Contract drilling services provider Helmerich & Payne Inc. HP declared that its affiliate, Helmerich & Payne International Drilling Co., has priced senior notes worth $500 million. The notes, which are due to mature in 2025, carry an interest rate of 4.65%.
Tulsa, OK-based company revealed that the notes will be offered to small number of selected investors. Depending on customary closing conditions the offering will likely get closed on Mar 19, 2015.
The net proceeds will be utilized by Helmerich & Payne International Drilling for construction of rigs and normal corporate activities.
In first-quarter fiscal 2015 (three months ended Dec 31, 2014), Helmerich & Payne − the parent firm − reported better-than-expected results. Earnings per share from continuing operations (excluding special items) came in at $1.70, surpassing the Zacks Consensus Estimate of $1.57. The bottom line also showed improvement from the year-ago level of $1.56. These improvements were aided by strong results from its U.S. Land Operations and Offshore Operations segments. (Read our blog: Helmerich & Payne Beats Q1 Earnings Estimates, Revenues)
Although the company posted strong earnings, overall the drilling industry is facing a downturn. This is because of the positive correlation between industry performance and crude price.
Since August last year, oil price plummeted more than 55% owing to abundance of commodity in the market amid lackluster global demand. We don’t expect crude price to recover any sooner unless there is a significant reduction in overall production of the commodity.
The U.S. Energy Information Administration (“EIA”) in its latest update, made an upward revision in its 2015 production projection. This implies that domestic crude output in 2015 is expected to increase to 9.35 million barrels per day (bbl/d), slightly up from the previous guidance of 9.3 million bbl/d. (Read our blog: Crude Production Grows Despite Best Efforts, Woes Remain). The announcement indicates that oil price will remain soft this year.
With the weak oil pricing environment, the upstream players are demanding lesser drilling activities, which are expected to hurt the company’s future performance.
As a result, Helmerich & Payne carries a Zacks Rank #5 (Strong Sell), implying that the stock will significantly underperform the broader U.S. equity market over the next one to three months.
Meanwhile, players in the energy sector that warrant a look include Ferrellgas Partners LP FGP, EQT Midstream Partners LP EQM and Valero Energy Partners LP VLP. All the stocks sport a Zacks Rank #1 (Strong Buy).
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