Helmerich & Payne, Inc.

everyone, and welcome to today's Helmrich 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 one on your touchtone phone. Please note this call may be recorded. It is now my pleasure to turn today's program over to Dave Wilson, Vice President of Investor Relations. Please go ahead.

Thank you, Gretchen, and welcome everyone to Hummer Campaign's conference call and webcast for the first quarter of fiscal year 2022. With us today are John Lindsay, President and CEO, 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, I'll 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 expectations as of this date and are not guaranteed 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 will also be making reference to certain non-GAAP financial measures, such as segment operating income and operating statistics. You'll find the GAAP reconciliation and comments and calculations in yesterday's press release. With that said, I'll turn the call over to John Lindsay.

Thank you, Dave. Good morning, everyone. We appreciate you joining us today for our first fiscal quarter earnings call. 2022 is off to a strong start. I continue to be encouraged by the progress the industry has made on its path to recovery from the pandemic-induced market collapse in 2020. Rig activity continues to increase with much stronger oil and gas prices resulting in our customers' 2022 budgets being reset at higher levels than last year. We believe customers will maintain capital discipline with their budgets as they did in 2021. The primary theme for my remarks today will be rig pricing in the US. Over the past seven years, the oil and gas industry has experienced two of the worst downturns in history. And like all downturns, rig rates plunged overnight to very low levels in concert with commodity prices and customer budgets. Fortunately, we've seen oil and gas prices make a rapid comeback since going negative. Conversely, Pricing in the oilfield services space has improved only marginally. As we sit here today, with commodity pricing hovering near eight-year highs, we're seeing an improving and tightening rig market. We're also delivering record drilling performance and have responded with substantial investments. Over $60 million in OPEX alone that were required to recommission over 110 rigs since our rig count bottomed in August of 20. Against this background, average rig pricing has improved only nominally up to this point. Our customers have benefited from higher commodity prices, but from an oilfield service provider perspective, and particularly as a driller, we need substantially higher pricing in order to generate the returns required to attract and retain investors. Oilfield services revenues must increase substantially if the upstream oil and gas industry is to remain vibrant, technology-driven, and sustainable in the future. During the first quarter, demand for super spec rigs in our North America solution segment continued to grow by 27 recommissioned flex rigs. We're currently experiencing a very tight market, especially for rigs that were active just prior to the pandemic hitting the US in March of 2020. While the second fiscal quarter is expected to be more moderate in terms of rig ads, we expect to add a total of 11 to 21 flex rigs during the quarter which is still a healthy increase. The company is well positioned for this opportunity, given our ability to provide superior rigs, people, and technologies that culminate in a compelling value proposition for our customer, particularly in this improved commodity price environment. Our market share has recovered from below 20% at the height of the pandemic. to the highest levels we've ever achieved in the horizontal market, and our teams have worked hard to position us as the leading drilling solutions provider. Leading edge pricing and margins are growing as a result of super spec rig demand and the need to offset the operating costs associated with reactivating idle rigs as well as other general operating cost inflations. Assuming oil prices remain strong, we plan to continue to push pricing in the coming quarters as the scarcity of readily available super spec rigs becomes more prevalent. We believe this upward rig pricing momentum should be commensurate with the value H&P delivers to the customer. Achieving a fair return on investment is essential to sustaining capacity and innovation in any business. However, at present, we see current pricing environment as an impediment to the capital investment required to relieve the tight supply of capable rigs. H&P remains the market leader within the industry with the largest fleet of active rigs as well as the most super spec rigs available to be deployed to satisfy future demand. Our strategy for new capital investment going forward will be tightly aligned with that of our customers and will continue to be disciplined and and return-focused. As we've discussed on previous calls, the industry pricing model needs to evolve from a pure day rate to a commercial model that rewards performance, well-work quality, and value creation for the customer. We've grown our performance-based contract model to approximately 40% of our active fleet. and our teams continue to partner with our customers to drive better outcomes. We've taken a portfolio approach using different iterations of performance contracts to determine which types make sense for us and the customer under a variety of scenarios. Our rig pricing strategy is also dynamic, encompassing inputs derived from customer demand, pricing algorithms, reinvestment metrics, and industry sentiment. As we look ahead to pricing in this strengthening and tight rig market, we see revenue per day needing to approach $30,000 for H&P to start generating margins that support cost of capital returns. And fortunately, several of our leading edge rigs are beginning to approach this level of revenue today. Our new commercial models are specially designed to include our automated software solutions that enable value creation through speed of execution and drilling times, and even more importantly, by enhancing overall wellbore quality. The uptake by customers of our digital solution offerings is increasing, and with more rigs working, there are a growing number of new customers who have yet to be introduced to these technologies. We are encouraged by our progress, but we also know from past experience that introducing innovation in our industry requires patience, and that adoption will not happen in a linear fashion. This is particularly relevant when a portion of the benefits from well work quality accrues over time and will manifest value after a well has been drilled. Now shifting to our international segment, we're excited about our strategic alliance with Ad-Noc Drilling and the investment we made, and we look forward to further expanding that relationship as well as developing additional opportunities in the Middle East region. Our activity in South America is improving slowly, and we remain encouraged by the prospects for additional growth in the coming quarters and beyond. While our long-term outlook is positive for both the Middle East and South America, in the near term, our rig count in the Middle East is expected to decline due to two unexpected rig releases in Bahrain. We published our inaugural sustainability report in December, and hopefully many of you have had the opportunity to read it and appreciate the additional transparency into how we operate as a company. The report highlights how our improving drilling efficiency not only provides economic benefits to our customers, but also the improvement in the collective environmental emissions profile of H&P and our customers. As an industry, we continue to lower environmental impacts by creating new solutions to reduce those impacts, as well as developing pathways to a smooth energy transition. In this challenging transition period, we're actively working with our customers to provide synergistic solutions that can achieve both their economic and environmental objectives. Despite the industry challenges faced during the past couple of years, we remain focused on long-term opportunities and a strong, disciplined approach to capital allocation. In this way, we will continue to strengthen the company to build a return profile for the long-term benefit of our shareholders. We've maintained a very strong balance sheet, and, Mark, we'll go into more detail regarding our capital allocation strategy and our ability to generate free cash flow in the second half of fiscal 2022. This would not be possible without the hard work and dedication of H&P employees, both past and present, who continually set the standard in the industry. Over 100 years of drilling experience combined with our uniform flex rig fleet and industry-leading automation solutions places us in a great position as we move forward. Our rigs, automation solutions, and our digital portfolio provide compelling value propositions for both North America and international markets. The momentum we built during fiscal 21 carries into fiscal 22 with a fresh sense of optimism. We look forward to strengthening our partnerships with new and existing customers and developing drilling solutions that contribute to our mutual long-term successes. And now I'll turn the call over to Mark.