Some Payne, But Mostly Gain for H&P in Q4 2023

Despite persistent volatility in crude oil and natural gas prices during the fourth quarter—and for most of 2023—Helmerich & Payne (H&P) continued to experience revenue growth and expand its operations internationally.

“During the first fiscal quarter, the company delivered direct margins that were higher on a sequential basis, indicating that our direct margins—like our rig count—look to have experienced a trough during our fourth fiscal quarter of 2023,” H&P CEO John Lindsay said during the company’s Jan. 30 earnings call.

H&P’s North America Solutions (NAS) segment was responsible for much of the company’s success, with a revenue increase of $1,000/day to $38,300/day on a sequential basis. Direct margins per day also increased by approximately $1,200/day to $18,700/day.

Lower price term contracts allowed NAS revenues to increase by $19 million. Direct margin was $256 million, just above the high end of guidance and sequentially higher than the previous quarter’s $239 million direct margin.

NAS made these improvements despite leaving the fourth quarter on the lower end of its rig guidance range at 151 active rigs in North America—including super-spec rigs.

In line with quarter-to-quarter growth, NAS expects to exit the second quarter with between 154 and 159 active rigs and has made progress towards its goal with 154 active rigs currently.

“While demand is present for super-spec rigs, net rig additions were lower due to new rig awards, essentially replacing rigs being sidelined due to churn,” Mark Smith, senior vice president and CFO of H&P, said during the call.

The rig count decline—for both non-super-spec rigs and super-spec rigs—was seen mainly in the first six months of 2023 in H&P’s gassier basins, Lindsay said.

“But the decline was double on a percentage basis, given the dwindling number of non-super-spec rigs remaining in the market,” Lindsay said.

Performance-based contracts made up 50% of total contracted rigs in fourth quarter 2023. Performance contracts aren’t a “turnkey type construct contract,” said Smith, but rather contracts based on customer value-driving needs.

“There is no one size fits all. There [are] multiple types of performance-based contracts with our customers,” Lindsay said. “But the point is to set them up such that we're delivering what customers are seeking to achieve, and there's a wide range. But at the end of the day, it's meant to be a win-win. And so, we went in that. We're getting higher margins per day, but the customer is winning because they're lowering days and/or other parameters that they're focused on.”

International sees future growth

H&P’s International Solutions segment ended the first fiscal quarter with 12 rigs on contract, slightly above its guidance range.

H&P was awarded a contract for seven of its super-spec FlexRigs in the Middle East, a positive for its international expansion efforts. These rigs will be sourced from H&P’s idle super-spec rigs in the U.S. and converted to walking configurations and equipped with other contractual specifications. In addition to those seven rigs, super-specs were contracted for work in both Bahrain and Saudi Arabia.

“This additional Bahrain rig, as well as the Saudi Arabia rig awarded in August of ’23, should both start sometime in the summer of 2024. The seven Middle East rigs we were recently notified about are expected to start shortly after delivery, which is scheduled to occur through the first half of our fiscal 2025,” Smith said.

In the Gulf of Mexico (GoM), three of H&P’s seven offshore platform rigs have been contracted. H&P also has management contracts with three other customer-owned rigs, of which one is active rate. Offshore GoM generated a direct margin of $6 million during the quarter, in line with the segment’s guidance range. H&P expects to be relatively flat going into the second quarter, generating between $4 million and $7 million of direct margin.

H&P reported net income of $95 million from operating revenues of $677 million for the fourth quarter, compared to net income of $78 million from operating revenues of $660 million in the third quarter.

“As expected, the quarterly increase in revenue was due primarily to sequentially higher revenues in North America Solutions segment,” Smith said.

For the fourth quarter of 2023, capex was $136 million, $22 million more than the previous quarter spent, as some items originally forecasted in the previous quarter’s capex moved to the fourth quarter. Furthermore, net cash provided by operating activities for the quarter was $175 million for the quarter compared to $215 million last quarter. 

Expected capex for the full fiscal 2024 year remain between $450 million and $500 million, Smith said.

“Our 2024 guidance includes international growth capital, which is inclusive of converting idle U.S. rigs to walking, recertifying certain equipment to like new, conducting required rig modifications and purchasing specific equipment for Middle East contract opportunities,” Smith said.