Market Overview

Helmerich & Payne, Inc. Announces Second Quarter Fiscal 2019 Results

Share:
  • Quarterly U.S. Land adjusted average rig revenue increased by more
    than $450(1) per day, up approximately 2% sequentially
  • Quarterly U.S. Land adjusted average rig margin increased by
    approximately $900(1) per day, up more than 8% sequentially
  • H&P upgraded 9 FlexRigs® to super-spec(2) capacity
    during the second fiscal quarter of 2019
  • The Company signed a letter of intent to deploy its first super-spec
    FlexRig to an international market
  • Achieved commercialization of our drilling automation technology,
    AutoSlideSM in the Midland Basin and just last week
    deployed into the Eagle Ford Shale
  • On March 6, 2019, Directors of the Company declared a quarterly cash
    dividend of $0.71 per share
  • H&P has been ranked 1st in total customer satisfaction
    for 11 years in a row by EnergyPoint Research(3)

Helmerich & Payne, Inc. (NYSE:HP) reported income of $61 million or
$0.55 per diluted share from operating revenues of $721 million for the
quarter ended March 31, 2019, compared to income of $19 million, or
$0.17 per diluted share, on revenues of $741 million for the quarter
ended December 31, 2018. Net income per diluted share for the second and
first fiscal quarters of 2019 include $(0.01) and $(0.25), respectively,
of after-tax losses comprised of select items(4). For the
second fiscal quarter select items(4) were comprised of:

  • $0.13 of after-tax gains related to early termination compensation, a
    non-cash fair market adjustment to our equity investments, and gains
    on sales
  • $(0.14) of after-tax losses related to abandonments and accelerated
    depreciation, and losses from discontinued operations related to
    currency fluctuations

Net cash provided by operating activities was $200 million for the
second quarter of fiscal 2019 compared to $209 million for the first
fiscal quarter of fiscal 2019.

President and CEO John Lindsay commented, "From the outset, this was a
quarter challenged by industry uncertainty, so I am pleased to report
that the Company not only stayed on target and delivered sequentially
improved net income, but also achieved two significant milestones.

"Concern over crude oil prices persisted from the prior quarter which
softened demand for incremental super-spec rigs, but H&P completed the
planned upgrades already in its pipeline bringing our total number of
super-spec FlexRigs to 230 at quarter end. Based on trends we are seeing
in rig releases and current demand, we believe the Company's active rig
count will bottom-out early during this quarter with super-spec
utilization in the 90%-plus range. This should be supportive of the
current pricing environment.

"Crude oil prices are up approximately 40% since the beginning of the
calendar year and in past cycles this would have resulted in higher
activity. However, we have seen a tempered response and even reductions
in activity by some in the industry. Clearly, customer behavior is
changing, and their movement is towards prioritization of cash flows and
returns. An additional emphasis is placed on disciplined spending and
determining where value can be added to improve performance and
long-term cash flows. H&P is well positioned in this type of environment
with the hardware – a FlexRig fleet that is an industry leader in
drilling unconventional wells, and with the software – a digital
technology platform that when deployed on a rig can improve well
economics, both of which help our customers achieve their goals.

"During the quarter, H&P achieved a major milestone through the
commercialization of its drilling automation technology, AutoSlide. We
believe AutoSlide and the other software-based offerings from our H&P
Technologies (HPT) platform, Motive and MagVar, will continue to gain
traction in the industry as the benefits of wellbore quality and
placement become more evident as multi-well pad drilling shifts to a
manufacturing-type process. The benefits of these technologies can have
a meaningful impact on customer well economics by improving production
dynamics and lowering the risk of wellbore interference, thereby
bolstering financial returns through the life of the well. We are
committed to partnering with our customers to unlock these benefits.

"A pivotal long-term objective has been to translate H&P's position of
drilling leadership in U.S. unconventional basins to key international
markets where super-spec FlexRigs and HPT software solutions, including
AutoSlide, can add significant value to the customer. That has started
coming to fruition with the signing of a letter of intent to deploy our
first super-spec FlexRig from the U.S. to Argentina later this quarter.
We see this as a significant milestone and are excited about this
opportunity and what it portends for H&P's Latin America business, as
well as other international markets."

Vice President and CFO Mark Smith also commented, "Despite the head
winds that prevailed in the beginning of calendar year 2019, H&P kept
its focus on achieving long-term success with the commercialization of
AutoSlide and a letter of intent to send a super-spec FlexRig to an
international location. Both lay the groundwork for future growth
opportunities for H&P. The Company's previously reduced cadence for
super-spec upgrades remains unchanged for the balance of our fiscal
year, as does our capital allocation strategy. As we look ahead, we are
confident in the cash flow generation potential of our upgraded
super-spec FlexRig fleet."

John Lindsay concluded, "The Company achieved excellent operational
results and several technical accomplishments during the quarter. Our
ability to adapt and respond to uncertain market conditions while
securing new opportunities for long-term success is paramount. These
achievements aren't possible without the efforts of our people working
as a team to deliver on our goals; this exemplifies H&P's commitment to
excellence, which culminated in the Company being ranked first in
customer satisfaction for 11 years in a row."

Operating Segment Results for the Second Quarter
of Fiscal 2019

U.S. Land Operations:

Segment operating income increased by $26.5 million to $106.1 million
sequentially. The increase in operating results was primarily driven by
a legal settlement cost that adversely impacted the prior quarter and
the sequential increase in the adjusted average rig margin per day. The
number of quarterly revenue days decreased sequentially by approximately
3% as expected. Adjusted average rig revenue per day improved by $468 to
$25,624(1) largely due to the average dayrate increasing
during the quarter.

The adjusted average rig expense per day decreased sequentially by $427
to $14,195(1) as the quarter benefitted from favorable
adjustments to self-insurance expenses and lower reactivation costs
associated with the Company's slower upgrade cadence. Corresponding
adjusted average rig margin per day increased $895 to $11,429(1).

The segment's depreciation expense for the quarter includes non-cash
charges of $5.3 million for abandonments and accelerated depreciation of
used drilling rig components related to rig upgrades, compared to
similar non-cash charges of $3.5 million during the first fiscal quarter
of 2019.

International Land Operations:

Segment operating income increased by $1.3 million to $8.0 million
sequentially. The increase in operating income was attributable to a
higher adjusted average rig margin offset to some extent by less revenue
days as some rigs in Colombia became idle. Revenue days decreased during
the quarter by 11% to 1,559 while the adjusted average rig margin per
day increased by $1,679 to $11,861(1).

Offshore Operations:

Segment operating income decreased by $2.6 million to $4.5 million
sequentially. The number of quarterly revenue days on H&P-owned platform
rigs increased sequentially by approximately 3%, while the average rig
margin per day decreased sequentially by $4,578 to $5,420 due to
unfavorable adjustments to self-insurance expenses and a rig moving to a
standby rate during the quarter. Management contracts on customer-owned
platform rigs contributed approximately $4.7 million to the segment's
operating income, compared to approximately $5.4 million during the
prior quarter.

H&P Technologies:

The segment had an operating loss of $7.9 million this quarter as
compared to an operating loss of $10.3 million during the previous
quarter. The $2.4 million sequential decrease in the operating loss was
due primarily to lower costs incurred during the quarter.

Operational Outlook for the Third Quarter of
Fiscal 2019

U.S. Land Operations:

  • Quarterly revenue days expected to decrease by approximately 4%-6%
    sequentially representing a roughly 5%-7% decrease in the average
    number of active rigs; we expect to exit the quarter at between
    215-225 active rigs
  • Average rig revenue per day expected to be relatively flat between
    $25,500-$26,000 (excluding any impact from early termination revenue)
  • Average rig expense per day expected to be between $14,250-$14,750
  • We expect to upgrade 2-3 FlexRigs to walking super-spec capabilities
    during the quarter

International Land Operations:

  • Quarterly revenue days expected to be down approximately 1%
    sequentially, representing an average rig count of 17 rigs for the
    quarter
  • Average rig margin per day expected to be roughly $9,000-$10,000

Offshore Operations:

  • Quarterly revenue days expected to increase by approximately 1%
    sequentially, representing an average rig count of 6 rigs for the
    quarter
  • Average rig margin per day expected to be approximately $9,500-$10,500
    as two rigs return to full operating dayrates
  • Management contracts expected to generate approximately $3-$4 million
    in operating income

HP Technologies:

  • Following our recent deployment in the Eagle Ford Shale, we anticipate
    introducing the AutoSlide technology into the Scoop/Stack in the next
    2-3 months.
  • The recent moderation of industry rig demand has the potential to slow
    the rate of adoption of our new technologies.

Other Estimates for Fiscal 2019

  • Capital expenditures are still expected to be approximately $500 to
    $530 million with roughly 35% expected for super-spec upgrades, 33-38%
    expected for maintenance and 27-32% expected for continued
    reactivations and other bulk purchases.
  • Depreciation is now expected to be approximately $580 million,
    inclusive of abandonment and accelerated depreciation charges
    estimated at approximately $20 million.

Select Items Included in Net Income per Diluted
Share

Second Quarter of Fiscal 2019 net income of $0.55 per diluted share
included $(0.01) in after-tax losses comprised of the following:

  • $0.01 of after-tax income from long-term contract early termination
    compensation from customers
  • $0.04 of non-cash after-tax gains related to the fair market
    adjustment of equity investments
  • $0.08 of after-tax gains related to the sale of used drilling equipment
  • $(0.04) of after-tax losses from abandonment charges and accelerated
    depreciation related to the decommissioning of used drilling equipment
  • $(0.10) of after-tax losses from discontinued operations related to
    adjustments resulting from currency fluctuations

First Quarter of Fiscal 2019 net income of $0.17 per diluted share
included $(0.25) in after-tax losses comprised of the following:

  • $0.01 of income tax adjustments related to certain discrete tax items
  • $0.04 of after-tax gains related to the sale of used drilling equipment
  • $0.05 of after-tax income from long-term contract early termination
    compensation from customers
  • $0.10 of after-tax income from discontinued operations related to
    adjustments resulting from currency fluctuations
  • $(0.02) of after-tax losses from abandonment charges and accelerated
    depreciation related to the decommissioning of used drilling equipment
  • $(0.02) of after-tax losses from bond exchange fees
  • $(0.12) of after-tax losses from the settlement of a lawsuit
  • $(0.29) of non-cash after-tax losses related to the fair market
    adjustment of equity investments

Conference Call

A conference call will be held on Thursday, April 25, 2019 at 11:00 a.m.
(EDT) with John Lindsay, President and CEO, Mark Smith, Vice President
and CFO, and Dave Wilson, Director of Investor Relations to discuss the
Company's fiscal second quarter 2019 results. Dial-in information for
the conference call is (877) 876-9173 for domestic callers or (785)
424-1667 for international callers. The call access code is ‘Helmerich'.
You may also listen to the conference call that will be broadcast live
over the Internet by logging on to the Company's website at http://www.hpinc.com
and accessing the corresponding link through the Investor Relations
section by clicking on "INVESTORS" and then clicking on "Event Calendar"
to find the event and the link to the webcast.

About Helmerich & Payne, Inc.

Founded in 1920, Helmerich & Payne, Inc. (H&P) (NYSE:HP) is committed
to delivering industry leading levels of drilling productivity and
reliability. H&P operates with the highest level of integrity, safety
and innovation to deliver superior results for its customers and returns
for shareholders. Through its subsidiaries, the Company designs,
fabricates and operates high-performance drilling rigs in conventional
and unconventional plays around the world. H&P also develops and
implements advanced automation, directional drilling and survey
management technologies. H&P's fleet includes 350 land rigs in the U.S.,
32 international land rigs and eight offshore platform rigs. For more
information, see H&P online at www.hpinc.com.

Forward-Looking Statements

This release includes "forward-looking statements" within the meaning of
the Securities Act of 1933 and the Securities Exchange Act of 1934, and
such statements are based on current expectations and assumptions that
are subject to risks and uncertainties. All statements other than
statements of historical facts included in this release, including,
without limitation, statements regarding the registrant's future
financial position, operations outlook, business strategy, budgets,
projected costs and plans and objectives of management for future
operations, are forward-looking statements. For information regarding
risks and uncertainties associated with the Company's business, please
refer to the "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" sections of the Company's
SEC filings, including but not limited to its annual report on Form 10-K
and quarterly reports on Form 10-Q. As a result of these factors,
Helmerich & Payne, Inc.'s actual results may differ materially from
those indicated or implied by such forward-looking statements. We
undertake no duty to update or revise our forward-looking statements
based on changes in internal estimates, expectations or otherwise,
except as required by law.

Note Regarding Trademarks. Helmerich & Payne, Inc. owns or has rights to
the use of trademarks, service marks and trade names that it uses in
conjunction with the operation of its business. Some of the trademarks
that appear in this release or otherwise used by H&P include FlexRig,
FlexApp and AutoSlide, which may be registered or trademarked in the
U.S. and other jurisdictions.

(1) See the Selected Statistical & Operational Highlights
table(s) for details on the revenues or charges excluded on a per
revenue day basis. The inclusion or exclusion of these amounts results
in adjusted revenue, expense, and/or margin per day figures, which are
all non-GAAP measures.

(2) The term "super-spec" herein refers to rigs with the
following specifications: AC drive, 1,500 hp drawworks, 750,000 lbs.
hookload rating, 7,500 psi mud circulating system and multiple-well pad
capability.

(3) EnergyPoint Research published its annual Oilfield
Products & Services Customer Satisfaction Survey results on February 5,
2019. Many in the industry use this independent survey as a benchmark
for measuring customer satisfaction within oilfield services.

(4) See the corresponding section of this release for details
regarding the select items.

             

HELMERICH & PAYNE, INC.

Unaudited

(in thousands, except per share data)

 
Three Months Ended Six Months Ended
March 31 December 31 March 31 March 31
CONSOLIDATED STATEMENTS OF OPERATIONS 2019 2018 2018 2019 2018
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