Helmerich & Payne released its third quarter earnings report showing the Tulsa-based company realized a consolidated net loss of $(163) million, or $(1.64) per share, which includes the impact of a non-cash goodwill impairment charge of $173 million. Adjusted for this and other non-recurring one-time items, earnings were $22 million, or $0.22 per share.
The report indicated that despite the loss, the company’s major effort in Saudi Arabia is well underway with the operation of eight exported FlexRigs that commenced operations in Saudi Arabia. Further, it saw gains in its North America segment.
- North America Solutions (NAS) segment reported operating income of $158 million during the quarter compared to $152 million during the prior quarter. NAS maintained industry-leading direct margins(1) of $266 million during the quarter, yielding an associated margin(1) per day of $19,860.
- International Solutions segment realized an operating loss of $(167) million during the quarter, the first to include the full impact of our acquisition of KCA Deutag (KCAD), compared to an operating loss of $(35) million in the prior quarter. These results include a one-time goodwill impairment of $(128) million. However, International Solutions exceeded fiscal second quarter guidance midpoint expectations with direct margins(1) of approximately $34 million.
- The Company realized consolidated adjusted EBITDA(2) of $268 million.
- All eight unconventional FlexRigs in Saudi Arabia have now commenced operations with margins improving as we quickly integrate operations with KCAD.
- Significant progress was made toward our goal of capturing synergies from the KCAD transaction and reducing the combined company cost structure by $50-$75 million, with approximately $50 million identified to date, and additional progress expected.
- As of the end of July, the Company has repaid $120 million on its existing $400 million term loan and now expects to repay a total of $200 million by the end of calendar year 2025, up from the prior expectation of $175 million.
- Approximately $25 million returned to shareholders as part of the Company’s ongoing dividend program.
Management Commentary
“I am pleased with our fiscal third quarter operating results despite a challenging macro environment. Total direct margin(1) across our three operating segments was at the high end of our guidance ranges, reflecting the hard work from our operations and sales teams to deliver collaborative solutions with customers,” commented President and CEO John Lindsay.
“In NAS, our market share and financial performance remain the highest among our drilling peers, underscoring H&P’s strong customer partnerships and focus on sustainable economic returns. Our resilient direct margins reflect the incorporation of our operational and technical performance with a dynamic, customer-centric commercial model and the continued use of mutually beneficial solutions such as our innovative performance contracts. While we expect a slight reduction in activity during our fiscal fourth quarter, we’re confident our NAS segment will continue to deliver market-leading results and solutions for our customers.
“Internationally, our expanded geographic footprint positions us as the premier land drilling company across the globe. We operate in the most prolific oil and gas producing regions in the world. In Saudi Arabia, our FlexRig unconventional startup has gained momentum, and we’re enthusiastic about showcasing our combined capabilities throughout our global operations. Meanwhile, our Offshore Solutions segment continues to generate steady cash flows, reflecting H&P’s position as the leading global offshore operation and platform maintenance provider in the world.”
Senior Vice President and CFO Kevin Vann also commented, “I am pleased with the progress being made to reduce our cost structure by $50-$75 million going forward. To date, we have identified approximately $50 million and additional progress is expected.
“As reflected in our quarterly results, we recorded an impairment to the goodwill recognized at the close of the KCAD acquisition. Although required by accounting guidelines, the impairment does not represent how we feel about the value we expect to capture with the KCAD assets over the long haul.
“We have now repaid $120 million on the $400 million two-year term loan and expect to repay a total of approximately $200 million by end of calendar 2025, up from prior expectations of $175 million. H&P maintains an investment-grade credit rating, ended the quarter with $187 million of cash and short-term investments, and has an undrawn $950 million credit facility. This strong financial foundation supports our growing operations, funds our dividend, and enables continued deleveraging.”
John Lindsay concluded, “Oil and natural gas will remain central to the global energy landscape, and we are optimistic about the sector’s long-term prospects. Economic growth will demand more drilling, and H&P’s global scale, innovative commercial models, and advanced technology will continue to differentiate the Company moving forward. We’re confident our employees, safety-focused culture, mix of conventional and unconventional assets, and digital solutions will continue to deliver consistent results for years to come.”
Operating Segment Results for the Third Quarter of Fiscal Year 2025
North America Solutions: Realized operating income of $158 million, compared to $152 million during the previous quarter, representing an increase of $6 million. Direct margin(1) exceeded the guidance range, totaling approximately $266 million, which was approximately flat with the previous quarter despite slightly lower average rig activity. On a per day basis, direct margin was approximately $19,860 with an average of 147 rigs running. Approximately 50% of the NAS active rigs utilized performance contracts during the quarter, and the performance model remains an integral and differentiating component of H&P’s overall strategy.
International Solutions: This segment had operating loss of $(167) million, compared to a loss of approximately $(35) million during the previous quarter. Not including the impairment of $(128) million, the segment’s operating loss was $(38) million. This was the first quarter with the full impact of operations from our acquisition of KCA Deutag. Without the non-cash impairment of goodwill, direct margin(1) totaled approximately $34 million compared to approximately $27 million during the previous quarter. Importantly, during the third fiscal quarter, the last of eight exported FlexRigs commenced operations in Saudi Arabia, marking an important step in establishing our unconventional drilling presence within the region.
Offshore Solutions: Contributed operating income of approximately $9 million, compared to approximately $17 million during the previous quarter, representing a decrease of $8 million. Direct margin(1) totaled approximately $23 million compared to approximately $26 million in the previous quarter. The inclusion of the legacy KCAD offshore business has added scale and geographic expansion to our offshore segment. We now have the benefit of a larger, blue-chip customer base, low capital intensity, and steady cash flow from our offshore operations.
Select Items (3) Included in Net Income per Diluted Share
Third quarter of fiscal year 2025 net loss of $(1.64) per diluted share included a net impact $(1.86) per share in after-tax losses comprised of the following:
- $0.21 of after-tax gains related to a legal settlement
- $(0.04) of after-tax losses related to restructuring charges
- $(0.07) of after-tax losses related to transaction and integration costs
- $(0.22) of non-cash after-tax losses related to the change in actuarial assumptions on estimated liabilities
- $(1.74) of non-cash after-tax losses related to goodwill impairment
Second quarter of fiscal year 2025 net income of $0.01 per diluted share included a net impact $(0.01) per share in after-tax gains and losses comprised of the following:
- $0.16 of non-cash after-tax gains related to fair market value adjustments to equity investments
- $(0.01) of after-tax losses related to the non-cash impairment for fair market value adjustments to equipment held for sale
- $(0.05) of non-cash after-tax losses related to the change in actuarial assumptions on estimated liabilities
- $(0.11) of after-tax losses related to transaction and integration costs
Operational Outlook for the Fourth Quarter of Fiscal Year 2025
The below guidance represents our expectations as of the date of this release.
North America Solutions:
- Direct margin(1) to be between $230-$250 million
- Average rig count to be approximately 138-144 contracted rigs
International Solutions:
- Direct margin(1) to be between $22-$32 million
- Average operating rig count to be approximately 62-66 rigs(4)
Offshore Solutions:
- Direct margin(1) to be between $22-$30 million
- Average management contracts and contracted platform rigs to be approximately 30-35
Other:
- Direct margin(1) contribution from the Company’s other operations to be between $0-$3 million
Other Estimates for Fiscal Year 2025
- Gross capital expenditures are now expected to be approximately $380 to $395 million
- Ongoing asset sales that include reimbursements for lost and damaged tubulars and sales of other used drilling equipment offset a portion of the gross capital expenditures, and are still expected to total approximately $45 million in fiscal year 2025
- Depreciation for fiscal year 2025 is still expected to be approximately $595 million
- Research and development expenses for fiscal year 2025 are still expected to be roughly $32 million
- General and administrative expenses for fiscal year 2025 are still expected to be approximately $280 million
- Cash taxes to be paid in fiscal year 2025 are now expected to be approximately $190-$220 million
- Interest expense is expected to be approximately $25 million for the fiscal fourth quarter