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Helmerich & Payne Fiscal Fourth Quarter 2019 Results

Share Print Bookmark    |    Thursday,November 14,2019

Helmerich & Payne, Inc. reported income of $41 million or $0.37 per diluted share from operating revenues of $649 million for the quarter ended September 30, 2019, compared to a net loss of $155 million, or $(1.42) per diluted share, on revenues of $688 million for the quarter ended June 30, 2019. The net income per diluted share for the fourth fiscal quarter and the net loss for third fiscal quarter include $(0.01) and $(1.82), respectively, of after-tax losses comprised of select items⁽²⁾. For the fourth fiscal quarter select items⁽²⁾were comprised of:

• $0.13 of after-tax gains pertaining to early termination compensation, gains on sales and a reduction in the fair value of a contingent liability
• $(0.14) of after-tax losses pertaining to abandonments and accelerated depreciation, bond redemption fees, a lawsuit settlement, losses from discontinued operations, acquisition costs and a net loss related to our equity investments

Net cash provided by operating activities was $196 million for the fourth quarter of fiscal 2019 compared to $250 million for the third fiscal quarter of fiscal 2019.

For the fiscal year 2019, the Company reported a net loss of $34 million or $(0.34) per diluted share from operating revenues of $2.8 billion. The net loss per diluted share includes $(2.09) of after-tax losses comprised of select items⁽²⁾, the most significant of which are non-cash losses of $224 million related to impairments of drilling equipment and spares driven by the downsizing of the Flex4 rig fleet. Net cash provided by operating activities was $856 million in fiscal 2019 compared to $558 million in fiscal 2018.

President and CEO John Lindsay commented, “The Company continued to perform efficiently despite a sizable pull-back in industry activity. The steep decline this past quarter is a result of the over-spend of E&P capital budgets that occurred during the first six months of the calendar year. Reflective of the most recent trends, and customer conversations, we expect to see more stability in rig demand over the next couple of months and heading into calendar 2020, but capital discipline will remain the dominant theme.

"In addition to capital spending discipline, customers are becoming more selective in the quality and capability of the rigs they employ, as the decline in legacy rigs drilling horizontal wells is more pronounced compared to the decline felt in the super-spec⁽³⁾ space. In previous industry down drafts, we've experienced rigs released regardless of performance or capability, so this discernment on rig performance is welcome news. Rig contractors continue to write off legacy rig fleets, resulting from low-performing, less capable rigs in the U.S. market. Despite the softness experienced this year, super-spec utilization is still strong in the most active basins and the Company has remained disciplined in its approach to pricing. We believe services and solutions that deliver lower costs and better well performance deserve compensation that is commensurate to the value they add. Our people and technology are making that happen every day.

"The results from our H&P Technologies (HPT) segment this quarter are not only reflective of the decreased drilling activity, but also the slow and often difficult process of introducing change into the industry. HPT's purpose is to drive development of an autonomous drilling platform that improves safety, drilling consistency and accuracy, completions costs and better well economics for our customers. One example of this is AutoSlide, which is automated sliding while directional drilling, and it is currently commercialized in four U.S. basins. We have now drilled over 100 autonomous horizontal wells comprising 1.7 million feet of vertical, curve and lateral footage. As true with many industrial innovations, the largest barrier to technology adoption is the human workflow changes new technologies can trigger. The adoption resistance we are experiencing today is reminiscent of the initial responses we had over 15 years ago when we rolled out our first AC-drive FlexRigs. Accordingly, we believe customers will continue to adopt and utilize these software solutions because of the value propositions they provide like risk mitigation of parent-child well interference. These incremental investments in well performance and productivity on the front end will pay dividends over the entire life of the well for our customers.

"The traction we experienced in the prior quarter with regard to our international markets continues. The Company signed letters of intent to deploy a third FlexRig in Bahrain, two FlexRigs in Abu Dhabi, a high horsepower AC drive rig in Colombia, and our FlexApps to a customer in Argentina. Each of these successes demonstrate increasing awareness in international markets to the value H&P can deliver from both a rig and digital technology perspective. The elections are over in Argentina, but their impact is still very uncertain. While we did not experience any meaningful operational disruptions this last quarter, we did have a customer delay a commitment to move a second super-spec FlexRig from the U.S. We continue to remain committed and optimistic about the ultimate potential in the Vaca Muerta basin and its importance to Argentina."

Vice President and CFO Mark Smith also commented, "The Company executed well during a volatile quarter and finished the fiscal year generating approximately $196 million in cash flow from operations and roughly $142 million in free cash flow. Looking out into fiscal 2020, we expect customers to remain disciplined with their spending behavior and have based our initial capex budget on those expectations. Accordingly, we anticipate our fiscal 2020 capex to range between $275 and $300 million, which should result in another year of healthy free cash flow generation.

"Additionally, during the fourth fiscal quarter we made a decision to rationalize a portion of our equity holdings. Utilizing these proceeds and cash on hand, the Company funded debt redemptions and share repurchases. H&P’s ability to generate relatively strong cash flow and maintain our strong balance sheet positioned us well to address challenges and opportunities while we continued to fund a strong dividend during this past fiscal year.”

John Lindsay concluded, “Delivering performance in a challenging environment is not new at H&P. The dedication of our employees combined with our rig fleet and digital technology solutions are unmatched in the industry and give us a solid base to build and innovate upon. With that, we will continue to partner with customers to achieve mutual long-term success."

Operating Segment Results for the Fourth Quarter of Fiscal 2019

Segment operating income increased by $203.4 million to $59.2 million sequentially. The increase in operating results was primarily attributable to the impairment of drilling equipment and spares that negatively impacted prior quarter results. Absent the impact of impairment, segment operating income declined due to sequential decreases in revenue days and the adjusted average rig margin per day. The number of quarterly revenue days decreased sequentially by approximately 5%.

Adjusted average rig revenue per day declined by $390 to $25,365⁽¹⁾ largely due to a decrease in our FlexServices (trucking, casing running, rental equipment) during the quarter and some slight softening in the average dayrate. The adjusted average rig expense per day increased sequentially by $128 to $14,934⁽¹⁾. Corresponding adjusted average rig margin per day decreased $518 to $10,431⁽¹⁾.

The segment’s depreciation expense for the quarter includes non-cash charges of $4.6 million for abandonments and accelerated depreciation of used drilling rig components related to rig upgrades, compared to similar non-cash charges of $2.1 million during the third fiscal quarter of 2019.

The segment operating loss decreased by $0.8 million to a loss of $4.2 million sequentially. The decrease in operating loss was primarily attributable to an impairment of drilling equipment and spares that negatively impacted prior quarter results. Absent the impact of the impairment, segment operating loss declined due to a $3.5 million foreign currency loss related to our Argentina operations and a sequential decrease in the average margin per day caused by rig recommission costs associated with the deployment of a super-spec FlexRig in Argentina, as well as regional price concessions in Argentina. Revenue days increased during the quarter by 6% to 1,598 while the adjusted average rig margin per day decreased by $2,423 to $5,481⁽¹⁾.

Segment operating income decreased by $2.3 million to $2.8 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 decreased sequentially by $4,960 to $7,460 primarily due to a rig experiencing unexpected repair down time during the quarter. Segment operating income from management contracts on customer-owned platform rigs contributed approximately $2.2 million, compared to approximately $2.0 million during the prior quarter.

The segment had operating income of $0.6 million compared to an operating loss of $2.7 million during the previous quarter. Fiscal fourth quarter results benefited from a change in the fair value of a contingent liability. Excluding this benefit, HPT would have had an operating loss of $8.3 million. The sequential increase in the operating loss was due primarily to lower revenues associated with lower H&P and industry rig counts.

Operational Outlook for the First Quarter of Fiscal 2020

• Quarterly revenue days expected to decrease by approximately 5.5%-6.5% sequentially; we expect to exit the quarter at between 187-197 active rigs
• Average rig revenue per day expected to be down slightly to between $24,750-$25,250 (excluding any impact from early termination revenue)
• Average rig expense per day expected to be between $14,350-$14,850

• Quarterly revenue days expected to decrease roughly 2% sequentially, representing an average rig count of approximately 17 rigs for the quarter
• Average rig margin per day expected to decrease to $3,000-$4,000 as result of rig start-up costs in Abu Dhabi, Bahrain and Colombia

• Quarterly revenue days expected to decrease by approximately 15% sequentially, representing an average rig count of 5 rigs for the quarter as one rig returns to the shipyard for repairs prior to redeployment
• Average rig margin per day expected to increase to $12,000-$13,000
• Management contracts expected to generate approximately $2 million in operating income

• Fiscal first quarter revenue is expected to be between $15-$18 million

Other Estimates for Fiscal 2020

• Capital expenditures are expected to be approximately $275 to $300 million; 57-62% expected for maintenance, 17-19% expected for tubular purchases, 11-15% for skidding to walking conversions, and roughly 10% for corporate and information technology projects
• General and administrative expenses for fiscal 2020 are expected to be approximately $200 million
• Depreciation is expected to be approximately $540 million

Select Items Included in Net Income per Diluted Share

Fourth Quarter of Fiscal 2019 net income of $0.37 per diluted share included $(0.01) in after-tax losses comprised of the following:

• $0.01 of after-tax income from long-term contract early termination compensation from customers
• $0.05 of after-tax gains related to the change in fair value of a contingent liability
• $0.07 of after-tax gains related to the sale of used drilling equipment
• $(0.01) of after-tax losses related to bond redemption fees
• $(0.01) of after-tax losses related to acquisition costs
• $(0.01) of after-tax losses from discontinued operations related to adjustments resulting from currency fluctuations
• $(0.02) of a net after-tax loss related to the fair market adjustments to equity investments and the sale of a portion of equity investments
• $(0.03) of non-cash after-tax losses from abandonment charges and accelerated depreciation related to the decommissioning of used drilling equipment
• $(0.06) of after-tax losses from the settlement of a lawsuit

Third Quarter of Fiscal 2019 net loss of $(1.42) per diluted share included $(1.82) in after-tax losses comprised of the following:

• $0.01 of after-tax income from long-term contract early termination compensation from customers
• $0.06 of income tax adjustments related to certain discrete tax items
• $0.08 of after-tax gains related to the sale of used drilling equipment
• $(0.02) of non-cash after-tax losses from abandonment charges and accelerated depreciation related to the decommissioning of used drilling equipment
• $(0.06) of non-cash after-tax losses from inventory write-downs, some of which result from the downsizing of the Flex4 rig fleet
• $(0.11) of non-cash after-tax losses related to the fair market adjustment of equity investments
• $(1.78) of non-cash after-tax losses from impairments of drilling equipment and spares driven by the downsizing of the Flex4 rig fleet

Fiscal 2019 net loss of $(0.34) per diluted share included $(2.09) in after-tax losses comprised of the following:

• $0.05 of after-tax gains related to the change in fair value of a contingent liability
• $0.07 of income tax adjustments related to certain discrete tax items
• $0.08 of after-tax income from long-term contract early termination compensation from customers
• $0.27 of after-tax gains related to the sale of used drilling equipment
• $(0.01) of after-tax losses related to acquisition costs
• $(0.01) of after-tax losses from discontinued operations related to adjustments resulting from currency fluctuations
• $(0.03) of after-tax losses related to bond exchange and redemption fees
• $(0.06) of non-cash after-tax losses from inventory write-downs, some of which result from the downsizing of the Flex4 rig fleet
• $(0.11) of non-cash after-tax losses from abandonment charges and accelerated depreciation related to the decommissioning of used drilling equipment
• $(0.18) of after-tax losses from the settlement of lawsuits
• $(0.38) of a net after-tax loss related to the fair market adjustments of equity investments and the sale of a portion of equity investments
• $(1.78) of non-cash after-tax losses from impairments of drilling equipment and spares driven by the downsizing of the Flex4 rig fleet