Q2 2025 Helmerich & Payne Inc Earnings Call
Good day, everyone and welcome to the H M P fiscal second quarter earnings call.
At this time all participants are in a listen only mode.
Later, you will have the opportunity to ask questions. During the question and answer session.
Do you remember what you start to ask questions by pressing the star one on your telephone keypad.
You may withdraw your question by pressing star two.
Please note. This call is being recorded and I will be sending by should you need any assistance.
It is now my pleasure to turn the conference over to David Wilson, Vice President of Investor Relations. Please go ahead.
David Wilson: Thank you Nikki and welcome everyone to <unk> conference call and webcast for the second quarter of fiscal year 2025.
John Lindsay: With us today are John Lindsay, President and CEO, and Kevin Vann, Senior Vice President and CFO.
John Lindsay: John and Kevin will be sharing some prepared comments with us after which we'll open the call for questions.
Speaker Change: 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 and management's expectations as of this date and are not guarantees of future performance.
Speaker Change: We're 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 you can learn more about these risks on our annual report on Form 10-K, our quarterly reports on Form 10-Q, and our other SEC filings.
Speaker Change: You should not place undue reliance on forward looking statements and we undertake no obligation to publicly update these forward looking statements.
Speaker Change: We also make certain non-GAAP financial.
Speaker Change: References.
Speaker Change: Certain non-GAAP financial measures such as segment operating income direct margin adjusted EBITDA and that's some other operating statistics, you'll find the GAAP reconciliation comments and calculations in yesterday's, especially with.
Speaker Change: With that said I'll turn the call over to John Lindsay.
Speaker Change: Thank you, Dave Hello, everyone and thanks for joining us today.
Speaker Change: With a K C E D acquisition now complete we believe H M. P is well positioned for the future.
Speaker Change: This acquisition results and H M P. Having the largest active rig count in the industry and establishes the company as a global leader with the scale and capabilities needed for future expansion into the Premier International markets.
Speaker Change: It's been a little more than 100 days since the transaction closed and the integration is going well.
Speaker Change: Taking a long term perspective, particularly considering the industry's current state.
Speaker Change: We are very well positioned for the future.
Speaker Change: Now we must demonstrate that we can execute on our international growth strategy I want to assure you that is what we're focused on.
Speaker Change: I want to commend our people two legacy organizations have come together as one team and are delivering significant value for customers.
Speaker Change: There are some noteworthy headwinds facing the industry stemming from several factors, including OPEC plus production increases and.
Speaker Change: In U S tariff initiatives that have created global economic uncertainty.
Speaker Change: Even so we remain bullish about the long term outlook for oil and gas markets and believe demand will continue to increase over time.
Speaker Change: The oil and gas production decline curve continues and the only way to maintain and grow production is by drilling more wells.
Speaker Change: H M. P is the most efficient driller in the U S and.
Speaker Change: And we plan to demonstrate we can do the same in international markets.
Speaker Change: I believe that our rigs technology people and commercial models drive the best outcomes for our customers and our differentiated solutions will drive our success in the future.
Speaker Change: Next I'll spend a few minutes reviewing each of our operating segments.
Speaker Change: Our North America solutions segment remains resilient.
Speaker Change: Our customer and operational performance focus and best in class execution allowed us to maintain a steady rig count and realized margins that were better than our expectations going into the quarter.
Speaker Change: Looking ahead, we expect softer oil prices will lower the industry rig count as market volatility overrides any potential incremental demand.
Speaker Change: Over 50% of our customers continue to prefer performance based contracts and technology solutions remain a critical component of our overall contracting strategy.
Speaker Change: Our technology solutions are focused on automating processes that were previously more manual operations.
Speaker Change: These technologies to drive greater efficiency safety and reliability for our customers.
Speaker Change: The combination of performance based contracts and technology solutions offer advantages for both our customers.
Speaker Change: An H M P by providing a mutually beneficial value proposition.
Speaker Change: Kevin will give more details in his remarks about our North America solutions financials.
Speaker Change: Our international solutions segment reflects the inclusion of the legacy KC, a Deutsche Erg operations.
Speaker Change: And our team is working diligently to fully integrate international operations into a single cohesive business unit.
Speaker Change: We believe the combined cultures that performance discipline and customer focus coupled with learnings from our North America solutions experience.
Speaker Change: Including our technology and commercial models position us for success over the long term.
Speaker Change: During the quarter, we experienced challenges in our Saudi operations with startup delays with the legacy H N P flex rigs.
Speaker Change: Which we believe have now been mostly resolved.
Speaker Change: The additional rig suspensions in the legacy U K C. A fleet were impactful as well.
Speaker Change: On the positive side.
Speaker Change: We have already started to reap the benefits of the expertise infrastructure and scale as the legacy KC a D operations in Saudi.
Speaker Change: It is gratifying to see the strong partnerships with customers, we have in our international solutions business.
Speaker Change: In my recent visits to rigs and the countries, where we operate I am confident that in the future H M. P can grow the business.
Speaker Change: And discussions with customers, it's become evident that there is a strong demand for the operational excellence safety and technology solutions that H M. P delivers despite near term softening in the industry.
Speaker Change: Given the current outlook direct margins in the international solutions segment in the third fiscal quarter will fall short of where ultimately we want to be.
Speaker Change: Our teams are working closely with our customers and we do expect to see improvement in the results on a sequential basis as we continue to progress our integration efforts, especially in Saudi.
Speaker Change: We have a laser focus on getting this right and Kevin will go into more details about what is driving our Q2 results and Q3 Q3 outlook.
Speaker Change: Now looking at our offshore solutions segment, which continues to produce strong and steady cash flows.
Speaker Change: M P's legacy offshore experience dates back more than 50 years.
Speaker Change: And the inclusion of the legacy KC, a deeply has added significant scale and geographic expansion to our offshore segment.
Speaker Change: Together, we are the largest global offshore operation and maintenance as a partner in the world.
Speaker Change: Our offshore solutions segment deliver drilling solutions.
Speaker Change: Workovers P.
Speaker Change: P N a.
Speaker Change: And rig modifications in asset management on platforms and Jackups.
Speaker Change: Pca's first offshore contract started in 1972 in Norway, our offshore business has low capital intensity and a blue chip customer base that we are very familiar with.
Speaker Change: And it's encouraging to see the growth opportunities emerging again in this segment of our business.
Speaker Change: In closing having successfully accomplished the important strategic objective of expanding internationally.
Speaker Change: Particularly to achieve scale in the middle East we are now entering the phase of enhancing value and performance for our customers and shareholders.
Speaker Change: For our customers. This means prioritizing safety drilling efficiency and reliability, which in turn drive financial performance for our shareholders.
Speaker Change: The oil and gas industry has always been cyclical and likely will remain so but H M. P has always been adept at navigating these cycles and coming out stronger on the other side.
Speaker Change: Throughout our 105 year history. The company has faced many challenges in the industry and the enduring imperative is always to keep our core business is performing well.
Speaker Change: In the upcoming quarters, we will focus on realigning our cost structures.
Speaker Change: Securing value add synergies and reducing debt on our balance sheet.
Speaker Change: We are extremely optimistic about the future and our ability to scale in the most prolific oil and gas producing regions in the world.
Speaker Change: Well also acknowledging that there may be temporary growing pains.
Speaker Change: And as I said previously now we must demonstrate that we can execute on our international growth strategy.
Kevin: Before turning the call over to Kevin I want to express my gratitude for that effort our people have put forth over the past year.
Kevin: With the acquisition and continuing to run the day to day, everyone has worked very hard.
Kevin: The H M. P organization is comprised of loyal and talented individuals', whose dedication and support and focus on our customers are the key ingredients to our success and I want to thank them.
Kevin: And now I'll turn the call over to Kevin.
Kevin: Thanks, John.
Kevin: Today I will review our fiscal second quarter 2025, operating results, which includes a partial quarter from our expanded international and offshore businesses, resulting from the close of our K C. E D acquisition in January.
Kevin: Provide guidance for the.
Kevin: For the fiscal third quarter.
Kevin: <unk> remaining full year 2025 guidance as appropriate and finally comment on our financial position.
Kevin: Let me start with a few highlights the company generated quarterly revenues of just over 1 billion.
Kevin: Total direct operating costs were $710 million and general and administrative expenses were approximately $81 million for the quarter.
Kevin: Our G&A cost included one time charges associated with the voluntary early retirement program.
Kevin: Gross capital expenditures for our second quarter were $159 million, which was in line with our expectations as the program was more heavily weighted to the front half of the year.
Kevin: Second quarter cash flow from operations was 56 million, which was negatively impacted by significant nonrecurring transaction related one time cost. In addition to some working capital challenges with our unconventional startup business in Saudi However, we expect future quarters cash flows to be more reflective of our underlying business.
Kevin: As those cost and issues have been substantially resolved.
Kevin: Turning to our three segments, beginning with North American solutions, we averaged 149 contracted rigs during the quarter, which is right in line with the rig count for the quarter.
Kevin: The exit rig count was 150, which was within our guided range of 146 to 152 rare.
Kevin: Revenues of $600 million were essentially unchanged since the first quarter.
Kevin: Segment direct margin was approximately $266 million, which was a bit stronger than the first quarter. The realization uplift from performance based contracts continued to enhance our margins and provide additional value to our customers utilizing them. This alignment of customer incentives and our performance resulted in industry leading margins.
Kevin: In addition over half of the U S. Active fleet is on a term contract.
Kevin: Our international solutions activity ended the second fiscal quarter was 76 rigs working with approximately 4 billion of contracted drilling backlog.
Kevin: In Saudi our flex rig unconventional startup is nearly complete our seven rigs are currently working in the eight should commence operations any day.
Kevin: As a whole our international solutions business generated direct margin of $27 million.
Kevin: As John indicated the rig suspensions in Saudi had a large negative impact on the quarterly results to that effect, we are aggressively reviewing and taking action to minimize our operational cost and to quickly and effectively integrate the resources ideas and expertise that we now share across Casey a D and A&P operations.
Kevin: Finally to our offshore solutions segment, which generated 26 million indirect margins were.
Kevin: We are very pleased with the performance of our steady and stable offshore business, which has current backlog of $2 5 billion. Much of this business was acquired through the K C. E. D acquisition, which included asset light offshore management contract operations located in the North Sea, Angola, Azerbaijan and Canada.
Kevin: Looking ahead to the third quarter of fiscal 2025 for North American solutions, we expect to average between 143 and 149 contracted rigs revenue backlog from our North American solutions fleet is roughly 700 million for rigs under term contract.
Kevin: Which is consistent with where we were at the end of the first quarter $500 million at this total will be recognized in our fiscal year 2025 with the balance in 2026.
Kevin: Again, we are focused on providing customer centric solutions and believe direct margins in fiscal Q3 to range between 235 and $260 million is the broader energy energy is the broader energy industry continues to face near term headwinds associated with commodity pricing and potential cost increases associated with tariffs.
Kevin: We will remain focused on providing our customers with mutually beneficial performance incentives and innovative technical solutions as.
Kevin: As we look toward the third quarter of fiscal 'twenty five for international as we mentioned in the press release, we expect direct margins from our international solutions to be between 25 and $35 million exclusive of any foreign exchange gains as gains or losses.
Kevin: We expect the average rig count to be approximately 85 to 91 contracted rigs of which 68 to 74 expected to be generating revenue.
Kevin: Again, we are managing the impacts of the rig suspensions and believe the Saudi flex rig startup cost are substantially behind US now we are integrating the best possible outcomes associated with legacy KC a D operations in the unconventional startup. This includes operations people processes technology and systems.
Kevin: Out of these near term headwinds, we will be positioned to be a leading provider of drilling services in the middle East.
Kevin: Now turning to guidance for our offshore solutions segment, we expect to generate between 22 and $29 million in direct margin in the third quarter with average management contracts and contracted platform rigs to be around 30 to 35.
Kevin: Outside of our core operating segments, we do have some businesses that generate direct margin and collectively those are expected to contribute between two and $5 million in the third quarter.
Kevin: Now, let me update full year fiscal full year 2025 guidance items as I stated earlier, our capex spend was weighted to the front half of the year and fully expect it to moderate now for the balance of the year as such we are still estimating capital expenditures for the full fiscal year to be between 360 and 300 and.
Kevin: $95 million.
Kevin: Just to remind you that last quarter, we were unable to provide a good projection for depreciation expense as the initial allocation of purchase price for Casey a D had not been completed now that the the initial assessment has been finalized we are projecting depreciation expense to be around $595 million for the full year.
Kevin: Our general and administrative expenses with the addition of TCA D numbers, we still expect the full fiscal 2025 year to be approximately $280 million as we have discussed we are already capturing some synergies post close of acquisition.
Kevin: And have identified additional cost savings that will put us in excess of the original 25 million by 2026 as.
Kevin: As we get deeper into the integration the opportunities not only for commercial opportunity expansion, but for cost reduction continues to materialize. We are also evaluating broader cost reductions across the enterprise and have a line of sight on $50 to 75 million in total 2026 run rate savings between synergies and other.
Kevin: Permanent cost reductions.
Kevin: We are still projecting our fiscal year 2025 cash tax range of a $190 million to $240 million, which includes the additional taxes, resulting from the expanded international business.
Kevin: And lastly, nothing has really changed in regards to interest expense and we are projecting around $50 million for the remainder of the fiscal year.
Kevin: Now looking at our financial position <unk> had cash and short term investments of 196 million at March 31st with our Undrawn credit facility of $950 million and the remaining cash on hand, we had adequate liquidity to not only cash efficiently fund. The 2025 operations led to continued but continue.
Kevin: To generate ample cash to fund our base dividend and pay back the $400 million term loan as a matter of fact, we are anticipating that by the end of this calendar year, we will have repaid at least 175 million all of it.
Kevin: <unk> maintains an investment grade credit rating, we have a long history of responsibly, managing our balance sheet and balancing the interest of debt and equity holders. We will continue to do so yes. The market's a murky right. Now however, collectively this leadership team has lived and manage through the turbulent energy markets for decades now we won't.
Kevin: Let the grass grow under our feet watching them unfold around us.
Kevin: And with that I'll turn it back to the operator to open it up for questions.
Speaker Change: Thank you at this time, if you would like to ask a question. Please press the star <unk> on your telephone keypad.
Kevin: We draw your question by pressing star two.
Kevin: Once again to ask a question. Please press star one on your telephone keypad will.
Speaker Change: We'll take our first question from Keith Mackey with RBC. Please go ahead. Your line is open.
Keith Mackey: Hi, good morning, Thanks for taking my questions, maybe just to start out on the international.
Speaker Change: What is your sense of the.
Speaker Change: The Saudi market today, there were some suspensions this quarter do you think that the the suspension cycle is primarily complete to war.
Speaker Change: Is there likely some additional actions to be taken there.
Speaker Change: Okay.
Speaker Change: I wish I could say for certain.
Speaker Change: What we we don't have direct insight into that I mean, we have had some conversations and and at least at one point it it seems like that.
Speaker Change: The suspensions were were behind us.
Speaker Change: We just don't have any clear insight into that I wish I could give you some some better clarity into that.
Speaker Change: Hum.
Speaker Change: One of the things that that we are you know that we have seen in the past and of course, we weren't working in Saudi then, but obviously the.
Speaker Change: Casey a employees where.
Speaker Change: And if you could just go back to 2015 time frame 2020 timeframe with Covid there were rig suspensions then.
Speaker Change: And you know again I think just based upon how the market was that it was a very dramatic drop in a much different environment than what we see today.
Speaker Change: But nevertheless, there is still a there was still a need to pull back on spending and rig count, particularly in the oil markets.
Speaker Change: So.
Speaker Change: I say that because what we what we do know is that there's a track record of having suspensions and then rigs.
Speaker Change: Going back to work.
Speaker Change: So obviously that's no guarantee.
But I do think that at least you know again, what what we hear from from Aramco is that you know this has happened before.
Speaker Change: And and overtime rigs will go back to work. We just we just don't know when you know at this at this particular time and as far as additional again, we've seen the same thing we've seen you know.
Speaker Change: One or two here along the way.
Speaker Change: Different different contractors, but really don't have a sense for if they're finished or not at this point.
Speaker Change: Okay fair enough.
Speaker Change: <unk>.
Speaker Change: Maybe just a follow up on the international.
Speaker Change: Given Q3 guidance, which looks like there was some impact of some more suspensions or the recent suspension is coming on but also some of the legacy HP rigs starting up.
Speaker Change: Can you just give us a bit of a sense of how that dynamic should play out for fiscal Q4, I would imagine that if the suspension impact full impact is felt in Q3 of what you know today and then you start to get the the <unk>.
Speaker Change: Benefit of the legacy HP rigs, then Q4 should be set for a decent inflection in margins for the international but can you just maybe give us a little bit more color on how we should think about those pieces.
Kevin: This is Kevin and I think you're right I think if you look at our legacy <unk>.
Speaker Change: When conventional startup.
Kevin: Operations in Saudi.
Kevin: Again as I mentioned earlier, we're still waiting on one rig.
Kevin: To be operationally any day, but if you think about the third quarter not all some of those rigs are coming on line. So for the third quarter, you're really not going to see the full impact of full operational mode for those eight rigs until the fourth quarter. So to your point you should see a pretty good positive inflection by the time, we get to the fourth quarter and how much revenue per day.
Kevin: Those rigs are going to be contributing to the overhang on it to the overall international Kinda EBITDA stream.
Kevin: And then on the the rig suspensions I believe at 331 at the end of the second quarter.
Kevin: We were still operating.
Kevin: Of the 17 total rigs that had been suspended to date.
Kevin: Five of those have were still operating as of $3 31, So you're going to see during the third quarter.
John Lindsay: <unk> start to come down more but then again, assuming and again, obviously as John said.
John Lindsay: It's a big assumption, but if there were no more rigs suspensions and you should see that kind of flattened out and see the full impact, but you know offsetting some of the revenue reduction there as.
John Lindsay: As we've mentioned a couple of times in so far as that.
John Lindsay: Really the cohesiveness and the integration of the legacy KC a D operations team with with the flex rig agent P. Legacy startup team, we're starting to see that catch stride and minimize and reduce some of the cost and just how they navigate them operating in country.
John Lindsay: And I think by the fourth quarter, you'll really see it start to catch a stride there to not only on the on the flex rig side, but just how we're managing cost and sharing resources.
John Lindsay: I think that that's a really good.
Speaker Change: Good good comments, Kevin and I, you know as you think about the delays.
Speaker Change: There's no doubt some of the delays have or have been in our control, but there's also been a lot of delays that are just being completely out of our control that have you know.
Speaker Change: Caused.
Speaker Change: Some of these later spud dates and more than what we were expecting but the.
Speaker Change: The teams are definitely getting some momentum in and as Kevin said I feel good about where we are and where we're heading and again, we're all pushing very hard as I said in my comments to make certain that we get.
Speaker Change: You know, we get those those rigs, earning at the level that they should.
Speaker Change: Got it I appreciate the comments I will turn it back thanks.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Marc Bianchi with Cowen. Please go ahead. Your line is open.
Marc Bianchi: Hey, thanks.
Speaker Change: Maybe just just quickly since you were talking about the flex.
Marc Bianchi: Flex rigs in Saudi.
Marc Bianchi: You refresh us on what the ultimate contribution should be from the eight rigs once were sort of behind all these startup costs and you know what.
Marc Bianchi: The run rate ought to be.
Marc Bianchi: Yeah, and what we've historically tell peoples around let's call it full year $25 million a year.
Marc Bianchi: I think that number could go up or should go up given again, just some of the synergies operationally that we're going to be able to to leverage from the leg from the historical legacy KC a D team again, we're going to we're already identifying other ways to kind of reduce some of the in country overhead that's there.
Marc Bianchi: And so I think that number could could go up but what we've historically or what we've been telling people somewhere around $25 million for those eight rigs.
Marc Bianchi: Great.
Marc Bianchi: And then I guess, so so it keeps kind of ask a question on international and about sort of what the exit rate and how <unk> could look like and if we talk about the other two segments for Cott North America and for offshore.
Marc Bianchi: Got average lower in fiscal <unk>, which would suggest that the exit might be even lower than that can.
Marc Bianchi: Can you kind of talk about where the outlook is for June and those segments from a activity and margin perspective, and how we should be thinking about that progressing beyond June.
Marc Bianchi: Well, Mark I'll start with North America, our solutions I mean.
Speaker Change: As you can imagine we're in constant communication with our customers.
Trying to understand their needs are obviously oil prices are lower than what our expectations were three months ago.
Speaker Change: And.
Speaker Change: You know as you've seen there have been releases from from some some customers or at least announced releases you know rig here two rigs there just trying to balance budgets, but.
Speaker Change: But I do think that.
Speaker Change: What we see as a positive again, depending on the on the macro.
Speaker Change: Is that our partnerships are strong.
Speaker Change: We continue to have very strong conversations with our with our customers.
Speaker Change: And are you know we have we have a lot of belief that you know if the if the commodity price will hang in there then that will be in good position, but the reality of it is that's another one of those areas that are that we don't that we don't know we know customers want to continue to reduce our reduced cost of their wells.
Speaker Change: We're doing that with a you know working very closely with our customers to help them do that.
Speaker Change: A lot of that is through performance based contracts and deploying technology and that that that's obviously delivering a lot of value.
Speaker Change: What would you add I think that yeah, and you mentioned June I mean, obviously given that we're at a may.
Speaker Change: May 8th now we got a pretty good line of sight on what April and May are going to look like based upon our internal estimates James for the third quarter is a little bit of the wildcard just because he yeah, we'd be we'd be kind of silly not to at.
Speaker Change: At least moderate our expectations for June given everything that you're seeing we're seeing the whole market is seeing in regards to what the potential impact is going to be on an activity because of lower pricing could.
Speaker Change: It could be higher cost depending on all of the uncertainty around tariffs and so we felt like it was the prudent thing to do is just kind of moderate our guidance a little bit until some of this kind of clears the air.
Speaker Change: So June again, as John mentioned, we're going to we're working with our customers to figure out what's the right solutions.
Speaker Change: Given their activity levels, but.
Speaker Change: It's difficult for the E&ps and our customers just to slam on the brakes immediately.
Speaker Change: But we're going to work with them on kind of what makes economic sense in their portfolio to make sure that they're meeting their objectives and allow us to meet our objectives as well on the offshore front.
Speaker Change: We're still.
Speaker Change: Chasing new business, we really liked that business you know it's it's.
Speaker Change: A little bit lower margin, but it's really steady and and we've got some as John mentioned Blue chip customers that we continue to have discussions with.
Speaker Change: Yes, it may be a little bit moderated toward the lower end of the of where where we landed for the second quarter was a little bit towards the lower end of our guidance range.
Speaker Change: But we still think it's pretty healthy there, but again, we're working with customers on where they are where they might potentially add activity, but again oil prices being another.
Speaker Change: Global oil prices being kind of another moderator of of until some of that clears clears through the system. We don't exactly know how all of those contracts and new business might play out.
Speaker Change: Okay. Thanks, guys I'll turn it back.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from <unk> Kim with Barclays. Please go ahead. Your line is open.
Speaker Change: Hey, Good morning, John you mentioned that the softer oil prices will likely lower the industry rig count in the U S land market.
Speaker Change: Count currently stands at about 570 rigs or so today.
Speaker Change: Oil prices are.
Speaker Change: Hey at this kind of $60 barrel level offer WTO through your yearend do you think we could maybe see about 20 or 30 rigs come out of the market just wanted to get your thoughts on your early estimates on kind of magnitude of rig count decline if oil prices stay at current levels.
Speaker Change: Well as you know we were we were waiting for the OPEC plus our announcement, we got that there have been at least some some responses from some U S. E&ps again, it sounded to me like that are.
Speaker Change: There release counts were very modest a very you know on the low end and so it's very hard to say, whether its a 20 or 30 30 rigs I mean, I think your guess is as good as any any ones.
Speaker Change: You know at least in my experience. It's you know the oil price needs to be yet at a level for some period of time. So if oil were to stay in the in the fifties for a period of time I think we would have some a little bit longer.
Speaker Change: You know longer term implications, but right now you know again, we talk about this internally we've talked about it on previous calls.
Speaker Change: A few folks over time, it said Hey, you know we're in a downturn well, we're really not we haven't seen this is not a downturn environment.
Speaker Change: It's definitely we're seeing some correction and theres some volatility.
Speaker Change: You know what we were hopeful that we would see more activity coming up on the gas side I think there is some gas work that's that that's upcoming you know most of the challenges are in the are in the oil markets.
Speaker Change: But you know we are we we don't have an actual number in mind on what we're modeling I think it's very hard obviously, what we're most focused on is as our customers and our rig count.
Speaker Change: And and how we're maintaining a.
Speaker Change: Our our count and how we do that of course as we've said before is through performance, it's being the safest contractor that the highest performing contractor and then.
Speaker Change: Deploying technology solutions that are really a differentiator.
Speaker Change: So I wish I could give you a direct.
Speaker Change: Direct number but I don't think anybody can I think at this stage, it's too early to determine.
Speaker Change: What that rig count number is gonna be.
Speaker Change: Understood understood.
Speaker Change: Yeah, and I'll add just I mean, if you look at the forward oil oil curve.
Speaker Change: I think that is sending the marketing message that they believe this.
Speaker Change: And again, there's a lot of factors that will influence ultimately where 2026 ends up trading.
Speaker Change: On a spot basis, but the forward oil curve being in contango tells you that.
Speaker Change: How much of this is being driven in the short term, but the fundamentals would still tell you that there is going to be that that demand is going to be there for oil.
Speaker Change: And there needs to be basically the energy industry needs to be ready to supply that.
Speaker Change: I don't know you know you look at.
Speaker Change: What sorry.
Speaker Change: Saudi has done with these rigs suspensions at the same time, they're adding oil into the market. It's a little bit of a mixed message just in regards to how do we as a drilling company stand ready and poised to be able to respond to that but I think the market is telling us telling us that at least right now even though the oil prices are.
Speaker Change: I bet that inflection point, where you're going to see some drop in activity still seems to be that there's this right skewed perception that there is going to be that demand and we need to be ready in order to deliver the demand delivered to meet the demand.
Speaker Change: Understood. Thanks for that color I fully appreciate that the crystal ball is a bit murky.
Speaker Change: Right now.
Speaker Change: Just shifting over to the <unk> doi tax suspension and apologies if I missed this but.
Speaker Change: Last quarter, you mentioned all these suspensions are one year in duration and the first rig was suspended back in August at this point do you expect that first rig that was suspended to resume work.
Speaker Change: Three months here or do you think it's probably more likely that.
Speaker Change: Got it.
Speaker Change: Suspension gets extended for a few more months.
Speaker Change: Even where commodity prices are today.
Speaker Change: We are and we don't have any indication that a rig that those first regs are going to go back in that back to work in July August time frame. We also don't know that.
Speaker Change: That it could happen, but we are we are not having discussions right now I had mentioned earlier.
Speaker Change: If you were on the call.
Speaker Change: But what we do know about the suspension is that.
Speaker Change: Saudi Aramco has done this before through the cycles.
Speaker Change: And they suspended regs and suspended rigs went back to work I don't know what the timeframe was I'm sure. They were one year suspension periods and I did not ask that question.
Speaker Change: But there is a track record for this process and are the rigs have gone back have gone back to work in the past so that that's really our expectation about the best we can do.
Speaker Change: Right now in terms of trying to understand what the.
Speaker Change: Yeah, you know what the future looks like in terms of reactivation.
Speaker Change: Got it understood. Thank you very much I'll turn it back.
Speaker Change: Thank you. Our next question comes from David Smith, with Pickering Energy Partners. Please go ahead.
David Smith: Hey, good morning, just a quick housekeeping question.
Speaker Change: I just had a quick housekeeping question.
Speaker Change: The full year guidance for SG&A.
Speaker Change: Do you have the 80 implies a decent step down in the fiscal second half.
Speaker Change: Just wanted to ask how you see that the fiscal Q4 exit rate for SG&A and maybe how we should think about the future run rate with the currently contemplated synergies.
Speaker Change: Yeah, that's all contemplated in the future run rate I mean again as I mentioned earlier.
Speaker Change: We we have a pretty good lineup most of the synergies and permanent cost reductions that we have talked about.
Speaker Change: They are really in the form of G&A. There there is going to be other cost savings that come in the form of operating cost.
Speaker Change: The given the tariffs the supply chain synergies that we will want to look at it looking at.
Speaker Change: They're a little with that fluid situation, they're a little bit more uncertain at this point and so.
Speaker Change: Once that tariff.
Speaker Change: Once some of this tariff a nomenclature clears the system will be able to to put our pencil back to back to the paper on supply chain synergies.
Speaker Change: But most of the synergies that we're talking about now and permanent cost reductions.
Speaker Change: I think we'll be somewhere in that $50 million to $75 million for full year fiscal 2026 run rate lower G&A.
Speaker Change: In terms of the run rate kind of the exit rate for G&A for the fourth quarter.
Speaker Change: Let me do a little bit of math and I'll get back to you on that one day.
Speaker Change: Very much appreciate it but it sounds like it's fair to say that the higher synergy estimate does not include the savings from some lower cost on the suspended Saturday breaks.
Speaker Change: That's correct.
Speaker Change: Perfect. Thank you very much.
Speaker Change: Thanks, David.
Speaker Change: Thank you we will move next tweet Waqar Sayed with ABB capital markets. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: John.
Speaker Change: Your goal is eventually to provide the same kind of operating performance on international rigs that you've.
Speaker Change: Been doing domestically in the U S market.
Speaker Change: Now as you proceed towards that goal or do you think that the rigs that you acquired from Keith could you talk to get ready for that.
Speaker Change: Would you need to apply.
Speaker Change: Platinum catheter to that makes them changes add some technology.
Speaker Change: What car you know, we're really talking about two completely different markets in and starting points are you know you really have to go back, let's think about flex rig performance today.
Speaker Change: And.
Speaker Change: Where we were.
Speaker Change: You know 10 years ago 15 years ago.
Speaker Change: And deploying the.
Speaker Change: The flex rig capability and of course that was an unconventional most of the work that we have internationally is conventional work. So there are some differences, but I do believe that our performance culture.
Speaker Change: Or process excellence, we're already working on ways to deploy some of our technologies.
Speaker Change: Two rigs the great news is is we have customers that have <unk>.
Speaker Change: Interest.
Speaker Change: And deploying technology and and doing more so it's a it is a it's a it's a long game, it's going to it's going to take you.
Speaker Change: You know a really long time, but I think there are some immediate.
Speaker Change: Benefits for customers that are going to position us to grow the business in the future.
Speaker Change: Hopefully that hopefully that helps that helps.
Speaker Change: And then secondly, you know.
Speaker Change: As we look at.
Speaker Change: I think the view that it's developing as maybe you get that 30 to 40 net decline in VIX in the coming months.
Speaker Change: And that kind of environment do you see.
Speaker Change: There's some pressure on day rates in the domestic market and maybe if you could talk about some supply demand fundamentals for Super spec rigs you've got some data in the presentation, maybe you could talk about that.
Speaker Change: Uh huh.
Speaker Change: Well on the.
Speaker Change: If you just think about the Super spec market in general it's a it's very it's very tight and the rigs that have.
Speaker Change: So it's one thing to say, what's the total available Super spec fleet.
Speaker Change: In the U S well, that's a much larger number than than the rigs that are working today, but you have to consider the rigs that have been idle for really over two years three years.
Speaker Change: So the rigs that are that have been active recently.
Speaker Change: <unk> is not much more than the 580, you know that that that you mentioned, so I do think that it's a relatively tight type market.
Speaker Change: I mean, let's face it we continue to have conversations with customers. We've seen other other drillers and you know there's been some softness in pricing at the end of the day, where we're having to you know we're working very closely with our customers and trying to drive the best value proposition for them.
Speaker Change: You know our belief is you don't get to lower costs.
Speaker Change: With low day rates, you get to a lower cost by having the.
Speaker Change: The most efficient rigs the highest technology and delivering lower are fewer and fewer well pardon me fewer days per well, which really impacts the cost side of the equation.
Speaker Change: So.
Speaker Change: You know you referenced a 30 or 40 rigs I mean that it's as we said earlier, it's clearly possible. We don't see that right now there there have been again, some publicly announced releases of rigs in the U S with some of the.
Speaker Change: E&ps, reducing their rig count for budgetary reasons, and that's all very understandable.
Speaker Change: You know I haven't heard of any anything else passed that Kevin do you have any anything anybody no I think that's fair I mean again. Most is if you look at that I think you're referencing to slide that we have in our deck.
Speaker Change: And there's a high degree of utilization of Super spec rigs based upon the ones that are available to go into to use.
Speaker Change: I forget what it's call it a upper eighties in terms of the current utilization rate.
Speaker Change: Yeah. So it's a you know this cycle. It's this one is very different than other cycles that we've had in the past and in my career and again, we've been flat activity. We at H M. P have had in this range bound $1 45 to $1 55 for almost two year.
Speaker Change: Years.
Speaker Change: And that that historically hasnt happened.
Speaker Change: And so again, you've got a fleet of rigs that had been idle for some period of time that you know that that arent going to be able to go back to work anytime soon so that that creates a.
Speaker Change: You know the working fleet being at that 80, 80% plus.
Speaker Change: Activity level utilization level and that historically has supported stronger pricing. If you look at it from that perspective.
Speaker Change: Makes sense. Thank you so I appreciate that color.
Speaker Change: Q.
Speaker Change: Thank you. Our next question comes from Doug Becker with capital one. Please go ahead.
Doug Becker: Thank you.
Speaker Change: John.
Speaker Change: The offshore drilling contractors have moved their suspended jackups to other markets. There definitely seems to be pockets of some strength in the middle East are there prospects to relocate some of the land rigs currently in Saudi Arabia to other markets in the Middle East.
Speaker Change: If you if you look at it on a longer term basis, absolutely you know if if it if there was a situation.
Speaker Change: Where.
Speaker Change: You know some of these rigs don't go back to work.
Speaker Change: And then then yes, there would be the opportunity to move to a to other neighboring countries and.
Speaker Change: In the Middle East and you know we've got a nice operation in Oman, We got a nice operation in Kuwait.
Speaker Change:
Speaker Change: Theres some other other potential opportunities.
Speaker Change: I mean, we know it's we know it's possible we're sure not making plans for that but you're right. There have been offshore rigs that have left the region and have gone other places.
Speaker Change: We have that same capability.
Speaker Change: And switching to the U S.
Speaker Change: Curious if there is.
Speaker Change: Potential to see the percent of performance based contracts increase and just the thought being that if a customer wants to see a lower headline rate and a declining activity environment that might be a win win situation, where you can provide a lower headline rate, but still maintain your.
Speaker Change: Your margins.
Speaker Change: Do you see any potential for that or just kind of think about it is 50%.
Speaker Change: Level its been.
Speaker Change: I think we've been in this 50% to 60% range for a couple of years now.
Speaker Change: The good news for us at <unk> as we continue to have customers adopt a performance based.
Speaker Change: Contracts and every customer is a little bit there's a little bit different.
Speaker Change: And how they you know.
Speaker Change: Design. They are performance based contract, but you know there's a clearly a time element. There's other kpis that are involved but at the end of the day as I said a few minutes ago.
Speaker Change: If we can reduce.
Speaker Change: A day on the job then that's a large cost improvement.
Speaker Change: Improvement and so being able to do that is beneficial and then I think even more important that we hear from customers day in and day out is what's most important is the reliability component the ability to do that well after well after well not having the outlier wells and that's where.
Speaker Change: Technology solutions enhance that capability you know I've talked about in my remarks, you know essentially our technologies are.
Speaker Change: Our.
Speaker Change: Removing some of the human human element are the daily human interaction with directional drilling as an example, and we're using software to directionally drill as opposed to a human making a decision.
Speaker Change: On guiding the well and those sorts of things as you can imagine that is a 24 hour operation that provides some significant.
Speaker Change: Advantages to us and to our customers and the ability to do that.
Speaker Change: So I think there's a lot of opportunities for that and you combine those technologies with a performance based contract you're driving greater reliability.
Speaker Change: Again, we've we've described it as being mutually beneficial.
Speaker Change: For us and our customer.
Speaker Change: And you know that at the end of the day. That's that's what we want we're making big investments in our fleet, we're making big investments that are in our technologies.
Speaker Change: And we you know again like like our customers. We just want to get you know make a return on those investments.
Speaker Change: But it sounds like no reason to expect a particular increase in those contracts.
Speaker Change: Contracts.
Speaker Change: We are we are always pushing we are always pushing to go that direction. So don't don't hear me say, it's not possible I just don't have it.
Speaker Change: Clear clearly.
Speaker Change: Sorry, we don't we haven't.
Speaker Change: We don't see that in the near term outlook, but I wouldn't say that it it wouldn't or couldn't happen.
Speaker Change: But and I would add that I would add that A&P since we've been doing performance based contracts for several years now.
Speaker Change: The internal competency that we've developed crossed all the various facets of the organization kind of the it definitely differentiates us in regards to because these contracts are easy they are not.
Speaker Change: <unk> negotiation is a negotiation, it's working with our customers to figure out what's the right.
Speaker Change: Blend of Kpis and other things that they want but then it's also being able to administer it from a back office perspective, and we've got five years of doing it. So I think that's key.
Speaker Change: Makes sense. Thank you.
Speaker Change: Thank you.
Speaker Change: We will take our last question from Jeff Leblanc with T. P. H. Please go ahead your line is open.
Speaker Change: Hi, Good morning, John and team. Thank you for taking my question.
Speaker Change: I wanted to clarify.
Speaker Change: Are you, saying that you are making pricing concessions today or are you willing to cede market share to maintain margin.
Speaker Change: Well we're not.
Speaker Change:
Speaker Change: Yeah, we're not well our market share has grown.
Speaker Change: And are our pricing is you know again, it's it's it's market market based pricing and we're having discussions with customers.
Speaker Change: Every day.
Speaker Change: And so I think just by virtue of our guide you can see that we're forecasting both fewer rigs and some some pricing reduction just as a result of the market.
Speaker Change: But again.
Speaker Change: At times, depending on the quarter will have you know an increase in inquiry.
Speaker Change: An increase in margins due to our performance based contracts that's difficult to to sometimes predict do you have any there's no and I think that's what you look at the guidance, we gave last quarter and where we came in with margins.
Speaker Change:
Speaker Change: The cost to implement our sales and marketing team are in constant discussions with our customers about what makes sense.
Speaker Change: And you know.
Speaker Change: Again, we're going to continue to push for performance based contracts, where it makes sense for our customers because as John mentioned, it's not about the single well, it's about a 10 well program and making sure that you don't destroy the economics for the 10 well program because you have to really bad wells, but the other eight could've been done cheaper.
Speaker Change: You know if you were to be utilizing something other than a performance based contract they're looking at the well economics crossed all 10 wells and so you know it's fluid, but the you know we've got a lot of headwinds right now that are our sales teams working with our customers that collectively is a it's an industry indeed energy industry problem and not just a.
Speaker Change: Drilling services problem that we just need to make sure that we're working with our customers as partners, Yes, Jeff. We I mean, the reality is we acknowledge that there's pressure I mean, theres pressure across the whole energy value chain to lower cost.
Speaker Change: We're going to continue to work very closely with our customers, we got to understand their needs and Ken It comes back to.
Speaker Change: Being customer centric and making certain that we're helping them deliver on their goals and that's one of the key.
Speaker Change: Elements of our differentiation, our differentiated offering and so again, we're going to continue to work very closely with our customers and.
Speaker Change: You know try to continue to deliver the value proposition that we're delivering but again, we again, we recognize there's a lot of pressure in the in the in the industry. There has been now for a couple of months.
Speaker Change: Okay. Thank you very much for the color I'll hand, the call back to the operator.
Speaker Change: Alright.
Speaker Change: Thank you and this will conclude our Q&A session I will turn the call back to John Lindsay for closing remarks.
Speaker Change: Thank you again, thanks for joining us today I've mentioned this but just to reiterate we believe the acquisition of Casey a is a game changer for our business long term overall the integration has gone well of course, we're continuing down that path of integration.
Speaker Change: Have been very pleased to see customers' excitement about the future both IOC and NOC that we're working with today.
Speaker Change: There are some macro headwinds that we've talked about that are slowing some of that progress.
Speaker Change: You know, we're bullish on energy long term.
Speaker Change:
Speaker Change: You know obviously there is a lot of predictions out there the energy demand is going to continue to grow there's thousands and thousands of wells that are going to need to be drilled globally for years to come and I believe that we're very well positioned to take advantage of that opportunity.
Speaker Change: Globally.
Speaker Change: As I said earlier, we're taking a long term perspective, particularly considering the industry's current state. We think we're positioned well for the future. We also again I want to stress. It. We also must demonstrate that we can we can and will execute on our international growth strategy.
Speaker Change: That's our plan. We've we've you know we've deployed new technologies and new commercial models and all sorts of things over over the years and we've been very successful I want to assure you that we are continuing our focus on that so thank you again for your interest and have a great day.
Speaker Change: And this does conclude today's program. Thank you for your participation you may disconnect at any time.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: Hum.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: [music].