Helmerich & Payne, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020. The filing also reports fourth-quarter results; this is an annual report, not a standalone quarterly filing. H&P provides land and offshore drilling services and technology, primarily in North America, with international operations.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Operating revenue | $1.774 billion | $2.798 billion |
| Operating income (loss), continuing operations | $(620.2) million | $20.6 million |
| Net income (loss) | $(494.5) million; $(4.60) diluted EPS | $(33.7) million; $(0.34) diluted EPS |
| Cash from operating activities | $538.9 million | $855.8 million |
| Capital expenditures | $140.8 million | $458.4 million |
| Cash, cash equivalents and short-term investments | $577.2 million | $400.9 million |
| Total debt, face amount | $487.1 million | $487.1 million |
| Shareholders’ equity | $3.319 billion | $4.012 billion |
Revenue fell about 36.6% year over year, largely from lower rig activity and pricing after the March 2020 oil-price collapse. The operating loss included $563.2 million of non-cash asset impairment charges. H&P reported an income tax benefit of $140.1 million. Cash flow from operations declined about 37%; lower activity was partly offset by working-capital movements. Net working capital was $194.2 million, down from $381.7 million.
At year-end, H&P had $750 million available under its unsecured revolving credit facility, with no borrowings outstanding under it; management reported approximately $1.3 billion of near-term liquidity and no anticipated need to draw on the facility. Senior notes bear fixed interest at 4.65% and mature in March 2025. The company reported compliance with debt covenants; its debt-to-capital ratio was 12.8%, versus 10.8% a year earlier.
Fourth quarter: Revenue was $208.3 million, operating loss was $75.4 million, and net loss was $59.0 million (diluted loss per share of $0.55). In FY2019’s fourth quarter, revenue was $649.1 million and net income was $41.2 million.
Segments and material changes
- North America Solutions: Revenue of $1.474 billion, down 39.2%; segment operating loss of $393.9 million, compared with income of $80.9 million. Average utilization fell to 47% from 67%; 69 of 262 rigs were contracted at year-end.
- Offshore Gulf of Mexico: Revenue of $143.1 million, down 3.0%; segment operating income of $7.5 million, down from $19.6 million. Five of eight rigs were contracted.
- International Solutions: Revenue of $144.2 million, down 31.9%; segment operating loss of $162.4 million, compared with income of $5.4 million. Utilization declined to 40% from 55%; five of 32 rigs were contracted.
Contract backlog fell to about $670 million from $1.2 billion. Approximately $446.7 million was expected to be recognized in FY2021, with $223.4 million in FY2022 and thereafter. Early termination revenue rose to $73.4 million from $11.3 million; customers also renegotiated terms or stacked rigs. Management reorganized the business into an integrated solutions model, combining rig technology, automation software and digital expertise, and decommissioned 37 older rigs.
Outlook, risks and unusual items
- Management expected FY2021 capital spending of $85–$105 million. It anticipated higher rig activity than at FY2020 year-end, but not a return to pre-March 2020 levels; this outlook was qualified by commodity-price and pandemic uncertainty.
- Cost actions included reducing the quarterly dividend to $0.25 per share, lowering planned capital spending, cutting overhead and reducing staffing. FY2020 dividend declarations totaled $2.38 per share, compared with $2.84 in FY2019; future dividends remain at the board’s discretion.
- The $563.2 million impairment charge included $441.4 million for drilling asset groups, $83.5 million for in-progress equipment and inventory, and $38.3 million for goodwill. Valuations depended on uncertain assumptions including rig utilization, contract awards, useful lives and disposal proceeds.
- Other notable items included a $27.2 million gain on real estate sales, a $15.0 million gain on sale of TerraVici, and $16.0 million of restructuring charges. H&P also recorded $8.8 million of foreign-currency losses across its operations.
- Key risks include COVID-19 and oil-price volatility, customer budget cuts and contract cancellations, excess rig supply and pricing pressure, asset impairment, customer concentration, and international currency and political risks. Argentina’s currency controls limited repatriation of funds. The company self-insures significant risks; the filing reports $73.8 million of self-insurance liability.
- H&P disclosed a pending lawsuit seeking recovery for the 2010 seizure of its Venezuelan drilling business; recovery timing and amount, if any, were uncertain. Other pending legal matters were not expected by management to have a material adverse effect, based on reserves and insurance.
Important facts for investors to verify
- Whether utilization, contracted rig counts, dayrates and backlog improve, and whether backlog converts to revenue and cash as expected.
- Whether the FY2021 capital-spending outlook and cost reductions are achieved, and whether the $0.25 quarterly dividend is maintained.
- Whether low activity or prices trigger additional impairments, and how sensitive asset values are to management’s utilization and contract assumptions.
- Liquidity quality and availability, covenant headroom, and the ability to collect early termination fees and receivables.
- Exposure to Argentina’s foreign-exchange restrictions, customer concentration, self-insurance claims and unresolved litigation.
The company’s consolidated financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of September 30, 2020.