UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended June 30, 2023
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from to
Commission file number 1-4221
HELMERICH & PAYNE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 73-0679879 | ||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
1437 South Boulder Avenue, Suite 1400, Tulsa, Oklahoma 74119
(Address of principal executive offices) (Zip Code)
(918) 742-5531
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock ($0.10 par value) | HP | New York Stock Exchange | ||||||
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
| Emerging growth company | ☐ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒
| CLASS | OUTSTANDING AT July 20, 2023 | |||||||
| Common Stock, $0.10 par value | 99,426,526 | |||||||
| HELMERICH & PAYNE, INC. |  | |||||||
| INDEX TO FORM 10‑Q | ||||||||
Q3FY23 FORM 10-Q | 2PART I. FINANCIAL INFORMATION | ||||||||||||||
ITEM 1. FINANCIAL STATEMENTS | ||||||||||||||
| HELMERICH & PAYNE, INC. | |||||||||||
| UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
| June 30, | September 30, | ||||||||||
| (in thousands except share data and share amounts) | 2023 | 2022 | |||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 220,609 | $ | 232,131 | |||||||
| Restricted cash | 61,364 | 36,246 | |||||||||
| Short-term investments | 72,609 | 117,101 | |||||||||
Accounts receivable, net of allowance of $4,983 and $2,975, respectively | 449,588 | 458,713 | |||||||||
| Inventories of materials and supplies, net | 101,299 | 87,957 | |||||||||
| Prepaid expenses and other, net | 86,371 | 66,463 | |||||||||
| Assets held-for-sale | 988 | 4,333 | |||||||||
| Total current assets | 992,828 | 1,002,944 | |||||||||
| Investments | 246,059 | 218,981 | |||||||||
| Property, plant and equipment, net | 2,932,593 | 2,960,809 | |||||||||
| Other Noncurrent Assets: | |||||||||||
| Goodwill | 45,653 | 45,653 | |||||||||
| Intangible assets, net | 62,183 | 67,154 | |||||||||
| Operating lease right-of-use assets | 36,972 | 39,064 | |||||||||
| Other assets, net | 24,528 | 20,926 | |||||||||
| Total other noncurrent assets | 169,336 | 172,797 | |||||||||
| Total assets | $ | 4,340,816 | $ | 4,355,531 | |||||||
| LIABILITIES & SHAREHOLDERS' EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts payable | $ | 151,671 | $ | 126,966 | |||||||
| Dividends payable | 48,878 | 26,693 | |||||||||
| Accrued liabilities | 232,947 | 241,151 | |||||||||
| Total current liabilities | 433,496 | 394,810 | |||||||||
| Noncurrent Liabilities: | |||||||||||
| Long-term debt, net | 544,996 | 542,610 | |||||||||
| Deferred income taxes | 541,424 | 537,712 | |||||||||
| Other | 112,819 | 114,927 | |||||||||
| Total noncurrent liabilities | 1,199,239 | 1,195,249 | |||||||||
Commitments and Contingencies (Note 12) | |||||||||||
| Shareholders' Equity: | |||||||||||
Common stock, $0.10 par value, 160,000,000 shares authorized, 112,222,865 shares issued as of June 30, 2023 and September 30, 2022, and 99,426,526 and 105,293,662 shares outstanding as of June 30, 2023 and September 30, 2022, respectively | 11,222 | 11,222 | |||||||||
Preferred stock, no par value, 1,000,000 shares authorized, no shares issued | — | — | |||||||||
| Additional paid-in capital | 517,259 | 528,278 | |||||||||
| Retained earnings | 2,655,287 | 2,473,572 | |||||||||
| Accumulated other comprehensive loss | (11,305) | (12,072) | |||||||||
Treasury stock, at cost, 12,796,339 shares and 6,929,203 shares as of June 30, 2023 and September 30, 2022, respectively | (464,382) | (235,528) | |||||||||
| Total shareholders’ equity | 2,708,081 | 2,765,472 | |||||||||
| Total liabilities and shareholders' equity | $ | 4,340,816 | $ | 4,355,531 | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q3FY23 FORM 10-Q | 3| HELMERICH & PAYNE, INC. | |||||||||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||||||
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| (in thousands, except per share amounts) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| OPERATING REVENUES | |||||||||||||||||||||||
| Drilling services | $ | 721,567 | $ | 547,906 | $ | 2,205,419 | $ | 1,420,810 | |||||||||||||||
| Other | 2,389 | 2,327 | 7,396 | 6,802 | |||||||||||||||||||
| 723,956 | 550,233 | 2,212,815 | 1,427,612 | ||||||||||||||||||||
| OPERATING COSTS AND EXPENSES | |||||||||||||||||||||||
| Drilling services operating expenses, excluding depreciation and amortization | 429,182 | 376,210 | 1,306,543 | 1,015,621 | |||||||||||||||||||
| Other operating expenses | 1,003 | 1,053 | 3,317 | 3,416 | |||||||||||||||||||
| Depreciation and amortization | 94,811 | 100,741 | 287,721 | 304,115 | |||||||||||||||||||
| Research and development | 7,085 | 6,511 | 22,720 | 19,425 | |||||||||||||||||||
| Selling, general and administrative | 49,271 | 44,933 | 150,581 | 135,699 | |||||||||||||||||||
| Asset impairment charges | — | — | 12,097 | 4,363 | |||||||||||||||||||
| Restructuring charges | — | 33 | — | 838 | |||||||||||||||||||
| Gain on reimbursement of drilling equipment | (10,642) | (9,895) | (37,940) | (21,597) | |||||||||||||||||||
| Other (gain) loss on sale of assets | 4,504 | (3,075) | (394) | (2,762) | |||||||||||||||||||
| 575,214 | 516,511 | 1,744,645 | 1,459,118 | ||||||||||||||||||||
| OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS | 148,742 | 33,722 | 468,170 | (31,506) | |||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||
| Interest and dividend income | 10,748 | 5,313 | 20,508 | 11,301 | |||||||||||||||||||
| Interest expense | (4,324) | (4,372) | (12,918) | (14,876) | |||||||||||||||||||
| Gain (loss) on investment securities | (18,538) | (14,310) | 6,123 | 55,684 | |||||||||||||||||||
| Loss on extinguishment of debt | — | — | — | (60,083) | |||||||||||||||||||
| Other | (685) | (1,148) | (2,088) | (2,166) | |||||||||||||||||||
| (12,799) | (14,517) | 11,625 | (10,140) | ||||||||||||||||||||
| Income (loss) from continuing operations before income taxes | 135,943 | 19,205 | 479,795 | (41,646) | |||||||||||||||||||
| Income tax expense (benefit) | 40,663 | 1,730 | 124,187 | (3,166) | |||||||||||||||||||
| Income (loss) from continuing operations | 95,280 | 17,475 | 355,608 | (38,480) | |||||||||||||||||||
| Income (loss) from discontinued operations before income taxes | 13 | 277 | 870 | (106) | |||||||||||||||||||
| Income tax expense | — | — | — | — | |||||||||||||||||||
| Income (loss) from discontinued operations | 13 | 277 | 870 | (106) | |||||||||||||||||||
| NET INCOME (LOSS) | $ | 95,293 | $ | 17,752 | $ | 356,478 | $ | (38,586) | |||||||||||||||
| Basic earnings (loss) per common share: | |||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 0.93 | $ | 0.16 | $ | 3.39 | $ | (0.37) | |||||||||||||||
| Income from discontinued operations | — | — | 0.01 | — | |||||||||||||||||||
| Net income (loss) | $ | 0.93 | $ | 0.16 | $ | 3.40 | $ | (0.37) | |||||||||||||||
| Diluted earnings (loss) per common share: | |||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 0.93 | $ | 0.16 | $ | 3.38 | $ | (0.37) | |||||||||||||||
| Income from discontinued operations | — | — | 0.01 | — | |||||||||||||||||||
| Net income (loss) | $ | 0.93 | $ | 0.16 | $ | 3.39 | $ | (0.37) | |||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | 101,163 | 105,289 | 103,464 | 106,092 | |||||||||||||||||||
| Diluted | 101,550 | 106,021 | 103,852 | 106,092 | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q3FY23 FORM 10-Q | 4| HELMERICH & PAYNE, INC. | |||||||||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | |||||||||||||||||||||||
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Net income (loss) | $ | 95,293 | $ | 17,752 | $ | 356,478 | $ | (38,586) | |||||||||||||||
| Other comprehensive income, net of income taxes: | |||||||||||||||||||||||
Net change related to employee benefit plans, net of income taxes of $(59.6) thousand and $(209.8) thousand for the three and nine months ended June 30, 2023, respectively, and $(41.7) thousand and $(268.4) thousand for the three and nine months ended June 30, 2022, respectively | 255 | 389 | 767 | 1,177 | |||||||||||||||||||
| Other comprehensive income | 255 | 389 | 767 | 1,177 | |||||||||||||||||||
| Comprehensive income (loss) | $ | 95,548 | $ | 18,141 | $ | 357,245 | $ | (37,409) | |||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q3FY23 FORM 10-Q | 5| HELMERICH & PAYNE, INC. | |||||||||||||||||||||||||||||||||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | |||||||||||||||||||||||||||||||||||||||||||||||
Three and Nine Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except per share amounts) | Shares | Amount | Shares | Amount | Total | ||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | 112,222 | $ | 11,222 | $ | 528,278 | $ | 2,473,572 | $ | (12,072) | 6,929 | $ | (235,528) | $ | 2,765,472 | |||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 97,145 | — | — | — | 97,145 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 256 | — | — | 256 | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.25 base per share, $0.235 supplemental per share) | — | — | — | (76,611) | — | — | — | (76,611) | |||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock awards, net of shares withheld for employee taxes | — | — | (22,776) | — | — | (449) | 13,293 | (9,483) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 8,273 | — | — | — | — | 8,273 | |||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | — | 844 | (39,060) | (39,060) | |||||||||||||||||||||||||||||||||||||||
| Other | — | — | (847) | — | — | — | — | (847) | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 112,222 | $ | 11,222 | $ | 512,928 | $ | 2,494,106 | $ | (11,816) | 7,324 | $ | (261,295) | $ | 2,745,145 | |||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 164,040 | — | — | — | 164,040 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 256 | — | — | 256 | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.25 base per share, $0.235 supplemental per share) | — | — | — | (50,046) | — | — | — | (50,046) | |||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock awards, net of shares withheld for employee taxes | — | — | (11,769) | — | — | (229) | 6,842 | (4,927) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 7,431 | — | — | — | — | 7,431 | |||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | — | 2,543 | (106,708) | (106,708) | |||||||||||||||||||||||||||||||||||||||
| Other | — | — | 615 | — | — | — | — | 615 | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | 112,222 | $ | 11,222 | $ | 509,205 | $ | 2,608,100 | $ | (11,560) | 9,638 | $ | (361,161) | $ | 2,755,806 | |||||||||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 95,293 | — | — | — | 95,293 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 255 | — | — | 255 | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.25 base per share, $0.235 supplemental per share) | — | — | — | (48,106) | — | — | — | (48,106) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 8,180 | — | — | — | — | 8,180 | |||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | — | 3,158 | (103,221) | (103,221) | |||||||||||||||||||||||||||||||||||||||
| Other | — | — | (126) | — | — | — | — | (126) | |||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 112,222 | $ | 11,222 | $ | 517,259 | $ | 2,655,287 | $ | (11,305) | 12,796 | $ | (464,382) | $ | 2,708,081 | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q3FY23 FORM 10-Q | 6| HELMERICH & PAYNE, INC. | |||||||||||||||||||||||||||||||||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED) | |||||||||||||||||||||||||||||||||||||||||||||||
Three and Nine Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except per share amounts) | Shares | Amount | Shares | Amount | Total | ||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | 112,222 | $ | 11,222 | $ | 529,903 | $ | 2,573,375 | $ | (20,244) | 4,324 | $ | (181,638) | $ | 2,912,618 | |||||||||||||||||||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (51,362) | — | — | — | (51,362) | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 394 | — | — | 394 | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.25 base per share) | — | — | — | (26,807) | — | — | — | (26,807) | |||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock awards, net of shares withheld for employee taxes | — | — | (21,152) | — | — | (381) | 17,040 | (4,112) | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 6,218 | — | — | — | — | 6,218 | |||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | — | 2,548 | (60,358) | (60,358) | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 112,222 | $ | 11,222 | $ | 514,969 | $ | 2,495,206 | $ | (19,850) | 6,491 | $ | (224,956) | $ | 2,776,591 | |||||||||||||||||||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (4,976) | — | — | — | (4,976) | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 394 | — | — | 394 | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.25 base per share) | — | — | — | (26,565) | — | — | — | (26,565) | |||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock awards, net of shares withheld for employee taxes | — | (7,197) | — | — | (161) | 5,805 | (1,392) | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 7,945 | — | — | — | — | 7,945 | |||||||||||||||||||||||||||||||||||||||
| Share repurchases | — | — | — | — | — | 607 | (16,641) | (16,641) | |||||||||||||||||||||||||||||||||||||||
| Other | — | — | (946) | — | — | — | (946) | ||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 112,222 | $ | 11,222 | $ | 514,771 | $ | 2,463,665 | $ | (19,456) | 6,937 | $ | (235,792) | $ | 2,734,410 | |||||||||||||||||||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 17,752 | — | — | — | 17,752 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 389 | — | — | 389 | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.25 base per share) | — | — | — | (26,691) | — | — | — | (26,691) | |||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock awards, net of shares withheld for employee taxes | — | (136) | — | — | (5) | 140 | 4 | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 7,051 | — | — | — | — | 7,051 | |||||||||||||||||||||||||||||||||||||||
| Other | — | — | (247) | — | — | — | — | (247) | |||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | 112,222 | $ | 11,222 | $ | 521,439 | $ | 2,454,726 | $ | (19,067) | 6,932 | $ | (235,652) | $ | 2,732,668 | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q3FY23 FORM 10-Q | 7| HELMERICH & PAYNE, INC. | |||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| Nine Months Ended June 30, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income (loss) | $ | 356,478 | $ | (38,586) | |||||||
| Adjustment for (income) loss from discontinued operations | (870) | 106 | |||||||||
| Income (loss) from continuing operations | 355,608 | (38,480) | |||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 287,721 | 304,115 | |||||||||
| Asset impairment charges | 12,097 | 4,363 | |||||||||
| Amortization of debt discount and debt issuance costs | 931 | 880 | |||||||||
| Loss on extinguishment of debt | — | 60,083 | |||||||||
| Provision for credit loss | 2,165 | 1,022 | |||||||||
| Stock-based compensation | 23,884 | 21,214 | |||||||||
| Gain on investment securities | (6,123) | (55,684) | |||||||||
| Gain on reimbursement of drilling equipment | (37,940) | (21,597) | |||||||||
| Other gain on sale of assets | (394) | (2,762) | |||||||||
| Deferred income tax expense (benefit) | 4,197 | (36,614) | |||||||||
| Other | 3,956 | (2,765) | |||||||||
| Change in assets and liabilities: | |||||||||||
| Accounts receivable | 6,529 | (173,625) | |||||||||
| Inventories of materials and supplies | (13,899) | (2,482) | |||||||||
| Prepaid expenses and other | (27,589) | 9,209 | |||||||||
| Other noncurrent assets | (3,413) | 1,829 | |||||||||
| Accounts payable | 24,408 | 46,775 | |||||||||
| Accrued liabilities | (15,366) | 22,511 | |||||||||
| Deferred income tax liability | (695) | 454 | |||||||||
| Other noncurrent liabilities | 2,980 | (21,745) | |||||||||
| Net cash provided by operating activities from continuing operations | 619,057 | 116,701 | |||||||||
| Net cash used in operating activities from discontinued operations | (57) | (60) | |||||||||
| Net cash provided by operating activities | 619,000 | 116,641 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Capital expenditures | (281,790) | (174,958) | |||||||||
| Other capital expenditures related to assets held-for-sale | — | (18,228) | |||||||||
| Purchase of short-term investments | (102,140) | (109,318) | |||||||||
| Purchase of long-term investments | (18,813) | (47,210) | |||||||||
| Proceeds from sale of short-term investments | 148,651 | 161,766 | |||||||||
| Proceeds from sale of long-term investments | — | 22,042 | |||||||||
| Proceeds from asset sales | 63,048 | 50,260 | |||||||||
| Other | — | (7,500) | |||||||||
| Net cash used in investing activities | (191,044) | (123,146) | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Dividends paid | (152,579) | (80,702) | |||||||||
| Payments for employee taxes on net settlement of equity awards | (14,410) | (5,515) | |||||||||
| Payment of contingent consideration from acquisition of business | (250) | (250) | |||||||||
| Payments for early extinguishment of long-term debt | — | (487,148) | |||||||||
| Make-whole premium payment | — | (56,421) | |||||||||
| Share repurchases | (247,213) | (76,999) | |||||||||
| Other | (540) | (587) | |||||||||
| Net cash used in financing activities | (414,992) | (707,622) | |||||||||
| Net increase (decrease) in cash and cash equivalents and restricted cash | 12,964 | (714,127) | |||||||||
| Cash and cash equivalents and restricted cash, beginning of period | 269,009 | 936,716 | |||||||||
| Cash and cash equivalents and restricted cash, end of period | $ | 281,973 | $ | 222,589 | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q3FY23 FORM 10-Q | 8| HELMERICH & PAYNE, INC. | |||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) | |||||||||||
| Nine Months Ended June 30, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||||
| Cash paid/(received) during the period: | |||||||||||
| Interest paid | $ | 8,958 | $ | 10,889 | |||||||
| Income tax paid | 155,725 | 3,454 | |||||||||
| Income tax received | (26,654) | (62) | |||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Payments for operating leases | 9,049 | 9,255 | |||||||||
| Non-cash operating and investing activities: | |||||||||||
| Change in accounts payable and accrued liabilities related to purchases of property, plant and equipment | 2,031 | (4,260) | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Q3FY23 FORM 10-Q | 9NOTE 1 NATURE OF OPERATIONS | ||||||||||||||
Helmerich & Payne, Inc. (“H&P,” which, together with its subsidiaries, is identified as the “Company,” “we,” “us,” or “our,” except where stated or the context requires otherwise) through its operating subsidiaries provides performance-driven drilling solutions and technologies that are intended to make hydrocarbon recovery safer and more economical for oil and gas exploration and production companies.
Our drilling services operations are organized into the following reportable operating business segments: North America Solutions, Offshore Gulf of Mexico and International Solutions. Our real estate operations, our incubator program for new research and development projects and our wholly-owned captive insurance companies are included in "Other." Refer to Note 13—Business Segments and Geographic Information for further details on our reportable segments.
Our North America Solutions operations are primarily located in Texas, but also traditionally operate in other states, depending on demand. Such states include: Colorado, Louisiana, New Mexico, North Dakota, Ohio, Oklahoma, Pennsylvania, Utah, West Virginia, and Wyoming. Additionally, Offshore Gulf of Mexico operations are conducted in Louisiana and in U.S. federal waters in the Gulf of Mexico and our International Solutions operations have rigs and/or services primarily located in four international locations: Argentina, Bahrain, Colombia and the United Arab Emirates. Our operations in Australia are expected to begin in the fourth quarter of fiscal year 2023.
We also own and operate a limited number of commercial real estate properties located in Tulsa, Oklahoma. Our real estate investments include a shopping center and undeveloped real estate.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED RISKS AND UNCERTAINTIES | ||||||||||||||
Interim Financial Information
The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) pertaining to interim financial information. Accordingly, these interim financial statements do not include all information or footnote disclosures required by GAAP for complete financial statements and, therefore, should be read in conjunction with the Consolidated Financial Statements and notes thereto in our 2022 Annual Report on Form 10-K and other current filings with the SEC. In the opinion of management, all adjustments, consisting of those of a normal recurring nature, necessary to present fairly the results of the periods presented have been included. The results of operations for the interim periods presented may not necessarily be indicative of the results to be expected for the full year.
Principles of Consolidation
The Unaudited Condensed Consolidated Financial Statements include the accounts of Helmerich & Payne, Inc. and its domestic and foreign subsidiaries. Consolidation of a subsidiary begins when the Company gains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income, expenses and other comprehensive income or loss of a subsidiary acquired or disposed of during the fiscal year are included in the Unaudited Condensed Consolidated Statements of Operations and Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) from the date the Company gains control until the date when the Company ceases to control the subsidiary. All intercompany accounts and transactions have been eliminated upon consolidation.
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash on hand, demand deposits with banks and all highly liquid investments with original maturities of three months or less. Our cash, cash equivalents and short-term investments are subject to potential credit risk, and certain of our cash accounts carry balances greater than the federally insured limits.
We had restricted cash of $61.4 million and $33.9 million at June 30, 2023 and 2022, respectively, and $36.9 million and $19.2 million at September 30, 2022 and 2021, respectively. Of the total at June 30, 2023 and September 30, 2022, $0.7 million and $1.1 million, respectively, is related to the acquisition of drilling technology companies, and $60.7 million and $35.8 million, respectively, represents an amount management has elected to restrict for the purpose of potential insurance claims in our wholly-owned captive insurance companies. The restricted amounts are primarily invested in short-term money market securities.
Q3FY23 FORM 10-Q | 10Cash, cash equivalents, and restricted cash are reflected on the Unaudited Condensed Consolidated Balance Sheets as follows:
| June 30, | September 30, | ||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2022 | 2021 | |||||||||||||||||||
| Cash and cash equivalents | $ | 220,609 | $ | 188,663 | $ | 232,131 | $ | 917,534 | |||||||||||||||
| Restricted cash | 61,364 | 33,242 | 36,246 | 18,350 | |||||||||||||||||||
| Restricted cash - long-term: | |||||||||||||||||||||||
| Other assets, net | — | 684 | 632 | 832 | |||||||||||||||||||
| Total cash, cash equivalents, and restricted cash | $ | 281,973 | $ | 222,589 | $ | 269,009 | $ | 936,716 | |||||||||||||||
Related Party Transactions
In October 2022, we made a $14.1 million equity investment, representing 106.0 million common shares in Tamboran, a publicly traded company on the Australian Securities Exchange Ltd under the ticker "TBN." Tamboran is focused on playing a constructive role in the global energy transition towards a lower carbon future, by developing a significantly low CO2 gas resource within Australia's Beetaloo Sub-basin. Concurrent with the investment agreement, we entered into a fixed-term drilling services agreement with the same investee. Mobilization of the rig commenced during the three months ended June 30, 2023, and, as a result, we recorded $6.7 million in receivables and $5.7 million as a contract liability on our Unaudited Condensed Consolidated Balance Sheet as of June 30, 2023. We expect to earn $35.2 million in revenue over the term of the contract, and, as such, this amount is included within our contract backlog as of June 30, 2023. Drilling services are expected to commence in the fourth fiscal quarter of 2023.
Refer to Note 11—Fair Value Measurement of Financial Instruments for additional information related to our investment.
Recently Issued Accounting Updates
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates ("ASUs") to the FASB Accounting Standards Codification ("ASC"). We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable, clarifications of ASUs listed below, immaterial, or already adopted by the Company.
Q3FY23 FORM 10-Q | 11The following table provides a brief description of recently adopted accounting pronouncements and our analysis of the effects on our financial statements:
Self-Insurance
Our wholly-owned insurance captives (the "Captives") incurred direct operating costs consisting primarily of adjustments to accruals for estimated losses of $5.5 million and $3.1 million for the three months ended June 30, 2023 and 2022, respectively, and $10.2 million and $2.7 million for the nine months ended June 30, 2023 and 2022, respectively, and rig and casualty insurance premiums of $9.7 million and $9.4 million during the three months ended June 30, 2023 and 2022 respectively, and $30.6 million and $26.2 million for the nine months ended June 30, 2023 and 2022. These operating costs were recorded within Drilling services operating expenses in our Unaudited Condensed Consolidated Statement of Operations. Intercompany premium revenues recorded by the Captives during the three months ended June 30, 2023 and 2022 amounted to $17.4 million and $14.7 million, respectively, and $51.4 million and $41.6 million during the nine months ended June 30, 2023 and 2022, respectively, which were eliminated upon consolidation. These intercompany insurance premiums are reflected as segment operating expenses within the North America Solutions, Offshore Gulf of Mexico, and International Solutions reportable operating segments and are reflected as intersegment sales within "Other." The Company self-insures employee health plan exposures in excess of employee deductibles. Starting in the second quarter of fiscal year 2020, the Captive insurer issued a stop-loss program that will reimburse the Company's health plan for claims that exceed $50,000. This program is reviewed at the end of each policy year by an outside actuary. Our medical stop loss operating expenses for the three months ended June 30, 2023 and 2022 were $2.1 million and $3.8 million, respectively, and $7.4 million and $10.6 million for the nine months ended June 30, 2023 and 2022, respectively.
Q3FY23 FORM 10-Q | 12International Solutions Drilling Risks
International Solutions drilling operations may significantly contribute to our revenues and net operating income (loss). There can be no assurance that we will be able to successfully conduct such operations, and a failure to do so may have an adverse effect on our financial position, results of operations, and cash flows. Also, the success of our International Solutions operations will be subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general and regional economic conditions, geopolitical developments and tensions, war and uncertainty in oil-producing companies, fluctuations in currency exchange rates, modified exchange controls, changes in international regulatory requirements and international employment issues, risk of expropriation of real and personal property and the burden of complying with foreign laws. Additionally, in the event that extended labor strikes occur or a country experiences significant political, economic or social instability, we could experience shortages in labor and/or material and supplies necessary to operate some of our drilling rigs, thereby potentially causing an adverse material effect on our business, financial condition and results of operations.
We have also experienced certain risks specific to our Argentine operations. In Argentina, while our dayrate is denominated in U.S. dollars, we are paid the equivalent in Argentine pesos. The Argentine branch of one of our second-tier subsidiaries remits U.S. dollars to its U.S. parent by converting the Argentine pesos into U.S. dollars through the Argentine Foreign Exchange Market and repatriating the U.S. dollars. Argentina also has a history of implementing currency controls that restrict the conversion and repatriation of U.S. dollars. In September 2020, Argentina implemented additional currency controls in an effort to preserve Argentina's U.S. dollar reserves. As a result of these currency controls, our ability to remit funds from our Argentine subsidiary to its U.S. parent has been limited. In the past, the Argentine government has also instituted price controls on crude oil, diesel and gasoline prices and instituted an exchange rate freeze in connection with those prices. These price controls and an exchange rate freeze could be instituted again in the future. Further, there are additional concerns regarding Argentina's debt burden, notwithstanding Argentina's restructuring deal with international bondholders in August 2020, as Argentina attempts to manage its substantial sovereign debt issues. These concerns could further negatively impact Argentina's economy and adversely affect our Argentine operations. Argentina’s economy is considered highly inflationary, which is defined as cumulative inflation rates exceeding 100 percent in the most recent three-year period based on inflation data published by the respective governments. Nonetheless, all of our foreign subsidiaries use the U.S. dollar as the functional currency and local currency monetary assets and liabilities are remeasured into U.S. dollars with gains and losses resulting from foreign currency transactions included in current results of operations.
We recorded aggregate foreign currency losses of $1.4 million and $1.7 million for the three and nine months ended June 30, 2023, respectively, and $1.2 million and $4.5 million for the three and nine months ended June 30, 2022, respectively. In the future, we may incur larger currency devaluations, foreign exchange restrictions or other difficulties repatriating U.S. dollars from Argentina or elsewhere, which could have a material adverse impact on our business, financial condition and results of operations. As of June 30, 2023, our cash balance in Argentina was the U.S. dollar equivalent of $24.0 million in Argentine Pesos.
Because of the impact of local laws, our future operations in certain areas may be conducted through entities in which local citizens own interests and through entities (including joint ventures) in which we hold only a minority interest or pursuant to arrangements under which we conduct operations under contract to local entities. While we believe that neither operating through such entities nor pursuant to such arrangements would have a material adverse effect on our operations or revenues, there can be no assurance that we will in all cases be able to structure or restructure our operations to conform to local law (or the administration thereof) on terms acceptable to us.
Although we attempt to minimize the potential impact of such risks by operating in more than one geographical area, during the three and nine months ended June 30, 2023, approximately 6.8 percent and 7.3 percent of our operating revenues were generated from international locations compared to 5.4 percent and 6.7 percent during the three and nine months ended June 30, 2022, respectively. During the three and nine months ended June 30, 2023, approximately 84.8 percent and 87.3 percent of operating revenues from international locations were from operations in South America compared to 82.6 percent and 78.4 percent during the three and nine months ended June 30, 2022, respectively. Substantially all of the South American operating revenues were from Argentina and Colombia. The future occurrence of one or more international events arising from the types of risks described above could have a material adverse impact on our business, financial condition and results of operations.
Q3FY23 FORM 10-Q | 13NOTE 3 PROPERTY, PLANT AND EQUIPMENT | ||||||||||||||
Property, plant and equipment as of June 30, 2023 and September 30, 2022 consisted of the following:
| (in thousands) | Estimated Useful Lives | June 30, 2023 | September 30, 2022 | ||||||||||||||
| Drilling services equipment | 4 - 15 years | $ | 6,382,505 | $ | 6,369,888 | ||||||||||||
| Tubulars | 4 years | 571,490 | 569,496 | ||||||||||||||
| Real estate properties | 10 - 45 years | 47,045 | 45,557 | ||||||||||||||
| Other | 2 - 23 years | 438,908 | 422,479 | ||||||||||||||
Construction in progress1 | 92,829 | 70,119 | |||||||||||||||
| 7,532,777 | 7,477,539 | ||||||||||||||||
| Accumulated depreciation | (4,600,184) | (4,516,730) | |||||||||||||||
| Property, plant and equipment, net | $ | 2,932,593 | $ | 2,960,809 | |||||||||||||
| Assets held-for-sale | $ | 988 | $ | 4,333 | |||||||||||||
(1)Included in construction in progress are costs for projects in progress to upgrade or refurbish certain rigs in our existing fleet. Additionally, we include other advances for capital maintenance purchase-orders that are open/in process. As these various projects are completed, the costs are then classified to their appropriate useful life category.
Depreciation
Depreciation expense during the three months ended June 30, 2023 and 2022 was $93.2 million and $97.5 million, including abandonments of $0.2 million and $1.4 million, respectively. Depreciation expense during the nine months ended June 30, 2023 and 2022 was $282.7 million and $293.5 million including abandonments of $2.4 million and $5.2 million, respectively. These expenses are recorded within Depreciation and amortization on our Unaudited Condensed Consolidated Statements of Operations.
In November 2022, a fire at a wellsite caused substantial damage to one of our super spec-rigs within our North America Solutions segment. The major components were destroyed beyond repair and considered a total loss, and, as a result, these assets were written off and the rig was removed from our available rig count. At the time of the loss, the rig was fully insured under replacement cost insurance. The insurance recovery is expected to exceed the net book value of the components written off. The loss of $9.2 million and an offsetting insurance recovery for the same amount are recorded within Depreciation and amortization in our Unaudited Condensed Consolidated Statement of Operations for the nine months ended June 30, 2023. During the third quarter of fiscal year 2023 we collected $7.8 million of the total expected insurance proceeds. Future proceeds in excess of the recognized loss will be recognized once all contingencies related to the insurance claim have been resolved.
Assets Held-for-Sale
The following is a summary of the changes in the balance (in thousands) of our assets held-for-sale for the period indicated below:
Balance at September 30, 2022 | $ | 4,333 | |||
| Plus: | |||||
| Asset additions | 1,177 | ||||
| Less: | |||||
| Sale of assets held-for-sale | (1,789) | ||||
| Impairment expense | (2,733) | ||||
Balance at June 30, 2023 | $ | 988 | |||
Fiscal Year 2023 Activity
During the nine months ended June 30, 2023, the Company initiated a plan to decommission and scrap four international FlexRig® drilling rigs and four conventional drilling rigs located in Argentina that are not suitable for unconventional drilling. As a result, these rigs were reclassified to Assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets. The rigs’ aggregate net book value of $8.8 million was written down to the estimated scrap value of $0.7 million, which resulted in a non-cash impairment charge of $8.1 million within our International Solutions segment and recorded in our Unaudited Condensed Consolidated Statement of Operations during the nine months ended June 30, 2023.
Q3FY23 FORM 10-Q | 14During the nine months ended June 30, 2023, our North America Solutions assets that were previously classified as Assets held-for-sale at September 30, 2022 were either sold or written down to scrap value. The aggregate net book value of these remaining assets was $3.0 million, which exceeded the estimated scrap value of $0.3 million, resulting in a non-cash impairment charge of $2.7 million. During the same period, we also identified additional equipment that met the asset held-for-sale criteria and was reclassified as Assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets. The aggregate net book value of the equipment of $1.4 million was written down to its estimated scrap value of $0.1 million, resulting in a non-cash impairment charge of $1.3 million during the nine months ended June 30, 2023. These impairment charges are recorded within our North America Solutions segment in our Unaudited Condensed Consolidated Statement of Operations.
Fiscal Year 2022 Activity
During the nine months ended June 30, 2022, we closed on the sale of our trucking and casing running assets for total consideration less costs to sell of $6.0 million, in addition to the possibility of future earnout proceeds, resulting in a loss of $3.4 million recorded in Other (gain) loss on sale of assets within our Unaudited Condensed Consolidated Statements of Operations. We recognized earnout proceeds associated with the sale of our trucking and casing running assets of $1.4 million and $0.9 million during the nine months ended June 30, 2023 and 2022, respectively, in Other (gain) loss on sale of assets on the Unaudited Condensed Consolidated Statements of Operations.
During the nine months ended June 30, 2022, we identified two partial rig substructures that met the asset held-for-sale criteria and were reclassified as Assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets. The combined net book value of the rig substructures of $2.0 million were written down to their estimated scrap value of $0.1 million, resulting in a non-cash impairment charge of $1.9 million within our North America Solutions segment and recorded in the Unaudited Condensed Consolidated Statement of Operations for the nine months ended June 30, 2022. During the same period, we completed the sale of these assets with a net book value of approximately $0.1 million, resulting in no gain or loss as a result of the sale. During the same period, we identified two international FlexRig® drilling rigs located in Colombia that met the asset held-for-sale criteria and were reclassified as Assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets. In conjunction with establishing a plan to sell the two international FlexRig® drilling rigs, we recognized a non-cash impairment charge of $2.5 million within our International Solutions segment and recorded in the Unaudited Condensed Consolidated Statement of Operations during the nine months ended June 30, 2022, as the rigs aggregate net book value of $3.4 million exceeded the fair value of the rigs less estimated cost to sell of $0.9 million. During the nine months ended June 30, 2022, we completed the sale of these assets for total consideration of $0.9 million, resulting in no gain or loss as a result of the sale.
During the nine months ended June 30, 2022, ADNOC Drilling accepted delivery of five rigs with an aggregate net book value of $34.5 million. As a result, we recognized a gain of $1.1 million, after incurring $15.7 million of selling costs, during the nine months ended June 30, 2022 in Other (gain) loss on sale of assets within our Unaudited Condensed Consolidated Statement of Operations. Upon final acceptance of delivery, these rigs were removed from assets classified as held-for-sale as of June 30, 2022.
The significant assumptions utilized in the valuations of held-for-sale were based on our intended method of disposal, historical sales of similar assets, and market quotes and are classified as Level 2 and Level 3 inputs by ASC Topic 820, Fair Value Measurement and Disclosures. Although we believe the assumptions used in our analysis are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and our resulting conclusion.
Gain on Reimbursement of Drilling Equipment
We recognized gains of $10.6 million and $37.9 million during the three and nine months ended June 30, 2023, respectively, and $9.9 million and $21.6 million during the three and nine months ended June 30, 2022, respectively, related to customer reimbursement for the current replacement value of lost or damaged drill pipe. Gains related to these asset sales are recorded in Gains on reimbursement of drilling equipment within our Unaudited Condensed Consolidated Statements of Operations.
NOTE 4 GOODWILL AND INTANGIBLE ASSETS | ||||||||||||||
Goodwill
Goodwill represents the excess of the purchase price over the fair values of the assets acquired and liabilities assumed in a business combination, at the date of acquisition. Goodwill is not amortized but is tested for potential impairment at the reporting unit level, at a minimum on an annual basis in the fourth fiscal quarter, or when indications of potential impairment exist. All of our goodwill is within our North America Solutions reportable segment.
During the three and nine months ended June 30, 2023, we had no additions or impairments to goodwill. As of June 30, 2023 and September 30, 2022, the goodwill balance was $45.7 million.
Q3FY23 FORM 10-Q | 15Intangible Assets
Finite-lived intangible assets are amortized using the straight-line method over the period in which these assets contribute to our cash flows and are evaluated for impairment in accordance with our policies for valuation of long-lived assets. All of our intangible assets are within our North America Solutions reportable segment and consist of the following:
| June 30, 2023 | September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Weighted Average Estimated Useful Lives | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||||||
| Finite-lived intangible asset: | |||||||||||||||||||||||||||||||||||||||||
| Developed technology | 15 years | $ | 89,096 | $ | 32,603 | $ | 56,493 | $ | 89,096 | $ | 28,137 | $ | 60,959 | ||||||||||||||||||||||||||||
| Intellectual property | 13 years | 2,000 | 463 | 1,537 | 2,000 | 328 | 1,672 | ||||||||||||||||||||||||||||||||||
| Trade name | 20 years | 5,865 | 1,712 | 4,153 | 5,865 | 1,475 | 4,390 | ||||||||||||||||||||||||||||||||||
| Customer relationships | 5 years | 4,000 | 4,000 | — | 4,000 | 3,867 | 133 | ||||||||||||||||||||||||||||||||||
| $ | 100,961 | $ | 38,778 | $ | 62,183 | $ | 100,961 | $ | 33,807 | $ | 67,154 | ||||||||||||||||||||||||||||||
Amortization expense in the Unaudited Condensed Consolidated Statements of Operations was $1.6 million and $1.8 million for the three months ended June 30, 2023 and 2022 respectively and $5.0 million and $5.4 million for the nine months ended June 30, 2023 and 2022 respectively. Amortization expense is estimated to be approximately $1.6 million for the remainder of fiscal year 2023, and approximately $6.4 million for fiscal year 2024 through 2027.
NOTE 5 DEBT | ||||||||||||||
We have the following unsecured long-term debt outstanding with maturities shown in the following table:
| June 30, 2023 | September 30, 2022 | ||||||||||||||||||||||||||||||||||
| (in thousands) | Face Amount | Unamortized Discount and Debt Issuance Cost | Book Value | Face Amount | Unamortized Discount and Debt Issuance Cost | Book Value | |||||||||||||||||||||||||||||
| Unsecured senior notes: | |||||||||||||||||||||||||||||||||||
| Due September 29, 2031 | $ | 550,000 | $ | (5,004) | $ | 544,996 | $ | 550,000 | $ | (7,390) | $ | 542,610 | |||||||||||||||||||||||
| 550,000 | (5,004) | 544,996 | 550,000 | (7,390) | 542,610 | ||||||||||||||||||||||||||||||
| Less: long-term debt due within one year | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Long-term debt | $ | 550,000 | $ | (5,004) | $ | 544,996 | $ | 550,000 | $ | (7,390) | $ | 542,610 | |||||||||||||||||||||||
Senior Notes
2.90% Senior Notes due 2031 On September 29, 2021, we issued $550.0 million aggregate principal amount of the 2.90 percent 2031 Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act (“Rule 144A”) and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S under the Securities Act (“Regulation S”). Interest on the 2031 Notes is payable semi-annually on March 29 and September 29 of each year, commencing on March 29, 2022. The 2031 Notes will mature on September 29, 2031 and bear interest at a rate of 2.90 percent per annum.
In June 2022, we settled a registered exchange offer (the “Registered Exchange Offer”) to exchange the 2031 Notes for new, SEC-registered notes that are substantially identical to the terms of the 2031 Notes, except that the offer and issuance of the new notes have been registered under the Securities Act and certain transfer restrictions, registration rights and additional interest provisions relating to the 2031 Notes do not apply to the new notes. All of the 2031 Notes were exchanged in the Registered Exchange Offer.
The indenture governing the 2031 Notes contains certain covenants that, among other things and subject to certain exceptions, limit the ability of the Company and its subsidiaries to incur certain liens; engage in sale and lease-back transactions; and consolidate, merge or transfer all or substantially all of the assets of the Company. The indenture governing the 2031 Notes also contains customary events of default with respect to the 2031 Notes.
Q3FY23 FORM 10-Q | 164.65% Senior Notes due 2025 On October 27, 2021, we redeemed all of the outstanding 2025 Notes. As a result, the associated make-whole premium of $56.4 million and the write off of the unamortized discount and debt issuance costs of $3.7 million were recognized during the first fiscal quarter of 2022 contemporaneously with the October 27, 2021 debt extinguishment and recorded in Loss on extinguishment of debt on our Unaudited Condensed Consolidated Statements of Operations during the nine months ended June 30, 2022.
Credit Facility
On November 13, 2018, we entered into a credit agreement by and among the Company, as borrower, Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto, which was amended on November 13, 2019, providing for an unsecured revolving credit facility (as amended, the “2018 Credit Facility”), that was set to mature on November 13, 2024. On April 16, 2021, lenders with $680.0 million of commitments under the 2018 Credit Facility exercised their option to extend the maturity of the 2018 Credit Facility from November 13, 2024 to November 12, 2025. No other terms of the 2018 Credit Facility were amended in connection with this extension. On March 8, 2022, we entered into the second amendment to the 2018 Credit Facility, which, among other things, raised the number of potential future extensions of the maturity date applicable to extending lenders from one to two such potential extensions and replaced provisions in respect of interest rate determinations that were based on the London Interbank Offered Rate with provisions based on the Secured Overnight Financing Rate. Additionally, lenders with $680.0 million of commitments under the 2018 Credit Facility exercised their option to extend the maturity of the 2018 Credit Facility from November 12, 2025 to November 11, 2026. On February 10, 2023, lenders with $680.0 million of commitments under the 2018 Credit Facility exercised their option to extend the maturity of the 2018 Credit Facility from November 11, 2026 to November 12, 2027. The remaining $70.0 million of commitments under the 2018 Credit Facility will expire on November 13, 2024, unless extended by the applicable lender before such date.
The 2018 Credit Facility has $750.0 million in aggregate availability with a maximum of $75.0 million available for use as letters of credit. As of June 30, 2023, there were no borrowings or letters of credit outstanding, leaving $750.0 million available to borrow under the 2018 Credit Facility. For a full description of the 2018 Credit Facility, see Note 7—Debt to the Consolidated Financial Statements in our 2022 Annual Report on Form 10-K.
As of June 30, 2023, we had $95.0 million in uncommitted bilateral credit facilities, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds. Of the $95.0 million, $40.0 million was outstanding as of June 30, 2023. Separately, we had $2.1 million in standby letters of credit and bank guarantees outstanding. In total, we had $42.1 million outstanding as of June 30, 2023.
The applicable agreements for all unsecured debt contain additional terms, conditions and restrictions that we believe are usual and customary in unsecured debt arrangements for companies that are similar in size and credit quality. At June 30, 2023, we were in compliance with all debt covenants.
NOTE 6 INCOME TAXES | ||||||||||||||
We use an estimated annual effective tax rate for purposes of determining the income tax provision during interim reporting periods. In calculating our estimated annual effective tax rate, we consider forecasted annual pre-tax income and estimated permanent book versus tax differences. Adjustments to the effective tax rate and estimates could occur during the year as information and assumptions change which could include, but are not limited to, changes to the forecasted amounts, estimates of permanent book versus tax differences, and changes to tax laws and rates.
Our income tax expense from continuing operations for the three months ended June 30, 2023 and 2022 was $40.7 million and $1.7 million, respectively, resulting in effective tax rates of 29.9 percent and 9.0 percent, respectively. Our income tax expense (benefit) from continuing operations for the nine months ended June 30, 2023 and 2022 was $124.2 million and $(3.2) million, respectively, resulting in effective tax rates of 25.9 percent and 7.6 percent, respectively.
Effective tax rates differ from the U.S. federal statutory rate of 21.0 percent for the three and nine months ended June 30, 2023 and 2022 primarily due to state and foreign income taxes, permanent non-deductible items and discrete adjustments. The discrete adjustments for the three and nine months ended June 30, 2023 and 2022 are primarily due to changes in our deferred state income tax rate, return to provision adjustments, and equity compensation.
As of June 30, 2023, we have recorded approximately $3.2 million of unrecognized tax benefits, interest, and penalties. We believe it is reasonably possible up to $2.6 million of the unrecognized tax benefits, interest, and penalties will be recognized as of June 30, 2024 as a result of a lapse of the statute of limitations. We cannot predict with certainty if we will achieve ultimate resolution of any additional uncertain tax positions associated with our U.S. and international operations resulting in additional material increases or decreases of our unrecognized tax benefits for the next twelve months.
Q3FY23 FORM 10-Q | 17NOTE 7 SHAREHOLDERS’ EQUITY | ||||||||||||||
The Company has an evergreen authorization from the Board of Directors for the repurchase of up to four million common shares in any calendar year. In December 2022, the Board of Directors increased the maximum number of shares authorized to be repurchased in calendar year 2023 to five million common shares. On June 7, 2023, the Board of Directors further increased the maximum number of shares authorized to be repurchased in calendar year 2023 to seven million shares. The repurchases are made using our cash and cash equivalents or other available sources and are held as treasury shares on our Unaudited Condensed Consolidated Balance Sheets. During the three and nine months ended June 30, 2023, we repurchased 3.2 million and 6.5 million common shares, at an aggregate cost of $103.2 million and $249.0 million, including excise tax of $1.0 million and $1.8 million, respectively. We repurchased 3.2 million common shares at an aggregate cost of $77.0 million during the nine months ended June 30, 2022. We did not repurchase any common shares during the three months ended June 30, 2022.
A base cash dividend of $0.25 per share and a supplemental dividend of $0.235 per share was declared on March 1, 2023 for shareholders of record on May 18, 2023, and was paid on June 1, 2023. On June 7, 2023, the Board of Directors declared a base cash dividend of $0.25 per share and a supplemental cash dividend of $0.235 per share for shareholders of record on August 17, 2023, payable on August 31, 2023. As a result, we recorded Dividends payable of $48.9 million on our Unaudited Condensed Consolidated Balance Sheets as of June 30, 2023.
Accumulated Other Comprehensive Loss
Components of accumulated other comprehensive loss were as follows:
| June 30, | September 30, | ||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Pre-tax amounts: | |||||||||||
| Unrealized actuarial loss | $ | (14,710) | $ | (15,703) | |||||||
| (14,710) | (15,703) | ||||||||||
| After-tax amounts: | |||||||||||
| Unrealized actuarial loss | $ | (11,305) | $ | (12,072) | |||||||
| $ | (11,305) | $ | (12,072) | ||||||||
The following is a summary of the changes in accumulated other comprehensive loss, net of tax, related to the defined benefit pension plan for the three and nine months ended June 30, 2023:
| (in thousands) | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2023 | |||||||||
| Balance at beginning of period | $ | (11,560) | $ | (12,072) | |||||||
Activity during the period: | |||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 255 | 767 | |||||||||
| Net current-period other comprehensive income | 255 | 767 | |||||||||
| Balance at June 30, 2023 | $ | (11,305) | $ | (11,305) | |||||||
NOTE 8 REVENUE FROM CONTRACTS WITH CUSTOMERS | ||||||||||||||
Drilling Services Revenue
With most drilling contracts, we receive payments contractually designated for the mobilization and demobilization of drilling rigs and other equipment to and from the client’s drill site. Revenue associated with the mobilization and demobilization of our drilling rigs to and from the client’s drill site do not relate to a distinct good or service. These revenues are deferred and recognized ratably over the related contract term that drilling services are provided. For any contracts that include a provision for pooled term days at contract inception, followed by the assignment of days to specific rigs throughout the contract term, we have elected, as a practical expedient, to recognize revenue in an amount for which the entity has a right to invoice, as permitted by ASC 606.
Q3FY23 FORM 10-Q | 18Performance-based contracts are contracts pursuant to which we are compensated based upon our performance against a mutually agreed upon set of predetermined targets. These contracts typically have a lower base dayrate, but give us the opportunity to receive additional compensation by meeting or exceeding certain performance targets agreed to by our customers. We often use our automated technology solutions to assist in achieving the performance targets. Total revenue recognized from performance contracts, including performance bonuses, was $316.2 million and $191.2 million during the three months ended June 30, 2023 and 2022, respectively, and $883.3 million and $483.6 million during the nine months ended June 30, 2023 and 2022, respectively.
On November 12, 2021, we settled a drilling contract dispute related to drilling services provided from fiscal years 2016 through 2019 with YPF S.A. (Argentina) ("YPF"). The settlement required that YPF make a one-time cash payment to H&P in the amount of $11.0 million and enter into drilling service contracts for three drilling rigs, each with multi-year terms. In addition, both parties were released of all outstanding claims against each other, and as a result, H&P recognized $5.4 million in revenue primarily due to accrued disputed amounts. Total revenue recognized as a result of the settlement in the amount of $16.4 million is included in Drilling services revenue within the International Solutions segment on our Unaudited Condensed Consolidated Statements of Operations for the nine months ended June 30, 2022.
Contract Costs
We had capitalized fulfillment costs of $14.3 million and $6.3 million as of June 30, 2023 and September 30, 2022, respectively.
Remaining Performance Obligations
The total aggregate transaction price allocated to the unsatisfied performance obligations, commonly referred to as backlog, as of June 30, 2023 was approximately $1.1 billion, of which approximately $0.4 billion is expected to be recognized during the remainder of fiscal year 2023, approximately $0.6 billion during fiscal year 2024, and approximately $0.1 billion in fiscal year 2025 and thereafter. These amounts do not include anticipated contract renewals. Additionally, contracts that currently contain month-to-month terms are represented in our backlog as one month of unsatisfied performance obligations. Our contracts are subject to cancellation or modification at the election of the customer; however, due to the level of capital deployed by our customers on underlying projects, we have not been materially adversely affected by contract cancellations or modifications in the past.
Contract Assets and Liabilities
The following tables summarize the balances of our contract assets (net of allowance for estimated credit losses) and liabilities at the dates indicated:
| (in thousands) | June 30, 2023 | September 30, 2022 | |||||||||
| Contract assets, net | $ | 6,905 | $ | 6,319 | |||||||
| (in thousands) | June 30, 2023 | ||||
| Contract liabilities balance at September 30, 2022 | $ | 20,646 | |||
| Payment received/accrued and deferred | 64,035 | ||||
| Revenue recognized during the period | (49,955) | ||||
| Contract liabilities balance at June 30, 2023 | $ | 34,726 | |||
Q3FY23 FORM 10-Q | 19NOTE 9 STOCK-BASED COMPENSATION | ||||||||||||||
A summary of compensation expense for stock-based payment arrangements recognized in Drilling services operating expense, Research and development expense and Selling, general and administrative expense on our Unaudited Condensed Consolidated Statements of Operations, is as follows:
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||
| Drilling services operating | $ | 1,540 | $ | 1,340 | $ | 4,457 | $ | 3,862 | |||||||||||||||
| Research and development | 500 | 400 | 1,411 | 1,146 | |||||||||||||||||||
| Selling, general and administrative | 6,140 | 5,311 | 18,016 | 16,206 | |||||||||||||||||||
| $ | 8,180 | $ | 7,051 | $ | 23,884 | $ | 21,214 | ||||||||||||||||
Restricted Stock
A summary of the status of our restricted stock awards as of June 30, 2023 and changes in non-vested restricted stock outstanding during the nine months then ended is presented below:
| (in thousands, except per share amounts) | Shares1 | Weighted-Average Grant Date Fair Value per Share | |||||||||
Non-vested restricted stock outstanding at September 30, 2022 | 1,493 | $ | 30.85 | ||||||||
| Granted | 592 | 44.48 | |||||||||
Vested2 | (708) | 33.95 | |||||||||
| Forfeited | (11) | 36.53 | |||||||||
Non-vested restricted stock outstanding at June 30, 2023 | 1,366 | $ | 35.10 | ||||||||
(1)Restricted stock shares include restricted phantom stock units under our Director Deferred Compensation Plan. These phantom stock units confer the economic benefits of owning company stock without the actual ownership, transfer or issuance of any shares. Phantom stock units are subject to a vesting period of one year from the grant date. During the nine months ended June 30, 2023, 12,591 restricted phantom stock units were granted and 14,199 restricted phantom stock units vested.
(2)The number of restricted stock awards vested includes shares that we withheld on behalf of our employees to satisfy the statutory tax withholding requirements.
Performance Units
A summary of the status of our performance-vested restricted share units ("performance units") as of June 30, 2023 and changes in non-vested performance units outstanding during the nine months then ended is presented below:
| (in thousands, except per unit amounts) | Performance Units | Weighted-Average Grant Date Fair Value per Unit | |||||||||
Non-vested performance units outstanding at September 30, 2022 | 726 | $ | 33.67 | ||||||||
| Granted | 144 | 54.30 | |||||||||
| Vested | (286) | 43.40 | |||||||||
Dividend equivalent rights performance units credited and performance factor adjustment1 | 203 | 36.00 | |||||||||
Non-vested performance units outstanding at June 30, 20232 | 787 | $ | 34.51 | ||||||||
(1)At the end of the Vesting Period, recipients receive dividend equivalents, if any, with respect to the number of vested performance units. The vesting of units ranges from zero to 200 percent of the units granted depending on the Company’s total shareholder return ("TSR") relative to the TSR of the Peer Group on the vesting date.
(2)Of the total non-vested performance units at the end of the period, specified performance criteria has been achieved with respect to 229,421 performance units which is calculated based on the payout percentage for the completed performance period. The vesting and number of the remainder of non-vested performance units reflected at the end of the period is contingent upon our achievement of specified target performance criteria. If we meet the specified maximum performance criteria, approximately 386,073 additional performance units could vest or become eligible to vest.
Q3FY23 FORM 10-Q | 20Subject to the terms and conditions set forth in the applicable performance share unit award agreements and the 2020 Plan, grants of performance units are subject to a vesting period of three years (the “Vesting Period”) that is dependent on the achievement of certain performance goals. Such performance unit grants consist of two separate components. Performance units that comprise the first component are subject to a three-year performance cycle. Performance units that comprise the second component are further divided into three separate tranches, each of which is subject to a separate one-year performance cycle within the full three-year performance cycle. The vesting of the performance units is generally dependent on (i) the achievement of the Company’s TSR performance goals relative to the TSR achievement of a peer group of companies over the applicable performance cycle, and (ii) the continued employment of the recipient of the performance unit award throughout the Vesting Period. The Vesting Period for performance units granted in November 2019 ended on December 31, 2022 and the performance units eligible to vest were settled in shares of common stock in January 2023.
NOTE 10 EARNINGS (LOSSES) PER COMMON SHARE | ||||||||||||||
ASC 260, Earnings per Share, requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings per share. We have granted and expect to continue to grant to employees restricted stock grants that contain non-forfeitable rights to dividends. Such grants are considered participating securities under ASC 260. As such, we are required to include these grants in the calculation of our basic earnings per share and calculate basic earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings.
Basic earnings per share is computed utilizing the two-class method and is calculated based on the weighted-average number of common shares outstanding during the periods presented.
Diluted earnings per share is computed using the weighted-average number of common and common equivalent shares outstanding during the periods utilizing the two-class method for stock options, non-vested restricted stock and performance units.
Under the two-class method of calculating earnings per share, dividends paid and a portion of undistributed net income, but not losses, are allocated to unvested restricted stock grants that receive dividends, which are considered participating securities.
Q3FY23 FORM 10-Q | 21The following table sets forth the computation of basic and diluted earnings (loss) per share:
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| (in thousands, except per share amounts) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 95,280 | $ | 17,475 | $ | 355,608 | $ | (38,480) | |||||||||||||||
| Income (loss) from discontinued operations | 13 | 277 | 870 | (106) | |||||||||||||||||||
| Net income (loss) | 95,293 | 17,752 | 356,478 | (38,586) | |||||||||||||||||||
| Adjustment for basic earnings (loss) per share | |||||||||||||||||||||||
| Earnings allocated to unvested shareholders | (1,283) | (368) | (4,810) | (1,138) | |||||||||||||||||||
| Numerator for basic earnings (loss) per share: | |||||||||||||||||||||||
| From continuing operations | 93,997 | 17,107 | 350,798 | (39,618) | |||||||||||||||||||
| From discontinued operations | 13 | 277 | 870 | (106) | |||||||||||||||||||
| 94,010 | 17,384 | 351,668 | (39,724) | ||||||||||||||||||||
| Adjustment for diluted earnings (loss) per share | |||||||||||||||||||||||
| Effect of reallocating undistributed earnings of unvested shareholders | 2 | — | 9 | — | |||||||||||||||||||
| Numerator for diluted earnings (loss) per share: | |||||||||||||||||||||||
| From continuing operations | 93,999 | 17,107 | 350,807 | (39,618) | |||||||||||||||||||
| From discontinued operations | 13 | 277 | 870 | (106) | |||||||||||||||||||
| $ | 94,012 | $ | 17,384 | $ | 351,677 | $ | (39,724) | ||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Denominator for basic earnings (loss) per share - weighted-average shares | 101,163 | 105,289 | 103,464 | 106,092 | |||||||||||||||||||
| Effect of dilutive shares from restricted stock and performance share units | 387 | 732 | 388 | — | |||||||||||||||||||
| Denominator for diluted earnings (loss) per share - adjusted weighted-average shares | 101,550 | 106,021 | 103,852 | 106,092 | |||||||||||||||||||
| Basic earnings (loss) per common share: | |||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 0.93 | $ | 0.16 | $ | 3.39 | $ | (0.37) | |||||||||||||||
| Income from discontinued operations | — | — | 0.01 | — | |||||||||||||||||||
| Net income (loss) | $ | 0.93 | $ | 0.16 | $ | 3.40 | $ | (0.37) | |||||||||||||||
| Diluted earnings (loss) per common share: | |||||||||||||||||||||||
| Income (loss) from continuing operations | $ | 0.93 | $ | 0.16 | $ | 3.38 | $ | (0.37) | |||||||||||||||
| Income from discontinued operations | — | — | 0.01 | — | |||||||||||||||||||
| Net income (loss) | $ | 0.93 | $ | 0.16 | $ | 3.39 | $ | (0.37) | |||||||||||||||
We recorded a net loss during the nine months ended June 30, 2022. Accordingly, our diluted earnings per share calculation for that period was equivalent to our basic earnings per share calculation since diluted earnings per share excluded any assumed vesting of equity awards. These were excluded because they were deemed to be anti-dilutive, meaning their inclusion would have reduced the reported net loss per share in the applicable period.
The following potentially dilutive average shares attributable to outstanding equity awards were excluded from the calculation of diluted earnings (loss) per share because their inclusion would have been anti-dilutive:
Q3FY23 FORM 10-Q | 22NOTE 11 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS | ||||||||||||||
We have certain assets and liabilities that are required to be measured and disclosed at fair value. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use the fair value hierarchy established in ASC 820-10 to measure fair value to prioritize the inputs:
•Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
•Level 2 — Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
Recurring Fair Value Measurements
The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis and indicate the level in the fair value hierarchy in which we classify the fair value measurement as of the dates indicated below:
| June 30, 2023 | |||||||||||||||||||||||
| (in thousands) | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| Corporate debt securities | $ | 51,721 | $ | — | $ | 51,721 | $ | — | |||||||||||||||
| U.S. government and federal agency securities | 20,888 | 20,888 | — | — | |||||||||||||||||||
| Total short-term investments | 72,609 | 20,888 | 51,721 | — | |||||||||||||||||||
| Investments: | |||||||||||||||||||||||
| Non-qualified supplemental savings plan | 15,183 | 15,183 | — | — | |||||||||||||||||||
| Equity investment in ADNOC Drilling | 154,770 | 154,770 | — | — | |||||||||||||||||||
| Equity investment in Tamboran | 12,623 | 12,623 | — | — | |||||||||||||||||||
| Debt security investment in Galileo | 35,001 | — | — | 35,001 | |||||||||||||||||||
| Other debt securities | 2,181 | — | — | 2,181 | |||||||||||||||||||
| Total investments | 219,758 | 182,576 | — | 37,182 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Contingent consideration | $ | 8,580 | $ | — | $ | — | $ | 8,580 | |||||||||||||||
Q3FY23 FORM 10-Q | 23| September 30, 2022 | |||||||||||||||||||||||
| (in thousands) | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| Corporate debt securities | $ | 98,264 | $ | — | $ | 98,264 | $ | — | |||||||||||||||
| U.S. government and federal agency securities | 18,837 | 18,837 | — | — | |||||||||||||||||||
| Total short-term investments | 117,101 | 18,837 | 98,264 | — | |||||||||||||||||||
| Investments: | |||||||||||||||||||||||
| Non-qualified supplemental savings plan | 14,301 | 14,301 | — | — | |||||||||||||||||||
| Equity investment in ADNOC Drilling | 147,370 | 147,370 | — | — | |||||||||||||||||||
| Debt security investment in Galileo | 33,000 | — | — | 33,000 | |||||||||||||||||||
| Other debt securities | 565 | — | — | 565 | |||||||||||||||||||
| Total investments | 195,236 | 161,671 | — | 33,565 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Contingent consideration | $ | 4,022 | $ | — | $ | — | $ | 4,022 | |||||||||||||||
Short-term Investments
Short-term investments primarily include securities classified as trading securities. Both realized and unrealized gains and losses on trading securities are included in other income (expense) in the Unaudited Condensed Consolidated Statements of Operations. These securities are recorded at fair value. Level 1 inputs include U.S. agency issued debt securities with active markets and money market funds. For these items, quoted current market prices are readily available. Level 2 inputs include corporate bonds measured using broker quotations that utilize observable market inputs.
Long-term Investments
Equity Securities Our long-term investments include debt and equity securities and assets held in a Non-Qualified Supplemental Savings Plan ("Savings Plan") and are recorded within Investments on our Unaudited Condensed Consolidated Balance Sheets. Our assets that we hold in the Savings Plan are comprised of mutual funds that are measured using Level 1 inputs.
During September 2021, the Company made a $100.0 million cornerstone investment in ADNOC Drilling in advance of its announced initial public offering, representing 159.7 million shares of ADNOC Drilling, equivalent to a one percent ownership stake and subject to a three-year lockup period. ADNOC Drilling’s initial public offering was completed on October 3, 2021, and its shares are listed and traded on the Abu Dhabi Securities Exchange. Our investment is classified as a long-term equity investment within Investments on our Unaudited Condensed Consolidated Balance Sheets and measured at fair value with any gains or losses recognized through net income (loss) and recorded within Gain (loss) on investment securities on our Unaudited Condensed Consolidated Statements of Operations. During the nine months ended June 30, 2023, we early adopted ASU No. 2022-03 which states that the contractual restriction on the sale of an equity security that is publicly traded is not considered in measuring fair value. The provisions of ASU No. 2022-03 were consistent with our historical accounting for our investment in ADNOC Drilling. During the three and nine months ended June 30, 2023, we recognized a gain (loss) of $(17.0) million and $7.4 million, respectively, on our Unaudited Condensed Consolidated Statements of Operations, as a result of the change in fair value of the investment compared to a gain (loss) of $(17.0) million and $47.8 million during the three and nine months ended June 30, 2022, respectively. As of June 30, 2023, this investment is classified as a Level 1 investment based on the quoted stock price on the Abu Dhabi Securities Exchange.
During the nine months ended June 30, 2022, we sold our remaining equity securities of approximately 467.5 thousand shares in Schlumberger, Ltd. and received proceeds of approximately $22.0 million. For the three months ended June 30, 2022, we recorded a gain of $2.7 million related to this investment, which included a $0.5 million gain recognized upon the sale of our investment and a $2.2 million gain related to valuation adjustments. For the nine months ended June 30, 2022, we recorded a gain of $8.2 million related to this investment, which included a $0.5 million gain recognized upon the sale of our investment and a $7.7 million gain related to valuation adjustments. This activity is reported in Gain (loss) on investment securities in our Unaudited Condensed Consolidated Statement of Operations. This investment was classified as Level 1 and based on the quoted stock price.
Equity Securities with Fair Value Option In October 2022, we made a $14.1 million equity investment, representing 106.0 million common shares in Tamboran, a publicly traded company on the Australian Securities Exchange Ltd under the ticker "TBN." Tamboran is focused on playing a constructive role in the global energy transition towards a lower carbon future, by developing a significantly low CO2 gas resource within Australia's Beetaloo Sub-basin.
Q3FY23 FORM 10-Q | 24We believe we have a significant influence, but not control or joint control over the investee, due to several factors, including our ownership percentage (approximately 6.2 percent as of June 30, 2023), operational involvement and role on the investee's board of directors. We consider this investment to have a readily determinable fair value and have elected to account for this investment using the fair value option with any changes in fair value recognized through net income (loss). Our investment is classified as a long-term equity investment within Investments on our Unaudited Condensed Consolidated Balance Sheet as of June 30, 2023. Under the guidance, Topic 820, Fair Value Measurement, this investment is classified as a Level 1 investment based on the quoted stock price which is publicly available. During the three and nine months ended June 30, 2023, we recognized a loss of $1.6 million and $1.5 million, respectively, recorded within Gain (loss) on investment securities on our Unaudited Condensed Consolidated Statements of Operations, as a result of the change in fair value of the investment during the period.
Debt Securities During April 2022, the Company made a $33.0 million cornerstone investment in Galileo Holdco 2 Limited Technologies ("Galileo Holdco 2"), part of the group of companies known as Galileo Technologies (“Galileo”) in the form of a convertible note. Galileo specializes in liquification, natural gas compression and re-gasification modular systems and technologies to make the production, transportation, and consumption of natural gas, biomethane, and hydrogen more economically viable. The convertible note bears interest at 5.0 percent per annum with a maturity date of the earlier of April 2027 or an exit event (as defined in the agreement as either an initial public offering or a sale of Galileo). If the conversion option is exercised, the note would convert into common shares of the parent of Galileo Holdco 2. We currently do not intend to sell this investment prior to its maturity date or an exit event. As of June 30, 2023, the fair value of the convertible note was approximately equal to the cost basis.
All of our long-term debt securities, including our investment in Galileo, are classified as available-for-sale and are measured using Level 3 unobservable inputs based on the absence of market activity. The following table reconciles changes in the fair value of our Level 3 assets for the periods presented below:
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Assets at beginning of period | $ | 35,140 | $ | 3,500 | $ | 33,565 | $ | 500 | |||||||||||||||
| Purchases | 41 | 33,024 | 2,116 | 36,024 | |||||||||||||||||||
Accrued interest1 | 2,001 | — | 2,001 | — | |||||||||||||||||||
Transfers out2 | — | — | (500) | — | |||||||||||||||||||
| Assets at end of period | $ | 37,182 | $ | 36,524 | $ | 37,182 | $ | 36,524 | |||||||||||||||
(1)During the nine months ended June 30, 2023, our convertible note agreement with Galileo was amended to include any interest which has accrued but not yet compounded or issued as a note. As a result, we have included accrued interest in our total investment balance.
(2)We reclassified a portion of our long-term debt securities to short-term notes receivable and is recorded in accounts receivable on the Unaudited Condensed Consolidated Balance Sheets as of June 30, 2023.
The following table provides quantitative information (in thousands) about our Level 3 unobservable significant inputs related to our debt security investment with Galileo at June 30, 2023:
| Fair Value | Valuation Technique | Unobservable Inputs | |||||||||||||||
| $ | 35,001 | Black-Scholes-Merton model | Discount rate | 22.4 | % | ||||||||||||
| Risk-free rate | 4.0 | % | |||||||||||||||
| Equity volatility | 92.5 | % | |||||||||||||||
The above significant unobservable inputs are subject to change based on changes in economic and market conditions. The use of significant unobservable inputs creates uncertainty in the measurement of fair value as of the reporting date. Significant increases or decreases in the discount rate, risk-free rate, and equity volatility in isolation would result in a significantly lower or higher fair value measurement. It is not possible for us to predict the effect of future economic or market conditions on our estimated fair values.
Q3FY23 FORM 10-Q | 25Contingent Consideration Other financial instruments measured using Level 3 unobservable inputs primarily consist of potential earnout payments associated with our business acquisitions in fiscal year 2019. Contingent consideration is recorded in Accrued liabilities and Other noncurrent liabilities on the Unaudited Condensed Consolidated Balance Sheets based on the expected timing of milestone achievements. The following table reconciles changes in the fair value of our Level 3 liabilities for the periods presented below:
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Liabilities at beginning of period | $ | 5,030 | $ | 2,996 | $ | 4,022 | $ | 2,996 | |||||||||||||||
| Additions | — | 1,000 | 500 | 1,500 | |||||||||||||||||||
| Total gains or losses: | |||||||||||||||||||||||
| 4,050 | — | 5,808 | (250) | ||||||||||||||||||||
Settlements1 | (500) | — | (1,750) | (250) | |||||||||||||||||||
| Liabilities at end of period | $ | 8,580 | $ | 3,996 | $ | 8,580 | $ | 3,996 | |||||||||||||||
(1)Settlements represent earnout payments that have been paid or earned during the period.
Nonrecurring Fair Value Measurements
We have certain assets that are subject to measurement at fair value on a nonrecurring basis. For these nonfinancial assets, measurement at fair value in periods subsequent to their initial recognition is applicable if they are determined to be impaired. These assets generally include property, plant and equipment, goodwill, intangible assets, and operating lease right-of-use assets. If measured at fair value in the Unaudited Condensed Consolidated Balance Sheets, these would generally be classified within Level 2 or 3 of the fair value hierarchy. Further details on any changes in valuation of these assets is provided in their respective footnotes.
Other Equity Securities We also hold various other equity securities without readily determinable fair values, primarily comprised of geothermal investments. These equity securities are initially measured at cost, less any impairments, and will be marked to fair value when observable price changes in identical or similar investments from the same issuer occur. As of June 30, 2023 and September 30, 2022, the aggregate balance of these equity securities was $26.3 million and $23.7 million, respectively, which includes an investment with a balance of $10.7 million as of both June 30, 2023 and September 30, 2022, that was marked to fair value during the fourth fiscal quarter of 2022. This investment is classified as Level 3 based on the absence of market activity. During the three and nine months ended June 30, 2023 and 2022, we did not record any impairments on these investments.
Geothermal Investments
As of June 30, 2023 and September 30, 2022 the aggregate balance of our debt and equity security investments in geothermal energy was $27.4 million and $23.7 million, respectively. These investments include assets measured on both a recurring and nonrecurring basis (discussed in the subsections above). In circumstances where we are required to revalue these investments based on observable changes in fair market value, these investments would be classified as Level 3 based on the absence of market activity.
Other Financial Instruments
The carrying amount of cash and cash equivalents and restricted cash approximates fair value due to the short-term nature of these items. The majority of cash equivalents are invested in highly liquid money-market mutual funds invested primarily in direct or indirect obligations of the U.S. government and in federally insured deposit accounts. The carrying value of accounts receivable, other current and noncurrent assets, accounts payable, accrued liabilities and other liabilities approximated fair value at June 30, 2023 and September 30, 2022.
The following information presents the supplemental fair value information for our long-term fixed-rate debt at June 30, 2023 and September 30, 2022:
| (in millions) | June 30, 2023 | September 30, 2022 | |||||||||
| Long-term debt, net | |||||||||||
| Carrying value | $ | 545.0 | $ | 542.6 | |||||||
| Fair value | 443.3 | 430.7 | |||||||||
The fair values of the long-term fixed-rate debt is based on broker quotes at June 30, 2023 and September 30, 2022. The notes are classified within Level 2 of the fair value hierarchy as they are not actively traded in markets.
Q3FY23 FORM 10-Q | 26NOTE 12 COMMITMENTS AND CONTINGENCIES | ||||||||||||||
Purchase Commitments
Equipment, parts, and supplies are ordered in advance to promote efficient construction and capital improvement progress. At June 30, 2023, we had purchase commitments for equipment, parts and supplies of approximately $134.2 million.
Guarantee Arrangements
We are contingently liable to sureties in respect of bonds issued by the sureties in connection with certain commitments entered into by us in the normal course of business. We have agreed to indemnify the sureties for any payments made by them in respect of such bonds.
Contingencies
During the ordinary course of our business, contingencies arise resulting from an existing condition, situation or set of circumstances involving an uncertainty as to the realization of a possible gain or loss contingency. We account for gain contingencies in accordance with the provisions of ASC 450, Contingencies, and, therefore, we do not record gain contingencies or recognize income until realized. The property and equipment of our Venezuelan subsidiary was seized by the Venezuelan government on June 30, 2010. Our wholly-owned subsidiaries, Helmerich & Payne International Drilling Co. ("HPIDC"), and Helmerich & Payne de Venezuela, C.A. filed a lawsuit in the United States District Court for the District of Columbia on September 23, 2011 against the Bolivarian Republic of Venezuela, Petroleos de Venezuela, S.A. and PDVSA Petroleo, S.A., seeking damages for the seizure of their Venezuelan drilling business in violation of international law and for breach of contract. While there exists the possibility of realizing a recovery on HPIDC's expropriation claims, we are currently unable to determine the timing or amounts we may receive, if any, or the likelihood of recovery.
In May 2018, an employee of our subsidiary, HPIDC, was involved in a car accident in his personal vehicle while not clocked in for work. The accident resulted in a fatality of a passenger in the other vehicle. The estate of the victim, his widow and children subsequently brought a lawsuit against the employee and HPIDC in Texas State District Court in January 2020. In February 2022, trial began in the matter and the jury reached a verdict against HPIDC and our employee for approximately $126.0 million, including interest. In March 2022, the court entered a judgment consistent with the findings of the jury. In April 2022, the Company and its insurers filed post-trial motions, none of which were granted by the trial judge. However, in June 2022, Plaintiffs' counsel filed a Voluntary Remittitur with the trial court, which formally reduced the verdict to $60.0 million. The Company and its insurers filed motions to appeal the judgement. As of June 30, 2023, we have incurred expenses, mainly legal fees, against the insurance deductible. At this time, we believe our insurance policies will be responsive to the amounts over our $3.0 million insurance deductible and that foreseeable exposures to the Company exceeding the deductible will be recovered through insurance.
The Company and its subsidiaries are parties to various other pending legal actions arising in the ordinary course of our business. We maintain insurance against certain business risks subject to certain deductibles. Although no assurance can be given, we believe, based on our experiences to date and taking into account established reserves and insurance, that the ultimate resolution of such items will not have a material adverse impact on our financial condition, cash flows, or results of operations. When we determine a loss is probable of occurring and is reasonably estimable, we accrue an undiscounted liability for such contingencies based on our best estimate using information available at that time. If the estimated loss is a range of potential outcomes and there is no better estimate within the range, we accrue the amount at the low end of the range. We disclose contingencies where an adverse outcome may be material, or in the judgment of management, we conclude the matter should otherwise be disclosed.
Significant Lease Not Yet Commenced
During the nine months ended June 30, 2023, we entered into a lease agreement for our new Tulsa corporate office. This lease is expected to commence sometime during the first half of calendar year 2024. The initial lease term is approximately 12 years with two unpriced five-year extension options. The aggregate future non-cancelable lease payments are estimated to be approximately $15.1 million.
Q3FY23 FORM 10-Q | 27NOTE 13 BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION | ||||||||||||||
Description of the Business
We are a performance-driven drilling solutions and technologies company based in Tulsa, Oklahoma with operations in all major U.S. onshore oil and gas producing basins as well as South America and the Middle East. Our drilling operations consist mainly of contracting Company-owned drilling equipment primarily to large oil and gas exploration companies. We believe we are the recognized industry leader in drilling as well as technological innovation. We focus on offering our customers an integrated solutions-based approach by combining proprietary rig technology, automation software, and digital expertise into our rig operations rather than a product-based offering, such as a rig or separate technology package. Our drilling services operations are organized into the following reportable operating business segments: North America Solutions, Offshore Gulf of Mexico and International Solutions.
Each reportable operating segment is a strategic business unit that is managed separately, and consolidated revenues and expenses reflect the elimination of all material intercompany transactions. Our real estate operations, our incubator program for new research and development projects, and our wholly-owned captive insurance companies are included in "Other." External revenues included in “Other” primarily consist of rental income.
Segment Performance
We evaluate segment performance based on income or loss from continuing operations (segment operating income (loss)) before income taxes which includes:
•Revenues from external and internal customers
•Direct operating costs
•Depreciation and amortization
•Allocated general and administrative costs
•Asset impairment charges
but excludes gain on reimbursement of drilling equipment, other (gain) loss on sale of assets, corporate selling, general and administrative costs, corporate depreciation, and corporate restructuring charges.
General and administrative costs are allocated to the segments based primarily on specific identification and, to the extent that such identification is not practical, other methods may be used which we believe to be a reasonable reflection of the utilization of services provided.
Summarized financial information of our reportable segments for the three and nine months ended June 30, 2023 and 2022 is shown in the following tables:
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||
| (in thousands) | North America Solutions | Offshore Gulf of Mexico | International Solutions | Other | Eliminations | Total | |||||||||||||||||||||||||||||
| External sales | $ | 641,612 | $ | 31,221 | $ | 48,692 | $ | 2,431 | $ | — | $ | 723,956 | |||||||||||||||||||||||
| Intersegment | — | — | — | 17,359 | (17,359) | — | |||||||||||||||||||||||||||||
| Total sales | 641,612 | 31,221 | 48,692 | 19,790 | (17,359) | 723,956 | |||||||||||||||||||||||||||||
| Segment operating income (loss) | $ | 169,499 | $ | 4,705 | $ | (1,397) | $ | 2,104 | $ | 4,470 | $ | 179,381 | |||||||||||||||||||||||
| Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||
| (in thousands) | North America Solutions | Offshore Gulf of Mexico | International Solutions | Other | Eliminations | Total | |||||||||||||||||||||||||||||
| External sales | $ | 486,004 | $ | 32,701 | $ | 29,118 | $ | 2,410 | $ | — | $ | 550,233 | |||||||||||||||||||||||
| Intersegment | — | — | — | 14,725 | (14,725) | — | |||||||||||||||||||||||||||||
| Total sales | 486,004 | 32,701 | 29,118 | 17,135 | (14,725) | 550,233 | |||||||||||||||||||||||||||||
| Segment operating income (loss) | $ | 57,353 | $ | 5,872 | $ | (6,550) | $ | 1,965 | $ | (2,140) | $ | 56,500 | |||||||||||||||||||||||
Q3FY23 FORM 10-Q | 28