Helmerich & Payne (HP) Posts Narrower-Than-Expected Q4 Loss

Contract drilling services provider Helmerich & Payne Inc. (NYSE:HP) reported net operating loss per share for the fourth fiscal quarter of 2016 (three months ended Sep 30, 2016) – excluding special items – of 33 cents, narrower than the Zacks Consensus Estimate for a loss of 43 cents. The outperformance came on the back of greater operational efficiency and lower operating costs, which decreased by approximately 27% to $424.7 million.

However, the bottom line compared unfavorably with the year-ago adjusted profit of 4 cents amid sharply lower drilling activity.

Revenues of $331.7 million was down 40% from the fourth fiscal quarter of 2015 but came above the Zacks Consensus Estimate of $300.7 million.

Segment Performance

U.S. Land: During the quarter, operating revenues totaled $238.3 million (72% of total revenue), down 43% year over year. While average rig revenue per operating day was $28,148 - 2% below the year-ago period, average rig margin per day was down 20% to $11,899. Moreover, utilization levels plunged to 25% (from 43% in the fourth fiscal quarter of 2015), plunging the segment to an operating loss of $69.7 million. In the year-earlier quarter income from the unit was $33.7 million.

Offshore: Helmerich & Payne’s ‘Offshore’ revenues were down 39% year over year to $31.9 million. Daily average rig revenue fell 15% to $26,608 and average rig margin per day tumbled 37% to $8,318. This led to the steep decline in the segment operating income, which dived 80% from the previous year period to $2.6 million. Meanwhile, rig utilization came down from the year-ago level of 89% to 78%.

International Land: Helmerich & Payne’s ‘International Land’ operations recorded revenues of $58.4 million, down from $78.1 million in the previous-year quarter. Average daily rig revenue was $38,061, down 13% from the corresponding period last year but rig margin per day was $10,619, more than double the $5,001 a year ago as average rig expense per day tumbled 29%. As a result, despite declining activity levels - 39% as against 45% a year ago - the segment managed to reduce its losses from $47.2 million in the fourth fiscal quarter of 2015 to just $162,000.

Capital Expenditure & Balance Sheet

During the quarter, Helmerich & Payne spent approximately $37.6 million on capital programs bringing the full-year figure to $257.2 million. As of Sep 30, 2016, the company had approximately $905.6 million in cash, while long-term debt stood at $491.8 million (debt-to-capitalization ratio of 9.7%).

Guidance

The Tulsa, OK-based company expects activity in the U.S. land segment to rise by 20% sequentially during the first fiscal quarter of 2017. While the average rig revenue per day is likely to be around $23,500, daily average rig cost is expected to go down to roughly $14,200 during next quarter.

As for the offshore segment, Helmerich & Payne sees the average rig margin per day to be around $11,250 during the first quarter of fiscal 2017 and revenue days to stay unchanged sequentially.

Lastly, the international land segment will likely experience a decline in revenue days by 5% in the next quarter, while average rig margin per day is expected to average roughly $8,000.

For fiscal 2017, Helmerich & Payne expects a capital budget of $200 million.

Zacks Rank

Helmerich & Payne – whose peers include the likes of Patterson-UTI Energy Inc. (NASDAQ:PTEN) , Nabors Industries Ltd. (NYSE:NBR) and Transocean Ltd. (NYSE:RIG) – currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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