Company Update (NYSE:HP): Helmerich & Payne, Inc. Announces First Quarter Results


Helmerich & Payne, Inc. (NYSE:HP) reported net income of $16 million ($0.15per diluted share) from operating revenues of $488 million for the first quarter of fiscal 2016, compared to net income of $204 million ($1.86 per diluted share) from operating revenues of $1.06 billion during the first quarter of fiscal 2015, and net loss of$28 million (negative $0.25 per diluted share) from operating revenues of $554 million during the fourth quarter of fiscal 2015.  Included in net income per diluted share for both this year’s first fiscal quarter and last year’s first fiscal quarter are approximately $0.10 and $0.07, respectively, in after-tax income related to a combination of select items as described in a separate section of this press release.  Included in net loss per diluted share for last year’s fourth fiscal quarter are approximately $0.29 in after-tax losses related to a combination of select items.

President and CEO John Lindsay commented, “Our first fiscal quarter results were better than expected primarily as a result of significantly reduced daily rig expenses in our U.S. Land segment.  Unfortunately, as very low oil and gas prices force our customers to further reduce their drilling budgets, the U.S. land industry rig count has now declined to levels not seen since 1999.  Although the market isn’t expected to improve in the second fiscal quarter, we will continue to work on cost-effective measures across the organization while strengthening our ability to add value for our customers through innovation and productivity enhancements.

“Given our unparalleled experience designing, building, operating and maintaining AC drive land rigs, we have the distinct advantage of being able to continuously upgrade our already best-in-class rigs to meet the needs of more complex well designs.  This continuous learning and improvement culture, along with our relentless focus on customer service, should allow us to further help our customers reduce their total cost per well.

“With a very strong and liquid balance sheet, a firm backlog of term contracts and the flexibility to significantly reduce spending levels during a soft market, our approach to capital allocation will remain prudent and should allow us to effectively manage our business through this downturn and emerge from it with even greater competitive advantages.”

The Company also announced today that starting October 1, 2015 and during the quarter ended December 31, 2015, the Company eliminated a legacy one-month lag period between its U.S. fiscal year and its foreign subsidiaries’ fiscal years.  In the past and for financial reporting purposes, fiscal years for the Company’s foreign operations ended on August 31 instead ofSeptember 30 to facilitate reporting of consolidated results.  While the previous method is considered acceptable, the Company believes this voluntary change in accounting principle is preferable because it provides the most current level of information available.  As required, the Company is applying the elimination of the one-month lag retrospectively to all periods presented herein.  The corresponding net impact on the first quarter of fiscal 2015 was an increase in net income of less than $1 million.  The net impact on the fourth quarter of fiscal 2015 was an increase in net loss of approximately $6 million, which was primarily attributable to long-term contract early termination compensation revenue that shifted to the third quarter of fiscal 2015.     

Operating Segment Results

Segment operating income for the Company’s U.S. land operations was $56 million for the first quarter of fiscal 2016, compared with $318 million for last year’s first fiscal quarter and $34 million for last year’s fourth fiscal quarter.  As compared to the fourth quarter of fiscal 2015, the increase in segment operating income was primarily attributable to a higher rig margin per day average as well as the absence of non-cash abandonment charges during the first quarter of fiscal 2016.  The number of quarterly revenue days decreased sequentially by 11.5% to 11,945 days.  Excluding the impact of $2,482 and $2,417 per day corresponding to revenues from early contract terminations during last year’s fourth fiscal quarter and this year’s first fiscal quarter, respectively, the average rig revenue per day increased sequentially by $16 to $26,234, and the average rig margin per day increased sequentially by $949 to $13,344.  The average rig expense per day decreased sequentially by $933 to $12,890.  Rig utilization for the segment was 39% for this year’s first fiscal quarter, compared with 89% and 43% for last year’s first and fourth fiscal quarters, respectively.  At December 31, 2015, the Company’s U.S. land segment had approximately 131 contracted rigs generating revenue (including 101 under long-term contracts) and 214 idle rigs.

Segment operating income for the Company’s offshore operations was $7.7 million for the first quarter of fiscal 2016, compared with $21.7 million for last year’s first fiscal quarter and $12.6 million for last year’s fourth fiscal quarter.  The sequential decrease in operating income was mostly attributable to a decline in the average rig margin per day, which decreased from$13,296 to $7,920.  Quarterly revenue days remained flat sequentially at 736 days during the first fiscal quarter.

The Company’s international land operations reported a segment operating loss of $6.7 million for this year’s first fiscal quarter, compared with operating income of $10.6 million for last year’s first fiscal quarter and an operating loss of $47.2 million for last year’s fourth fiscal quarter.  The sequential decrease in operating loss was mostly attributable to the absence of impairment and other non-cash charges during the first fiscal quarter which was somewhat tempered by a currency exchange loss of $8.5 million primarily due to the devaluation of the Argentine Peso in December 2015.  The sequential decline in operating loss was also attributable to an increase in the average rig margin per day.  Excluding the impact of $3,128 per day corresponding to charges related to an allowance for doubtful accounts during last year’s fourth fiscal quarter, the average rig margin per day increased sequentially from $8,129 to $11,811.  The number of quarterly revenue days decreased sequentially by approximately 12% to 1,411 days.

Drilling Operations Outlook for the Second Quarter of Fiscal 2016

In the U.S. land segment, the Company expects revenue days (activity) to decrease by roughly 20% during the second fiscal quarter as compared to the first fiscal quarter of 2016.  Excluding any impact from early termination revenue, the average rig revenue per day is expected to be roughly flat, as compared to the first quarter of fiscal 2016, and the corresponding average rig expense per day is expected to increase to roughly $13,600.  As of today, the U.S. land segment has approximately 121 contracted rigs that are generating revenue (including 93 under term contracts) and 226 idle rigs.

In the offshore segment, the Company expects the average rig margin per day to be approximately $8,250 during the second fiscal quarter of 2016 and revenue days to decrease by approximately 5% to 10% as compared to the first quarter of fiscal 2016.

In the international land segment, the Company expects revenue days to decline by roughly 5% to 10% as compared to the first quarter of fiscal 2016.  The average rig margin per day is expected to be roughly $7,500 during the second quarter of fiscal 2016.

Select Items Included in Net Income (or Loss) per Diluted Share

Included in net income per diluted share corresponding to the first quarter of fiscal 2016 are approximately $0.10 in after-tax income related to a combination of the following:  $0.17 of after-tax gains from long-term contract early termination compensation from customers; $0.03 of after-tax gains related to the sale of used drilling equipment; $0.05 of after-tax losses related to a currency exchange loss; and a negative $0.05 impact on income tax expense primarily due to a fiscal 2015 adjustment to the Domestic Production Deduction that resulted from a U.S. tax law change in December 2015 extending bonus depreciation allowances that had expired December 31, 2014.

Included in net income per diluted share corresponding to the first quarter of fiscal 2015 are approximately $0.07 in after-tax income related to a combination of the following:  $0.14 of after-tax gains from long-term contract early termination compensation from customers; $0.02 of after-tax gains related to the sale of used drilling equipment; and a negative $0.09impact on income tax expense primarily due to a fiscal 2014 adjustment to the Domestic Production Deduction that resulted from a U.S. tax law change in December 2014 extending bonus depreciation allowances that had expired December 31, 2013.

Included in net loss per diluted share corresponding to the fourth quarter of fiscal 2015 are approximately $0.29 in after-tax losses related to a combination of the following:  $0.20 of after-tax gains from long-term contract early termination compensation from customers; $0.02 of after-tax gains related to the sale of used drilling equipment; $0.03 of after-tax losses related to an allowance for doubtful accounts; $0.18 of after-tax losses from abandonment charges related to the decommissioning of certain (SCR) land rigs and other used drilling equipment; $0.23 of after-tax losses from impairment charges for certain (SCR) land rigs; and a negative $0.07 impact on income tax expense due primarily to limitations on foreign income tax credits. (Original Source)

Shares of Helmerich & Payne closed yesterday at $46.07. HP has a 1-year high of $79.90 and a 1-year low of $40.02. The stock’s 50-day moving average is $49.83 and its 200-day moving average is $53.84.

On the ratings front, Helmerich & Payne has been the subject of a number of recent research reports. In a report issued on January 8, Macquarie analyst Nigel Browne downgraded HP to Sell. Separately, on December 14, KLR Group’s Darren Gacicia initiated coverage with a Buy rating on the stock and has a price target of $78.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Nigel Browne and Darren Gacicia have a total average return of 7.2% and -17.1% respectively. Browne has a success rate of 64.3% and is ranked #840 out of 3596 analysts, while Gacicia has a success rate of 19.6% and is ranked #3463.

Helmerich & Payne Inc is engaged in contract drilling of oil & gas wells for others in the ownership, development & operation of commercial real estates. Its business comprises of three reportable segments: U.S. Land, Offshore & International Land.