slightly above spot market rates during the quarter.  The average rig expense per day decreased sequentially by $1,356 to $14,256; the decrease in the average was mostly attributable to a decline in upfront rig start-up expenses as fewer rigs were reactivated this quarter as compared to the prior quarter.  The corresponding adjusted average rig margin per day increased sequentially by $831 to $7,420 (2).

Offshore Operations:

Segment operating income increased 9% sequentially primarily due to lower levels of depreciation.  The number of quarterly revenue days decreased sequentially by approximately 8%, and the average rig margin per day increased sequentially by $686 to $11,503.  Additionally, management contracts on platform rigs contributed approximately $4 million to the segment’s operating income.

International Land Operations:

The segment had operating income this quarter as compared to an operating loss the previous quarter.  The $16 million sequential improvement was primarily attributable to the previously disclosed withdrawal by a customer of an early termination notice received for five rigs under long-term contracts.  Excluding the impact of the corresponding retroactive adjustments, the adjusted average rig margin per day was $8,978 and the number of quarterly revenue days was 1,183.  Adjusted average rig margin per day and adjusted quarterly revenue days were higher than expected primarily as a result of the resumption of normal contractual terms on the five previously mentioned rigs.

Operational Outlook for the Fourth Quarter of Fiscal 2017

U.S. Land Operations:

  • Quarterly revenue days expected to increase by approximately 3% to 5% sequentially
  • Average rig revenue per day expected to be slightly over $21,000 (excluding any impact from early termination revenue)
  • Average rig expense per day expected to be roughly $13,700

Offshore Operations:

  • Quarterly revenue days expected to decrease by approximately 10% sequentially
  • Average rig margin per day expected to be approximately $12,500
  • Management contracts expected to generate approximately $4 million in operating income

International Land Operations:

  • Adjusted quarterly revenue days expected to be roughly unchanged sequentially, resulting in approximately 13 average rigs generating revenue days during the quarter
  • Average rig margin per day expected to be roughly $7,500

Other Estimates for Fiscal 2017

  • FY17 capital expenditures are now estimated at roughly $400 million, and potentially higher depending on the timing of expenditures related to upgrading opportunities.  This increase from our prior estimate of $350 million is due to more rigs being upgraded than initially anticipated and higher levels of maintenance capital expenditures as a result of more rigs working than previously estimated.  The revised estimate excludes the acquisition of MOTIVE Drilling Technologies, Inc.
  • FY17 general and administrative expenses are now expected to be approximately $150 million primarily due to the acquisition of MOTIVE Drilling Technologies, Inc., and to a higher level of resources required to support a much higher active rig count than originally anticipated.

Other Highlights

  • H&P’s spot pricing in the U.S. Land market continued to increase (approximately 2%) from the date of the second quarter results announcement (April 27, 2017) to July 27, 2017.
  • Since April 27, 2017 (date of second quarter results announcement), 18 AC drive FlexRigs with 1,500 hp drawworks and 750,000 lbs. hookload ratings were upgraded to include a 7,500 psi mud circulating system and/or multiple-well pad capability, resulting in 140 rigs in our fleet today with rig specifications in highest demand(5).
  • During the third fiscal quarter, two FlexRig3s with walking systems were contracted and a third committed. One of the contracted rigs, the initial prototype, deployed to West Texas in May.  Initial rig operations have been strong, and the customer has been pleased with the results.
  • During the third fiscal quarter, FlexRig 531, working for an operator in the Utica Shale, drilled a total measured depth well of approximately 27,750 feet with an extended reach lateral measuring approximately 19,500 feet.  This was completed in approximately 17 days (from spud to total depth).
  • On May 22, 2017, the Company announced the acquisition of MOTIVE Drilling Technologies, Inc., the industry leader in the use of cognitive computing to guide the directional drilling process.  The acquisition closed on June 2, 2017.
  • On June 7, 2017, Directors of the Company declared a quarterly cash dividend of $0.70 per share on the Company’s common stock payable September 1, 2017 (as filed on Form 8‑K at the time of the declaration).

Select Items Included in Net Income (or Loss) per Diluted Share

Third Quarter of Fiscal 2017 included $0.04 in after-tax income comprised of the following:

  • $0.07 of after-tax income related to retroactive revenue received for five rigs in the International Land Segment
  • $0.03 of after-tax income from long-term contract early termination compensation from customers
  • $0.01 of after-tax gains related to the sale of used drilling equipment
  • $0.02 of after-tax losses from charges related to the MOTIVE Drilling Technologies, Inc. acquisition transaction
  • $0.05 of after-tax losses from abandonment charges related to the decommissioning of used drilling equipment

Second Quarter of Fiscal 2017 included $0.02 in after-tax income comprised of the following:

  • $0.04 of after-tax income from long-term contract early termination compensation from customers
  • $0.09 of after-tax gains related to the sale of used drilling equipment
  • $0.11 of after-tax losses from abandonment charges related to the decommissioning of used drilling equipment  

About Helmerich & Payne, Inc.

Helmerich & Payne, Inc. is primarily a contract drilling company.  As of July 27, 2017, the Company’s existing fleet includes 350 land rigs in the U.S., 38 international land rigs, and eight offshore platform rigs.  The Company’s global fleet has a total of 388 land rigs, including 373 AC drive FlexRigs.

Forward-Looking Statements

This release includes “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, and such statements are based on current expectations and assumptions that are subject to risks and uncertainties.  All statements other than statements of historical facts included in this release, including, without limitation, statements regarding the registrant’s future financial position, operations outlook, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements.  For information regarding risks and uncertainties associated with the Company’s business, please refer to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s SEC filings, including but not limited to its annual report on Form 10‑K and quarterly reports on Form 10‑Q.  As a result of these factors, Helmerich & Payne, Inc.’s actual results may differ materially from those indicated or implied by such forward-looking statements.  We undertake no duty to update or revise our forward-looking statements based on changes in internal estimates, expectations or otherwise, except as required by law.

________________________

Note Regarding Trademarks. Helmerich & Payne, Inc. owns or has rights to the use of trademarks, service marks and trade names that it uses in conjunction with the operation of its business.  One of the trademarks that appears in this release is FlexRig, which may be registered or trademarked in the U.S. and other jurisdictions.

(1)This market share estimate is derived from RigData as of July 2017.  Additionally, the drawworks capacity of each land rig included in the estimate was equal to or greater than 600 horsepower.
(2)See the Selected Statistical & Operational Highlights table(s) for details on the revenues or charges excluded on a per revenue day basis.  The inclusion or exclusion of these amounts results in adjusted revenue, expense, and/or margin per day figures, which are all non-GAAP measures.
(3)See the corresponding section of this release for details regarding the select items.
(4)The overall market’s rate of increase was calculated using the average U.S. Land rig counts from the first and second calendar quarters of 2017 as publicly published by BHGE.
(5)These combined rig specifications are in high demand and fit the description of what some industry followers refer to as “super-spec” rigs.

 

 
HELMERICH & PAYNE, INC.
Unaudited
(in thousands, except per share data)
                
  Three Months Ended  Nine Months Ended
CONSOLIDATED STATEMENTS OF June 30 March 31  June 30 June 30
OPERATIONS 2017  2017  2016  2017  2016 
                
Operating Revenues:               
Drilling — U.S. Land $405,516  $330,967  $285,028  $1,000,119  $1,004,116 
Drilling — Offshore  33,711   36,235   30,492   103,758   106,697 
Drilling — International Land  55,075   34,757   47,983   157,863   171,529 
Other  4,262   3,324   2,983   10,697   10,182 
  $498,564  $405,283  $366,486  $1,272,437  $1,292,524 
                
Operating costs and expenses:               
Operating costs, excluding depreciation  337,463   296,829   186,146   881,971   684,401 
Depreciation  145,043   152,777   138,690   431,667   422,336 
Asset impairment charge        6,250      6,250 
General and administrative  42,890   33,519   46,496   110,671   112,381 
Research and development  3,058   2,719   2,707   8,585   7,941 
Income from asset sales  (1,862)  (14,889)  (547)  (17,593)  (7,820)
   526,592   470,955   379,742   1,415,301   1,225,489 
                
Operating income (loss)   (28,028)   (65,672)   (13,256)   (142,864)   67,035 
                
Other income (expense):               
Interest and dividend income  1,700   1,338   778   4,028   2,310 
Interest expense  (6,364)  (6,084)  (6,407)  (17,503)  (16,652)
Other  (911)  174   534   (350)  926 
   (5,575)  (4,572)  (5,095)  (13,825)  (13,416)
                
Income (loss) from continuing operations before income taxes  (33,603)  (70,244)  (18,351)  (156,689)  53,619 
Income tax provision  (10,478)  (21,771)  2,842   (50,537)  33,740 
Income (loss) from continuing operations  (23,125)  (48,473)  (21,193)  (106,152)  19,879 
                
Income (loss) from discontinued operations, before income taxes  3,223   (94)  2,193   2,705   2,241 
Income tax provision  1,897   251   2,200   2,233   6,113 
Income (loss) from discontinued operations  1,326   (345)  (7)  472   (3,872)
                
NET INCOME (LOSS) $ (21,799) $ (48,818) $ (21,200) $ (105,680) $ 16,007 
                
Basic earnings per common share:               
Income (loss) from continuing operations $(0.22) $(0.45) $(0.20) $(0.99) $0.18 
Income (loss) from discontinued operations $0.01  $  $  $  $(0.04)
                
Net income (loss) $(0.21) $(0.45) $(0.20) $(0.99) $0.14 
                
Diluted earnings per common share:               
Income (loss) from continuing operations $(0.22) $(0.45) $(0.20) $(0.99) $0.17 
Income (loss) from discontinued operations $0.01  $  $  $  $(0.04)
                
Net income (loss) $(0.21) $(0.45) $(0.20) $(0.99) $0.13 
                
Weighted average shares outstanding:               
Basic  108,572   108,565   108,047   108,470   107,970 
Diluted  108,572   108,565   108,047   108,470   108,523 
                     


HELMERICH & PAYNE, INC.
Unaudited
(in thousands)
       
  June 30 September 30
CONSOLIDATED CONDENSED BALANCE SHEETS 2017 2016
       
ASSETS      
Cash and cash equivalents $572,787 $905,561
Short-term investments  39,894  44,148
Other current assets  637,700  622,913
Current assets of discontinued operations  7  64
Total current assets  1,250,388  1,572,686
Investments  76,986  84,955
Net property, plant, and equipment  5,062,914  5,144,733
Other assets  123,603  29,645
       
TOTAL ASSETS $6,513,891 $6,832,019
       
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current liabilities $333,849 $330,061
Current liabilities of discontinued operations  80  59
Total current liabilities  333,929  330,120
Non-current liabilities  1,434,196  1,445,237
Non-current liabilities of discontinued operations  3,225  3,890
Long-term debt less unamortized discount and debt issuance costs  492,637  491,847
Total shareholders’ equity  4,249,904  4,560,925
       
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $6,513,891 $6,832,019
       


HELMERICH & PAYNE, INC.
Unaudited
(in thousands)
       
  Nine Months Ended
  June 30
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS 2017  2016 
       
OPERATING ACTIVITIES:      
Net income (loss) $(105,680) $16,007 
Adjustment for (income) loss from discontinued operations  (472)  3,872 
Income (loss) from continuing operations  (106,152)  19,879 
Depreciation  431,667   422,336 
Asset impairment charge     6,250 
Changes in assets and liabilities  (97,040)  153,624 
Income from asset sales  (17,593)  (7,820)
Other  25,367   21,071 
Net cash provided by operating activities from continuing operations  236,249   615,340 
Net cash provided by (used in) operating activities from discontinued operations  (115)  70 
Net cash provided by operating activities  236,134   615,410 
       
INVESTING ACTIVITIES:      
Capital expenditures  (300,275)  (219,549)
Purchase of short-term investments  (48,958)  (36,958)
Payment for acquisition of business, net of cash acquired  (70,416)   
Proceeds from sale of short-term investments  53,150   32,681 
Proceeds from asset sales  17,921   12,804 
Net cash used in investing activities  (348,578)  (211,022)
       
FINANCING ACTIVITIES:      
Debt issuance costs     (32)
Dividends paid  (229,061)  (224,040)
Exercise of stock options, net of tax withholding  10,458   483 
Tax withholdings related to net share settlements of restricted stock  (5,848)  (3,912)
Excess tax benefit from stock-based compensation  4,121   761 
Net cash used in financing activities  (220,330)  (226,740)
       
Net increase (decrease) in cash and cash equivalents  (332,774)  177,648 
Cash and cash equivalents, beginning of period  905,561   729,384 
Cash and cash equivalents, end of period $572,787  $907,032 
         


  Three Months Ended  Nine Months Ended  
  June 30 March 31  June 30 June 30 
SEGMENT REPORTING 2017  2017  2016  2017  2016  
                      
  (in thousands, except days and per day amounts) 
U.S. LAND OPERATIONS                
Revenues $405,516  $330,967  $285,028  $1,000,119  $1,004,116  
Direct operating expenses  277,372   238,249   122,694   686,227   460,119  
General and administrative expense  13,347   12,573   14,221   37,562   38,790  
Depreciation  122,777   131,995   116,061   367,048   355,102  
Asset impairment charge        6,250      6,250  
Segment operating income (loss) $(7,980) $(51,850) $25,802  $(90,718) $143,855  
                 
Revenue days  16,577   13,166   7,483   39,527   29,029  
Average rig revenue per day $21,986  $22,654  $35,474  $22,902  $32,251  
Average rig expense per day $14,256  $15,612  $13,780  $14,942  $13,532  
Average rig margin per day $7,730  $7,042  $21,694  $7,960  $18,719  
Rig utilization  52 % 42 % 24 % 42 % 31 %
                 
OFFSHORE OPERATIONS                
Revenues $33,711  $36,235  $30,492  $103,758  $106,697  
Direct operating expenses  23,656   26,023   24,249   72,524   81,607  
General and administrative expense  969   902   975   2,787   2,674  
Depreciation  2,630   3,398   3,184   9,295   9,311  
Segment operating income $6,456  $5,912  $2,084  $19,152  $13,105  
                 
Revenue days  546   595   637   1,785   2,064  
Average rig revenue per day $35,644  $36,006  $25,568  $34,204  $27,086  
Average rig expense per day $24,141  $25,189  $18,823  $23,300  $19,721  
Average rig margin per day $11,503  $10,817  $6,745  $10,904  $7,365  
Rig utilization  75 % 77 % 78 % 77 % 84 %
                 
INTERNATIONAL LAND OPERATIONS                
Revenues $55,075  $34,757  $47,983  $157,863  $171,529  
Direct operating expenses  35,006   32,181   38,230   120,537   140,351  
General and administrative expense  714   920   772   2,303   2,377  
Depreciation  14,428   12,633   13,972   40,248   42,725  
Segment operating income (loss) $4,927  $(10,977) $(4,991) $(5,225) $(13,924) 
                 
Revenue days  1,633   870   1,274   3,660   3,992  
Average rig revenue per day $32,708  $37,340  $34,693  $41,134  $39,382  
Average rig expense per day $19,645  $33,649  $26,156  $30,328  $29,050  
Average rig margin per day $13,063  $3,691  $8,537  $10,806  $10,332  
Rig utilization  47 % 25 % 37 % 35 % 38 %
                      

Operating statistics exclude the effects of offshore platform management contracts, gains and losses from translation of foreign currency transactions, and do not include reimbursements of “out-of-pocket” expenses in revenue per day, expense per day and margin calculations.

Reimbursed amounts were as follows:

                
U.S. Land Operations $41,059 $32,704 $19,593 $94,861 $67,915
Offshore Operations $5,181 $6,066 $5,270 $15,678 $17,687
International Land Operations $1,663 $2,272 $3,784 $7,312 $14,316
                

Segment operating income for all segments is a non-GAAP financial measure of the Company’s performance, as it excludes general and administrative expenses, corporate depreciation, income from asset sales and other corporate income and expense. The Company considers segment operating income to be an important supplemental measure of operating performance for presenting trends in the Company’s core businesses. This measure is used by the Company to facilitate period-to-period comparisons in operating performance of the Company’s reportable segments in the aggregate by eliminating items that affect comparability between periods. The Company believes that segment operating income is useful to investors because it provides a means to evaluate the operating performance of the segments and the Company on an ongoing basis using criteria that are used by our internal decision makers. Additionally, it highlights operating trends and aids analytical comparisons. However, segment operating income has limitations and should not be used as an alternative to operating income or loss, a performance measure determined in accordance with GAAP, as it excludes certain costs that may affect the Company’s operating performance in future periods.

The following table reconciles operating income per the information above to income (loss) from continuing operations before income taxes as reported on the Consolidated Statements of Operations (in thousands).

                
  Three Months Ended  Nine Months Ended
  June 30 March 31  June 30 June 30
  2017  2017  2016  2017  2016 
Operating income (loss)               
U.S. Land $(7,980) $(51,850) $25,802  $(90,718) $143,855 
Offshore  6,456   5,912   2,084   19,152   13,105 
International Land  4,927   (10,977)  (4,991)  (5,225)  (13,924)
Other  (1,992)  (1,134)  (2,186)  (5,175)  (4,839)
Segment operating income (loss) $1,411  $(58,049) $20,709  $(81,966) $138,197 
Corporate general and administrative  (27,860)  (19,124)  (30,528)  (68,019)  (68,540)
Other depreciation  (3,852)  (3,822)  (4,456)  (11,751)  (12,037)
Inter-segment elimination  411   434   472   1,279   1,595 
Income from asset sales  1,862   14,889   547   17,593   7,820 
Operating income (loss) $ (28,028) $ (65,672) $ (13,256) $ (142,864) $ 67,035 
                
Other income (expense):               
Interest and dividend income  1,700   1,338   778   4,028   2,310 
Interest expense  (6,364)  (6,084)  (6,407)  (17,503)  (16,652)
Other  (911)  174   534   (350)  926 
Total other income (expense)  (5,575)  (4,572)  (5,095)  (13,825)  (13,416)
                
Income (loss) from continuing operations before income taxes $ (33,603) $ (70,244) $ (18,351) $ (156,689) $ 53,619 
                     

SUPPLEMENTARY STATISTICAL INFORMATION

The tables and information that follow are additional statistical information that may also help provide further clarity and insight into the operations of the Company.

 
SELECTED STATISTICAL & OPERATIONAL HIGHLIGHTS
(Used to determine adjusted per revenue day statistics, which is a non-GAAP measure)
       
  Three Months Ended
  June 30 March 31
  2017 2017
       
  (in dollars per revenue day)
U.S. Land Operations      
Early contract termination revenues $ 310 $ 453
Total impact per revenue day: $ 310 $ 453
       


U.S. LAND RIG COUNTS & MARKETABLE FLEET STATISTICS
         
  July 27 June 30 March 31 Q3FY17
  2017 2017 2017 Average
U.S. Land Operations        
Term Contract Rigs 98 99 88 95.5
Spot Contract Rigs 91 91 79 86.7
Total Rigs Generating Revenue Days  189  190  167  182.2
Other Contracted Rigs   1 0.6
Total Contracted Rigs  189  190  168 182.8
Idle or Other Rigs 161 160 182 167.2
Total Marketable Fleet  350  350  350  350.0
         


H&P GLOBAL FLEET UNDER TERM CONTRACT STATISTICS
Number of Rigs Already Under Long-Term Contracts(1)
 
(Estimated Quarterly Average — as of 7/27/17)
               
  Q4 Q1 Q2 Q3 Q4 Q1 Q2
Segment FY17 FY18 FY18 FY18 FY18 FY19 FY19
U.S. Land Operations  95.3  83.0  53.7  43.3  33.4  27.8  20.4
International Land Operations  10.0  10.0  10.0  10.0  10.0  10.0  10.0
Offshore Operations  2.0  2.0  2.0  1.9  0.3  —  —
Total  107.3  95.0  65.7  55.2  43.8  37.8  30.4
               

_______________________
(1) The above term contract coverage excludes long-term contracts for which the Company received early contract termination notifications as of 7/27/17. Given notifications as of 7/27/17, the Company expects to generate approximately $5 million in the fourth fiscal quarter of 2017 and approximately $15 million thereafter from early terminations corresponding to long-term contracts and related to its U.S. Land segment. All of the above rig contracts include provisions for early termination fees.

Contact:  Investor Relations
investor.relations@hpinc.com
(918) 588‑5190

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Source: Helmerich & Payne, Incorporated