Helmerich & Payne (HP)
Q3 2011 Earnings Call
July 29, 2011 11:00 am ET
Juan Tardio - Chief Financial Officer and Vice President
Hans Helmerich - Chief Executive Officer, President and Director
John Lindsay - Chief Operating Officer and Executive Vice President
Scott Gruber - Sanford C. Bernstein & Co., Inc.
Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc.
Arun Jayaram - Crédit Suisse AG
Tom Curran - Wells Fargo Securities, LLC
John Daniel - Simmons & Company International
Robin Shoemaker - Citigroup Inc
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Thank you, and welcome, everyone. With us today are Hans Helmerich, President and CEO; John Lindsay, Executive Vice President and COO; and Mike Drickamer, Director of Investor Relations. 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 that the GAAP reconciliation comments and calculations on the last page of today's press release. I will now turn the call to Hans Helmerich, President and CEO. And after Hans, John Lindsay and I will make additional comments, and we'll then open the call for questions.
Thanks, Juan Pablo. Good morning, everyone. During the third quarter, we signed long-term contracts for 32 new builds, including today's announcement of 20 additional rig orders. Looking back, that represents the largest number of orders we have received in any single quarter, even when commodity prices were some-50% higher than they are currently. But even without record energy prices, capacity constraints are being addressed across a broad spectrum of the oilfield service industry. Large-scale efforts are already in full swing in the offshore drilling and pressure pumping space.
On the land drilling side, demand is centered primarily on the shortage of available Tier 1 AC drive rigs. Today, we clearly are leading the way in what is shaping up as round 2 in the new-build replacement cycle. The market where older rigs, even those being refurbished with select new equipment, are simply now not well suited for the customer's more complex drilling requirements, and are steadily being replaced by high-performing, high-efficiency rigs. If in fact the 58 customer commitments we have announced so far this fiscal year reflect the market validation of our unique position, let me reflect briefly on some of the distinct advantages we bring to this new-build effort, and some differences that matter to customers and investors. I realize many of you on this call have toured our Greens Port facility and have seen firsthand our integrated manufacturing and how it differs from a more conventional approach widely employed by both land and offshore drilling markets.
First, we've been improving and honing this process for over 10 years, prompting our assertion that we build a better rig for less. Our design and build effort starts with the end in mind. So safety is our first priority, followed by relentless focus on strong execution and performance in the field. We've stayed on task, benefiting from the same experienced folks, and avoiding the dislocations associated with a start, stop, here, now there approach. And yes, with unemployment being such a national concern, not to mention the debt ceiling fiasco, it's satisfying to know that we've helped provide hundreds of American manufacturing jobs as part of this effort. Even in the severe recent downturn, we rolled out and crewed up 14 new builds during a year that others canceled and stopped.
The continuity has served us well. We shifted smoothly from between 1 and 2 rigs per month into a 3-rig-per-month cadence in January of this year. And beginning October 1, we'll step up the rate to 4 rigs per month. Even now, a large component at nearly all the other industry fleets we compete with have been fashioned by acquisitions and mergers. We hold a strong preference for organic growth, convinced it would be difficult to build brand strength on a hodgepodge of makes and models and vintage rigs. Early in our endeavor, the comment was made that our model of organic growth may be preferable, it just wasn't scalable. Well, now, more than 200-plus rigs later, the determination and hard work of our people have laid that objection to rest. And remember, this will not be our first rodeo of delivering rigs at a rate of 4 per month on time and on budget.
Our approach continues to garner many advantages. Not only does it provide exceptional fleet uniformity, with all the intended benefits, it also accommodates extensive collaboration with our customers and suppliers for continued improvements and innovations. Innovation occurs in large and small ways, and is blamed through the organization from the floor hand to the lead project engineer. Most often, it is evolutionary and incremental. Our introduction of the FlexRig5 follows this approach by combining the learnings of our popular Flex 4 multi-well pad rig with the key performance drilling features of our flagship, FlexRig3, making it ideal for applications calling for drilling longer, lateral sections.