Service & Supply | Oilfield Services | Second Quarter (2Q) Update | Financial Results | Capital Markets | Capital Expenditure

Helmerich & Payne Fiscal Third Quarter 2022 Results

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   |    Monday,August 01,2022

Helmerich & Payne, Inc. reported its fiscal third quarter 2022 results.

The company reported net income of $18 million, or $0.16 per diluted share, from operating revenues of $550 million for the quarter ended June 30, 2022, compared to a net loss of $5 million, or $(0.05) per diluted share, on operating revenues of $468 million for the quarter ended March 31, 2022. The net income per diluted share for the third quarter of fiscal year 2022 and the net loss per diluted share for the second quarter of fiscal year 2022 include $(0.11) and $0.12, respectively, of after-tax losses and gains comprised of select items⁽¹⁾. For the third quarter of fiscal year 2022, select items⁽¹⁾were comprised of:

• $(0.11) of after-tax losses pertaining to non-cash fair market value adjustments to equity investments

Net cash provided by operating activities was $98 million for the third quarter of fiscal year 2022 compared to $23 million in the prior quarter.

President and CEO John Lindsay commented, "I am pleased with our performance during the quarter. Our financial results are beginning to reflect the benefits of a number of strategic initiatives, particularly those impacting pricing in our North America Solutions segment. The efforts made earlier this calendar year to achieve more sustainable contract economics continue and will accumulate further as pricing improves across our super-spec FlexRig® fleet. We recognize that we still have further to go before achieving returns that fully reflect the value we deliver to customers and will continue to push on this front. Our scale and technology enhance profitability in the US and these advantages are also providing a pathway to grow internationally, both of which will ultimately lead to improved economic returns for all our stakeholders over time.

"As expected, we ended the quarter at 175 rigs representing only a modest rig count growth during the quarter. Fiscal discipline together with additional contractual churn allowed us to re-contract rigs without incurring additional reactivation costs and redeploy them at significantly higher rates. Our rapidly improving contract economics are primarily driven by H&P's value proposition to customers in a tight market for readily available super-spec rigs. We believe the drilling solutions and outcomes we provide are increasingly being recognized and coveted by customers. Capital discipline by many among the land drillers combined with supply chain and labor constraints are governing the drilling industry's cadence of reactivating idle super-spec rigs at scale. This will likely perpetuate the supply-demand tightness for super-spec rigs leading to further improvements in our contract economics. H&P is preparing to respond to the future demand for super-spec rigs from our idled FlexRig® fleet in fiscal year 2023, and we will do so by applying the same disciplined approach, focusing on financial returns, and seeking to receive commensurate compensation for the value we are providing.

"Our Offshore Gulf of Mexico segment has provided steady contribution to the Company over several decades, particularly during the recent pandemic. We have increased pricing offshore as well and expect the margin contribution to improve going forward at a moderately higher level. On the international front, activity continues to tick higher with the potential for further improvements in our South American operations in the coming quarters. In the Middle East, preparations are underway to export some of our idle super-spec capacity as part of our hub strategy. Current plans have one rig moving in the coming months with others possible shortly thereafter depending on the timing of opportunities in the region compared to other competing international locations. We view this as an important step in establishing our Middle East hub and expanding our presence within the region as part of a longer-term growth strategy."

Senior Vice President and CFO Mark Smith also commented, "Our financial results reflect the margin expansion we are experiencing which is frankly needed to sustain our capital intensive and technologically demanding business in the long term. We anticipate further improvements in the coming quarters as our contracts in our North America Solutions segment continue to reprice at higher levels.

"Coinciding with the improvements in margins is the amount of cash we expect to generate from our operations. Cash returns to shareholders remain a top priority with our existing dividend and we have a desire to augment these returns in the future. However, our strong capital discipline dictates that we take a measured approach, especially as we head into our fourth fiscal quarter and look ahead into fiscal 2023 considering upcoming maintenance and reactivation capex and potential investments toward further international expansion."

John Lindsay concluded, “On a daily basis, I get to see the achievements attained by the strong dedication of our employees and the passion they bring to the Company; striving to do better than the day before and enhancing the value we provide to our customers and shareholders. As we move forward, I am confident our shared values and commitments will endure and enable the Company to maintain its leadership position within the oil service industry."

Results by Segment

North America Solutions

This segment had operating income of $57.4 million compared to operating income of $1.3 million during the previous quarter. The increase in operating income was primarily due to improving contract economics and modestly higher activity levels during the quarter.

Direct margins⁽²⁾ increased by $53.2 million to $167.6 million as both revenues and expenses increased sequentially. Operating results continue to be negatively impacted by the costs associated with reactivating rigs; $6.5 million in the third fiscal quarter compared to $14.2 million in the previous quarter.

This segment had an operating loss of $6.6 million compared to an operating loss of $0.8 million during the previous quarter. The decrease in operating income is primarily attributable to costs incurred with establishing our Middle East hub, which includes preparing a rig to be exported from the U.S.

Direct margins⁽²⁾ during the third fiscal quarter were a negative $3.2 million compared to a positive $2.3 million during the previous quarter. Current quarter results included a $1.1 million foreign currency loss compared to a $2.4 million foreign currency loss the previous quarter.

This segment had operating income of $5.9 million compared to operating income of $5.3 million during the previous quarter. Direct margins⁽²⁾ for the quarter were $8.8 million compared to $8.3 million in the prior quarter.

Operational Outlook

North America Solutions

• We expect North America Solutions direct margins⁽²⁾ to be between $185-$205 million, which includes approximately $6.0 million in estimated reactivation costs

• We expect to exit the quarter at approximately 176 contracted rigs

• We expect International Solutions direct margins⁽²⁾ to be between $4 - $7 million, exclusive of any foreign exchange gains or losses

• International Solutions direct margins⁽²⁾ are still expected to be negatively impacted by costs associated with establishing a Middle East hub

• We expect Offshore Gulf of Mexico direct margins⁽²⁾ to be between $9-$11 million

Other Estimates for Fiscal Year 2022

• Gross capital expenditures are still expected to be approximately $250 to $270 million; ongoing asset sales include reimbursements for lost and damaged tubulars and sales of other used drilling equipment that offset a portion of the gross capital expenditures and are still expected to total approximately $45 million in fiscal year 2022

• Depreciation and amortization expenses are still expected to be approximately $405 million

• Research and development expenses for fiscal year 2022 are still expected to be roughly $27 million

• Selling, general and administrative expenses for fiscal year 2022 are still expected to be just over $180 million

Other Financial Results

Third quarter of fiscal year 2022 net income of $0.16 per diluted share included $(0.11) in after-tax losses comprised of the following:

• $(0.11) of non-cash after-tax losses related to fair market value adjustments to equity investments

• $(0.00) of after-tax losses related to restructuring charges

Second quarter of fiscal year 2022 net loss of $(0.05) per diluted share included $0.12 in after-tax gains comprised of the following:

• $0.13 of non-cash after-tax gains related to fair market value adjustments to equity investments

• $(0.00) of after-tax losses related to restructuring charges

• $(0.01) of after-tax losses related to the sale of assets