Helmerich & Payne, Inc. (HP)

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Helmerich & Payne Inc. (HP)

F2Q09 (Qtr End 31/03/09) Earnings Call

April 30, 2009 11:00 am ET

Executives

Doug Fears - VP and CFO

Hans Helmerich - President and CEO

John Lindsay - EVP

Juan Pablo Tardio - Director of IR

Analysts

Mark Brown - Pritchard Capital

Pierre Conner - Capital One

Waqar Syed - Tristone Capital

Mike Drickamer - Morgan Keegan

Arun Jayaram - Credit Suisse

John Daniel - Simmons & Company

Monroe Helm - CM Energy Partners

Bob Schwerin - Schwerin Boyle Capital Management

Presentation

Operator

Good day, and welcome to today's program. It is now my pleasure to turn today's program over to Mr. Doug Fears, Vice President and CFO of Helmerich & Payne. Please go ahead, sir.

Doug Fears

Thank you, Katie, and good morning, everyone. Welcome to Helmerich & Payne's conference call and webcast to discuss the company's second quarter earnings. With us today are Hans Helmerich, President and CEO; Executive Vice President, John Lindsay; and Alan Orr and Juan Pablo Tardio, our Director of Investor Relations.

As you know, much of the information provided today involves risk 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 last page of today's press release.

Today Helmerich & Payne reported net income of $103.7 million or $0.98 per diluted share from operating revenues of just over $520 million for its second quarter, fiscal quarter ended March 31, 2009. This compares with net income of slightly over $102 million or $0.96 per diluted share from operating revenues of over $473 million during the last year's second fiscal quarter.

Included in second quarter net income for '09 and '08, were $0.01 and $0.04 respectively of after-tax gains from the sale of portfolio securities and drilling equipment. Also included in this year's second quarter income is approximately $0.47 per share after-tax from the early termination of contracts, relating to new build FlexRigs.

As mentioned in the press release, total pre-tax early termination revenue for the second quarter totaled approximately $81 million. Hans and John will have more to say about these early terminated contracts in a few moments.

This morning we released specific information, regarding our accounts receivable position in Venezuela, which I'll discuss in just a moment. First of all, let me provide some comments to put this issue in perspective.

For fiscal year ended September 30, 2008, our Venezuela operations represented 8.2% of total operating revenue, less than 3% of our long-lived assets and less than 5% of our rig fleet.

We have worked for over 50 years in Venezuela, and have coped with extended receivables for most of that time. Our longer term experience with PDVSA is that while they often have been slow to pay, they have always paid us the full amount of our billings.

Other than a deserving delay in payments that all oil service companies seem to be experiencing at this time, we have not had any communication from PDVSA that has given us any indication of non-payment, nor have we received any indication that only a partial payment should be expected.

We simply do not have enough information to convince us that our remaining receivable balances are not probable of collection. Those facts and circumstances, along with the recent collection of approximately $8 million from PDVSA, resulted in our decision not to take any reserve against our receivable balance, but not to record revenue as of the beginning of the second fiscal quarter ending March 31.

Our decision not to record second quarter revenue was primarily due to the uncertainty of the timing of the collections. Of course, we will record revenue if and when the cash is collected. Not recognizing revenue in our Venezuela operations had a negative pre-tax impact of approximately $35.6 million for the second fiscal quarter in the revenue section, and was the reason we recorded an operating loss of $15.3 million in our international land rig. The after-tax per share impact was approximately $0.31 per share for the second quarter.

As mentioned in today's press release, the total invoiced amount in Venezuela that remains unpaid as of and through today is approximately $116 million. That is made up of approximately $50 million of unrecognized revenue and other billings such as reimbursable taxes that are not revenue items, and approximately $66 million of book accounts receivable balances remaining for Venezuela operations.

Recall now that the March quarter for our international operations runs from December 1 to February 28, one month ahead of our domestic accounting months. So, the last month we booked revenue in Venezuela for accounting purposes was November 2008.

Concerning taxes, the fact that we did not recognize revenue in Venezuela moved our corporate effective tax rate up sharply to 45.6% for the second quarter. Our estimated effective rate for the remainder of the year is 40.8%.

The reason for the increase is that Venezuela taxes are computed based on accrual revenue recognition, regardless of the company's decision to go to cash basis revenue recognition for US accounting purposes. So, while revenue was not recorded for GAAP purposes in the US, we booked taxes for GAAP purposes as if they had been recorded.

Operationally in Venezuela, we now have seven rigs that have either been stacked or are in the process of rigging down and being stacked and four rigs that continue to work with completion of their respective wells anticipated within the next four months. In the meantime, we intend to continue our communications with PDVSA, and hope that we can work something out to amicably resolve these issues.

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