Helmerich & Payne, Inc.

Thank you, Reid, and welcome, everyone, again, to Helmet Campaign's conference call and webcast for the third 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 comments with us, after which we'll open the call for questions. Before we begin, our prepared remarks will remind everyone that this call will include forward-looking 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. Forelooking 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 forelooking statements, and we undertake no obligations to publicly update these forelooking statements. We will also be making reference to certain non-GAAP financial measures, such as segment operating income and operating statistics. You'll find the gap reconciliation comments and calculations in yesterday's press release. With that said, I'll turn the call over to John Lindsay.

Thank you, Dave, and good morning, everyone. Since the industry rig count hit bottom almost a year ago, H&P's rig count and market share gains have positioned us as the leading drilling outcomes provider in the U.S. land market. In line with our guidance, we exited the third fiscal quarter at 121 rigs, And today, we are at 123 active flex rigs. We expect to continue to have a moderate and somewhat choppy upward trajectory in our rig count, as well as improved pricing over the next quarter. Although there are approximately 260 idle super spec rigs available in the U.S. market, we believe fewer than 10 of those rigs have actually worked within the past 12 months. And many of those rigs have been idle for well over 18 months. There's a high cost involved in reactivating long idle rigs, which typically presents one of those classic pay-me-now or pay-me-later conundrums. Most importantly, striking the right balance in startup costs enhances safety of an operation, but it can also significantly impact the value proposition for customers by driving better metrics and drilling performance, downtime, and crew retention. Our stellar track record of efficient startups delivers greater customer adoption and is one reason why we consistently outperform as the rig count increases. As demand grows, these reactivation expenses will continue to drive rig pricing higher as the supply of work-ready SuperSpec rigs becomes scarce. All the drivers that lead to enhanced pricing and contract economics are in place. Higher crude price, higher activity levels, higher reactivation cost, pricing discipline within the industry, and perhaps most important of all, our ability to deliver value and better outcomes to our customers. In light of these factors, we have been in discussions with customers to increase pricing. Further, we remain optimistic that current oil prices will translate into higher 2022 E&P drilling budgets and activity in the U.S. land market. As of today, discussions with customers regarding activity for the rest of 2021 inform our estimate of approximately 50 to 75 incremental industry rigs returning to work by year-end, and we expect that to be back-end loaded in the fourth calendar quarter. That expected rig increase, coupled with the long idle fleet, also enhances the potential for further rig pricing improvements in the calendar quarter and into 2022. Assuming oil prices remain stable and near current levels, we would not be surprised to see 2022 budgets for public companies drive further incremental increases in rig activity next year. We expect the Permian will continue to lead the way in incremental rig ads. Our leadership position in this region is multifaceted. We have a superior infrastructure, experienced people, the leading number of active super spec rigs at 67 rigs, as well as the largest inventory of idle super spec rigs. This combination of attributes bolsters the company's capacity for further growth in the Permian Basin. With this context in mind, let's now turn to field performance and the implementation of digital technology solutions combined with new commercial models. There is a growing appreciation for the value proposition H&P provides as we're successfully growing our rig count with existing customers as well as partnering with new customers to achieve better drilling outcomes. When utilized on a FlexRig platform, H&P's digital technology and automation solutions like AutoSlide are enhancing drilling outcomes, both in terms of efficiency gains and wellbore quality, resulting in improved long-term well economics and returns. We have multiple customers, large and small, public and private, utilizing our flex rigs and digital and automation technologies. This combination enables them to reliably lower their overall well costs, improve wellbore quality, and reduce downhole risks. Let me give an example recently where we had a customer with a performance contract that was paying us well over market spot rates. You know, they were nervous about explaining that to their management team. However, they also mentioned to their management team that they were saving over a quarter million dollars per well by using H&P. So, as a result of that realization, management wanted to continue to use H&P on all their wells, and that expanded our rig count with that customer. This outcome-based approach, which is data-driven, delivers more predictive, consistent, and superior well results over an entire drilling program for our customers. The great news, these aren't one-off examples. We have these partnerships and results with majors, large E&Ps, and private companies. Over the past few decades, the methods, the equipment, the technology, and The risk profile in the drilling of unconventional oil and gas wells has evolved significantly. However, the legacy day rate model construct has not. The pricing model for providing better drilling outcomes will continue to evolve, and H&P, along with several of our customer partnerships, is pioneering new commercial models to better align our performance with our customers' goals and allow us to share in the value-added outcomes we help create. Unless a pricing model can equitably share the benefits derived through better technologies and efficiencies, the ability of the industry to continue to innovate and improve will diminish. We're pleased to see international activity start to pick up again after a long pandemic-driven hiatus. We are participating in several tenders with both NOCs and IOCs, but these are very thoughtful, slow processes, and uncertain of timing. In addition to working on new growth opportunities, Argentina and Colombia appear to be ready to put RIGS back to work during our fourth quarter. We are seeing some traction of our digital technology and automation solutions internationally as well. Our international FlexRig digital platform is capable of hosting our automation solutions, which we believe will be a driver of additional FlexRig adoption. Before turning the call over to Mark, I wanted to touch on sustainability. We have a long history of offering solutions which help both H&P and our customers' sustainability needs, and we continue to invest in these and other sustainability efforts that benefits all our stakeholders, our employees, our customers, vendors, investors, and society at large. We're partnering with our customers and taking a thoughtful and methodical approach to offer solutions to fit their desired outcomes, both from an environmental and economic perspective. We have many solutions in our toolkit that we have had for many years, such as using alternative power sources at the rig like natural gas engines, high-lying power, or dual fuel engines. But more recently, we've invested in energy storage solutions using battery technology and rig engine efficiency software solutions to help reduce greenhouse gas emissions and lower rig fuel consumption. As I mentioned on the last earnings call, we are committed to publishing our inaugural sustainability report in 2021. which will include important data and information about our sustainability efforts and successes. In parallel to the development of the report, we have also increased sustainability disclosures on our website, which includes data and information about emissions, safety, and diversity, equity, and inclusion. Last year, one of the renewable investments we made was in geothermal resources. Many years ago, we intermittently drilled conventional geothermal wells, but a new, unconventional, closed-loop approach to geothermal is creating a viable source for renewable energy going forward. H&P has a team dedicated to investing and participating in geothermal where our drilling technologies and expertise are readily transferable. So in closing, we remain optimistic about the industry and our ability to capitalize on our scale. and our distinct capabilities as we focus on delivering the best outcomes for customers and value for our shareholders. And now I'll turn the call over to Mark.

MARK MCQUEEN, Thanks, John. Today, I will review our fiscal third quarter 2021 operating results, provide guidance for the fourth quarter, update remaining full fiscal year 2021 guidance as appropriate, and comment on our financial position. Let me start with highlights for the recently completed third quarter ended June 30, 2021. The company generated quarterly revenues of $332 million versus $296 million in the previous quarter. The quarterly increase in revenue was due to higher recount activity in North America Solutions as expected. Total direct operating costs incurred were $257 million for the third quarter versus $232 million for the previous quarter. This sequential increase is attributable to the aforementioned additional recount in the North America Solutions segment. General and administrative expenses totaled $42 million for the third quarter, also consistent with our expectations. Our Q3 effective income tax rate was approximately 30%, which was above our previous annual guided range. Taxes were positively impacted by a discrete tax benefit primarily related to a change in the state deferred income tax rate. To summarize this quarter's results, H&P incurred a loss of 52 cents per diluted share versus a loss of $1.13 in the previous quarter. Third quarter earnings per share were impacted by a net 5 cent gain per share of select items as highlighted in our press release. Absent these select items, adjusted diluted loss per share was 57 cents in the third fiscal quarter versus an adjusted 60 cent loss during the second fiscal quarter. Capital expenditures for the third quarter of fiscal 21 were $18 million, with year-to-date spending levels below our previous implied guidance. Planned spending continues to shift to the right, but we are expecting a more significant spend in our fourth fiscal quarter, which we will discuss later. Turning to our three segments, beginning with the North America Solutions segment. We averaged 119 contracted rigs during the third quarter, up from an average of 105 rigs in fiscal Q2. As John mentioned, we exited the third fiscal quarter with 121 contracted rigs. We also had approximately 15 rigs roll off term contracts and into shorter term contracts during the quarter as customers maintained their budgeted drilling programs. Revenues were sequentially higher by $31 million due to the aforementioned activity increase. North America Solutions operating expenses increased $20 million sequentially in the third quarter, primarily due to the addition of 12 rigs. The one-time reactivation expenses associated with those rigs was approximately $6 million in fiscal Q3. Looking ahead to the fourth quarter of fiscal 21 for North America Solutions. As expected, rig count growth was more moderate during the third quarter. As of today's call, we have 123 contracted rigs, and our expectation is to end the fourth quarter of fiscal 21 with between 127 and 132 contracted rigs. Publicly traded customers continue to operate within their calendar year budget plans, so most of our recent active rig additions were driven by privately held customers. We still see opportunities for publicly traded customers to add rigs late in this calendar year as capital budgets are refreshed heading into 2022. In the North America Solutions segment, we expect gross margins to range between $72 to $82 million with no early termination revenue expected. As we continue to add rigs, one-time reactivation expenses continue to pressure margins. We expect those expenses to be approximately $8 million in the fourth quarter. As I mentioned in the last quarter, the length of time a rig has been idle and the cost required to reactivate it have a direct correlation. Most of the rigs we are reactivating in the fourth quarter have been idle for 12-plus months. Reactivation costs are mostly incurred in the quarter of startups, so the absence of such costs in future quarters is margin accretive. That said, some expected reactivation costs in the quarter ended September 30 will be for rigs readied for October commitments. As John mentioned, we are expecting to achieve higher pricing in light of higher demand and tight, ready-to-work super spec supply. However, due to varying effective dates of new rates, most of the benefits on margins will be realized in fiscal 2022. Our current revenue backlog from our North America Solutions fleet is roughly $493 million for RIG's underterm contract. Regarding our international solutions segment, international solutions business activity averaged approximately five active RIGs quarter on quarter, and we did add a sixth RIG late in the third fiscal quarter. Margin contribution was in line with expectations for the quarter, albeit towards the low end of the range. As we look toward the fourth quarter of fiscal 2021 for international, currently our activity in Bahrain is holding steady with three RIGs working, and we have three RIGs under contract in Argentina. During the quarter, we expect a little churn in our international rigs, as a rig in Bahrain is expected to stack, but an additional rig in Argentina is expected to commence work. Further, the contracted rig in Colombia is expected to commence operations very late in the quarter. In the fourth quarter, we expect operating gross margins to be between break-even and a loss of $2 million, apart from any foreign exchange impacts. Turning to our offshore Gulf of Mexico segment, we continue to have four of our seven offshore platform rigs contracted. Offshore generated a gross margin of $9 million during the quarter, which is at the high end of our guided range. As we look toward the fourth quarter of fiscal 2021 for the offshore segment, we expect that offshore will generate between $7 to $9 million of operating gross margin. To conclude third quarter results commentary, I will highlight our non-operating other segment activity. As a reminder, at the start of fiscal 2020, we elected to set up a wholly-owned insurance captive to insure the deductibles for our workers' compensation, general liability, and automobile liability insurance programs from October 1, 2019 forward. Our operating segments pay monthly premiums to the captive for the estimated losses based on an annual external actuarial analysis. The result is a transfer of risk from our operating subsidiaries to the captive for the deductibles, which are our self-insurance retention. The actual estimated underwriting expense can vary from quarter to quarter as claims developed, get settled, or dismissed. For the three months ended June 30, 2021, the estimated reserves in the captive were adjusted upward for self-insurance claim developments. Now, let me look forward to the fourth fiscal quarter and update fiscal full-year 2021 guidance as appropriate. Capital expenditures for the full fiscal year 2021 are now expected to be at the low end of the previously guided range of $85 to $105 million, with, as mentioned earlier, more spend expected during the fourth fiscal quarter than the preceding three-quarter average. This back-end weighted fiscal year spend is primarily due to some skidding to walking pad capability conversions as a result of select customer demand. Our expectations for general administrative expenses for the full fiscal year 21 have not changed and remain at approximately $160 million. We also remain comfortable with the 19 to 24 percent range for estimated annual effective tax rate and do not anticipate incurring any significant cash tax in fiscal year 21. The difference in effective rate versus statutory rate is related to permanent book to tax differences as well as state and foreign income taxes. Now looking at our financial position. We had cash and short-term investments of approximately $558 million in June 30, 2021 versus $562 million in March 31. Including availability under our revolving credit facility, liquidity was approximately $1.3 billion. Our debt to capital at quarter end was about 14% and our net cash position again exceeds our outstanding bond. As a reminder, we have no debt maturing until 2025 and our credit rating remains investment grade. Given our current outlook for activity, we expect to see minimal changes in our cash balances at fiscal year end compared to June 30 balances. At today's activity levels, we believe our 0.4 early operating earnings will fund our maintenance capital expenditures, debt service costs, and dividends. Our expectations beyond next quarter for rising activity drives our run rate cash generation higher, while on the other hand, at least in the short term, A good portion of that higher cash generation will be consumed by reactivation expenses and working capital investments required to enable that future higher activity. As John mentioned, cost control remains a high priority. Since we last spoke on the March earnings call, we are advancing along several work streams that are being carried out in parallel to adjust our cost structure. Some items expected to be completed in the fourth fiscal quarter will culminate and approximately $7 million in annualized savings, primarily in operating expenses. We are working on other initiatives that will be completed in the coming quarters to further optimize future run rate expenses. As these plans progress, we will provide updates on future calls about the expected magnitude and timing of these various cost structure initiatives. That concludes our prepared comments for the third quarter. Now, let me turn the call over to Reed for questions.