HELMERICH & PAYNE, INC.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10Q ("Form 10Q") contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities and Exchange
Act of 1934, as amended (the "Exchange Act"). All statements other than
statements of historical facts included in this Form 10-Q, including without
limitation, statements regarding our future financial position, business
strategy, budgets, projected costs and plans and objectives of management for
future operations, are forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe,"
"predict," "project," "target," "continue," or the negative thereof or similar
terminology. Forward-looking statements are based upon current plans, estimates,
and expectations that are subject to risks, uncertainties, and assumptions.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to be correct. Actual results may vary materially from those indicated or
anticipated by such forward-looking statements. The inclusion of such statements
should not be regarded as a representation that such plans, estimates, or
expectations will be achieved.
These forward-looking statements include, among others, such things as:
• our business strategy;
• the amount and nature of our future capital expenditures and how we
expect to fund our capital expenditures, and the number of rigs we
plan to construct or acquire;
• the volatility of future oil and natural gas prices;
• changes in future levels of drilling activity and capital
expenditures by our customers, whether as a result of global capital
markets and liquidity, changes in prices of oil and natural gas or
otherwise, which may cause us to idle or stack additional rigs, or
increase our capital expenditures and the construction or
acquisition of rigs;
• changes in worldwide rig supply and demand, competition, or technology;
• possible cancellation, suspension, renegotiation or
termination
(with or without cause) of our contracts as a result ofgeneral or
industry-specific economic conditions, mechanical difficulties,
performance or other reasons;
• expansion and growth of our business and operations;
• our belief that the final outcome of our legal proceedings will not
materially affect our financial results;
• impact of federal and state legislative and regulatory actions
affecting our costs and increasing operation restrictions or delay
and other adverse impacts on our business;
• environmental or other liabilities, risks, damages or losses,
whether related to storms or hurricanes (including wreckage or
debris removal), collisions, grounding, blowouts, fires, explosions,
other accidents, terrorism or otherwise, for which insurance
coverage and contractual indemnities may be insufficient,
unenforceable or otherwise unavailable;
• our financial condition and liquidity;
• tax matters, including our effective tax rates, tax
positions,
results of audits, changes in tax laws, treaties and regulations,
tax assessments and liabilities for taxes; and
• potential long-lived asset impairments.
Important factors that could cause actual results to differ materially from our
expectations or results discussed in the forwardlooking statements are
disclosed in our 2019 Annual Report on Form 10-K under Item 1A- "Risk Factors,"
as well as in Item 7- "Management's Discussion and Analysis of Financial
Condition and Results of Operations." All subsequent written and oral
forwardlooking statements attributable to us, or persons acting on our behalf,
are expressly qualified in their entirety by such cautionary statements. Because
of the underlying risks and uncertainties, we caution you against placing undue
reliance on these forward-looking statements. We assume no duty to update or
revise these forwardlooking statements based on changes in internal estimates,
expectations or otherwise, except as required by law.
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Executive SummaryHelmerich & Payne, Inc. ("H&P," which, together with its subsidiaries, is identified as the "Company," "we," "us," or "our," except where stated or the context requires otherwise) provides performance-driven drilling solutions and technologies that are intended to make hydrocarbon recovery safer and more economical for oil and gas exploration and production companies. As ofDecember 31, 2019 , our drilling rig fleet included a total of 338 drilling rigs. Our contract drilling services segments consist of theU.S. Land segment with 299 rigs, the Offshore segment with eight offshore platform rigs and the International Land segment with 31 rigs as ofDecember 31, 2019 . At the close of the first quarter of fiscal year 2020, we had 219 contracted rigs, of which 142 were under a fixed term contract and 77 were working well-to-well, compared to 218 contracted rigs atSeptember 30, 2019 . As theU.S. land drilling industry recovered from an all-time low of approximately 380 active rigs in the summer of 2016, we led the way in reactivating rigs inthe United States and gained significant market share in the process. We believe that our success during this time frame is validation of the capabilities of our land drilling fleet and our decisions during the downturn to prepare for an eventual improvement in the business, and our ability to deliver best-in-class field performance and customer satisfaction. Our long-term strategy remains focused on innovation, technology, safety, operational excellence and reliability. As we move forward, we believe that our advanced uniform rig fleet, financial strength, long term contract backlog and strong customer and employee base position us very well to take advantage of future opportunities. Market Outlook Our revenues are derived from the capital expenditures of companies involved in the exploration, development and production of crude oil and natural gas ("E&Ps"). Generally, the level of capital expenditures is dictated by current and expected future prices of crude oil and natural gas, which are determined by various supply and demand factors. Both commodities have historically been, and we expect them to continue to be, cyclical and highly volatile. With respect toU.S. Land Drilling, the resurgence of oil and natural gas production coming fromthe United States brought about by unconventional shale drilling for oil has significantly impacted the supply of oil and natural gas. The advent of unconventional drilling inthe United States began in early 2009 and continues to evolve as E&Ps drill longer lateral wells with tighter well spacing. During this time, we designed, built and delivered to the market new technology AC drive (FlexRig®) rigs, substantially growing our fleet. The pace of progress of unconventional drilling over the years has been cyclical and volatile, dictated by crude oil and natural gas price fluctuations, which at times have proven to be dramatic. Throughout this time, the length of the lateral section of wells drilled in theU.S. has continued to grow. The progression of longer lateral wells has required many of the industry's rigs to be upgraded to certain specifications in order to meet the technical challenges of drilling longer lateral wells. The upgraded rigs meeting those specifications are commonly referred to in the industry as super-spec rigs and have the following specific characteristics: AC drive, minimum of 1,500 horsepower drawworks, minimum of 750,000 lbs. hookload rating, 7,500 psi mud circulating system, and multiple-well pad capability. As a result of having a large super-spec fleet and a large number of rigs that could readily and economically be upgraded to the super-spec classification, we gained market share and became the largest provider of super-spec rigs in the industry. As such, we believe we are well positioned to respond to various market conditions. Despite recent crude oil prices pushing in excess of$60 per barrel, they have receded to the low$50 's; therefore, we anticipate our customers will set their 2020 capital budgets on a more modest level for crude oil pricing. While we believe this level of capital spending is supportive of higher activity levels than experienced in late 2019, we do not envision sizeable increases from those levels during 2020. We expect our customers to remain capital disciplined, which will ultimately impact their level of spending during 2020. Utilization for our super-spec FlexRig fleet peaked in late calendar year 2018 with 216 of 221 super-spec rigs working (98 percent utilization). The decline in industry activity during calendar year 2019 resulted in customers idling some of our super-spec rigs. AtDecember 31, 2019 , we had 47 idle super-spec rigs out of our fleet of 233 super-spec FlexRig drilling rigs. Some customers may have a requirement or a preference for walking multiple-well pad capability, and we would convert certain idle super-spec skidding rigs to walking for multi-year term contracts. The lack of a sizable commitment to super-spec upgrades in fiscal year 2020 is the main driver of the decrease in our capital expenditure budget, which is initially set at between$275 million and$300 million for fiscal year 2020, down from$458.4 million in fiscal year 2019. In our H&P Technologies segment, we expect further market penetration of our digital technology offerings as customers continue to appreciate the economic benefits of deploying these technologies in their well programs. We continue to see the expansion for more pronounced industry adoption at a measured pace, though realizing the inherent challenges in adopting new and disruptive technologies in a flat oil price environment. Similar to our other segments, H&P Technologies shares the same underlying drivers in terms of crude oil prices and E&Ps' capital expenditures but is ultimately tied to both rig count activity and market penetration of the Company and the industry. In our International Land Drilling segment, we believe that our market leading position in the Neuquén basin ofArgentina provides opportunities for us to either deploy additional AC rigs fromthe United States or upgrade rigs inArgentina to super-spec. However, a recent political regime change in the country may impact the current contracting environment and possibly delay such opportunities further into calendar year 2020 or beyond. We continue to believe that our international land operations are a 29
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potential area of growth over the next several years, including for idleU.S. AC rigs, but acknowledge that such growth may be sporadic. For the three months endedDecember 31, 2019 , our Offshore Drilling operations have reported relatively stable utilization and cash flows and we expect a similar operating environment during fiscal year 2020. Recent Developments Liquidity InNovember 2019 , we entered into the first amendment to our 2018 Credit Facility (as defined herein) by and among the Company, as borrower,Wells Fargo Bank, National Association , as administrative agent, and the lenders party thereto (the "2018 Credit Facility Amendment"). Among other things, the 2018 Credit Facility Amendment (i) extended the maturity date of the 2018 Credit Facility by one year toNovember 13, 2024 , (ii) deleted certain negative covenants and (iii) refreshed the number of permissible extensions of the maturity date that require only the consent of extending lenders.
Business Segments
During the fourth quarter of fiscal year 2019, we migrated our FlexApp offerings into our H&P Technologies segment. The activity of our FlexApps was previously included in ourU.S. Land segment. All segment disclosures have been restated, as practicable, for these segment changes.Self-Insurance OnOctober 1, 2019 , we elected to utilize a wholly-owned insurance captive ("Captive") to insure the deductibles for our workers' compensation, general liability and automobile liability insurance programs. In addition, we intend to utilize the Captive to insure the deductibles for our drilling rigs and related equipment under a property insurance program. The Company and the Captive maintain excess and reinsurance programs with third-party insurers in an effort to limit the financial impact of significant events covered under these programs. Our operating subsidiaries are paying premiums to the Captive, typically on a monthly basis, for the estimated losses based on the external actuarial analysis. These premiums are held in a restricted escrow account, resulting in a transfer of risk from our operating subsidiaries to the Captive for the deductible self-insurance retention. The actuarial estimated underwriting expenses for to the three months endedDecember 31, 2019 was approximately$8.5 million and was recorded within the Other operating expenses in our Unaudited Condensed Consolidated Statement of Operations. Intercompany premium revenues and expenses during the three months endedDecember 31, 2019 amounted to$7.7 million , which were eliminated upon consolidation. These intercompany insurance premiums are reflected as segment operating expenses within theU.S. Land, Offshore, and International Land reportable operating segments and are reflected as intersegment sales within "Other". Fiscal Year 2020 Dispositions InDecember 2019 , we closed on the sale of a wholly-owned subsidiary ofHelmerich & Payne International Drilling Co. ("HPIDC"),TerraVici Drilling Solutions, Inc. ("TerraVici"). As a result of the sale, 100% of TerraVici's outstanding capital stock was transferred to the purchaser in exchange for approximately$15.1 million , resulting in a total gain on the sale of TerraVici of approximately$15.0 million . Prior to the sale, TerraVici was a component of the H&P Technologies reportable segment. This transaction does not represent a strategic shift in our operations and will not have a significant effect on our operations and financial results going forward. Contract Backlog As ofDecember 31, 2019 , andSeptember 30, 2019 , our contract drilling backlog, being the expected future dayrate revenue from executed contracts, was$1.1 billion and$1.2 billion , respectively. The decrease in backlog atDecember 31, 2019 fromSeptember 30, 2019 is primarily due to a decrease in the number of remaining term contract days in theU.S. Land segment during the first three months of fiscal year 2020. Approximately 37.4 percent of theDecember 31, 2019 total backlog is reasonably expected to be fulfilled in fiscal year 2021 and thereafter. We do not have material long-term contracts related to our H&P Technologies segment. 30
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The following table sets forth the total backlog by reportable segment as ofDecember 31, 2019 andSeptember 30, 2019 , and the percentage of theDecember 31, 2019 backlog reasonably expected to be fulfilled in fiscal year 2021 and thereafter: Percentage Reasonably Expected to be Filled in Fiscal Year 2021 (in billions) December 31, 2019 September 30, 2019 and Thereafter U.S. Land $ 0.9 $ 1.0 33.6 % Offshore - - - International Land 0.2 0.2 59.9 $ 1.1 $ 1.2 Fixed-term contracts customarily provide for termination at the election of the customer, with an early termination payment to be paid to us if a contract is terminated prior to the expiration of the fixed term. However, in some limited circumstances, such as sustained unacceptable performance by us, no early termination payment would be paid to us. Also, our customers may be unable to perform their contractual obligations. Accordingly, the actual amount of revenue earned may vary from the backlog reported. See "Item 1A. Risk Factors - Our current backlog of contract drilling revenue may continue to decline and may not be ultimately realized as fixedterm contracts may in certain instances be terminated without an early termination payment," of our 2019 Annual Report on Form 10-K filed with theSecurities and Exchange Commission ("SEC"), regarding fixed term contract risk. Results of Operations for the Three Months EndedDecember 31, 2019 and 2018 Consolidated Results of Operations Net Income We reported income from continuing operations of$30.7 million ($0.27 per diluted share) from operating revenues of$614.7 million for the three months endedDecember 31, 2019 compared to income from continuing operations of$8.4 million ($0.07 per diluted share) from operating revenues of$740.6 million for the three months endedDecember 31, 2018 . Included in the net income for the three months endedDecember 31, 2019 is a loss of$0.1 million (no impact per diluted share) from discontinued operations. Including discontinued operations, we recorded net income of$30.6 million ($0.27 per diluted share) for the three months endedDecember 31, 2019 compared to net income of$19.0 million ($0.17 per diluted share) for the three months endedDecember 31, 2018 . Research and Development For the three months endedDecember 31, 2019 and 2018, we incurred$6.9 million and$7.0 million , respectively, of research and development expenses. Selling, General and Administrative Expense Selling, general and administrative expenses decreased to$49.8 million during the three months endedDecember 31, 2019 compared to$54.5 million in the three months endedDecember 31, 2018 . The$4.7 million decrease in fiscal year 2020 compared to the same period in fiscal year 2019 is primarily due to lower professional services expenses. Income Taxes We had income tax expense of$14.1 million for the three months endedDecember 31, 2019 (which includes discrete tax expense of$2.4 million primarily related to equity compensation) compared to income tax expense of$1.4 million (which included a discrete tax benefit of$1.7 million related to the reversal of an uncertain tax liability, as the statute of limitation expired) for the three months endedDecember 31, 2018 . Our statutory federal income tax rate for fiscal year 2020 is 21.0 percent (before incremental state and foreign taxes). 31
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Table of ContentsU.S. Land Operations Segment Three Months Ended December 31, (in thousands, except operating statistics) 2019 2018 % Change Operating revenues$ 508,828 $ 619,425 (17.9 )% Direct operating expenses 327,292 407,852 (19.8 ) Research and development 259 166 56.0 Selling, general and administrative expense 10,861 11,656 (6.8 ) Depreciation 113,726 124,003 (8.3 ) Segment operating income$ 56,690 $ 75,748 (25.2 ) Operating Statistics (1): Revenue days 17,684 21,933 (19.4 )% Average rig revenue per day$ 25,405 $ 25,047 1.4 Average rig expense per day 14,987 15,400 (2.7 ) Average rig margin per day$ 10,418 $ 9,647 8.0 Rig utilization 64 % 68 % (5.9 )
(1) Operating statistics for per day revenue, expense and margin do not include
reimbursements of "outofpocket" expenses of
million during the three months ended
respectively. Average expense per day excludes intercompany expense activity
related to FlexApps of
2019.
Operating Income TheU.S. Land segment had operating income of$56.7 million for the three months endedDecember 31, 2019 compared to operating income of$75.7 million in the same period of fiscal year 2019. Revenues were$508.8 million and$619.4 million in the three months endedDecember 31, 2019 and 2018, respectively. Included inU.S. land revenues for the three months endedDecember 31, 2019 is early termination revenue of$0.1 million compared to$2.4 million during the same period of fiscal year 2019. Fixedterm contracts customarily provide for termination at the election of the customer, with an early termination payment to be paid to us if a contract is terminated prior to the expiration of the fixed term (except in limited circumstances including sustained unacceptable performance by us). The decrease in direct operating expenses is primarily due to a settled lawsuit that constitutes$821 per day for the three months endedDecember 31, 2018 . Revenue Excluding early termination per day revenue of$8 and$109 for the three months endedDecember 31, 2019 and 2018, respectively, average rig revenue per day increased by$459 to$25,397 as dayrate pricing and customer utilization of our FlexServices offerings improved year-over-year. Compared to the three months endedDecember 31, 2018 , our revenue days declined by 19.4 percent. This decline was driven by a focus on free cash flow generation and budget discipline by many of our publicly-traded E&P customers which commenced during the fiscal year 2019. Direct Operating Expenses Average expense per day decreased$413 to$14,987 during the three months endedDecember 31, 2019 compared to the three months endedDecember 31, 2018 . The decrease is primarily due to a settled lawsuit that constitutes$821 per day for the three months endedDecember 31, 2018 . Depreciation Depreciation includes charges for abandoned equipment of$0.8 million and$0.7 million for the three months endedDecember 31, 2019 and 2018, respectively. In the three months endedDecember 31, 2019 , depreciation expense included$0.5 million of accelerated depreciation for components on rigs that are scheduled for conversion in fiscal year 2020 as compared to$2.5 million of accelerated depreciation for the three months endedDecember 31, 2018 . UtilizationU.S. land rig utilization decreased to 64 percent for the three months endedDecember 31, 2019 compared to 68 percent during the three months endedDecember 31, 2018 . AtDecember 31, 2019 , 195 out of 299 existing rigs in theU.S. Land segment were contracted. Of the 195 contracted rigs, 132 were under fixed term contracts and 63 were working in the spot market. 32
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Offshore Operations Segment
Three Months Ended
December 31,
(in thousands, except operating statistics) 2019 2018 % Change
Operating revenues $ 40,255 $ 36,910 9.1 %
Direct operating expenses 30,045 26,305 14.2
Selling, general and administrative expense 1,137 769 47.9
Depreciation 2,745 2,668 2.9
Segment operating income $ 6,328 $ 7,168 (11.7 )
Operating Statistics (1):
Revenue days 550 525 4.8 %
Average rig revenue per day $ 43,839 $ 35,635 23.0
Average rig expense per day 30,602 25,637 19.4
Average rig margin per day $ 13,237 $ 9,998 32.4
Rig utilization 75 % 71 % 5.6
(1) Operating statistics for per day revenue, expense and margin do not include
reimbursements of "outofpocket" expenses of
for the three months ended
operating statistics only include rigs that we own and exclude offshore
platform management and labor service contracts revenues of
expenses of
of
2019 and 2018, respectively.
Operating Income During the three months endedDecember 31, 2019 , the Offshore segment had operating income of$6.3 million compared to operating income of$7.2 million for the three months endedDecember 31, 2018 . This decrease is primarily attributable to lower contribution from two rigs that demobilized back to shore during the first quarter of fiscal year 2020. We expect one of the two rigs to begin mobilizing to a new platform during the second quarter of fiscal year 2020. Revenue Average rig revenue per day increased in the three months endedDecember 31, 2019 compared to the three months endedDecember 31, 2018 due to one of our customers shifting their activity from a customer-owned rig managed by H&P to a rig owned by H&P. Direct Operating Expenses Average rig expense increased to$30,602 per day during the three months endedDecember 31, 2019 from$25,637 per day due to the factors mentioned above. Utilization As ofDecember 31, 2019 and 2018, six of our eight available platform rigs were under contract. Subsequently, in earlyJanuary 2020 , our contracted rigs were reduced to five. International Land Operations Segment Three Months Ended December 31, (in thousands, except operating statistics) 2019 2018 % Change Operating revenues$ 46,462 $ 66,287 (29.9 )% Direct operating expenses 34,075 47,539 (28.3 ) Selling, general and administrative expense 1,455 2,281 (36.2 ) Depreciation 7,817 9,837 (20.5 ) Segment operating income$ 3,115 $ 6,630 (53.0 ) Operating Statistics (1): Revenue days 1,619 1,758 (7.9 )% Average rig revenue per day$ 27,714 $ 35,575 (22.1 ) Average rig expense per day 20,506 22,704 (9.7 ) Average rig margin per day$ 7,208 $ 12,871 (44.0 ) Rig utilization 57 % 60 % (5.0 )
(1) Operating statistics for per day revenue, expense and margin do not include
reimbursements of "outofpocket" expenses of
for the three months ended
excluded are the effects of currency revaluation income and expense of
and 2018, respectively.
Operating Income The International Land segment had operating income of
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Revenue We experienced a 7.9 percent decrease in revenue days when comparing the three months endedDecember 31, 2019 to the three months endedDecember 31, 2018 . The average number of active rigs was 17.6 during the three months endedDecember 31, 2019 compared to 19.1 during the same period in fiscal year 2019. Direct Operating Expenses Average rig expense decreased to$20,506 per day during the three months endedDecember 31, 2019 as compared to$22,704 per day during the three months endedDecember 31, 2018 . This decrease was primarily attributable to the devaluation of the Argentine peso, which decreased our average daily expenses as a result of being translated from local currency to theU.S. dollar. Utilization Our utilization decreased during the three months endedDecember 31, 2019 compared to the three months endedDecember 31, 2018 . AtDecember 31, 2019 , 18 out of 31 existing rigs in the International Land segment were contracted. Of the 18 contracted rigs, nine were under fixed term contracts and nine were working in the spot market. H&P Technologies Operations Segment Three Months Ended December 31, (in thousands) 2019 2018 % Change Operating revenues$ 18,552 $ 14,736 25.9 % Direct operating expenses 8,389 6,326 32.6 Research and development 6,490 6,853 (5.3 ) Selling, general and administrative expense 5,885 6,056 (2.8 ) Depreciation and amortization 2,339 1,882 24.3 Segment operating loss$ (4,551 ) $ (6,381 ) (28.7 ) Operating Loss H&P Technologies had an operating loss of$4.6 million in the three months endedDecember 31, 2019 compared to an operating loss of$6.4 million in the three months endedDecember 31, 2018 . The change was primarily driven by revenue growth, partially offset by additional direct operating expenses. Other Operations Results of our other operations, excluding corporate selling, general and administrative costs and corporate depreciation, are as follows: Three Months Ended December 31, (in thousands) 2019 2018 % Change Operating revenues$ 10,999 $ 3,240 239.5 % Direct operating expenses 11,545 1,274 806.2 Research and development 129 - - Selling, general and administrative expense 241 - - Depreciation 321 412 (22.1 ) Operating income (loss)$ (1,237 ) $ 1,554 (179.6 ) Operating Income (Loss) OnOctober 1, 2019 , we elected to utilize a wholly-owned insurance captive ("Captive") to insure the deductibles for our workers' compensation, general liability and automobile liability claims programs. Direct operating costs include accruals for estimated losses of approximately$8.5 million allocated to the Captive during the three months endedDecember 31, 2019 . Intercompany premium revenues recorded by the Captive during the three months endedDecember 31, 2019 amounted to$7.7 million , which were eliminated upon consolidation. Liquidity and Capital Resources Sources of Liquidity Our sources of available liquidity include existing cash balances on hand, cash flows from operations, and availability under our credit facility. Our liquidity requirements include meeting ongoing working capital needs, funding our capital expenditure projects, paying dividends declared, and repaying our outstanding indebtedness. Historically, we have financed operations primarily through internally generated cash flows. During periods when internally generated cash flows are not sufficient to meet liquidity needs, we will borrow from available credit sources, access capital markets or sell our portfolio securities. Likewise, if we are generating excess cash flows, we may invest in highly rated shortterm money market and debt securities. These investments can includeU.S. Treasury securities,U.S. Agency issued debt securities, corporate bonds, certificates of deposit and money market funds. The securities are recorded at fair value. 34
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We may seek to access the debt and equity capital markets from time to time to raise additional capital, increase liquidity as necessary, fund our additional purchases, exchange or redeem senior notes, or repay any amounts under our credit facility. Our ability to access the debt and equity capital markets depends on a number of factors, including our credit rating, market and industry conditions and market perceptions of our industry, general economic conditions, our revenue backlog and our capital expenditure commitments. Cash Flows Our cash flows fluctuate depending on a number of factors, including, among others, the number of our drilling rigs under contract, the dayrates we receive under those contracts, the efficiency with which we operate our drilling units, the timing of collections on outstanding accounts receivable, the timing of payments to our vendors for operating costs, and capital expenditures. As our revenues increase, net working capital is typically a use of capital, while conversely, as our revenues decrease, net working capital is typically a source of capital. To date, general inflationary trends have not had a material effect on our operating margins. As ofDecember 31, 2019 , we had$355.0 million of cash on hand and$57.0 million of short-term investments. Our cash flows for the three months endedDecember 31, 2019 and 2018 are presented below: Three Months Ended December 31, (in thousands) 2019 2018 Net cash provided (used) by: Operating activities$ 111,781 $ 209,482 Investing activities (23,035 ) (186,730 ) Financing activities (77,402 ) (86,347 )
Increase (decrease) in cash and cash equivalents
Operating Activities Net working capital excluding cash and short-term investments were$323.2 million as ofDecember 31, 2019 compared to$303.9 million as ofSeptember 30, 2019 . Cash flows from operating activities were approximately$111.8 million for the three months endedDecember 31, 2019 compared to approximately$209.5 million for the three months endedDecember 31, 2018 . The decrease was primarily driven by less activity coupled with an unfavorable variance in the use of working capital. In particular, the timing of when legal settlements in the first quarter of fiscal years 2019 and 2020 were accrued and paid out had unusual impacts on the year-over-year comparison in our cash flow from operations. Investing Activities Capital Expenditures Our investing activities are primarily related to capital expenditures for our fleet. Our capital expenditures during the three months endedDecember 31, 2019 were$46.0 million compared to$196.1 million during the three months endedDecember 31, 2018 . The year-over-year decrease in capital expenditures is driven by a decrease in super-spec upgrades. Sale of Assets Our proceeds from asset sales totaled$11.9 million during the three months endedDecember 31, 2019 and$11.6 million during the three months endedDecember 31, 2019 . These sales were primarily related to reimbursement for drill pipe damaged or lost in drilling operations. Sale of Subsidiary InDecember 2019 , we closed on the sale of a wholly-owned subsidiary of HPIDC, TerraVici. As a result of the sale, 100% of TerraVici's outstanding capital stock was transferred to the purchaser, in exchange for approximately$15.1 million , resulting in a total gain on the sale of TerraVici of approximately$15.0 million . Stock Portfolio Held We manage marketable securities consisting of common shares of Schlumberger, Ltd. that, at the end of the first quarter of fiscal year 2019, had a fair value of$18.8 million . The value of the portfolio is subject to fluctuation in the market and may vary considerably over time. The portfolio is recorded at fair value on our balance sheet. Our marketable securities held as ofDecember 31, 2019 are presented below: Number (in thousands, except share amounts) of Shares Cost Basis Market Value Schlumberger, Ltd. 467,500 3,713 18,794 Financing Activities We paid dividends of$0.71 per share during the three months endedDecember 31, 2019 and 2018. Total dividends paid were$77.6 million and$78.1 million during the three months endedDecember 31, 2019 and 2018, respectively. Adjusting for stock 35
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splits accordingly, we have increased the effective annual dividend per share every fiscal year for the past 48 years. The declaration and amount of future dividends is at the discretion of our Board of Directors and subject to our financial condition, results of operations, cash flows, and other factors our Board of Directors deems relevant. Credit Facilities OnNovember 13, 2018 , we entered into a credit agreement by and among the Company, as borrower,Wells Fargo Bank, National Association , as administrative agent, and the lenders party thereto, providing for an unsecured revolving credit facility (the "2018 Credit Facility"), which was originally set to mature onNovember 13, 2023 . Pursuant to the 2018 Credit Facility Amendment entered into onNovember 13, 2019 , among other things, the maturity date was extended by one year toNovember 13, 2024 . The 2018 Credit Facility has$750 million in aggregate availability with a maximum of$75 million available for use as letters of credit. The 2018 Credit Facility also permits aggregate commitments under the facility to be increased by$300 million , subject to the satisfaction of certain conditions and the procurement of additional commitments from new or existing lenders. The borrowings under the 2018 Credit Facility accrue interest at a spread over either the London Interbank Offered Rate (LIBOR) or the Base Rate. We also pay a commitment fee on the unused balance of the facility. Borrowing spreads as well as commitment fees are determined based on the debt rating for senior unsecured debt of the Company, as determined by Moody's andStandard & Poor's . The spread over LIBOR ranges from 0.875 percent to 1.500 percent per annum and commitment fees range from 0.075 percent to 0.200 percent per annum. There is a financial covenant in the 2018 Credit Facility that requires us to maintain a total debt to total capitalization ratio of less than or equal to 50 percent. The 2018 Credit Facility contains additional terms, conditions, restrictions and covenants that we believe are usual and customary in unsecured debt arrangements for companies of similar size and credit quality, including a limitation that priority debt (as defined in the credit agreement) may not exceed 17.5 percent of the net worth of the Company. As ofDecember 31, 2019 , there were no borrowings or letters of credit outstanding, leaving$750.0 million available to borrow under the 2018 Credit Facility. As ofDecember 31, 2019 , we had two outstanding letters of credit with banks, in the amounts of$24.8 million and$2.1 million , respectively. As ofDecember 31, 2019 , we also had a$20.0 million unsecured standalone line of credit facility, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds. Of the$20.0 million ,$14.1 million of financial guarantees were outstanding as ofDecember 31, 2019 . The applicable agreements for all unsecured debt contain additional terms, conditions and restrictions that we believe are usual and customary in unsecured debt arrangements for companies that are similar in size and credit quality. AtDecember 31, 2019 , we were in compliance with all debt covenants, and we anticipate that we will continue to be in compliance during the next quarter of fiscal year 2020. Senior Notes Exchange Offer and Consent Solicitation OnDecember 20, 2018 , we settled an offer to exchange (the "Exchange Offer") any and all outstanding 4.65 percent unsecured senior notes due 2025 of HPIDC (the "HPIDC 2025 Notes") for (i) up to$500 million aggregate principal amount of new 4.65 percent unsecured senior notes due 2025 of the Company (the "Company 2025 Notes"), with registration rights, and (ii) cash, pursuant to which we issued approximately$487.1 million in aggregate principal amount of Company 2025 Notes. Interest on the Company 2025 Notes is payable semi-annually onMarch 15 andSeptember 15 of each year, commencingMarch 15, 2019 . The debt issuance costs are being amortized straight-line over the stated life of the obligation, which approximates the effective interest method. Following the consummation of the Exchange Offer, HPIDC had outstanding approximately$12.9 million in aggregate principal amount of HPIDC 2025 Notes. OnDecember 20, 2018 , HPIDC, the Company andWells Fargo Bank, National Association , as trustee, entered into a supplemental indenture to the indenture governing the HPIDC 2025 Notes to adopt certain proposed amendments pursuant to a consent solicitation conducted concurrently with the Exchange Offer. OnSeptember 27, 2019 , we redeemed the remaining approximately$12.9 million in aggregate principal amount of HPIDC 2025 Notes for approximately$14.6 million , including accrued interest and a prepayment premium. Simultaneously with the redemption of the HPIDC 2025 Notes, HPIDC was released as a guarantor under the Company 2025 Notes and the 2018 Credit Facility. As a result of such release, H&P is the only obligor under the Company 2025 Notes and the 2018 Credit Facility. Future Cash Requirements Our operating cash requirements, scheduled debt repayments, interest payments, any declared dividends, and estimated capital expenditures for fiscal year 2020, are expected to be funded through current cash and cash to be provided from operating activities. However, there can be no assurance that we will continue to generate cash flows at current levels. If needed, we may decide to obtain additional funding from our$750 million 2018 Credit Facility. Our indebtedness under our unsecured senior notes totaled$479.4 million atDecember 31, 2019 and matures onMarch 19, 2025 . The long-term debt to total capitalization ratio was 10.9 percent and 10.2 percent atDecember 31, 2019 and 2018, respectively. For additional information regarding debt agreements, refer to Note 8-Debt to the Unaudited Condensed Consolidated Financial Statements. There were no other significant changes in our financial position sinceSeptember 30, 2019 . 36
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Off-balance Sheet Arrangements We have no off-balance sheet arrangements as that term is defined in Item 303(a)(4)(ii) of Regulation S-K. Material Commitments Material commitments as reported in our 2019 Annual Report on Form 10-K have not changed significantly atDecember 31, 2019 , other than those disclosed in Note 16-Commitments and Contingencies to the Unaudited Condensed Consolidated Financial Statements. Critical Accounting Policies and Estimates Our accounting policies and estimates that are critical or the most important to understand our financial condition and results of operations, and that require management to make the most difficult judgments, are described in our 2019 Annual Report on Form 10-K. There have been no material changes in these critical accounting policies and estimates, with the exception of lease accounting. We adopted ASC 842 - Leases onOctober 1, 2019 . For further discussion of the changes to our leases policy, as a result of adopting ASC 842, see Note 6-Leases to the Unaudited Condensed Consolidated Financial Statements. Recently Issued Accounting Standards See Note 2-Summary of Significant Accounting Policies, Risks and Uncertainties to the Unaudited Condensed Consolidated Financial Statements for recently adopted accounting standards and new accounting standards not yet adopted.
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