Helmerich & Payne Q2 2025 Earnings Call Transcript

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May 8, 2025
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Operator

Please stand by. Your program is about to begin. Good day, everyone, and welcome to the H and P fiscal second quarter earnings call. At this time, all participants are in a listen only mode.

Operator

Later, you will have the opportunity to ask questions during the question and answer session. It assistance. It is now my pleasure to turn the conference over to Dave Wilson, Vice President, Investor Relations. Please go ahead.

Dave Wilson
Dave Wilson
Vice President-Investor Relations at Helmerich & Payne

Thank you, Nikki, and welcome, everyone, to H and P's conference call and webcast for the second quarter of fiscal year twenty twenty five. With us today are John Lindsay, President and CEO and Kevin Van, Senior Vice President and CFO. Both John and Kevin will be sharing some prepared comments with us, after which we'll open the call for questions. Before we begin our prepared remarks, I'll remind everyone that this call will include forward looking statements as defined under the securities laws. Such statements are based on current information and management's expectations as of this date and are not guarantees of future performance.

Dave Wilson
Dave Wilson
Vice President-Investor Relations at Helmerich & Payne

Forward looking statements involve certain risks, uncertainties and assumptions that are difficult to predict. As such, our actual outcomes and results could differ materially. You can learn more about these risks on our annual report on Form 10 ks, our quarterly reports on Form 10 Q and our other SEC filings. You should not place undue reliance on forward looking statements, and we undertake no obligation to publicly update these forward looking statements. We also make certain non GAAP financial measures such as segment operating income, direct margin, adjusted EBITDA and some other operating statistics.

Dave Wilson
Dave Wilson
Vice President-Investor Relations at Helmerich & Payne

You'll find the GAAP reconciliation comments and calculations in yesterday's press release. With that said, I'll turn the call over to John Lindsay.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Thank you, Dave. Hello, everyone, and thanks for joining us today. With the KCAD acquisition now complete, we believe H and P is well positioned for the future. This acquisition results in H and P having the largest active rig count in the industry and establishes the company as a global leader with the scale and capabilities needed for future expansion into the premier international markets. It's been a little more than a hundred days since the transaction closed and the integration is going well.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Taking a long term perspective, particularly considering the industry's current state, we are very well positioned for the future. Now we must demonstrate that we can execute on our international growth strategy. I wanna assure you that is what we are focused on. I wanna commend our people. Two legacy organizations have come together as one team and are delivering significant value for customers.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

There are some noteworthy headwinds facing the industry stemming from several factors, including OPEC plus production increases and US tariff initiatives that have created global economic uncertainty. Even so, we remain bullish about the long term outlook for oil and gas markets and believe demand will continue to increase over time. The oil and gas production decline curve continues, and the only way to maintain and grow production is by drilling more wells. H and P is the most efficient driller in The US, and we plan to demonstrate we can do the same in international markets. I believe that our rigs, technology, people, and commercial models drive the best outcomes for our customers, and our differentiated solutions will drive our success in the future.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Next, I'll spend a few minutes reviewing each of our operating segments. Our North America Solutions segment remains resilient as our customer and operational performance focus and best in class execution allowed us to maintain a steady rig count and realize margins that were better than our expectations going into the quarter. Looking ahead, we expect softer oil prices will lower the industry rig count as market volatility overrides any potential incremental demand. Over 50% of our customers continue to prefer performance based contracts and technology solutions remain a critical component of our overall contracting strategy. Our technology solutions are focused on automating processes that were previously more manual operations.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

These technologies drive greater efficiency, safety, and reliability for our customers. The combination of performance based contracts and technology offer advantages for both our customers and H and P by providing a mutually beneficial value proposition. Kevin will give more details in his remarks about our North America Solutions financials. Our International Solutions segment reflects the inclusion of the legacy KCA Deutag operations, and our team is working diligently to fully integrate international operations into a single cohesive business unit. We believe the combined cultures of performance, discipline, and customer focus, coupled with learnings from our North America solutions experience, including our technology and commercial models, position us for success over the long term.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

During the quarter, we experienced challenges in our Saudi operations with startup delays with the legacy H and P FlexRigs, which we believe have now been mostly resolved. The additional rig suspensions in the legacy KCA fleet were impactful as well. On the positive side, we have already started to reap the benefits of the expertise, infrastructure, and scale of the legacy KCAD operations in Saudi. It is gratifying to see the strong partnerships with customers we have in our international solutions business. In my recent visits to rigs and the countries where we operate, I am confident that in the future, H and P can grow the business.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

In discussions with customers, it's become evident that there is a strong demand for the operational excellence, safety and technology solutions that H and P delivers despite near term softening in the industry. Given the current outlook, direct margins in the International Solutions segment in the third fiscal quarter will fall short of where ultimately we want to be. Our teams are working closely with our customers and we do expect to see improvement in the results on a sequential basis as we continue to progress our integration efforts, especially in Saudi. We have a laser focus on getting this right, and Kevin will go into more details about what is driving our Q2 results and Q3 outlook. Now looking at our offshore solutions segment, which continues to produce strong and steady cash flows.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

H and P's legacy offshore experience dates back more than fifty years, and the inclusion of the legacy KCAD fleet has added significant scale and geographic expansion to our offshore segment. Together, we are the largest global offshore operation and maintenance partner in the world. Our offshore solutions segment deliver drilling solutions, workovers, PNA, and rig modifications and asset management on platforms and jackups. KCA's first offshore contract started in 1972 in Norway. Our offshore business has low capital intensity and a blue chip customer base that we are very familiar with.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

And it's encouraging to see the growth opportunities emerging again in this segment of our business. In closing, having successfully accomplished the important strategic objective of expanding internationally, particularly to achieve scale in The Middle East, we are now entering the phase of enhancing value and performance customers and shareholders. For our customers, this means prioritizing safety, drilling efficiency and reliability, which in turn drive financial performance for our shareholders. The oil and gas industry has always been cyclical and likely will remain so, but H and P has always been adept at navigating these cycles and coming out stronger on the other side. Throughout our one hundred and five year history, the company has faced many challenges in the industry and the enduring imperative is always to keep our core businesses performing well.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

In the upcoming quarters, we will focus on realigning our cost structures, securing value add synergies and reducing debt on our balance sheet. We are extremely optimistic about the future and our ability to scale in the most prolific oil and gas producing regions in the world, while also acknowledging that there may be temporary growing pains. And as I said previously, now we must demonstrate that we execute on our international growth strategy. Before turning the call over to Kevin, I want to express my gratitude for the effort our people have put forth over the past year. With the acquisition and continuing to run the day to day, everyone has worked very hard.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

The H and P organization is comprised of loyal and talented individuals whose dedication and support and focus on our customers are the key ingredients to our success, and I want to thank them. And now I'll turn the call over to Kevin.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

Thanks, John. Today, I will review our fiscal second quarter twenty twenty five operating results, which includes a partial quarter from our expanded international and offshore businesses resulting from the close of our KCA D acquisition in January, provide guidance for the fiscal third quarter, update remaining full year 2025 guidance as appropriate, and finally comment on our financial position. Let me start with a few highlights. The company generated quarterly revenues of just over 1,000,000,000 Total direct operating costs were $7.00 $2,000,000 and general and administrative expenses were approximately $81,000,000 for the quarter. Our G and A costs include the onetime charges associated with the Voluntary Early Retirement Program.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

Gross capital expenditures for our second quarter were $159,000,000 which was in line with our expectations as the program was more heavily weighted to the front half of the year. Second quarter cash flow from operations was $56,000,000 which was negatively impacted by significant nonrecurring transaction related onetime cost in addition to some working capital challenges with our unconventional startup business in Saudi. However, we expect future quarters' cash flows to be more reflective of our underlying business as those costs and issues have been substantially resolved. Turning to our three segments, beginning with North American Solutions, we averaged 149 contracted rigs during the quarter, which is right in line with the rig count for the quarter. The exit rig count was 150, which was within our guided range of 146 to 152.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

Revenues of $600,000,000 were essentially unchanged since the first quarter. Segment direct margin was approximately $266,000,000 which was a bit stronger than the first quarter. The realization uplift from performance based contracts continued to enhance our margins and provide additional value to our customers utilizing them. This alignment of customer incentives and our performance resulted in industry leading margins. In addition, over half of The U.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

S. Active fleet is on a term contract. Our international solutions activity ended the second fiscal quarter with 76 rigs working with approximately $4,000,000,000 of contracted drilling backlog. In Saudi, our FlexRig unconventional startup is nearly complete as seven rigs are currently working, and the eight should commence operations any day. As a whole, our international solutions business generated direct margin of $27,000,000 As John indicated, the rig suspensions in Saudi had a large negative impact on the quarterly results.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

To that effect, we are aggressively reviewing and taking action to minimize our operational costs and to quickly and effectively integrate the resources, ideas and expertise that we now share across KCAD and H and P operations. Finally, to our Offshore Solutions segment, which generated $26,000,000 indirect margins, we are very pleased with the performance of our steady and stable offshore business, which has current backlog of 2,500,000,000.0 Much of this business was acquired through the KCAD acquisition, which included asset light offshore management contract operations located in the North Sea, Angola, Azerbaijan, and Canada. Looking ahead to the third quarter of fiscal twenty twenty five for North American Solutions, we expect to average between one hundred and forty three and one hundred and forty nine contracted rigs. Revenue backlog from our North American Solutions fleet is roughly $700,000,000 for rigs under term contract, which is consistent with where we were at the end of the first quarter. Dollars '5 hundred million of this total will be recognized in our fiscal year 2025 with a balance in 2026.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

Again, we are focused on providing customer centric solutions and believe direct margins in fiscal q three to range between 235 and 260,000,000. As the broader energy industry as the broader energy industry continues to face the near term headwinds associated with commodity pricing and potential cost increases associated with tariffs, we will remain focused on providing our customers with mutually beneficial performance incentives and innovative technical solutions. As we look toward the third quarter of fiscal twenty five for international, as we mentioned in the press release, we expect direct margins from our international solutions to be between $25,000,000 and 35,000,000 exclusive of any foreign exchange gains or losses. Further, we expect the average rig count to be approximately 85 to 91 contracted rigs, of which 68 to 74 are expected to be generating revenue. Again, we are managing the impacts of the rig suspensions and believe the Saudi FlexRig startup costs are substantially behind us now.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

We are integrating the best possible outcomes associated with legacy KCAD operations and the unconventional startup. This includes operations, people, processes, technology and systems. Coming out of these near term headwinds, we will be positioned to be a leading provider of drilling services in The Middle East. Now turning to guidance for our Offshore Solutions segment. We expect to generate between 22,000,000 and $29,000,000 in direct margin in the third quarter, with average management contracts and contracted platform rigs to be around 30 to 35.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

Outside of our core operating segments, we do have some businesses that generate direct margin and collectively those are expected to contribute between 2,000,000 and $5,000,000 in the third quarter. Now let me update full year fiscal full year 2025 guidance items. As I stated earlier, our CapEx spend was weighted to the front half of the year and fully expected to moderate now for the balance of the year. As such, we are still estimating capital expenditures for the full fiscal year to be between $360,000,000 and $395,000,000 Just to remind you that last quarter, we were unable to provide a good projection for depreciation expense as the initial allocation of purchase price for KCAD had not been completed. Now that the initial assessment has been finalized, we are projecting depreciation expense to be around $595,000,000 for the full year.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

For general and administrative expenses, with the addition of KCAD numbers, we still expect the full fiscal '20 '20 '5 year to be approximately $280,000,000 As we have discussed, we are already capturing some synergies post close of acquisition and have identified additional cost savings that will put us in excess of the original $25,000,000 by 2026. As we get deeper into integration, the opportunities not only for commercial opportunity expansion, but for cost reduction continues to materialize. We are also evaluating broader cost reductions across the enterprise and have a line of sight on 50 to 75,000,000 in total twenty twenty six run rate savings between synergies and other permanent cost reductions. We are still projecting a fiscal year '20 '20 '5 cash tax range of 190,000,000 to $240,000,000 which includes the additional taxes resulting from the expanded international business. And lastly, nothing has really changed in regards to interest expense, and we are projecting around 50,000,000 for the remainder of the fiscal year.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

Now looking at our financial position, H and P had cash and short term investments of 196,000,000 at March 31, With our undrawn credit facility of $950,000,000 and the remaining cash on hand, we have adequate liquidity to not only cash efficiently fund the 2025 operations, but to continue but continue to generate ample cash to fund our base dividend and pay back the $400,000,000 term loan. As a matter of fact, we are anticipating that by the end of this calendar year, we will have repaid at least a hundred and 75,000,000 on it. H and P maintains an investment grade credit rating. We have a long history of responsibly managing our balance sheet and balancing the interest of debt and equity holders. We will continue to do so.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

Yes. The markets are murky right now. However, collectively, this leadership team has lived and managed through the turbulent energy markets for decades now. We won't let the grass grow under our feet watching them unfold around us. And with that, I'll turn it back to the operator to open it up for questions.

Operator

Thank you. We'll take our first question from Keith McKee with RBC. Please go ahead. Your line is open.

Keith Mackey
Keith Mackey
Director - Global Equity Research, Oil & Gas Services at RBC Capital Markets

Hi. Good morning, and thanks for taking my questions. Maybe just to start out on the international. What is your sense of of the Saudi market today? I know there were some suspensions this quarter.

Keith Mackey
Keith Mackey
Director - Global Equity Research, Oil & Gas Services at RBC Capital Markets

Do you think that the the suspension cycle is primarily complete? Or is there likely some additional actions to be taken there?

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

I wish I could say for certain what what you know, we we don't have direct insight into that. I mean, we have had some conversations, and and at least at one point, it it seems like that, you know, the suspensions were were behind us. We just don't have any clear insight into that. I I wish I could give you some some better clarity into that. One of the things that that we, you know, that we have seen in the past, and, of course, we weren't working in Saudi then, but, obviously, the, KCA employees, were.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

And if you just go back to 02/2015 time frame, 2020 time frame with COVID, there were rig suspensions then. And I you know, again, I think just based upon how the market was then, it was a very dramatic drop in a much different environment than what we see today. But nevertheless, there's still a there was still a need to pull back on spending and and and rig count, particularly in the oil markets. So, I say that because what we what we do know is that there's a track record of having suspensions and then rigs, going back to work. So, obviously, that's no guarantee, but I I do think that at least, you know, again, what what we hear from from Aramco is that, you know, this has happened before.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

And and over time, rigs will go back to work. We just we just don't know when, you know, at this at this particular time. And as far as additional, again, we've seen the same thing. We've seen, you know, one or two here along the way, different different contractors, but really don't have a sense for if they're finished or not at this point.

Keith Mackey
Keith Mackey
Director - Global Equity Research, Oil & Gas Services at RBC Capital Markets

Okay. Fair enough. And maybe just to follow-up on the international. You've given Q3 guidance, which looks like there's some impact of some more suspensions or the recent suspensions coming on, but also some of the legacy HP rigs starting up. Can you just give us a bit of a sense of how that dynamic should play out for fiscal Q4?

Keith Mackey
Keith Mackey
Director - Global Equity Research, Oil & Gas Services at RBC Capital Markets

I would imagine that if the suspension impact, full impact is felt in Q3 of what you know today, and then you start to get the benefit of the legacy HP rigs, then Q4 should be set for a decent inflection in margins for the international. But can you just maybe give us a little bit more color on how we

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

should think about those pieces? This is Kevin. And I think you're right. I think, you know, if you look at our legacy unconventional startup operations in Saudi, you know, again, as I mentioned earlier, we're still waiting on one rig to be operational any day. But if you think about the third quarter, not all some of those rigs were coming online.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

So for the third quarter, you're really not gonna see the full impact of full operational mode for those eight rigs until the fourth quarter. So to your point, you should see a a pretty good positive inflection by the time we get to the fourth quarter and how much revenue per day those those rigs are gonna be contributing to the over the overall international kinda EBITDA stream. And then on the the rig suspensions, I believe at 03:31 at the end of the second quarter, we were still operating of the 17 total rigs that have been suspended to to date, five of those have were still operating as of 03/31. So you're going to see during the third quarter that start to come down more. But then again, assuming, and again, obviously, as John said, it's a it's a big assumption.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

But if there were no more rig suspensions, then you should see that kind of flatten out and see the full impact. But, you know, offsetting some of the revenue reduction there, as we've mentioned, a couple of times and so far is that, really, the cohesiveness and the integration of the legacy KCAD operations team with with the FlexRig H and P legacy startup team. We're starting to see that catch stride and minimize and reduce some of the cost and just how they navigate, operating in country. And I think by the fourth quarter, you'll really see us start to catch a stride there too, not only on the, on the FlexRig side, but just how we're managing cost and sharing resources.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Yeah. I think that's that's really good, good comments, Kevin. And I you know, as you think about the delays, there's no doubt some of the delays have or have been in our control, but there's also been a lot of delays that are just being completely out of our control, that have, you know, caused, you know, some of these, later spud dates than what than what we were expecting. But the the teams are definitely, getting some momentum. And and as Kevin said, I I feel good about where where we are and where we're heading.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

And and, again, we're all pushing very hard, as I said in my comments, to make certain that we get, those rigs earning at the level that they should.

Keith Mackey
Keith Mackey
Director - Global Equity Research, Oil & Gas Services at RBC Capital Markets

Got it. I appreciate the comments. I'll turn it back. Thanks.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Thank you.

Operator

Thank you. Our next question comes from Mark Bianchi with TD Cowen. Please go ahead. Your line is open.

Marc Bianchi
Managing Director at TD Cowen

Hey, thanks. Maybe just quickly since we're talking about the FlexRigs in Saudi, can you refresh us on what the ultimate contribution should be from the eight rigs once we're sort of behind all these startup costs and, you know, what what the run rate ought to be?

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

Yeah. And and what we've historically told people is around, let's call it, full year 25,000,000 a year. I think that number could go up or should go up given, again, just some of the synergies operationally that we're going to be able to to leverage from the leg from the historical legacy KCAD team.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

Again, we're gonna we're already identifying other ways to kinda reduce some of the in country overhead that's there. And so, you know, I think that number could could go up, but what we've historic or what we've been telling people is somewhere around 25,000,000 for those eight rigs.

Marc Bianchi
Managing Director at TD Cowen

Yep. Great. And then I guess so so Keith kinda asked a question on on international and about sort of what the exit rate and how how four q could look like.

Marc Bianchi
Managing Director at TD Cowen

And, you know, if we talk about the other two segments for North America and for offshore, we've got average lower in fiscal three q, which would suggest that the exit might be even lower than that. Can you kinda talk about, you know, where the outlook is for June in those segments from a activity and margin perspective and and how we should be thinking about that progressing beyond June?

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Well, Mark, I'll I'll start, with with North America, solutions. I mean, as you can imagine, we're in constant communication with our customers trying to understand, their needs. Obviously, oil prices are lower than what our expectations were three months ago. And, you know, as you've seen, there have been releases, from from some, some customers or at least announced releases, know, rig here, two rigs there, just trying to balance budget. But I do think that, you know, what we see as a positive, again, depending on the on the macro, is that our partnerships are strong.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

We continue to have very strong conversations with our with our customers. And, you know, we have we have a lot of belief that, you know, if the if the commodity price will hang in there, then then we'll be in in in good position. But the reality of it is that's another one of those areas that that we don't that we don't know. We know customers wanna continue to reduce reduce cost of their wealth. We're doing that with, you know, working very closely with our customers to help them do that.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

A lot of that is through performance based contracts and and deploying technology, and and that that that's obviously delivering a lot of value. What would you add, Kevin?

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

I think

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

that yeah. And you mentioned June. I mean, obviously, given that we're at May 8 now, we got a pretty good line of sight on what April and May are going to look like based upon our internal estimates. June's for the third quarter is a little bit of the wildcard just because, you know, we'd be would be kinda silly not to, at least moderate our expectations for June given everything that you're seeing, we're seeing, the whole market's seeing in regards to what the potential impact is going to be on on activity because of lower pricing, could be higher cost, depending on all the uncertainty around tariffs. And so, we felt like it was the prudent thing to do.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

It's kinda moderate our guidance a little bit until some of this kinda clears the air. So, you know, June again, as John mentioned, we're gonna we're working with our customers to figure out what's the right solutions, given their activity levels. But, you know, it's it's it's difficult for the E and Ps and our customers just to to slam on the brakes immediately. But we're gonna work with them on kinda what makes economic sense in their portfolio to make sure that they're meeting their objectives and allow us to meet our objectives as well. On the offshore, front, we're still, chasing new business.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

We we really like that business. You know, it's it's a little bit lower margin, but it's it's really steady. And and we've got some, as John mentioned, blue chip customers that we continue to have discussions with. So, yeah, it may be a little bit moderated toward the the lower end of the of where where we landed for the second quarter was a little bit look toward the lower end of our guidance range, but we still think it's pretty healthy there. But again, we're working with customers on where they're where they might potentially add activity.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

But again, oil prices being another global oil prices being kind of another moderator of until some of that clears through the system. We don't know exactly know how all those contracts and new business might play out.

Marc Bianchi
Managing Director at TD Cowen

Our

Operator

next question comes from Eddie Kim with Barclays.

Eddie Kim
Eddie Kim
Vice President - Equity Research at Barclays

John, you mentioned that softer oil prices will likely lower the industry rig count in The US land market. The rig count currently stands at about you know, 570 rigs or so today. If oil prices stay at this kind of $60 a barrel level for WTI through through year year end, do you think we could maybe see about 20 or 30 rigs come out of the market? Just wanted to to get your your thoughts, your your early estimates on on kind of magnitude of rig count decline if oil prices stay at current levels.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Well, Eddie, you know, we were we were waiting for the OPEC plus announcement. We we got that. There have been at least some some responses from some, US E and Ps. Again, it sounded to me like that the their, release counts were very modest, very you know, on the low end. And so it's very hard to to say whether it's '20 or thirty thirty rigs.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

I mean, I think your guess is as good as any anyone's. You know, at least in my experience, it's you know, the oil price needs to be at at a level for some period of time. So if oil were to stay in the in the fifties for a period of time, I think we would have some a little bit longer, you know, longer term implications. But right now, you know, again, we talk about this internally. We've talked about it on previous calls.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

A few folks over time have said, hey. You know, we're in a downturn. Well, we're really not. We haven't seen this is not a downturn environment. It's definitely we're seeing some correction, and there's some volatility.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

You know, we were hopeful that we would see more activity coming up on the gas side. I think there is some gas work that's that's upcoming. You know, most of the challenges are in the are in the oil markets. But, you know, we are we we don't have an actual number in mind on what we're modeling. I I think it's very hard.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Obviously, what we're most focused on is is our customers and our rig count and and how we're maintaining, you know, our our count and how we do that, of course, is as we've said before, is through performance, being the safest contractor, the the highest performing contractor, and then deploying technology solutions that that are really a differentiator. So I wish I'd give you a direct a direct number, but I don't think anybody can. I think at this stage, it's it's too early to to determine what that rig count number is gonna be.

Eddie Kim
Eddie Kim
Vice President - Equity Research at Barclays

Yep. Understood. Understood. And understand that that Yep.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

And I'll add just I mean, if you look at the forward oil oil curve, it's I think that's sending the market a message that they believe this you know? And, again, there's a lot of factors that will influence ultimately where 2026 ends up trading on a spot basis. But the forward oil curve being contango tells you that how much of this is being driven in the short term, but the fundamentals would still tell you that there is going to be that the demand is going to be there for oil, and there needs to be basically, the energy industry needs to be ready to supply that. I don't know. You know, you look at what Saudi has done with these rig suspensions.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

At the same time, they're adding oil into the market. It's a little bit of a of a mixed message just in regards to how do we, as an air as a drilling company, stand ready and poised to be able to respond to that. But I think the market is telling telling us that, at least right now, even though the oil prices are kind of at that inflection point where you're gonna see some drop in activity, still seems to be that there is this right skew perception that there's going to be that demand, and and we need to be ready in order to deliver the demand deliver to meet the demand.

Eddie Kim
Eddie Kim
Vice President - Equity Research at Barclays

Understood. Thanks for that color, Ed. And, yep, fully appreciate that crystal ball is a bit murky right now. Just shifting over to the the the KCA Doitag suspensions. And apologies if I missed this, but last quarter, you mentioned I mean, all these suspensions are one year in duration, and the first rig was suspended back in August.

Eddie Kim
Eddie Kim
Vice President - Equity Research at Barclays

At this point, do you expect that first rig that was suspended to to resume work in about three months here, or or do you think it's probably more likely that that suspension gets extended for a few more months just just given where commodity prices are are today?

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

We hey. We don't have any indication that a rig that that those first rigs are gonna go back in that back to work in July, August time frame. We also don't know that, you know, that that it it could happen. But we we are we are not having discussions right now. I mentioned earlier, I don't know if you were on the call, but what we do know about the suspensions is that, you know, Saudi Aramco has done this before through the cycles, and, they suspended rigs and suspended rigs went back to work.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

I don't know what the time frame was. I'm sure they were one year suspension periods in. I did not ask that question. But there is a track record for this process, and, the the rigs, have gone back have gone back to work in the past. So that that's really our expectation and and about the best we can do, right now in terms of trying to understand what the, you know, what the future looks like in terms of reactivations.

Eddie Kim
Eddie Kim
Vice President - Equity Research at Barclays

Got it. Understood. Thank you very much. I'll turn it back.

Operator

Thank you. Our next question comes from David Smith with Pickering Energy Partners.

David Smith
Director at Pickering Energy Partners

Just a quick housekeeping question. The full year guidance for SG and A at February implies a decent step down in the the fiscal second half. So just wanted to ask how you see the the fiscal q four exit rate for SG and A and and maybe how we should think about the the future run rate with the currently contemplated synergies.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

Yeah. The I'll I'll contemplate on the future run rate. I mean, again, as I mentioned earlier, we we have a pretty good line. Most of the synergies and permanent cost reductions that we have talked about are really in the form of G and A. There there is going to be other cost savings that come in the form of operating cost.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

The given the tariffs, the supply chain synergies that we were once looking looking at, They're a little with that fluid situation, they're a little bit more uncertain at this point. And so, once that tariff, once some of this this tariff, nomenclature clears the system, we'll be able to to put our our pencil back to back to the paper on supply chain synergies. But most of the synergies that we're talking about now and permanent cost reductions, you know, I think we'll be somewhere in that 50 to 75,000,000, for full year fiscal twenty twenty six run rate lower g and a. In terms of the run rate, kind of the exit rate for g and a for the fourth quarter, let me do a little bit of math, and I can get back to you on that one, Dave.

David Smith
Director at Pickering Energy Partners

Very much appreciate it. But sounds like it's it's fair to say the higher synergy estimate does not include savings, from from lower cost on the suspended Saudi rigs.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

That's correct.

David Smith
Director at Pickering Energy Partners

Perfect. Thank you very much.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Thanks, David.

Operator

Thank

Operator

you. We will move next with Waqar Syed with ATB Capital Markets. Please go ahead.

Waqar Syed
MD & Head of Research at ATB Capital Markets

Thank you. John, you know, your goal is eventually to provide the same kind of operating performance on international rigs that that you've been doing domestically in The US market. Now as you proceed towards that goal, do you think that the rigs that you acquired from KC, Utah, they are ready for that, or would you need to apply some capital to that, make some changes, add some technology?

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Waqar, you know, we're we're really talking about two completely different markets and and starting points. You know, you really have to go back. Let's let's think about FlexRig performance today and where we were, you know, ten years ago, fifteen years ago, in deploying the the FlexRig capability. And and, of course, that was an unconventional. Most of the work that we have internationally is conventional work.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

So there are some differences. But I do believe that our performance culture, our process excellence, we're already working on ways to deploy some of our technologies to to rigs. The great news is is we have customers that have interest in deploying technology and and and doing more. So it's a it is a it's a it's a long game. It's gonna it's gonna take, you know, a really long time, but I think there are some immediate benefits for customers that are going to position us to grow the business in the future.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Hopefully, that hopefully, that helps.

Waqar Syed
MD & Head of Research at ATB Capital Markets

That that that that helps. And then secondly, you know, as we look I I think the view that's developing is maybe you get, like, 30 to 40 net decline in rigs in the coming months. In that kind of environment, do you see some some pressure on day rates in the domestic market? And maybe if you could talk about some supply demand fundamentals for for super spec rigs. You've got some neat data in the presentation.

Waqar Syed
MD & Head of Research at ATB Capital Markets

Maybe you could talk about that.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Well, on the if you just think about the super spec market in general, it's it's very it's very tight. And the rigs that have so it's one thing to say what's the total available super spec fleet in The US. Well, that's a much larger number than than the rigs that are working today, but you have to consider the rigs that have been idle for really over two years, three years. So the rigs that have that have been active recently is not much more than the five eighty, you know, that that that you mentioned. So I I do think that it's a relatively tight tight market.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

I mean, let's face it. We we continue to have conversations with customers. We've seen other other drillers, and, you know, there's been some softness in in pricing. At the end of the day, we're we're having to you know, we're working very closely with our customers and trying to drive the best value proposition, for them. You know, our belief is you don't get to lower cost with low day rates.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

You get to lower cost by having, the most efficient rigs, the highest technology, and delivering lower, you know, fewer fewer well, pardon me, fewer days per well, which really impacts the the cost side of the equation. So, you know, your reference to 30 or or 40 rigs, I mean, that it's as we said earlier, it's clearly possible. We don't see that right now. There there have been, again, some publicly announced releases of of rigs in The US, with some of the E and Ps reducing their rig count for budgetary reasons, and that's all very understandable. You know, I haven't heard of any of anything else past that.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Kevin, you have any anything, anybody?

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

No. I think that's for I mean, again, most if you look at that, I think you're referencing the slide that we have in our deck. And Yeah. There's a high degree of utilization of super spec rigs based upon ones that are available to go into to use. I forget what it's call it upper eighties in terms of the current utilization rate.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Yeah. So it's a you know, this cycle, it's it's this one is is very different than other cycles that we've had in the past and and and in my career. And, again, we've been flat activity. We at H and P have had in this range bound one forty five to one fifty five for almost two years, and, that that historically hasn't happened. And and so, again, you've got a fleet of rigs that have been idle for some period of time that, you know, that that aren't going to be able to go back to work anytime soon.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

So that that creates, you know, the working fleet being at that 8080% plus activity level, utilization level, and that historically has supported strong stronger pricing if you look at it from that perspective.

Waqar Syed
MD & Head of Research at ATB Capital Markets

Makes sense. Thank you, sir. Appreciate the color.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Thank you.

Operator

Thank you. Our next question comes from Doug Becker with Capital One. Please go ahead.

Doug Becker
Doug Becker
Co-Founder & Partner at Capital One Financial

Thank you. John, several of the offshore drilling contractors have moved their suspended jackups to other markets. There definitely seems to be pockets of some strength in The Middle East. Are there prospects to relocate some of the land rigs currently in Saudi Arabia to other markets in The Middle East?

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

If you if you look at it on a longer term basis, absolutely. You know, if if it if there was a situation where, you know, some of these rigs don't go back to work and then then, yes, there would be the opportunity to move to to other neighboring countries in in The Middle East. And, you know, we've got a nice operation in in Oman. We've got a nice operation in Kuwait. You know, there's there's some other other, potential opportunities.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

I mean, we know it's possible. We're sure not making plans for that. But you're right. There have been offshore rigs that have left the region and have gone other places. We have that same capability.

Doug Becker
Doug Becker
Co-Founder & Partner at Capital One Financial

And switching to The US, curious if there's potential to see the percent of performance based contracts increase. And just the thought being that if a customer wants to see a lower headline rate in a declining activity environment, that might be a win win situation where you can provide a lower headline rate, but still maintain your your margins. Do you see potential for that or just kinda think about it as the 50% level it's been for a while?

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

You know, I think we've been in this 50 to 60% range for a couple of years now. The good news for for us at H and P is we continue to have customers adopt performance based contracts, and every customer is a little bit is a little bit different in how they, you know, design their performance based contract. But, you know, there's clearly a time element. There's other KPIs that are involved. But at the end of the day, I said a few minutes ago, if if we can reduce a a day on on the job, then that's a a large cost improvement.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

And so being able to do that is is beneficial. And then I think even more important that we hear from customers day in and day out is what's most important is the reliability component, the ability to do that well after well after well, not having the outlier wells. And that's where technology solutions enhance that capability. You know, I talked about in my remarks, you know, essentially, technologies are are removing some of the human human element, the the the daily human interaction with directional drilling as an example. And we're using software to directionally drill as opposed to a human making a decision on guiding the well.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Those sorts of things, as you can imagine, as a twenty four hour operation, that provides some significant advantages to us to our customers and the ability to do that. I think there's lot of opportunities for that, and you combine those technologies with the performance based contract, you're driving greater reliability. Again, we've described it as being mutually beneficial for us and our customer. And, you know, that at the end of the day, that's that's what we want. We're making big investments in our fleet.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

We're making big investments in our in our technologies. And we you know, again, like like our customers, we just wanna get you know, make a return on those investments.

Doug Becker
Doug Becker
Co-Founder & Partner at Capital One Financial

No. But it sounds like no reason to expect a particular increase in those contracts more steady

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

than we are we are always pushing we are always pushing to go that that direction. So don't don't hear me say it's not possible. I just don't have it, you know, clear clearly in in sight. We don't we haven't we don't see that in the in the near term outlook, but I I wouldn't say that it it wouldn't or couldn't happen.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

But I and I would add that I would add that H and P, since we've been doing performance based contracts for several years now, the internal competency that we've developed across all various facets of the organization kind of the it definitely differentiates us in regards to because these contracts aren't easy. They're not, you know, they require some negotiation. I say negotiation. It's working with our customers to figure out what's the right blend of KPIs and other things that that they want. But then it's also being able to administer it from a back office perspective, and and we've got five years of doing it.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

So, I think that's key.

Doug Becker
Doug Becker
Co-Founder & Partner at Capital One Financial

Makes sense. Thank you.

Operator

Thank you. And we will take our last question from Jeff LeBlanc with TPH. Please go ahead. Your line is open.

Jeff LeBlanc,
Director & Equity Research at TPH&Co

Good morning, John and team. Thank you for taking my question.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Certainly.

Jeff LeBlanc,
Director & Equity Research at TPH&Co

I wanna clarify. Are are you saying that you're making pricing concessions today, or are you willing to seed market share to maintain margin?

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Well, we're not yeah. We're not well, our market share has grown, and our our pricing is, you know, again, it's it's it's market market based pricing, and we're having discussions with customers every day. And so I think just by virtue of of our guide, you can see that we're forecasting both fewer rigs and some some pricing reduction just as a result of the market. But, again, at times, depending on the quarter, we'll have, you know, an increase in an increase in margins due to our performance based contracts. That's difficult to to sometimes predict.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Do you have any additional No.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

And I think that's what you know, if you look at the guidance we gave last quarter and where we came in with margins, you know, it's a constant fluent. Our our sales and marketing team are in constant discussions with our customers about what makes sense. And, you know, again, we're we're gonna continue to put push for performance based contracts where it makes sense for our customers. Because as John mentioned, it's it's not about the single well. It's about a 10 well program and making sure that you don't destroy the economics for the 10 well program because you have two really bad wells, but the other eight could have been done cheaper, you know, if you were to be utilizing something other than a performance based contract.

J. Kevin Vann
J. Kevin Vann
SVP & CFO at Helmerich & Payne

They're looking at the well economics across all 10 wells. And so, you know, it it's it's fluid, but the you know, we're we've got a lot of headwinds right now that our our sales team's working with our customers collectively as a it's an industry energy industry problem and not just a a drilling services problem that we just need to make sure that we're working with our customers as partners.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Yeah. Jeff, we I mean, the the reality is we acknowledge that there's pressure. I mean, there's pressure across the whole energy value chain to to lower costs. You know, we're gonna continue to work very closely with our customers. We gotta understand their needs.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Ken, it comes back to being customer centric and making certain that we're helping them deliver on their goals. And that's one of the the key, elements of our differentiation, our differentiated offering. And so, again, we're gonna continue to work very closely, with our customers and, you know, try to continue to deliver the value proposition that we're delivering. But again, we we again, we recognize there's a lot of pressure in the in the in the industry. There has been now for for a couple of months.

Jeff LeBlanc,
Director & Equity Research at TPH&Co

Okay. Thank you very much for the color. I'll hand the call back to the operator.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Alright.

Operator

Thank you. And this will conclude our q and a session. I will turn the call back to John Lindsay for closing remarks.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

Thank you again. Thanks for joining us today. I've mentioned this, but just to reiterate, we believe the acquisition of KCA is a game changer for our business long term. Overall, the integration has gone well. Of course, we're continuing down that path of integration.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

I have been very pleased to see customers' excitement about the future, both IOCs and NOCs that we're working with today. There are some macro headwinds that we've talked about that are slowing some of that progress. But, you know, we're bullish on energy long term. You know, obviously, there's a lot of predictions out there that energy demand is gonna continue to grow. There's thousands and thousands of wells that are gonna need to be drilled globally for years to come, and I believe that we're very well positioned to take advantage of that opportunity globally.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

As I said earlier, we're taking a long term perspective, particularly considering the industry's current state. We think we're positioned well for the future. We also again, I wanna stress it. We also must demonstrate that we can we can and will execute on our international growth strategy. That's our plan.

John Lindsay
John Lindsay
President & CEO at Helmerich & Payne

We've deployed new technologies and new commercial models and all sorts of things over the years, and we've been very successful. I wanna assure you that we are continuing our focus on that. So thank you again for your interest, and have a great day.

Operator

And this does conclude today's program. Thank you for your participation. You may disconnect at any time.

Executives
    • Dave Wilson
      Dave Wilson
      Vice President-Investor Relations
    • John Lindsay
      John Lindsay
      President & CEO
    • J. Kevin Vann
      J. Kevin Vann
      SVP & CFO
Analysts
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Key Takeaways

  • With the completion of the KCA Deutag acquisition, H&P now has the largest active rig count in the industry and is positioned as a global leader with enhanced scale for international expansion.
  • In North America, the company maintained a steady ~150-rig count, with over 50% of customers on performance-based contracts and technology solutions driving industry-leading margins.
  • Internationally, startup delays and legacy rig suspensions in Saudi Arabia weighed on Q2 results, but management expects sequential margin improvement as optimization and integration efforts advance.
  • The Offshore Solutions segment continues to generate strong, stable cash flows with a $2.5 billion backlog, making H&P the largest global offshore operation and maintenance partner.
  • Looking ahead, H&P plans to realign costs, capture $50–75 million of run-rate savings by fiscal 2026, and reduce debt, supported by ample liquidity from cash, an undrawn credit facility, and robust free cash flow.
AI Generated. May Contain Errors.
Earnings Conference Call
Helmerich & Payne Q2 2025
00:00 / 00:00

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