Q1 2024 Helmerich & Payne Inc Earnings Call
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Good day, everyone and welcome to today's Helmerich, <unk> Payne fiscal first quarter earnings call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: Later, you will have the opportunity to ask questions. During the question and answer session.
Speaker Change: Please note today's call will be recorded and I will be standing by should you need any assistance it.
It is now my pleasure to turn the conference over to Dave Wilson, Vice President of Investor Relations. Please go ahead.
Speaker Change: Yeah.
Thank you Cory and welcome everyone to Helmerich <unk> Payne conference call and webcast for the first quarter of fiscal year 2024 with US today are John Lindsay President and CEO and Mark Smith, Senior Vice President and CFO.
Speaker Change: Both 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 securities laws.
Speaker Change: Such statements are based on current information and 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.
Speaker Change: As such our actual outcomes and results could differ materially.
Speaker Change: You can learn more about these risks in our annual report on Form 10-K, our quarterly reports on Form 10-Q, and our other SEC filings.
Speaker Change: Should not place undue reliance on forward looking statements and we undertake no obligation to publicly update these forward looking statements.
Speaker Change: We will also make reference to certain non-GAAP financial measures such as segment operating income direct margin and other operating statistics, you'll find the GAAP reconciliation comments and calculations in yesterday's press release, but that said I'll now turn the call over to John Lindsay.
John W. Lindsay: Thank you, Dave and Hello, everyone. Thank you for joining us today.
John W. Lindsay: The company continued to perform well closing out calendar year 2023, despite the persistent volatility in crude oil and natural gas prices.
During the quarter.
And for most of the last year frankly, the company's stock price continued to trade as it has historically with a strong correlation to crude oil prices and rig counts.
John W. Lindsay: Decoupling from these traditional commodity measures requires proving our ability to maintain returns above our cost of capital through the cycles.
And I believe our fiscal first quarter results are another step in that direction.
John W. Lindsay: The North American solutions segment exited the first fiscal quarter at 151 active rigs, which was at the lower end of our guidance range.
John W. Lindsay: We increased our rig count during Q1.
John W. Lindsay: But the expectations, we had for incremental rig adds were tempered to some extent by the ongoing churn that we are still experiencing in the market.
John W. Lindsay: We added four rigs during our first fiscal quarter and expect to add another three to eight rigs during.
John W. Lindsay: Our second fiscal quarter exiting in the range of 154 to 159 rigs.
John W. Lindsay: Our rig count today is at 154 rigs. So we've already added three rigs for today.
John W. Lindsay: I'm very pleased with our North America solutions teams effort to provide the drilling outcomes, our customers desire drive our value proposition and maintain reasonable margins in the face of a volatile market.
John W. Lindsay: During the first fiscal quarter. The company delivered direct margins that were higher on a sequential basis, indicating that our direct margins like our rig count look to have experienced a trough during our fourth fiscal quarter of 2023.
Looking out to the March quarter, We project, our North America solutions direct margins to remain relatively stable.
John W. Lindsay: Now looking back the industry Super spec rig count declined in calendar 2023.
Speaker Change: And there are a couple of things worth pointing out.
Speaker Change: First much of the decline occurred during the first six months and the more gassy basins.
Speaker Change: The decline in the number of non Super spec rigs was about the same in terms of the decline in the number of Super spec rigs.
The decline was double on a percentage basis, given the dwindling number of non super spec rigs remaining in the market.
Speaker Change: As a consequence, the number of Super spec rigs working as a percentage of the overall fleet is above 70% illustrating that the replacement cycle and high grading contracting behaviors continue.
Speaker Change: The second is rather a data point that helps put things in perspective from where we stand and that is our rig count in the Permian basin at the end of calendar year 'twenty two was approximately 98 rigs.
At the end of the calendar year end.
Speaker Change: For calendar year 2023, it was approximately 96 rigs.
Operator: I ask that you please continue to stand by. I ask that you please continue to stand by.
Speaker Change: We see this as indicative of our positioning in the market and the value we provide as well as the nature of our customer base and their desires for better drilling outcomes.
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Speaker Change: Along those lines, we see that greater demand for technology and reliability remain dominant trends in the industry.
Speaker Change: The higher specification equipment and technology of the Super spec fleet delivered the highest higher levels of performance and value required for the unconventional drilling plans that now dominate the U S market.
Speaker Change: And this speaks directly to a very important element within our contract economics, which is the operational costs involved in providing our services.
Over the past two years we've.
Speaker Change: We've experienced increases in operational expenses due to rising labor costs, and consumable inventory consumption and cost inflation.
The less visible, but growing variable is the cost acceleration on equipment related to running hep's flex rig fleet harder than ever before to achieve more complex well designs lateral lengths and the drilling efficiencies required from our customers.
Speaker Change: Let me expand on in an example of service intensity.
Speaker Change: In the last 10 years for <unk>, the average lateral length drilled has more than doubled to over 10000 feet.
And at the same time, the well cycle times have improved by approximately 22%.
Speaker Change: This means that each flex rig today drills, approximately four and a half more wells on average per year and those rigs have doubled the exposure per well to the resource.
Speaker Change: This performance improves outcomes for our customer and in return we are focused on getting appropriately compensated to drive financial returns through the cycles.
Speaker Change: Now shifting to our international solutions segment.
Speaker Change: We're very pleased with the recent developments that are proof of our execution on our international expansion strategy.
Speaker Change: The company recently received preliminary notification subject to finalization of contractual agreements.
Speaker Change: That it has been awarded seven Super spec flex rigs for work in a drilling campaign in the middle East.
Operator: Your program is about to begin. Good day, everyone, and welcome to today's Helmrich & Payne Fiscal First Quarter Earnings Call. At this time, all participants are in a listen-only mode.
These rigs are expected to commence operations shortly.
Speaker Change: After delivery, which.
Speaker Change: Which is currently scheduled for the first half of fiscal 2025.
Speaker Change: Additionally, these rigs will be sourced from our idle super spec rigs in the U S <unk>.
Speaker Change: Converted to walking configurations, and further equipped to suit contractual specifications.
Speaker Change: We believe that <unk> is uniquely positioned for this award as we are able to invest in and utilize some of our high quality idle Super spec rigs that are available in the U S.
Operator: Later, you will have the opportunity to ask questions during the question and answer session. Please note, today's call will be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Dave Wilson, Vice President of Investor Relations. Please go ahead.
Combined with our <unk> drilling experience and expertise.
Speaker Change: Furthermore, in the Middle East we have been successful in contracting an additional rig in Bahrain.
The Super spec rig to be utilized for this work has already located in the region and it is expected to commence operations.
Speaker Change: During the summer of 2024.
Speaker Change: These are positive outcomes in our middle East expansion strategy and I want to express my appreciation for the grit and determination of our teams put forth.
Thank you. Thank you. Thank you.
Speaker Change: To accomplish what we have to this point.
Thank you, Chloe, and welcome everyone to Hammer Campaign's conference call and webcast for the first quarter of fiscal year 2024. With us today are John Lindsay, President and CEO, and Mark Smith, Senior Vice President and CFO. Both John and Mark will be sharing some comments with us, after which we'll open the call for questions.
Speaker Change: And we look forward to further growth in the future.
Strategically we will continue to look for opportunities to invest in projects with attractive returns.
Speaker Change: So that we maintain our industry lead in the U S and develop further growth internationally.
And in addition to operational and growth accomplishments, we believe and as an essential ingredient.
Speaker Change: And achieving shareholder success is having a multi pronged approach to capital allocation.
Speaker Change: First and foremost we prioritize the company's long standing posture of our strong financial position and fiscal Prudence.
Secondly, we seek to return capital to shareholders through.
Before we begin our prepared remarks, I will remind everyone that this call will include forward-looking statements as defined under securities laws. Such statements are based on current information and management's expectations as of this date and are not guarantees of future performance. Such forward-looking statements involve certain risks, uncertainties, and assumptions that are difficult to predict. As such, our actual outcomes and results could differ materially.
Speaker Change: Through an established base dividend augmented by supplemental dividends and share repurchases when those opportunities exist.
Speaker Change: Mark will provide the details about the progress of our plan in his remarks.
Speaker Change: In closing.
Speaker Change: Every year energy industry challenges arise, many resulting from supply and demand dynamics that ultimately result in crude oil and natural gas volatility and the cyclical nature of oil and gas.
As difficult as it is to manage in these times. We also find that headwinds often provide opportunities to showcase the exceptional capabilities of our fleet.
And to demonstrate the value our people, our technology and processes bring to providing drilling solutions for our customers.
John W. Lindsay: You can learn more about these risks in our annual report on Form 10-K, our quarterly reports on Form 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 also make reference to certain non-GAAP financial measures, such as segment operating income, direct margin, and other operating statistics. You'll find the gap reconciliation comments and calculations in yesterday's press release. With that said, I'll now turn the call over to John Lindsay.
Speaker Change: For our part we will remain focused on our goals and execute toward their achievement in the long term.
Speaker Change: And now I'll turn the call over to Mark.
Mark: Thanks, John.
Mark: Today I'll review, our fiscal first quarter of 2024 operating results.
Provide guidance for the second quarter update remaining full fiscal year 2024 guidance as appropriate and comment on our financial position. Let me start with highlights for the recently completed first fiscal quarter ended December 31, 2023, the company generated quarterly revenues of $677 million versus et cetera.
Mark: It is $60 million from the previous quarter as expected the quarterly increase in revenue was due primarily to sequentially higher revenues in North America solutions segment.
Mark: Total direct operating costs were at $404 million for the first quarter versus $410 million for the previous quarter. This decrease is attributable to lower sequential direct expenses in the international segment.
John W. Lindsay: Thank you, Dave. And hello, everyone. Thank you for joining us today. The company continued to perform well, closing out calendar year 2023. Despite the persistent volatility in crude oil and natural gas prices during the quarter and for most of the last year, the company stock price continued to trade as it has historically, with a strong correlation to crude oil prices and rig count. Decoupling from these traditional commodity measures requires proving our ability to maintain returns above our cost of capital through the cycles, and I believe our fiscal first quarter results are another step in that direction. The North American Solutions segment exited the first fiscal quarter at 151 active rigs, which was at the lower end of our guidance range.
Mark: General and administrative expenses were approximately $57 million for the first quarter, which was in line with our expectations.
Mark: During the first quarter, we recognized a loss of approximately $4 million primarily related to the change in the fair market value of our equity investments, which is part of the loss on investment Securities reported in our consolidated statement of operations.
Mark: Our Q1 effective tax rate was approximately 24%, which was at the lower end of our previously guided range for the quarter due to adjustments to our foreign tax expectations.
Mark: To summarize this quarter's result, A&P earned a profit of 94 cents per diluted share versus 77% in the previous quarter as highlighted in our press release first quarter earnings per share were negatively impacted by a net <unk> <unk> loss per share of select items, consisting of the aforementioned loss on investment securities.
Mark: Absent the select items adjusted diluted earnings per share were <unk> 97 in the first fiscal quarter versus an adjusted <unk> 69 cents during the fourth fiscal quarter.
Mark: Capital expenditures for the first quarter of fiscal 2020 for over $136 million, which was $22 million more than the previous quarter spin.
Mark: Items originally forecasted in fiscal 'twenty to 'twenty three capex.
John W. Lindsay: We increased our rig count during Q1, but the expectations we had for incremental rig ads were tempered, to some extent, by the ongoing churn that we are still experiencing in the market. We added 4 rigs during our first fiscal quarter and expect to add another 3 to 8 rigs during our second fiscal quarter ending in the range of 154 to 159 Rick. Our rig count today is at 154 rigs, so we've already added three rigs for today.
Mark: Moved to fiscal 2024 as expected.
Mark: I will comment later on our fiscal 'twenty for capital expenditure guidance, but will just state here that it is unchanged.
Q1 cash flow from operations at $175 million was higher than our internal expectations as the timing of our tax payments shifted from December to early January as a reminder, our Q1 cash flows are typically influenced by seasonal factors such as the payment of accrued annual incentive compensation and tax payments as well as other seasonal work.
Mark: Capital changes. This Q1 was impacted by accrued annual incentive comp as well as increased working capital as rig activity in the net North America solutions segment was higher following the bottoming of our rig count in Q4 fiscal 2023, I will address the company's cash position later in my remarks.
John W. Lindsay: I'm very pleased with our North America Solutions team's effort to provide the drilling outcomes our customers desire, drive our value proposition, and maintain reasonable margins in the face of a volatile market. During the first fiscal quarter, the company delivered direct margins that were higher on a sequential basis, indicating that our direct margins, like our rig count, looked to have experienced a trough during our fourth fiscal quarter of 2023. Looking out to the March quarter, we project our North America solutions direct margins to remain relatively stable. Now, looking back, the industry superspec rig count declined in calendar 2023, and there are a couple of things worth pointing out. First, much of the decline occurred during the first six months in the more gassy basin.
Mark: Turning to our three segments, beginning with North America solutions segment.
Mark: We averaged 149 contracted rigs during the first quarter flat from fourth quarter of fiscal 2023, as the rig count bottomed in September and then turned up through Q1.
Mark: The exit rig count of 151 was towards the low end of our guided range of between 150 and 156 as churn continued per John's earlier comment.
Mark: Said differently, our modest expectations for incremental rig additions in Q1 were tempered by this churn in the market while demand is president for Super spec rigs net rig additions were lower due to new rig awards, essentially replacing rigs being sidelined due to churn.
John W. Lindsay: The decline in the number of non-superspec rigs was about the same in terms of the decline in the number of superspec rigs, but the decline was doubled on a percentage basis, given the dwindling number of non-superspec rigs remaining in the market. As a consequence, the number of superspec rigs working as a percentage of the overall fleet is above 70%, illustrating that the replacement cycle and high-grading contracting behaviors continue. The second is rather a data point that helps put things in perspective from where we stand.
Mark: Revenues increased sequentially by $19 million, primarily due to lowered to lower priced term contracts rolling to current market rates.
Mark: Segment direct margin was $256 million, which is just above the high end of our guidance and sequentially higher than the previous quarter, which came in at $239 million.
Mark: Performance contracts continued to make up approximately 50% of total contracted rigs in the first quarter.
John W. Lindsay: And that is, our rig count in the Permian Basin at the end of calendar year 22 was approximately 98 rigs; at the end of the calendar year, and for calendar year 2023, it was approximately 96 rigs. We see this as indicative of our positioning in the market and the value we provide, as well as the nature of our customer base and their desires for better drilling outcomes. Along those lines, we see that greater demand for technology and reliability remain dominant trends in the industry. The higher specification equipment and technology of the SuperSpec fleet deliver the higher levels of performance and value required for the unconventional drilling plans that now dominate the U.S. market. And this speaks directly to a very important element within our contract economics, which is the operational costs involved in providing our services over the past two years.
Mark: Total segment expenses were relatively flat at 19600 per day in the first quarter compared to 19800 per day in the previous quarter.
Mark: Looking ahead to the second quarter of fiscal 'twenty 'twenty four for North America solutions.
As of today's call, we have 154 rigs contracted as the rig churn has continued resulting in their activity level gradually increasing thus far in the quarter.
Mark: This is consistent with a line of sight, we have for activity in November we expect to end, our second fiscal quarter with between 154 and 159 working rigs.
Mark: Revenue backlog from our North America solutions fleet remained at roughly $1 1 billion for rigs under term contract as of today approximately 60% of the U S. Active fleet is on the term contract.
Mark: Average pricing per day should remain relatively flat to up slightly as some remaining legacy term rate rigs rollover to the spot market.
Mark: In the North America solutions segment, we expect direct margins in fiscal Q2 to range between $255 million to $275 million we.
John W. Lindsay: We've experienced increases in operational expenses due to rising labor costs and consumable inventory consumption and cost in place. A less visible but growing variable is the cost acceleration on equipment related to running H&P's FlexRig fleet harder than ever before to achieve more complex well designs, lateral lengths, and the drilling efficiencies required from our customers. Let me expand on an example.
We expect costs in Q2 to decline sequentially in part due to lower re commissioning expenses associated with putting active churned rigs into new contracts as opposed to idle rigs.
Mark: Next to our international solutions segment.
International solutions activity.
Mark: Ended the first fiscal quarter with 12 rigs on contract International solutions results were slightly above our guidance range as in Argentina rig releases pushed back one month into the second quarter note that our previous guidance range excluded foreign exchange impacts, which result, which reduced these reported results by approximately $2 million.
Mark: This loss was primarily due to Argentina devaluation of its peso relative to the dollar back perhaps approximately 55% in December of 'twenty three.
As we look toward the second quarter of fiscal 'twenty four for international as we mentioned in the press release, we will idle our remaining active rig in Colombia as well as the one rig in Argentina, I previously mentioned and the resulting in eight active rigs in that country.
Mark: With regard to the Middle East expansion, John announced earlier, the one rig award in Bahrain will utilize the Super spec flex rig exported last year to our middle East hub. This additional Bahrain rig as well as the Saudi Arabia rig awarded in August of 'twenty, three should those start sometime in the summer of 2024.
Mark: The seven middle East rigs, we were recently notified about are expected to start shortly after delivery, which is scheduled to occur through the first half of our fiscal 2025.
Mark: We expect to incur approximately $4 million of operating expense in fiscal Q2 in preparation of rigs for export.
Mark: In the second quarter, we therefore expect to earn $1 million to $3 million in direct margin aside from any foreign exchange impacts in the international segment.
Mark: Finally to our offshore Gulf of Mexico segment.
Mark: We have three of our seven offshore platform rigs contracted.
Mark: <unk> have management contracts on three customer owned rigs one of which is an active rate.
Mark: The offshore segment generated a direct margin of $6 million during the quarter, which was in line with our guidance range.
Mark: As we look toward the second quarter of fiscal 'twenty 'twenty four for the offshore Gulf of Mexico segment, we expect to be roughly flat and generate between $4 million to $7 million of direct margin.
Mark: Okay.
Speaker Change: Now, let me update full fiscal year 2024 guidance as appropriate.
Speaker Change: We expect the timing of our capex spend to vary from quarter to quarter as I mentioned on our November call. Our original guidance included delays that continued to push some planned maintenance capex from fiscal 'twenty to 'twenty three the fiscal 2024, resulting in moderately higher capex in fiscal Q1 <unk>.
Speaker Change: Capital expenditures for the full fiscal 'twenty 'twenty four years still expected to be between $450 million to $500 million.
Speaker Change: As previously discussed our 2024 guidance includes international growth capital, which is inclusive of converting iron ore U S rigs to walking re certifying certain equipment to like new conducting required rig modifications and purchasing specific equipment for middle east contract opportunities.
Speaker Change: Yeah.
The seven rig award notification will require 30 to 35 million in total of additional capital in fiscal 2025.
Speaker Change: Yes procurement timing expectations change, then we will update guidance as appropriate in future quarters.
As discussed on our November call, we planned approximately 14 walking rig conversions in fiscal 2024.
Speaker Change: Seven of these are now allocated to the Middle East Award with the remaining up to seven to be allocated in the U S. Depending on customer demand at attractive rates and terms.
Speaker Change: As we have said on prior calls we are marketing our super spec flex rigs internationally for the work they were designed for it and have excel that in the U S.
Speaker Change: And as we have stated for some time exporting idle.
Speaker Change: Super spec flex rigs to international fit for purpose opportunities increases our fleet wide utilization.
Speaker Change: Exposes HP to markets with longer term contract profiles.
Speaker Change: <unk> to reduce U S concentration and alleviates long idled U S supply.
Speaker Change: As previously mentioned our expectations for general and administrative expenses for the full fiscal 'twenty 44 year remain at $230 million.
We still estimate our annual effective tax rate to be in the range of 24% to 29% with the variance above the U S statutory rate of 21%.
Speaker Change: <unk> to permanent book to tax differences in state and foreign income taxes, we continue to project at fiscal year 2020 for cash tax range of $150 million to $200 million, including approximately $90 million paid in Q2.
Speaker Change: Now looking at our financial position.
Speaker Change: <unk> had cash and short term investments of approximately $298 million at December 31, 2023 versus an equivalent $350 million at September 30.
Speaker Change: The sequentially decreased cash balance is largely attributable to our Q1 share repurchases of approximately $47 million.
Speaker Change: Approximately one 3 million shares were repurchased in fiscal Q1 for this $47 million.
Olander 2023 repurchases totaled approximately 7 million shares for about $256 million at an average price is about $36 50 per share.
Speaker Change: Which reduced our shares outstanding from the beginning of calendar 2023 by about 7%.
Speaker Change: Our calendar year 2024, a share repurchase authorization has been reset to the evergreen level of 4 million shares.
Speaker Change: The fiscal Q1 stock repurchases together with the basis supplemental dividends paid in December resulted in approximately $90 million of return to shareholders.
Speaker Change: We expect some quarterly variability around our free cash flow generation due to rig activity working capital changes and the timing of Capex spend.
Speaker Change: That said based on this quarter's results and our projections for the remainder of the fiscal year, we still forecast that we will be generating ample cash flow to cover capital expenditures basis supplemental dividends and as we have said before our cash generated in excess of these priorities together with excess accumulated cash on hand is available for opportunistic share repurchases.
Or other accretive investment opportunities.
Speaker Change: That concludes our prepared comments for the first fiscal quarter, Let me now turn the call over to Chloe for questions.
Chloe: Thank you once more for your question that is star one.
One on your telephone keypad, you may withdraw yourself from the queue at any time by pressing the pound king.
Chloe: And we'll take our first question from Sarah Tan with Bank of America. Your line is open.
Sarah Tan: Hi, Good morning, John Mark.
Sarah Tan: But to say congrats on a really solid quarter.
Thank you I appreciate that [laughter] and all around it that though maybe let me start though on the international side, Oh, John and Mark obviously with the news out on Saudi to the obvious question I apologize for that.
Sarah Tan: On the end markets that these rigs that go into them thinking about are the seven rigs and specifically if you can give us any color to the extent you can.
Sarah Tan: How about the end market what kind of look are these rigs would be doing oil versus gas any color on contract duration basically anything that you can help us.
Sarah Tan: Thanks.
Speaker Change: Well at this stage, we really can't share anything as far as.
Speaker Change: Where the rigs are going or anything related related to that.
Speaker Change: Mark do you have anything to add yes.
Speaker Change: Yes.
Mark: With that.
Mark: I will just suffice it to say.
Mark: And I'm sure others will have questions, Rob or Blake, you, but I'll just suffice it to say that.
Mark: From a topline economic perspective in our models these nine rigs in total.
Mark: When operating for a full fiscal year together will contribute more direct margin in the international segment did for fiscal 2023.
Speaker Change: We are we are not prepared however at this stage to discuss anything more in detail. Once we've finished contractual and administrative obligations related to the recent seven <unk>.
Speaker Change: Our rig award we will issue a press release, a correspondingly at that time to fill in some more of the details.
Speaker Change: No I appreciate that Oh.
Speaker Change: It's tricky to give a lot of details, but I appreciate your comment on the profitability.
Speaker Change: Maybe a follow up on the on the knot 90, North America side, I think it's a really positive to see the flattish to slightly better margin guide for the March quarter.
Speaker Change: Can help us with the trajectory after that how should we think about leading edge dayrates are what revenue, but anyway does that stand relative to your contract book.
Speaker Change: Again, you may not be able to give all the details but to whatever extent you can help us on that.
Yeah.
Speaker Change: Yes, looking it's really as you know and you've heard me say this before Rob it's hard to.
Speaker Change: It's hard to predict much much past the quarter.
We too are very pleased with with Q1 and the trends that we're seeing sales forces did a great job operation is.
Speaker Change: Is doing a great job in delivering value for customers and we're getting compensated for that so.
Speaker Change: We feel really good about that and as we said in our remarks flat to slightly up is our is our expectation.
There so.
Speaker Change: We've.
Speaker Change: We're pleased about the success and think we will continue to have that going forward.
Speaker Change: I would just footnote to that John that Rob we do still see some term rates that are rolling off that are slightly lower than the spot, but the two have grown closer together.
Speaker Change: Okay I get it okay. No. That's very helpful context, Okay, John Mark. Thank you I've done it back.
<unk>.
Speaker Change: And well go next to Eric Pate, Sir with Barclays. Your line is now open.
Eric Pate: Hey, guys I guess, just another question on the international the Saudi pause that we heard from today.
Eric Pate: He has been on the impression that you guys are attacking more of the unconventional gas market just given the types of rigs that you are sending over there. So I know you don't have much to say about it right now but is that still a fair assumption that you are more.
Eric Pate: Leaning towards one of the unconventional gas versus some of that.
Eric Pate: Conventional oil that's part of these expansionary programs.
Speaker Change: Yes, Derrick I mean, we've been talking about unconventional in the flex rig fleet for.
Speaker Change: Yeah gosh for as long as I can remember so.
That is not.
Speaker Change: No that's not.
Speaker Change: That's our strategy, that's where we're best suited to perform so.
Speaker Change: Yeah, I would agree with that.
Speaker Change: Great I appreciate that.
Speaker Change: Switching back over to the U S. Just maybe could you expand a little bit more on the net revenue per day climbing higher about $1000 per day any chance you can characterize that between performance based contracts.
Speaker Change: You see rigs being repriced higher higher priced rigs rolling off two down to closer to spot any.
Speaker Change: An example of a performance based contract that is that just a little bit more help and color about the actual drivers of that revenue per day is stepping up.
Well Unfortunately Derrick.
Speaker Change: Dollars as a mix of all of the above.
[laughter] teasing apart any of those in a meaningful detail is it not fair to the other bits frankly, we had some term rollover up we've had increasing delta with the performance Kickers on that half of the fleet, which is averaged across the entire fleet you know one to 2000 per day uplift from that.
Speaker Change: Regular spot market half of the fleet so.
Speaker Change: And then even with the a bit above that some technology pull through.
Speaker Change: Revenue on the spot half of asleep, so theres, a theres a mix of things in there yes.
Speaker Change: Yeah, and I would just add to Mark's point. It isn't it is an all of the above and Thats really how the how our teams are approaching that as theyre looking at those opportunities.
Speaker Change: Theres, obviously, some performance based contracts and there we're still in that 50% range on performance contracts. So.
Speaker Change: Theres some of that and the team is really doing a great job in looking at it across the board.
Speaker Change: And and focusing on value for customers at the end of the day.
Speaker Change: Gotcha, and then just a quick follow up on that those legacy price contracts that are stepping up what was the prior duration on those contracts and do you still have any of those rigs that are left.
We still have we still have a few we still have some yes rolling over this quarter. So youll see some full effect of that in.
Speaker Change: And you know at the end of Q2, and we're talking about that and in April but.
Speaker Change: And then the two really converging I think the delta between spot and term for us is.
Speaker Change: Is really narrowing cut.
Speaker Change: <unk> hundred dollars dollars a day really.
Speaker Change: Got it alright, guys. Appreciate the color. Thank you I'll turn it back thanks Terry.
Speaker Change: Okay.
Speaker Change: And we'll take our next question from Jeff <unk> with P. P. H Your line is open.
Jeff: Hi, Good morning, John Marc and Thanks for taking my question. The question I have is we've noticed that two of your largest customers in the Permian have yet to deploy more rigs in 2024 could you provide some color on the second operator mix based on mix for your incremental deployments moving forward. Thank you.
Speaker Change: I'm sorry.
Speaker Change: You can get closer to your microphone and we literally couldn't hear you at all.
Speaker Change: Jeff did you did you hear us we couldnt hear the question.
Speaker Change: I'm sorry, the quick question was.
Speaker Change: We've noticed that two of your largest customers in the Permian have yet to deploy incremental rigs in 2024 could you provide some color on the expected operator mix in basin next for incremental deployments.
Speaker Change: Jeff I don't I don't have any of those those are those details.
And really wouldn't be in a position to share those.
I'm not certain who those who those customers are but I think in general you know again for us at <unk>.
Speaker Change: We're pleased with our with our customer mix.
Speaker Change: We've got very strong very strong customers.
Speaker Change: Some have been well first of all they're all being very disciplined in their approach I think as I've said before that's great for the industry.
Speaker Change: And.
Speaker Change: So I think several have maintained their rig counts pretty pretty flat through the course of the year. There is a few that are planning on adding a rig here there and of course, that's what you've seen with our rig count just a very modest.
Speaker Change: Rig count increase.
And in our Q1, and we're forecasting that for Q2.
Speaker Change: I would just.
Speaker Change: Footnote that.
Speaker Change: Now as John mentioned is good good.
Speaker Change: Good customer Counterparties, and we're up to 80% of our U S fleet.
Speaker Change: With public companies and.
Speaker Change: And the M. Three fourths of that is with large public companies. So.
And with with many of our top customers.
Speaker Change: Their largest provider.
Speaker Change: And a half term coverage. So we're just.
Speaker Change: Add those little footnotes, Jeff any other questions.
Jeff: No that was it thank you very much and I'll hand, it back to the operator.
And operator, just real quick I want to correct something for Derek a minute ago, I said 200 in $2000, a day and that delta between spot and term that's what we're down to.
Speaker Change: Back to you <unk>.
Speaker Change: Thank you, we'll move next to Doug Becker with capital one your line is open.
Bradley Philip Handler: Thanks, and congratulations on the international contracts.
Bradley Philip Handler: So that's been a long time in the works.
Bradley Philip Handler: Thank you Doug it has been.
Bradley Philip Handler: I was hoping just to get an update on the costs around the conversion contract prep and mobilization cost for those seven rigs and really kind of thinking about it in the context of <unk>.
Mike: This is Mike.
Mike: Capex, probably in the upper half of the guidance range or is the midpoint is still the best point point estimate at this point.
Speaker Change: Well, we're still leaving it at a range Jeff because.
As you know the timing of procurement items are always varies from quarter to quarter.
Having said that if you take the original guidance, we had in our October capital allocation press release in November call.
Speaker Change: And then the associated release at that time for.
Speaker Change: For the end of fiscal 'twenty three looking forward to this fiscal year. We're in we said a third of that would be related to the international. So if you if the midpoint is $4 75.
Speaker Change: You you have a number there and then if you add to that.
Speaker Change: What I just mentioned in my prepared remarks, another $32 million in fiscal 'twenty five yeah, all of that up all in here at about $25 million to $28 million.
Speaker Change: Per rig investment and again that covers a myriad of things as you just alluded to the conversion to walking by.
Basically recertifying all equipment on the rigs to like new so they have full.
Speaker Change: Full recertification run rates for API standards et cetera, buying certain equipment incremental for the contract needs and in certain rig modifications as well.
Speaker Change: For those contracts, but all in.
Speaker Change: That's the number we're looking at and.
Which is from my understanding quite quite a significant delta less than what would be required for these newbuild to go to the region.
Okay, and then kind of putting that together.
Speaker Change: Does this imply that the initial free cash flow outlook of say $245 million for the fiscal year and I know, there's a lot of moving parts here, but.
Speaker Change: It sounds like that will be a little bit lower than initially expected just given the spending.
Speaker Change: Now all of our guidance related to that since we have not changed the capital expended.
Speaker Change: The expenditure guide.
I I can't really.
For sea and overall implied guide either related to cash in the in the supplemental dividend plan.
Speaker Change: With the potential exception of.
Speaker Change: Rig.
Speaker Change: Commissioning in preparation operational expense in the international segment.
Speaker Change: I mentioned, the 4 million that were planning for this Q2.
I think that might be a good run rate for the rest of the rest of the fiscal quarters moving forward, but to be determined we have we'll be back to you with more guidance as we move through the year on that.
Got it Mark I appreciate it.
Mark: Thank you Doug.
And we'll take our next question from Waqar Sayed with ATB capital markets. Your line is open.
Waqar Syed: Thank you.
Waqar Syed: Okay.
No.
John you're picking up between three to eight rigs in the quarter.
Waqar Syed: Youre gaining market share.
Like a 25% Mark 25% market share. If you maintain that then that means the industry's rig count go up by between 12 and 30 rigs by the end of the March quarter. So how do you see the industry's rig.
Waqar Syed: <unk> changing through the course of the quarter.
Speaker Change: Good morning Waqar.
Waqar Syed: I don't have a good feel for the overall.
Waqar Syed: The overall industry I mean your numbers are accurate.
Speaker Change: As you've described them.
I do think there are a couple of cases, where.
Speaker Change: There are some high grading.
Speaker Change: What's going on.
With some of the rigs that were that were picking up.
Speaker Change: But I don't have a sense for.
Speaker Change: How the rest of the fleet.
Speaker Change: Terms of the Super spec fleet and our competitors you know my assumption is that there'll be adding some rigs as well, but I don't I don't know that I do know that as I said on the replacement.
Speaker Change: The Super spec.
Speaker Change: Pardon me the non Super spec fleet.
Speaker Change: Rig count is down and a larger percentage actually doubled their percentage of the super spec over the course of the last year and really a lot of that has happened recently so we're seeing.
That replacement cycle.
Speaker Change: Continuing so from a market share perspective, you've heard us say that.
Speaker Change: It's really not our focus our focus is just making certain that we're <unk>.
Speaker Change: We're getting compensated.
Speaker Change: And getting the returns above our cost of capital is really the primary focus here. So.
Speaker Change: Hopefully that helps.
Speaker Change: It's helpful.
Speaker Change: I also like the service intensity of drilling in the U S kind of Houston increase you have at least.
Speaker Change: No one company, saying it.
Looking pro forma.
Speaker Change: Yes.
Speaker Change: It started definition that we've used for super spec <unk> horsepower AC like 75, and it would be aside circulating systems.
Speaker Change: Those definitions still hold up for <unk>.
Speaker Change: This high end kind of drilling do you think that there's another subset are super Super spec rigs that that's going to be created to do the next generation of high intensity drilling.
Yes.
Speaker Change: I believe.
Speaker Change: Our.
Speaker Change: Current fleet and in fact, we have our flex rigs today.
Drilling a four mile laterals now theres not a lot.
Speaker Change: Right now, but we do have rigs some of our rigs drilling four mile laterals. So the rig the super spec base rig in most cases, there are a couple of it depending on.
Speaker Change: Hook load requirements and those sorts of things, but in general.
Speaker Change: We've been able to cover with our fleet I can't speak to the overall.
Speaker Change: Industry Super spec.
Speaker Change: Fleet my assumption would be that.
Speaker Change: There's going to be a mix of some of those rigs we're going to be.
Speaker Change: Capable of doing the four mile laterals.
But again more to come on that as far as just how much of a.
Speaker Change: How many of our customers actually go to the four mile.
Yeah, and then just one last question for you International a contact the seven rigs.
Speaker Change:
Speaker Change: Eventual contracts are going to be five year or three years, how long what's the duration be.
There'll be more to come on that.
Speaker Change: When we filed our press release.
Speaker Change: It would be best just to put all that information in there together.
Speaker Change: Yeah.
And just on the investment did you say 25 to <unk> whats the total investment on a rig in the $25 million, but.
Speaker Change: Certainly.
Speaker Change: It doesn't cost as well that you were getting the books for the rigs.
Speaker Change: I'm, sorry could you say that one more time.
Speaker Change: For the for the seven rigs in international markets and when you think about them as a divestment is it like a $40 million.
Speaker Change: <unk> investment or is that $25 million.
Speaker Change: You'd previously set in terms of investment in the rig.
Speaker Change: The previous.
Speaker Change: We're looking at.
Speaker Change: <unk> investment from what has been taking long idled super spec rigs in the U S.
Speaker Change: Putting them back to work.
Okay great.
Speaker Change: Good morning.
Speaker Change: A return perspective.
Speaker Change: <unk>.
Speaker Change: No.
Speaker Change: From a return perspective, we're looking to achieve returns through these contracts that are above our weighted average cost of capital.
Speaker Change: Obviously in line with our strategy overall related to Rois C for the Corporation.
Speaker Change: Fair enough. Thank.
Speaker Change: Thank you Sir.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Next to Don Crist with Johnson Rice your line is open.
Don Crist: Good morning, gentlemen.
Don Crist: I wanted to ask about the performance contracts to my knowledge all of the only contract out there currently doing these and just out of curiosity.
Don Crist: Are you setting.
Don Crist: Are you setting kind of days to drill per well and then kind of splitting the spread cost if you achieve better than that and any kind of.
Don Crist: Parameters you can give around these performance contracts because it looks like you're actually making more on these performance contracts for both parties then you would be in <unk>.
Don Crist: Spot market rate kind of just <unk>.
<unk> a day rate perspective.
Don Crist: Perspective, any kind of color you can give around the performance contracts would be helpful.
Sure Good morning, Don.
Don Crist: <unk>.
Don Crist: The idea.
Don Crist: First of all there is no one size fits all there's multiple.
Don Crist: Types of performance based contracts with our customers.
Don Crist: But.
Don Crist: The point is to is to set them up such that.
Don Crist: We are delivering.
Don Crist: What customers are seeking to achieve and there is a wide range, but at the end of the day, it's meant to be a win win and so.
We win in that we're getting higher margins per day, but their customers, winning because they're lowering days and or other parameters that they're that there.
Don Crist: That they're focused on.
Don Crist: And so again, it's a it's a true it's a true win win and yes. We are I think for the most part making more on the on the performance based contracts and we are on standard contracts, yes, one to 2000 per day on average across the entire fleet, that's 50% of the fleet that's online.
Don Crist: And then in addition to those spread cost savings you know we have other as John mentioned it actually no two are alike.
Don Crist: Customer to customer depends on what their VAT.
Don Crist: While you're driving needs are and for some of the it started to spread cost savings and some of those it is now.
Don Crist: Consistent repeatable cost per foot.
Don Crist: For some we actually have qualitative metrics now related to wellbore quality and placement, which we've long discussed as a company on these calls which is exciting to see those more qual.
Don Crist: Quality basis at a time based kpis, but there's a there's a there's a portfolio approach.
Don Crist: And when you average them out as we wouldn't do that one to $2000 more than spot as I said.
And we've been as you said.
Don Crist: We've been at this a long time this has been a three or four year process and.
Again, our teams are just doing a fantastic job and continue to.
Don Crist:
Don Crist: Find ways to deliver value in and worked very closely in partnership with our customers.
Speaker Change: And just as a follow up to that Im assuming youre not taking additional risk like geologic risk Gibson.
Gibson: Well doesn't work or something like that when your performance out of contract.
Speaker Change: No there is no downhole.
Speaker Change: Alcohol risk.
Speaker Change: At all.
Okay. So theres still directing you as to where the place and all that sort of stuff. It's just more of a more of a J.
Speaker Change: Generally performance based and if youre better than a.
Speaker Change: Threshold, then you everybody makes more money in essence, that's one way to think of it yes, yes. This is not a.
Speaker Change: Turnkey type construct contract.
Speaker Change: But there.
Speaker Change: There is the potential that you're.
Speaker Change: For us that we would earn.
Speaker Change: Lower.
Revenue per.
Speaker Change: Per day.
But there's the upside of the of the higher higher revenue per day, and obviously based on what Mark said, we're we're.
Speaker Change: In that two to $4000 a day range.
Speaker Change: For those rigs that are using performance based contracts.
I appreciate the lifting the available and that some for me I'll turn it back.
Thank you.
Okay.
And we'll move next to Kurt <unk> with benchmark your line is open.
Hey.
Good morning, everybody.
Kurt: Good morning.
Kurt: Hey, I guess.
I wanted to get a little bit clarity on your.
Your guidance dynamics for the fiscal year 2024, as it relates to <unk>.
Kurt: Your U S land rig count so by if I understood. The press release correctly, you suggested that your activity could be moderately higher in fiscal 'twenty four.
Kurt: And then it was in fiscal 'twenty three.
And if that math is correct then I think you are.
Kurt: Average something along the lines of 100.
Kurt: 160, Greg in fiscal 'twenty, three so do you think.
Kurt: In that sense, you're going to average more than 160 rigs running for all of fiscal 'twenty four I just wanted to make sure I was clear on that.
Speaker Change: Yes, it's.
Speaker Change: We're modestly climbed up into Q1, we just finished in Q2, we just guided a little higher $1 54 to $1 59 is as we said.
Great.
Speaker Change: And if you took a look at that and is flat for the rest of the year that it's.
And I'll, just let you get that average.
Speaker Change: Yeah, well I guess, that's why I was asking because the average is like $1 54, or so for the full year for fiscal 'twenty four it looks like fiscal 'twenty three if my math is right. It might be wrong, you averaged 170 rigs in fiscal 'twenty three so that's why I just caveat.
It's Kurt.
Speaker Change: Kurt.
Speaker Change: The point, we're talking about the back half of 2023, not not full 2023.
Speaker Change: We don't do we don't.
Speaker Change: We don't have that that front end I mean, gosh, our rig count was 187 rigs or something like that during that period of time. So it's the back half.
Speaker Change: F 'twenty three and be clear just to be clear also we're not giving a full year guidance. We're just saying this is what we expect in Q2.
And then if you just look at historically what happens in Q3 and Q4, we're trying to to match.
Speaker Change: Match up with that but we're not giving any guidance for three Q3 and Q. Okay.
Speaker Change: Thanks for clarifying that I appreciate that.
On the middle East opportunities right. So again big Big win Big number right and it looks like it's coming in a pretty pretty short order.
Speaker Change:
Speaker Change: You know without giving a specific number or whatever you think there is opportunity.
Speaker Change: The scale that.
Speaker Change: Throughout 2025 with additional contracts or is it here's a chunk, let's see how you do and then we'll revisit sometime in fiscal 'twenty.
Speaker Change: Well, Curt obviously, we would love to be able to say, we believe there will be.
Curt: More I mean, obviously it.
Hard to say that we're going to do our best to participate in.
Curt: And opportunities in the future. We're not we're not finished we hope in any in any respect so hopefully we'll see more of these and more success in the future.
Curt: Okay.
Speaker Change: I guess fair to assume that.
Speaker Change: John that Theres nothing eminent to suggest there's going to be another immediate poppets it'll it'll it's going to be.
Speaker Change: Some progression over time, but I really was trying to get to why is that.
Speaker Change: Dynamic where you havent.
It really operated at scale in the Middle East and probably in this particular country.
Speaker Change: So they've got plenty.
Speaker Change: Plenty of track record and what you can do in the U S. So it's not like you're a startup or anything but.
But maybe those customers like look I'll, what kind of give you a shot will give you a chunk of work lets see how you do and then we'll kind of revisit at some point in time in the future. So I'm just trying to get sense. If that's how they're looking at it or it's a pan here's tranche one and.
Let's let's.
Speaker Change: Continuing discussions with people we kept the tranche two.
Speaker Change: But I can speak at all about what.
Speaker Change: The customer is thinking I know from obviously from our perspective and you've heard us talk about this for for.
Speaker Change: For quite some time.
We have.
Speaker Change: An opportunity we think we can we can do more so hopefully that will be the case, hopefully we'll be able to be successful in the future in this.
Speaker Change: We're not finished with this.
That's all that's all fair. Thanks, John appreciate it alright. Thank you.
Yes.
Speaker Change: And it does appear that there are no further questions at this time I would now like to turn it back to John Lindsay for any closing remarks.
John W. Lindsay: Alright, Thank you Chloe.
John W. Lindsay: We appreciate everybody joining us today, we've mentioned several times on the call. This morning that we remain optimistic about the long term energy fundamentals and the opportunities that this provides A&P to deliver returns above our cost of capital through the cycles and create value for shareholders. So again, thank you for joining us today.
Speaker Change: And now we will sign off thank you.
Yeah.
Speaker Change: This does conclude today's program. Thank you for your participation you may disconnect at any time and have a wonderful Alaska.
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Speaker Change: [music].
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