Contract drilling services provider Helmerich & Payne Inc. (HP) reported robust third quarter fiscal 2011 results (three months ended June 30, 2011), aided by strong contributions from most of its business units.
Earnings per share from continuing operations (excluding special items) were $1.00, surpassing the Zacks Consensus Estimate of 98 cents and prior-year results of 60 cents.
Revenues of $644.1 million were up 33.2% from the third quarter of 2010 and also beat our projection by 1.6%
Segmental Performance
U.S. Land Operations: During the quarter, operating revenues totaled $539.4 million (84% of total revenue), up 47.0% year over year. Average rig revenue per operating day was $25,970, up 9.6%, while average rig margin per day increased 18.6% to $13,222.
Utilization levels rose to 87% (from 76% in the third fiscal quarter of 2010). As a result, segment operating income improved significantly (by 71.5%) from the year-earlier quarter to $176.8 million.
Offshore Operations: Helmerich & Payne’s offshore revenues were up 2.8% year over year at $54.6 million. Daily average rig revenue increased 17.9% to $54,417 and average rig margin per day edged up 24.2% to $25,820. Segment operating income improved 15.2% from the previous-year period to $12.9 million, as rig utilization remained flat at 78% for the period.
International Land Operations: International land operations recorded revenues of $46.1 million, down from $60.0 million in the previous-year quarter. Average daily rig revenue was $29,201, down 4.8%, while rig margin per day was $5,353, as against $10,192 in the year-ago period.
As a result, the segment registered a loss of $624,000, compared to $9.9 million recorded in the third quarter of fiscal 2010. Additionally, activity levels fell to 65% from 76% a year ago.
Balance Sheet
As of June 30, 2011, the company had approximately $288.1 million in cash, while long-term debt stood at $350.0 million (debt-to-capitalization ratio of 9.8%).
Outlook
Management indicated that with the industry shifting toward oil and liquids-rich targets, there is high demand for modern, technologically sophisticated rigs. With its newest and most technologically advanced land rig fleet, Helmerich & Payne is well positioned to take advantage of this scenario, while continuing to gain market share and adding value for its shareholders and customers.
Helmerich & Payne entered into contracts to build and operate 20 additional technologically advanced FlexRigs in the U.S. under multi-year term contracts with attractive dayrates and economic returns.
However, with natural gas fundamentals remaining weak, we do not see any significant price upside for the stock during the next few quarters. Moreover, any significant reduction in energy prices could depress the exploration and production activity level, resulting in a corresponding decline in demand for the company’s services.
Helmerich & Payne, which competes with other U.S. drilling companies including Patterson-UTI Inc. (PTEN) and Nabors Industries (NBR), currently, retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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