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Helmerich & Payne : Fiscal Second Quarter 2021 Earnings Call Transcript

05/05/2021 | 11:39am EDT

Helmerich & Payne

Fiscal Second Quarter 2021 Earnings Call Transcript 04/30/21 11:00 am ET

Operator:Good day, everyone, and welcome to this Helmerich & Payne Fiscal Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode and later you will have an opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the * and 1 on your touchtone phone. Please note this call is being recorded. It is now my pleasure to turn the call over to Vice President of Investor Relations, Mr. Dave Wilson. Please go ahead, Sir.

Dave Wilson: Thank you, Jim, and welcome, everyone, to Helmerich & Payne's Conference Call and Webcast for the second quarter of fiscal year 2021. With us today are John Lindsay, President and CEO; and Mark Smith, Senior Vice President and CFO. Both John and Mark will be sharing some comments with us, after which we'll open the call for questions. Before we begin our prepared remarks, we'll remind everyone that this call will include forward- looking statements as defined under the securities laws. Such statements are based on current information and management's expectations as of this date and are not guarantees of future performance. Forward-looking statements involve certain risks, uncertainties, and assumptions that are difficult to predict. As such, our actual outcomes and results could differ materially. You can learn more about these risks in our annual report on Form 10-K, our quarterly reports on Form 10-Q, and our other SEC filings. You should not place undue reliance on forward-looking statements, and we undertake no obligation to publicly update these forward-looking statements. We will also be making certain references to non-GAAP financial measures, such as segment operating income and operating statistics. You'll find the GAAP reconciliation comments and calculations in yesterday's press release. With all that said, I'll turn the call over to John Lindsay.

John W. Lindsay: Thank you, Dave, and good morning, everyone. Reflecting on where we were at this point last year, I'm encouraged by the recovery we are currently experiencing as well as how the company has navigated through a multitude of challenges in 2020.

Last year, I said that two factors were crucial for our continued success going forward. First, maintaining our financial strength; and second, maintaining a long-term focus for future opportunities. I'm happy to report that the company continues to execute in both areas.

Today's mid-$60 oil price is robust compared to what we experienced over the past year but going forward we anticipate a degree of permanence in the change of historic industry behaviors and norms. Energy markets are coming back into balance, global oil demand is reviving, and oil inventories are falling back to their five-year average. The energy industry's capital discipline, which actually began prior to the global pandemic, also remains resolute. While this last point is uncomfortably limiting for the industry's near-term growth horizon, this is something we believe is imperative. Focused disciplined spending that generates returns under a variety of commodity price scenarios is what the industry needs to attract and retain investors.

Back to the long-term focus and what we believe the future holds for H&P. A natural step in capital discipline is deriving the most value per capital dollar spent, not just in a one-year budget cycle but over the life of an investment. This corresponds to where we believe H&P as the leading drilling solutions provider contributes the most value to our customers and is the driver behind the development of our digital technology solutions and our new commercial models that are structured around achieving value-added outcomes.

Aligned with our strategic objectives, H&P will continue to concentrate on delivering value to the customer by leveraging software, data, and FlexRig technology. Our digitally-enabled drilling operations provide automation solutions that deliver both efficiency gains and wellbore quality. Not only do our customers experience near-term financial benefits like lower well costs and a reduction of certain downhole risks, but also improvements in areas that were historically beyond our ability to influence but have significant economic implications over the long-term life of the well.

An important ingredient to a successful technology strategy is the integration of new commercial models, which incorporate performance metrics and, eventually, wellbore quality metrics. One example is having a tortuosity index and tying them together with financial remuneration. New commercial models are designed to generate win-win outcomes. The customer has a well with

improved economics and H&P is compensated for helping to create a portion of that value. Currently, approximately 30% of our active U.S. fleet is under some type of performance contract, contrasting the successful adoption of these new commercial models compared to a year ago where we only had about 10% of our fleet on performance contracts.

Our digital technology is providing H&P and our customers another differentiating capability in delivering the best outcomes. Let me give you a few examples. H&P's automation technology deployed on our FlexRig is providing smoother wellbores and reduced tortuosity, which helps extend downhole tool life, deliver smoother casing runs, increase reliability, and reduced well durations. In addition, a less tortuous wellbore also saves the customer time and money during the completion phase of the well by lowering downtime events, reducing overall completion time, and creating more certainty for the life of the well.

We are automating directional drilling with our AutoSlide solution, and this is driving repeatability and consistency in drilling the curve. This enables landing the curve earlier in the zone, resulting in an additional frac stage and improved returns for the customer. Well cost consistency achieved through automation is providing more certainty and confidence to key stakeholders, affording a clearer vision and more confidence in future expansion.

I do believe that FlexRig solutions are unique in the industry and contributing to the demand for H&P as our current rig count in the U.S. is at 118 rigs, up 25% since the end of fiscal Q1. In addition, we have approximately 35% of the public company E&P market share and about 14% of the private E&P market share. Both are leading metrics in the U.S. We're making good progress in deploying digital technology solutions and introducing new commercial models to the industry.

All of that said, we also realize there's still a lot of work ahead. As the demand for FlexRig solutions has increased, we find ourselves at a point where rig reactivations are becoming an increasing financial burden. We believe the market is fast approaching an inflection point where this financial burden will have to be carried by our customers as well, either through lump sum payments or pricing over the life of the contract. We estimate that industry-wide, there are only a handful of idle super-spec rigs that have been active during the past nine to 12 months.

Particularly as longer idled rigs are put back to work, higher reactivation costs will play a larger role in contract economics going forward. We already see a shortage of ready-to-work, super- spec rigs in the market, so there's momentum emerging in the near-term to improve FlexRig solutions' pricing and contract economics during the rest of 2021.

If commodity prices remain strong, many believe E&P budgets will likely respond positively in 2022, and that will increase the demand for incremental super-spec rigs. Those incremental rigs will be those that have not worked in well over a year, and it will be costly to bring those rigs back into service. Again, contract pricing and economics must be supportive of that investment.

I will not soon forget last summer's reorganization effort where we downsized corporate G&A and operational overhead in response to the pandemic. Mark will give a more complete description of how these efforts are expanding this year, but I wanted to underscore that our industry is structurally smaller today and the prospects of that trend reversing seem very slim, especially near term. We must respond to the changing priorities, but it doesn't mean there are no longer opportunities for H&P to innovate, to grow, and to thrive in this evolving environment. Oil and gas is still critical to the global economy, and it will remain so for many years to come.

Growing internationally is another strategic priority for H&P. While international markets are lagging behind the U.S. recovery, we are participating in several bid opportunities in South America, the Middle East, and elsewhere. We are encouraged that several of these opportunities are unconventional resource-type plays, and we have industry-leading technology and expertise. The process of obtaining international work has its set of challenges, and we are shifting our strategy to drive success. We are committed to growing that part of our business and given our significant U.S. super-spec capacity, leading-edge technology offerings, and financial ability, we are well positioned for many of these opportunities.

H&P has long been committed to operating in a safe and environmentally responsible manner, and we continue to invest in advancing cleaner and more efficient energy through new technologies that minimize the environmental impact of our drilling operations. We are pleased with our ongoing partnerships with our customers to reduce GHG emissions. Our operational and technological experience, combined with our rig design, help our customers minimize

operational costs and risks and reduce the environmental impacts associated with producing oil and gas. We are also investing in power management systems and alternative power sources.

The company recently launched our new website and it's designed to provide greater insight into our solutions capabilities and outcomes-based results and other important disclosures. We've included new disclosures around our CO2 emissions, including rig and vehicle emission improvements we've realized over the past three years. In the coming months, we plan to publish our HSE sustainability metrics and other information as we continue to improve our ESG disclosures, culminating with publishing our sustainability report in 2021.

As we commented on our last call, we entered 2021 optimistically and so far, so good. One of H&P's strengths is its ability to adapt to changing in often volatile market conditions. Our people, our rig assets and digital technology, and our financial position are the drivers behind why H&P is considered a market leader and partner of choice within the energy industry. The industry will continue to face challenges, but I'm confident that H&P and our people are up to the task and will be successful.

Now, I'll turn the call over to Mark.

Mark Smith: Thanks, John. Today, I will review our fiscal second quarter 2021 operating results, provide guidance for the third quarter, update remaining full fiscal year 2021 guidance as appropriate, and comment on our financial position. Let me start with highlights for the recently completed second quarter ended March 31, 2021.

The company generated quarterly revenues of $296 million versus $246 million in the previous quarter. The quarterly increase in revenue was due to a higher rig count activity in North America Solutions as expected. Total direct operating costs incurred were $231 million for the second quarter versus $200 million for the previous quarter. This sequential increase is again attributable to the aforementioned additional rig count in the North America Solutions segment.

General and administrative expenses totaled $39 million for the second quarter, consistent with our expectations and with the previous quarter. Towards the end of the second quarter, we continued our focus on operating super-spec rigs and phasing out the less capable portions of our


H&P - Helmerich & Payne Inc. published this content on 04 May 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 05 May 2021 15:38:02 UTC.

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Financials (USD)
Sales 2021 1 231 M - -
Net income 2021 -306 M - -
Net Debt 2021 121 M - -
P/E ratio 2021 -10,1x
Yield 2021 3,50%
Capitalization 3 093 M 3 093 M -
EV / Sales 2021 2,61x
EV / Sales 2022 2,02x
Nbr of Employees 4 138
Free-Float 92,9%
Duration : Period :
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Technical analysis trends HELMERICH & PAYNE, INC.
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Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 19
Last Close Price 28,67 $
Average target price 29,78 $
Spread / Average Target 3,86%
EPS Revisions
Managers and Directors
John W. Lindsay President, Chief Executive Officer & Director
Mark W. Smith Chief Financial Officer & Senior Vice President
Hans C. Helmerich Chairman
Cara M. Hair Senior VP, Chief Legal & Compliance Officer
John D. Zeglis Independent Director
Sector and Competitors