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Helmerich & Payne (HP) Q3 Loss Lower Than Expected, Sales Top

Contract drilling services provider Helmerich & Payne Inc. HP reported net operating loss per share for the third quarter of fiscal 2017 – excluding special items – of 18 cents, narrower than the Zacks Consensus Estimate of a loss of 31 cents. The better-than-expected results can be attributed to higher drilling activities, especially in the North American markets. Increased rig margins and operating income from the offshore and international markets also provided an impetus to the results. The bottom line also compares favorably with the year-ago adjusted loss of 47 cents

Revenues of $498.5 million were up 36% from the fiscal third quarter of 2016 and surpassed the Zacks Consensus Estimate of $440 million.

Helmerich & Payne, Inc. Price, Consensus and EPS Surprise

Segment Performance

U.S. Land: During the quarter, operating revenues totaled $405.5 million (81% of total revenue), up 42.3% year over year. The average rig revenue per operating day was $21,986, 38% below the year-ago period and average rig margin per day was down 64% to $7,730. Utilization levels increased to 52% (from 24% in the fiscal third quarter of 2016). The segment recorded an operating loss of $8 million. In the year-ago quarter, income from the unit was $25.8 million.

Offshore:Helmerich & Payne’s offshore revenues were up 10.5% year over year to $33.7 million. Daily average rig revenue rose 39.4% to $35,644 and average rig margin per day jumped 70.5% to $11,503. These positive factors led to the segment operating income of $6.4million, up 209% from the prior-year recorded figure of $2.1 million. However, rig utilization declined to 75% from the year-ago level of 78%.

International Land: Helmerich & Payne’s International Land operations recorded revenues of $55.1 million, up from $48 million in the prior-year quarter. Average daily rig revenue was $32,708, down 5.7% from the corresponding period last year, while rig margin per day was $13,063, higher than the $8,537 earned a year ago. Rig utilization was up to 47% compared with 37% in the prior-year quarter.  The segment reported an operating income of $4.9 million, as against the loss of $5 million in the year-ago quarter.

Balance Sheet

As of Jun 30, 2017, the company had approximately $572.8 million in cash, while long-term debt was $492.6 million (debt-to-capitalization ratio of 10.4%).

Updated Guidance

The estimated capex budget for 2017 ha been increased to $400 million from $350 million to take into account the upgradation of more than expected rigs. The projected general and administrative expenses has been increased to $150 million primarily due to the acquisition of MOTIVE Drilling Technologies, Inc. and to support a much higher active rig count than originally anticipated.

Zacks Rank and Key Picks

Helmerich & Payne is a major land and offshore drilling contractor in the western hemisphere with the youngest but the most efficient drilling fleet. The company specializes in shallow to deep drilling in oil and gas-producing U.S. basins. The company currently carries a Zacks Rank #3 (Hold).

Some better-ranked players from the broader energy space include Braskem S.A. BAK, Petróleo Brasileiro S.A. or Petrobras PBR and SeaDrill Limited SDRL. While Braskem and Petrobras sport a Zacks Rank #1 (Strong Buy), SeaDrill carries a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Braskem reported an average positive earnings surprise of 107.79% in the trailing four quarters.

Petrobras delivered an average positive earnings surprise of 59.58% in the last four quarters.

SeaDrill reported an average positive earnings surprise of 97.13% in the last four quarters.

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