Helmerich & Payne, Inc. (HP)

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Helmerich & Payne Inc. (HP)

F4Q08 Earnings Call

November 20, 2008 11:00 am ET


Douglas Fears – Chief Executive Officer

Hans Helmerich – President, CEO

John Lindsay – Executive Vice President


Pierre Connor – Capital One Southcoast

Waqar Syed – Tristone Capital

Michael Drickamer – Morgan Keegan

John Daniel – Simmons & Co.

Kevin Pollard – J.P. Morgan

Andrew Coleman – UBS

[Phillip Jonas – Merrill Lynch]

Thad Vayda – Stifel Nicolaus

[Frederick Russell – Frederick E. Russell Investment Management Company Inc.]

Mark Close – Oppenheimer & Close



(Operator Instructions) It is my now my pleasure to turn the conference over to Mr. Doug Fears.

Douglas Fears

Welcome everyone. We're glad that you're here for the Helmerich & Payne conference call and web cast to discuss the company's fourth quarter and fiscal year earnings. With us today are Hans Helmerich, our President and CEO, Executive Vice Presidents, John Lindsay and Alan Orr, and Juan Pablo Tordia, Director of Investor Relations.

As you know, much of the information provided today involves risks and uncertainties that could significantly impact expected results and that are discussed in our most recent 10-K. We'll also be making reference to certain non-GAAP financial measures such as segment operating income and operating statistics. You may find the GAAP reconciliation comments and calculations on the very last page of today's press release.

Today the company reported net income of $461.7 million or $4.34 per share from operating revenues of just over $2 billion for fiscal year ended September 30, 2008, compares with net income of $449.3 million or $4.27 per diluted share from operating revenues of $1.6 billion during the prior fiscal year ended September 30, 2007.

Included in fiscal 2008 net income are non operating related after tax income items of $0.27 compared with $0.74 per diluted share during 2007. Those items can include gains from the sale of investment securities, gains from insurance settlements and income from asset sales.

Net income for the fourth quarter of fiscal 2008 was $126.5 million or $1.18 per diluted share from operating revenues of $583.7 million. That compares with net income of $116.4 million or $1.10 per diluted share from operating revenues of $449.4 million during last years fourth quarter.

Included in net income were gains from non operating type activities that we just mentioned that totaled $0.05 per diluted share for the fourth quarter of '08 and $0.13 per diluted share for the fourth quarter for '07. Also included in the net income for the fourth quarter of 2008 as we mentioned in the press release, were $0.07 per share of abandonment charges.

The company also announced today that since its last announcement in late July, 13 more long term contracts have been signed with five exploration and production companies to operate 13 new Flex Rigs. Since the beginning of fiscal 2008, the company has announced contracts for the construction and operation of 63 new Flex Rigs under long term contracts. This brings to 140 the total number of long terms commitments for new Flex Rigs that have been announced by the company since March of 2005.

To date, 107 of those 140 new builds have been completed with the remaining 33 scheduled for completion by calendar year end 2009. Given the new build commitments announced today, the company's new estimate for 2009 capital expenditures has risen from the $800 million discussed in our last web cast to approximately $900 million.

Given these new commitments and management's desire to have capital available for other opportunities that may arise, we've engaged in discussions with our current bank group to secure additional $100 million to $150 million of short term bank debt which we expect to secure by late December or early January.

We currently are two years into a five year $400 million bank facility which as of today has approximately $85 million of borrowing capacity remaining. The remainder of the company's debt consists of $175 million of privately placed debt of which $25 million is due in August of 2009, $75 million in 2012 and the remaining $75 million in 2014. At September 30, 2008, our long term debt to total capitalization ratio was 17%.

Additionally, the company owns large equity holdings in [Slumber Shea] and Atwood Oceanics with a total current market value of approximately $178 million to $180 million. In the past we've liquidated portions of these investments to help fund our capital expenditures but at current prices for these holdings, we have no plans to monetize any of these positions.

Just for modeling purposes, you maybe have calculated our effective tax rate for fiscal year 2008 at 36.5%. We estimate our 2009 effective rate to be in the 37% to 37.5% range.

I would now like to turn the call over to Hans Helmerich, President and CEO, then after Hans and John have made their comments, we'll open the call for questions.

Hans Helmerich

Our 2008 fiscal year saw energy prices skyrocket and spiral downward in the face of the recent economic meltdown. Natural gas prices have fallen by more than half and future exploration and production spending plans are in the process of being aggressively scaled back.

We find the business in a sudden and dramatic reversal of fortune from our last quarterly conference call. A month ago, we would have predicted that 2009 would be softer and likely unfold in a similar fashion that we saw in 2007. Then, natural gas price concerns combined with worries of potential overbuilding softened the market enough to see 400 rigs go to the sideline in the U.S.

Read the rest of this transcript for free on seekingalpha.com