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


Helmerich & Payne, Inc. (NYSE:HP) reported a net loss of $21 million(negative $0.20 per diluted share) from operating revenues of $366 million for the third quarter of fiscal 2016, compared to net income of $91 million ($0.83 per diluted share) from operating revenues of $661 million (as adjusted) during the third quarter of fiscal 2015, and net income of $21 million ($0.19 per diluted share) from operating revenues of $438 millionduring the second quarter of fiscal 2016.  Included in net income per diluted share for this year’s and last year’s third fiscal quarters as well as this year’s second fiscal quarter are approximately $0.27, $0.61, and $0.46, respectively, of after-tax income related to a combination of select items (including long-term contract early termination compensation from customers) as described in a separate section of this press release.

President and CEO John Lindsay commented, “Even though oil prices have pulled back over the past several weeks, it is encouraging to still see signs of optimism in the market.   In May, the BHI U.S. land rig count troughed at 380 rigs, and has since increased from what everyone hopes was the absolute bottom of this market cycle.  Recently, some E&P companies have announced budget increases and rig count additions.  It is a positive sign, but many still remain on the sidelines.

“This has been an extraordinary downturn and it is having a pervasive effect on every enterprise within the industry.  While H&P remains very strong and has been proactive and effective in adjusting to this new environment, the declines in activity levels and spot pricing that we have experienced have significantly impacted our bottom line and the size of our organization.  An improving market reverses these two trends, and we believe that we are uniquely positioned to grow market share in the increasingly complex drilling environment that unconventional shale plays will require going forward.

“Time will tell whether momentum is truly building in the market; a few data points do not make a trend.   However, regardless of the timing, we are making every effort to emerge from this as a stronger Company for customers, employees, and shareholders.”

Operating Segment Results

Segment operating income for the Company’s U.S. land operations was $26 million for the third quarter of fiscal 2016, compared with $122 million for last year’s third fiscal quarter and $63 million for this year’s second fiscal quarter.  As compared to the second quarter of fiscal 2016, segment operating income decreased as a result of lower quarterly levels of activity and rig margins (excluding revenues from early contract terminations), as well as impairment charges during the third fiscal quarter related to used drilling equipment.  The number of quarterly revenue days decreased sequentially by approximately 22% to 7,483 days.  Excluding the impact of $8,287 and $10,790 per day corresponding to revenues from early contract terminations during this year’s second and third fiscal quarters, respectively, the average rig revenue per day decreased sequentially by $1,247 to $24,684.  Excluding the impact of $110 and $363 per day corresponding to employee severance expense during this year’s second and third fiscal quarters, respectively, the average rig expense per day decreased sequentially by $612 to $13,417.  Thus, the corresponding average rig margin per day decreased sequentially by$635 to $11,267.  Rig utilization for the segment was 24% for this year’s third fiscal quarter, compared with 47% and 31% for last year’s third fiscal quarter and this year’s second fiscal quarter, respectively.  At June 30, 2016, the Company’s U.S. land segment had approximately 89 contracted rigs generating revenue (including 75 under long-term contracts) and 259 idle rigs.  The 89 contracted rigs included 84 rigs generating revenue days.

Segment operating income for the Company’s offshore operations was $2.1 million for the third quarter of fiscal 2016, compared with $14.7 million for last year’s third fiscal quarter and $3.3 million for this year’s second fiscal quarter.  The sequential decrease in operating income was attributable to employee severance expense and declines in rig revenue days.  Excluding the impact of $537 and $1,236 per day corresponding to employee severance expense during this year’s second and third fiscal quarters, respectively, the average rig margin per day increased sequentially from $7,883 to $7,981, and quarterly revenue days decreased from 691 days to 637 days during the third fiscal quarter.

The Company’s international land operations reported a segment operating loss of $5.0 million for this year’s third fiscal quarter, compared with operating income of $19.0 million (as adjusted) for last year’s third fiscal quarter and an operating loss of $2.3 million for this year’s second fiscal quarter.  The sequential decrease in operating results was attributable to declines in the average daily margins and rig revenue days. Excluding the impact of $212 and $924 per day corresponding to employee severance expense during this year’s second and third fiscal quarters, respectively, the average rig margin per day decreased sequentially from $10,699 to $9,461 during the third fiscal quarter.  The number of quarterly revenue days decreased sequentially by approximately 3% to 1,274 days.

Drilling Operations Outlook for the Fourth Quarter of Fiscal 2016

In the U.S. land segment, the Company expects revenue days (activity) to increase by roughly 3% to 7% during the fourth fiscal quarter as compared to the third fiscal quarter of 2016.  Excluding any impact from early termination revenue, the average rig revenue per day is expected to be roughly $24,000, and the corresponding average rig expense per day is expected to decrease to roughly $13,300.  As of today, the U.S. land segment has approximately 91 contracted rigs that are generating revenue (including 72 under term contracts) and 257 idle rigs.  The 91 contracted rigs include 86 rigs generating revenue days.

In the offshore segment, the Company expects revenue days to increase by approximately 1% during the fourth fiscal quarter as compared to the third fiscal quarter of 2016.  The average rig margin per day is expected to be approximately $8,000during the fourth quarter of fiscal 2016.

In the international land segment, the Company expects revenue days to increase by approximately 5% to 10% during the fourth quarter as compared to the third quarter of fiscal 2016.  The average rig margin per day is expected to be roughly$8,300 during the fourth quarter of fiscal 2016.

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

Included in net loss per diluted share corresponding to the third quarter of fiscal 2016 are approximately $0.27 of after-tax income related to a combination of the following:  $0.35 of after-tax gains from long-term contract early termination compensation from customers; $0.02 of after-tax losses from employee severance expense; $0.03 of after-tax losses from impairment charges related to used drilling equipment; and $0.03 of after-tax losses in general and administrative expenses from employer 401K plan matching contributions related to employee work force reductions.

Included in net income per diluted share corresponding to the third quarter of fiscal 2015 are approximately $0.61 of after-tax income related to a combination of the following:  $0.60 (as adjusted) of after-tax gains from long-term contract early termination compensation from customers and $0.01 of after-tax gains related to the sale of used drilling equipment.

Included in net income per diluted share corresponding to the second quarter of fiscal 2016 are approximately $0.46 of after-tax income related to a combination of the following:  $0.49 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; $0.01 of after-tax losses from employee severance expense; and $0.04 of losses from discontinued operations.(Original Source)

Shares of Helmerich & Payne closed yesterday at $62.97, down $1.26 or -1.96%. HP has a 1-year high of $70.28 and a 1-year low of $40.02. The stock’s 50-day moving average is $66.03 and its 200-day moving average is $58.32.

On the ratings front, Helmerich & Payne has been the subject of a number of recent research reports. In a report issued on July 13, Citigroup analyst Scott Gruber maintained a Hold rating on HP, with a price target of $70, which implies an upside of 11.2% from current levels. Separately, on July 11, Jefferies Co.’s Brad Handler maintained a Sell rating on the stock and has a price target of $43.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Scott Gruber and Brad Handler have a total average return of 7.9% and -9.2% respectively. Gruber has a success rate of 67.1% and is ranked #528 out of 4087 analysts, while Handler has a success rate of 39.5% and is ranked #3931.

Overall, 5 research analysts have rated the stock with a Sell rating, 5 research analysts have assigned a Hold rating and 3 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $70.00 which is 11.2% above where the stock closed yesterday.

Helmerich & Payne, Inc. engages in contract drilling of oil and gas well. Its contract drilling business operates through the following segments: U.S. Land, Offshore, and International Land. The U.S. Land segment operations drilled primarily in Oklahoma, California, Texas, Wyoming, Colorado, Louisiana, Mississippi, Pennsylvania, Ohio, Utah, New Mexico, Montana, North Dakota, West Virginia and Nevada. The Offshore operations were conducted in the Gulf of Mexico and Equatorial Guinea. The International Land segment operated in seven international locations during fiscal 2014: Ecuador, Colombia, Argentina, Tunisia, Bahrain, United Arab Emirates, and Mozambique.