Q3 2020 Helmerich and Payne Inc Earnings Call
Your patience and please continue.
[music].
To the hallmark and pains fiscal two or third quarter 2020 earnings conference call.
At this time, all participants are in listen only mode.
Please note today's call is being recorded and you may ask questions later during our question and answer session.
Now my pleasure to turn the conference over to Dave Wilson. Please go ahead.
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[music] then CEO.
No guarantees of future performance.
Looking statements involve certain risks uncertainties and assumptions that are difficult to predict.
As such our actual outcomes and results could differ materially you can learn more about these risks in our annual report on form 10-K, our quarterly reports on form 10-Q in or other FCC filings you should not place undue reliance on forward looking statements. We undertake no obligation to publicly update these forward looking statements.
Well also be making reference to certain non-GAAP financial measures such as segment operating income and other operating statistics, you'll find the GAAP reconciliation comments and calculations in yesterday's press release, but that said I'll turn now I'll turn the call over now John Lindsay.
Thank you, David and Hello, everyone. Thanks for joining us today.
The unprecedented decline and volatility caused by the cobot 19 pandemic continues to reverberate throughout the industry.
And we expect that ramifications will be felt for several quarters to come.
I'm very proud of how are people have persevered and this time, a great personal challenge and uncertainty.
And it's kept the health and safety fellow employees and customers to top priority.
In response to Cabot and demand destruction, HP acted decisively to preserve operational and financial integrity and this will enable us to enable us to capitalize on our shrinks as we shape and deploy strategic objectives aimed.
At addressing the challenges and opportunities within the energy sector.
Well the near term outlook is uncertain. We believe there is an improved future state for industry.
Oil and gas industry has always been cyclical and H.M.P. has many years of experience in navigating these cycles.
We will work hard to continue to perform and strategically positioned ourselves for future success.
Short term we.
We believe the remainder of 2020 will continue to be challenging.
We don't see surplus oil supplies dissipating for the rig count improving materially.
Well, we're hopeful that the rig count in the U.S. is nearing a trough level, we must leave open the possibility of further declines driven by lower oil prices for budget exhaustion.
For the remainder of 2020 and perhaps beyond.
It appears likely that's a future will include more consolidation leading to fewer customers and competitors.
Some industry players are experiencing.
Greater levels of financial distress, that's the downturn lingers.
On our last call we laid out for strategic objectives that we believe will be crucial to our successful journey to the future.
First new customer centric commercial models second.
Gross of digital technology solutions third international expansion and force diligence around cost management.
Each of these strategic objectives are supported by our strong organizational culture.
Which serves as a foundation of our success.
For many years, the company's made significant investments in our culture to achieve alignment throughout the organization, where communication is fluid and innovation is fostered.
At H.P., we work hard to build healthy cohesive teams and it has paid dividends.
H M. P is pleased to celebrate our hundred year anniversary this year.
An incredible accomplishment, especially in such a cyclical industry and a testament to the service attitude and team work of our people.
We aim to continue advancing our organizational helped to build an even stronger culture that is laser focused on providing best in class services and solutions for our customers.
The pay back we've experienced from these efforts have been vital and nurturing. This mindset will be foundational as we move forward in this environment.
As we think about innovation at our company I'm proud to mention our advancements advancements and progress as it relates to the health and safety of our employee base.
Cobot 19 has been incredibly challenge challenging, but fostered by our strong culture. Our employees have continued to meet challenges with creativity and determination.
Our focus on safety and innovating the development of our actively care program has continued to drive improved safety performance in our field operations.
These advances are possible through the development of safety focused applications edge computing and training tools and the use of data science to predict prevent negative events from occurring.
Digital technology will continue to play a pivotal role in differentiating H.M.P. going forward and I'm pleased to report that our autonomous drilling platform continues to advance.
The adoption of auto slide is gaining momentum and is now deployed on over one third of our active fleet.
We are autonomously sliding on more flexrigs today, then during any previous quarter.
Oh this slide provides touch of a button sliding automation during the directional drilling process and to date our customers have employed this technology.
To drill over 300 wells in more than 5 million feet Wellbore.
Customers experience greater reliability of directional drilling Q2, more accurate calculation is driven by our software compared to human error when drilling manually.
They are also able to consistently land the curve earlier in the zone, which provides more exposure to the shale and greater return on investment.
And inadvertent benefit of auto slide in the Cobot 19 environment is the elimination of the third party directional drilling personnel from the rig site.
Which means a reduced risk a virus exposure.
Our technology team has additional automation technology solutions, and Alpha and beta development with customers as we speak.
And we're looking forward to commercializing those in the next few quarters.
Our customer centric focus has served the company well, but the approach of adding value to customers must evolve and encompass a wider array of drilling and digital technology solutions.
For many years the industry experienced significant improvements in drilling time productivity and the H.M.P. flexrig forged the path to many of these gains.
The step change in rig technology has been instrumental in driving shale production growth.
However, the antiquated day re contract model is not designed to allocate benefits delivered through significant additions of efficiency and wellbore quality [noise].
Our solutions are designed to change the narrative around h. impedes value proposition.
[noise] instead of focusing on discrete products like rigs or separate technology applications, we are packaging solutions.
Combining the expertise of our people Flexrigs and digital technology solutions to deliver the best possible well that delivers an achieves our customers goals.
This downturn is actually accelerated conversations and we have several customers ranging from the small independents to the super majors that are working with us on new models.
The models vary from customer to customer as they are crafted to address each customers specific issues and needs.
We're intentionally aligning our organization around this performance driven approach, which drives higher reliability simplifies our customers' experience and forms stronger partnerships.
Combining h. and piece Flexrig in digital technology solutions creates the opportunity to advance new commercial models and our business segment segments will start to reflect the integration of this holistic solutions based strategy.
Mark will discuss this in more detail during his remarks that what has historically been referred to as the U.S. land and H.M.P. technologies business segments.
Have now been combined to form the North America solutions business segment.
Over time, we see alternative commercial models like performance based contracts, becoming the new normal and we are pleased to see that these have remained relatively steady despite record rig count declines and the general lack of incremental contracting activity.
The primary objective is to provide customers with a variety of solutions delivered through proprietary rig technology touch of a button automation software efficiency advantages over uniform Flexrig fleet and our unique digital offerings.
The importance of well economics is magnified under the stressed market conditions, and achieving wellbore quality and placement significantly improves the lifetime value of a well.
The integration of drilling and digital technology combined with performance focused commercial models is central to enhancing the economic performance for both our customers and HMP.
This is a transitional process and adoption won't happen overnight, but we are confident that we can continue to demonstrate the economic effectiveness and migrate toward new commercial models over time.
Mark will talk in detail during his remarks about our successful endeavor to manage costs I'm thankful for the efforts of our people, making many important decisions that have improved our organizational structure.
Our operational costs and improved liquidity.
As part of this process many longstanding employees have separated from HMP.
These employees made great contributions to HMP over the years and we thank them for their contributions to the company and wish them well and the future.
We will continue to be diligent in improving our cost structures. However, we're we will also continue to invest in transformational digital technology solutions as well as expanding our international footprint.
Also paramount is that our balance sheet remains strong.
We repeat this often but particularly as we navigate through this challenging time. It is instructive to step back and reflect on just how important decades of vigilant financial stewardship had been to the longevity and success of Helmerich <unk> Payne.
And now I'll turn the call over to Mark.
Thanks, John.
Today I will review our fiscal third quarter 2020, <unk> operating results provide guidance for the fourth quarter.
Update full fiscal year 2020 guidance as appropriate.
And comment on our expense and liquidity management efforts in current financial position.
As John mentioned in his remarks during the third quarter fiscal year 2020, we restructured our operations to reduce our scale to support current activity levels and reorganized to align with new marketing and management strategies associated with new commercial models and the deployment of digital technologies.
We are moving from a product based offerings, such as a rig or a separate technology package to an integrated solution based approach by combining proprietary rig technology automation software and digital expertise into our rig operations.
Operations previously reported within the agent Pete Technologies segment are now managed <unk> within the North America solutions segment.
Getting with this third fiscal quarter in 2020 or operations were organized into three reportable operating business segments North America solutions.
International solutions and offshore Gulf of Mexico.
Now, let me move on to the highlights for the recently completed third quarter.
The company generated quarterly revenues of $317 million versus 634 million in the previous quarter.
The quarterly decrease in revenue is a result, a big releases in the North American solutions segment and in the International solutions segment due to the energy demand destruction caused by the could have had 19 pandemic.
Correspondingly the total direct operating cost incurred were 207 million for the third quarter versus 419 million for the previous quarter.
General and administrative expenses totaled 43 million for the third quarter in line with our previous guidance.
As a result of the many changes this quarter, we incurred a restructuring charge of 15.5 million in the third quarter.
I will discuss the expected savings from this downsizing later in my comments.
Our effective tax rate for the third quarter was approximately 28% due to discrete tax benefits related to changing or deferred state income tax rate.
And return to provision true ups.
Benefits generated a rate higher than our statutory rate as it is being provided on a pretax book loss.
Now, let me summarize the results of the third quarter agent be incurred a loss of 43 cents per diluted share versus a loss of $3. An 88 cents in the previous quarter third quarter earnings per share were negatively impacted by net nine cents loss per share of select items as highlighted in our press.
Ladies and this primarily pertains to the restructuring charge.
Absent these line items adjusted diluted earnings per share.
It was 34 cents loss in the third quarter versus an adjusted eats and profit during the second fiscal quarter.
Capital expenditures for the third quarter fiscal 2020 were approximately 27 million.
As we have continued to push out some projects and wind down or cancel other projects in light of market conditions.
Turning to our three segments, beginning with North American solutions segment.
We averaged 89 contracted rigs during the third quarter 15 of which were idle, but contracted on some form of cold or warm stack rate.
Due to the ongoing kind of at 19 pandemic unrelated demand destruction.
The rig count decline was in line with their expectation of ending the quarter Blue 70 contracted rigs with the vast majority of that decline occurring by June one.
We exited the third fiscal quarter was 68 contracted rigs of which 20 were idle on rate.
Revenues were sequentially lower by $292 million due to the aforementioned activity decline and the contracted but idle rig count included in this quarter's revenues were approximately $50 million of early termination revenue. This is a longstanding contractual margin coverage, which is applied to the remainder of the canceled term.
Any of these contracts originated from Super spec rig upgrades during the last cycle further when rigs are idle, but contracted they remain under the terms of the contract, but typically pay a reduced rate while incurring reduced operating expenses.
While term rigs are idle, but contracted the idle days are typically not counted against the term period and the contract.
North America solutions operating expenses decreased $194 million sequentially in the third quarter, primarily due to read releases as well as lower cost for contracted but idled rigs.
Cost also decreased due to several proactive operating initiatives at the field level.
One such initiative is our use of quote unquote Penny stock.
When recently released rigs are stacked their usable materials and supplies inventory, which were previously issued in Costa.
Returned to inventory with a penny value to be available for Reissuance.
Many of these consumable shelf lives so prioritizing their consumption in the smaller working fleet now insurers realization of their value.
Since this downturn began in mid March Penny stock has saved approximately 6 million in operating expenses.
Another effort that was commenced just before the downturn is what we call quote unquote.
Distributed user.
This supply chain project ties together undistributed warehouses into a single dispatch system for use by any field location. This effort has resulted in approximately 3 million introduce expenditures since into February.
Looking ahead to the fourth quarter fiscal 2020 for North America solutions.
Since the kind of in 19 pandemic and the resulting economic slowdown we have seen more than 130 rig releases since early March 2020.
Releases is loses June one however, the market remains uncertain.
On one extreme we expect some operators will seek further releases to reduce their costs.
Well operators with idle, but contracted rigs and <unk> turn them.
To work due to increased what prices at the other extreme we hope to see select opportunities for incremental rigs.
We expect to end the fourth fiscal quarter with 58 to 63 contracted rigs with 10 to 15 of news on idle, but contracted status generating some margin.
As John discussed our performance contracts are gaining customer acceptance and there's limited circumstances, where we are having discussions about putting rigs back to work, we are leading with performance based contracts.
It is worth reiterating that the value delivered to customers for wells drilled more efficiently.
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And.
And excuse me second [noise].
As John discussed our performance contracts are getting customer acceptance.
And there is limited circumstances, or we are having discussions about putting rigs back to work we are leading with performance based contracts. It is worth reiterating.
I will say again that the value delivered to customers for wells drilled more efficiently and have higher quality requires pricing models. They recognize in share those benefits equitably.
Accordingly nomenclature, we were using to present our business to investors is also evolving as a reminder, ER segment guidance is now on the basis of segment margins.
Which are defined as operating revenue less direct operating expenses or gross margin and not on individual rig rates to facilitate this transition. We will continue to furnish per day information in the segment tables and press releases in public filings through the end of this fiscal year.
In the North American solutions segment, we expect gross margins to range between $38 million to $48 million with approximately 12 million of that coming from early termination revenue.
Our current revenue backlog for U.S. land fleet is roughly 545 million for rigs under term contract.
This amount does not include the aforementioned 12 million of early terminations expected in Q4, or the 6 million expected after the fourth quarter.
Regarding our international solutions segment.
Our international solutions business averaged 11 active rigs during the third fiscal quarter down sequentially as most of our rig operations in Argentina ended due in part to the kind of in 19 pandemic.
In Argentina, we began the quarter with for at least rigs.
Four rigs working for in a C.
And one rig working for in <unk>.
The NFC rigs ended their original five year term contracts during the quarter collectively the least rigs had a small contribution to margins and were cancelled during the quarter, leaving one super spec flexrig working at quarter end in Argentina.
As we look toward the fourth quarter fiscal 2020 for international activity in the Middle East is holding steady with the three rigs working in Bahrain into working in Abu Dhabi reduced revenue activity in Argentina, coupled with an arduous regulatory environment, which prevents us from reducing cost as quickly as we would like.
I will lead us to encourage legacy cost structure, there in the fourth quarter.
This will likely cause international margins to be negative with an expected loss of between $2 million and breakeven.
Turning to our offshore Gulf of Mexico segment. We currently have five of our offshore platform rigs contracted.
Offshore generated a gross margin of $8.5 million during the quarter above our estimates in part due to the absence of and favorable expenses.
And downtime that adversely affected the prior quarter than previously mentioned gross margin also includes approximately $2 million of contribution from management contracts.
As we look toward the fourth quarter fiscal 2020 for the offshore segment.
One rig is on a short term contracts that will conclude later in the fourth quarter. Therefore, we expect that offshore rigs will generate between five to 7 million of operating gross margin.
Offshore management contracts contributing an additional $2 million.
Now, let me look forward on corporate items for the fourth fiscal quarter and the remainder of this fiscal year.
As we discussed in our April call in response to this down cycle and the uncertain outlook for the oil and gas production business. We have undertaken a number of measures to maintain and extend aegion piece financial strength.
As a reminder, last quarter, we updated our capital allocation by reducing our future intended dividends by $200 million per annum.
Be reduced our north American solutions overhead costs by over 50 million annually see reversed the initial 2020 fiscal year budget accrual for annual incentive compensation in S. DNA and in operating expense in the.
Reduced our fiscal 2020, capex by approximately $95 million.
And there's just completed third quarter. We continue these rightsizing efforts by reducing selling general and administrative overhead by approximately $25 million on an annual run rate relative to our initial fiscal 2020 guidance of 200 million.
These actions that allow us to update our previous guidance for fiscal 2020, SGN eight to less than $175 million.
As mentioned last quarter, we are assessing our international offices to appropriately calibrate for activity specifically, we are working within the regulatory framework in Argentina, the move overhead and operating costs in line with lower activity levels as I mentioned.
Capital expenditures for the full fiscal 2020 or are now expected to reduce further to a new range of between 150 265 million.
Which is the reduction from our prior quarter range of 185 to 205 million.
This is a reduction of roughly 130 million from our initial fiscal 2020 budget.
And a reduction of over 300 million from fiscal 2019 Capex.
We continue to work with our suppliers to realign pre downturn purchase orders.
With the new realities and the current activity levels.
We are in the early budgeting process for fiscal year 2021, which begins October the first.
As you May recall in fiscal 2019, we had closed bulk purchases unquote in capex to scale up rotating componentry free then 200, plus working Super spec Flexthree rig count.
Given current activity levels, we have sufficient capacity capacity to minimize new maintenance capex expenditures. Therefore, we fully expect fiscal 2021 maintenance capex for active rig to be less than the low end of our previously guided range is 750000 to 1 million per active rig.
Further in the same thing is the cost initiatives mentioned previously we will also continue to harvest components from decommissioned rigs to conserve capital. These components will be utilized to the extent possible as parts in should lead to lower for and maintenance capital costs for our working fleet.
The precipitous drop in drilling activity has resulted in the aforementioned rig releases.
And as John mentioned, the unfortunate a reduction of our field and office workforce collectively these downsizing decisions were difficult for the company and for our employees taken together. These cost reduction measures will allow us to meet the challenges of today's down cycle. As a result of these these efforts who we incurred the restructuring charge of 50.5 million in the third quarter.
We anticipate further restructuring costs in conjunction with their international operations in the months ahead.
We're still estimating our annual effective tax rate to be in the range of 16% to 21% and we do not anticipate incurring any significant additional cash tax related to this.
Less than 20 fiscal year. The difference in effect is rate versus statutory rate is related to permanent book to tax differences stayed in foreign income taxes in the discrete tax adjustments recorded in Q3 that I mentioned earlier in this call.
Now looking at our financial position.
Helmerich <unk> Payne had cash and short term investments of approximately $492 million at June 30.
Versus 382 million at March 31, 2020.
Including our revolving credit facility availability or liquidity was approximately 1.24 billion.
We are into cash flow from operations in the third quarter of approximately 214 million versus 121 million in fiscal Q2. Please keep in mind that our accounts receivable as of June 30 included approximately 42 million of early termination revenue and approximately 51 million of income tax receivables.
During the very first few days of July we collected 24 million of early termination payments and we expect to receive at 34 million dollar tax refund before the end of this calendar year.
Our debt to capital at quarter end was about 12% with a positive net cash position as our cash on hand exceeds our outstanding bond.
Our debt metrics continue to be a best in class a measurement amongst our peer group, we have no debt maturing until 2025, and our credit rating remains investment grade.
We will continue to enhance cost management measures and rightsize the company to new activity levels. The efforts undertaken to date should generate sufficient cash on hand, and free cash flow to cover our selling general and administrative expenses debt service costs go forward lower maintenance capital expenditures and recently reduced dividends.
Our balance sheet strength and liquidity services and serve as the cornerstone upon which we have been able to endure for 100 years. There are significant differentiator in this volatile as cyclical industry.
That concludes our prepared comments for the third fiscal quarter now, let me turn the call over to Tushar for questions.
Thank you.
If you like to ask a question.
Press Star then one on your Touchtone phone.
For all your question.
Yes.
Once again that is star one to ask a question.
We'll take our first question Frank.
Please go ahead.
Thanks, Good morning, gentlemen, thanks for all the detail there.
So were late July now and it doesn't sound like we've seen much.
New contracting reemerge yet so.
When we look at your your visible.
Quarter in fiscal year end, a expected rig count.
By what timeframe do we need to see more of a.
Ticking time tracking to get comfort in that not fading lower again into your fiscal Q1, how do you frame be upside downside on that based on the current.
Outlook in current conversations with your customers.
Good morning in.
As I.
Calendar 2020.
Continues to be.
You know pretty flat I think I I think there will be some rigs going back to work.
During the course of the year, but it's not going to be in a material.
Material way.
And we're assuming that you know oil remains in a 40.
40 range.
If I think if oil were to pull back.
I think it's possible that we could you know we can see the rig count began to slide again, but I think it it's really hard to see any really material improvement in rig activity between now and the end of the of the calendar year.
Because again budgets are set customers are being very disciplined in there in their approach.
To their budgets.
I think one possibility would be in a stronger oil price environment.
In calendar 20, as were readying reading or the customers <unk> getting ready for their budget setting process.
And a stronger oil price environment, maybe you could see some.
You know activity improvement from the very very ended the calendar year, but again I think it's going to be pretty challenging as as as we've said I just don't see a lot of.
Opportunity for material improvement in rig count in 20.
Yeah, John I appreciate that fully I, just thought maybe there it needs to be a little bit more spot.
Contracting just to kind of keeps us flatter as opposed to.
The lower in the fourth quarter, you still have some term coverage and the calendar fourth quarter of course right.
Yeah there.
So.
Go ahead.
Sorry.
No go ahead.
Well my follow up is really just you know.
The continuing migration towards performance contracting.
Hello, how quickly do you think the old all or part Derek model is.
Falling by the Wayside and you know if you had a third of your fleet.
One auto slide now and an increasing proportion of your contracts into.
Integrated Commerce performance based commercial models, what proportion of your contracts do you think go into.
That latter bucket as the rig count.
Migrates higher next year do you think it'll be the.
The majority of your contracts.
By some point next next year.
On performance.
Buckets.
I think that's probably a I think next year is probably being a bit aggressive because the you know the industry does have a tendency to.
To adopt change relatively slow at the same time like like we said a we've seen.
An up tick in adoption.
Of the Avado slide and other other technologies and we've also had for the for the few.
Additional contracts, we have been successful and being awarded with most of those are some sort of a performance base or a new type of commercial model. So there is that that example.
You know again as as we as we said and in our prepared remarks, combining all of these technology solutions with the Flexrig.
Is really a beneficial and their customers out there both small and large that have have interest in it. The question is as you said as well how quickly can we get adoption, it's really hard to hard to say, but I do think that we're going to continue to see.
Traction and I think we will increase it as we go through 2021.
Thank you Doug.
Thank you.
Thank you well take our next question from Sean Meakim.
Morgan. Please go ahead.
Thank you Hi, John.
Hi, Sean.
So I appreciate all the details how you're driving cost out of the business that was definitely helpful.
[music].
Yeah, Mark noted in his prepared comments that the goal of cost reduction program. All of your efforts is to meet all of your obligations with free cash.
I guess I was just curious Saint Thomas for me last call you've now three months further in the process. How should we think about that normalized activity environment, that's likely required in order for you to do so so at current levels not able to do that so in a process taking cost out what's the type of environment that you think is required.
The last basis.
Where do you see your cost structure sneaking me does obligation to clean the dividend.
[noise], that's a great question Sean.
And if you look at a cost we've been able to pull out.
<unk>.
I think that as we haven't and you know sometime in our planning horizon, whether its 2021 or 2022 and an add back of rigs, depending certainly on the Cove and.
Pandemic situation and result in demand effects.
You don't really have to add a ton of working rigs back to agent P to get to a and EBITDA that will cover what I believe will still be for some time with this thing the lower maintenance capex level.
You know it's it's you can just you can just run the math on those incremental rigs and it doesn't take it doesn't take 190 that we just had been it that way.
Right Okay.
Fair enough.
Then you know lives talk on this call has been the case for several quarters around.
Applying technology as a point of differentiation I guess I'd like to get your thoughts around strategy on the medium and long term.
Yeah, we've been arguing for some time that.
For that technology is the cost of admission that in order for you to get your hardware to work you've got to deploy software to create some point of differentiation, but in the long run best practices get adopted it such that it's hard to creating sustainable competitive advantage is can maybe just talk further about how.
Do you see the efforts here artist slide among the others that you're really.
Focused on in terms of their ability to create.
And competitive advantages versus the alternative which is that.
Over time, they get competed away and that's still fairly competitive U.S. annually market.
Yes, Sean that's.
And again another another good good question, but.
I do think it's a.
Pricing mission, but I also believe that not all tech not all technologies or are created equal.
And you see that you know when other other industries as well I do think that.
The ability to automate more of a.
More of the manual processes, you've heard me say before you know replacing.
Humans with software and making more of a science and and less of an art.
I don't know that there's that many players that that really had that capability today, and then, particularly as you start thinking about leveraging that across a much larger working fleet because the differences in the rig platforms.
So.
You know there's no doubt the adoption is gaining traction and we've had you know customers make comments to us that you know auto slide motiva.
They are saying that as standard equipment and as they pick up rigs in the future that that's the technology that they're going to that they're going to utilize.
So I hear I hear what you're saying I think it's it's one of those that.
There's there's going to be a lot of different solutions. Obviously, we believe our solution as a as is the best and will be stronger at the end of the day, it's going to come down to and again. Another reason for the segment changes that in order to be successful with these.
Technologies, you also have to be aligned very closely with a with the rig fleet. So rather than a you know just having.
Focus on a technology in a discrete technology or just a discrete product.
We're combining all of that together and you got to have a certain amount of expertise both on the technology side and the rig side. So.
No it's not a direct answer to your question I do I do think that we're in a in a competitive.
Position, a strong position and we'll be able to continue to distance ourselves.
That's fair points. Thanks, John.
Thank you we'll take our next question from.
Stephen Please go ahead.
Good morning, and thank you for taking my questions.
Morning, Tommy.
John in the earlier days of auto Slide you framed up the opportunity that he was going after in terms of the potential to demand the rig site and then.
How that substantial spend.
The.
Split between for example, you and your customer.
As you think about other opportunities to apply technology to the drilling process.
Are there any.
Big buckets that you could call out for us that maybe as of today, there's not a solution, but theres one in the pipeline.
And I'm thinking about a couple new types of technology, you've rolled out auto stand at autonomous Geo steering.
I'd be interested for an update on on those but also.
More just curious about what are the big opportunities that are still out there.
Yeah, you well you mentioned you obviously mentioned a couple of auto slide auto standards really building a further to the to the capability of Avado slide we'll be talking more about that in the futures.
Some of that development has slowed a little bit as a result of or customers that we were partnering with that you know rig counts went down or almost really went to zero. So.
We've had to work in it and address get some additional partners, which we have done which we're making progress on.
I think a one of the areas that we're saying interest in from customers and I think that's what's most important is having customers that are willing to work with you on this because it I mean at the end of the day, it's there it's their wealth or wellbore.
There the one that is gonna be living with that you know well for the next 10 or 15 years.
But auto Geosteering is a is a great example of one of the.
Alpha and beta development mode that we have going on right now with customers and.
We're making a lot of progress there again, it's been delayed a little bit because of the downturn, but I think in the next few quarters, we'll have a a commercial offering.
But that is obviously significantly different than what a drilling provider would would typically be engage with a customer on it so.
To me, it's it's one of those up and again as you look at our.
[noise] at our shift to two new commercial models as well as.
The segment and the North Americas solutions is that we're providing solutions to customers that are that are different than what historically a drilling provider would would provide so I.
I think I think we've got a lot of a a lot of opportunity ahead with those again, we've got customers that are willing to work with us.
Well, we'll have more case studies that will be that we'll be rolling out and then in the coming quarters as well that I think will be helpful.
Okay. Thank you will stay well stay tuned for updates.
Shifting to market share.
It looks like your share of the active rigs and the lower 48 may have dipped a bit in recent months. So I wondered if you could talk about some of the key drivers there and to the extent they relate that to the type of customer you have been working for that maybe adjusted activity faster than the overall market.
As you pure.
Forward toward the next cycle.
Do you envision your customer base evolving at all.
Or do you think it'll still look similar to like it did in the last cycle.
In terms of the mix of say public versus private and the the size of the customers that you've tended to work for noting that you work for all of the above but just high level do you see your customer strategy shifting at all.
Well Tommy we you know I I look at our customer base at the two at the peaks of activity in 2008, and 2014, and then again in 2019 2001st of 2020.
And I thought we did a great job and really transitioning and broadening our customer base I mean, we work for you know really every size of operator out there.
And again, our team has done a great job and and doing that expanding our our scope.
When you when you look at the market share obviously, we've all seen at <unk> a lot of the rigs. It's just been indiscriminate a reduction in rig count sharpest decline in modern history, but that impacts everybody I think the probably the best way to describe it as I look at what's happened on our market share.
Here and that the.
Share that we've lost the best thing to do I think is to look at the rig count trackers that come out every week there are several different and I'm I'm sure you've seen those and and it's really you know the sharp drop that we've seen is very broad and it's across all customers.
But if you look at the overall reduction it's been about 65% and if you look at our top 12 to 15 customers.
You know, it's more like 75% reduction in activity and we even have a few customers that are 85 to close to 100% of their working active fleet went down and we had a 50% to 75% of that they're working fleet. So it it's had a really large impact on us.
I do think that.
As we go forward I get I look at our customer base and.
You know, we've we had a strong customer base in March and we have a strong customer base today and we're expanding.
Our I think abilities and capabilities and working more closely with with customers with these new models and I just think it's going to continue to help us expand our.
Our our customer base.
I feel I feel real good about that.
Thank you John that's all from me.
Thanks, Tom.
Well take our next question from Jeffrey Campbell with Tuohy Brothers. Please go ahead.
Good afternoon, Thanks for taking my questions.
John.
Hey.
Solutions model strikes me as potentially putting it and see more direct competition, what major service providers, which for a long time of argue that they should be paid according to increase production that they generate.
Versus comparable averages that's kind of wondering two things I think we accept that premise one I wondered if you thought that this service history.
Being solutions based might actually help.
I see an absolute price and the customers.
On this contract.
And they.
Well I'd be happy to compete with service providers and certain.
Credit it deserved on the wells the girls.
Or what you keep any competitors boys and often BHP rigs.
<unk>, what's a good question Jeffrey I I don't see isn't necessarily competing I actually there are few examples where we're partnering with.
The major service companies and we have we have overtime.
A you know I, but I do think that we're expanding.
Offerings and maybe there are some examples where we would be a competing.
Ah head to head, but I can't I can't think of any particular Lee right now.
But that that come they come to mind for me.
I do think it's important that we keep working on on these on these solutions clearly the major service providers or are pushing technology.
As well I guess the whole the whole industry is and.
So I don't see us competing Mark you have any any thoughts on that.
Any any other.
Questions.
Yeah.
Not to beat it did that they are we can talk offline, but I was specifically thinking of the halliburton directional drilling tool that they are starting to talk about in there.
Places and National Oilwell, Varco seems to have one where they're kind of trying to play both sides.
They are working with him and directional drillers seem to be gradually automating a job.
My other question was with stick kind of sticking with.
The the tech.
I was wondering if you the extent to which you believe that.
Solutions, and then absolution swayed can become a draw.
International business that you hope to expand over time.
Thanks.
Yes that there are some significant opportunities are there we've seen.
Several both and and South America as well as the Middle East.
Both end of season hives sees that have interest in auto slide a they have a in fact, we have both a drill scan as well as.
Mag bar.
Working so I do think theres going to continue to be a pull through into international markets and and you know again, we believe that theres, even the potential to have the technologies pool or the rig solution through as well.
So we do see that as an opportunity as a as international markets.
To start to.
Start to get more active.
Yeah, well keep an eye on that progression. Thank you.
Thank you.
We'll take our next question from <unk>.
Two.
Please go ahead.
Hi, Thank you and good morning at marker Johnny talked in the prepared remarks about how how your Capex program for EUR 2020, I think was a bit front end loaded and I spent some some extra dollars in the front ended the year for bulk purchases and as a consequence of maintenance capex levels are between 21 will be lower and I'm curious if you could.
Just frame for us how how much longer.
At lower level maintenance capex at least on a per rig basis is sustainable that really.
Inventory there just for for 2021 at these sort of activity levels or a <unk> does it extend beyond that.
Good morning things for the question it's.
You know the bulk purchase activity actually happened in 18, and primarily primarily in fiscal 19.
We had a 200, a super spec rigs working and the Super spec was quite different than its predecessor and that it was working a lot harder theres a lot more strain on the various components.
And there's extra extra equipment needed to be able to rotate componentry through the system. For example, a super spec rigs had three.
Pumps as opposed to a et cetera et cetera. So we had to buy bulk purchases so to speak to get the spares levels up you know, we recertify a thought a much of our own equipment ourselves that our Flexrig machinery center here in Tulsa.
Which allows us to have such significant uptime on our rigs.
So we got through all of that and got scaled up for a 200 plus size rig count as I mentioned in the prepared remarks. So now that were down at these current levels. We can last some time with the it with the capacity we have on hand and that does not even counter the 37 decommissioned rigs from the impairment that we discussed in April so so quite a bit I think.
Runway at these levels.
Okay. That's helpful. My follow up is on that somebody's performance based contract models. It seems like every quarter you seem to gain more customer traction.
Declining market and some cares.
The market sort of evolved around these contract structures at least with your customers.
In recent quarters is there any one model that the market.
Gravitating toward and as a lot of your customers have gone from 10, 2030, plus rigs down to a really bare bones level of activity today.
If any that can't be eyes, and these sorts of contracts changed at all in recent quarters and is there anyway, you could frame for us how to think about where the base IRET as for it for these sorts of contract models right now or are moving forward.
Well we.
Purposely our avoiding the a you know that the day rate and the day rate a comparison because again, we're we're providing.
A different solution than what we have a previously I I would say that are probably the performance based type contract has been most popular but again like we like we have mentioned.
Every customer is different and the things that they're targeting that they're looking at in many cases are different.
And those are the areas that were that we're focusing on and then that that also presents an opportunity to begin to develop and work on other other areas that maybe there is not as much of a focus on a at that particular time. So it's a you know every customer is a little bit different you know our teams are working really.
Hard and very closely with with our customers to form even.
You know closer partnerships and what we've had in the past and.
Again, I got to give a big shout out to the success that they've had in the way that they've been working particularly virtually you know we've had.
We continue to have ongoing conversations with the customers and technology reviews, and we're doing those remotely virtually.
On a.
Video calls and we're able to demonstrate that technology. So it's it's a it's pretty cool to see that but I do think we're going to continue to see a more adoption as as we move forward and and well keep you posted.
Alright, thank you.
Thank you.
Well take our next question from.
Capital. Please go ahead.
Thank you for taking my question.
To the extent that you can add so when you expect margins to kind of bought 10 and.
And then automatic admitting services business.
Well, that's supercard good morning that say.
We would hope now, but that's a little bit the cloud in Crystal ball and some of that is going to depend on a you know as we mentioned in prepared remarks, how we shuffle between.
Customers keeping rigs working are moving into idle, but contracted so there on the lower warm or cold stack rate for example.
Its just a it's really it's really hard to say definitively.
But can you see.
Good thoughts you see prospects, excluding that said the $50 million anytime nation revenues than margin may have bottomed, instead, what you're saying and this quarter and its edging quota.
Again hard to heart, it's just hard pressed to say definitively it's going to been depend so much on what happens a with a broader environment and the rig count in the mix of the rig count between active and an idle or you know kind of idle but contracted.
Okay, and then just to satisfy the international rig count for the.
September quarter <unk> did you say, it's going to get I'm sick sector mix did I hear that got anything.
That's correct five in the Middle East and the one Super spec and working in Argentina, Argentina, Okay and then.
They do we go from what's kind of you know any cost saving could be maybe six eight less enough.
No.
I.
I wish I did [laughter], a john's smiling as well I think.
It's it's just it's a clouded crystal ball a car.
What would you say.
Oh, I, if I knew that said I wouldn't be asking yeah.
[laughter].
[laughter] fifth.
Okay.
Sure sure, hoping 2021 is going to be better, but its you know again there's.
You know tell me tell me what oil prices, where oil prices are going to be that would that would help.
What if oil prices for the next steps, it's about a mindset around I've got a level, maybe 40 45 something in that range.
I think in that case, we probably we have an improving.
Rig count in in 2021, it's hard to say what that would be I mean, it let's face. It we've got a we've got a budget season ahead of us.
And our customers will be setting their budgets and that's what's gonna be the driver you know there.
That's really the only way that that that we're going to be able to to figure that out.
Yes.
So deductions have not had any impact on your middle Eastern rig count.
No.
We've been unaffected there and as we've discussed in prior quarters, we still believe that the middle East is it you know following the <unk>.
Because of in pandemic a resolution through time is a is a great area of opportunity for Helmerich <unk> Payne.
But.
Yeah.
Thanks that thought ahead.
Thank you a car.
[noise] time for questions I'd like to turn the call back.
Okay. Thanks, Tasha, just close by saying as as a result of cobot 19, the industry's experienced perhaps the sharpest decline in activity and most extreme oil price volatility in modern times.
It is very difficult to estimate the full extent the pandemic will have on our industry, let alone the magnitude or timing of recovery.
It's worth repeating that I'm very proud of our people.
And they're perseverance that they've had in this time a challenge in the uncertainty and they've acted decisively to protect the safety and health of our employees customers and stakeholders.
And when I, when I think about safety and health of HMP employees I will always think about warn you blur worn is our VP of Hs any and a champion for safety at H.M.P. for 30 years, Warren will be retiring sooner and I want to thank him for his contribution warrants been are driving for Ciena passion for safety.
And that and that is really extended past HMP. He's he's been a huge industry advocate for safety. He's touched many lives and with is engaging speeches and his calls to action. His last thing legacy will be his actively carrying contributions to health safety and environmental stewardship and the energy industry.
Larry and of course, these men or mid toward many at H.M.P. So please join me in congratulating Warren and sending our best wishes to him and his wife Meg.
And taught Tushar, that's all that that we have for today thanks, everybody for.
For joining us.
This does conclude today's program.
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