Helmerich & Payne, Inc. — Q1 FY2023 10-Q Summary
Reporting period: Three months ended December 31, 2022, compared with the three months ended December 31, 2021, unless otherwise noted. H&P provides drilling services and technology through North America Solutions, Offshore Gulf of Mexico, and International Solutions.
Financial and operating performance
| Metric | Q1 FY2023 | Prior-year quarter |
|---|---|---|
| Revenue | $719.6 million | $409.8 million |
| Operating income (loss), continuing operations | $144.2 million | $(42.6) million |
| Net income (loss) | $97.1 million | $(51.4) million |
| Diluted earnings (loss) per share | $0.91 | $(0.48) |
| Cash from operating activities | $185.4 million | $(3.7) million |
| Capital expenditures | $96.0 million | $44.0 million |
- Revenue rose about 76%, mainly on higher North America rig activity and pricing, and higher international activity. North America Solutions revenue increased 84% to $627.2 million; International Solutions revenue rose 48% to $54.8 million; Offshore Gulf of Mexico revenue rose 20% to $35.2 million.
- Operating margin was approximately 20.0%, versus approximately negative 10.4% a year earlier. North America Solutions segment operating income improved to $145.3 million from a $28.9 million loss. International Solutions segment income declined to $1.6 million from $8.0 million, including $8.1 million of impairment charges.
- Prior-year results included a $60.1 million loss on extinguishment of debt and a $47.9 million investment-securities gain; the current quarter included a $15.1 million investment-securities loss. These items affect the year-over-year comparison.
- Cash, cash equivalents, and short-term investments totaled $347.6 million at quarter-end; restricted cash was an additional $42.5 million. Long-term debt had a $550.0 million face value and $542.9 million carrying value. The $750 million revolving credit facility was undrawn, and the company reported compliance with debt covenants.
- Contract backlog was $1.4 billion at December 31, 2022, up from $1.2 billion at September 30, 2022. Approximately 29.6% was expected to be fulfilled in FY2024 and later; backlog excludes anticipated renewals and performance bonuses.
- H&P had 201 active contracted rigs at quarter-end, compared with 192 at September 30, 2022. The fleet comprised 262 rigs, including 184 active North America rigs.
Outlook and management commentary
- Management expected calendar-year 2023 customer capital spending and activity to be modestly higher than in 2022, with overall demand remaining relatively robust and conditions constructive for contract pricing. Customer budgets were not yet established for many customers.
- For FY2023, the capital expenditure budget was $425 million to $475 million. H&P projected North America active rigs could reach 191; plans allowed for up to 16 reactivations, subject to demand. Nine rigs had been reactivated and deployed through December 31; one rig was damaged, for a net increase of eight during the quarter.
- Management anticipated little change in Offshore Gulf of Mexico activity or margins in Q2, while noting one rig could go to the yard in Q4 after completing its contract. International improvement was possible but expected on a longer timeline.
- Management said inflationary costs had generally been offset by rate increases, but identified supply-chain constraints, labor availability, and inflation as ongoing industry considerations. Results remain sensitive to oil and gas prices, customer spending, rig demand, and contract changes.
Unusual items, risks, and contingencies
- The company recorded $12.1 million of asset impairments, chiefly after deciding to scrap eight Argentina rigs and write down other equipment. A November wellsite fire destroyed one North America super-spec rig; the rig was insured at replacement cost, and expected recovery exceeded the written-off net book value. Excess proceeds, if any, would be recognized when collected.
- The ADNOC Drilling equity investment generated an $18.2 million fair-value loss, partly offset by a $3.1 million gain on the Tamboran investment. Fair-value changes can add volatility to reported earnings.
- H&P reported $159.9 million in purchase commitments for equipment, parts, and supplies. It also entered a Tulsa office lease expected to begin in the first half of calendar 2024, with estimated non-cancelable payments of $15.1 million.
- A Texas wrongful-death lawsuit resulted in a judgment reduced by plaintiffs’ remittitur to $60 million. H&P and its insurers were pursuing an appeal; the company said it could not estimate the possible loss, but believed insurance would cover amounts above a $3 million deductible and exposure would not exceed policy limits.
- International risks include foreign exchange controls and restrictions on repatriation in Argentina. H&P reported $19.7 million of cash in Argentina at quarter-end and warned that restrictions, devaluation, or political and economic instability could adversely affect operations and cash flows.
- Backlog is not assured revenue: customer contracts may be canceled or modified, and some terminations may not provide an early termination payment. Other cited risks include commodity-price volatility, geopolitical developments, regulation, cybersecurity, climate-related matters, and potential asset impairments.
Most important facts for investors to verify
- Whether higher North America rig pricing and activity persist, and whether the projected FY2023 rig reactivations and capital budget are achieved.
- How much of the $1.4 billion backlog converts to revenue, given cancellation rights and the exclusion of renewals and bonuses.
- Cash generation and working-capital needs as activity grows, alongside $96.0 million of quarterly capital expenditures, dividends, and share repurchases.
- Fair-value movements in ADNOC Drilling and other investments, and any further impairment or insurance-recovery effects.
- Developments in the Texas litigation and insurance coverage, and the practical impact of Argentine currency controls on cash repatriation.