Helmerich & Payne, Inc. — FY2015 Form 10-K
Business context and reporting period
Fiscal year ended September 30, 2015; filed November 25, 2015. Helmerich & Payne is primarily a contract driller, operating U.S. Land, Offshore and International Land segments. The company also owns Tulsa-area commercial real estate and develops rotary-steerable drilling technology. Its drilling activity and pricing are closely tied to customer spending and oil and gas market conditions.
Financial performance and key metrics
| Metric | FY2015 | FY2014 |
|---|---|---|
| Operating revenue | $3.165 billion | $3.720 billion |
| Operating income | $675.8 million | $1.055 billion |
| Net income | $422.2 million | $708.7 million |
| Diluted EPS | $3.87 | $6.46 |
| Cash from operations | $1.419 billion | $1.119 billion |
| Capital expenditures | $1.133 billion | $952.9 million |
- Revenue fell about 15% year over year; operating income declined about 36% and net income about 40%. Operating margin was approximately 21.3%, versus 28.4% in FY2014; net margin was approximately 13.3%, versus 19.0%.
- Direct operating costs were $1.704 billion, about 54% of revenue, broadly unchanged as a share of revenue. Depreciation rose to $607.0 million from $523.5 million, including $43.6 million of equipment abandonments. Operating income included a $39.2 million impairment charge.
- Cash and cash equivalents were $718.0 million, short-term investments $45.5 million, and total assets $7.152 billion at year-end. Current ratio was 4.1, up from 2.5. Cash from operations less capital expenditures was approximately $285 million.
- Debt principal totaled $540 million: $40 million due July 2016 and $500 million of 4.65% senior notes due 2025, issued in March 2015. Long-term debt to total capitalization, including current debt, was 10%, versus 2% a year earlier. No revolver borrowings were outstanding; $251.8 million was available under the $300 million facility at year-end. The company reported compliance with debt covenants.
- Dividends paid were $2.75 per share ($298.4 million); the company also repurchased 810,097 shares for $59.7 million.
Material changes versus the prior comparable period
- Management attributed the downturn to sharply lower oil prices and reduced customer drilling budgets. Contracted rigs at fiscal year-end fell to 170 from 325 a year earlier; U.S. Land rigs contracted declined to 145 of 343 available, and 132 U.S. Land rigs remained contracted as of November 12, 2015.
- U.S. Land revenue declined 18.6% to $2.524 billion, with utilization falling to 62% from 86%. Segment operating income fell 31.9% to $698.4 million. FY2015 U.S. Land revenue included approximately $203.6 million of early-termination revenue.
- Offshore revenue declined 3.9% to $241.0 million and segment operating income declined 3.0% to $67.7 million; utilization improved to 93%. International Land revenue rose 8.8% to $386.7 million, but utilization fell to 53% from 76% and the segment recorded a $2.9 million operating loss, including the impairment charge.
- Drilling backlog fell to $3.1 billion from $5.0 billion. Approximately 60.7% of FY2015 backlog was not reasonably expected to be filled in FY2016; backlog is not guaranteed revenue and may be affected by terminations or nonpayment.
- FY2015 had no investment-security sale gains, compared with $45.2 million in FY2014. The remaining securities portfolio was worth $91.5 million at year-end, down from $222.3 million; the resulting unrealized depreciation was reflected in other comprehensive income.
Outlook, commentary, risks and unusual items
- Management described the near-term industry outlook as unfavorable amid global oil oversupply, while maintaining a longer-term focus on technology, safety and customer relationships. No earnings or revenue guidance is provided in the filing.
- FY2016 capital spending was estimated at $300–$400 million, depending primarily on drilling-market conditions. Management expected depreciation to increase in FY2016 as new rigs entered service and anticipated continued research and development spending.
- In the fourth fiscal quarter, revenue was $566.1 million, operating loss $16.0 million, net loss $21.2 million and diluted EPS loss $0.20. The quarter included an after-tax impairment charge of about $24.9 million and an after-tax abandonment charge of about $19.1 million, partly offset by an after-tax asset-sale gain of $1.7 million.
- Other material risks include commodity-price volatility, excess rig supply and pricing pressure, customer concentration (the ten largest contract-drilling customers provided about 59% of revenue), international political and currency risks, and operational, environmental, insurance and cybersecurity exposures. The company self-insures significant portions of certain risks.
- Legal matters include ongoing discussions with the Department of the Interior regarding events addressed by a 2013 DOJ plea agreement; a disputed EPA notice proposing a $186,868 penalty for an alleged Clean Water Act incident; and litigation seeking recovery for Venezuela’s 2010 seizure of drilling assets. The timing and amount of any Venezuelan recovery are uncertain, and no gain is recognized.
- The company reported effective disclosure controls and internal control over financial reporting; the independent auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Subsequent rig counts, utilization, dayrates and contract cancellations, especially for U.S. Land operations.
- Whether the $3.1 billion backlog converts to revenue and whether customers pay termination fees.
- FY2016 capital spending, cash generation and the impact of new rigs on depreciation and impairment risk.
- Debt maturity and covenant headroom, revolver availability, and ability to sustain dividends through a prolonged downturn.
- Customer credit quality, the value and concentration of the securities portfolio, and developments in the DOI, EPA and Venezuela matters.