Helmerich & Payne, Inc.

Hello everyone and welcome to today's Helmrick and Payne's Fiscal First 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. Please note, today's call will be recorded and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Dave Wilson, Vice President of Investor Relations. Please go ahead.

Thank you, Chloe, and welcome everyone to Hammer Campaign's conference call and webcast for the first quarter of fiscal year 2024. With us today are John Lindsey, 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, I'll remind everyone that this call will include forward-looking statements as defined under 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 make reference to certain non-GAAP financial measures such as segment operating income, direct margin, and other operating statistics. You will 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, and hello, everyone. Thank you for joining us today. The company continued to perform well, closing out calendar year 2023, despite the persistent volatility in crude oil and natural gas prices. During the quarter, and for most of the last year, frankly, the company's stock price continued to trade as it has historically, with a strong correlation to crude oil prices and rig count. Decoupling from these traditional commodity measures requires proving our ability to maintain returns above our cost of capital through the cycles And I believe our fiscal first quarter results are another step in that direction. The North American Solutions segment exited the first fiscal quarter at 151 active rigs, which was at the lower end of our guidance range. We increased our rig count during Q1, but the expectations we had for incremental rig ads were tempered to some extent by the ongoing churn that we are still experiencing in the market. We added four rigs during our first fiscal quarter and expect to add another three to eight rigs during our second fiscal quarter, exiting in the range of 154 to 159 rigs. Our rig count today is at 154 rigs, so we've already added three rigs forward to date. I'm very pleased with our North America Solutions team's effort to provide the drilling outcomes our customers desire. drive our value proposition and maintain reasonable margins in the face of a volatile market. During the first fiscal quarter, the company delivered direct margins that were higher on a sequential basis, indicating that our direct margins, like our rig count, look to have experienced a trough during our fourth fiscal quarter of 2023. Looking out to the March quarter, we project our North America Solutions direct margins to remain relatively stable. Now looking back, the industry super spec rig count declined in calendar 2023, and there are a couple of things worth pointing out. First, much of the decline occurred during the first six months in the more gassy basins. The decline in the number of non-super spec rigs was about the same in terms of the decline in the number of superspec rigs, but the decline was double on a percentage basis given the dwindling number of non-superspec rigs remaining in the market. As a consequence, the number of superspec rigs working as a percentage of the overall fleet is above 70%, illustrating that the replacement cycle and high-grading contracting behaviors continue. The second is rather a data point that helps put things in perspective from where we stand. And that is our rig count in the Permian Basin at the end of calendar year 22 was approximately 98 rigs at the end of the calendar year. And for calendar year 2023, it was approximately 96 rigs. We see this as indicative of our positioning in the market and the value we provide, as well as the nature of our customer base and their desires for better drilling outcomes. Along those lines, we see that greater demand for technology and reliability remain dominant trends in the industry. The higher specification equipment and technology of the SuperSpec fleet deliver the higher levels of performance and value required for the unconventional drilling plans that now dominate the US market. And this speaks directly to a very important element within our contract economics, which is the operational costs involved in providing our services. Over the past two years, we've 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 more complex well designs, lateral lengths, and the drilling efficiencies required from our customers. Let me expand on an example of service intensity. In the last 10 years for H&P, the average lateral length drilled has more than doubled to over 10,000 feet. And at the same time, the well cycle times have improved by approximately 22%. This means that each flex rig today drills Approximately four and a half more wells on average per year and those rigs have doubled the exposure per well to the resource. This performance improves outcomes for our customer and in return we are focused on getting appropriately compensated to drive financial returns through the cycles. Now shifting to our international solution segment. We're very pleased with the recent developments that are proof of our execution on our international expansion strategy. The company recently received preliminary notification, subject to finalization of contractual agreements, that it has been awarded seven super spec flex rigs for work in a drilling campaign in the Middle East. These rigs are expected to commence operations shortly after delivery, which is currently scheduled for the first half of fiscal 2025. Additionally, these rigs will be sourced from our idle super spec rigs in the US, converted to walking configurations, and further equipped to suit contractual specifications. We believe that H&P is uniquely positioned for this award as we are able to invest in and utilize some of our high quality idle super spec rigs that are available in the U.S., combined with our immense drilling experience and expertise. Furthermore, in the Middle East, we've been successful in contracting an additional rig in Bahrain. The super spec rig to be utilized for this work is already located in the region, and it is expected to commence operations during the summer of 2024. These are positive outcomes in our Middle East expansion strategy, and I want to express my appreciation for the grit and determination our teams put forth to accomplish what we have to this point, and we look forward to further growth in the future. Strategically, we will continue to look for opportunities to invest in projects with attractive returns so that we maintain our industry lead in the U.S. and develop further growth internationally. In addition to operational and growth accomplishments, 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. Secondly, 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 the details about the progress of our plan in his remarks. In closing, every year, energy industry challenges arise, many resulting from supply and demand dynamics that ultimately result in crude oil and natural gas volatility and the cyclical nature of oil and gas. As difficult as it is to manage in these times, we also find that headwinds often provide opportunities to showcase the exceptional capabilities of our fleet and to demonstrate the value our people, our technology, and processes bring to providing drilling solutions for our customers. For our part, we will remain focused on our goals and execute toward their achievement in the long term. And now I'll turn the call over to Mark.