Lower Activity Levels Hurt Helmerich & Payne (HP) Q2

Contract drilling services provider Helmerich & Payne Inc. (NYSE:HP) reported net operating loss per share for the second fiscal quarter of 2016 (three months ended Dec 31, 2015) – excluding special items – of 24 cents, wider than the Zacks Consensus Estimate for a loss of 22 cents and deteriorating considerably from last year’s profits. The underperformance came amid sharply lower drilling activity.

Revenues of $438.2 million was down more than 50% from the second fiscal quarter of 2015 but came above the Zacks Consensus Estimate of $393.7 million on greater operational efficiency.

Segment Performance

U.S. Land Operations: During the quarter, operating revenues totaled $349.3 million (80% of total revenue), down 51% year over year. While average rig revenue per operating day was $34,218 - 10% above the year-ago period, average rig margin per day was up 14% to $20,079. However, utilization levels plunged to 31% (from 68% in the second fiscal quarter of 2015), pushing down the segment operating income by 72% from the year-earlier quarter to $62.5 million.

Offshore Operations: Helmerich & Payne’s offshore revenues were down 45% year over year to $34.3 million. Daily average rig revenue fell 44% to $28,004 and average rig margin per day tumbled 61% to $7,346. This led to the steep decline in the segment operating income, which dived 83% from the previous year period to $3.3 million. Meanwhile, rig utilization came down from the year-ago level of 98% to 84%.

International Land Operations: Helmerich & Payne’s international land operations recorded revenues of $51.4 million, down from $101.0 million in the previous-year quarter. Average daily rig revenue was $36,774, down 29% from the corresponding period last year, while rig margin per day was $10,487, lower than the $14, 293 a year ago. The negative sentiment was further aggravated by declining activity levels, which plunged to 38% from 49% a year ago. As a result, the segment posted a quarterly loss of $2.3 million, as against income of $10.6 million in the second quarter of fiscal 2015.

Capital Expenditure & Balance Sheet

During the quarter, Helmerich & Payne spent approximately $66 million on capital programs. As of Mar 31, 2016, the company had approximately $898 million in cash, while long-term debt stood at $492.9 million (debt-to-capitalization ratio of 9.3%).

Guidance

The Tulsa, OK-based company expects activity in the U.S. land segment to fall by 25-28% sequentially during the third fiscal quarter of 2016. While the average rig revenue per day is likely to be around $25,000, daily average rig cost is expected to go down to roughly $13,800 during next quarter.

As for the offshore segment, Helmerich & Payne sees the average rig margin per day to be around $8,000 during the third quarter of fiscal 2016 and revenue days to fall by 8% sequentially.

Lastly, the international land segment will likely experience a decline in revenue days by 3% in the next quarter, while average rig margin per day is expected to average roughly $11,000.

Zacks Rank

Helmerich & Payne – whose peers include the likes of Patterson-UTI Energy Inc. (NASDAQ:PTEN) , Nabors Industries Ltd. (NYSE:NBR) and Transocean Ltd. (NYSE:RIG) – currently carries a Zacks Rank #3 (Hold).