Business context and reporting period
Helmerich & Payne, Inc. filed this annual Form 10-K for the fiscal year ended September 30, 2011; it is not a standalone fourth-quarter report. The company primarily provides contract drilling services through U.S. Land, Offshore, and International Land segments. It also owns Tulsa-area commercial real estate and is developing rotary-steerable drilling technology. Venezuelan operations are presented as discontinued operations.
Financial and operating performance
| Metric | FY2011 | FY2010 |
|---|---|---|
| Operating revenue | $2,543.9 million | $1,875.2 million |
| Income from continuing operations | $434.7 million | $286.1 million |
| Net income | $434.2 million | $156.3 million |
| Basic EPS | $4.06 | $1.47 |
| Diluted EPS | $3.99 | $1.45 |
| Long-term debt | $235.0 million | $360.0 million |
| Total assets | $5,003.9 million | $4,265.4 million |
| Declared dividends per share | $0.26 | $0.22 |
- Revenue rose about 36%; continuing-operations income rose about 52%. Net income increased substantially, while FY2010 included a $129.8 million loss from discontinued operations; FY2011 discontinued-operations loss was $0.5 million.
- U.S. Land generated $2,100.5 million, about 83% of revenue, versus $1,412.5 million and 75% in FY2010. Offshore revenue was $201.4 million versus $202.7 million; International Land revenue was $226.8 million versus $247.2 million.
- U.S. Land rig utilization rose to 86% from 73%; Offshore utilization declined to 77% from 80%; International utilization was 70% versus 71%.
- Contract drilling backlog increased to $3.789 billion from $2.449 billion. About 61% was not reasonably expected to be filled in FY2012.
- The filing excerpt does not provide clear cash-flow, cash-balance, current-liability, liquidity-ratio, or margin figures; it refers readers to the incorporated Annual Report for the statements and MD&A.
Guidance, outlook, risks, and unusual items
- The filing provides no specific quantitative earnings or revenue guidance. Backlog growth was primarily attributed to additional fixed-term contracts for new FlexRigs; backlog is subject to execution, component-supply, and customer risks.
- At September 30, 2011, 158 rigs were under fixed-term contracts. Contract terms and early-termination protections vary, and extensions are not legally assured.
- The company highlighted oil-and-gas price volatility, global economic weakness, drilling-market competition, major-customer concentration, operational and environmental hazards, limited insurance/self-insurance, and dependence on a limited number of rig-component suppliers.
- Ten largest drilling customers accounted for about 57% of consolidated revenue; the three largest accounted for about 32%. Oxy, Devon, and EOG contributed approximately 12%, 11%, and 8%, respectively.
- Venezuela seized 11 rigs and related property in 2010. The company sued Venezuela and related entities and was pursuing two arbitrations seeking an aggregate $75 million from third parties; recovery timing, amount, and likelihood were uncertain.
- An ongoing U.S. Attorney grand-jury investigation concerns alleged offshore choke-manifold testing irregularities. The company said it had suspended operations on the rig initially, conducted an internal investigation, and terminated employees who failed to follow policies; it could not assure the investigation’s outcome.
- The securities portfolio had a fair value of $348 million at September 30, 2011, rising to approximately $431.2 million by November 17, 2011; market-value changes could affect financial strength. The company also cited possible future greenhouse-gas and hydraulic-fracturing regulation.
- Management and the independent auditor reported effective internal control over financial reporting as of September 30, 2011. The independent auditor issued an unqualified opinion on the financial statements.
Most important facts for investors to verify
- Review the incorporated Annual Report’s full cash-flow statement, balance sheet, liquidity disclosures, margins, and segment operating results, which are not included in the supplied filing text.
- Assess whether the higher U.S. Land utilization and $3.789 billion backlog convert into revenue and cash flow, including the timing and delivery of rigs under construction.
- Track customer concentration, contract terminations/extensions, and the condition of key component suppliers.
- Follow the Venezuela claims and the U.S. Attorney investigation for material developments, costs, or recoveries.
- Evaluate exposure to uninsured operational losses, securities-portfolio volatility, commodity-driven drilling demand, and regulatory changes.