Shares of contract drilling services provider Helmerich & Payne Inc. (HP) fell 6.6% on the NYSE following a bearish rig activity update.
Helmerich & Payne stated that drilling activity and rig dayrates are expected to witness a significant decline owing to low crude prices. Since Dec 11, the company’s idle and available FlexRig count has increased to 26 from 15. Another 40–50 such rigs are expected to become idle in the next 30 days.
The weakness extends to the pricing market as well. Helmerich & Payne said that second quarter spot pricing for its FlexRigs have gone down about 10% from that of the current quarter. This trend is likely to continue throughout the next month.
To make matters worse, the company received early termination notice for four of its long-term contracts. Moreover, it expects lower pricing and increased idle rigs situation to continue beyond the next 30 days.
Considering the weakened dynamics of the drilling and oilfield services industry several analysts have lowered estimates for the company, indicating more bearishness ahead.
However, Helmerich & Payne said that its fiscal first quarter outlook remains unchanged. The company expects to withstand the current weakness on the strength of its balance sheet and long-term contract backlog.
Helmerich & Payne is engaged in the contract drilling of oil and gas wells in the U.S. and internationally. As such the company’s results are exposed to oil and gas prices, which are inherently volatile. Crude is already trading in a bearish territory and any further reduction in energy prices could depress the level of exploration and production activity, resulting in a corresponding decline in demand for the company’s services.
In keeping with these views, the company currently carries a Zacks Rank #4 (Sell).
Despite the weakness in the energy sector, better-ranked stocks like Seadrill Partners LLC (SDLP), Exterran Holdings, Inc. (EXH) and QEP Midstream Partners, LP (QEPM) sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment