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Helmerich & Payne, Inc. (NYSE: HP) reported net income of $78 million, or $0.77 per diluted share, from operating revenues of $660 million for the quarter ended September 30, 2023, compared to net income of $95 million, or $0.93 per diluted share, from operating revenues of $724 million for the quarter ended June 30, 2023. The net income per diluted share for the fourth and third quarters of fiscal year 2023 include $0.08 and $(0.16) of after-tax gains and losses, respectively, comprised of select items(2). For the fourth quarter of fiscal year 2023, select items(2) were comprised of:

  • $0.18 of after-tax gains pertaining to non-cash fair market adjustments to equity investments and net settlements and accruals related to certain outstanding claims
  • $(0.10) of after-tax losses pertaining to a Blue Chip Swap transaction and the change in the fair value of certain contingent liabilities

Net cash provided by operating activities was $215 million for the fourth quarter of fiscal year 2023 compared to $293 million for the third quarter of fiscal year 2023.

For fiscal year 2023, the Company reported net income of $434 million, or $4.16 per diluted share, from operating revenues of $2.9 billion. The net income per diluted share includes $0.01 of after-tax gains comprised of select items(2). Net cash provided by operating activities was $834 million in fiscal year 2023 compared to $234 million in fiscal year 2022.

President and CEO John Lindsay commented, "The cyclical and often volatile nature of the energy industry creates a unique set of challenges for a company. Fiscal 2023 was no exception in that regard. Rig demand was impacted by geopolitical and economic uncertainties influencing the global crude oil market, and warm winter weather was largely the culprit behind the volatility seen in the U.S. natural gas market. However, H&P's long operational experience combined with our differentiated actions during the fiscal year, primarily our emphasis on customer value creation and contract economics over market share, enabled the Company to rise to meet these challenges by quickly adapting to new market conditions, and maintain focus on achieving reasonable economic returns.

"We believe an essential ingredient in achieving success is having a multi-pronged approach to capital allocation. First and foremost, we prioritize the Company's longstanding posture of a strong financial position and fiscal prudence. Second, we look to invest in internal projects with attractive returns so that we continue to lead the industry in the U.S. and develop future growth internationally. Finally, we seek to return capital to shareholders through an established base dividend, augmented by supplemental dividends and share repurchases as those opportunities exist. During fiscal 2023, we deployed approximately $845 million of capital, consisting of roughly $395 million in capital expenditures and approximately $450 million returned to shareholders.

"Our rig activity during the fourth fiscal quarter trended as expected, reaching a trough late in the quarter, but exiting at 147 rigs, which was at the high end of our estimated range. Moving into the fiscal 2024 first quarter, the contractual churn is higher than expected, which has had two distinct effects. First, the activity level has remained relatively stable thus far in the quarter rather than increasing. Second, we are expecting to add 3-9 incremental rigs during the quarter, exiting the quarter in the range of 150-156 rigs. We do anticipate adding additional rigs in the fiscal 2024 second quarter as well. While the industry super-spec rig count declined during 2023, we believe it will not need to increase substantially before utilization really tightens again.

"Our direct margins held up relatively well during the quarter despite the decline in rig activity that was prevalent for much of the fiscal year. The level of direct margins the Company achieved this year corresponds to our focus on contract economics and persistent efforts to translate and monetize the value we create for customers versus a prioritization of market share. We have confidence in our ability to drive value for customers through our operations and technology solutions, and it is the consistent and reliable delivery of those outcomes that ultimately drive market share.

"A major determinant in contract economics are the operational costs involved in providing our services. Over the past two years, we have experienced increases in operational expenses not only due to rising labor costs and consumable inventory cost inflation, but also due to the hidden cost-acceleration on equipment related to running H&P's FlexRig® fleet harder than ever before to achieve the well designs, lateral lengths and the drilling efficiencies our customers demand. While inflation related to labor and consumable inventory items has abated, performance and efficiency gains require we continue to push the service intensity of our rigs and equipment. Furthermore, we are also experiencing inflationary pressures in our non-operational expenses particularly around labor and third-party services, which are the drivers behind our projected increase in selling, general and administrative expenses.

"For our international growth strategy, fiscal 2023 marked a year of successes that we expect to develop over multiple years. First, we completed the establishment of our Middle East hub allowing us to better support our growing operations and respond to tender opportunities in the region; second, we sent a super-spec rig to Australia, where it has been operating quite successfully for the past quarter demonstrating H&P's value on a new continent; and third, we were successful in a Saudi Aramco tender for which we plan to export a super-spec rig in early 2024 to commence operations during the back half of the year. We view our execution on these opportunities as initial stepping stones on a path toward future growth. In fiscal 2024, we plan to build on this momentum and continue to deploy capital for future growth opportunities. Combined with our relatively stable operations in Argentina and Colombia, we are excited about the potential contribution from our international operations in the years to come."

Senior Vice President and CFO Mark Smith also commented, "While fiscal 2023 did not unfold as originally planned, our strong financial position and organizational dexterity enabled us to pivot and still achieve much of what we set out to do. One of the major accomplishments was our ability to maintain healthy margins in a softer activity environment. As such, we will continue to maintain our focus on earning the appropriate margins to generate returns in excess of our cost of capital regardless of the market cycle. Another major accomplishment was the execution of our 2023 supplemental shareholder return plan, which returned cash to shareholders across three facets - our established base dividends of $1.00/share, the 2023 supplemental dividends of $0.94/share and opportunistic share repurchases. Combined in total these returns represented approximately 10% of the average market capitalization of the Company during fiscal 2023.

"Looking out to fiscal 2024, the structure of our capital allocation strategy remains substantially the same as it did in fiscal 2023 - invest prudently in the business and provide returns to shareholders. Our capex plans allow us to maintain and further invest in our market leading FlexRig® fleet in the U.S. and continue to deploy capital internationally to support our growth and diversification strategy. Shareholder returns will take shape under our 2024 supplemental shareholder return plan, where, in addition to our established annual base dividend of $1.00/share, we currently plan to provide another roughly $0.68/share supplemental dividend based on current market conditions and our outlook. Total supplemental dividend payments are expected to represent approximately 50% of cash flow generation after capex commitments and our base dividend. The combination of the base and supplemental dividend as projected, currently represents a dividend yield of roughly 4%, which sustains our very competitive yield compared to our industry. We believe the remaining cash flow of approximately $68 million coupled with our cash and short-term investments on hand at fiscal year-end 2023 of approximately $350 million provides us with ample flexibility for capital allocation if such opportunities arise."

John Lindsay concluded, “We are proud of what we achieved this fiscal year, and remain cognizant that we will need to continue navigating through uncertainties in the coming quarters. Nevertheless, we enter fiscal 2024 with a sense of optimism around the U.S. market and international opportunities, as well as what we can deliver to both customers and shareholders. Furthermore, we believe the outlook over the next several years is constructive for our industry and as such H&P remains ready and will continue to take actions to ensure future success for the Company."

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