Helmerich & Payne Earnings: Day Rates Increase as Rig Utilization Exceeds 90% in North America

Helmerich & Payne HP continued to benefit from a strong North America drilling market, posting revenue growth of 65% year over year and 7% sequentially for the firm’s fiscal second quarter. Operating margins expanded nearly 175 basis points sequentially to 21% as the firm’s average rig day rates pushed into the high $30,000s, a trend that is likely to continue over the next several quarters due to a favorable oil environment. We’ll incorporate the firm’s full financial and operating results shortly, but after this first look, we maintain our $49 per share fair value estimate and no-moat rating.

Day rates and rig profitability continued their positive momentum for the quarter, with North America rates averaging over $36,000 for the quarter and gross margins improving to nearly 50% (up 1,800 basis points versus last year). Yet, a softer natural gas market has weighed on recent rig activity. Total contracted rigs declined to 169 as of the time of the call, down from 179 and 184 as of fiscal first-quarter 2023 and fourth-quarter 2022, respectively. We expect H&P will steadily put more rigs back to work moving forward, considering the continued strength in oil-related drilling activity. Furthermore, industrywide super-spec rig utilization remains comfortably above 90%, which we expect will support elevated day rates into at least 2024.

H&P continues to invest in growing international markets, namely South America and the Middle East. Most of the firm’s available international capacity currently sits in Argentina and Colombia, both of which were relatively steady regions for H&P. The firm also sent its first super-spec rig to the Middle East this quarter, with plans to allocate additional rigs to the region in the second half of the year.