Helmerich & Payne, Inc.

Good day, everyone, and welcome to today's Homeric and Payne's Fiscal Fourth 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 period. You may register to ask a question at any time by pressing star 1 on your touch-tone phone. I will be standing by should you need any assistance. And it is now my pleasure to turn today's call over to Vice President of Investor Relations, Dave Wilson. Please go ahead.

Thank you, Ashley, and welcome everyone to Hummer Campaign's conference call and webcast for the fourth quarter and fiscal year ended 2022. With us today 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'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 will also be making reference to certain non-GAAP financial measures, such as segment direct margin and other operating statistics. Find the GAAP recommendation comments and calculations in yesterday's press release. With that said, I'll turn the call over to John Lindsey.

Thank you, Dave, and good morning, everyone. I appreciate you joining us on our 2022 fiscal year-end call. We're pleased with our fourth quarter results and are optimistic about fiscal 23. My primary themes will focus on three areas this morning, North America's solutions pricing and margin cycle dynamics, H&P's international opportunities, and our technology and sustainability investments. Our financial results improved substantially quarter over quarter as pricing increases and better contract economics took hold across more of our FlexRig fleet. You may recall from our previous earnings calls this year, we made the point that our rig pricing needed to improve to a level that provides at least a 50% gross margin in order to achieve returns above our cost of capital. I'm encouraged to report that our leading edge pricing levels are now delivering margins in line with that goal. These are results not seen since the 2012-2014 up cycle. Strong demand from customers coupled with rollovers of term contracts should help drive average pricing higher across our active fleet, and we believe there is significant momentum heading into fiscal 2023. We plan to maintain a posture of fiscal discipline in our North America solutions segment and continue to move our average rig margins toward leading edge pricing and margins. As such, we expect our financial results for the first fiscal quarter of 23 to follow the improving trend of the past two fiscal quarters. We are also seeing continued demand for our technology solutions. These solutions have and are anticipated to continue to add significant value for our customers. Many of our technology products and automation solutions are in high demand and are quickly becoming integral parts of the bid process, daily operational workflows, and performance-based contracts. These solutions are contributing to H&P becoming the leading drilling solutions provider to many of our customers. Our technology team is creating an exciting future where digital technology will be the key determinant that drives customer value by enabling safer, more efficient, and reliable operations. In short, our people, our actively caring culture, our rigs, technology, and commercial models will continue to differentiate H&P's drilling solutions. Let me now turn to some observations on pricing and margins in our asset-intensive business. A key metric to be mindful of here is how much of our customer demand can be satisfied by contractual churn rather than by introducing additional supply into the market. We've talked about churn on previous calls. In this instance, we define churn as the situation where a rig is released from one customer and then re-contracted to another customer within an economically reasonable amount of time, enabling the rig to maintain a high level of activity. During the past two quarters, the demand for flex rigs has primarily been satisfied with readily available hot rigs. This allows us to postpone the investment of bringing a rig out of stack and thus exercise capital discipline. Here's an example. In our fourth fiscal quarter, only one rig was reactivated out of stack in the quarter. That same quarter, however, we experienced a churn of 14 rigs. And in the third fiscal quarter, our churn was 18 rigs with three rigs reactivated. The takeaway is that the majority of customer demand in the past couple of quarters has been satisfied by rig churn, not rig reactivations. The reasons for higher or lower churn in the market have typically revolved around acquisitions, efficiency gains, acreage, budgets, and supply chain delays. We are seeing churn from both large and small customers, and we suspect this is happening across the market. Currently, while much of the rig demand is being satisfied through churn, there appears to be enough incremental demand growth to reactivate some rigs out of stack as we move into 2023. We mentioned in our October press release announcing our supplemental shareholder return plan, and fiscal 2023 CapEx budget that we would reactivate up to 16 rigs. This would allow us to attain a maximum of 192 active flex rigs for fiscal 23 sometime during the second fiscal quarter. Regarding these planned reactivations, we are requiring term contracts of at least two years. As of today, roughly two-thirds are already committed, with the majority of those rigs going to large publicly traded E&Ps. As in prior years, we expect most of these 2023 rig ads to begin working toward the front half of our fiscal year. Having said this, we also still anticipate contractual return throughout the year, similar to what we experienced in 2022, possibly averaging around 15 rigs per quarter. Understanding these pricing dynamics, holding the line on capital discipline, And not chasing market share is something we believe is crucial to creating a healthy and sustainable company over the longer term. This discipline extends to not only exercising prudence and fiscal restraint, but also careful consideration to putting capital to work in order to take advantage of longer-term growth opportunities. Having this mindset is enabling improved returns for our stakeholders, including investors who are returning to invest in the energy space. Moving to our international solutions segment, the company plans to deploy capital in preparation for more substantial growth in the future. We are seeing opportunities to bid in areas of existing operations as well as in countries that would be new to H&P. Most of the opportunities are where unconventional drilling is in its very early stages, such as in the Middle East. The other opportunity here is the scarcity of digital solutions being applied in many key energy producing regions around the globe. We believe our proven drilling solutions and technologies can provide significant value to national oil companies by jump-starting the unconventional learning curve. As we look to the future, we believe our international business is an important avenue of growth and serves as a potential outlet for some of our currently idle super spec rigs in the US. International growth also adds diversification to the company's revenue streams over the long term, and this current allocation of investment capital plays a pivotal role in the execution of our strategy. Shifting to the energy transition, we continue to further our strategy of deploying capital and expertise to companies playing an active role in the transition. As an example, our investments in geothermal are helping to develop an alternative, low-carbon, 24-7 power source. We are providing flex rigs and our digital technology solutions to enable enhanced geothermal systems and closed-loop drilling concepts. Notably, we have made encouraging progress in field trials with two of our geothermal investees, FERVO and EVER. Regarding FERBO, this past September we completed drilling their enhanced geothermal system pilot project in Nevada, which involved the first two horizontal geothermal wells ever drilled in the U.S. And we are currently drilling EVER's closed-loop pilot project in New Mexico. Once complete, we expect this closed-loop project to be the deepest and hottest directional geothermal well in history. Our strategic alliances with Fervo and Everett and all of our investees has put us firmly on the path toward the advent of next-generation geothermal as H&P takes the lead in unconventional geothermal drilling. We are hopeful that these pilot projects lead to scalable, low-carbon geothermal developments utilizing FlexRig solutions. Our second sustainability report will be published soon, and we will continue to provide the transparency that is important to our stakeholders. Our team is working hard to continue to raise the bar as a responsible leader in the energy services sector. In summary, we enter fiscal 2023 with momentum and increased confidence that our initiatives in our North America solutions segment have gained traction and are delivering positive financial results. We are also excited about the longer-term prospects and opportunities before us. particularly in our international solution segment. Finally, we believe we've achieved a balanced and responsive capital return methodology with our supplemental shareholder return plan. These actions align with the company's long history of financial stewardship by increasing the company's financial returns through long-term investment in the business and increasing cash returns to shareholders through the augmentation of our long-standing dividend commitments. where over the past 10 years, we have returned $2.4 billion in dividends. In closing, during my 35-year career, I have never witnessed a higher level of alignment and communication with our customers, resulting in greater transparency and value delivery. As a service and solutions company, the successes H&P has achieved and plans to achieve would not be possible without our devoted customer-focused, and hardworking employee base, which I'm proud to say continues to set the standard for our industry. And now I'll turn the conference call over to Mark.