Helmerich & Payne Profit Climbs - Analyst Blog

Contract drilling services provider Helmerich & Payne Inc. (HP) reported solid results for the first fiscal quarter of 2011 (three months ended December 31, 2010), helped by improving U.S. land drilling operations.

Earnings per share from continuing operations (excluding special items) came in at 94 cents, surpassing the Zacks Consensus Estimate of 82 cents and the year-ago adjusted profit of 59 cents. Revenues of $594.6 million were up 50.1% from the first quarter 2010 level and also beat our projection by 6.6%.

Segmental Performance

U.S. Land Operations: During the quarter, operating revenues totaled $476.8 million (80% of total revenue), up 67.3% year over year. Average rig revenue per operating day was $24,952, up 3.5%, while average rig margin per day decreased marginally (by 0.1%) to $13,020. However, utilization levels rose to 84% (from 62% in the first fiscal quarter of 2010). As a result, segment operating income improved significantly (by 73.0%) from the year-earlier quarter to $158.4 million.

Offshore Operations: Helmerich & Payne's offshore revenues were down 14.2% year over year to $44.9 million. Daily average rig revenue decreased 14.4% to $45,350 and average rig margin per day dipped 27.6% to $18,065. Segment operating income, at $9.0 million, decreased 40.4%. Rig utilization was 71% for the period, as against 85% a year ago.

International Land Operations: International land operations recorded revenues of $69.0 million, up from $55.8 million in the previous-year quarter. Average daily rig revenue was $33,789, up 3.3%, while rig margin per day was $11,625, as against $11,220 in the year-ago period.

As a result, the segment incurred a profit of $14.4 million during the quarter, compared to $11.1 million recorded in the first quarter of fiscal 2010. Additionally, activity levels rose to 76% from 58% a year ago.

Capital Expenditure & Balance Sheet

During the quarter, Helmerich & Payne spent approximately $116.2 million on capital programs. As of December 31, 2010, the company had approximately $173.8 million in cash, while long-term debt stood at $350.0 million (debt-to-capitalization ratio of 10.6%).

Outlook

Management indicated that with the industry shifting towards oil and liquids-rich targets, which means the requirement of increasingly complex well designs, there is high demand for modern, technologically sophisticated rigs. With its newest and most technologically advanced land rig fleet, Helmerich & Payne is well positioned to take advantage of this scenario, continuing to gain market share and adding value for its shareholders and customers.    

Importantly, Helmerich & Payne informed that it has entered into contracts to build and operate 8 additional technologically-advanced FlexRigs in the U.S. under multi-year term contracts with attractive dayrates and economic returns. Since March 2010, Helmerich & Payne has announced agreements for the construction of 31 newbuild FlexRigs, 17 of which have been completed. The remaining 14 rigs are scheduled for delivery during calendar 2011.

Helmerich & Payne, which competes with other U.S. drilling companies including Patterson-UTI Inc. (PTEN) and Nabors Industries (NBR), currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

 
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