Helmerich & Payne, Inc. (HP)

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Helmerich & Payne Inc. (HP)

F4Q2010 Earnings Call Transcript

November 18, 2010 11:00 am ET

Executives

Juan Pablo – VP and CFO

Hans Helmerich – President and CEO

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

Analysts

Waqar Syed – Macquarie

Tom Curran – Wells Fargo

John Daniel – Simmons & Company

Dave Wilson – Howard Weil

Scott Gruber – Bernstein Research

Robin Shoemaker – Citi

Arun Jayaram – Credit Suisse

Mike Breard – Hodges Capital

Presentation

Operator

Welcome to the Helmerich & Payne Fourth Quarter and Fiscal Year End Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, there will be an opportunity to ask questions.

At this time, it is my pleasure to turn the conference over to Juan Pablo Tardio, Vice President and CFO for Helmerich & Payne. Please go ahead.

Juan Pablo

Thank you, and welcome everyone. With us today are Hans Helmerich, President and CEO, John Lindsay, Executive Vice President in both U.S. and International Operations, and Mike Drickamer, Director of Investor Relations. I will make some general introductory comments and we’ll then turn the call to Hans, for his and John’s comments.

As usual, 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 operating income and operating statistics. You may find the GAAP reconciliation comments and calculations on the last page of today’s press release.

Income from continuing operations during the fiscal year resulted approximately $286 million, equivalent to $2.66 in diluted earnings per share. On a quarterly basis, income from continuing operations for the fourth quarter increased to $0.77 in diluted earnings per share, from $0.61 during the third quarter.

Once again, our U.S. land operations segment continued to drive our increasing quarterly earnings, delivering significant sequential growth in segment revenue, operating income, and revenue days.

The company’s debt level continued to decline to $360 million at the end of the fiscal year, resulting in a debt-to-cap ratio of approximately 11%, capital spending was approximately $330 million, and net cash provided from operating activities worth approximately $460 million during the fiscal year.

Our fiscal 2011 capital spending level will be primarily driven by our new build construction program as it adapts to market demand for incremental FlexRigs during the year.

Given the number of customer commitments that we already have for new FlexRigs to be completed during the fiscal year and a level of a rig component orders that are required to ensure our ability to effectively respond to additional new FlexRig demand, our current capital spending estimate for fiscal 2011 is approximately $600 million.

Depreciation expense for the fourth quarter was reported at approximately $73 million, which included extraordinary adjustments of approximately $3 million that are not expected to recur during the following quarter.

Given the continuing growth of our FlexRig fleet, we expect our total annual depreciation expense to increase to approximately $300 million during fiscal 2011.

General and administrative expenses are expected to total approximately $85 million and interest expenses after capitalized interest are expected to total approximately $14 million during fiscal 2011.

Our investment portfolio primarily comprised of 8 million shares of Atwood Oceanics and 967,500 shares of Schlumberger, recently had a pre-tax market value of approximately $380 million and an after tax value of approximately $240 million. Our tax rate for continuing operations during fiscal 2011 is, at this point, expected to be approximately 37%.

We have no additional news related to Venezuela. As reported last quarter, our Venezuelan business was classified as a discontinued operation after the property and equipment of our Venezuelan subsidiary was ceased by the Venezuelan government. We will continue to evaluate and work on available remedies that may enable the company to be compensated for the ceased assets on unpaid invoices.

I will now turn the call to Hans Helmerich, President and CEO, and after Hans and John have made their comments, we will open the call for questions.

Hans Helmerich

Thanks, Juan Pablo. Good morning everyone. Let me take the opportunity to reflect on some of the milestones that standout for 2010.

Juan Pablo already mentioned Venezuela, which was certainly almost disappointing milestone of the year and while perhaps receiving more than its fair share attention, it is now behind us and we’ve moved forward.

2010 was the year of transition and recovery. The industry fought its way back from the dramatic once in a 30-year free fall that started in the early fall of 2008 and bottomed in the June of 2009. In terms of utilization, margins, operating income and returns, we outpaced our land drilling peers during the recovery that unfolded in the second half of 2009, and continued through our fiscal year 2010.

Industry-wide activity steadily improved through the year as the U. S. land count currently stands at 80% of the number of rigs that were running in October of 2008. For the company’s rig count, we have exceeded that percentage

During 2010, we reactivated nearly 90 rigs, our largest single year effort ever. In fact, we recently crossed the threshold of running a 190 rigs in the U.S., surpassing our previous record during the last cyclical peak and achieving the highest level of activity in the U.S. in the company’s history.

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