Helmerich & Payne Inc., a leading oilfield services company whose rig technology is deployed worldwide, expects higher contract revenue as oil and natural gas supplies tighten and demand increases.
During a conference call to discuss second quarter 2022 results, CEO John Lindsay said exploration and production (E&P) clients remain disciplined on their capital expenditure (Capex). However, with the global upheaval in oil and gas markets since Russia invaded Ukraine, energy security is of paramount importance, he told investors.
“Just as the energy economy is beginning to normalize, another geopolitical event and its immediate and lasting impact are a stark reminder of the importance of abundant, affordable and secure energy to sustaining the global economy at large,” Lindsay said .
“Given the industry’s experience over the past few years, we are not at all surprised that our clients remain rational and disciplined in their investments, even in the face of rising commodity prices. Holding that line is something we believe is critical to creating a healthy and sustainable industry over the long term.”
North American activity — along with spot contract revenue — is moving in a positive direction for the Tulsa-based super-spec rig and technology provider.
“During the quarter, our active North America Solutions rig count increased as expected, ending the quarter with 171 rigs,” said Lindsay.
Active onshore rig count in North America averaged 164 for the quarter compared to 93 in fiscal 2Q2021. One company offered a total of 236 drill rigs in North America during the quarter, up from 242 a year earlier. Four active rigs also worked in the waters of the Gulf of Mexico.
Shrinking Super Spec Count
“The increase in rig count in the industry during the March quarter has further reduced the availability of super spec rigs that have worked at any point in the last two years, compounding the already existing supply-demand constraints in the market,” said Lindsay .
However, tight supply and higher demand have resulted in “accelerated improvements in contract economics,” the CEO noted. “Like our clients, we expect disciplined capital spending consistent with current industry trends and, as a result, underlying supply-demand constraints are likely to persist.”
The tight market should also “offer a path to significant improvement in average spot contract earnings.”
CFO Mark Smith said, “The economics of our spot contracts are improving and we expect similar improvements for our term contracts as they are renewed or enter the spot market in the coming quarters.”
Still, despite the demand, the company has no plans to overstretch the equipment supply.
“We continue to feel encouraged as the industry recovers,” Lindsay said. “However, we are reminded of the industry’s track record of adding excessive capacity to the market, particularly during elevated commodity prices, and the longer-term negative consequences that could ultimately result from these actions if not carefully considered.
“The axiom ‘change is the only constant in life’ reminds us of the changing industry dynamics and the long-term challenges and opportunities that lie ahead.”
In its North America Solutions segment, the Company ended March with 171 active rigs, up over 10% sequentially. The Company expects to end fiscal 2022 with approximately 175 contracted rigs operational.
Capital expenditures for the year remain at the previous guidance of $250-270 million. About half of the spending is said to go to maintenance, including tube purchases. Approximately 35% would choose to convert from a slingshot to a walker on the rigs.
Quarterly net losses for the quarter totaled $5 million (down 5 cents/share), compared to a loss of $191 million (down $1.78) a year ago.