Business context and reporting period
Helmerich & Payne, Inc. (H&P) filed this unaudited Form 10-Q for the quarter and six months ended March 31, 2021, its fiscal second quarter. H&P provides drilling services and technology through North America Solutions, Offshore Gulf of Mexico and International Solutions. The filing attributes depressed activity to the effects of COVID-19, the 2020 oil-price collapse and lower customer spending.
At quarter-end, H&P had 281 rigs in its fleet and 118 contracted rigs, compared with 79 contracted rigs at September 30, 2020. North America Solutions had 109 active rigs.
Financial results and liquidity
Amounts below are in millions of U.S. dollars except per-share data and rig counts.
| Metric | Three months ended Mar. 31, 2021 | Three months ended Mar. 31, 2020 | Six months ended Mar. 31, 2021 | Six months ended Mar. 31, 2020 |
|---|---|---|---|---|
| Revenue | $296.2 | $633.6 | $542.5 | $1,248.3 |
| Loss from continuing operations | $(123.3) | $(420.5) | $(201.2) | $(389.7) |
| Net loss | $(121.0) | $(420.5) | $(191.4) | $(389.9) |
| Diluted loss per share | $(1.13) | $(3.88) | $(1.78) | $(3.61) |
| Cash provided by operating activities | Not separately presented for the quarter | $58.8 | $232.6 |
The six-month operating cash flow decline principally reflected lower activity. Capital expenditures were $30.7 million for the six months, versus $94.3 million a year earlier; dividends paid were $54.2 million, versus $155.9 million. Cash, cash equivalents and short-term investments totaled $561.7 million at March 31, 2021. The company reported $750 million available under its revolving credit facility and said it did not anticipate needing to borrow. Current assets were $978.6 million and current liabilities $251.6 million.
Long-term debt had a $481.6 million carrying value and consisted of 4.65% unsecured senior notes due March 2025. H&P reported compliance with debt covenants. The reported long-term-debt-to-total-capitalization ratio was 13.6%, compared with 12.8% at September 30, 2020. The board declared a $0.25-per-share dividend payable June 1, 2021.
For the quarter, North America Solutions revenue was $249.9 million and segment gross margin $64.1 million; Offshore Gulf of Mexico revenue was $29.3 million and gross margin $6.2 million; International Solutions revenue was $14.8 million and gross margin was negative $1.9 million.
Material changes versus the prior comparable period
- Quarterly revenue fell 53% year over year; six-month revenue fell 57%. Management cited lower activity, lower average rig operating rates and fewer early-termination payments.
- Quarterly net loss narrowed substantially from the prior-year quarter, which included $563.2 million in impairment charges. The current quarter included a $54.3 million noncash impairment charge to write down 68 domestic non-super-spec rigs designated for sale to a $13.1 million net realizable value.
- Cash from operations declined to $58.8 million for the six months from $232.6 million. The North American active rig count increased from a low of 47 in August 2020 to 109 at March 31, 2021, while the company still had 127 idle super-spec rigs.
- Contract backlog decreased to $435.3 million at March 31, 2021 from $658.0 million at September 30, 2020. H&P cited fewer longer-term contracts and some early terminations.
- The company continued cost reductions, including IT restructuring and relocation and downsizing of its Houston assembly facility. Six-month restructuring charges were $1.7 million.
Outlook, commentary and risks
Management expected further North American rig-count increases during the remainder of fiscal 2021 as customer budgets rose from 2020 levels, but anticipated a more modest pace in the second half than in the first half. It cautioned that activity may not rise in step with oil prices because customers were expected to adhere to 2021 budgets set when prices were lower. Management saw potential for improvement in International Solutions over a longer timeline and expected little change in Offshore Gulf of Mexico.
Management said fiscal 2021 operating cash requirements, debt service, declared dividends and estimated capital expenditures were expected to be funded from cash on hand and operating cash flow, while noting there was no assurance cash generation would continue at current levels. The filing provides no specific quantified revenue, earnings or capital-expenditure guidance.
- COVID-19, oil-price and supply volatility, customer budget decisions and contract cancellations or renegotiations could continue to reduce rig demand and cash generation. Backlog contracts may be modified or terminated, and reported backlog is not assured revenue.
- International operations face COVID-related operating and staffing constraints, political and economic risks, and currency restrictions. H&P reported limited ability to repatriate funds from Argentina and $22.2 million of cash held there at March 31, 2021.
- The 68-rig disposal plan and its valuation rely partly on market quotes and other estimates; different assumptions could change the impairment assessment or proceeds.
- H&P disclosed uncertainty over the timing and amount, if any, of recovery in its lawsuit concerning Venezuelan assets seized in 2010. It said other pending legal matters were not expected, based on current information, to have a material adverse effect.
- On April 16, 2021, after quarter-end, lenders extended $680 million of credit-facility commitments to November 12, 2025; the remaining $70 million retains a November 13, 2024 maturity unless extended.
Important facts for investors to verify
- Whether rig additions, utilization and customer spending support the expected recovery, particularly given the anticipated slower pace of North American growth.
- How much of the $435.3 million backlog is ultimately performed, given customer termination and modification rights.
- Actual sale proceeds and any further valuation changes for the 68 rigs held for sale.
- Cash-flow and liquidity trends, including the ability to sustain dividends and fund operations without drawing the revolving facility.
- Developments affecting Argentina’s currency controls and operations, COVID-related disruptions, and the Venezuelan litigation.