Helmerich & Payne, Inc. (HP)

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Helmerich & Payne (HP)

Q1 2013 Earnings Call

January 31, 2013 11:00 am ET

Executives

Juan Pablo Tardio - Chief Financial Officer and Vice President

Hans Christian Helmerich - Chairman of The Board and Chief Executive Officer

John W. Lindsay - President, Chief Operating Officer and Director

Analysts

Kurt Hallead - RBC Capital Markets, LLC, Research Division

James D. Crandell - Dahlman Rose & Company, LLC, Research Division

Robin E. Shoemaker - Citigroup Inc, Research Division

Brad Handler - Jefferies & Company, Inc., Research Division

David Wilson - Howard Weil Incorporated, Research Division

Tom Curran - Wells Fargo Securities, LLC, Research Division

Waqar Syed - Goldman Sachs Group Inc., Research Division

John M. Daniel - Simmons & Company International, Research Division

Michael K. LaMotte - Guggenheim Securities, LLC, Research Division

Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Presentation

Operator

Good day, everyone, and welcome to today's first quarter earnings conference call. [Operator Instructions] Please note this call is being recorded. I would now like to turn the program over to Mr. Juan Pablo Tardio, Vice President and CFO of Helmerich & Payne. Please go ahead, sir.

Juan Pablo Tardio

Thank you, and welcome, everyone, to Helmerich & Payne's conference call and webcast corresponding to the first quarter of fiscal 2013. With us today are Hans Helmerich, Chairman and CEO; and John Lindsay, President and COO.

As usual and as defined by the U.S. Private Securities Litigation Reform Act of 1995, all forward-looking statements made during this call are based on current expectations and assumptions that are subject to risks and uncertainties as discussed in the company's annual report on Form 10-K and quarterly reports on Form 10-Q.

The company's actual results may differ materially from those indicated or implied by such forward-looking statements. We will also be making reference to certain non-GAAP financial measures such as segment's operating income and operating statistics. You may find the GAAP reconciliation comments and calculations on the last page of today's press release.

I will now turn the call over to Hans Helmerich.

Hans Christian Helmerich

Thanks, Juan Pablo. Good morning, everyone. During the first fiscal quarter of 2013, the company posted another quarter of record results in terms of net income, operating income and revenues. We are also announcing today 3 additional FlexRigs orders under multi-year term contracts. We are encouraged, after a dry spell without new orders, to see customers commit to new builds. We now have 5 contracted FlexRigs to deliver going forward with these additions.

Our integrated manufacturing effort continues to offer key advantage to the company. We are coming off our strongest year in this area in terms of delivering 48 rigs on schedule and actually below budget. We've stated previously that our expectations for 2013 are to see new build demand return but develop slowly and at a substantially reduced pace from a year ago, both for us and the industry at large. Our best estimate would be that the overall industry pace of construction for the U.S. market would slow to approximately 75 AC drive rigs during calendar year 2013, delivering a total of about half of 2012's effort.

That more measured rollout of new builds is a positive as it reflects where we are in the cycle and hopefully limits any exuberance for the industry to overextend. That said, we like our position in this area and we see a theme that we've repeatedly discussed continuing to play out towards a steady replacement of older, underperforming rigs.

Our focus and our fleet position nicely complement the movement of customers to adopt high-performing AC drive offering. We picked up 10 first time FlexRig customers last year. In 2013, we hope to translate some current oil capacity into additional new customers as we progress forward additionally with ongoing conversations that we have related to more new build orders. We began the year for the manufacturing cadence of 2 rigs per month and will deliver on that pace through April. Additional orders would continue to shift this schedule of fully contracted rigs to the right and buy us more time in considering a limited run of rig construction on our own account to preserve a continuity of effort.

Continuing to build the industry's youngest and most capable fleet not only positions us well going forward, but it also -- it allowed us to weather the turbulence we saw in the second half of last year. We are able to maintain our industry lead in terms of both activity and margins.

As we look ahead, there's a growing sense from investors and industry players that the U.S. land rig count has bottomed and that the industry is poised to add an estimated 100 rigs or more during 2013.

We agree conditions are improving albeit at a pace somewhat slower than we expected 60 days ago. You'll hear more on this call detailing our expectations for a flattish to slightly downward projection of revenue per day in the average rig margin per day looking forward at our second quarter numbers.

The estimated reductions are small and assuming oil prices and other macro conditions cooperate, the overall direction for the year is clearly positive. You will hear additional positives in a moment from John as he describes the performance we have achieved regarding safety and cost management.

Together we hope it makes the larger point that we continue to improve our organization's performance. At the same time, our customers remain deliberate with their capital spending and discriminating with the service providers they engage. In a world where the growing expectation is to drill more wells with fewer rigs and improving cycle will not treat all drilling contractors equally, there remains an opportunity to capture additional market share in an overall industry rig count that is either moderately improving, trending sideways or even potentially declining slightly. This is not a new playing field for us as we have seen all of that in the last 5 years, even as rig activity trends have been lower for the land industry as a whole, we've grown that same measure by 25%.

These further growth opportunities and market share gains still allow us to give further consideration to returning cash to shareholders. In 2012, we repurchased shares and announced the significant dividend increase. Our bias is towards dividends and we will consider dividend increases as an important component of building long-term value for our shareholders.

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