Helmerich & Payne, Inc.

Good day, everyone, and welcome to today's Helmick and Payne's Fiscal First Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have an 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. Please be advised, this call may be recorded. It is now my pleasure to turn today's program over to Dave Wilson, Vice President. Dave, go ahead.

Thank you, Christy, and welcome, everyone, to Humber Campaign's conference call and webcast for the first quarter of fiscal year 2021. With us today are John Lindsay, President and CEO, and Mark Smith, Senior Vice President and CFO. Both John and Mark will be sharing some prepared 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 forelooking statements as defined under the securities laws. Such statements are based upon current information and management's expectations as of this date and are not guarantees of future performance. Forward-looking statements involve certain risks, uncertainties, and assumptions that are difficult to predict. As such, our actual outcomes and results could differ materially. You can learn more about these risks in our annual report on Form 10-K, our quarterly reports on Form 10-Q, and our other SEC filings. You should not place undue reliance on forward-looking statements, and we undertake no obligation to publicly update these forward-looking statements. We also will be making reference to certain non-GAAP financial measures such as segment operating income and other operating statistics. You will find the GAAP reconciliation comments and calculations in yesterday's press release. With that said, I'll turn the call over to John Lindsay.

Good morning, everyone, and thank you for joining us today. With one month behind us in 2021, we find ourselves with a combined sense of relief and optimism, relieved that one of the most difficult years in the company's 100 year history is behind us and optimistic considering the market share gains accomplished during the first fiscal quarter of 2021 and strengthening oil prices, which enhance the financial health of our customers. We entered the new year with 94 rigs running in US land. That's double the number we had in August and the upward trend continues. Around this time last year, WTI prices were trading in the low 50s. There were approximately 800 rigs operating in the U.S. land market, and H&P was operating 194 of those rigs. Contrast that with today, where oil prices are up over 10% up into the upper 50s, and the industry rig count is approximately 415 rigs, and H&P is running 103-flex rigs. Obviously, a lot has happened between these two data points, and it shouldn't surprise anyone that the short- and medium-term activity outlook from E&P companies is taking a while to take shape. However, if market expectations for U.S. production levels continue to drop, that should have a positive impact on oil prices, which further supports consensus expectations for approximately 500 active rigs in the U.S. at year end. Taking this a step further, by our count, there are approximately 630 super spec rigs available in the U.S. market. Looking forward, we believe the vast majority of all working rigs drilling horizontal wells will continue to trend toward the super spec classification. And if activity does reach 500 rigs, the industry rig count would begin to approach utilization levels that have historically provided pricing power. Today, we are hopeful and encouraged by the recent worldwide deployment of COVID-19 vaccines. We're encouraged with an improving crude oil price picture, and we're encouraged by the progress we continue to make on strategic efforts to deploy additional digital technology solutions and to advance new commercial models. Even with the early success of vaccines for COVID-19, there remains a significant level of uncertainty regarding the global economic recovery as well as the changing political environment, and that certainly tempers our short-term optimism. While it's encouraging to see oil prices higher than expectations, we are cognizant that even in a stable or improving environment, there remain several challenges ahead for the industry. We are encouraged seeing the industry rig count begin to recover, but customers are still in the budgeting process to determine their capital allocation and those levels will set the tone for activity during the remainder of 2021. We do expect public E&Ps to maintain financial discipline related to their announced budgets. We also expect private E&Ps to add rigs. However, we don't expect an outsized increase in fiscal 21 rig count, even if oil prices reach $60 per barrel. A return-driven capital allocation strategy is in the best long-term interest of our industry, and that's what we're aiming to support with our solutions-based offering. H&P has a differentiated customer-centric approach of combining our people, rigs, and leading edge automation technology, which enables us to deliver the highest value wells for our customers. An underlying principle of our performance contracts is the creation of a sustainable win-win scenario based not only on efficiency, but also by employing the advantages of automation related to wellbore quality and placement. Our patented drilling automation software is a key driver in improving well economics for the customer by enabling the drilling of consistently higher quality and better placed well bores throughout the drilling program. To date, our autonomous auto slide technology is deployed on 25 to 30% of our flex rig fleet, and we currently have similar percentages for performance-based contracts. Automation solutions improve the drilling efficiency of the well, but it also has a significant influence on the lifetime value of the asset by delivering a better wellbore to the completion phase, which will ultimately enhance production economics. When successful, the combination of flex rig and digital technology solutions leads to superior well economics by lowering risk and increasing returns for our customers as well as for H&Ps. We can't control the macro challenges, but we can remain laser-focused on our technology solution deployment, our performance-based contracts, and our value accretion for customers. We're encouraged that several customers have adopted these new solutions, but we recognize that more work is ahead and additional efforts aimed at change management must occur within the industry. Accordingly, improvements in technology solutions and performance-based contract adoptions are not likely to be linear and may not always correlate with our rib count. That said, we're seeing remarkable progress that's being made today, and we're steadfast and confident in our ability to lead and effect change in our industry. I'm very pleased with our people's service attitudes. and the ability to quickly respond to customer demand and improve activity by roughly 35% during the first fiscal quarter. Our market share today is back to pre-pandemic levels. We are adding back more rigs in the competition due to our proven ability to reactivate rigs safely, efficiently, and cost-effectively. We believe there's an opportunity to grow our market share above 25%. If you look at previous downturns we have faced since the 2008 financial crisis, we have emerged stronger with greater capability as we differentiated our offerings and grew market share in the premium part of the market. Going forward, in a structurally smaller U.S. market, we believe super spec rigs combined with digital technology solutions that provide improved value through wellbore quality will prevail. Relative to the 800 rig drilling a year ago, many idle SCR and less capable AC rigs may be permanently sidelined. Further, not all of our competitors with SuperSpec rigs have the ability to enable the drilling automation features that many customers are beginning to require. In the SuperSpec classification segment, we have approximately 37% of the U.S. capacity with 234 super spec flex rigs that are unique with their digital technology capability across our uniform fleet. Another aspect of our asset deployment strategy we plan to execute will occur over the medium to long term in international markets. That strategy is to opportunistically reduce our US super spec concentration over time by deploying rigs internationally for appropriately scaled contracts. Our international business development team is seeing some bidding activity in Argentina, Colombia, the Middle East, as well as other markets. At this time, these prospects are in early stages, but we are encouraged by the customer interest in H&P FlexRigs due to a combination of our expertise in unconventional drilling, our strong historical performance in these areas, and the need for what we would consider an imminent legacy rig replacement, driven by an evolution toward digital technology for wellbore quality and placement. These are great opportunities for H&P in addition to our initiatives to improve our cost structure, where Mark will provide more details in his remarks. On the last call, we discussed having made investments in geothermal projects, and you may have seen some recent announcements by our strategic partners. Along with looking at emissions reducing opportunities like geothermal, H&P will continue to explore and invest in new and diversified technologies, as well as expand our digital technology capabilities for the long-term sustainability of the company. Before turning the call over to Mark, I want to underscore once more the focus and success our company has made on its strategic objectives, particularly given the economic and industry headwinds we are navigating. As we've indicated previously, introducing disruptive technologies and new business models is a long, arduous, and sometimes unpredictable process. I believe our dedicated teams are well-equipped, and our conservative financial stewardship on the challenges and opportunities ahead. And now I'll turn the call over to Mark Smith.