Rig technology expert Helmerich & Payne Inc. (H&P) is not expecting over-the-top activity by its exploration customers this year, with steady and moderate activity more likely, CEO John Lindsay said this week.

H&P

Lindsay on Tuesday discussed the fiscal first quarter performance for the Tulsa-based oilfield services company. Last November, Lindsay predicted moderate growth this year in the U.S. rig count, as the exploration and production (E&P) customers stick to moderate activity and disciplined spending. So far, that forecast appears to be accurate, he told investors.

“We’ve seen time and again that in a highly cyclical industry like oil and gas, losing sight of the long run can be fatal,” he said. “So we believe that capital discipline contributes to the overall economic health of our company, as well as our industry.”

For H&P’s large, public E&P customers, budgets “appear to be moderately higher in 2023, and we are planning ahead to manage this potential growth in an optimal fashion.” The super-spec, high-end drilling fleet is what E&Ps want. To date, utilization of the super-specs is about 80%.

Roughly 520 super-spec rigs are operating in total, effectively using nearly 100% of capacity. That indicates the active North American fleet should “remain at very high levels,” the CEO said.

More Oil, Less Natural Gas Drilling

“While some may be concerned with the momentum of the current cycle, our experience over the past few decades is that we should expect to have moderate and choppy activity trends like today. An upcycle is rarely straight up and to the right.”

The E&Ps are looking for efficiency in all ways, as they want capital used to achieve the best results possible. 

H&P’s customers, said Lindsay, continue to key on “longer laterals and more consistent target attainment. To achieve both, we have seen increasing usage across our technology portfolio with automation driving consistent three-plus mile lateral delivery. 

“This trend is not limited to one customer or one basin, but rather is becoming the way we work and deliver value…This keeps our teams excited about the future, a future where digital technology helps drive customer value, by providing safer, more efficient and repeatable drilling operations.”

Most of the E&Ps have eschewed natural gas drilling, though. Only 15% of H&P’s fleet is working in “just natural gas basins, and…a little over half of those 15% are on term contracts,” he said.  

CFO Mark Smith, who joined Lindsay in the quarterly call, noted that of H&P’s 185 active U.S. Land rigs, around 28 are drilling natural gas wells, most under term contracts.

“From a customer perspective, we really haven’t heard a lot in terms of rig activity” for natural gas-heavy basins, Lindsay said. “Obviously, they’re not adding,” he said of the gas-focused E&Ps. “I don’t know what to expect at this point…Our exposure is pretty low.”

At the end of January, H&P had 103 U.S. land rigs under term contract, versus 119 at the end of December and 105 in September. U.S. land also had 82 rigs under spot contract at the end of last month, compared to 57 in December and 79 in September. H&P’s total marketable U.S. land fleet as of last month was 235 rigs.

In the North American Solutions business, the active rig count at the end of December was 184, compared with 154 in the year-ago quarter and 176 at the end of September. The Gulf of Mexico active rig count was four, which was flat year/year and sequentially. In the International business, H&P had 13 active rigs at the end of December, versus eight a year earlier and 12 in September. 

Net income in the quarter topped $97 million (92 cents/share), reversing year-earlier losses of $51 million (minus 48 cents). Operating revenue in the quarter rose year/year to $719.6 million from $409.8 million.