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Helmerich & Payne(HP) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported earnings of $1.55 per diluted share for Q2, up from $0.91 in the previous quarter, with a net gain of $0.29 per share attributed to investment securities [50][78] - Revenue increased to $769 million in Q2 from $720 million in the previous quarter, primarily due to higher pricing efforts in the North America fleet [78] - Operating cash flow for Q2 was approximately $141 million, including $114 million in cash tax payments [51] Business Line Data and Key Metrics Changes - In the North America Solutions segment, the average contracted rigs increased to 183 in Q2 from 180 in Q1, with revenues rising by $49 million due to higher average pricing [9][78] - The direct margin for the North America Solutions segment was $296 million, up from $260 million in the previous quarter [52] - The offshore Gulf of Mexico segment generated a direct margin of $9.3 million, remaining flat sequentially [57] Market Data and Key Metrics Changes - The company noted a reduction in active rig count due to customer budgetary constraints and a focus on returns, leading to a lower forward rig count projection [7] - The effective utilization of super-spec rigs remained above 90%, which historically supports a favorable pricing environment [72] - The company expects to exit Q3 with between 155 and 160 contracted rigs, down from 179 at the end of Q2 [54] Company Strategy and Development Direction - The company is focused on achieving returns over market share, emphasizing the importance of maintaining pricing to preserve return profiles [5][19] - Investments in the FlexRig fleet and technology are aimed at improving drilling performance and reliability, with a goal of achieving a 50% direct margin in the North America Solutions segment [40][52] - The company plans to export additional super-spec rigs to the Middle East and Australia, indicating a strategic focus on international growth [8][47] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term energy fundamentals, particularly for natural gas, despite current softness in pricing affecting rig activity [71] - The company anticipates a recovery in rig count in the second half of the year, driven by expected improvements in crude oil demand [73] - Management acknowledged the challenges posed by political and economic uncertainties in the global crude oil market [28] Other Important Information - General and administrative expenses for Q2 were approximately $53 million, slightly higher than expected due to IT and professional services costs [18] - The company has returned approximately $250 million to shareholders through dividends and share buybacks since October of the fiscal year [77] - Capital expenditures for the full fiscal year are now expected to range between $400 million to $450 million, reflecting a decrease in the midpoint from prior guidance [58] Q&A Session Summary Question: Can you provide insights on the performance-based contracts and their benefits? - The company reported that performance-based contracts now account for about 45% of the current fleet, with gradual increases from 40% [91][112] Question: What is the mix of rigs being dropped and the impact of natural gas prices? - Approximately 70% of the rigs released are from private companies, primarily due to low gas prices affecting rig demand [95][112] Question: How does the company view capital allocation for international growth versus stock buybacks? - The company is open to both international growth opportunities and stock buybacks, indicating a balanced approach to capital allocation [113] Question: What are the expectations for rig count recovery in the second half of the year? - Management expects an increase in rig count in the second half of the year, with ongoing conversations with customers about potential rig pickups [101][124]