Contract drilling services provider Helmerich & Payne Inc. (HP) reported weaker-than-expected results for the second fiscal quarter of 2011 (three months ended March 31, 2011) due to muted performances from its offshore and international operations.
Earnings per share from continuing operations (excluding special items) came to 93 cents, below the Zacks Consensus Estimate of 97 cents.
However, compared to the year-earlier period, Helmerich & Payne’s adjusted earnings per share rose 38.8% (from 67 cents to 93 cents) due to improved U.S. land drilling operations.
Revenues of $604.4 million were up 38.4% from the second quarter 2010 and also beat our projection by 2.8%
Segmental Performance
U.S. Land Operations: During the quarter, operating revenues totaled $495.4 million (82% of total revenue), up 52.7% year over year. Average rig revenue per operating day was $25,640, up 9.7%, while average rig margin per day increased 16.8% to $13,183. Utilization levels rose to 85% (from 70% in the second fiscal quarter of 2010). As a result, segment operating income improved significantly (by 81.1%) from the year-earlier quarter to $164.3 million.
Offshore Operations: Helmerich & Payne’s offshore revenues were up 5.9% year over year to $50.6 million. Daily average rig revenue increased 8.9% to $52,507 and average rig margin per day edged up 3.1% to $23,747. Despite these positives, segment operating income decreased 15.8% from the previous year period to $11.5 million, as rig utilization came down to 76% for the period, against 81% a year ago.
International Land Operations: International land operations recorded revenues of $54.7 million, down from $61.5 million in the previous-year quarter. Average daily rig revenue was $33,043, down 0.7%, while rig margin per day was $7,106, against $11,167 in the year-ago period. As a result, the segment profitability took a severe beating, down to just $2.4 million, compared to $11.8 million recorded in the second quarter of fiscal 2010. Additionally, activity levels fell to 64% from 73% a year ago.
Capital Expenditure & Balance Sheet
During the quarter, Helmerich & Payne spent approximately $170.0 million on capital programs. As of March 31, 2011, the company had approximately $240.7 million in cash, while long-term debt stood at $350.0 million (debt-to-capitalization ratio of 10.1%).
Outlook
Management indicated that with the industry shifting towards oil and liquids-rich targets, there is high demand for modern, technologically sophisticated rigs. With its newest and most technologically advanced land rig fleet, Helmerich & Payne is well positioned to take advantage of this scenario, while continuing to gain market share and adding value for its shareholders and customers.
Importantly, Helmerich & Payne entered into contracts to build and operate 8 additional technologically-advanced FlexRigs in the U.S. under multi-year term contracts with attractive dayrates and economic returns. Since March 2010, Helmerich & Payne have announced agreements for the construction of 45 newbuild FlexRigs, 26 of which have been completed. The remaining 19 rigs are scheduled for delivery during calendar 2011.
Helmerich & Payne, which competes with other U.S. drilling companies including Patterson-UTI Inc. (PTEN) and Nabors Industries (NBR), currently retains a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. We are also maintaining our long-term Outperform recommendation on the stock.
HELMERICH&PAYNE (HP): Free Stock Analysis Report
NABORS IND (NBR): Free Stock Analysis Report
PATTERSON-UTI (PTEN): Free Stock Analysis Report
Zacks Investment Research
