Service & Supply | Quarterly / Earnings Reports | Oilfield Services | First Quarter (1Q) Update

Helmerich & Payne Talks Q1; E&Ps; Conservative Activity; Rig Forecast

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   |    Monday,April 29,2019

Helmerich & Payne reported its Q1 2019 result. Here are the highlights from its report and conference call.

Similar to Patterson-UTI, H&P believes that Q2 will represent the bottom of the rig count decline: “Based on trends we are seeing in rig releases and current demand, we believe the Company’s active rig count will bottom-out early during this quarter with super-spec utilization in the 90%-plus range. This should be supportive of the current pricing environment.”

New Customer Behavior - Capital Discipline Continues

H&P noted that customer behavior is changing - despite the rise in oil and gas prices, activity is not increasing as it has in previous years. This is undoubtly related to the new capital discipline mantra that E&Ps are employing.

“Crude oil prices are up approximately 40% since the beginning of the calendar year and in past cycles this would have resulted in higher activity. However, we have seen a tempered response and even reductions in activity by some in the industry. Clearly, customer behavior is changing, and their movement is towards prioritization of cash flows and returns.

"On our January call, we said our customers had a mix of outlooks regarding CapEx. They were up, down, and flat. We also expected our customers would be setting in their 2019 budgets with an expectation of $50 to $55 WTI.

"We compared the public company and majors announced CapEx budgets for 2019 compared to 2018 and found the totaled budgeted CapEx is only down approximately 5% year-over-year. This supports the view we expressed on our January call that the rig count reduction would likely be less than a 100 horizontal rigs. And thus far, the rig is down approximately 70 rigs. Further to that, H&P's top 25 customers, which represent about 80% of our working rigs, reduced their CapEx budgets by an aggregate of approximately 4% for 2019."

Active Rigs / Rig Forecast

"Turning to our four segments beginning with U.S. Land segment, we exited the second fiscal quarter to 226 contracted rigs, which was a decrease of approximately 1% than the number of active rigs quarter-to-quarter.

"Looking ahead to the third quarter of fiscal 2019 for U.S. Land, while putting second fiscal quarter upgrades to work under term contracts, we also experienced a number of late quarter rig releases. We are currently seeing net rig releases moderate, which will result in a sequential decrease of approximately 4% to 6% and the quarterly number of revenue days. This translates to an average rig count of approximately 220 rigs during the third quarter, which is approximately where we are as of today's call."