Helmerich & Payne, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Focused on achieving best customer outcomes through safety, operational expertise, and technology, leading to superior contract economics and industry-leading rig performance.
• North America Solutions rig count increased slightly, with market share reaching approximately 28% despite U.S. industry rig count down 5% year-over-year.
• International Solutions saw milestone with first FlexRig spudded in Saudi Arabia, with four more FlexRigs in various stages of preparation.
• Acquisition of KCA Deutag is transformative, positioning H&P as a global drilling leader, with cultural fit confirmed between H&P and KCA Deutag teams.
• Reduced safety incidents by ~17% and normalized GHG emissions by over 10% in 2024, with focus on people and career development.

Segment Performance

• North America Solutions: Averaged 151 contracted rigs in the fourth quarter, with segment direct margin at $275 million. Revenue per day was $39,100, and direct margin per day was $19,800. For Q1 2025, rig count is expected to remain relatively flat, ending between 147-153 rigs, with direct margins ranging $260 million to $280 million. Revenue backlog from North America Solutions fleet is ~$700 million.
• International Solutions: Had approximately 16 rigs in September, with the first FlexRig spudded in a Saudi unconventional field, and the next four FlexRigs in various stages of moving and rigging up.

Guidance

• North America Solutions rig count expected to remain relatively flat in Q1 2025, with direct margins ranging $260 million to $280 million.
• Fiscal 2025 gross capital expenditures expected to be $290 million to $325 million, a $190 million decrease from 2024. Depreciation expected at ~$400 million, SG&A expenses ~$235 million.
• KCA Deutag acquisition expected to close in December or January pending regulatory approvals.

Risks

• Rig suspensions in Saudi Arabia affecting KCA Deutag, with some KCA Deutag rigs suspended for up to 12 months, though strategic rationale for acquisition remains.
• Commodity price volatility poses uncertainty to rig count projections and market sentiment.

Question and Answer

Q: Arun Jayaram with JPMorgan asked about the potential run rate for KCA Deutag's EBITDA, especially with rig suspensions.

A: John Lindsay stated no additional guidance given, and Kevin Vann mentioned it's too early to quantify due to uncertain duration of rig suspensions.

Q: Eddie Kim with Barclays inquired about U.S. land rig count outlook and free cash flow expectations.

A: John Lindsay noted a similar trend to 2024 with rig count peaking then declining, and Kevin Vann confirmed free cash flow should increase due to significant CapEx reduction.

Q: Doug Becker with Capital One asked about U.S. margin guidance and international rig suspensions.

A: John Lindsay said margins are expected flat with stable revenue and costs, and John stated no notifications of FlexRig suspensions in Saudi.

Q: Scott Gruber with Citigroup asked about performance-based contracts and their penetration.

A: Dave Wilson and John Lindsay discussed performance-based contracts providing win-win for both H&P and customers, with increasing adoption expected.

Q: Kurt Hallead with Benchmark asked about rig attrition and Middle East opportunity.

A: John Lindsay and Dave Wilson talked about rig efficiencies and continued opportunities in the Middle East despite different well complexities compared to the U.S.

Q: Thomas Curran with Seaport Research Partners asked about GHG emissions and fuel mix for rigs.

A: Dave Wilson and John Lindsay discussed efficiency improvements, high line power usage, and ongoing efforts to reduce emissions with customer collaboration on fuel mix.