Helmerich & Payne Earnings: North American Rig Count Unlikely to Recover Until 2023 Year-End
Helmerich & Payne HP, or H&P, reported a slightly weaker second quarter (the firm’s fiscal third quarter) despite a softened North American land drilling market. We maintain our no-moat rating and are slightly raising our fair value estimate to $50 per share from $49, mainly because industry activity is still elevated compared with recent years. Furthermore, we view the current dip in land drilling as largely transitory and anticipate a rebound in contracting activity around December 2023, after well operators finalize capital budgets for fiscal 2024. Near-term drilling activity will nevertheless be comparatively subdued after several straight months of explosive growth, and we expect H&P’s results through year-end will reflect its relatively weaker second-quarter performance.
Total revenue increased 32% year over year but decreased 6% sequentially, reflecting a substantially lower active rig count versus last quarter. H&P operated about 166 rigs on average this quarter versus 183 last quarter, representing a nearly 10% decline in fleet utilization. Management indicated average utilization could decrease by another 20 to 25 rigs in the third quarter. High rig day rates will serve as a valuable offsetting factor moving forward. H&P exited the quarter with average rig rates exceeding $37,000 per day and daily gross margins above 50%, a level not seen since before 2015. We reiterate that rig demand—though reduced—is still strong, and we’re optimistic that drillers will maintain pricing power through at least 2024. H&P’s high-quality super-spec fleet is an added benefit since higher quality equipment generally boasts higher utilization and day rates regardless of industry activity levels.
In our view, H&P’s near-term performance is the outcome of operating in a highly cyclical and reactive industry, and we remain overall optimistic about H&P’s prospects over the next five years.
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