Top oilfield services contractor Helmerich & Payne Inc., whose rig technology is used around the world, is eyeing higher contract revenue as oil and natural gas supply tightens and demand expands.

During a conference call to discuss fiscal 2Q2022 results, CEO John Lindsay said exploration and production (E&P) customers are remaining disciplined about their capital expenditures (capex). However, with the global upheaval in oil and gas markets since Russia invaded Ukraine, energy security has become paramount, he told investors. 

“Just when the energy industry is beginning to normalize, another geopolitical event and its immediate and lasting ramifications provide a sharp reminder of how critical abundant, cost effective and secure energy is to sustaining the broader global economy,” Lindsay said.

“Given the industry’s experience in recent years, we are not at all surprised to find our customers remaining rational and disciplined with regards to their capex, even in the face of spiking commodity prices. Holding that line is something we believe is crucial to creating a healthy and sustainable industry over the longer term.”

North American activity – along with spot contract revenue – are moving in a positive direction for the Tulsa-based super-spec rig and technology provider.

“During the quarter, our active North America Solutions rig count increased in line with expectations and exited the quarter at 171 rigs,” Lindsay said. 

The active rig count onshore in North America averaged 164 in the quarter, compared with 93 in fiscal 2Q2021. A company had a total of 236 rigs available in North America during the quarter, versus 242 a year earlier. Four active rigs also were working in Gulf of Mexico waters.

Shrinking Super-Spec Count

“The industry rig count increase in the March quarter continued to shrink the availability of super-spec rigs that have worked at some point in the last two years, compounding the pre-existing supply-demand constraints in the market,” Lindsay said.

However, the tight supply and higher demand have led to “accelerating improvements in contract economics,” the CEO noted. “Like our customers, we expect to have disciplined capex, consistent with current industry trends, and as a consequence, the underlying supply-demand tightness will likely persist.”

The tight market also should “provide a pathway to achieve significant improvement in average spot contract revenues.”

CFO Mark Smith said the “economics for our spot contracts are improving, and we expect similar improvements for our term contracts as they are renewed or move into the spot market in the coming quarters.”

Still, the company has no plans to overextend equipment supply despite the demand. 

“We continue to be encouraged as the industry rebounds,” Lindsay said. “However, we are reminded, particularly with elevated commodity prices, of the industry track record to add excessive capacity to the market and the longer-term negative consequences that could ultimately result from those actions if not carefully considered. 

“The axiom, ‘change is the only constant in life’ keeps us mindful of the changing industry dynamics and the long-term challenges and opportunities that lie ahead.”

In the North America Solutions segment, the company exited March with 171 active rigs, up 10%-plus sequentially. The company expects to end fiscal 2022 with about 175 contracted rigs in operation.

Capex for the year remains at the previous guidance of $250-270 million. About half of the spending is to be directed to maintenance, including tubular purchases. Roughly 35% would go for skidding-to-walking conversions on the rigs.

Net quarterly losses totaled $5 million (minus 5 cents/share) during the quarter, versus a year-ago loss of $191 million (minus $1.78).