With oil and natural gas development rising, Tulsa-based driller Helmerich & Payne Inc. (H&P) is on course to achieve the best economic returns in eight years, CEO John Lindsay said recently. 

“We are beginning to recognize economic returns at levels that we have not experienced since 2014,” Lindsay said during the fiscal fourth quarter quarter conference call earlier this month. “As such, we believe there is significant momentum heading into fiscal 2023,” repeating comments he made in October. 

“During my 35-year career, I have never witnessed a higher level of alignment and communication with our customers, resulting in greater transparency and value delivery,” the CEO said.

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H&P saw its results improve “substantially quarter/quarter, as pricing increases and better contract economics took hold across more of our FlexRig fleet.” FlexRigs are the top tier super-spec rigs, which are in higher demand.

In the past six months, “the demand for FlexRigs has primarily been satisfied with readily available hot rigs,” which have completed work in one area and are ready to go. “This allows us to postpone the investment of bringing a rig out of stack and thus exercise capital discipline,” Lindsay said. “The takeaway is that the majority of customer demand in the past couple of quarters has been satisfied by rig churn, not rig reactivations.”

H&P defines churn as the situation where a rig is released from one customer and then contracted to another customer within an “economically reasonable amount of time, enabling the rig to maintain a high level of activity,” he noted.

For the rigs being reactivated in North America, H&P is requiring two-year contracts at a minimum. As of last week, H&P already had two-thirds of its reactivated rigs committed, mostly to large, publicly traded exploration and production companies. 

“As in prior years, we expect our 2023 rig adds to be weighted toward the front half of the fiscal year, and do anticipate experiencing additional contractual churn throughout the year,” Lindsay told investors. The “strong demand from customers, coupled with rollovers of term contracts, should continue to drive higher average levels of pricing across the active fleet.”

In the North America Solutions segment, H&P averaged 176 contracted rigs during fiscal 4Q2022, up from 174 in 3Q2022, CFO Mark Smith said. “Revenues were sequentially higher by $66 million due to pricing increases for our rigs in the spot market and continued reprising term rollovers.”

For the first three months of 2023, the North America Solutions segment has 180 rigs contracted. H&P expects to end March with 181-186 working rigs. There’s also “line of sight for up to 192 rigs” by the end of June in North America.

“We expect the average revenue per day for our term rigs in the first fiscal quarter to be above $30,000/day,” Smith said. “We still expect the percentage of the U.S. fleet on term to be between 50% and 60% by the end of fiscal 2023.”

The International Solutions segment also is gearing up for “substantive growth in the future,” the CEO said. “We are seeing opportunities to bid in areas of existing operations,” as well from new customers. 

H&P also is seeing more drilling opportunities for the FlexRigs and digital technology in areas beyond oil and gas.

“As an example, our investments in geothermal are helping to develop alternative low-carbon 24-7 power sources,” Lindsay said. “We are providing FlexRigs and our digital technology solutions to enable enhanced geothermal systems and closed-loop drilling concepts.”

H&P in September completed drilling an enhanced geothermal system pilot project in Nevada,

which involved the first two horizontal geothermal wells ever drilled in the United States, Lindsay said. Another geothermal pilot is underway in New Mexico.

“We are hopeful that these pilot projects lead to scalable low-carbon geothermal developments utilizing FlexRig solutions,” Lindsay said.

Net income was nearly $46 million (42 cents/share) in the latest period, reversing a year-ago loss of $79 million (minus 74 cents). For the year, profits were $7 million (5 cents/share), compared with losses in fiscal 2021 of $326 million (minus $3.14).