Helmerich & Payne, Inc. — Form 10-Q summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2021. H&P provides drilling services and technology through North America Solutions, Offshore Gulf of Mexico, and International Solutions.
Financial performance and position
Amounts below are in millions of dollars unless otherwise indicated.
| Metric | Three months ended June 30, 2021 | Prior-year quarter | Nine months ended June 30, 2021 | Prior-year period |
|---|---|---|---|---|
| Revenue | $332.2 | $317.4 | $874.8 | $1,565.7 |
| Operating loss from continuing operations | $(77.4) | $(57.6) | $(331.5) | $(544.8) |
| Net loss | $(55.6); $(0.52) per diluted share | $(45.6); $(0.43) per diluted share | $(247.0); $(2.30) per diluted share | $(435.5); $(4.05) per diluted share |
| Cash provided by operating activities | Not separately presented | Not separately presented | $89.8 | $446.3 |
| Capital expenditures | Not separately presented | Not separately presented | $49.2 | $121.0 |
- Quarterly revenue rose about 5%, but the operating loss and net loss widened. Revenue for the nine-month period fell about 44%; the net loss narrowed substantially, chiefly as the prior-year period included much larger impairment charges.
- North America Solutions’ quarterly segment gross margin was $75.0 million versus $101.8 million. For the nine months it was $183.7 million versus $492.8 million. Management cited lower activity, pricing and early-termination revenue, plus recommissioning costs, as pressures on the nine-month result.
- At June 30, cash and cash equivalents were $370.6 million and short-term investments were $187.3 million. Total current assets were $983.5 million and current liabilities $265.3 million. Cash, cash equivalents and short-term investments totaled $557.8 million; this excludes restricted cash.
- Long-term debt, net, was $481.0 million, representing $487.1 million of 4.65% senior notes due March 2025. The company reported no borrowings under its $750 million revolving credit facility and said it was covenant-compliant. Management described near-term liquidity, including facility availability, as approximately $1.3 billion.
- Dividends paid during the nine months were $81.8 million, or $0.75 per share, compared with $233.1 million, or $2.13 per share, a year earlier. The quarterly dividend declared was $0.25 per share.
Material changes, outlook and commentary
- At quarter-end, 131 rigs were contracted, compared with 79 at September 30, 2020. North America Solutions had 121 active rigs versus 68 a year earlier; its average active rig count was 119 versus 89.
- Management expected North American rig activity to continue increasing in the remainder of fiscal 2021, but at a more modest pace than in the first nine months. It noted that customer activity may not rise in step with oil prices because many customers are following previously set budgets. Management saw potential for International Solutions improvement over a longer timeline and expected little change in Offshore Gulf of Mexico.
- Backlog was $582.5 million, down from $658.0 million at September 30, 2020. Approximately 65.2% was expected to be fulfilled in fiscal 2022 and thereafter. Backlog excludes anticipated renewals and bonuses; customer cancellation or modification can reduce realized revenue.
- The company continued its strategy of emphasizing upgraded, higher-capability rigs and phasing out older rigs. It planned to sell 71 domestic non-super-spec rigs and recorded a $56.4 million non-cash impairment charge for the nine-month period, including $2.1 million in the quarter. Assets held for sale were $10.1 million at June 30.
- Management cited cost reductions, including actions expected to produce about $7 million in annualized savings with the full benefit expected in calendar 2022. Further cost actions may entail additional restructuring charges. Fiscal 2021 nine-month restructuring charges were $3.9 million.
- COVID-19, oil and gas price volatility, customer spending, and OPEC+ production decisions remain risks. The filing also describes foreign operating and staffing disruptions, Argentina currency controls and limits on repatriating funds. Cash held in Argentina was $19.6 million at June 30.
Contingencies and unusual items
- H&P’s Venezuelan subsidiary property and equipment was seized in 2010. The company is pursuing litigation but said the timing, amount and likelihood of any recovery cannot be determined.
- Other ordinary-course legal matters are pending; management did not believe their ultimate resolution would materially harm results, cash flows or financial condition, based on reserves and insurance.
- The company recorded $6.0 million of captive-insurance estimated loss costs in the quarter, primarily reflecting revised estimates for an open claim. The filing does not identify the claim’s ultimate cost.
- Purchase commitments for equipment, parts and supplies were approximately $34.9 million. The company also disclosed contingent obligations under surety bonds.
Important facts for investors to verify
- Whether contracted and active rig counts, dayrates and backlog convert into revenue, given customer termination and modification rights.
- Whether operating cash generation improves as activity recovers, and whether liquidity and dividend payments remain sustainable.
- The progress and realized proceeds from the planned sale of 71 non-super-spec rigs, and whether further asset impairments or restructuring costs arise.
- Developments in Argentina, including operating interruptions, currency controls and the ability to repatriate funds; and any change in the status or recoverability of the Venezuela litigation.
- The development of the open captive-insurance claim and any resulting change in estimated losses.