Oil and gas drilling contractor Helmerich & Payne Inc. (HP) reported lower-than-expected earnings for second quarter of fiscal 2014 (three months ended Mar 31, 2014), owing to higher operating expenses. Disappointing performance by the company’s International Land Operations business unit also dampened the result to some extent.
Quarterly earnings per share from continuing operations (excluding special items) came in at $1.45, which failed to beat the Zacks Consensus Estimate of $1.47.
However, compared with the year-ago adjusted profit, the results improved 6.6% from $1.36 primarily on better performances of the company’s U.S. Land Operations and Offshore Operations segments.
Revenues in the quarter stood at $893.4 million, up 6.6% from the second quarter of fiscal 2013, and also surpassed the Zacks Consensus Estimate of $884.0 million.
Segment Performance
U.S. Land Operations: During the quarter, operating revenues totaled $741.8 million (83.0% of total revenue), up 8.2% year over year. Average rig revenue per operating day was $28,037, down a nominal 0.8%, while average rig margin per day decreased a marginal 1.4% to $14,957 on a year-over-year basis.
Utilization levels increased to 86% from 82% in the second quarter of fiscal 2013. The segment’s operating income improved 8.4% from the year-earlier quarter to $245.1 million.
Offshore Operations: Helmerich & Payne’s offshore revenues were up 13.8% year over year to $63.3 million. Daily average rig revenue increased 6.1% to $64,242, while average rig margin per day climbed 11.4% to $27,665. This led to a significant 41.7% rise in the segment’s operating income from the prior-year quarter, to $19.3 million. Quarterly rig utilization stood at 89%, flat with the year-ago quarter.
International Land Operations: International land operations recorded revenues of $85.5 million, down from $94.1 million in the prior-year quarter. Average daily rig revenue was $37,095, down 8.8% year over year, while rig margin per day was $10,918, down from $ 11,053 recorded in the year-ago quarter.
The segment generated operating profit of $11.2 million, down from $13.2 million in the second quarter of fiscal 2013. Utilization levels reached 78%, however, in line with the corresponding quarter of last year.
Operating Expenses
The company reported total operating costs of $638.1 million for the second quarter of fiscal 2014, representing an increase of roughly 5.4% from the year-ago quarter.
Capital Expenditure & Balance Sheet
During the second quarter of fiscal 2014, Helmerich & Payne spent $216.2 million on capital programs. As of Mar 31, 2014, the company had approximately $585.0 million in cash, while long-term debt stood at $80.0 million (debt-to-capitalization ratio of 1.7%).
Agreement
Helmerich & Payne reveals that it has inked deals with five upstream firms. Per the agreements, Helmerich & Payne is expected to construct nine extra FlexRigs. Included in the contract, Helmerich & Payne will also use those rigs for drilling unconventional resources in the U.S.
Outlook
Helmerich & Payne has raised its capital spending projection for fiscal 2014 to $1.1 billion from $950.0 million.
In its U.S. Land Operations business unit, Helmerich & Payne anticipates rig revenue days to improve 7.0% in the next quarter.
Zacks Rating
Tulsa, OK-based Helmerich & Payne currently carries a Zacks Rank #1 (Strong Buy), implying that it is expected to significantly outperform the broader U.S. equity market over the next one to three months.
One can also look at other well-performing players in the energy sector like Range Resources Corp. (RRC), Pioneer Energy Services Corp. (PES) and Flotek Industries Inc. (FTK). All the stocks also sport the same Zacks Rank as Helmerich & Payne.
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