Helmerich & Payne: All You Need To Know About Recent Earnings

| About: Helmerich & (HP)

Summary

Helmerich & Payne's operating revenues were $366.486 million. Earnings per share were ($0.20) and net loss $21.2 million.

HP backlog level as of June 30, 2016, was approximately $2 billion. Capital expenditures for fiscal 2016 are expected to be in the range of $300 million to $350 million.

I recommend HP as a long-term investment.

Helmerich & Payne (NYSE:HP)

The company operates as a contract drilling company worldwide. It provides drilling rigs, equipment, personnel and camps on a contract basis to explore for and develop oil and gas from onshore areas and fixed platforms, tension-leg platforms and spars in offshore areas.

Source: HP Flex4.

Fleet Analysis: M. Juan Tardio, CFO, in the Q2 2016 (Q3'16 fiscal) conference call:

As of today (July 28), our 348 available rigs in the U.S. land segment include approximately 91 rigs generating revenue and 257 idle rigs. Included in the 91 rigs generating revenue, are 72 rigs under term contracts, 67 of which are generating revenue days. In addition, 19 rigs are currently active in the spot market, for a total of 86 rigs generating revenue days in the segment, as compared to 78 rigs during our last update in early June.

Nevertheless, approximately 14% of these 86 rigs are now idle and on standby-type day rates, which protect daily margins under long-term contracts. Separately, the five rigs that are not generating revenue days include new build rigs with deliveries that have been delayed in exchange for compensation from customers. Of note, the number of our rigs active in the spot market has increased from eight rigs to 19 rigs since our latest update in early June.

Details about the different segments:

HP backlog level as of June 30, 2016, was approximately $2 billion.

Note: This is the Third-quarter fiscal result for HP that I am calling 2Q'16 here.

1 - U.S. Land Rigs

Financial Snapshot:

Q2 2016 Q1 2016 Q4 2015 Q3 2015 Q2 2015 Q1 2015

Revenue

$ million

285.028

349.283

420.393 494.615 718.463 890.047

Operating Income

$ million

25.802 62.521 33.653 121.734 224.866 318.122

Rig margin

per day $

21,694

20,079

13,490 14,219 20,802 27,355
Rig Utilization 24%

31%

43% 47% 68% 89%
Click to enlarge

2 - International Rigs

Financial Snapshot:

Q2 2016 Q1 2016 Q4 2015 Q3 2015 Q2 2015 Q1 2015

Revenue

$ million

47.983

51.352

78.069 106.198 98.222 92.885

Operating Income

$ million

(4.991)

(2.268)

69.784 16.670 6.328 12.214
Revenue days $ 1,274

1,307

1,608 1,887 1,842 2,080
Rig Utilization 37%

38%

45% 51% 52% 63%
Click to enlarge

3 - Offshore Rigs (Platform Rigs)

Financial Snapshot:

Q2 2016 Q1 2016 Q4 2015 Q3 2015 Q2 2015 Q1 2015

Revenue

$ million

30.492

34.325

52.280 55.673 62.626 69.473
Operating Income $ million 2.084

3.299

12.616 14.716 19.069 21.484
Revenue days $ 637

691

736 728 794 809
Rig Utilization 78%

84%

89% 89% 98% 98%
Click to enlarge

Click to enlarge

Q2 2016 (Fiscal Q3 of 2016) Financial Results Snapshot (6 quarters)

Q2 2016

(Third-quarter fiscal results)

Q1 2016 Q4 2015 Q3 2015 Q2 2015 Q1 2015

Total Revenue

in $ million

366.486

438.191

566.110 659.694 883.052 1,056.59
Total Revenue from drilling in $ million 363.503 434.960 563.052 656.486 879.381 1,052,79

Operating cost

in $ million

379.742

396.570

582.131 526.914 469.328 554.243

Operating income from operation

in $ million

(13.256)

41.621

(16.021) 132.780 227.172 331.819

Net Income

$ million

(21.200)

21.205

(27,596) 90.860 149.537 203.042

Cash and Cash equivalent

$ million

956.597 848.230 717.977

710.918

774.927

719.127 251.636

EPS

$

(0.20)

0.19

(0.25) 0.84 1.37 1.85

Dividend declared

per share $

0.70 0.6875 0.6875 0.6875 0.6875 0.6875
Long-term note payable $ million 493.150 492.668 492.443 532.388 532.908 40.000
Click to enlarge

Note from the release: Effective October 1, 2015, the Company eliminated a legacy one-month lag period between its U.S. fiscal year and its foreign subsidiaries' fiscal years. As required, the elimination of the one-month lag has been applied retrospectively to all periods presented herein.

Our backlog level as of June 30, 2016, was approximately $2 billion. Capital expenditures for fiscal 2016 are expected to be in the range of $300 million to $350 million.

Commentary

Helmerich & Payne's operating revenues were $366.486 million, down 16.4% quarter over quarter. Earnings per share were ($0.20) and net loss $21.2 million compared to a gain of $21.2 million the previous quarter. It was a quarter that the company should better forget about.

However, the company announced last month that the dividend will increase from $0.6875 per share to now 0.70 per share, which was quite unexpected due to the actual market environment. M. Juan Tardio said in the conference call:

We were pleased to announce last month a slight increase in our quarterly dividend to $0.70 per share. As previously discussed, our strong balance sheet and high liquidity position, along with our firm backlog of long-term contract and reduced capex requirements, should continue to allow us to sustain the level of our regular dividend payments during the foreseeable future.

The company announced on July 13, 2016, a new five-year, $300 million revolving credit facility that essentially replaced a very similar facility issued in 2012, that was set to expire in May of 2017 (can be expanded by up to $200 million.)

Market outlook:

Looking at the next quarter, the company expects a slight increase in total revenue (in the lower 48), whereas rig revenue per day will decline in the 24,000 level due to a higher proportion of rigs working in the spot market. The company said that the day rate on the spot is now 35% down compared to the peak in 2014, whereby the rig expense will also go down to 13,300 due to the company's effort to reduce costs.

One important element for HP is that the daily margin is strong and will get stronger as the new rigs will be deployed. The margin is over 15,000 - this is a good financial element.

For the offshore sector, the next quarter will be about the same.

On the international front, the company expects a bigger increase in revenue next quarter.

Conclusion:

Click to enlarge

There is no doubt HP should be considered as the perfect long-term candidate despite the difficult market in which it is struggling now. It was important to take some profit off the table when the stock reached the overbought range between $67-$70.

A bearish technical sign is that the 50-MA has been breached, and the next support should be $57-$55.

For the ones who took profit above $67, it would make sense to add around $57-$55.

I recommend HP as a long-term investment.

Important note: Do not forget to become one of my followers on HP and the oil industry. Thank you.

Disclosure: I am/we are long HP.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.