Helmerich & Payne Q2 Earnings Call Highlights

Key Points

• North America is improving: Helmerich & Payne said the second quarter likely marked the trough for North America rig count and margins, and it raised its third-quarter and full-year rig outlook as drilling demand improves. Management pointed to tighter super-spec rig availability and activity from private E&P and smaller independents.
• Middle East disruptions hurt international margins: Conflict-related costs, supply chain issues and rig suspensions in Iraq, Bahrain and Saudi Arabia weighed on International Solutions results, pushing direct margin to the low end of guidance. Even so, the company still expects to meet its annual international rig guidance, helped by growth in Latin America.
• Balance sheet strength and technology expansion remain priorities: H&P used proceeds from the Utica Square sale to repay its remaining term loan and ended the quarter with about $1.15 billion in liquidity. The company is also expanding its FlexRobotics deployments and expects higher 2026 capex tied to activity growth and rig reactivations.

Helmerich & Payne NYSE: HP said fiscal second-quarter results were supported by steady execution in North America and offshore operations, while conflict-related disruptions and supply chain constraints in the Middle East weighed on its international margins.

President and CEO Trey Adams said adjusted EBITDA for the quarter was $178 million, which aligned with the lower end to midpoint of the company’s implied guidance. Revenue totaled $932 million, according to Chief Financial Officer Kevin Vann. The company reported a net loss of $0.59 per diluted share, including about $26 million of non-cash impairment charges. Excluding those items, H&P generated a loss of $0.38 per share.

Management said the Middle East conflict affected the quarter in several ways, including higher costs, supply chain constraints and rig suspensions. Adams said the company used in-house engineering and aftermarket capabilities to reactivate rigs in Saudi Arabia using in-country equipment, which helped avoid customer delays but shifted some spending into operating expenses and pressured direct margins.

Middle East Disruptions Weigh on International Results

International Solutions delivered direct margin of $11.5 million, at the lower end of guidance. Vann said approximately $3 million of margin pressure came from the allocation of rig reactivation expenditures to operating expense, while another $3.5 million reflected conflict-related direct and indirect costs, including crisis management, supply chain inflation, slower-than-expected starts for reactivated rigs and the suspension of one rig in Iraq.

Adams said H&P experienced one rig suspension in Iraq during the quarter and later received notice that two rigs operating in Bahrain would be suspended for up to 90 days. He said Saudi Arabia reactivations continued, though at a slower pace than originally planned. Three of seven rigs had spud wells, two more were expected to begin drilling imminently, a sixth was expected to be active later in the quarter and the seventh was expected to follow next quarter.

Despite the uncertainty, Adams said operational activity remained stable across much of the portfolio and credited local teams for maintaining continuity. He said the company still expects to meet its annual international rig guidance range of 58 to 68 rigs, with growth in Latin America offsetting some weakness in the Middle East.

North America Outlook Improves

North America Solutions averaged 136 contracted rigs in the quarter, slightly ahead of expectations. Segment direct margin was $215 million, near the midpoint of guidance, while total direct margin per day declined to $17,600. Vann said day rates remained relatively stable, though operating costs rose slightly due to lower overhead absorption from fewer active rigs.

Management described the fiscal second quarter as the trough for both rig count and direct margins in North America. H&P exited the quarter with 137 rigs working, and Vann said 138 rigs were active as of the prior week. The company now expects third-quarter North America direct margins of $230 million to $240 million, based on 137 to 143 rigs, and raised its full-year rig count range to 138 to 144 rigs.

Adams said the improved outlook is being driven largely by private exploration and production companies and smaller independent operators, with some additional movement from public customers. He also pointed to tight availability of super-spec rigs and historically low drilled-but-uncompleted well inventories as factors supporting a pickup in drilling activity.

Mike Lennox, executive vice president of the Western Hemisphere, said H&P operates more than 30% of the Lower 48 industry fleet and has more rigs working in the Permian Basin than any competitor has in the Lower 48 overall. He said the company has more than 20 rigs available for reactivation at roughly maintenance capital expenditure levels.

Technology Adoption and FlexRobotics

Adams said customer demand is also supporting additional deployment of H&P’s FlexRobotics system. The first rig equipped with FlexRobotics is operating on its fifth pad for a supermajor customer in the Permian Basin, and the company plans to deploy the system on four additional rigs. Three of the four new systems are expected to be operational this calendar year.

Lennox said the existing FlexRobotics rig is performing “fantastic” and is ranked second in the customer’s fleet. He said H&P expects to have five robotic rigs by early 2027, with the second system expected this summer, two more in the fall and the final one in early 2027. He said robotics could eventually apply to about one-third of H&P’s fleet, though the company is not announcing that level of deployment at this time.

On the commercial model, Lennox said the first four additional systems include a large lump-sum component, an associated day rate and performance-based upside.

Offshore, Latin America and Contract Activity

Offshore Solutions generated direct margin of approximately $27 million, above the midpoint of guidance. H&P had three active rigs and 30 management contracts during the quarter. The company also announced a contract extension with BP in the Caspian Sea that includes a firm five-year term and three one-year extension options. Adams said the contract could generate well over $1 billion in revenue if all extensions are exercised.

In Latin America, Adams said activity continued to build, particularly in Argentina’s Vaca Muerta. H&P currently has nine rigs operating there and sees a path to full utilization of all 12 rigs in the country. Lennox said margins in Argentina are strong and “not too far off” domestic levels, adding that H&P is upgrading its Flex3 rigs in the country to run the company’s full suite of technology.

Management also said discussions in Venezuela remain active. Lennox said the company has received several inquiries and is exploring options, including a planned joint visit with a customer.

Balance Sheet and Capital Allocation

H&P completed the sale of its Utica Square real estate property in Tulsa during the quarter, with after-tax proceeds exceeding its $100 million divestment target. Vann said the proceeds helped the company fully repay the remaining balance of its $400 million term loan ahead of schedule.

At quarter-end, H&P had approximately $199 million in cash and short-term investments and total liquidity of about $1.15 billion, including revolving credit facility availability. Vann said the company’s focus now shifts to its $350 million bond due at the end of 2027, while continuing to pay its base dividend.

Todd Scruggs, incoming CFO, said leverage reduction remains the company’s top free cash flow priority. He said incremental shareholder returns above the base dividend are likely more of a 2028 consideration, depending on debt reduction, EBITDA growth and investment opportunities.

For fiscal 2026, H&P now expects gross capital expenditures to align more closely with the high end of its $270 million to $310 million range, reflecting higher North America activity, additional FlexRobotics deployments and reactivations in Argentina. The company also raised expected cash taxes to $125 million to $150 million following the Tulsa property sale.

Vann said full-year free cash flow conversion is likely around 30%, with a longer-term target of 40% to 45% in 2027 and 2028. He also noted that second-quarter free cash flow was negative because of a timing lag between receivable collections and payables, but said excluding working capital changes, free cash flow was $74 million.

The call also marked Vann’s final earnings call as CFO before retirement. Adams thanked him for his role in the KCA Deutag transaction and contributions to H&P’s financial function and balance sheet.

About Helmerich & Payne NYSE: HP

Helmerich & Payne, Inc is a leading provider of contract drilling services to the oil and gas industry, specializing primarily in onshore drilling operations. The company designs, engineers and operates a fleet of advanced drilling rigs, including its proprietary FlexRigs, which are engineered for high efficiency, safety and rapid mobilization. Alongside core drilling services, Helmerich & Payne offers well intervention, workover and coiled tubing services, positioning itself as a comprehensive drilling solutions partner for exploration and production companies worldwide.

Founded in 1920 and headquartered in Tulsa, Oklahoma, Helmerich & Payne has grown through innovation and strategic expansion to serve diverse hydrocarbon basins.

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