Contract drilling services provider Helmerich & Payne Inc. (HP) reported mixed results for the second quarter of fiscal 2012 (three months ended March 31, 2012), reflecting sound U.S. land drilling, partially offset by weak offshore business and steeper operating costs.
Earnings per share from continuing operations (excluding special items) came in at $1.13, missing the Zacks Consensus Estimate of $1.21. However, compared with the year-ago adjusted profit, the result increased 27.0% from 89 cents.
Revenues of $769.9 million were up 27.4% from the second quarter 2011 and also beat our projection of $751.0 million.
Segment Performance
U.S. Land Operations: During the quarter, operating revenues totaled $658.8 million (85% of total revenue), up 33.0% year over year. Average rig revenue per operating day was $27,625, up 7.7%, while average rig margin per day increased 4.7% to $13,799.
Utilization levels rose to 91% (from 85% in the second quarter of fiscal 2011). As a result, segment operating income improved significantly (by 27.8%) from the year-earlier quarter to $209.9 million.
Offshore Operations: Helmerich & Payne’s offshore revenues were down 14.2% year over year to $43.4 million. Daily average rig revenue decreased 5.7% to $49,514, while average rig margin per day plunged 13.4% to $20,561. This pulled down the segment operating income 14.8% from the previous year period to $9.8 million. Quarterly rig utilization was 74%, down from 76% recorded a year ago.
International Land Operations: International land operations recorded revenues of $64.1 million, up from $54.7 million in the previous-year quarter. Average daily rig revenue was $31,401, down 5.0%, while rig margin per day was $4,884, against $7,106 in the year-ago period. As a result, the segment experienced an operating loss of $974,000, compared to a profit of $2.4 million in the second quarter of fiscal 2011. However, activity levels rose to 75% from 64% a year ago.
Capital Expenditure & Balance Sheet
During the quarter, Helmerich & Payne spent approximately $210.3 million on capital programs. As of March 31, 2012, the company had approximately $324.4 million in cash, while long-term debt stood at $235.0 million (debt-to-capitalization ratio of 6.1%).
Outlook & Recommendation
Management indicated that with the industry shifting towards oil and liquids-rich targets, there is a high demand for modern and technologically sophisticated rigs. With its newest and most technologically advanced land rig fleet, Helmerich & Payne is well positioned to take advantage of this scenario, and at the same time gain market share and add value for its shareholders and customers.
As the company steps into the second half of fiscal 2012, it is expected to deliver four new rigs each month within the scheduled time and budget.
We believe Helmerich’s technologically-advanced FlexRigs will continue to benefit from an upswing in U.S. land drilling activity and the shift to complex onshore plays, which require highly intensive solutions. However, weak natural gas fundamentals and the challenging international operational scenario remain areas of concern.
Helmerich & Payne, which competes with players such as Patterson-UTI Inc. (PTEN) and Nabors Industries (NBR), currently retains a Zacks #3 Rank (short-term Hold rating). Longer term, we are maintaining our Neutral recommendation on the stock.
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