The natural gas market may be in a "dire state," but Tulsa-based contract driller Helmerich & Payne Inc. is poised to benefit as customers migrate to oil and liquids-rich shale plays where its high-performance AC-drive rigs are well suited to the more complicated work, CEO Hans Helmerich said Tuesday.
"It has become a type of a zero-sum game where oil and liquids-rich gas continue to gain over dry gas and where high-efficiency rigs continue to displace mechanical and SCR [silicon-controlled rectifier] rigs," Helmerich told financial analysts during a fiscal first quarter 2012 earnings conference call, his first as company chairman following the recent death of his father, Walter H. Helmerich III.
Since 2009, the percentage of total rigs targeting oil has grown considerably. According to data provided by Smith Bits, a Schlumberger company, 347 of the 1,591 rigs, or 21% of the rigs operating in the United States during January 2009 were drilling for oil. Last month, 57%, or 1,060 of the 1,856 total rigs, were targeting oil.
Comparing January 2009 versus January 2012, the number of rigs actively drilling for gas within the United States is down 36% from 1,243 to 796.
"We're fortunate to have a customer roster with substantial multi-year drilling inventory capable of shifting targets and taking advantage of strong oil prices. Also, we're well positioned with the most modern and capable fleet in the industry and by having a historically small exposure in terms of rigs focused on dry gas."
During his last earnings conference call, Helmerich told analysts that refurbished rigs were not suited for the demands of shale plays (see Shale Daily, Nov. 21, 2011).
During the most recent quarter the company set an all-time quarterly income record, Helmerich said. The company reported income of $144.3 million ($1.32/share) from operating revenues of $732.6 million for the first quarter of fiscal 2012, compared to $104.4 million (96 cents) from operating revenues of $594.6 million during the year-ago period, and income of $121.5 million ($1.11) from operating revenues of $700.8 million during the fourth fiscal quarter of 2011.
Net income, which excluded income from the sale of used drilling assets, for the first quarter of fiscal 2012 was $144.3 million ($1.32/share), compared to net income of $104.2 million (96 cents) during the first fiscal quarter of 2011, and net income of $121.4 million ($1.11) during the fourth fiscal quarter of 2011.
"We also reached best ever levels for revenue and rig activity during this recent quarter," Helmerich said. "While we expect some moderation in this record-breaking pace in the upcoming March quarter, we are gratified for the strong start for our 2012 fiscal year. Even with the uncertainty surrounding slumping natural gas prices and the anticipated softening in dry gas-directed drilling in the U.S., we remain upbeat that our business model of providing premium drilling services will continue to prosper in 2012."
Less than 10% of the company's total active U.S. rig fleet is engaged in dry gas-directed drilling in the spot market for rigs, Helmerich said. "Additional dry gas-directed rigs are under term contracts, and we would anticipate some of those to transition to oil and liquids-rich targets over time as well.
"We've been asked if some demand for new-builds will be satisfied by higher-end dislocated rigs during 2012. Our focus will remain the same. Because we are coming off such a robust order book from 2011 that totaled 71 fully contracted new-builds. We continue to deliver four rigs each month, on time and on budget. We have 40 orders remaining in the queue, approximately 30 to complete in fiscal 2012 and 10 slotted for [fiscal] 2013."
With natural gas prices being as low as they are and gas storage being as full as it is, one might expect, based on past experience, the rig count to be falling. The natural gas market used to be a barometer of the rig market, Helmerich said, not anymore.
"Today, oil and liquids-rich gas have transformed the domestic drilling landscape," he said. "Oil-directed drilling has been on a steady march up while dry gas drilling has lost ground. While the gas-directed count will even now most likely accelerate its decline trend, many expect any fallout to be partially or fully offset by displaced rigs being redirected to oil and liquids-rich targets."