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Summary

  • Customer satisfaction data suggest low-key Helmerich & Payne poised to continue to dominate U.S. land markets.
  • Pumps remain primed with contracts for dozens of newbuild rigs in the pipeline.
  • Fit-for-purpose FlexRig rigs offer customers both performance and cost benefits.
  • Company's distinct culture an asset and competitive advantage.

Until recently, if one were to side-click their way to the website of onshore drilling contractor Helmerich & Payne (NYSE:HP), they could be forgiven for assuming the company was just another run-of-the-mill driller. Framed mostly in nondescript grey and blue, the site seemed like an unfinished afterthought of an organization that quite frankly had better things to do.

In truth, that's probably not too far off. H&P traditionally has avoided spotlight that most other companies crave, content to focus on the fundamental blocking and tackling that goes into drilling clients' wells. Along the way, it's left the trumpeting of its considerable achievements to customers and industry analysts.

Still, when you've earned the kind of respect the Tulsa-based company has over the years, taking a little pride in the presentation of your story is only natural. More on par with the company's image, H&P's website now has a decidedly more modern look and feel. The site's content, however, still suggests an organization focused on one simple goal: continued domination of the onshore contract drilling market.

Land Drillers TS

When H&P introduced its third-generation FlexRig in 2002, it effectively ushered in a new operating model for the domestic onshore drilling market, one that would prove a perfect fit for the emerging Shale Revolution. With de novo AC drive capabilities, high-tech controls and displays, and climate-controlled drillers cabins, the company set a course that forever altered the calculus behind the drilling of oil and gas wells in North America.

Today, the FlexRig configuration holds the main stage. It is one of the best-known brands in the oilfield, a highly respected series of rigs in an industry where equipment is often and dispassionately referred to as "heavy-iron". H&P's rigs are ones customers have come to not only trust, but to prefer. In the first-half of the current fiscal year, H&P garnered 44 contracts for newbuild FlexRigs, all supported by long-term customer contracts. As the AC drive rig dial up continues, additional orders will indubitably follow.

In addition to being a fit-for-purpose engineering success, the FlexRig series offers added benefits from standardization - what H&P management refers to as "uniformity." Our take on the issue and its role in driving customer satisfaction is pretty straight forward: standardization of winning designs allows for more effective training of personnel, lower operating costs, tighter supply-chain management, reduced working capital investment and greater utilization of resources across the organization.

In turn, these factors lead to more consistent performance where it matters most - in the field. In our opinion, it's no coincidence that Ensco (NYSE:ESV), the top-rated offshore contract driller in EnergyPoint's surveys, also embraces standardization as a primary strategic tenet.

So, after a decade of unprecedented growth and success, where does H&P go from here? Fortunately, the company is one of the few onshore drillers that can say (with a straight face, anyway) that its best course of action is to simply keep doing what it's been doing.

According to H&P management, approximately 40% of all active rigs in the U.S. are AC drive units (a statistic we have no reason to dispute). At the same time, places like the Permian Basin, previously thought to be one of the last bastions of the mechanical rig, continue to see AC rig usage rise. Both trends plausibly could pad FlexRig's market share, and H&P's related fortunes, for years to come.

As reluctant as the company may be to bask in the glow of its ascendancy, H&P remains one of the oil and gas industry's true rockstars. EnergyPoint's latest annual survey results acutely suggest customers remain heavy admirers of the company's people, assets and services. Compared to the average ratings for major peers - namely, Nabors (NYSE:NBR), Patterson-UTI (NASDAQ:PTEN), Precision (NYSE:PDS) and Unit (NYSE:UNT) - H&P's ratings outperform on all counts.

H&P's strong customer satisfaction levels speak not only to the company's performance in the field, but to its winning culture as well. And it's the cultural part of H&P's approach to its business that, in the end, will likely prove the most difficult for competitors to replicate.

Source: The Reluctant Rockstar