The dry natural gas market is in a “dire state,” according to Tulsa-based contract driller Helmerich & Payne Inc. (H&P). However, it and competitor Patterson-UTI Energy Inc. are making the most of the industry’s migration to liquids-rich and oil plays.

H&P 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 told analysts last week during an earnings conference call. Likewise, executives at Patterson-UTI said what they’re losing in the dry gas patch, they’re making up for in liquids and oil.

“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.

“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 the most recent quarter Helmerich set an all-time quarterly income record with 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.

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.

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.”

At Patterson-UTI the view is much the same.

“As we now see it, increased activity in oil and liquids-rich areas, driven by high oil prices, is likely to offset most if not all of the rigs and pressure pumping equipment that may become available as a result of lower natural gas-related activity,” said Patterson Chairman Mark Siegel. “Our exposure to low natural gas prices is mitigated by our long-term contract coverage. We currently have less than 30 rigs drilling for dry gas under contracts that are well-to-well or that have an initial term of less than one year.

“Moreover, in pressure pumping, the majority of our fracturing horsepower is located in oil and liquids-rich areas. In addition, approximately 30% of our fracturing horsepower is under take-or-pay term contracts.”

Patterson-UTI reported net income of $87.6 million (56 cents/share), for the fourth quarter, compared to net income of $53.9 million (35 cents) for the year-ago quarter. Revenues for the fourth quarter of 2011 were $725 million, compared to $506 million for the fourth quarter of 2010. The company reported net income of $322 million ($2.06/share) for all of 2011, compared to net income of $117 million (76 cents) for 2010. Revenues for 2011 were $2.6 billion, compared to $1.5 billion for 2010.

“Activity in our drilling business continued to increase in the fourth quarter as our average number of rigs operating increased to 232, including 220 in the United States and 12 in Canada,” said CEO Doug Wall. “This compares to an average of 221 rigs operating in the third quarter of 2011, including 209 in the United States and 12 in Canada. Demand for our rigs continues to be strong and our rig count has continued to increase. We expect to average approximately 241 rigs operating in January, comprised of 225 in the United States and 16 in Canada.”

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