Helmerich & Payne Inc. reported its fiscal first quarter 2022.

Highlights:

• H&P's North America Solutions segment exited the first quarter of fiscal year 2022 with 154 active rigs, up over 20% during the quarter

• Quarterly North America Solutions operating gross margins(1) increased $15 million to $84 million sequentially, as revenues increased by $48 million to $341 million and expenses increased by $32 million to $257 million

• The Company reported a fiscal first quarter net loss of $(0.48) per diluted share; including select items(2) of $(0.03) per diluted share

• On October 27, 2021, the Company redeemed all of its outstanding 2025 Notes, which resulted in a make-whole premium and write-off of unamortized discount and debt issuance costs of approximately $60 million

• During the fiscal first quarter H&P repurchased 2.5(3) million shares for approximately $60(3) million with an additional 0.6(3) million shares repurchased so far in the fiscal second quarter for approximately $16(3) million

• In December 2021, the Company published its inaugural sustainability report

• On December 10, 2021, the Board of Directors of the Company declared a quarterly cash dividend of $0.25 per share, payable on February 28, 2022 to stockholders of record at the close of business on February 11, 2022

Overview

Helmerich & Payne reported a net loss of $51 million, or $(0.48) per diluted share, from operating revenues of $410 million for the quarter ended December 31, 2021, compared to a net loss of $79 million, or $(0.74) per diluted share, on revenues of $344 million for the quarter ended September 30, 2021. The net losses per diluted share for first quarter of fiscal year 2022 and the fourth quarter of fiscal year 2021 include $(0.03) and $(0.12), respectively, of after-tax gains and losses comprised of select items⁽²⁾. For the first quarter of fiscal year 2022, select items⁽²⁾ were comprised of:

• $0.51 of after-tax gains pertaining to a non-cash fair market adjustment to our equity investments and a settlement of a previous contractual dispute with an international customer

• $(0.54) of after-tax losses pertaining to a debt make-whole premium and write-off of debt discount and issuance costs, a non-cash impairment for fair market adjustments to decommissioned rigs and equipment that are held for sale, losses on sale of assets, and restructuring charges

Net cash used by operating activities was $4 million for the first quarter of fiscal year 2022 compared to net cash provided by operating activities of $47 million in the prior quarter.

President and CEO John Lindsay commented, "I am encouraged by the progress the industry has made on its path to recovery from the market collapse in 2020. Increasing demand for super-spec rigs has predictably led to a very tight market in 2022. As expected this demand increase resulted in a significant uptick in our rig count during the first fiscal quarter, which we anticipate will likely be followed by a more moderate, yet still healthy increase in the second fiscal quarter. H&P's ability to provide superior rigs, people, and digital technologies culminates in a compelling value proposition for customers in this environment. Our position as a leading drilling solutions provider is strengthening as evidenced by our market share growth.

"The rig demand experienced thus far, combined with costs associated with reactivating idle super-spec rigs and other general operating cost inflation, has led to an increase in leading-edge pricing. However, higher pricing is required, not only due to the near-term scarcity of readily available super-spec rigs and the long-term supply constraints of the industry, but also for the value creation of a well-placed, high-quality wellbore. Additional pricing momentum is warranted to recoup reactivation costs and inflationary adjustments we have experienced over the past decade and as a return for the value proposition H&P offers the customer. Notwithstanding the activity improvements and higher commodity prices that have benefited the industry, from an oilfield service provider perspective, substantially higher pricing is still required in order to generate the returns necessary to attract and retain investors and for this business to be vibrant and sustainable.

"The activity outlook for international markets is positive, however in the near term our rig count in the Middle East is expected to decline due to two unexpected rig releases. We are excited about our strategic alliance and the investment we have made with ADNOC Drilling and we look forward to further expanding that relationship as well as developing additional opportunities in the Middle East region. Our activity in South America is improving slowly and we remain encouraged by the prospects for additional growth in the coming quarters and beyond."

Senior Vice President and CFO Mark Smith also commented, "The strength of our balance sheet underpins our ability to focus on the long-term and execute across different capital allocation opportunities. Our attractive debt refinance, at a low 2.90% coupon rate and extended 10-year maturity, and our $100 million investment in ADNOC Drilling's IPO, now with a market value in excess of $140 million, are recent examples. This strength also enables H&P to respond to specific customer needs as well as to generate additional returns and garner market share by converting some of our skidding rigs to walking rigs. Similar to our E&P customers we will maintain our strong capex budget discipline when it comes to allocating capital.

"These various return-enhancing allocations of capital are being accomplished simultaneously as we provide a return of cash to our shareholders, something we have done uninterrupted for more than 60 years with our dividend. More recently, we augmented our dividend returns with share repurchases that encompassed buying back approximately 3.1⁽³⁾ million shares for roughly $76⁽³⁾ million."

John Lindsay concluded, “Despite the industry challenges faced during the past couple of years we remain focused on our long-term opportunities with a strong disciplined approach of allocating capital to return-accretive endeavors for the long-term benefit of our shareholders. This would not be possible without the hard work and dedication of H&P employees, both past and present, who continually set the standard in the industry. Over one hundred years of drilling experience combined with our uniform FlexRig® fleet and industry leading automation solutions puts us in a great position as we move forward. Our rigs, automation solutions, and digital portfolio have compelling value propositions for both North America and international markets. The momentum we built during fiscal 2021 carries into fiscal 2022 with a fresh sense of optimism. We look forward to strengthening our partnerships with new and existing customers, and developing drilling solutions that contribute to our mutual successes."

Segment Results - First Quarter of Fiscal Year 2022

North America Solutions:

This segment had an operating loss of $28.9 million compared to an operating loss of $60.7 million during the previous quarter. The decrease in the operating loss was primarily due to higher activity levels and the prior quarter being adversely impacted by an impairment for fair market adjustments for equipment held for sale. Absent the select item⁽²⁾ negative impacts of the fair market impairments and restructuring charges for the quarters, this segment's operating loss improved by $16.9 million on a sequential basis.

Operating gross margins⁽¹⁾ increased by $15.3 million to $84.5 million as both revenues and expenses increased sequentially. Operating results were still negatively impacted by the costs associated with reactivating rigs; $20.5 million in the first fiscal quarter compared to $6.6 million in the previous quarter.

International Solutions:

This segment had operating income of $8.0 million compared to an operating loss of $5.7 million during the previous quarter. The increase in operating income was twofold - there was a settlement related to a previous contractual dispute with a customer resulting in $16.4 million in revenue during the first fiscal quarter and the previous quarter was adversely impacted by $2.6 million of expenses associated with the closing of the ADNOC Drilling transactions. Absent the select items⁽²⁾ for the quarters, this segment's operating loss increased $3.0 million on a sequential basis primarily due to rig start-up costs and other transitory expenses.

Operating gross margins⁽¹⁾ during the first fiscal quarter were a positive $13.0 million, benefiting from the aforementioned $16.4 million settlement related to a previous contractual dispute with a customer. Excluding the settlement, operating gross margins⁽¹⁾ were a negative $3.4 million compared to a negative $0.4 million in the previous quarter. Current quarter results included a $1.0 million foreign currency loss primarily related to our South American operations compared to a $0.7 million foreign currency loss in the fourth quarter of fiscal year 2021.

Offshore Gulf of Mexico:

This segment had operating income of $5.5 million compared to operating income of $4.5 million during the previous quarter. Operating gross margins⁽¹⁾ for the quarter were $8.6 million compared to $7.7 million in the prior quarter.

Operational Outlook for 2Q of Fiscal Year 2022

North America Solutions:

• We expect North America Solutions operating gross margins⁽¹⁾ to be between $100-$115 million, which includes approximately $11 million in estimated reactivation costs

• We expect to exit the quarter at between 165-175 contracted rigs

International Solutions:

• We expect International Solutions operating gross margins⁽¹⁾ to be between $(2)-$0 million, exclusive of any foreign exchange gains or losses

Offshore Gulf of Mexico:

• We expect Offshore Gulf of Mexico operating gross margins⁽¹⁾ to be between $6-$8 million

Other Estimates for Fiscal Year 2021

• Gross capital expenditures are still expected to be approximately $250 to $270 million; approximately 50% expected for maintenance, including tubular purchases, roughly 35% expected for skidding to walking conversions and approximately 15% for corporate and information technology. 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 now 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 now expected to be roughly $27 million

• Selling, general and administrative expenses for fiscal year 2022 are still expected to be approximately $170 million

Select Items Included in Net Income:

First quarter of fiscal year 2022 net loss of $(0.48) per diluted share included $(0.03) in after-tax losses comprised of the following:

• $0.13 of after-tax gains related to a settlement of a previous contractual dispute with an international customer

• $0.38 of non-cash after-tax gains related to fair market value adjustments to equity investments

• $(0.01) of after-tax losses related to restructuring charges

• $(0.03) of after-tax losses related to the sale of assets

• $(0.03) of non-cash after-tax losses for impairments related to fair market value adjustments to decommissioned rigs and equipment that are held for sale

• $(0.47) of after-tax losses related to a debt make-whole premium and write-off of debt discount and issuance costs

Fourth quarter of fiscal year 2021 net loss of $(0.74) per diluted share included $(0.12) in after-tax losses comprised of the following:

• $0.03 of after-tax gains related to the sale of equipment

• $(0.01) of non-cash after-tax losses related to fair market value adjustments to equity investments

• $(0.01) of non-cash after-tax losses related to an inventory write-down

• $(0.01) of after-tax losses related to restructuring charges

• $(0.02) of after-tax losses related to closing costs associated with the ADNOC Drilling transactions

• $(0.10) of after-tax losses related to the non-cash impairment for fair market value adjustments to equipment that is held for sale

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