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Helmerich & Payne Reaffirms Capex; Talks 2015 Outlook
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Helmerich & Payne, Inc. reported net income of $150 million ($1.37 per diluted share) from operating revenues of $883 million for the second fiscal quarter of 2015, compared to net income of $175 million ($1.59 per diluted share) from operating revenues of $893 million during the second quarter of fiscal 2014, and net income of $203 million ($1.85 per diluted share) from operating revenues of $1.06 billion during the first quarter of fiscal 2015.
Included in net income per diluted share corresponding to this year's second fiscal quarter are approximately $0.44 of after-tax gains from long-term contract early termination compensation from customers (which favorably impacted net income by approximately $47 million), $0.02 of after-tax gains related to the sale of used drilling equipment, and $0.05 of after-tax losses from abandonment charges related to the decommissioning of the Company's 17 SCR powered FlexRigs(R)*. Included in net income per diluted share corresponding to last year's second fiscal quarter are approximately $0.12 of after-tax gains on the sale of investment securities and $0.02 of after-tax gains related to the sale of used drilling equipment. Included in net income per diluted share corresponding to this year's first fiscal quarter are approximately $0.13 of after-tax gains from long-term contract early termination compensation from customers and $0.02 of after-tax gains related to the sale of used drilling equipment.
President and CEO John Lindsay commented, "The results corresponding to our second fiscal quarter were stronger than expected, but low oil prices continue to depress demand levels for drilling services during the third fiscal quarter. However, the Company has prospered through many cycles, and we believe that today we are very well positioned to emerge stronger from this steep industry downturn. Our strength is a result of our experienced personnel, a strong balance sheet and backlog, and the most modern and highly-capable rig fleet in the industry.
"After a significant decline in activity, our fleet size provides us with a distinct advantage. With the largest AC drive fleet available in the industry today, the Company has unprecedented leverage to significantly increase activity levels during a future industry recovery and ongoing replacement cycle. In addition to our fleet advantage, we will continue to focus on efforts to deliver superior value to our customers by providing innovative solutions and safer, more productive operations. We expect these efforts, along with the Company's demonstrated capital discipline, to continue to result in pricing, margin and return-on-investment premiums that allow us to create value for our shareholders."
Operating Segment Results
Segment operating income for the Company's U.S. land operations was $225 million for the second quarter of fiscal 2015, compared with $245 million for last year's second fiscal quarter and $318 million for this year's first fiscal quarter. As compared to the first quarter of fiscal 2015, segment operating income decreased as a result of lower quarterly levels of activity and rig margins as well as abandonment (non-cash) charges of approximately $7 million incurred during the second fiscal quarter related to the decommissioning of all 17 of the Company's SCR powered FlexRigs at the end of the quarter. These abandonment charges are included with depreciation in the segment. On the operations front, the number of quarterly revenue days decreased sequentially by 24% to 20,802 days during the second fiscal quarter (as compared to the first fiscal quarter) of 2015. Excluding the impact of $854 and $3,413 per day corresponding to revenues from early contract terminations during this year's first and second fiscal quarters, respectively, the average rig revenue per day decreased sequentially by $1,028 to $27,575, and the average rig margin per day decreased sequentially by $1,377 to $14,180. The average rig expense per day increased sequentially by $349 to $13,395 during the second fiscal quarter. Rig utilization for the segment was 68% for this year's second fiscal quarter, compared with 86% and 89% for last year's second fiscal quarter and this year's first fiscal quarter, respectively. At March 31, 2015, the Company's U.S. land segment had 179 contracted rigs generating revenue (including 145 under long-term contracts) and 153 idle rigs (including 145 AC drive FlexRigs).
Segment operating income for the Company's offshore operations was $19.1 million for the second quarter of fiscal 2015, compared with $19.3 million for last year's second fiscal quarter and $21.5 million for this year's first fiscal quarter. The sequential decrease in operating income was attributable to a 2% decrease in quarterly revenue days and a 10% decrease in average rig margin per day in the second quarter of fiscal 2015. The average rig margin per day decreased from $20,732 to $18,671 during the second quarter of fiscal 2015.
The Company's international land operations reported segment operating income of $6.3 million for this year's second fiscal quarter, compared with $11.2 million for last year's second fiscal quarter and $12.2 million for this year's first fiscal quarter. The decrease in segment operating income as compared to the first fiscal quarter of 2015 was mostly attributable to an 11% decrease in the number of quarterly revenue days. Excluding the impact of $373 per day corresponding to revenues from early contract terminations during this year's second fiscal quarter, the average rig margin per day decreased sequentially by 2% from $10,770 to $10,524.
Drilling Operations Outlook for the Third Quarter of Fiscal 2015
In the U.S. land segment, the Company expects revenue days (activity) to decrease by roughly 32% during the third fiscal quarter as compared to the second fiscal quarter of 2015. Excluding the impact from early termination revenue during the third quarter of fiscal 2015, the average rig revenue per day is expected to decrease to roughly $27,000, and the corresponding average rig expense per day is expected to increase to roughly $13,600. As of today, the U.S. land segment has approximately 165 contracted rigs that are generating revenue (including 138 under term contracts) and 171 idle rigs (including 163 AC drive FlexRigs).
In the offshore segment, the Company expects the average rig margin per day to be approximately $12,000 during the third fiscal quarter and revenue days to decrease by approximately 10% as compared to the second quarter of fiscal 2015.
In the international land segment, the Company expects total revenue days during the third fiscal quarter to be sequentially flat, potentially increasing by up to 5%. Excluding the impact from early termination revenue, the average rig margin per day is expected to decline by approximately 15% to 20%, also as compared to the second quarter of fiscal 2015.
Capital Expenditures and Other Estimates for Fiscal 2015
The Company continues to expect a total of approximately $1.3 billion in capital expenditures during all of fiscal 2015. The monthly cadence of the new FlexRig construction program is expected to decline from four to two rigs per month beginning in June through September of this year, and then decline from two to one rig per month beginning in October through March 2016. All of the corresponding new FlexRigs that are currently scheduled to be completed through March 2016 are supported with multi-year term contracts that are expected to generate attractive economic returns for the Company. Depreciation expense is expected to be approximately $600 million, and general and administrative expenses are expected to be approximately $140 million for fiscal 2015. Given the recently issued 10-year unsecured senior notes ($500 million), interest expense net of capitalized interest for fiscal 2015 is expected to be approximately $15 million. Furthermore, the Company expects an effective income tax rate of approximately 34 to 35 percent for each of the remaining two quarters of fiscal 2015.