Helmerich & Payne, Inc. — Q3 FY2023 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended June 30, 2023, H&P’s fiscal third quarter. H&P provides drilling services and technology through North America Solutions, Offshore Gulf of Mexico, and International Solutions. At quarter-end, its fleet comprised 262 rigs; 170 were contracted, compared with 192 at September 30, 2022.
Key financial metrics
| Metric | Three months ended June 30, 2023 | Comparable 2022 period | Nine months ended June 30, 2023 | Comparable 2022 period |
|---|---|---|---|---|
| Revenue | $724.0 million | $550.2 million | $2,212.8 million | $1,427.6 million |
| Operating income (loss) | $148.7 million | $33.7 million | $468.2 million | $(31.5) million |
| Net income (loss) | $95.3 million | $17.8 million | $356.5 million | $(38.6) million |
| Diluted EPS | $0.93 | $0.16 | $3.39 | $(0.37) |
| Operating margin | 20.5% | 6.1% | 21.2% | (2.2)% |
Cash flow and liquidity: Nine-month operating cash flow was $619.0 million, versus $116.6 million in 2022. Capital expenditures were $281.8 million; investing cash flow was $(191.0) million and financing cash flow $(415.0) million. Cash and cash equivalents were $220.6 million, restricted cash $61.4 million, and short-term investments $72.6 million at June 30, 2023. Current assets were $992.8 million and current liabilities $433.5 million.
Debt: Long-term debt had a $550.0 million face value ($545.0 million carrying value) and consists of 2.90% senior notes due 2031. The $750 million revolving credit facility was undrawn and fully available; $40 million was outstanding under bilateral credit facilities, with a further $2.1 million in standby letters of credit and guarantees. H&P reported compliance with debt covenants.
Capital returns: Nine-month dividends paid totaled $152.6 million, or $1.46 per share, and share repurchases totaled $249.0 million for 6.5 million shares. The board declared a further $0.25 base and $0.235 supplemental dividend per share, payable August 31, 2023.
Material changes versus prior comparable periods
- Q3 revenue rose 31.6%, primarily from higher North America Solutions pricing and greater International Solutions activity. North America revenue increased 32.0%; International Solutions revenue increased 67.2%.
- Q3 operating income increased to $148.7 million from $33.7 million. Higher North America pricing drove improvement, partly offset by increased operating costs, including wage and labor-related costs.
- Nine-month results moved from a loss to profit, with revenue up approximately 55%. Higher rig pricing and activity contributed; the prior-year period also included a $60.1 million debt-extinguishment loss and materially larger investment gains.
- Q3 results included an $18.5 million loss on investment securities, primarily the decline in ADNOC Drilling shares. Nine-month investment gains were $6.1 million, compared with $55.7 million in 2022.
- Nine-month capital expenditures rose to $281.8 million from $175.0 million, reflecting higher activity and rig-upgrade costs. Dividends paid and share repurchases also increased substantially.
Outlook, commentary, risks and unusual items
- Management reported approximately $1.1 billion of contract backlog at June 30, 2023, down from $1.2 billion at September 30, 2022. About $0.4 billion was expected to be recognized during the remainder of FY2023, $0.6 billion in FY2024, and $0.1 billion in FY2025 and later. Backlog excludes anticipated renewals and performance bonuses and may change due to customer cancellation or contract modification.
- Management expected further North America rig releases in Q4 FY2023, but at a more moderate pace than the 26 rigs idled in Q3. It saw potential for active rig counts to increase in Q1 and Q2 FY2024 as customers reset budgets. Offshore Gulf of Mexico and International activity was expected to remain relatively steady. These are management expectations, not formal numerical earnings guidance.
- H&P recorded $12.1 million of nine-month asset impairment charges, mainly from plans to scrap or decommission rigs and equipment, including eight Argentina-based rigs. A November 2022 rig fire resulted in a $9.2 million loss and offsetting expected insurance recovery; $7.8 million of proceeds had been collected during Q3.
- International operations face geopolitical, regulatory, currency and repatriation risks. Argentina is highly inflationary and has currency controls; the company reported $24.0 million equivalent cash held there at quarter-end.
- A Texas jury judgment against H&P and an employee was reduced by voluntary remittitur from approximately $126 million to $60 million. The company is appealing and believes insurance should cover foreseeable exposure above its $3 million deductible. Recovery of claims related to Venezuela’s 2010 seizure of company property remains uncertain.
- Other notable commitments include $134.2 million of equipment and supply purchase commitments and a Tulsa office lease expected to begin in the first half of 2024, with estimated non-cancelable payments of $15.1 million.
- Subsequent to quarter-end, H&P entered into a $9 million, 5.5% convertible note with Tamboran, used to settle Tamboran receivables; no cash was exchanged.
Important facts for investors to verify
- Whether the expected Q4 rig releases and potential FY2024 activity recovery materialized, and how rig pricing and utilization developed.
- Backlog conversion, renewals and cancellation exposure, including the timing and realization of the Tamboran drilling contract.
- Cash generation relative to capital spending, dividends and repurchases, and whether shareholder distributions remain sustainable through market fluctuations.
- Valuation volatility in ADNOC Drilling and other investments, and the assumptions supporting Level 3 investment valuations.
- Insurance recovery and appeal developments in the $60 million judgment, as well as other disclosed legal, Argentina currency and international operating exposures.