Helmerich & Payne (HP)
Q4 2011 Earnings Call
November 17, 2011 11:00 am ET
Juan Pablo Tardio - Chief Financial Officer and Vice President
Hans Helmerich - Chief Executive Officer, President and Director
John Lindsay - Chief Operating Officer and Executive Vice President
Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division
James Crandell - Dahlman Rose & Company, LLC, Research Division
Tom Curran - Wells Fargo Securities, LLC, Research Division
David Wilson - Howard Weil Incorporated, Research Division
Robin E. Shoemaker - Citigroup Inc, Research Division
Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division
Michael Breard - Hodges Capital Management Inc.
Brian Uhlmer - Global Hunter Securities, LLC, Research Division
Previous Statements by HP
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Juan Pablo Tardio
Thank you, and welcome, everyone. With us today are Hans Helmerich, President and CEO; and John Lindsay, Executive Vice 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 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 to Hans Helmerich, President and CEO. After Hans, John Lindsay and I will make additional comments, and we'll then open the call for questions.
Thanks, Juan Pablo. Good morning, everybody. We were pleased with the fourth quarter's record-setting results in terms of both quarterly revenue and rig activity. When the -- we ended our fiscal year as the most active land driller in the U.S. and continue to lead today with 228 contracted rigs. Our outlook for 2012 remains positive, notwithstanding considerable macroeconomic uncertainty. A significant 25% plus recovery in oil prices over the last couple of months has calmed some of the market's concerns over drilling activity levels going into next year. While natural gas prices continue to soften, now falling somewhere below $3.50 per M, many expect gas-directed rig reductions to be more than offset by oil and gas liquids-rich rig additions.
Though Apache's no stranger to the volatility associated with macro geopolitics and today, the prospect of slowing global economic growth, heightened turmoil in the Middle East and the widespread sovereign debt crisis all promised to provide continuing volatility going forward. But even some legitimate hand-wringing over serious issues like these should not dampen the positives derived from the true energy revolution associated with the growing number of domestic, unconventional shale plays.
After completely transforming the natural gas markets in this country over the last several years, this shale revolution has now fully engaged an increasing number of oil and liquid-rich basins. With prospective areas being added to the list regularly, it's challenging, really, to grasp the sheer scope and scale of drillable inventory that is being added to customer backlog. It represents literally years of drilling visibility, most of which is still in the early development phase.
The whole service industry is busy positioning itself for the drilling requirements and the related equipment necessary to best engage these opportunities ahead.
We started early and have been in a fleet repositioning exercise for over 10 years. I won't go into a detailed history of that effort here, except to say, we were fortunate prior to the advent of this shale revolution to have already designed, manufactured and gained valuable operational experience with the FlexRig. It would later come to be recognized as the land industry's first high-efficiency, high-performance rig. Of course, we didn't know at the time how suitable a safer, faster moving and more capable rig would be for the emerging shale plays.
Thankfully, in those early days, the FlexRig's potential to meaningfully impact the economics of unconventional reservoir development in the Barnett Shale and the Piceance Basin was not lost on Devon and Williams [ph] as both became early and important sponsors of our efforts to improve well cycle times.
Since then, we've led the U.S. land industry in what we have for some time called a new build replacement cycle. Because the shale revolution creates a new opportunity set, the increasingly complex drilling requirements are not well suited for the traditional rig refurbishment efforts where just select new equipment is simply retrofitted to an old derrick and substructure. But in the end, these refurbished rigs are unable to deliver to the higher performance standard.
We expected to see a steepening industry obsolescence curve as these old refurbished rigs work less and less consistently and are increasingly difficult to maintain and adequately crew up. We're finally seeing this now. The land rig newsletter recently reported over 150 mechanical rigs have been retired by public contractors this year in the U.S. compared to only 100 rigs since 2006.
We've been hydrating as well, and in the last 8 months, we have sold 6 conventional rigs, 5 of which were SCR and one mechanical. In addition, we announced today that we decommissioned 7 mechanical rigs, marking our 100% exit of H&P mechanical rig business. So we're now out of that business today.