Helmerich & Payne, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2011; filed February 7, 2012. Comparisons are with the three months ended December 31, 2010, unless noted. The company provides contract drilling services through U.S. Land, Offshore and International Land segments.
Financial performance and position
| Metric | Q1 FY2012 | Q1 FY2011 |
|---|---|---|
| Revenue | $732.6 million | $594.6 million |
| Operating income | $230.5 million | $170.7 million |
| Net income | $144.3 million | $104.2 million |
| Diluted EPS | $1.32 | $0.96 |
| Operating cash flow | $236.6 million | $238.7 million |
| Capital expenditures | $256.9 million | $116.2 million |
- Revenue rose about 23%, operating income 35%, and net income 39%. Operating margin was approximately 31.5%, up from 28.7%; net margin was approximately 19.7%, up from 17.5%.
- U.S. Land revenue increased to $617.8 million from $476.8 million. Utilization rose to 91% from 84%, and average revenue per day to $26,861 from $24,952. Segment operating income increased to $224.7 million from $158.4 million.
- Offshore segment operating income improved to $12.2 million from $9.0 million. International Land income declined to $7.9 million from $14.4 million, primarily because the prior-year quarter included early termination revenue.
- Cash and cash equivalents were $347.9 million at quarter-end, down from $364.2 million at September 30, 2011. Current assets were $1.00 billion and current liabilities $428.8 million. Investments totaled $400.0 million, including $384.4 million of available-for-sale equity securities.
- Total debt was $350 million, unchanged from September 30; $115 million was classified as due within one year. Cash was nearly equal to reported debt. The $400 million unsecured credit facility expired in December 2011 and was not renewed.
- Operating cash flow was roughly flat year over year despite higher earnings, with working-capital changes among the factors. Investing cash outflow increased to $246.8 million, mainly reflecting rig construction; financing cash outflow was $6.2 million.
- Quarterly dividend declared was $0.07 per share, versus $0.06 in the prior-year quarter.
Material changes, outlook and commentary
- Management estimated fiscal 2012 capital spending at $1.1 billion, principally for new FlexRigs, and expected to deliver 45 new FlexRigs during the fiscal year. Actual spending may vary with procurement timing. Management said cash, operating cash generation and available liquidity were expected to fund operations and estimated fiscal 2012 capital expenditures, while cautioning that cash generation and financing availability are not assured.
- Contract drilling backlog increased to $4.2 billion at December 31 from $3.8 billion at September 30, primarily due to 17 multi-year FlexRig contracts announced in November. About 72.9% of the backlog was not expected to be filled in fiscal 2012. Backlog is not guaranteed revenue: contracts may be terminated, and delivery or vendor issues may affect performance.
- The company completed 11 contracted FlexRigs during the quarter; four more were completed by the end of January. Three additional FlexRig agreements were announced in January 2012.
- Rig construction purchase commitments for equipment, parts and supplies were approximately $474.6 million. A Tulsa office lease extension and expansion added approximately $15 million to material commitments.
- Income from continuing operations included approximately $3.0 million of after-tax asset-sale gains, compared with $1.7 million in the prior-year quarter. Capitalized interest on rig construction was $3.3 million, versus $1.7 million.
- Venezuelan authorities seized the company’s Venezuelan drilling assets in 2010; the operations remain classified as discontinued. The company’s subsidiaries filed suit seeking damages and were pursuing two arbitrations to collect an aggregate $75 million. Management could not estimate timing, amount or likelihood of any recovery, and no gain was recognized.
- Key risks include oil and gas market conditions, contract termination and performance provisions, rig-component supply constraints, weather and geopolitical risks, currency exposure, and possible regulation of hydraulic fracturing that could affect customers’ drilling programs. The company does not itself conduct hydraulic fracturing.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter. No recognized subsequent events were reported; one conventional U.S. Land rig was sold after quarter-end.
Important facts for investors to verify
- Whether the planned $1.1 billion fiscal 2012 capital program and 45-rig delivery target remain achievable, and how spending affects cash and liquidity.
- Backlog conversion, contract commencement and termination terms, and exposure to concentrated or financially constrained rig-component suppliers.
- Upcoming debt maturities, including $115 million due within one year, and the company’s financing plans following expiry of its credit facility.
- U.S. Land utilization and dayrates, and whether weakness in International Land operations persists.
- Developments in the Venezuelan lawsuit and arbitrations; any recovery remains uncertain and is not included in reported income.
- Changes in the value of the equity-securities portfolio and associated unrealized gains, which affected other comprehensive income.