Helmerich & Payne, Inc.

Good day, everyone, and welcome to the Helmrich and Payne Fiscal Second 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 questions at any time by pressing the star and 1 on your touch-tone phone. You may withdraw yourself from the queue by pressing the pound key. Please note this call may be recorded and I will be standing by should you need any assistance. It is now my pleasure to turn the call over to Dave Wilson, Vice President of Investor Relations. Please go ahead.

Thank you, Nikki, and welcome everyone to Humber Campaign's conference call and webcast for the second 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'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'll also be making reference to certain non-GAAP financial measures, such as segment direct margin and other 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. Good morning, everyone, and thank you for joining us today. Since August of 2020, oil and gas industry has been undergoing a record recovery from the worst downturn in its history. Just when we thought the environment was beginning to normalize, another geopolitical event, Russia's invasion of Ukraine, unleashed immediate and lasting ramifications. This has provided a sharp reminder to everyone how critical, abundant, cost-effective, and secure energy is to sustaining security and the broader global economy. Given the industry's negative experience in recent years, it should be no surprise to anyone that U.S. producers have remained cautious, rational, and disciplined with regard to their capital expenditures, even in the face of spiking commodity prices. H&P's strategy is to also maintain capex budget discipline, and holding that line is something we believe is crucial to creating a healthy and sustainable company over the longer term. The industry rig count increase in the March quarter continued to shrink the availability of super spec rigs that have worked at some point in the last two years. This has compounded the pre-existing supply demand tension in the market. We are pleased with our progress and momentum during the quarter, which saw our active North American solutions rig count increase in line with expectations, exiting the quarter at 171 rigs after recommissioning 17 flex rigs in the second quarter and 27 in the first fiscal quarter. From here, we expect to see our rig count growth moderate in the coming quarters as there is more rig churn developing in the market. We expect to maintain responsible CapEx spend given the budget we set for the year. You may recall in November, we set our 2022 CapEx budget range of $250 to $270 million. That budget was set at a point in time where we expected to end fiscal 2022 with around 160 active rigs. If everything goes as planned, we now expect our rig count to peak early in the fourth fiscal quarter at 176 rigs while remaining within our CapEx guidance. Like 2021, we have front loaded our rig activity for our fiscal year in Q1 and Q2, positioning us well for the rest of 2022. Accordingly, we remain laser focused on improving pricing and creating returns for our shareholders and not on chasing the rig count or market share. That said, we plan to remain the leader in the U.S. land rig market by continuing to deliver great outcomes to customers and receiving the appropriate margin for the value we deliver. Like our customers, we are requiring more from every CapEx dollar spent, and we note a similar trend occurring within the oilfield service industry. This and other factors could lead to the persistence of a tight supply demand environment for super spec rigs in the U.S., which in turn should help move rig pricing to levels more in line with the value we deliver. The economics for our spot contracts are improving at a rapid pace, and we expect similar improvements for our term contracts as they are renewed or moved into the spot market in the coming quarters. As I mentioned on our last earnings call, we believe these conditions could provide a pathway to achieve average spot contract economics in excess of $30,000 per revenue day. We already have many instances of achieving this pricing level in today's contracting activity. Given the increased cost structure of the industry over the past several years, attaining this level of revenue is necessary to garner 50% gross margins, which we haven't experienced since 2014. Assuming the market remains strong, this margin will enable H&P to generate returns in excess of our cost of capital to the benefit of all of our stakeholders. I want to thank our operations, our sales, and our marketing folks that are working hard to help H&P provide and get paid for the value proposition we deliver. As we've previously noted, the value proposition H&P brings to its customers is enhanced through technology-driven efficiency and well-work quality. This combined with the current market dynamics is differentiating our performance and accelerating improvements in our contract economics. Mark will touch on our capital allocation strategy, but at this juncture, let me underscore that the company remains fully committed to its fiscally sound and disciplined approach to capital allocation. By continuing to do this, we can maintain our longstanding dividend and pursue opportunistic share buybacks. This also positions us to explore other ways of returning cash to shareholders as more cash is accreted on the balance sheet. Now, shifting to the international markets, the outlook remains positive with additional developments and prospects progressing, even though at a much slower pace than we are experiencing domestically. In our South American operations, Argentina and Colombia remain focus areas, and we have begun to contract additional rigs in those countries. In the Middle East, our strategy and opportunity sets are a bit different. We have delivered some of the flex rigs we sold to Adnock Drilling and are moving forward with the strong business alliance we established with them. We are also actively pursuing opportunities to export some of our idle super spec capacity into the region. In fact, we plan to start moving a rig into our Middle East hub during the second half of 2022. While we're optimistic about our strategy in the Middle East, We're also keenly aware that this is a long play and it will take time for opportunities to emerge and fully develop. We don't often discuss in great detail or get a lot of questions about our Gulf of Mexico offshore segment. Our offshore operation has been an important part of our company for 50 plus years and will continue to play an important role in H&P's future. We've achieved many successes over the years and delivered exceptional service to our customers. In fact, some of our most impressive operational and safety accomplishments took place in our offshore operations during the pandemic. On the pricing front, we expect that the margin improvements we are experiencing in the U.S. will begin showing up in our offshore segment in the coming quarters. Our technology solutions continue to deliver clear differentiation and is providing very relevant value to our customers both in the U.S. and international markets. We are continuing to grow Autoslide, our automated directional drilling solution, as well as automated survey management in combination with our new commercial models. Most recently, we introduced several game-changing solutions to our portfolio, engine management and a suite of failure prevention technologies. Engine management delivers on our commitment to sustainability efforts by autonomously minimizing excess flex rig engine hours, lowering emissions while also delivering reduced fuel consumption for our customers. Failure prevention automation, such as our newly launched stall assist, protects expensive downhole directional tools, increasing the longevity of those tools that may be hard for operators to source in today's environments. With current supply chain and labor constraints, it also provides consistent and repeatable execution, removing human variability and preventing expensive downhill problems. The key to these solutions is market relevancy, as both of these additions are particularly pertinent to challenges operators are currently facing and align with our focus on delivering better outcomes. We continue to further our strategy of deploying our capital and expertise to companies playing an active role in the energy transition. We've made selective investments in adjacent industries like geothermal, companies that are looking to provide an alternative carbon-free base load power source. And more recently, subsequent to quarter end, we made a $33 million investment in Galileo Technologies in the form of a five-year convertible note. Galileo has a wide global presence through providing modular, scalable, and portable equipment to capture, compress, liquefy, and transport the gas as LNG, basically creating a virtual pipeline. This gas can originate from various sources, including wellheads and stranded gas that may otherwise be flared. The opportunity here lies in H&P's and Galileo's shared global customer base and H&P's various drilling sites that have the potential to assist Galileo's growth, particularly in the U.S. We believe their natural gas technologies and equipment systems have the potential to become increasingly relevant as the global demand for natural gas is expected to increase as an important component of the energy transition. In closing, While it is encouraging to see the industry rebound, we should be reminded of past cycles with elevated commodity prices, in which the drilling industry repeatedly responded by adding excessive capacity, only to reap long-term negative consequences. So far, this cycle is different. During my career, I have never seen a more consistent focus on value creation and getting paid for the value H&P provides. I'm continually inspired by and thankful for our employees, their passion for taking care of our customers, and their innovative spirit that truly differentiates H&P's offerings in the market. Combined with our FlexRig fleet and automation solutions, I believe we will continue to lead the way forward in our industry and partnering with our customers to create value for both groups of shareholders. And now I'll turn the call over to Mark.