Oil and gas drilling contractor Helmerich & Payne Inc. (HP) reported lower-than-expected earnings for third quarter of fiscal 2014 (three months ended Jun 30, 2014), owing to higher operating expenses and weak performance by the company’s International Land Operations business unit.
Quarterly earnings per share from continuing operations (excluding special items) came in at $1.61, which failed to meet the Zacks Consensus Estimate of $1.62.
However, compared with the year-ago adjusted profit, the results improved 11.8% from $1.44 primarily on better performance by the company’s U.S. Land Operations and Offshore Operations segments.
Quarterly revenues of $952.1 million were up 13.3% from the third quarter of fiscal 2013 and surpassed the Zacks Consensus Estimate of $941 million.
Segment Performance
U.S. Land Operations: During the quarter, operating revenues totaled $802.3 million (84.3% of total revenue), up 15.3% year over year. Average rig revenue per operating day was $28,126, down marginally from $28,160, while average rig margin per day decreased 2.1% to $15,091, all on a year-over-year basis.
Utilization levels increased to 88% from 83% in the third quarter of fiscal 2013. The segment’s operating income improved 14.7% from the year-earlier quarter to $271.1 million.
Offshore Operations: Helmerich & Payne’s offshore revenues were up about 20% year over year to $64.6 million. Daily average rig revenue increased 4.3% to $64,019, while average rig margin per day fell 3.2% to $24,303.
Segment’s operating income increased over 20% year over year to approximately $17 million. Quarterly rig utilization was 89%, flat year over year
International Land Operations: International land operations recorded revenues of $81.3 million, down from about $87 million in the prior-year quarter. Average daily rig revenue was $35,454, down 1.4% year over year, while rig margin per day was $9,324, up from $8,591 recorded in the year-ago quarter.
The segment generated operating profit of $6.6 million, substantially lower than the $8.5 million in the third quarter of fiscal 2013. Utilization levels were 74%, lower than the year-ago level of 80%.
Operating Expenses
The company reported total operating costs of $680.2 million for the third quarter of fiscal 2014, marking an increase of roughly 13.3% from the year-ago quarter.
Capital Expenditure & Balance Sheet
During the third quarter of fiscal 2014, Helmerich & Payne spent $265.3 million on capital programs. As of Jun 30, 2014, the company had approximately $550 million in cash, while long-term debt stood at $80.0 million (debt-to-capitalization ratio of 1.6%).
Agreements
Helmerich & Payne revealed that it had inked deals with six upstream firms since its last update. Per the agreements, the company is expected to construct 13 extra FlexRigs. Helmerich & Payne will act as the operator of these FlexRigs, which would be used to drill unconventional US resource plays. The company added that since these newbuilds have been ordered after securing multi-year contracts, they should generate lucrative returns for the company.
Outlook
Helmerich & Payne now projects its capital spending for fiscal 2014 to be slightly lower than the earlier guidance of $1.1 billion.
For the next quarter, Helmerich & Payne anticipates U.S. Land Operations business unit’s rig revenue days to improve 2%–3% sequentially. The company projects average rig revenues per day to increase to about $28,300, while average rig expense per day to remain flat at around $13,000.
Helmerich & Payne anticipates average rig margin per day of about $22,000 for its offshore business segment in the fourth quarter of fiscal 2014. The company also projects a 1% increase in revenue days.
For its International land segment, Helmerich & Payne expects total revenue days to increase about 2% in the next quarter, whereas average rig margin per day is anticipated to decline about 5% sequentially.
Zacks Rank
Tulsa, OK-based Helmerich & Payne currently carries a Zacks Rank #2 (Buy), implying that it is expected to outperform the broader U.S. equity market over the next one to three months.
One can also consider other well-performing players from the same industry like Nabors Industries Ltd. (NBR), Patterson-UTI Energy Inc. (PTEN) New Source Energy Partners L.P. (NSLP). All the stocks also have the same Zacks Rank as Helmerich & Payne.
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