Helmerich & Payne, Inc.

per day did trend higher, and we will comment on that further. Looking ahead to the next quarter, our guidance suggests our margins will be flat to up slightly. Our ability to drive consistent and reliable value for customers through operations and technology solutions ultimately determines market share over the long term. The adoption of performance-based contracts increased to 52% in the fourth quarter from 41% a year ago. These contracts deploy H&P's suite of technology solutions that help to drive strong performance and greater reliability. Drilling services make up only a small portion of the overall cost of a well, but rig performance can have an outsized influence on the ultimate economics of the project. Identifying, measuring, and then consistently delivering solutions and technologies to improve efficiency and drilling outcomes creates a win-win for both H&P and our customers improving the financial returns for both as well. An important element within our contract economics are the operational costs involved in providing our services. Over the past two years, we have experienced increases in operational expenses due to rising labor costs and consumable inventory consumption and cost inflation. A less visible but growing variable is the cost acceleration on equipment related to running H&P's FlexRig fleet harder than ever before to achieve the well-designed lateral links and the drilling efficiencies for our customers. We've seen the inflation related to labor and consumable inventory items decrease somewhat in 2023. However, it is being offset by the service intensity required to maintain rigs and equipment at standards that will continue to drive performance and efficiency gains. Let me provide an example. In the last 10 years, average lateral length has doubled to over 10,000 feet And at the same time, the well cycle times have improved by 22%. This means that each flux rig today drills about four and a half more wells on average per year. And those rigs have doubled the exposure to the resource. In 2023, the fleet actually drilled 15 million more feet of wellbore, working 33 fewer rigs than a decade ago. This is an example of service intensity and a significant cause of increasing costs related to higher operational costs required to deliver consistency, efficiency, and the increased volume of work each rig is now expected to produce. To put a finer point on the magnitude of these cost increases and the impact on our contract economics, North America's solutions operating costs have increased over 50% since 2014. Like most businesses, we are also experiencing inflationary pressures in our non-operational expenses, particularly around labor and third-party services, which are key drivers behind our projected increase in selling, general, and administrative expenses. Mark will give more details on this in his remarks. We have begun to capitalize on unconventional opportunities outside the U.S., enabling us to further diversify our operations over the long term. I'm pleased with the early signs of success here, particularly with our recent tender award with Saudi Aramco and the operations of our first super spec rig in the Beteloo Basin in Australia. In fiscal 2024, we plan to build on this momentum and continue to deploy capital for future international growth opportunities. We're also thankful for celebrating 50 years in Colombia, 25 years in Argentina, and the consistent contribution from our offshore Gulf of Mexico operation. And we're excited about the potential contribution from these segments in the years to come. Shifting to our efforts focused on the energy transition, we are furthering our strategy of deploying capital and expertise to companies advancing innovative approaches to energy. As an example, our investments in geothermal are helping to develop an alternative carbon-free 24-7 power source. We're providing unconventional drilling learnings and flex rig technology solutions to enhance and enable next generation geothermal concepts. A recent highlight is the encouraging progress in the field with one of our geothermal investees, Ferbo Energy. We're currently drilling the fifth well of a multi-year drilling campaign in Utah. This is their first geothermal development project, which will include constructing the second largest geothermal plant in the U.S. and with plans of producing 400 megawatts of geothermal power by 2028. H&P SuperSpec FlexRig 3, along with our technology suite, has surpassed our customers' anticipated performance targets. Our strategic alliances with FERBO and our other innovative companies have put us firmly on the path to participate in next generation geothermal opportunities and grow our unconventional geothermal drilling expertise to a larger scale. In addition to our operational and growth accomplishments during the year, we believe an essential ingredient in achieving shareholder success is having a multi-pronged approach to capital allocation. First and foremost, we prioritize the company's longstanding posture of a strong financial position and fiscal prudence. Second, we look to invest in organic projects with attractive returns so that we can continue to lead the industry in the U.S. and develop future growth internationally. Finally, we seek to return capital to shareholders through an established base dividend augmented by supplemental dividends and share repurchases when those opportunities exist. Mark will provide additional details about the plan and his remarks. I'm proud of the H&P team's service attitude and strategic achievements this fiscal year and will remain vigilant as we navigate through 2024. We enter this new year with a sense of optimism around the U.S. market and international opportunities, as well as what we can deliver to both customers and shareholders. We believe the outlook over the next several years is encouraging for our industry, The long-term energy fundamentals are strong, and as such, H&P remains ready and will continue to take actions to ensure future success for the company. And with that, I'll turn the call over to Mark.

Thanks, John. Today I will review our fiscal fourth quarter and full year 2023 operating results, provide guidance for the first quarter and full fiscal year 2024 as appropriate, and comment on our financial position. Let me start with highlights for the recently completed fourth quarter and fiscal year ended September 30, 2023. The company generated quarterly revenues of $660 million versus $724 million in the previous quarter. The decrease in revenue is primarily due to the expected reduction in active rig count for the North America Solutions fleet. Correspondingly, total direct operating costs incurred were $410 million for the fourth quarter versus $430 million for the previous quarter. The sequential decrease is driven by the aforementioned reduction in activity, but this decline was somewhat muted by a lower fixed cost absorption and maintenance and supply expense intensity, which ended up being on the higher end of the range this quarter. General and administrative expenses total $56 million for the fourth quarter and $207 million for fiscal 2023, which is generally in line with our expectations. The fiscal 23 effective tax rate was approximately 27%, which is within the previously guided range. To summarize fourth quarter's results, H&P earned a profit of 77 cents per diluted share versus 93 cents in the previous quarter. Earnings per share were positively impacted by a net 8-cent gain per share of select items, which was primarily made up of gains on investment securities and settlements of outstanding claims, partially offset by a blue-chip swap transaction. Absent these select items, adjusted diluted earnings per share was 69 cents in the fourth fiscal quarter, compared with an adjusted $1.09 during the third fiscal quarter. Capital expenditures for the fourth quarter were $114 million, with full fiscal 2023 totaling $395 million, which was generally in line with our expectations from the July earnings call. H&P generated $215 million in operating cash flow in the fourth quarter and a total of $834 million during the full fiscal 2023. Our cash flow generation funded $846 million in capital deployment, including $395 million of CapEx, $104 million in base dividends, $98 million in supplemental dividends, and $249 million in share repurchases together with related excise taxes. We will discuss our expected accretive fiscal 24 cash generation and cash position later in these remarks. Turning to our three segments, beginning with the North America Solutions segment. We averaged 149 contracted rigs during the fourth quarter, down from an average of 166 rigs in fiscal Q3. We exited the fourth quarter with 147 contracted rigs, which is at the high end of our expectation. Note that the 147 rigs correspond to approximately 80% utilization of the super spec rigs that have worked within the last year. Revenues were sequentially lower by $66 million due to the expected sequential decrease in the number of working rigs. Segment direct margin was $239 million within our July guidance range. Total segment per day expenses, excluding reimbursables, increased to $19,800 during the fourth quarter from $18,700 per day in the third quarter. As discussed in our press release, this was above our expectations due in part to maintenance and supplies expense from rigs running harder. Further cost drivers include rig churn and decreased labor and overhead absorption. During this trough period, we retained crew personnel, regional specialty positions, and rig fabrication and maintenance facilities staff, resulting in lower scale absorption during the quarter. Additionally, the segment incurred a $150 per day really charge related to the change in the fair value of the contingent liability related to an acquisition or an out based on operating performance metrics. Looking ahead to the first quarter of fiscal 2024 for North America Solutions, as of today's call, we have 147 contracted rigs as the contractual churn has been higher than expected, which has kept our activity level relatively flat thus far in the quarter. That said, we expect to end our first fiscal quarter with between 150 and 156 rigs working and are anticipating some additional ads in fiscal Q2. Our current revenue backlog from our North America Solutions fleet is roughly $1.1 billion for rigs under term contract, up from $900 million in the previous quarter. As of today, approximately 60% of the U.S. active fleet is on a term contract. As activity increases, we expect our average pricing levels to remain steady, given that spot pricing levels have remained relatively stable and above lower rate legacy term contracts that continue to roll into the current pricing environment. In the North America Solutions segment, we expect direct margins in fiscal Q1 to range between $235 to $255 million. Given that 70 to 75% of our daily costs are labor-related, it is typical to see seasonal declines from payroll taxes, et cetera. In general, our operating costs have increased approximately 25% since the end of fiscal 2019 and are anticipated to continue near current levels due to several factors, including the aforementioned materials and supplies inventory consumption as a result of longer laterals. Labor expenses elevated by two inflation adjustments in the past two years. and supply chain cost inflation. Further, continued rig churn drives cost levels higher. These increased costs are one of the many reasons we are acutely focused on maintaining recently achieved pricing levels as we strive to earn appropriate returns on our investments. Regarding our international solutions segment, we had approximately 13 rigs active at September 30th as expected and sequentially flat from prior quarter. As a reminder, we revised international guidance via our October 18 press release as a result of accelerating some rig commissioning due to timing efficiencies at our Houston facility and due to certain expat labor expenses. Further, we experienced a 4.6 million foreign exchange loss on Argentina pesos in-country based on the devaluation of the official exchange rate in the segment results. Separately, we experienced a 12 million investment loss that related to accessing the blue chip swap effective parallel exchange mechanism in Argentina. Although we took this investment loss, we were able to repatriate that $9.8 million to the U.S., which otherwise would not have been available. Looking toward the first quarter of fiscal 2024 for the international segment, we expect to idle one rig in Argentina mid-quarter, with all other countries remaining at constant activity levels. Aside from any foreign exchange impacts, we expect to have between 7 to 10 million direct operating contribution, direct margin contribution in the first quarter. Turning to our offshore Gulf of Mexico segment, as expected, we completed the demobilization of a rig in the fourth fiscal quarter and now have three of our seven offshore platform rigs contracted. We have management contracts on three customer-owned rigs, one of which is on active rate. Offshore generated a direct margin of approximately $7 million during the quarter, which was within our guided range. As we look toward the first quarter of fiscal 2024 for the offshore Gulf of Mexico segment, we expect that it will generate between $3 to $7 million of direct margin, which is now sequentially primarily due to the stacking of the aforementioned rigs. Now, let me look forward to the first fiscal quarter and full fiscal year 2024 for certain consolidated and corporate items. Let me start by reiterating features in our multi-pronged approach to capital allocation that John mentioned earlier. Our strategy is to maintain our strong balance sheet together with investment grade credit metrics, to invest in maintaining our market leading North America solutions fleet, and to deploy capital to support growth and diversification opportunities internationally with prudent investments in our rig fleet. Finally, our recently announced 2024 supplemental return plan continues our strategy introduced a year ago to flexibly augment value to shareholders. As discussed in our October 18 press release and in yesterday's release, our fiscal 2024 CapEx has three buckets, North America, international, and corporate and information technology. Our bucket of North America solutions includes maintenance CapEx costs, which are anticipated to push above the high end of the fiscal 2023 range due in part to fiscal year 2023 supply chain delays and capital spending for component equipment refurbishment and recertification. that has rolled into fiscal year 2024. Fiscal 24 maintenance cap tax per active rig should approximate $1.3 to $1.5 million per active rig based on current bottoms-up maintenance facility and supply chain throughput expectations. This level of capital intensity has some inflation built in from the last couple of years, but it is also at a projected high point due to continued catch-up spending from the 2020 downturn. The international bucket primarily consists, excuse me, the international bucket partially consists of a planned minor upgrade to three rigs in Argentina utilizing funds currently in country to take them to full super spec capacity. We plan to continue converting slightly over one rig per month to walk-in capability at our Houston facility resulting in approximately 14 conversions in fiscal 24. These conversions will be split between North American solutions and international exports, depending on the successful outcomes of current and anticipated international bids, and on U.S. customer demand at attractive rates and terms. The final bucket of corporate and information technology consists primarily of enterprise financial and operating system upgrades and re-communications improvements. Depreciation for fiscal 2024 is expected to be approximately $390 million. Our sales general and administrative expenses for the full fiscal 24 year are expected to approximately $230 million, which is up from the prior year. We have continued to build capabilities to support the company, including expertise that has aligned pricing with the value delivered in North America and in securing initial Middle East international growth. We have also introduced several software-as-a-service solutions to improve our data and analysis in many areas. Finally, we have experienced inflation across many functional areas in 2023 for labor and third-party services, for which we will bear the full run rate in fiscal 2024. Our investment in research and development remains largely focused on solutions for our customers, such as drilling automation, wellbore quality, and power management. We anticipate R&D expenditures to be approximately $30 million in 2024. We are expecting an effective income tax rate range of 24% to 29% with the variance above the U.S. stat rate of 21% driven by state and foreign taxes. Based upon estimated fiscal 24 operating results in CapEx, we are projecting a consolidated cash tax range of $150 to $200 million. Now looking at our financial positions. Elmer and Payne had cash and short-term investments of approximately $350 million in September 30, 2023 versus $293 million in June 30. Including availability under our revolving credit facility, our liquidity remains at approximately $1.1 billion. As announced in our October press release, subject to ongoing board approval, we plan to pay supplemental dividends across fiscal 2024 of about $68 million. which is approximately 50% of the projected remaining cash flow after CapEx and after our established base dividend. In essence, over two-thirds of cash flow after CapEx is planned to be returned to shareholders with approximately one-third remaining for flexibility. As of today, this flexible $68 million unallocated together with our current $350 million cash and short-term equivalents on hand provides us with much flexibility for accretive investments, opportunistic share buybacks, and or further supplemental dividends. Future capital allocation plans look to further add to our long-standing priority of returning cash to shareholders, increasing the roughly $3.1 billion of cash that we have returned to shareholders during the past 10 years through dividends and share repurchases. That concludes our prepared comments for the fourth fiscal quarter. Let me now turn the call over to David Creed for questions.

At this time, if you'd like to ask a question, please press the star and one keys on your telephone keypad. Keep in mind, you may remove yourself from the question queue at any time by pressing the round key. We will take our first question from David Smith with Pickering Energy Partners. Please go ahead. Your line is open.