EUR 850.00 For Business Accounts Only

Morningstar | Like Other Land Drillers, Helmerich & Payne Saw Strong 3Q Results

Like its land driller peers, Helmerich & Payne saw strong third-quarter results (the fourth fiscal quarter under the company's reporting), with revenue increasing 7% sequentially and adjusted operating margin improving to 6% from about 0% previously. The revenue gain was driven by a 9% increase in U.S. Land revenue, slightly offset by a 2% International decline. Similarly, essentially all of the profitability improvement was driven by U.S. Land. Our fair value and no moat rating are unchanged.

The U.S. land improvement fit the trend established by the land drillers who've already reported. The U.S. horizontal rig count improved about 5% sequentially, and H&P's U.S. land rig count increased 5%. Likewise, pricing has continued to improve across the board owing to higher utilization. H&P's gross margins per rig day increased impressively to $10,200 per day from $9,200 previously (after adjusting for a one-time insurance expense in the second quarter), allowing the company to maintain its lead over peers averaging about $8,100. Higher margins benefited chiefly from stronger pricing, as day rates improved by about $900 per day.

Our outlook for U.S. land drillers overall remains somewhat bearish. We expect the U.S. horizontal rig count to fall from about 930 currently to around 650 by midcycle, driven by a need for U.S. shale oil production growth to moderate to more sustainable levels as well as increased drilling efficiencies, which reduce the number of rigs required to fulfill U.S. shale activity needs. With the largest number of currently idle Tier 1 rigs, Helmerich & Payne has the most to lose in this lower rig count scenario.