Helmerich & Payne, Inc. (HP)

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Helmerich & Payne Inc. (HP)

F3Q09 (Qtr End 6/30/09) Earnings Call

July 30, 2009 11:00 am ET

Executives

Doug Fears - EVP and CFO

Hans Helmerich - President and CEO

John Lindsay - EVP, U.S. and International Operations, Helmerich & Payne International Drilling Co.

Analysts

Pierre Conner - Capital One

Mike Drickamer - Morgan Keegan

John Daniel - Simmons & Company

Mark Brown - Pritchard Capital

Waqar Syed - Tristone Capital

Joe Hill - Tudor Pickering

Jason Zhang - BMO Capital Markets

Robert Ford - Weiss advisers

Jamie Stone - Barron Capital

Chase Moville - JPMorgan

Presentation

Operator

Good day and welcome to today's teleconference. At this time all participants are in a listen-only mode, later you will have the opportunity to ask questions during our Q&A session. Please note today's call may be recorded and it's my pleasure to turn today's conference over to Doug Fears. Please go ahead, sir.

Doug Fears

Thank you Sara and good morning to everyone, welcome to Helmerich & Payne's conference call and webcast to discuss the company's third quarter earnings. With us today are Hans Helmerich, President and CEO, Executive Vice Presidents, John Lindsay and Alan Orr and Juan Pablo Tardio, Director of Investor Relations, as you know and have heard before 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 and 10-Qs. 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.

In that press release today, we reported net income of just over $53 million or $0.50 per diluted share from operating revenues of approximately $388 million for the third quarter ended June 30, 2009, included in that number is $0.01 of after tax gains from the sale of drilling equipment. No longer included in our quarterly income numbers is equity affiliate income. During last year's third quarter, though, net income was over $125 million or $1.18 per diluted share which included approximately $0.05 per share of equity affiliate income. Also included in last year's third quarter number were about $0.13 per share from the sale of portfolio securities and drilling equipment and a charge of $0.07 per share from the end-process research and development write-off corresponding to the acquisition of TerraVici Drilling Solutions.

As mentioned in the press release today, we recently completed the private placement of $200 million of senior unsecured 6.1% fixed rate notes due July, 2016. The company will make five equal annual principal payments of $40 million each beginning on the third anniversary of the closing date of July 21. Those proceeds will be used to retire other debt and provide additional liquidity to help fund capital projects and other working capital needs.

Given the new international projects announced today, that John will discuss in just a minute, and the potential shift in the timing of expenditures related to other capital projects, we could see our 2009 capital expenditures increase above the $850 million projection that we have discussed in previous webcasts.

During this past quarter capital expenditures were $212.5 million bringing the nine month capital expenditures total to $738.4 million. As we have mentioned in our last webcast, we anticipate that during 2010 the company will generate significant free cash flow as a result of continued income from our term contracted FlexRigs and the much smaller capital expenditure estimate for next year. We will be compiling a complete 2010 capital expenditure estimate during the month of August and will provide those numbers during our next conference call.

And just as a note, as of yesterday's closing, the market value of the company's holdings in Schlumberger and Atwood totaled approximately $268 million on a pre-tax basis or $170 million on an after-tax basis.

As you saw in today's announcement, there has been progress made in Venezuela regarding our accounts receivable position principally as a result of the 48 million US dollar equivalent collected since our last conference call at the end of April. Most of that amount was paid in bolivares, the local Venezuelan currency. As mentioned in this morning's release, the total invoice amount that remains pending payment by PDVSA is now approximately 97 million US dollar equivalent 80% of which or 78 million approximately is over 90 days old.

In our conversations with PDVSA our focus is now on receiving payments in US dollars. The company is awaiting the dollar proceeds that not only are due on accounts receivable balances but also from two other previously disclosed sources. Approximately 75% of the $97 million receivable balance is payable in US dollars. As described in our recent 10-K and 10-Qs, the other two sources are pending conversions of our own bolivares to dollars that total approximately $67 million.

As previously announced, for both our second fiscal quarter and the third fiscal quarter just ended, we have chosen not to record Venezuela billings as revenue, as we collect on those particular billings, we will record the revenue. As stated in the release, not the recognizing revenue in the Venezuelan operation had a negative impact of approximately $19.7 million for our third quarter operating results in our international land rig segment.

Additionally, as mentioned in our last webcast, our effective tax rate is negatively affected by not recording billing revenues in Venezuela. Venezuelan taxes are computed on accrued revenue and income regardless of the company's decision to go to a cash basis revenue recognition approach for US accounting purposes. So while revenue is not recorded for GAAP purposes, we booked taxes based on Venezuelan tax rules. We estimate that the effective rate of 40.9% for the third fiscal quarter will be repeated for the fourth fiscal quarter, the effective tax rate, that is.

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