Helmerich & Payne, Inc. — Q2 FY2023 Form 10-Q
Reporting period: Three and six months ended March 31, 2023; fiscal second quarter. Comparisons are with the corresponding 2022 periods. Amounts below are U.S. dollars; financial statement figures are rounded to millions unless stated otherwise.
Business context and operating results
H&P provides drilling services and technology through North America Solutions, Offshore Gulf of Mexico, and International Solutions. At quarter-end, it had 262 rigs in its fleet and 198 contracted rigs: 109 on fixed-term contracts and 89 working well-to-well.
| Metric | Q2 FY2023 | Q2 FY2022 | Six months FY2023 | Six months FY2022 |
|---|---|---|---|---|
| Operating revenue | $769.2M | $467.6M | $1,488.9M | $877.4M |
| Operating income (loss), continuing operations | $175.2M | ($22.6M) | $319.4M | ($65.2M) |
| Net income (loss) | $164.0M | ($5.0M) | $261.2M | ($56.3M) |
| Diluted EPS | $1.55 | ($0.05) | $2.46 | ($0.53) |
| Cash from operations | Not provided by quarter in the supplied filing text | $326.3M | $18.9M |
Q2 operating and net margins were approximately 22.8% and 21.3%, respectively; the prior-year quarter had an operating loss and net loss. Revenue growth was driven mainly by higher North America pricing and activity and increased International activity. Q2 revenue rose 65% in North America, 20% in Offshore Gulf of Mexico, and 104% in International Solutions. Six-month revenue growth also reflected a $16.4M YPF dispute-settlement revenue item recognized in the prior-year period.
Cash flow, liquidity, debt, and capital allocation
For the six months, capital expenditures were $181.5M, up from $104.5M; cash used in investing activities was $119.2M and cash used in financing activities was $263.2M. Cash and cash equivalents were $159.7M, short-term investments $85.1M, and restricted cash $53.2M at March 31. Current assets were $1,004.5M and current liabilities $413.7M.
Long-term debt had a $550M face amount ($542.7M net book value), consisting of 2.90% senior notes due 2031. H&P reported no borrowings under its $750M revolving credit facility, which was fully available, and compliance with debt covenants. The debt-to-total-capitalization ratio was 16.6%. The company paid $102.9M in dividends and repurchased $145.8M of shares during the six months. It declared a $0.25 base and $0.235 supplemental dividend per share for payment June 1, 2023.
Material changes, outlook, and risks
- Operating outlook: Management said North America active rigs were unlikely to reach the previously projected 191 during FY2023; 179 were active at March 31, with eight available for rapid redeployment. It expected lower average active rig count in the second half than the first, but higher average revenue per day, citing pricing discipline. Management saw potential for some idle rigs to return later in calendar 2023. No consolidated financial guidance was provided in the supplied text.
- Other segments: Management expected little activity or margin change in Offshore Gulf of Mexico in Q3; one active rig was expected to move to the yard in Q4 after its contract. International activity and margin improvement were seen as possible on a longer timeline.
- Backlog: Contract drilling backlog was $1.3B at March 31, versus $1.2B at September 30, 2022, primarily reflecting higher pricing on fixed-term contracts. Approximately 45.1% was expected to be fulfilled in FY2024 and thereafter. Contracts may be cancelled or modified, and some terminations may not provide an early termination payment.
- Nonrecurring and investment items: Six-month asset impairment charges were $12.1M, including $8.1M to write down eight Argentina rigs for scrapping. A November 2022 rig fire caused a $9.2M write-off, offset by a recognized insurance recovery of the same amount; further proceeds, if any, depend on collection. Q2 included a $39.8M gain on investment securities, principally a $42.6M ADNOC Drilling gain, partly offset by a $3.0M Tamboran loss. These fair-value gains contributed to reported earnings and may fluctuate.
- Risks and contingencies: H&P cited commodity-price and customer-spending volatility, rig releases, contract cancellation, inflation and cost pressures, and international political, currency and regulatory risks. Argentine currency controls may restrict conversion and repatriation; cash held in Argentina was $16.3M. A lawsuit arising from a fatal 2018 vehicle accident resulted in a reduced $60M judgment; H&P and insurers were pursuing appeals. The company said insurance was expected to respond to amounts above its $3M deductible, but it could not estimate the possible loss. A $15.1M estimated lease commitment for a new Tulsa office is expected to begin in the first half of calendar 2024.
Important facts for investors to verify
- Whether the projected lower North America rig activity in the second half is offset by higher dayrates and margins.
- How much of the $1.3B backlog converts to revenue, given cancellation rights and the timing of contract performance.
- The sustainability of earnings excluding volatile investment fair-value gains, and the cash realization and tax effects of those gains.
- Actual capital spending, operating cash conversion, and continued dividends and repurchases as working capital and activity change.
- Developments in the $60M lawsuit and insurance coverage, and any worsening of Argentina’s currency restrictions or other international risks.