Helmerich & Payne, Inc.

Good day, everyone, and welcome to today's program, Fiscal First Quarter 2020 Earnings Conference 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 touchtone phone. You may withdraw yourself from the queue by pressing the pound key. Please note this call may be recorded, and I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Dave Wilson, Director of Investor Relations. Please go ahead.

Thank you, Nikki, and welcome, everyone, to Hammer Companions Conference Call, a webcast for the first quarter of fiscal 2020. With us today on the call are John Lindsay, President and CEO, and Mark Smith, Senior Vice President and CFO. John and Mark will be sharing some comments with us, after which we'll open the call for questions. Before we begin our prepared remarks, I'll remind everyone that this call will include forward-looking statements as defined under the securities laws. Such statements are based on current information and management expectations as of this date and are not guarantees of future performance. Forward-looking statements involve certain risks, uncertainties, and assumptions that are difficult to predict. As such, our outcomes and results could differ materially. You can learn more about these risks in our annual report on Form 10-K, our quarterly reports on Form 10-Q, and our other SEC filings. You should not place undue reliance on forward-looking statements, and we undertake no obligation to publicly update forward-looking statements. We also make reference to certain non-GAAP financial measures, such as segment operating income and operating statistics. You'll find the GAAP reconciliation comments and calculations in yesterday's press release. With that said, I'll now turn the call over to John Lindsay.

Thank you, Dave, and good morning, everyone. 2019 was a challenging year for the industry overall. but it is during these seasons when our industry comes together to create stronger partnerships and embrace new ways of thinking and innovation. This is what we're experiencing, and it contributes to our results. Today, we will share some additional context about how H&P's leadership position and performance, both of which continue to improve because of the company's ability to simultaneously deliver incremental value for customers, adapt to increasingly difficult market conditions, and advance the future of automation and drilling. This quarter's results reflect the momentum of shared successes with customers and the company's ability to remain agile and focused on results from our customers and for H&P stakeholders. I'm going to begin talking about our experience with what we are seeing exploration and production companies value drivers. Our customers are looking for every opportunity to invest optimally. They are seeking the best partner with the best expertise and experience that can transcend today's challenging market environment. We strive to align ourselves with the customer's objective to enhance economic returns through better performance and technology. We are working hard to put this shared focus and decision making at the forefront of all of our partnerships. Our strategy is focused on strengthening all of our current customer relationships and building more along the way. We believe technology and automation will be the catalyst for value creation and upstream oil and gas operations. There is power in predictability through reliable and repeatable performance provided by process excellence and automation. And we are seeing that pay off for H&P and for our customers. This concerted effort will continue to set us apart, and I believe it's one of the reasons why we are gaining traction. We see significant value capture opportunities resulting from our autonomous drilling platform. For our customers, maturing basins and normalized well cycle times are drawing more attention to the advantages that wellbore quality delivers. Our automation solutions, specifically AutoSlide, which is automated sliding while directional drilling, have numerous points of differentiation from competing services in the market today. The primary and most customer-centric differentiation is our auto-slide algorithms are tuned with wellbore economics and each customer's value drivers in mind. Specifically, these algorithms optimize the tradeoff between drilling days, time in the hydrocarbon zone, and wellbore tortuosity. As the industry continues to migrate to factory-like drilling, Economically focused automation will be the key enabler. What we have found is this predictability allows for optimization of other key drivers that positively impact the total life of the well. Examples are optimizing completions and providing an opportunity to push the envelope on new methods and techniques that ultimately lead to production increases and lower costs associated with completions. In addition to creating value for our customers through improved well economics, our technologies reduce the environmental impacts of drilling operations by creating more precise and safer ways to maximize extraction, thus unlocking even more value with a smaller environmental footprint. And as we demand at the rig site, fewer exposures at the rig and driving back and forth to the rig. Since 2017, we've made several digital technology acquisitions and have added significant expertise to our team to complete our digital technology strategy roadmap. The first step of that strategy is World War quality and economically focused automation with auto slide. And we plan to launch more levels of our autonomous platform during 2020. We believe we have the expertise and capabilities today to take the next step for our industry without further acquisitions. The power of process automation that drives predictability is paramount for the future of oil and gas. Last year, we introduced the need for new commercial models, where we are focused on creating a win-win value capture for our customers and for H&P stakeholders. Given our customers' focus on spending within budgets, optimizing investment, and value, we are continuing to develop new pricing solutions to reflect the growing partnership between H&P and our customers. These solutions reinforce that approach, enabling us to share in an equitable portion of the value we are delivering. Last quarter, we announced that new commercial contracts made up approximately 10% of our contract mix during the first fiscal quarter, although today we have approximately 15% of our active flex rate fleet contracted under non-traditional day rate contracts, the majority of which are performance-based contracts. As Mark will discuss in more detail in his remarks, These performance-based contracts align H&P's performance and compensation with the customer's goals and provide for a commensurate distribution of the incremental value creation. We are seeing momentum across our primary drilling business segments. As the U.S. land rig count fell during 2019, H&P's market share grew from approximately 22% to over 24%. indicating a growing preference for super spec rigs and the performance these rigs deliver relative to legacy SCR rigs and lower performing AC rigs. Along with market share gains, our quarter end rig count was sequentially higher than the previous quarter's ending rig count. We believe capital discipline by our customers will remain a prevailing theme and we expect industry activity to look similar to the average level experienced during the second half of calendar 2019, which implies a modest increase from current levels. As drilling performance continues to improve, a significant portion of these gains are attributable to the added capabilities and efficiencies from SuperSpec capacity rigs. A knock-on effect of this progress are higher daily maintenance costs and higher capital costs related to the third mud pump, 7,500 PSI capacity, multi-well pad capability, and more horsepower requirements. But that trade-off is well worth it. Our experience shows that over a three-year trend, that super-spec capacity flex rigs can drill 15% to 20% more footage than non-super-spec rigs. Moreover, a super spec flex rig incorporates a number of enhancements that improve safety for employees and reduce the environmental impact at a drilling location. That said, in order to reflect continued efficiency and value gains for E&Ps, revenues for rig services that provide optimized drilling solutions need to increase to cover the cost of increased maintenance and supply and capital costs as well as returns that our shareholders demand. Mark will address the details of pricing more completely in his prepared remarks, but pricing remains firm for flex rigs in U.S. land, and why shouldn't it? Super spec utilization is strong, especially in the most active basins, and the rigs are delivering high levels of performance and value for customers. Before shifting to our international segment, another success during 2019 for H&P was growing our partnerships with the major oil and gas companies. We've grown our FlexRig fleet market share to 16% from 6% at the beginning of 2019, and we believe the company is best positioned to continue to grow our partnerships with the majors and IOCs. So let's shift to our international segment. This quarter also proved to be positive for our business outside of the U.S. We remain optimistic about the opportunities we're seeing in the Middle East, and we were pleased to put a rig back to work in Columbia. Our rigs in the Middle East are now fully utilized, and prospects for further growth in this region are encouraging and would likely result in the exporting of additional flex rig drilling rigs from the U.S. to satisfy any demand. As we hear about unconventional resource plays in the Middle East and South America, our experience, our expertise, and our technologies will continue to put us in a great position to grow in the future. So in closing, financial discipline and maintaining a strong balance sheet are hallmarks of the and set us apart from many industry peers. H&P has paid a cash dividend to shareholders since 1960, and last year we increased the annualized dividend per share for the 48th consecutive year. In thinking about culture and how that can set a company apart in an industry, we are in the midst of a momentous year at H&P. 2020 is our centennial year, and we are using some of this time to reflect our histories. but primarily we're looking at our path forward. In keeping with this milestone, we will remain focused on maintaining our position as the industry's most trusted partner in drilling productivity and technological innovation. Our people have always been dedicated to helping our business through the ups and downs of our industry, and we know that our employees, combined with our rig fleet and technology solutions, are the key to our continued long-term success. And now I'll turn the call over to Mark Smith.