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

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(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

Source: Helmerich & Payne, Incorporated