Helmerich & Payne, Inc. Announces Third Quarter Results

Source: www.gulfoilandgas.com 7/28/2021, Location: North America

- H&P's North America Solutions segment exited the third quarter of fiscal year 2021 with 121 active rigs, up over 10% during the quarter
- The Company ended the quarter with $558 million in cash and short-term investments and no amounts drawn on its $750 million revolving credit facility culminating in approximately $1.3 billion in available liquidity
- Quarterly North America Solutions operating gross margins(1) increased $11 million to $75 million sequentially, as revenues increased by $31 million to $281 million and expenses increased by $20 million to $206 million
- The Company reported a fiscal third quarter net loss of $(0.52) per diluted share; including select items(2) of $0.05 per diluted share
- Deployment of our drilling automation technologies and utilization of new commercial models kept pace with the increase in rig activity with roughly 25% of our active FlexRig® fleet utilizing AutoSlide®, and over 30% of the fleet contracted with some form of performance-based contract
- H&P continues to invest in new and diversified technologies for long-term sustainability through geothermal opportunities as well as power management applications on the rig site
- On June 2, 2021, the Board of Directors of the Company declared a quarterly cash dividend of $0.25 per share, payable on August 31, 2021, to stockholders of record at the close of business on August 17, 2021

Helmerich & Payne, Inc. reported a net loss of $56 million, or $(0.52) per diluted share, from operating revenues of $332 million for the quarter ended June 30, 2021, compared to a net loss of $121 million, or $(1.13) per diluted share, on revenues of $296 million for the quarter ended March 31, 2021. The net losses per diluted share for the third and second quarters of fiscal year 2021 include $0.05 and $(0.53), respectively, of after-tax gains and losses comprised of select items(2). For the third quarter of fiscal year 2021, select items(2) were comprised of:

$0.08 of after-tax gains pertaining to a non-cash fair market adjustment to our equity investment, income tax adjustments related to certain discrete tax items, and discontinued operations related to adjustments resulting from currency fluctuations $(0.03) of after-tax losses pertaining to a non-cash impairment for fair market adjustments to decommissioned rigs that are held for sale, restructuring charges, and changes in the fair values of certain contingent liabilities

Net cash provided by operating activities was $31 million for the third quarter of fiscal year 2021 compared to net cash provided by operating activities of $78 million in the prior quarter, which benefited from a large income tax refund.

President and CEO John Lindsay commented, "The rig count and market share gains we have secured since the industry lows almost a year ago is a testament to H&P's position as the leading drilling solutions provider. While we have experienced moderation in this upward trajectory, we still expect activity and pricing to continue to increase over the next quarter as the availability of super-spec rigs tightens. We remain optimistic that current crude oil prices will translate into even higher activity and pricing levels in the fourth calendar quarter leading into 2022.

"We continue to affect change in the industry through the use of new commercial models and digital technology solutions. There is a growing appreciation for the value proposition H&P provides, and more customers are partnering with us to achieve better drilling outcomes. When utilized on a FlexRig® platform, H&P's digital technology and automation solutions are able to enhance drilling outcomes both in terms of efficiency gains and wellbore quality, resulting in improved long-term well economics and returns. This outcome-based approach delivers more predictive, consistent and superior well results over an entire drilling program, lowering overall well costs and downhole risks, and greatly reducing the potential for costly outliers. Minimizing downhole variation with the appropriate planning, technology and execution can produce positive economic results in a drilling program.

"The methods, the equipment, the technology and the risk profile in the drilling of unconventional oil and gas wells has evolved significantly over the past few decades; however, the legacy dayrate model has not. This has resulted in an unsustainable allocation of the economic benefits that have been accruing over the past several years through the drilling of more efficient and better-quality wells. Consequently, the pricing model for providing better drilling outcomes needs to evolve. H&P's new commercial models aim to better align us with our customer's goals and allow us to share in the value-added outcomes we help create."

Senior Vice President and CFO Mark Smith also commented, "The Company's solid financial position and strong financial stewardship remain resolute, giving us plenty of flexibility in our capital allocation strategy to take advantage of additional investment opportunities in the future should they arise and to maintain our steadfast commitment of returning cash to shareholders.

"We have continued to make investments, and explore future investments, in geothermal companies targeting the ambitious goal of affordable, reliable, and clean energy on a global scale. At present, we have a robust set of geothermal investment opportunities across a diverse technological and drilling spectrum. These opportunities not only include providing our drilling and technology solutions, but also direct investments into companies working toward accessing geothermal heat to create low-carbon and scalable base load power generation in an economically viable manner. Additionally, we continue to invest resources and work with our customers to provide customized power management solutions at the rig site that result in improved environmental and economic outcomes.

"Within the constructs of a smaller industry going forward, reducing our operating cost structure remains a high priority for the Company and steps have been underway to make this happen. Recent actions will result in an estimated annualized savings of $7 million with that full benefit captured in calendar 2022. Further, we have many other ongoing initiatives that will result in additional cost savings, that will be recognized incrementally over the next several quarters. Over time we expect these cost saving measures to culminate into meaningful, long-term improvements in our cost structure."

John Lindsay concluded, “The strength of our people, financial position, and drilling solutions will continue to provide us an edge in this improving market. Our track record of forming new and cementing existing partnerships with customers that manifest from our commitment to mutual long-term success."

Operating Segment Results for the Third Quarter of Fiscal Year 2021

North America Solutions:
This segment had an operating loss of $43.7 million compared to an operating loss of $109.8 million during the previous quarter. The decrease in the operating loss was primarily due to the prior quarter being adversely impacted by impairments related to fair market adjustments to decommissioned rigs that are held for sale and restructuring charges. Absent the select items(2) for the quarters, this segment's operating loss declined by $13.9 million on a sequential basis, due mainly to a higher level of rig activity.

Operating gross margins(1) increased by $10.9 million to $75.0 million as both revenues and expenses increased sequentially. Operating results were still negatively impacted by the costs associated with reactivating rigs; $5.9 million in the third fiscal quarter compared to $9.7 million in the second fiscal quarter.

International Solutions:
This segment had an operating loss of $3.5 million compared to an operating loss of $3.5 million during the previous quarter. Operating gross margins(1) improved slightly to a negative $1.4 million from a negative $1.9 million in the previous quarter. Current quarter results included a $0.6 million foreign currency loss primarily related to our South American operations compared to a $2.4 million foreign currency loss in the second quarter of fiscal year 2021.

Offshore Gulf of Mexico:
This segment had operating income of $5.7 million compared to operating income of $3.0 million during the previous quarter. Operating gross margins(1) for the quarter were $9.2 million compared to $6.2 million in the prior quarter.

Operational Outlook for the Fourth Quarter of Fiscal Year 2021

North America Solutions:
- We expect North America Solutions operating gross margins(1) to be between $72-$82 million
- We expect to exit the quarter at between 127-132 contracted rigs International Solutions:

We expect International Solutions operating gross margins(1) to be relatively flat between $(2)-$0 million, exclusive of any foreign exchange gains or losses

Offshore Gulf of Mexico:
- We expect Offshore Gulf of Mexico operating gross margins(1) to be between $7-$9 million

Other Estimates for Fiscal Year 2021
Gross capital expenditures are now expected to at the lower end of our previous guidance range of $85 to $105 million range. Ongoing asset sales include reimbursements for lost and damaged tubulars and sales of other used drilling equipment that offset a portion of the gross capital expenditures and are still expected to total approximately $25 million in fiscal year 2021. Note the sale of the offshore platform rig during the first quarter of fiscal year 2021 is excluded from this number.

Depreciation and amortization expenses are still expected to be approximately $425 million

Research and development expenses for fiscal year 2021 are now expected to be roughly $20 to 25 million

Selling, general and administrative expenses for fiscal year 2021 are still expected to be approximately $160 million

Select Items Included in Net Income per Diluted Share
Third quarter of fiscal year 2021 net loss of $(0.52) per diluted share included $0.05 in after-tax gains comprised of the following:
- $0.01 of non-cash after-tax gains from discontinued operations related to adjustments resulting from currency fluctuations
- $0.02 of non-cash after-tax gains related to fair market value adjustments to equity investments
- $0.05 of income tax adjustments related to certain discrete tax items
- $(0.01) of non-cash after-tax losses for impairments related to fair market value adjustments to decommissioned rigs that are held for sale
- $(0.01) of after-tax losses related to restructuring charges
- $(0.01) of after-tax losses related to the change in the fair values of certain contingent liabilities

Second quarter of fiscal year 2021 net loss of $(1.13) per diluted share included $(0.53) in after-tax losses comprised of the following:
- $0.02 of non-cash after-tax gains related to fair market value adjustments to equity investments
- $0.02 of non-cash after-tax gains from discontinued operations related to adjustments resulting from currency fluctuations
- $(0.01) of after-tax losses related to restructuring charges
- $(0.17) of after-tax losses pertaining to the sale of excess drilling equipment and spares
- $(0.39) of non-cash after-tax losses for impairments related to fair market value adjustments to decommissioned rigs that are held for sale


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