Q4 2023 Helmerich & Payne Inc Earnings Call

Sure.

[music].

You all set on home we appreciate your patience and please continue to stand by your program will begin momentarily.

Right.

[music].

Yes.

[music].

Okay.

[laughter].

Good day, everyone and welcome to Tilbury and pain fiscal fourth quarter earnings call.

This time all participants are in a listen only mode. Later, we will have the opportunity to ask questions. During the question and answer session.

We have registered to ask a question at any time by pressing star and one on your telephone keypad.

Please note this call maybe recorded and we will be standing by if you should need any assistance. It is now my.

During today's conference over to the Vice President of Investor Relations, Dave Wilson. Please go ahead.

Thank you David and welcome everyone to how many campaigns conference call and webcast for the fourth quarter and fiscal year ended 2023.

With us today are John Lindsay, President and CEO, and Mark Smith, Senior Vice President and CFO.

John and Mark will be sharing some comments with us after which we'll open the call for questions.

Before we begin our prepared remarks, I'll remind everyone that this call will include forward looking statements as defined under the securities laws such statements are based on current information.

Management's expectations as of this date and are not guarantees of future performance.

Forward 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 10-Q and our other SEC filings you should not place undue reliance on forward looking statements and we undertake no obligation to publicly update these forward looking statements.

We will also make reference to certain non-GAAP financial measures such as segment operating income direct margin in that other operating statistics you'll.

You'll find the GAAP reconciliation comments and calculations in yesterday's press release.

I'll turn the call over to Jonathan.

Thank you Dave good morning, everyone. Thank.

Thank you for joining us today.

Our fiscal 2023 did not unfold as originally planned but I want to underscore.

Three noteworthy items that stand out in my mind has been pivotal for the company going forward.

First we continued to demonstrate that we are approaching the business differently with a heightened focus on contract economics versus market share.

This was evident in fiscal 2022, and the rig count was increasing.

In fiscal 2023, the challenges we're different as the rig count was only declined much of the year.

Yes, we still maintain our economics focus and did not revert back to the historical habits are cutting price to maintain market share.

Second the ability of the company to quickly pivot and adapt to a more challenging market while still.

<unk> much of what we set out to do.

We generated healthy margins and a reasonable rate of return for stakeholders.

Lastly, we returned approximately 10% of our market capitalization to shareholders.

True base and supplemental dividends and share repurchases.

All of this while maintaining a strong balance sheet.

Turning to the details of fiscal 2023 rig demand was negatively impacted by geopolitical and economic uncertainties that.

That influence the global oil market as well as warmer than expected winter weather, which depressed pricing in the U S natural gas market.

Again, we quickly adapted to the market conditions and maintain focus on achieving economic returns above our cost of capital.

Residents are coming to traditional focus on market share.

Despite the adversity H P deliver differentiated commercial value to its customers in return for compelling contract economics.

Even though the industry Super spec rig count decline during much of 2023, we expect activity will increase in 2024, but at levels below the highs seen last year.

Those incremental super spec rig ads will most likely tightened effective.

Super spec market utilization, well above the 80% level, which historically has been favorable for us from a pricing perspective.

Yeah.

Direct margins per day held up relatively well during the fourth fiscal quarter. Despite the industry decline in rig activity.

Notwithstanding the drag created by the Sidelining of higher priced spot market rigs during the past couple of quarters.

We're able to maintain and slightly improve our revenue per day during the quarter.

Nevertheless, our expense per day did trend higher and we will comment on that further.

Yeah.

Looking ahead to the next quarter.

Our guidance suggests our margins will be flat to up slightly.

Our ability to drive consistent and reliable value for customers through operations and technology solutions.

Ultimately determines market share over the long term.

The adoption of performance based contracts increased to 52% in the fourth quarter from 41% a year ago.

These contracts deploy Hep's suite of technology solutions that help to drive strong performance and greater reliability.

Drilling services make up only a small portion of the overall cost of well, but rig performance can have an outsized influence on the ultimate economics of the project.

Identify measuring and then consistently delivering solutions and technologies to improve efficiency and drilling out pads.

Creates a win win for both HP and our customers improving their financial returns for both as well.

An important element within our contract economics or the operational costs involved in providing our services.

Over the past two years, we have experienced increases in operational expenses future rising labor costs, and consumable inventory consumption and cost inflation.

A less visible but growing variable is the cost acceleration on equipment related to running hmp's flex rig fleet harder than ever before.

To achieve the well design lateral lengths and the drilling efficiencies for our customers.

We've seen the inflation related to labor and consumable inventory items decreased somewhat in 2023. However, it is being offset by the service intensity required to maintain rigs and equipment at standards that will continue to drive performance and efficiency gains.

Let me provide an example.

And the last 10 years average lateral length has doubled to over 10000 feet.

At the same time, the well cycle times have improved by 22%.

This means that each flex rig today drill about four and a half more wells on average per year.

And those rigs have double the exposure to the resource.

In 2023, the fleet actually drilled.

15 million more feet of Wellbore, working 33 fewer rigs in a decade ago.

This is an example of service intensity and a significant cause of increasing costs related to higher operational costs required to deliver consistency.

As you can see and the increased volume of work each rig is now expected to produce.

To put a finer point on the magnitude of these cost increases and the impact on our contract economics, North American solutions operating costs have increased over 50% since 2014.

Like most businesses. We are also experiencing inflationary pressures in our non operational expenses, particularly around labor and third party services.

Which are key drivers behind our projected increase in selling general and administrative expenses.

Mark will give more details on this in his remarks.

We have begun to capitalize on unconventional opportunities outside the U S, enabling us to further diversify our operations over the long term.

I'm pleased with the early signs of success here, particularly with our recent tender award with Saudi Aramco and the operations of our first Super spec rig in the <unk> basin in Australia.

In fiscal 2024, we plan to build on this momentum and continue to deploy capital for future international growth opportunities.

We're also thankful for celebrating 50 years in Colombia, 25 years in Argentina, and the consistent contribution from our offshore Gulf of Mexico operation.

And we're excited about the potential contribution from these segments in the years to come.

Shifting to our efforts focused on the energy transition, we are furthering our strategy of deploying capital and expertise to companies advancing innovative approaches to energy.

As an example, our investments in geothermal are helping to develop an alternative harder to 324 seven power source.

We're providing unconventional drilling learnings and flex rig technology solutions to enhance and enable next generation via geothermal concepts.

A recent highlight is the encouraging progress in the field with one of our geothermal Investees servo energy.

We're currently drilling the fifth well of a multi year drilling campaign in Utah.

As their first geothermal development project, which will include constructing the second largest geothermal plant in the U S.

And what plans are producing 400 megawatts of geothermal power by 2028.

H M P Super spec flex rig three along with our technology suite has surpassed our customers' anticipated performance targets.

Our strategic alliances with <unk> and our other innovative companies to have put us firmly on the path to participate in next generation geothermal opportunities and grow our unconventional geothermal drilling expertise to a larger scale.

In addition to our operational and growth accomplishments during the year, we believe in a certain essential ingredient and achieving shareholder success is having a multi pronged approach to capital allocation.

First and foremost we prioritize the company's longstanding posture of a strong financial fish physician and fiscal prudence.

We look to invest in organic projects with attractive returns. So that we can 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 when those opportunities exist.

Mark will provide additional details about the plan in his remarks.

I'm proud of the <unk> team service attitude and strategic achievements this fiscal year and we'll remain vigilant as we navigate through 2024.

We enter this new year 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.

We believe the outlook over the next several years is encouraging for our industry.

Long term energy fundamentals are strong and as such H M. P remains ready.

And we'll continue to take actions to ensure future success for the company.

With that I'll turn the call over to Mark.

Thanks, John Today, I will review, our fiscal fourth quarter and full year of 2023 operating results provide guidance for the first quarter and full fiscal year 'twenty 'twenty four is appropriate.

And comment on our financial position.

Let me start with highlights for the recently completed fourth quarter and fiscal year ended September 32023.

The company generated quarterly revenues of $660 million versus 724 million in the previous quarter. The decrease in revenue was primarily due to the expected reduction in active rig count for the North America solutions fleet.

Correspondingly total direct operating costs incurred were $410 million for the fourth quarter versus $430 million.

The previous quarter.

The sequential decrease was driven by the aforementioned reduction in activity, but this decline was somewhat muted by lower fixed cost absorption and maintenance and supply expense intensity.

Which ended up being on the higher end of the range this quarter.

General and administrative expenses totaled $56 million for the fourth quarter and $207 million for fiscal 2023, which was generally in line with our expectations.

The fiscal 'twenty three effective tax rate was approximately 27%.

<unk>, which is within the previously guided range.

To summarize fourth quarter's results H M. P earned a profit of 77 cents per diluted share versus 93 in the previous quarter.

Earnings per share were positively impacted by a net.

Eight cent gain per share of select items, which was primarily made up of gains on investment securities and settlements of outstanding claims, partially offset by a blue chip swap transaction.

Absent these select items adjusted diluted earnings per share was <unk> 69 cents in the fourth fiscal quarter compared with an adjusted $1.09 during the third fiscal quarter.

Capital expenditures for the fourth quarter were $114 million with full fiscal 2023 totaling 395 million, which was generally in line with their expectations from the July earnings call.

H M P generated $215 million in operating cash flow in the fourth quarter and a total of $834 million during the full fiscal 'twenty to 'twenty three.

Our cash flow generation funded 846 million in capital deployment.

Mm $395 million of Capex.

140, $104 million of base dividends at $98 million in supplemental dividends and $249 million in share repurchases together with related excise taxes.

We will discuss our expected accretive fiscal 'twenty for cash generation and cash position later in these remarks.

Turning to our three segments, beginning with North America solutions segment.

We averaged 149 contracted rigs during the fourth quarter down from an average of 166 rigs in fiscal Q3.

We exited the fourth quarter was 147 contracted rigs, which was at the high end of our expectation.

Note that the 147 rigs corresponds to approximately 80% utilization of Super spec rigs that have worked with in the last year.

Revenues were sequentially lower by $66 million due to the expected sequential decrease in the number of working rigs segment direct margin was 239 million within our July guidance range.

Total segment per day expenses, excluding reimbursable increased to nine to $19800.

During the fourth quarter from 18700 per day in the third quarter.

As discussed in our press release this was above our expectations due in part to maintenance and supplies expense from rigs running harder further cost drivers include rig churn and decrease labor and overhead absorption.

During this trough period, we retained crew personnel regional specialty positions in rig fabrication and maintenance facilities staff, resulting in a lower scale absorption during the quarter.

Additionally, this segment incurred a $150 per day really charge related to the change in the fair value of a contingent liability related to an acquisition earn out based on operating performance metrics.

Looking ahead to the first quarter of fiscal 'twenty 'twenty four for North America solutions as of today's call. We have 147 contracted rigs as a contractual churn has been higher than expected, which has kept our activity level relatively flat thus far in the quarter.

That said, we expect to end their first fiscal quarter with between 150 and 156 rigs working under.

And are anticipating some additional adds in fiscal Q2.

Our current revenue backlog from our North America solutions fleet is roughly $1 1 billion for rigs under term contract.

From 900 million in the previous quarter.

As of today, approximately 60% of the U S. Active fleet is on a term contract as activity increases we expect our average pricing levels to remain steady given that spot pricing levels have remained relatively stable.

And above lower rate legacy term contracts that continue to roll into the current pricing environment.

In North America is in the North American solutions segment, we expect direct margins in fiscal Q1 to range between $235 million to $255 million.

Given that 70% to 75% of our daily costs are labor related it is typical to see seasonal declines from payroll taxes et cetera.

In general our operating costs have increased approximately 25% at the end of fiscal 2019 and are anticipated to continue near current levels due to several factors, including the aforementioned in materials and supplies inventory consumption as a result of longer laterals.

Labor expense was elevated by two inflation adjustments in the past two years and supply chain cost inflation.

Further continued richer and drives cost levels higher.

These increased costs are one of the many reasons, we are acutely focused on maintaining recently achieve pricing levels as we strive to earn appropriate returns on our investments.

Regarding our international solutions segment, we had approximately 13 rigs active at September 30th as expected sequentially flat from prior quarter.

As a reminder, we revised international guidance via our October 18th press release as a result of accelerating some rig commissioning due to timing efficiencies at our Houston facility and due to certain next that labor expenses.

Further we experienced a $4 6 million foreign exchange loss on Argentina paces in country based on the devaluation of the official exchange rate in the segment, which is in the segment results.

Separately, we experienced a 12 million investment loss that related to accessing the blue chip swap effective parallel exchange mechanism in Argentina.

Although we took this investment loss that we were able to repatriate in that $9 $8 million to the U S, which otherwise would not have been available.

Looking towards the first quarter of fiscal 'twenty 'twenty four for the International segment, we expect to go idle one rig in Argentina in mid quarter with all other countries remaining at constant activity levels.

Aside from any foreign exchange impacts that we expect to have between $7 million to $10 million direct operating contribution.

Direct margin contribution in the first quarter.

Turning to our offshore Gulf of Mexico segment as expected, we completed the demobilization of a rig in the fourth fiscal quarter and now have three of our seven offshore platform rigs contracted we have management contracts on three customer owned rigs one of which is an active rate.

Offshore generated a drag margins of approximately $7 million during the quarter, which was within our guided range.

As we look toward the first quarter of fiscal of 'twenty 'twenty four for the offshore Gulf of Mexico segment, we expect that it will generate between $3 million to $7 million of direct margin, which is down sequentially, primarily due to the stacking of the aforementioned rig.

Now, let me look forward to the first fiscal quarter and full fiscal year 'twenty 'twenty four for certain consolidated and corporate items.

Let me start by reiterating features in our multi pronged approach to capital allocation that John mentioned earlier.

Our strategy is to maintain our strong balance sheet together with investment grade credit metrics to invest in maintaining our market, leading North America solution asleep and deploy capital to support growth and diversification opportunities internationally with prudent investments and their rig fleet.

Finally, I recently announced 'twenty 'twenty four supplemental shareholder plan.

Returns land continues our strategy introduced a year ago to flexible flexibly augment value to shareholders.

As discussed in our October 18 press release and in yesterday's release, our fiscal 'twenty 'twenty four Capex has three buckets, North America International and corporate and information technology.

Our bucket of North American solutions includes maintenance Capex cost, which are anticipated to push above the high end of the fiscal 'twenty three 2023 range due in part to fiscal year 2023 supply chain delays in capital spending for component and equipment refurbishment and recertification that has rolled into fiscal year 2024.

Fiscal 'twenty for maintenance Capex per active rig should approximately approximate one three to $1 $5 million per active rig based on current bottoms up maintenance facility or supply chain throughput expectations.

This level of capital intensity has some inflation built in for the last couple of years, but it also it is also at a projected high point due to continued catch up spending from the 20th 20 downturn.

The international bucket, primarily because this excuse me international bucket, partially consist of a planned minor upgrade to three rigs in Argentina utilizing funds currently in country.

To take them to full super spec capacity.

We plan to continue converting slightly over one rig per month to walking capability at our Houston facility, resulting in approximately 14 conversions.

In fiscal 'twenty four.

These conversions will be split between North America solutions and international exports, depending on the successful outcomes of current and anticipated international bids.

And on a U S customer demand at attractive rates and terms.

The final bucket of corporate and in information technology consists primarily of enterprise financial and operating system upgrades and the rig communications improvements.

Depreciation for fiscal 2024 is expected to be approximately $390 million.

Our sales general and administrative expenses for the full fiscal 'twenty four year are expected to approximate $230 million, which is up from the prior year.

We have continued to build the capabilities to support the company, including expertise that has aligned pricing with value delivered in North America and in securing initial middle East International growth.

We have also introduced several software as a service solutions to improve our data and an interim analysis in many areas.

And finally, we have experienced inflation across many functional areas in 'twenty two 'twenty three for labor and third party services.

For which we will bear the full run rate in fiscal 2024.

Our investment in research and development remains largely focused on solutions for our customers such as drilling automation wellbore quality and power management, we anticipate R&D expenditures to be approximately $30 million in 'twenty 'twenty four.

We are expecting an effective income tax rate range of 24% to 29% with the variance above the U S step rate of 21% driven by state and foreign taxes.

Based upon an estimated fiscal 'twenty four operating results and Capex, we are projecting a consolidated cash tax range of a $150 million to $200 million.

Now looking at our financial position Helmerich, <unk> Payne had cash and short term investments of approximately 350 million as of September 32023 versus 293 million at June 30.

Including the availability under our revolving credit facility, our liquidity remains at approximately $1 1 billion.

And as announced in Iraq, Tober press release subject to ongoing board approval, we plan to pay supplemental dividends across fiscal 2024. It was about $68 million, which is approximately 50% of the projected remaining cash flow.

After capex and after our established base dividend N.

In essence over two thirds of cash flow. After Capex is planned to be returned to shareholders with approximately one third remaining for flexibility.

As of the day, that's flexible 68 million unallocated together with our current $350 million in cash and short term equivalents on hand provides us with much flexibility for accretive investments opportunistic share buybacks and or further supplemental dividends.

Future capital allocation plans look to further add to our long standing priority of returning cash to shareholders increasing to roughly $3 1 billion of cash that we have returned to shareholders. During the past 10 years through dividends and share repurchases.

That concludes our prepared comments for the fourth fiscal quarter, Let me now turn the call over to David Creed for questions.

At this time, if you'd like to ask a question. Please press the star one key so on your telephone keypad keep in mind, you may remove yourself from the question queue at any time by pressing the pound key.

We will take our first question from David Pickering.

Pickering Energy partners. Please go ahead your line is open.

Hey, good morning.

Yeah.

Okay.

If you could indulge me food.

And just a second question David we can barely hear you if you're going to get the bed.

Okay.

Okay.

Yeah, that's much better. Thank you, okay, sorry about that.

If you could indulge me for just a second so I can properly framed the question I wanted to acknowledge the impressive leadership.

On the pricing discipline.

The strong shareholder returns generated not many companies returning almost 50% of shareholders from 23.

That's gonna look a bit at the international Capex program, which.

I think it was around $100 million to $110 million in fiscal 'twenty three.

It looks closer to about 150 160 for fiscal 'twenty four.

And actually a segment generated $25 million of direct margins. This last fiscal year and just wanted to ask if you can kind of.

Remind us what the investment is targeting in terms of what kind of activity levels that we're targeting.

To get there.

Or any other way you might lack screens that that international growth aspirations.

Yeah.

Thank you David.

That's a that's a great.

It's a great question.

I did want to mention that.

We do have a lot of.

Aspirational growth internationally.

I also wanted to be clear that there are multiple.

Multiple tenders bids that are going on.

Multiple countries really.

And so at this stage of the game were really not in a position, where we want to give out a lot of information.

Related related to that as far as just the details just for competitive advantages are competitive reasons.

I think in the next couple of months, we'll be able to get quite a bit more color.

On that but suffice it to say.

Our intention is to continue to invest in the in the flex rig fleet. That's here in the U S and look to export that that capacity international.

Okay.

Might just.

A couple of a couple of footnotes, David Dave over the long term obviously, our goal is to grow the percentage of the corporation's consolidated EBITDA in international by exporting some of these rigs that are suited for unconventional.

Emerging markets overseas.

But we're not giving any specifics related to those targets. That's a it's a long process. I mean, we had a couple of key wins that John mentioned in prepared remarks in Saudi Arabia in Australia.

You know it will happen this year, but we're trying to do these investments obviously are generating returns like the double digit rois either read we achieved in fiscal 'twenty three through time.

And as John said, you know what do we want to be for competitive reasons. We don't want to talk a lot about specifics with these suffice it to say that we have some ongoing current bids and some others that we anticipate coming down the pipeline.

And in the near term, we can put some rigs to work in the U S for short term.

Contracts, having these available for longer term export opportunities confident that we will generate returns on the investments made.

Great I appreciate all the color and look forward.

The announcements when you're you're able to make them if I could sneak a quick follow up and sorry, if I missed it.

Just thinking about the Q1 guidance.

For North America solution.

With Martin.

In my daily margin flat to slightly up just wondering if you could share your view on how that the daily Opex.

Yeah.

Impacting the Q1 guidance.

Yeah, David I appreciate that question and costs were higher as we mentioned in the fiscal fourth quarter and I would just put it in into it.

Three buckets really for simplification I think we were over 1000 1100 versus a lot of analyst estimates.

And I would say.

Call. It 300 of that was related to labor absorptions with increase in rigs that will come down.

There are 200, or so related to the higher materials and supplies consumption and intensity, which appears to be with us for a bit.

But the balance of the rest really are a hodgepodge of other items that should not reoccur.

Okay, great color I appreciate that.

I'll turn it back.

Alright, thank you.

We'll take our next question from Kurt palette with benchmark. Please go ahead. Your line is open.

Hey, good morning.

Good morning, Kurt.

I appreciate the color and the commentary so.

I'm kind of I'm kind of curious right as to you know.

I mean have you guys and you know expectation for improved activity.

Into 2024, and you know those levels of activity will not quite get back to you know the highs that we reached in 2023.

And then you kind of provide any incremental color around you know 80.

80% plus utilization for Super spec rigs.

So just kind of curious as to what you're hearing from the E&P client base.

That was everything.

Until recently I guess, it just kind of bled brink slower.

What.

Kind of providing the impetus for them maybe to.

Turn things back on going into 2024.

Well I think.

If you look at.

The activity levels during the course of the year obviously early on.

A lot of the activity declines were related directly to natural gas natural gas pricing.

As we've gone through the year, what we've seen is a lot of.

A lot of churn associated with a lot of different reasons, but whether it's budget driven whether it's production driven.

A lot of this curve goes back to the capital discipline that the industry is showing e&ps are our customers are showing which again I think is is healthy for.

For the industry.

So you know in many cases, we're seeing somewhat of a reset and they're in their capital budgets for for the next year is.

Largely.

What were saying I mean, I think in general.

I think consensus has.

40 to 60 rigs on average being added for 2024.

I think thats a reasonable.

Expectation and if you look at it as it relates to our current market share I think it really fits in with our with what we're describing.

For our.

<unk> first quarter fiscal Q4.

Okay. I appreciate that now maybe a follow up is as you you indicated psyche substantial efficiency gains.

We're fully drilled in and so on are leading to fewer.

I guess ultimately leading to fewer number of rigs needed by the industry at least in the U S market kind of going forward. So in that context. It seems to me like part of that is playing into your strategy to.

Pursuing some of these international opportunities am I reading too much into that.

No I think Thats fair I mean, theres no doubt that we have a desire to grow our international footprint.

As we all know when when you talk about U S.

Activity in U S production and what's currently going on as we know production levels are not necessarily directly align with the current rig count that that we're experiencing.

And there as you know we've seen it previously, but oh, we have capacity.

Here in the U S to export flex rigs into international markets. So that's you know that's been one of our.

Our strategies for the last couple of years and we're starting to see as I said earlier, we're starting to see a lot more.

Activity a lot more bids out there to to participate in and so it would be and we're encouraged by that but I think it's also important to recognize that it's very very hard.

Predict rig counts and activity.

Out multiple years much less a couple of quarters as you know.

You know we had fully intended to get our rig count to 191.

You know during 2023, and we got up to around 187, or so and then of course, we had a market the market correction.

That we've all experienced.

So that can happen.

You know out of left field, who knows what happens when natural gas prices strengthen in 2020 for 2025 timeframe. So.

You know, it's a it's a.

You know there's a lot of time left ahead of us, but clearly to your original point, we're definitely planning to grow internationally.

Got it that's great I really appreciate it. Thank you thanks Kurt.

We'll take our next question from Waqar Syed with ATB capital markets. Please go ahead. Your line is open.

Thank you for taking my question and good morning.

Yeah.

Yeah, you know around performance based contracts it had been running for a while it's good to see the best It has gone.

If you look back over the last two years, you're going to have how much do you think are the.

The performance based contracts have added to the underlying data driven margins.

It's about one to 2000.

Per day on average Windows bonuses are added in in an average back.

And that's that's Ana averaged out on a per rig yeah. So it's double that on the rigs that are.

And that actually have performance based contracts.

Oh, okay. Okay.

So thats I'd say its been pretty in.

In line with what your expectations going in.

The car.

Hum.

We're pleased with where we are we think we have.

Additional progress to make on the performance based contracts I think it makes you know that that that model really makes too much sense for whats going on in our in our market and the unconventional wells and the need to be more reliable and drill longer laterals all of that I think it makes a lot of <unk>.

And particularly when you're deploying additional technology and capacity and automation and things like that so I think there is still further growth in terms of a percentage of our rigs and I think there's the potential growth on on the additional margin that that we're delivering.

Every just based on how we continue to.

And how that you know how that compares to <unk>.

Competitive performance. So you know I've said this before do I think we're gonna have ever had a 100% of our rigs on performance.

Not necessarily think that.

But it wasn't that long ago that we were you know we were at a.

Oh gosh, probably.

10, 15% of our fleet and today, we're at 52, and we're starting to see some additional growth with performance based contracts. So we're encouraged by the opportunity.

Okay.

And then E S.

Capital allocation framework that you've mentioned in your supplemental dividends regular dividends and Capex guidance.

The worst engineer some bad too.

Expectations of it but yeah, I think consensus right now for fiscal year 'twenty 'twenty four is about $872 million. So you feel comfortable with that consensus range and maybe upside to motivate Venezuelan yadda yadda guidance capital.

Capital allocation guidance.

Oh, what car really no no [laughter].

No further comment to.

So the numbers, we put out to do the math.

Are you, leaving the hard work for US then.

Okay.

And then just finally on the U S offshore anything.

Kind of could impede which could increase or decrease.

The active count further.

But as we mentioned offshore we had the the one rig that did a demo.

Demobilized and stacked as it corrected and our sales team does have a line of sight to a couple of potential opportunities that could.

That could occur in the back half of the fiscal year, but.

But nothing definitive on that.

Okay.

Thank you very much.

Taking my questions. Thanks Waqar.

We'll take our next question from Keith <unk> with RBC capital markets. Please go ahead. Your line is open.

Hi, Good morning, I'm, just looking back over the last year certainly in the U S rig counts have have come down.

The rates came off of the leading edge peak that we saw late last year early this year, but.

I think things have probably held in you know from a rate perspective more stable than a lot would've expected given the the amount of rigs that have that have.

Come out of the industry for now so I guess the first part of the question is you know would you agree with that and the second part is what what if anything has surprised you about how the industry has responded to decrease in demand over the last year would you have expected things to be you know yourselves to be.

Much worse than this or much better or or or any comments around that would be appreciated.

Well I'll start with the last part of your your question you know.

I think when you consider.

And I mentioned this earlier the pullback in gas prices and the activity associated with that I I don't think that part is a surprise to us are really to anyone and I think there's an opportunity of course for that to improve going forward.

I think the oil side of the equation is probably a little maybe a little bit more surprising, but it goes back to that theme that we mentioned related to churn.

Yeah, I mean, it's amazing the amount of weather.

Whether it's private or public mostly I think related to private but theres just a consistent continuous churn of rigs getting released it released and getting put back to work and our sales force is doing a great job.

With that in that and that leads into into the pricing and at the end of the day.

We worked very hard to partner with our customers to deliver.

Highest level of of efficiency and value as possible and doing it in a very consistent way.

Hey.

And that's that's worth a lot and then we hear that from customers day in and day out that that reliability and being able to drill those wells effectively and efficiently.

It is worth a lot and so.

You know again it starts with as I said earlier it starts with our customers and that's being more disciplined in terms of their spending and that is it really puts the required all of that has to do the same thing and just making certain that we're getting.

Return for the capital that we're investing as you know with the high capital intensive business drilling is.

And we're investing a lot of money and we have you know we have great people and great technology, and we've gotta get they get paid paid for that.

I might just.

Add to that Keith.

The way I E.

Another way to think about it is if he I can't speak to our competitors I can only speak for HP, but if you go back to the beginning of calendar 'twenty two.

We said, we're going to limit the amount of rigs, we're putting out we're going to focus on our pricing.

So that we can get the returns John just mentioned and the reverse has happened. This year, we've been focused on the pricing and we've taken the decision to idle rigs.

To maintain that so that is really a different way of operating in the last couple of years, both in the scenarios, where he's going up and then Michigan rigs coming down, but the same laser focus.

And what we need to do to generate returns for our shareholders.

Okay.

Yeah, Yeah I appreciate that just secondly on the international tenders now I know, you're not going to want to disclose too much here, but is there anything you can share with respect to.

The magnitude of tenders, what potential amount of rig activity in terms of a range you could see from the amount of tenders, you're participating in or whether the amount of tenders are appear to be speeding up or slowing down and any commentary around that would be helpful.

Keith I think.

You know I was thinking through this last night, not an exact number but I mean there there's.

15 to 2025 rigs of worth of tenders that we're aware of and I know theres probably more.

But we also know firsthand that growth internationally.

Tends to you know tends to be pretty slow. So we're sure not putting any number out there on a on a.

Percentage of that rig count or the number of rigs that we might be successful with.

You know there's a lot of work our teams are working really hard to make this to make this happen. So.

Hopefully more to come in the upcoming.

Upcoming quarters, where we're announcing some success but.

At this stage, it's really not a whole lot more than that but I can say work unless you have any other no and no and what you're referencing is as current things that were in active discussions active discussions with multiple countries. So it's you know it's not just one country. It's multiple countries and you know the bid process.

Just take take quite some time and then when the rigs actually go to work as you know.

Another six or 12 or 14 months, even past that so just it's very hard to put any sort of a number to it so to that last point, John I would just put a note that.

We would expect to see this positively in our P&L and more likely.

25 25, yeah.

Got it okay. That's it for me. Thank you very much alright. Thank you.

Okay.

Well take our next question from.

Marc Bianchi with Cowen. Please go ahead your line is open.

Thanks.

I think mark in your remarks, you mentioned that there were some lower priced rigs in the backlog of your current contract books could you help us understand what the opportunity is to to reprice. Those maybe you know.

If we were to Mark everything took a leading edge today, what that would mean for revenue per day.

No.

But if there is some I think in the tables in the back of the press release, you can see a bit about what's under term and get some indication of that are you know we have some repricing knowledgeable.

Help us more in fiscal Q2, frankly than I think we have another Bachelor rollovers in Q2.

Okay.

In the press release, you made a comment about.

Not taking a much of an increase for utilization to get really tight.

And I think John you had sort of thought that the 40 to 60 rig out for 'twenty for us.

Is reasonable.

I mean, it would seem like less and less and that number would be required for utilization to get really tight and we could start to see some pricing power.

Any thoughts on.

More specifically, how many rigs it's going to take and when we might start to see some upward movement in leading edge.

Markets are.

You know again I would I would argue that the market is pretty tight right now.

Again, we tend to.

Got to be focused only on the Super spec fleet. That's that's the route that's a rig fleet that we have working.

And so that is already.

Tight so I agree with you that 40 to 60 referenced is really not necessarily super spec, that's kind of an industry rig count increase.

Although we continue to see.

As an industry more and more super spec capacity requirement less of the non super spec. So we think that's going to trend.

I I would you know quite frankly, I would say there is pricing power in the market right now just based on what we see if there's any additional net ads is just going to to.

To make that a tighter.

Tighter market, which is again why we had that it's.

Just just to make.

To make that clear.

Yeah, Okay, that's great if I could just sneak one more in.

Mark.

The cash tax outlook.

Implies quite a bit higher than what it looks like your book tax ought to be.

Is this is this level of cash taxes, something we should be assuming.

Going forward or should we be assuming that your cash taxes quite a bit above your book tax for several more years here.

No I think we have a surround $25 million or so of 2023 taxes are gonna be actual payable in 'twenty four.

Okay. So that that was trying to say that cash tax amount is not purely related to 'twenty. Four we're expecting the same as you saw from the range. We had a 27% effective tax rate this year and it's really that's the midpoint of next year's range as well.

Right.

Timing different timing differences as to when we actually make the payments.

Yeah, Okay. Thank you I'll turn it back.

Thanks Mark.

Well take our next question from Tom Curran with Seaport Research. Please go ahead. Your line is open.

Good morning, guys. Just one left for me, but it's kind of a bigger open ended one so.

As you would definitely remain the industry's technology and innovation leader what role do you foresee M&A playing over say the next year or two.

Last year off cycle, you did four acquisitions over 2017 through 2019 mode Bank bar AGC and drill scan just.

What is your appetite and our approach to M&A now.

What specific capabilities or themes would you be prioritizing for a bolt on.

Drilling optimization software automation advancement.

Some other topic.

Tom That's a great question and you know I I.

I feel really good about the acquisitions that we made and the value that were.

Delivering helping to deliver for customers and I don't you know I don't really see a gap.

In our portfolio on what we have you know I feel really good about it there are a lot of things that we continue to make advances on.

You know the.

The automated directional drilling.

It is continuing to progress there's other things that we're working on to automate and those skill sets and capabilities really lend themselves to being able to do more.

Not only downhole, but also on the on the rig itself. So I feel I feel really good about where we are and what we have in the team that we have we've been very very.

Very fortunate to retain them.

A lot of that that brainpower.

The acquisitions that we made so I feel I feel really good about that I don't know of any other gaps that we have.

So John it sounds as if.

If I'm hearing you correctly.

You would expect to be able to achieve this next chapter development.

Organically via R&D with the existing platform in place.

And a lot to me.

Yes, yes, a good a good way to summarize it I think we have the skill set and I think we have the capability in house for what we're doing obviously there are always opportunities to go out and do you know do things with other third parties, but I don't think that require.

<unk> necessarily M&A in order to do that I think I think that can be done.

With the relationships that we that we currently have.

Got it thanks.

Thanks for taking my questions.

Right. Thank you.

And we'll take our next question from up here.

With Goldman Sachs. Please go ahead your line is open.

Hi, Good morning team you mentioned some cost acceleration of equipment that goes back to visit them.

You gave some color there so really appreciate that but curious if that changes at is baked into your normalized margin expectations at 50% longer term, how should we think about that.

I'm sorry could you repeat that question Youre right you broke up on a shift a little bit and can you.

Yeah for sure hopefully this is better.

On the cost acceleration of equipment.

Is that baked into your normalized margin expectations at 50% or does that change that expectation in the near term longer term, how should we think about that.

I think you were talking about something in the international segment.

That's the only thing that was accelerated that we mentioned not not North America.

Is that what you're talking about.

I thought you mentioned, some flex rig equipment explanation of inflation I thought that wasn't knocked matter at all.

Yeah, you're right.

We got it I'm sorry for that it's sort of serve the service intensity, yes. It is.

It is a it is built in it is very hard to.

Determined exactly how that continues to progress.

Because cost do continue to increase.

Not only because of inflation, but because of service intensity and equipment running harder and longer and you know.

Delivering more volume so yes, there is but if that is baked into into our margin. It is yes.

Okay. Thank you. That's that's helpful. And then you mentioned some tenders ongoing and I understand the comment might be difficult bad, but how do you think about accelerating some of these deployment plans in the international.

Market towards your international segment, how should we think about the cadence of the margin in 'twenty four.

Okay.

Well, that's a it's just going to be we don't know yet [laughter]. He saw the the guide for this quarter's for.

For this quarter's international expectations.

<unk>.

If the countries are hold flat that's the level of margin and we would anticipate throughout the year notwithstanding the successful outcomes of any of these bidding processes, which would cause us to.

Incur expenses for final re commissioning and shipping charges. So it's just it's just to be determined based on the our processes for bidding, which as John stated earlier.

Really it's sort of.

Happen.

Slowly and are in a very unique bid the bid.

So there yeah. It's.

If successful like Mark said most of most of that will push into 2025. There are a few countries that we could have some rigs that would deploy in 2024, but it's going to probably be more towards the back half. So it's not going to happen.

Large impact on 'twenty 'twenty four numbers well it won't have any revenue for 24, but it is expensive external exactly yep.

Got it appreciate that color. Thank you.

Thank you.

Yeah.

And I'll now turn the call back to John Lindsay for any closing remarks.

Thank you David and thanks again, everybody for joining US today are you know as we said earlier, we remain optimistic about the long term energy fundamentals.

We think theres a lot of opportunities out there that are that H P can take advantage of them and and used to create value for shareholders. So thank you again for joining us today and we'll sign off.

This does conclude today's program. Thank you for your participation and you may now disconnect.

[music] [noise].

Okay.

[music].

Yeah.

Uh huh.

[music].

Yeah.

Uh huh.

[music] Hum.

Uh huh.

[noise] Uh-huh.

Yeah.

[noise].

Hum.

Hum.

Uh huh.

Yeah.

Hum.

Hum.

[noise] Hum.

Right.

[noise].