Helmerich & Payne, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended September 30, 2012. Although the request metadata says “2012 Q4,” this filing is an annual report, and the supplied text primarily reports full-year results.
Business context and financial performance
The company is primarily a contract driller, operating U.S. Land, Offshore and International Land segments. It also owns Tulsa-area commercial real estate and is developing rotary-steerable drilling technology. The filing’s detailed MD&A and financial statements are incorporated by reference to the 2012 Annual Report; the supplied text does not provide cash-flow statement figures or a clear liquidity breakdown.
| Metric | FY 2012 | FY 2011 | Change |
|---|---|---|---|
| Operating revenue | $3.152 billion | $2.544 billion | Up 23.9% |
| Income from continuing operations | $573.6 million | $434.7 million | Up 32.0% |
| Net income | $581.0 million | $434.2 million | Up 33.8% |
| Diluted EPS | $5.34 | $3.99 | Up 33.8% |
| Total assets | $5.721 billion | $5.004 billion | Up 14.3% |
| Long-term debt | $195 million | $235 million | Down $40 million |
| Cash dividends declared per share | $0.28 | $0.26 | Up $0.02 |
Calculated net margin was approximately 18.4% in FY 2012 versus 17.1% in FY 2011. The supplied filing text does not give a clear operating-margin figure, cash flow, cash balance, or current-liquidity measure.
Operating trends and changes versus prior year
- U.S. Land: Revenue rose to $2.7 billion from $2.1 billion; share of consolidated revenue increased to about 85% from 83%. Rig utilization rose to 89% from 86%, and the fleet grew to 282 rigs from 248. FlexRig utilization averaged 97%.
- Offshore: Revenue declined to $189.1 million from $201.4 million; utilization improved to 79% from 77%. Eight of nine company platform rigs were under contract at fiscal year-end.
- International Land: Revenue increased to $270.0 million from $226.8 million; utilization rose to 77% from 70%. The company operated in six international locations.
- Contract backlog: $3.6 billion at September 30, 2012, down from $3.8 billion a year earlier, primarily due to contract expirations. About 57.2% was not reasonably expected to be filled in FY 2013; backlog is not a guarantee of realized revenue.
- Debt and investment portfolio: Long-term debt fell to $195 million. Securities had a fair value of approximately $452 million at year-end, with Atwood Oceanics and Schlumberger accounting for $434 million. The filing notes sensitivity of portfolio value to market movements.
Outlook, risks, contingencies and unusual items
- No specific FY 2013 revenue, earnings, capital-spending or utilization guidance is stated in the supplied text. Management cautions that actual results may differ from forward-looking statements.
- Management identified oil and gas price volatility, weaker customer drilling budgets, intense competition, customer concentration, and dependence on a limited number of rig-component suppliers as business risks. The ten largest drilling customers generated about 59% of revenue; the three largest contributed about 32%.
- International risks include political, legal, currency and expropriation exposure. Venezuela seized 11 rigs and related property in 2010. The company is pursuing litigation and arbitration; recovery timing, amount and likelihood remain uncertain. A separate arbitration settlement generated $7.5 million in FY 2012, recorded in discontinued operations.
- An ongoing U.S. Attorney investigation concerns alleged offshore choke-manifold testing irregularities reported in 2010. The company says it is cooperating and believes the matter will not materially adversely affect it, but gives no assurance about the outcome.
- Operational hazards, hurricanes, environmental liability, insurance limits and self-insured losses could produce significant costs. Potential regulation of greenhouse-gas emissions and hydraulic fracturing could indirectly affect customer activity; the company states it does not perform hydraulic fracturing.
- Venezuelan operations are presented as discontinued operations. FY 2012 discontinued-operations income was $7.4 million, compared with a $0.5 million loss in FY 2011.
- The CEO and president roles changed in September 2012. Management and the external auditor reported effective internal control over financial reporting as of September 30, 2012; the financial-statement audit opinion was unqualified.
Investor facts to verify
- Review the incorporated Annual Report’s MD&A and statements for operating cash flow, capital expenditures, cash and short-term investments, current liabilities, and segment operating income.
- Assess how much of the $3.6 billion backlog is expected to convert to revenue, including timing, customer termination rights and new-rig construction dependencies.
- Monitor U.S. Land utilization and pricing, offshore contract activity, and the effect of customer spending changes on revenue concentration.
- Track the Venezuela litigation and remaining arbitration, the offshore investigation, and any related contingencies or recoveries.
- Evaluate market-price exposure in the securities portfolio and the company’s insurance and self-insurance exposure to operational losses.