Service & Supply | Quarterly / Earnings Reports | Oilfield Services | Second Quarter (2Q) Update

H&P: Rig Count Not at Bottom Yet; International / Vaca Muerta Ops Pick Up

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Helmerich & Payne reported its Q2 2019 results. Here are the highlights:

US Drilling Softens Further; Rig Count Hasn't Hit Bottom

President and CEO John Lindsay commented, “The industry saw further softening in U.S. drilling activity resulting from a combination of crude oil price volatility and budget discipline by our customers.

“Our expectation of seeing the bottom of the Company’s rig count during the quarter turned out to be premature as the full effect of the industry’s emphasis on disciplined capital spending continues to reverberate through the oil field services sector. As such, H&P exited the quarter in the U.S. with 214 active rigs, which was slightly below the low end of our guidance range.

"We are reluctant to predict another bottom and see further softening during our fourth fiscal quarter as our guidance would indicate. That said, the U.S. land industry super-spec utilization is close to 90%, and pricing remains firm for the best-in-class fleet."

International Operations Picking Up

The company saw an increase of rig activity in several international countries this quarter: “The Company saw a pick-up in activity in Bahrain and now has two active rigs. Last quarter we announced a contract to deliver our first super-spec rig into Argentina, and we expect it to commence operations in the fourth fiscal quarter. An additional letter of intent was signed to send a second super-spec FlexRig from the U.S. to Argentina to drill in the Vaca Muerta basin.”

Activity / Financial Results by Region

U.S. Land Operations

Segment operating income decreased by $244.3 million to a loss of $138.2 million sequentially. The decrease in operating results was primarily attributable to the impairment of drilling equipment and spares mainly driven by the downsizing of the Flex4 rig fleet, sequential decreases in revenue days and the adjusted average rig margin per day. The number of quarterly revenue days decreased sequentially by approximately 7%.

Adjusted average rig revenue per day improved by $498 to $26,122⁽¹⁾ largely due to increased contributions from FlexApps and a slight increase in the average dayrate during the quarter.

The adjusted average rig expense per day increased sequentially by $667 to $14,862⁽¹⁾ as the quarter was impacted by unfavorable adjustments to self-insurance expenses compared to the prior quarter that benefited from favorable adjustments to self-insurance expenses. Corresponding adjusted average rig margin per day decreased $169 to $11,260⁽¹⁾.

The segment’s depreciation expense for the quarter includes non-cash charges of $2.1 million for abandonments and accelerated depreciation of used drilling rig components related to rig upgrades, compared to similar non-cash charges of $5.3 million during the second fiscal quarter of 2019.

International Land Operations

Segment operating income decreased by $13.0 million to a loss of $5.0 million sequentially. The decrease in operating income was primarily attributable to an impairment of drilling equipment and spares driven by the downsizing of the Flex4 rig fleet, sequential decreases in revenue days, and start-up costs for rigs in Argentina and Bahrain. Revenue days decreased during the quarter by 3% to 1,510 while the adjusted average rig margin per day decreased by $3,957 to $7,904⁽¹⁾.

Offshore Operations

Segment operating income increased by $0.5 million to $5.1 million sequentially. The number of quarterly revenue days on H&P-owned platform rigs increased sequentially by approximately 1%, while the average rig margin per day increased sequentially by $7,001 to $12,421 primarily due to higher margin work during the quarter. Segment operating income from management contracts on customer-owned platform rigs contributed approximately $2.0 million, compared to approximately $4.7 million during the prior quarter.