Business context and reporting period
Helmerich & Payne, Inc. (NYSE: HP) filed this Form 10-K for the fiscal year ended September 30, 2022. It is an annual report, not a standalone fiscal fourth-quarter report. H&P provides land and offshore drilling services and drilling technologies. Its segments are North America Solutions, Offshore Gulf of Mexico, and International Solutions.
Financial and operating performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Operating revenue | $2.059 billion | $1.219 billion |
| Operating income (loss), continuing operations | $45.3 million | $(428.5) million |
| Net income (loss) | $7.0 million | $(326.2) million |
| Diluted EPS | $0.05 | $(3.04) |
| Cash provided by operating activities | $233.9 million | $136.4 million |
| Capital expenditures | $250.9 million | $82.1 million |
- Revenue increased approximately 69%, primarily from higher North American rig activity and pricing and increased International Solutions activity. Approximate operating margin improved to 2.2% from a loss margin of 35.2%.
- North America Solutions revenue rose 74% to $1.788 billion; segment operating income was $121.9 million versus a $287.2 million loss. Offshore Gulf of Mexico revenue was essentially flat at $125.5 million, while segment operating income rose to $23.2 million. International Solutions revenue increased 135% to $136.1 million and its segment operating loss narrowed to $0.1 million.
- Cash and cash equivalents were $232.1 million and short-term investments were $117.1 million at year-end; restricted cash was $36.2 million. The $750 million revolving credit facility was undrawn, with no letters of credit outstanding under it.
- Debt at face value was $550 million, consisting of 2.90% senior notes due 2031. The company reported a 16.6% long-term debt-to-total-capitalization ratio and compliance with debt covenants.
- Cash, cash equivalents and restricted cash declined $667.7 million, mainly reflecting the $487.1 million redemption of 2025 notes and a $56.4 million make-whole premium. Operating cash flow increased year over year, partly offset by working-capital needs as activity grew.
Material changes, outlook, and notable items
- Contract backlog more than doubled to $1.172 billion from $572.0 million. About $0.8 billion was expected to be recognized in FY2023 and approximately $0.4 billion in FY2024 and later; backlog is subject to customer termination or modification risk.
- At fiscal year-end, 192 rigs were contracted, compared with 137 a year earlier. Management expected calendar 2023 activity and capital spending by customers to be similar to or modestly above calendar 2022, and projected North America active rigs could reach 192 in the first half of calendar 2023.
- Management set FY2023 capital spending guidance of $425 million to $475 million, including maintenance, technology, rig-walking conversions, and reactivations. It expected upward pricing momentum to continue in North America, limited activity change but improved margins offshore, and more gradual improvement internationally.
- Unusual financial items included $57.9 million of gains on investment securities, primarily the $47.4 million increase in the fair value of the ADNOC Drilling investment, and $60.1 million of debt-extinguishment loss related to redeeming the 2025 notes. International revenue also included a $16.4 million YPF dispute settlement. These items affect comparability of reported earnings.
- The company repurchased 3.2 million shares for $77.0 million and paid $107.4 million of dividends in FY2022. Subsequent to year-end, it declared a $0.235-per-share supplemental dividend in addition to the $0.25 base dividend.
- Key risks include oil and gas price and customer-spending volatility, competitive pricing and rig utilization, inflation and supply-chain constraints, labor availability, foreign-exchange controls and losses in Argentina, weather and operational exposures, cybersecurity, and changing environmental and energy-transition regulation. The company self-insures significant risks.
- A Texas jury verdict against the company and an employee was reduced by remittitur from approximately $126 million to $60 million. The company and insurers were pursuing an appeal; management could not estimate the possible loss, but believed amounts above the $3 million deductible would be covered by insurance. The filing also describes the long-running Venezuelan expropriation lawsuit; recovery timing and amount, if any, are uncertain.
- Management and Ernst & Young reported effective internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Whether rising rig counts and dayrates translate into durable operating profits and cash generation after higher labor, materials, and capital costs.
- How much of the $1.172 billion backlog is realized, and the contract termination and customer concentration exposure—particularly the offshore segment’s reliance on one major customer.
- The timing and returns from the FY2023 capital budget, rig reactivations, and management’s activity and pricing expectations.
- The sustainability of dividends and share repurchases relative to operating cash flow, capital spending, and debt obligations.
- The outcome and insurance coverage of the $60 million litigation verdict, and developments in the Venezuelan claim and Argentina’s currency restrictions.
- The sensitivity of earnings and asset values to investment fair-value changes, impairment assumptions, and the unusually high FY2022 effective tax rate of 78.8%.