Helmerich & Payne, Inc. — Q1 FY2021 Form 10-Q
Reporting period: Three months ended December 31, 2020; comparisons are with the three months ended December 31, 2019, unless noted. H&P provides drilling services and technology to oil and gas producers. Its 301-rig fleet comprised 262 North America Solutions rigs, 7 Offshore Gulf of Mexico rigs and 32 International Solutions rigs.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Revenue | $246.4 million | $614.7 million |
| Operating income (loss) | $(93.2) million | $31.4 million |
| Continuing operations income (loss) | $(77.9) million | $30.7 million |
| Net income (loss) | $(70.4) million | $30.6 million |
| Diluted earnings (loss) per share | $(0.66) | $0.27 |
| Operating cash flow | $(19.6) million | $111.8 million |
| Capital expenditures | $14.0 million | $46.0 million |
Revenue fell 59.9%, principally due to sharply lower drilling activity. North America Solutions revenue declined 61.5%, Offshore Gulf of Mexico revenue 19.8%, and International Solutions revenue 77.4%. Segment operating loss was $72.9 million in North America Solutions and $8.4 million in International Solutions; Offshore Gulf of Mexico recorded $2.7 million of segment operating income. Consolidated operating margin was negative; the filing does not present a comparable consolidated margin metric.
Net loss included $7.5 million of income from discontinued operations, primarily related to remeasurement of Venezuelan uncertain tax liabilities. The company recorded a $12.3 million gain on asset sales, including $9.2 million from selling an offshore platform rig. A $18.1 million income tax benefit included a benefit from carrying back the projected FY2021 federal net operating loss.
Liquidity, debt and capital
- At December 31, 2020, cash and cash equivalents were $374.0 million and short-term investments were $149.8 million, totaling $523.8 million. The company reported approximately $1.3 billion of near-term liquidity, including $750 million available under its revolving credit facility; it did not anticipate needing to draw on the facility.
- Long-term debt had a $481.2 million carrying value ($487.1 million face amount), consisting of 4.65% unsecured notes due March 2025. There were no borrowings under the $750 million revolver, and H&P reported compliance with debt covenants. Long-term debt to total capitalization was 13.1%.
- Current assets were $952.7 million and current liabilities were $228.3 million. Cash, cash equivalents and restricted cash decreased by $114.1 million during the quarter. Dividends paid were $26.9 million; a further $0.25-per-share dividend was declared for payment in March 2021.
Material changes and outlook
- Contract backlog declined to $526.6 million from $658.0 million at September 30, 2020. Management attributed the decline to fewer longer-term contracts and some early terminations. About $338.0 million was expected to be recognized in the remainder of FY2021, $130.4 million in FY2022 and $58.2 million in FY2023 and later; contracts may be canceled or modified.
- At quarter-end, 102 rigs were contracted, versus 79 at September 30, 2020; 64 were under fixed-term contracts and 38 were working well-to-well. North America active rigs increased from a low of 47 in August 2020 to 94 at December 31, 2020. H&P said it expected higher rig activity in FY2021 than FY2020, but not a return to pre-pandemic activity levels. The filing gives no quantified earnings or revenue guidance.
- COVID-19, the 2020 oil-price collapse and OPEC+ supply decisions had reduced customer budgets and drilling demand. Management cited labor and logistics challenges, possible foreign operating suspensions, contract cancellations and continuing commodity-price volatility. It planned further cost reductions, which could lead to additional restructuring charges.
- International exposures include Argentina’s currency controls, limits on repatriating funds, inflation and labor restrictions. Cash held in Argentina was $23.8 million. H&P also disclosed a long-running claim concerning Venezuelan property seized in 2010; recovery timing and amount, if any, could not be determined.
Important facts for investors to verify
- Whether the increase in contracted and active rigs translates into sustained revenue, utilization and cash generation.
- How much of the $526.6 million backlog is ultimately realized, given customer termination and modification rights.
- The pace and cost of further restructuring, and the effect of low activity on operating losses and cash flow.
- Liquidity and capital allocation, including dividend sustainability, against the $487.1 million notes due in 2025 and ongoing operating needs.
- Developments affecting COVID-19 operations, oil and gas demand, Argentina cash repatriation and Venezuelan legal recovery.