Helmerich & Payne, Inc. — FY2010 Form 10-K
Reporting period: Fiscal year ended September 30, 2010. The filing is an annual report, not a standalone fourth-quarter report. The company primarily provides contract drilling services, through U.S. land, offshore, and international land segments; its statements present Venezuelan operations as discontinued operations.
Financial and operating performance
- Revenue: $1.875 billion, up 1.7% from $1.844 billion in FY2009. U.S. land contributed $1.413 billion, offshore $202.7 million, and international land $247.2 million.
- Profit: Income from continuing operations was $286.1 million, down from $380.5 million. Discontinued operations recorded a $129.8 million loss, versus a $27.0 million loss in FY2009. Net income was $156.3 million, compared with $353.5 million; diluted EPS was $1.45 versus $3.31.
- Cash flow, margins, and liquidity: The supplied filing text refers to detailed statements and MD&A incorporated from the annual report but does not provide clear cash-flow totals, margin figures, or cash and current-liquidity balances.
- Debt and credit: Long-term debt was $360 million at year-end, down from $420 million. The $400 million senior unsecured facility had $10 million drawn and $21.9 million in letters of credit outstanding at September 30; the $10 million borrowing was repaid by November 18, 2010. The facility was due to expire in December 2011.
- Backlog: Contract drilling backlog was $2.449 billion, down from $2.528 billion. Approximately 59% was not reasonably expected to be filled in FY2011. Backlog includes contracts subject to termination provisions and future rig construction.
- Operating activity: U.S. land utilization rose to 73% from 68%; FlexRigs averaged 87% utilization, while conventional and highly mobile rigs averaged 12%. Offshore utilization fell to 80% from 89%; international land utilization edged up to 71% from 70%.
- Other financial indicators: Total assets were $4.265 billion versus $4.161 billion. The securities portfolio was valued at $326 million at year-end and approximately $397 million on November 18. Quarterly cash dividends were $0.05 per share for the first three quarters and $0.06 for the fourth.
Material changes versus FY2009
- Revenue increased modestly, but continuing-operations income fell about 25% and net income fell about 56%, with the much larger discontinued-operations loss a major factor.
- U.S. land revenue declined to $1.413 billion from $1.441 billion, while offshore revenue was nearly flat. International land revenue increased to $247.2 million from $187.1 million.
- The U.S. land fleet expanded to 220 rigs from 201, including 14 new FlexRigs placed into service; utilization improved from the prior year but remained below FY2008 levels.
- Long-term debt declined by $60 million, and backlog declined by $79 million.
Outlook, risks, and unusual items
- Venezuela: On June 30, 2010, the Venezuelan government seized 11 company rigs and associated property. The related operations were classified as discontinued. The company was evaluating potential remedies and recoveries from PDVSA or other parties but could not determine the timing, amount, or likelihood of recovery.
- Outlook: The filing provides no specific earnings or revenue guidance in the supplied text. Management cited uncertainty about customer drilling budgets amid volatile oil and gas prices and a sluggish global economy.
- Principal risks: Commodity-price and demand cyclicality, intense competition, customer concentration (57% of FY2010 revenue from the ten largest contract customers), international political and expropriation risk, weather and operational hazards, insurance limitations, dependence on a limited number of rig-component vendors, and potential regulatory changes involving emissions and hydraulic fracturing.
- Legal and controls: Management said ordinary-course claims were not expected to materially affect the company and reported no material pending legal proceedings. Management and the external auditor concluded internal control over financial reporting was effective at September 30, 2010.
Important facts for investors to verify
- Review the incorporated annual report’s full financial statements and MD&A for cash flow, cash balances, margins, capital expenditures, and detailed liquidity data not included in the supplied text.
- Examine the accounting, carrying values, and potential recovery assumptions for the seized Venezuelan assets and discontinued operations.
- Assess backlog quality, cancellation and early-termination provisions, and expected delivery of rigs under construction.
- Check the credit-facility maturity and refinancing status, as the disclosed facility was scheduled to expire in December 2011.
- Evaluate customer and geographic concentration, especially the large-customer exposure and political risks in international markets.