Q3 2025 Helmerich & Payne Inc Earnings Call
Please stand by. Your program is about to begin.
Good day, everyone and welcome to today's homework and paints. Fiscal third 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. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star and 2.
Please note, this call may be recorded and I will be standing by if you should need any assistance.
It is now my pleasure to turn the conference over to Mr. Todd Scrubs, Vice President of Finance and Treasury. Please go ahead.
Thank you Raa, and welcome everyone to Helmer campaigns conference, call and webcast for the third quarter of fiscal year 2025.
With us today on the call are John Lindsay, president and CEO. Kevin Van senior vice president and CFO Trey Adams, senior vice president. Global commercial sales and marketing and Mike Linux senior vice president America's
Before we begin, our prepared remarks. I'd like to remind everyone that this call will include forward-looking statements as defined under Securities laws although management believes that the expectations reflected in such forward-looking statements are reasonable. It can give no assurance that the expectations will prove to be correct. Please. Refer to our filings with the SEC for a list of factors that may cause actual results to differ materially from those. In the forward-looking statements made during this call with that. I'll turn the call over to John.
Thank you Todd. Hello everyone. And thanks for joining us today.
Just over 2 decades ago, hmp took a bold step by investing in 32 Flex rigs that were built on spec.
An investment that became the Bedrock of our Fleet.
Looking back, the market was challenging at that time and that investment was heavily scrutinized.
Ultimately that leap carried us from the fourth to First in North America, land Drilling.
Today. Fresh off our most recent acquisition familiar, headwinds are upon us.
Volatile oil and natural gas prices, driven by tariffs.
Shifting Supply, Dynamics, and geopolitical currents are. Once again challenging, our strategic initiative,
It took a few years under the spotlight of adversity But ultimately hmp led the industry on a path of innovation and unmasked performance.
It showcased our unique safety culture.
Our people's deep expertise and gave rise to the new technologies that help transform the business. As we know it today.
Anchored by a clear long-term Vision. We remain steadfast and executing, our Global strategy that will keep us at the Forefront of the drilling Solutions industry.
He brings to the market.
Now, turning to our fiscal Q3 results, I was very pleased with our operating performance and progress made on multiple fronts.
our customer focus and hard work was evident in our industry-leading, North American Solutions results,
And we're gaining operating momentum in several areas around the world.
We're making great progress on our debt and cost reduction goals and our integrated team is working well together.
I'm now going to turn the call over to Trey Adams and he will provide a global sales marketing commercial update.
On our North America Solutions International land and offshore segment performance and outlook.
Okay, thank you, John.
Our North American solution segment produced another great quarter with daily margins of $19,860 per day.
Highlighted by sequential quarter over quarter improvements in expense for day.
Our Nas teams continue to focus on producing, differentiated outcomes for customers.
The journey to becoming an outcome in customer focused. Firm did not happen overnight or over a few quarters.
This customer Centric focus is truly embedded in everything we do every day.
we continue to advance both performance-based agreements, and in our technology Journey,
Both performance-based agreements and Technology Aid in our ability to create customer value.
Our digital applications are now at all-time highs for adoption and value creation.
We now have advanced applications and automation working on essentially, every rig in the US, lower 408
With app, count growing, 20% year-over-year.
For additional efficiencies continues, along with lateral. Links and well complexity.
Our customer Centric models rig equipment, drilling expertise, technology portfolio, and our people continue to place this at the center of this continued evolution.
In addition, our customers drive for safety and performance, improvements uniquely positions hmp, and our approach for further share capture and customer value creation.
An example of this can be seen in the Permian Basin,
The permanent Basin is down, 12% year-over-year in total recount and over that same period. Our share position of the permanent Basin has grown over 3 percentage points.
On the international and offshore Solutions fronts. We continue to enhance relationships around the globe.
We are now active and effectively all of the major basins outside of Russia and China.
Our teams continue to find growth opportunities in international markets.
Highlighted by near-term growth in South America, and other key markets.
The need for Capital efficiency is not unique to the US Shield Market.
Customers large and small all over the globe, need the right partner to create long-term and sustainable growth.
Our distinctive capabilities along with our broad geographical footprint, but it's in a great position to grow in the US and Global markets.
I will now turn it back over to John Lindsay.
Thank you Trey. As, as Trey mentioned, we are well, positioned for growth around the globe.
Our customer exposure and geographical footprint have never been this Broad in our company's long history.
While we are still absorbing some of the impact of the rig suspensions in Saudi
We are firmly committed to further growth in Saudi Arabia, and in the Middle East.
We believe that our foundation of the right rigs relationships, people and approach will lead to incremental activity gains.
I'm also encouraged by the progress on our KCA integration. We've adopted a deliberate phased approach, streamlining, corporate back office and Operational Support functions while maintaining an appropriate pace.
At the rig level.
To maintain strong, safety performance, and deliver exceptional results to our customers.
The initial phase of integrating our corporate and back office functions is nearly 3/4 of the way, complete with most of the work targeted for completion in the first quarter of 2026.
This focus is already unlocked, meaning meaningful cost synergies across our corporate functions.
In Saudi Arabia, where we once Ran 2 separate businesses, the merger has generated significant financial and operational gains.
Our acquisition thesis is coming to life.
We're leveraging a broader, operational footprint and expanded customer base and our combined capabilities to differentiate hmp on the global stage.
And another 30 or so offshore management, contracts.
And we continue to serve our customers through customer Centric, performance contracts and advanced technology rigs backed by digital solutions that drive safety and reliability.
Our financial profile remains robust, and Kevin will go into greater detail during his remarks. I would like to reference the last slide in our deck, slide 10, as it truly captures the HMP differentiated drilling business model.
And to reinforce those points, we believe our global scale and innovative solutions are differentiating in the market.
And those capabilities along with our investment, grade balance sheet, sharp focus on cost and debt reduction. And a long-standing sustainable dividend, is a unique value proposition in our industry.
This successful integration positions us to deliver superior value to our customers.
Our teams and our shareholders.
And now, I'll turn the call over to Kevin. Thanks, John.
Today I will, I will review our fiscal third quarter, 25 operating results which includes a full quarter impact from our kcad acquisition provide guidance for the fiscal. Fourth quarter update remaining full year 2025 guidance where an update is needed and finally comment on our financial position.
Let me start with a few highlights.
The company generated quarterly revenues of just over 1 billion for the second straight quarter.
Total direct operating costs. Were 735 million and general and administrative expenses were approximately 66 million for the quarter, which represents a reduction of 15 million from the second.
I will provide some additional color on the trajectory of our cost structure and the progress. We have made against our cost initiatives later in my comments.
Gross Capital expenditures for our second quarter were 97 million, which was down from the second quarter, but in line with our expectations, for the full year and second quarter cash flow from operations was 122 million.
Lastly, overall The company generated 268 million in ibida versus 242 Million last quarter.
Turning to our 3 segments. Beginning with North American Solutions we averaged 147 contracted rigs during the quarter which was down a couple of rigs as compared to the second. However pretty much in line with our expectations and the guidance that we provided during during our last earnings call.
The exit rig count was 1 141 which declined late in the quarter due to due to some churn. But is in line with the broader North American market conditions, and consistent with our guidance during the last call.
Segment direct margin was 266 million, which was right in line with last quarter, but materially higher than our expectations.
As Trey indicated. This outcome is a testament to our operations and sales. Team working side by side our customers and understanding the needed outcomes to help them, achieve the results, they desire.
We recognize that there are factors that negatively weigh on overall market conditions, such as continued uncertainty around tariffs and the possibility of lower commodity prices. However, we remain steadfastly focused on partnering with our customers to achieve the mutually successful outcomes that are required for all of us to generate acceptable returns on our investments.
Our International Solutions activity ended the fiscal the third fiscal quarter with 69 rigs working.
As we stated in the press release, all 8 unalienable have now commenced operations with margins continuing to improve as we further integrate operations with kcad as a whole our International Solutions business generated, direct margins of 34 million which was up 7 million from the second quarter.
Finally, to our offshore solution solution segment, which generated 23 million in direct margins.
With the inclusion of the kcad offshore business, we have added significant scale and Geographic expansion to this segment. The business requires very little capital and generate steady cash flows from a set of Blue Chip customers. We are extremely pleased with how this business is performing and the additional value being created by the team that came over with the acquisition.
As we noted in the press release, we did record an impairment of a significant part of the Goodwill. That was recorded at the date of the closing of the of the acquisition. This right down was largely driven by the drop in our Equity price, which is obviously driven by several factors including the Market's interest and sentiment around the energy sector and the various sub-sectors within it.
To be clear, we still believe that over the long term, the acquisition will provide the growth and shareholder value creation. That was originally contemplated.
And 144 contracted rigs or approximately flat to our exit rate.
Again, we are focused on providing customer Centric Solutions and believe direct margins and fiscal Q4 to range between 230 and 250 million.
The nas team continues to exceed expectations in any given market conditions. I want to thank them for continuing to bring these amazing results that are obviously industry-leading.
As we look toward the fourth quarter of fiscal. 25 for international, we expect direct margins from our International solutions to be between 22 and 32 million further. We expect the average operating operating rig count to be between 62 and 66 contracted rigs the guidance range includes the impact of the Saudi rig suspensions, but also includes the margin improvement from the flex rig business.
Now, turning to guidance for offshore Solutions segment, we expect to generate between 22 and 30 million in direct margin in the fourth quarter with average management, contracts and contracted platform, rigs to be around 30 to 35.
Outside of our core operating segments. We do have some businesses that generate direct margin collectively. Those are expected to contribute between between 0 and 3 million in the fourth quarter.
Now, let me update a few full year, 25 guidance items. As I stated previously, our capex spend was weighted to the front half of the year and we were fully expecting it expecting it to moderate for the balance of the year, which it has
However, we are slightly revising. The full year Capital, spend to 380 to 395 million, therefore, increasing the lower end of the guidance as the full year number crystallizes in the last couple months of the year.
Although, we are not ready to give 2026 Capitol Guidance, the number will be coming down from the 2025 levels with the current level of rig activity. And the continued savings that Mike and his team are finding to drive. Our maintenance cost per rig down, we expect the absolute Capital, spend to moderate over the 25th.
As for depreciation, general and administrative and research and development expenses, we are not changing our guidance numbers from those estimates we provided during the second quarter earnings call. For cash taxes paid, we are lowering the top end of our guidance to $220 million.
We are still assessing the impact of the recently passed, big beautiful bill, but we do expect that to be a material benefit for us going forward.
Lastly, we are expecting $25 million in interest expense for the fourth quarter.
As we stated last call, we have been aggressively seeking and capturing synergies post close of the acquisition. We also engaged in a full analysis of the necessary cost structure to support the expanded h&p business in the future. As a result of the analysis, we set a goal to reduce GNA and R&D costs by 50, to 75 million which was inclusive of both synergies. And the absolute, right? Sizing of the organization to manage the business going forward. I am pleased to say that we have identified 50 million of cost savings so far for which we expect to see the full benefit of starting in 2026.
Lastly.
I just want to emphasize that we are now anticipating by the end of this calendar year, we will have paid 200 million on the 400 million Term Loan, which is an increase to our previous expectation.
And with that, I'll turn it back to the operator, to open it up for questions.
At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the Queue at any time by pressing star 2.
Once again to ask a question, that is star 1.
Our first question comes from Doug Becker with capital 1. Your line is open.
Thank you, John you mentioned your committed to further growth in Saudi Arabia, in the Middle East more broadly. You have a full quarter of the KCA assets under your belt
Laser-focused on growth. Just curious, if you could provide some more color on how H&P might start to grow the international business from the fiscal fourth quarter level that has been laid out.
Sure Doug. Hey, before I I answer that, I, I also wanted to mention that, um, during the opening remarks, Todd had made reference to Mike Linux and Trey Adams being here. Uh, many of you have met them but just to be clear, their members of my team, they're in the really in the trenches every day. Uh, you know, dealing with uh, Mike Scott responsibility for North America Solutions and South America. Uh, Trey's got everything, uh, commercially uh, globally. Uh, they've been on the road a couple of times with Kevin and I, uh, but so many of you have met them, but not, not everybody has. So I just wanted to put that context as far as
You know, there, there continues to be opportunities. There's a, there's a tender that will be coming out, I guess it may be actually out. Now there's other opportunities, uh, for for growth in Saudi. I think all of that is going to be a 2026.
Um, type timing. I I don't see anything necessarily, uh, you know, going back in 2025, but I do think there's there's great opportunities and, uh, for 2026.
And I think when you, when you consider uh, in with our prepared remarks, we're talking about the the, uh, the value proposition that we provide. And that desire from uh no nose around the world and ioc's around the world for a different operating model and being able to uh, to to, to perform at a different at a different level.
Trey, you have anything. You want to? Yeah, I'll just I'll just um, Carry On Their John, just share that, absolutely. We're we're tracking a lot of opportunities. Coming through the region in the Middle East.
Um, what's different from where we were 67 or 8 months ago to where we are today is we have the right people, right? Assets on the ground to participate in those tenders meaningfully.
And what John just described, you know, getting the 8 Flex rigs into Saudi was a big win for us.
Um, we're going to continue to advance relationships across the region more, broadly,
To those those conversations are are deeper than what we've ever had. Because of the right fit rigs, right? People in the scalable operation that we have on the ground. Uh, so we, we are tracking quite a bit of activity. Uh it's premature to get into some of the details associated with those tenders um but we're very active in them and we feel very confident that our our value proposition will be shown through.
No, that definitely sounds encouraging. Uh, are you able to see if there's any ongoing conversations about when the suspended rigs might go back to work? Or is that still up in the air?
you know, Doug um,
What I've what I continue to hear is that the worst is, is behind us. Uh there's you know, we just don't know what the timing is. And I think it's really, it's really more of a budgeting issue than anything at this point. Um and so we don't have anything additional to to share again. I think the easiest thing for us to to just get our. Our minds wrapped around is that it's a 2026.
Uh, time frame is is what we would be looking at, is probably the best way to approach it. And again, hopefully there's some opportunities along the way. We've got people on the on the ground and a lot of good things going on. But uh, until we
I think we're just going to need a little bit more time to pass.
Got it. Thank you.
Thank you.
Our next question comes from Grant Heights with JP Morgan. Your line is open.
Hey, good morning. Thank you.
Uh, so you talked about, uh, performance contracts making up about 50%, uh, kind of an active rigs and, you know, obviously driving outperformance in the quarter. Um, but could you maybe highlight what types of customers have been sort of the primary adopters of this contracting and, and maybe where the next leg of adoption might be?
Yeah, Grant, this is Mike. I'll start with it and then maybe hand it over to Trey. So on the performance contracts, really? It's it's all uh, types and so you've got your small privates, your your mids, and then your, your large majors, and we're participating with them and and always. Um, but really it starts with getting in understanding what outcomes are looking to achieve and then aligning on those until we've had great success doing that and uh continue to see that as a tool that we'll use going forward.
Conversations that we're having every day with customers and the value that they're seeing with working and partnering with h&p.
Gotcha. And, and maybe just as a follow-up. I mean, are there any Pockets internationally where where you're having, you know, conversations with customers about about these types of uh, Contracting models? Um, just as obviously has been successful in North America,
Absolutely. Um, we're having those conversations, they're, they're going on today. Uh, we're putting our toe in the water and several markets today where we have, uh, those type of agreements taking shape. Um, we have early stages of of an agreement in the Middle East today, uh, that's arranged similar to what we have in the United States and so we're seeing a lot of interest. Um, obviously the ioc clients that have global scale, are looking to translate what's happening in the US Shale, uh abroad and then conversations with, within OC's and other smaller customers across the globe. They're very interested and want to better understand how we can partner in a line, uh, so, yes early days but uh, absolutely ongoing
Great, thanks. We'll turn it back.
Our next question comes from Eddie Kim with Barclays, your line is open.
Hi. Good morning. Um, so regarding to an average recount in the lower 48 of about 141 rigs at the midpoint or about a a 4%, sequential decline, which is below the the industrywide recount Decline and and uh, a little less severe than, uh, what some of your peers have been telegraphing. It any thoughts? You can provide on on that that relative outperformance, um, and your recount uh, on your expectations for the fiscal 4q and I know you highlighted some market share gains. Um uh but is it is it bad? Is it, is it maybe? The mix of uh are your customer mix just uh any thoughts there?
Yeah, I'll start. And then again hand it over to Trey, but we've got a great customer mix and again, we're aligning to their outcomes. We've made Investments, uh, for the last several years to, uh, to drill these more complex longer lateral Wells. Uh, and so that's really where it's shifting to. And so we're very well positioned. Uh, and I think we've had resilience with our rig count, and our margins, uh, everything that we're doing, as a result of those Investments that we've made, uh, in previous years.
yeah, that's for
Got it. Great. Um, my follow-up is just on...
Just your thoughts on on on oil basins versus gas basins in the lower 48. I mean, your rate count is has been fairly steady, uh, so far this year but does that make up uh maybe change what we've seen? Some oil rigs come off. Um but about equally offset by by gas rigs coming on and just your thoughts on gas activity, that that remainder of this calendar year, we we've seen a steady ramp up in gas rigs, just just industrywide. Do you expect that to continue based on the conversations you're, you're having, or is, is, is the next move up in gas rigs? Really, really, going to take place maybe in early 2026 just just thought that would be great.
Yeah, no, I think you're spot on. Right. We've had a slight pullback in the oil space. Um, we've seen a slight uptick in the natural gas play, specifically the Haynesville and Marcellus.
Uh that is somewhat offset I mean just to to acknowledge it. We've had a few rigs move from the ollie place over to the gas place. So those rigs are hot rigs that are staying working. Uh, there may be a slight uh, continuation of that. Um, going forward, I don't think it's it's it's a a drastic jump. I think it's a a smaller and recount but we we expect that to continue.
I think there is John. I think there's also just obviously a global trend toward natural gas, and there's a lot of opportunities in the Middle East.
And and so I think being able to leverage our experience of whether its performance, whether it's leveraging, our Technologies, uh, there's huge opportunities for us as uh as more gas as being drilled uh, internationally.
Great. Thank you. Okay, I'll turn it back.
Our next question comes from, Derek piser. With Piper sampler, your line is open.
Oil commodity price driven Basin driven, customer driven, just maybe some more color around the top end and bottom end of that range.
Yeah, some of it. I mean, obviously, we're going to, you know, it fluctuates down. We expect to bring some out as potential high grading of opportunities arises, which we do expect that to.
To play out. Um,
yeah, I mean I I would layer in and just say, I mean the the the largest impact to us is that there's a big commodity price shift or move, and
I need to see some private in people back, but with what we have in front of us right now, we feel pretty comfortable and confident. Um, even if there was a, a large consolidation that occurred in the next few months, we wouldn't see the impact of that towards until towards our first fiscal period or or Beyond. So, I think we're pretty comfortable absent of a big commodity move.
Okay, fair enough. Um, let me switching over to KCA, um, just John you mentioned the tenders, uh, you know, obviously at 2026 event, but how should we think about incremental activity for hcp? I mean, would this be a poll for the Legacy Flex rigs? It's great to see that that all 8 are working now, I think you had 1 Ka rig working in the japura, I'm not sure. Um, but how do I think about the interplay between what would be more of the poll? Would it be some of the the suspended KCA rigs be able to move into japura or would this be a poll of the Legacy?
HP flexor, that you have right now. Just trying to think about the opportunity to where you would pull that from specifically, in jehoram,
Sure, Derek. Yeah, it there are additional um KCA Legacy KCA rigs that are working in japura and uh we think there's additional opportunities there just in general. Um the the rigs that more than likely it will be going back to work are going to be gas focused I mentioned that earlier and so whether it's in japura or whether it's in uh more conventional uh gas basins. Um we've got a a great Fleet to uh to approach those opportunities with
But I, I don't, I don't see any at this stage necessarily being flexible because it will it will all be, uh, the Legacy KCA Fleet.
Got it? Okay, that's helpful. Appreciate the color. I'll turn it back.
Thank you.
Our next question comes from it modok with Goldman Sachs, your line is open.
Hey, good morning team. Um, John, can you give us a sense of the direction we should think about in terms of the margins in North America and the context of all the conversations you're having with the customers regarding this oil versus gas? We've got the Performance-Based contract as well, versus the trajectory of the account, say into 2026.
Yeah, I'm gonna I'm gonna let let Mike uh jump on that.
Yeah. Augie um I think there's resilience in those margins. Uh for a a few reasons, 1 on the revenue side.
We mentioned the performance contracts. We think, again, that's a great tool that aligns with our customers. So, when they see value, we receive value as well. Our digital solutions and technology are continuing to grow and expand on our rigs, which is helping aid in the success we've seen in drilling longer, more complex laterals.
I mentioned earlier but you know, we've made in previous years investments in our rig Fleet. Um, and specifically in automation our, uh, engine uh, Power Solutions that we have. And in tubulars, that will continue to have upside with that with that revenue and then on the expense side,
You know, we've been having a lot of focus as Kevin had mentioned just on the cost, efficiency efforts. And so we're starting to to Bear some of those fruits now. Um, and we're leveraging our scale. Uh our scale domestically our scale as a global organization. We're going to continue to do that. So I think they're staying power within those those margins for North American Solutions.
Thank you, I appreciate that. And then, uh, on the free cash flow cadence, uh, you increased the pay down targets, also assuming that most of that is free cash flow. Is there any asset sale baked into that? And what's a reasonable way to expect, uh, the capex and free cash located in the conversion, you know, going forward into the next year? I know it's early, but any directional comments you can provide?
yeah, the additional uh,
Term Loan, uh,
On the revenue side but we're focused on the cost side. We're we're we're going to be able to generate a little, a little higher cash flows that we're going to. Obviously as we stated before our our primary, uh, objective at this point, um, is to not only create customer value but it's to get the balance sheet back down to about a turn of Leverage. Um, you know, when you think about again, we're not giving guidance for 2026, but when you think about where we're going to end this year, um, we've got a clear line of sight of paying off the additional 200 million on that Term Loan. Call it by the third calendar year of next year. And then we've got another, uh, you know, our first tranche of bonds will be due in December of 2027. Um, you know, we won't, we won't sit around long. We've already got that insight. And so again, the long-term goal is to get our overall leverage down to about a turn. Um, and so, you know, 1 of the drivers um and I said it in my prepared remarks, but 1 of the drivers is is just our capex spends coming down. Um
You know, without giving you know, clear articulation into what 2026 is going to look like from a capital spend. I know from the maintenance side, uh, you know, we we came down this year, uh, we're getting down to levels that I think we're kind of the preco levels, um, as and I, I could let Mike elaborate a little bit more on this. But, you know, just the overall kind of necessary Capital spend and the level of rig activity uh, that we're anticipating for next year. You know, our overall Capital spend is going to moderate quite a bit next year.
Thank you, appreciate that.
Our next question comes.
Uh, good morning, John and team. Thank you for taking my question. Uh, I just want to see if you could provide some color uh, on on the rig Sharon in the in the North American market and specifically
the public data would suggest that you have been able to add a couple of
rigs to new customers on a go forward basis and just trying to speak to that success. And if you think those opportunities should continue over the balance of the Year, thank you.
Sure. Well, that's why I've got these guys here to talk more about that because there is a lot of churn teams are doing, great work, and keeping rigs working, and
Do you have any any, uh, yeah, on the, on the front. I mean, we're we're seeing it really from all, but, but I would primarily primarily categorize it as with the private. But the good thing is, we've been able to find those homes. Uh, a lot of those rigs homes, uh, with either private or others that are looking to hybrid.
Yeah, this is Trey. I'll just comment and say our teams do a fantastic job of of streaming together programs. There's a lot of short-term duration, programs that are out there that are well timed, but you have to have the conversation and relationship and rapport with those clients to to be well positioned in the front of the queue to, to grab that opportunity, our teams stay in front of those and do a
Great job. And then as you think about new clients and customers in the in the US or 48 many of those relationships have been formed up over the last 10, to 20 years, uh, there's a lot of new companies and but there's
A relatively constrained EMP community. And so we keep a good, um, feed in our teams, stay very focused on maintaining those key relationships. So we don't expect that to change. We think that there will be continued churn, and we feel like we're well suited to manage it.
Okay, uh thank you for the caller. I'll hand the call back to the operator. Thank you.
You.
Our next question comes from Keith Mackey with RBC. Your line is open.
Oh hi. Good morning and thanks for taking my question. Uh, jumping around a little bit between calls, so apologies if this has been answered. But um, the guidance of uh, you know, up to
144 rigs for fiscal Q4 obviously implies that you could potentially add some rigs on average.
So,
Would this if this were to, you know, be the case, would that be more a result of better churn management? Or do you think you'd actually be adding net new rigs in the lower 48?
Okay, understood and you just talk a little bit about what you're seeing in the competitive landscape in the lower 48. And we've been hearing of rig rates still in that low to mid-30s, although there's, you know, lots of variation within that, within that range. And and around that range, you just talk about what you're seeing as far as you know. Are you being asked to compete on price more than you normally would uh based on uh competitive bids and things like that or or or what is the landscape really look like in in in this environment?
Yeah, I'll start, uh, we're not immune to the industrywide, uh, pricing pressures. But again, we're pricing our rigs based on the value that we're delivering for our our, um, customers. And so, we can align with commercial, um, Performance Based contracts to align to those
And that rewards us when we perform above our peers.
Yeah, and the other other negative I'll share is, is the market for for super spec. And top end rate performance remains pretty constrained
And if you look at the inactive rigs and filter the inactive super specs for the last year, the super spec utilization rate is still above 80%. If you go basin to basin, that super spec utilization rate even climbs further from there. In addition to that, about 70% of those inactive rigs are in the hands of four primary drilling providers in the U.S., or 48. So we feel like what we provide—and going back to Mike's comment—is differentiated; we align the value, and we’re focused on our customer through every part of the process.
conversation and equation.
I mean, this has been a result of many, many years of our strategy and focusing on delivering better outcomes. Leveraging technology, leveraging digital solutions.
Um, you know, there's a huge safety component in the element here and the things that we're working on. So it's really,
a function of just the overall teams and our people being able to continue to deliver for customers and it's
You know, it's been fun to be a part of.
I just did. Thanks very much.
You.
Our next question comes from Blake, McLean with Daniel Energy Partners, your line is open.
Hey, good morning, y'all.
Good morning.
So uh, look a lot of good color. Appreciate that a lot of good detailed questions. Have been have been asked, so maybe I'll just here in the back of the queue. Maybe I'll just ask you guys.
Kind of a bigger picture question and specifically on crew, and we talked about natural gas and things people, feeling better there, both domestically and internationally. I was hoping. Maybe you could just rip a little bit on customer mindset on the crude side, a ton of moving parts and volatility over the last kind of quarter or so I was just hoping you could share, do you feel like folks are generally more comfortable with kind of oil Outlook back half of this year into next year than they were say a quarter ago. Just anything you would share on customer conversations and and how they're thinking about crew.
Yeah, I'll start, and then others can lean in. I think it's...
This differs from conversation with customer to customer right? And you have, um, many of our large customers that are looking through cycles and planning through Cycles, identifying the right Partners who they know will be there and be foundational elements to their value creation over time. And so those customers and conversations are are looking beyond the end of calendar 2025 and
Much further out. Obviously, with privates those, those conversations are a little bit more sensitive in terms of what crude Outlook you have. But the longer, the crude continues to remain, um, relatively stable and range bound. It gives those customers, you know, Comfort to keep their programs going and and to bring rigs online. So I think it's varied, um, dramatically from customer architect to customer architect.
And I think also, if you look at where the 26 curve is trading versus where it was trading, you know where the spot price was 3 months ago when we had our second quarter earnings call. I mean, I again, you know, I think everyone still, um, you know, sitting and waiting thinking about their 26 budgets, you know, we still have some time that will will pass between now and which they formalize them, but I think
I think, three months ago when we were sub-$60,
Well and you you know different reports you you see on the outlook for crude production in the US and and and it you know, does it continue to increase? Does it does it begin to flatten out and Decline and there's some prediction that the that the, uh, production begins to decline? So a lot of, uh, lot of variables out there
Yep. Yep. Agreed. A lot of moving parts, but it does feel— I mean, it does feel like people are a bit more, um, a bit more comfortable now than they were certainly the last time you guys reported. Anyway, thank you guys very much for the time; I really appreciate it.
Thank you.
Our next question comes from Mark iani with TV Cowen. Your line is open,
Hey, thanks. Uh, for squeezing me in, guys. Um, I was...
Curious about the, um, North America margin performance. It's been really good versus your guidance the last couple of quarters. And you talked about some execution and some, uh, some performance contract stuff driving that, I think. But, you know, maybe you could talk to us a little bit about, um, kind of how you put the outlook together. Is there sort of a base case assumption? And then, you know, it's been a lot of performance surprising performance contract stuff. Or do you just take a more conservative view on performance? And if you can, if you can beat that, that's great. Just maybe help us understand.
Kind of the, the base case going into fiscal 4q, and and the variables that could could cause it to be above or below.
I'll start and then hand it over. Uh, but really, I want to start with thinking our employees. Um, we have, they have been executing, we set goals, and they have far exceeded those goals and so really proud of our our teams that are out there. Um, and and I mentioned some cost efficiency efforts. Um, we continue to see some of those will hang around and some of them won't maybe they're, they're on a timing. Uh, seasonal timing is the way I maybe describe that, uh, but but really proud of how they're executing. And so, uh, I'll turn it over to somebody else. Maybe get more in the details on how we form it up.
Yeah, I think the key there is, you know, we do start from a Bottoms Up, Bottoms Up approach. You know, they're we have firm contracts. We've been into conversations with our customers. Um as Trey mentioned we're setting you know on the same side of the table as they are trying to figure out what they desired outcomes are and so when you think about the overall Market sentiment obviously as we were just talking about its improved since the last quarter, I mean there's still some you know some headwinds that we're facing and and so the the slight guide down is a reflection of of you know the overall value proposition that we're providing. And some of that may have shifted from a day rate to a performance bonus incentive. And some and when we're estimating, those performance, bonuses,
We can't count on achieving the top end of that, that bonus range every single time. And so, um, you know, again, we think that the, if you were to do the math and look at the average kind of margin what we're anticipating for the uh, fourth quarter. Um, we think it's reasonable, but, uh, you know, anytime you throw a Target out to Mike and his team, they, they seem to always find a way to beat it, but, you know, we can't always count on that but, um, you know, quarter after quarter after quarter, his team continues to deliver.
Yep. Yep. Great to see, um, on the, on the international side. Um,
I have a really simplistic question that I have, um, another broader one. But just on the rig count, could you guide for the fiscal Q4? What is the exit rate there? Just so we can kind of understand what's happening.
You know, maybe the KCA rigs that are dropping off, and then what else is happening within the portfolio.
Uh, I don't know. I think 62. Yeah, 62 is the exit rate.
Got it and I can touch on on just some general activity, right? So obviously there's a lot going on right now and and
if you think broadly across our International Fleet,
um, you know, we continue to see a good amount of of Tinder activity and opportunities in the Middle East.
But what I'll reinforce is that the difference of H&P today, where we were 68 months ago, is that we're a truly global company.
And, and have a lot of opportunities that we're tracking across geographies and, and so we're going to continue to see movement and and wins and some geographies that may not hit the headline like us or or, uh, the Middle East. But we're, we're continuing to Chase and find ways to create activity. Yeah. And I think, if you think about the number of rigs that were operating during the third quarter, it was, it didn't include the additional 9 rigs that we announced that were suspended back in early June. Those went off work in, in July, I call it July 1st and to trace point, you know, the guidance isn't a, a complete 1 for 1 down. As a result of those suspensions. We're actually seeing some really positive kind of work and and and wins coming out of all the various countries. That that trade just mentioned. Um, some really good stuff going down in Argentina. Uh, Mike and his team are leading those efforts. And, um, you know, I think the conversations are really good with customers down there. Yeah, absolutely. And maybe to expand on Argent,
We have 9 rigs operating today in Argentina. There's a lot of conversation, and some of you all know that as they build out the infrastructure to get the gas out of that, uh, the Vaca Muerta, we're positioned well. We have 4 rigs down there that are very well suited, Flex rigs that can go to work. So, we're in a good position, and I'd say we're in the early innings.
Down there, where, as we um, is there adopting technology and continuing to start using that down there? Uh, I think we'll have some good.
Good, uh, wind behind ourselves.
Okay, that's great. Maybe just uh to follow on to that real quick uh on the on the margin side. So you know there's a lot of moving pieces with. I thought the Saudi KCA rigs were were pretty good margin and those are dropping off but you've got these other rigs that are picking up and then we've got the the flex Rigs and Saudi where there was some startup costs and it's like that's maybe gone away or in the process of going away. Should we view this sort of September quarter margin in international as as a low point and it it has good chance of getting better from here or how how does that Dynamic look as we roll through the next 4. Few quarters.
Yeah, I I this is Kevin and I do think I I wouldn't, you know, I hate to call it a low point, but I definitely feel like we're at an inflection point in terms of just the amount of of gross margin that can be generated out of that international business. Obviously with the with the rig suspensions and there's all the work that Trey mentioned earlier that, you know, we're currently, uh, chasing across the, the whole Middle East, but really chasing across the globe. Um, we do have, we do see a line of sight and improving the margins that were real realizing on our Flex rig business in Saudi. And so there's just, you seems like there's a lot of positive momentum outside of just, you know, absolute number of rigs working over there. But there's um, you know,
Just the work that we're doing and improving. Um, as we continue to integrate, you know, all the operations uh, in in in Saudi, we're we're seeing a lot of a pretty good Improvement. It might take a few more quarters to get it up to like the full, you know, what's the expected ongoing run rate? But uh those teams um, you know, cross across the Casey, our the historical Legacy kcad employees and then the the flex rig startup employees that we had, you know, had been working on getting those margins. You know, going getting that business started is just continues to improve quarter after quarter.
Great. Thanks so much. I'll turn it back.
Our next question comes from David Smith with Pickering Energy Partners, your line is open.
Good morning, and thank you for taking my question.
Good morning, Dave.
Starting with the housekeeping question, I wanted to make sure I understood correctly that fiscal year CapEx guidance is $380 to $395 million.
And $362 million was spent in the first 9 months of fiscal 2025. But it kind of applies the step down to like $25 or $26 million.
At the midpoint for fiscal Q4, which makes me feel like I'm missing something obvious.
No, I
the, the
Was heavily weighted to the first two or three quarters. Um, you know, we won't be spending much in terms of capex really on the North American side during the fourth quarter, and what rolls through the fourth quarter will primarily be related to some stuff that we've got going on internationally, you know, it's not.
Uh, associated with the rig activity that we had prior to these suspensions, but it's coming to a, um, you know, a pretty quick halt and decline during the fourth quarter. So, no, you're not missing anything. Um, but it is, you know, we do feel comfortable about the guidance.
I appreciate that. I want to extrapolate that through Q2, even though you said Q2 is coming down. Um,
Also wanted to Circle back on the the cost reduction targets for for 50 to 75 million.
Um, your, your Q3 physical Q3 sgna, was basically in line with, uh, trailing 4 quarter, average. Be before the merger closed, it was 15 million lower than, than last quarter with a merger closing in and mid January. I just wanted to clarify how we should, think about that 50 to, you know, maybe maybe get into 75 million of identified cost savings to relative to what's actually been achieved in the the fiscal Q3 performance.
Yeah, the fiscal Q3 performance. Um, obviously we had a, we had some, um, some Severance costs, and other costs, that we recorded this restructuring cost and so you'll see those separate in another line item, uh, on the income statement. But the, you know, that run rate of 66 million is obviously a reflection of not only some of the reductions that we've already had the synergies that we've already captured. But also I think speaks to what the possibility is for 2026. Which again we've we've clearly identified 50 million
Million of of run rate savings, um, in uh, 20 that we will Implement and have affected effectively, executed. All the decisions that we need in order to start 101, uh, with a fionn dollar run rate, there's still more meat on that bone. Um, you know, we still have some more work to do some more analysis to do. I think that will be a combination of synergies and just overall costs, uh, cost reductions as we think about what's the right necessary, corporate structures to support the business going forward. Um, but you know, uh I can't, you know, I I'm I'm claiming Victory on the 50 million, I don't want to claim victory on anything above 75 million. Um, but I think, you know, somewhere in between 50 and 75 is is, is pretty achievable, um, as what we're given, what we're thinking now.
Very much appreciate it. I'll turn it back.
Thank you.
It appears we have no further questions at this time. I'll turn the call back to John Lindsay for closing remarks.
Thank you, Raya. Uh, thank you again for joining us today.
Again, just to re re reiterate. We believe our global scale and innovative solutions are differentiating in the market. Uh we've seen examples of that.
And those capabilities, we believe, will continue to expand globally. Along with our investment-grade balance sheet, sharp focus on cost and debt reduction, and a long-standing sustainable dividend, this is a unique value proposition in our industry. So again, thank you for joining us today. Thank you.
This concludes today's program. Thank you for your participation. You may disconnect at any time.