Helmerich & Payne, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2013. Dollar amounts are in millions unless stated otherwise.
Business context
The company operates contract drilling businesses in U.S. Land, Offshore and International Land. It also reports Other activities. Results include Venezuela-related operations as discontinued operations following the 2010 seizure of the subsidiary’s assets.
Financial performance
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 | Nine months ended June 30, 2013 | Nine months ended June 30, 2012 |
|---|---|---|---|---|
| Revenue | $840.2 | $819.8 | $2,523.1 | $2,322.4 |
| Operating income | $240.0 | $232.7 | $713.4 | $670.2 |
| Continuing-operations income | $251.0 | $149.9 | $561.7 | $424.0 |
| Net income | $266.2 | $149.9 | $576.8 | $423.9 |
| Diluted EPS | $2.46 | $1.38 | $5.33 | $3.88 |
| Operating cash flow | Not separately presented | Not separately presented | $761.6 | $613.0 |
| Capital expenditures | Not separately presented | Not separately presented | $618.6 | $774.2 |
- Quarterly revenue rose about 2.5%; nine-month revenue rose about 8.6%. Quarterly operating income increased about 3.1%, while nine-month operating income increased about 6.5%.
- Quarterly and nine-month continuing-operations income included material investment-security sale gains: $153.4 million pretax, or $92.4 million after tax and $0.86 per diluted share, in the quarter. Nine-month investment-security gains were $162.1 million pretax, including $8.8 million from limited-partnership sales.
- Quarterly segment operating income was $236.4 million for U.S. Land, $14.1 million for Offshore and $8.5 million for International Land. Offshore and International Land improved year over year; U.S. Land income was broadly flat.
- U.S. Land utilization declined to 83% from 89% in the quarter, while average rig margin per day increased to $15,414 from $14,759. Offshore utilization increased to 89% from 74%, and International Land utilization was 80% versus 77%.
- Cash and cash equivalents were $480.5 million at June 30, 2013, versus $96.1 million at September 30, 2012. Nine-month cash increased $384.4 million. Investments were $287.6 million, down from $451.1 million.
- Total debt was $235.0 million, including $40.0 million due within one year at quarter-end. The company subsequently paid the $40.0 million note due July 21, 2013. Its $300 million revolving facility had no borrowings and $269.3 million available, after letters of credit.
- The company declared dividends of $0.80 per share for the first nine months, versus $0.21 in the prior-year period. A $0.50-per-share dividend was declared in June, payable August 30, 2013.
Liquidity, outlook and material items
- Management said cash, operating cash generation and available credit were expected to be sufficient to fund operations and estimated fiscal 2013 capital spending. The fiscal 2013 capital-spending estimate was $890 million; actual spending could vary with maintenance needs and rig-construction timing.
- Contract-drilling backlog was $3.1 billion at June 30, 2013, down from $3.6 billion at September 30, 2012. Management said 85.8% was not reasonably expected to be filled in fiscal 2013. Backlog is subject to customer termination rights, rig delivery and performance conditions, and possible supplier disruptions.
- The company completed 20 FlexRigs under fixed-term contracts during the first nine months, had one additional contracted FlexRig under construction, and planned a 3,000-horsepower AC-drive rig for international operations in spring 2014.
- A $15.0 million arbitration settlement related to the Venezuela asset seizure was received and recorded in discontinued operations. The separate lawsuit seeking damages from Venezuela and related entities remained pending; recovery timing and amount, if any, were not estimable, and no gain was recorded.
- A U.S. Attorney investigation into reported offshore-platform testing irregularities remained ongoing. The company said it was cooperating and did not expect a material adverse effect, but could not assure the timing or outcome; possible remedies could include fines or compliance conditions.
- Outstanding equipment, parts and supply commitments for the rig-construction program were approximately $120.5 million. The company also said uncertain tax-position reserves could increase by approximately $7.0 million to $10.6 million over the next 12 months due to an international matter.
- Key stated risks include drilling-contract termination and performance, oil and gas market conditions, receivable collection, rig-component availability and delivery, foreign-exchange movements, international political and expropriation risks, and offshore operational hazards. Management reported disclosure controls were effective and no material internal-control changes during the quarter.
Most important facts for investors to verify
- How much of reported earnings growth reflects recurring drilling operations versus investment-security gains and the Venezuela-related settlement.
- U.S. Land rig utilization, dayrates and margins, and whether Offshore and International Land operating improvements continue.
- Execution of the $890 million fiscal 2013 capital-spending plan and delivery of contracted new rigs amid supplier and construction risks.
- Backlog conversion, customer termination exposure and changes in fixed-term versus spot-market rig activity.
- Debt repayment and liquidity after the July 2013 maturity, including covenant compliance and available credit capacity.
- Developments in the U.S. Attorney investigation, Venezuela litigation and the potential tax-reserve increase.