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Helmerich & Payne: The Heavyweight Driller Is Doing Its Best

May 06, 2020 1:36 PM ETHelmerich & Payne, Inc. (HP)3 Comments
Vasily Zyryanov profile picture
Vasily Zyryanov


  • In Q2 FY20, HP's revenue fell by 12%, but the worst is yet to come.
  • Amid the oil price collapse, the rigs decommissioning has taken a toll on quarterly accounting profit.
  • H1 FY20 FCF remained positive despite plummeted cash from operations.
  • HP has a robust balance sheet and no maturities until 2025.
  • It will be reasonable to remain neutral as it is highly uncertain when the U.S. shale will return to the capex growth.

The U.S. drilling industry heavyweight and one of the beneficiaries of the U.S. shale boom, Helmerich & Payne, Inc. (NYSE:HP), has recently presented its Q2 FY 2020 results. It will not be an exaggeration to say that the quarter was one of the toughest in the company's history due to the unprecedented oil market turmoil.

Though the driller was not ill-prepared for the crisis, as it had perfectly learned the lessons of the mid-2010s meltdown, due to the magnitude of the WTI decline and the company's exposure to the U.S. shale patch, it still encountered severe issues.

I have been covering Helmerich & Payne since September 2019. The previous article was published nearly three months ago. In February, after the careful analysis of its fundamentals, I concluded its dividend was safely covered. Moreover, the company surely had one of the healthiest capital structures among North American drillers (it is still almost perfect).

Author's creation. Data from Seeking Alpha

As, back then, the share price had been already depressed (the OFS companies' issues had become mounting long before March 2020), I made a conclusion the stock was worth considering. However, as WTI extended losses, the company made one painful but necessary decision and cut the DPS. Though it reaffirmed the $0.71 DPS payable June 1, it reduced future dividends by 65% to just $0.25 per share.

In February, the CFO had already warned investors that the U.S. upstream companies' 2020 capex would plunge by roughly 10%. However, as the oil price war and the COVID-19 pandemic had been whipsawing the crude prices, the oilfield services & equipment companies bear the brunt of much deeper capex reductions. I believe HP was perfectly prepared to live with WTI at $40 a barrel and slightly below, but if the price is oscillating well under $30, even such a robust company should focus on

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This article was written by

Vasily Zyryanov profile picture
Vasily Zyryanov is an individual investor and writer.He uses various techniques to find both relatively underpriced equities with strong upside potential and relatively overappreciated companies that have inflated valuation for a reason.In his research, he pays much attention to the energy sector (oil & gas supermajors, mid-cap, and small-cap exploration & production companies, the oilfield services firms), while he also covers a plethora of other industries from mining and chemicals to luxury bellwethers.He firmly believes that apart from simple profit and sales analysis, a meticulous investor must assess Free Cash Flow and Return on Capital to gain deeper insights and avoid sophomoric conclusions.While he favors underappreciated and misunderstood equities, he also acknowledges that some growth stocks do deserve their premium valuation, and its an investor's primary goal to delve deeper and uncover if the market's current opinion is correct or not.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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