Helmerich & Payne, Inc. - Q2 2009 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2009 (Fiscal Q2 2009) and the six months ended March 31, 2009. Helmerich & Payne, Inc. is a contract drilling company operating in U.S. Land, Offshore, and International Land segments. The company is a large accelerated filer.
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 2009 | Six Months Ended Mar 31, 2009 |
|---|---|---|
| Operating Revenues | $520.3 million | $1,144.1 million |
| Net Income | $103.7 million | $249.0 million |
| Diluted EPS | $0.98 | $2.34 |
| Operating Cash Flow | N/A | $490.5 million |
| Capital Expenditures | N/A | $525.9 million |
| Cash and Equivalents | $126.4 million (Mar 31, 2009) | N/A |
| Total Debt | $560.0 million | N/A |
| Available Credit | $94.1 million | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 10% for the quarter and 23% for the six-month period compared to the prior year, driven by higher U.S. Land and Offshore activity.
- U.S. Land Segment: Operating income rose to $192.9 million (Q2) and $387.0 million (6 months). This increase was significantly aided by approximately $81.5 million in early termination fees and penalties. However, rig utilization dropped to 72% (Q2) from 94% in the prior year due to contract expirations and early terminations.
- Offshore Segment: Operating income surged to $15.8 million (Q2) from $3.6 million, with rig utilization reaching 98%.
- International Land Segment: The segment reported an operating loss of $15.3 million for the quarter, compared to income of $12.8 million in the prior year. This decline is primarily due to a change in revenue recognition for Venezuela operations (see Risks).
- Interest Expense: Decreased to $2.6 million (Q2) from $4.8 million in the prior year due to lower interest rates on borrowings.
Guidance, Outlook, and Risks
- Venezuela Operations (Critical Risk): The company ceased recognizing revenue from PDVSA (Venezuela) starting Q2 2009 due to uncertainty regarding collectability. Approximately $35.6 million of revenue was not recorded. The company has $73.6 million in receivables from PDVSA and is idling rigs; four rigs are expected to be idle by August 2009 if payments are not received. There is also exposure to currency devaluation of approximately $24 million in Bolivar balances.
- FCPA Investigation: The company is in preliminary discussions with the SEC and DOJ regarding an investigation into past payments in Latin America. Management does not currently expect fines or penalties to be material.
- Backlog: Contract drilling backlog decreased to $2.7 billion as of May 1, 2009, from $3.4 billion in October 2008. Approximately 82% of the backlog is not expected to be filled in fiscal 2009.
- Capital Expenditures: Estimated at approximately $850 million for fiscal 2009, driven by the construction of new FlexRigs.
- Outlook: Management expects additional U.S. Land rigs to become idle and anticipates three offshore rigs to be released in Q3 2009. The company believes current liquidity sources are sufficient to sustain operations and fund capital expenditures.
Investor Verification Checklist
- Collectability of Venezuelan Receivables: Verify the status of the $73.6 million receivable from PDVSA and the likelihood of future collections.
- Early Termination Revenue Sustainability: Assess the extent to which current profitability relies on one-time early termination fees ($81.5 million in Q2) versus recurring daywork revenue.
- Rig Utilization Trends: Monitor the rate of rig idling in the U.S. Land segment, which has already reached 101 idle rigs as of April 30, 2009.
- FCPA Resolution: Track the outcome of discussions with the SEC and DOJ regarding the Latin America payments investigation.
- Currency Exposure: Evaluate the potential impact of a devaluation of the Venezuelan Bolivar on the company's $24 million cash exposure.