The U.S. onshore operations of Helmerich & Payne Inc. (H&P) are the continuing benefactor of increasing drilling activity, particularly in the Permian Basin, recovering spot pricing levels and a pressing need for more specialized rigs, the company’s CEO said Thursday.

“An instrumental part of rig demand in the U.S. is the Permian Basin,” said CEO John Lindsay. “With approximately 500 rigs working today, it is the most active and one of the most promising basins in the world, and it should be no surprise it is our fastest-growing area.

“Three years ago, our Permian operation had 25 active rigs, and we found ourselves out of office and yard space. In the past 12 months, we have added over 30 rigs and are now operating nearly 80 rigs. Fortunately, we had the foresight to buy additional land in Odessa [TX] in 2011. We built a large facility and moved in in 2012.

“Our timing was good as many have been surprised by the faster-than-expected switch to horizontal drilling in the Permian and the demand for Tier 1 AC [alternate current] drive rigs.”

The total horizontal rig count today in the Permian is about 300 rigs, a 200-rig increase from 2011, he said. However, less than half (45%) are AC-drive rigs.

The Tulsa-based contract driller reported its fiscal second quarter results on the same day as Patterson-UTI Corp., which also reported high demand for rigs able to penetrate shale rock and unconventional reservoirs(see Shale Daily, April 24). H&P not only works in the U.S. onshore but in offshore and international basins as well.

Its trademark walkers, the FlexRig AC series, helped lift the company to an all-time record for revenue and rig activity in the latest period.

The call for better and more tech-savvy equipment led H&P to raise capital expenditures for fiscal 2014, Lindsay said.

Because of contracts, newbuilds and “ongoing conversations with customers” regarding new FlexRig deliveries in early fiscal 2015, the company increased fiscal 2014 capital expenditures estimate to $1.1 billion from $950 million. As of Thursday (April 24), H&P had an existing U.S. land fleet of 325 rigs.

“The demand for new FlexRigs remains strong, and our U.S. land segment continues to benefit from increasing activity and recovering spot pricing levels,” Lindsay said. “We have entered into agreements with five exploration and production companies to build and operate nine additional FlexRigs to drill unconventional resource plays in the U.S. All of these rigs were ordered under multi-year term contracts,” bringing the total number of newbuild commitments in fiscal 2014 to 44.

In the Eagle Ford and Bakken shales, horizontal rigs comprise around 65% of the market, which “would indicate a lot more growth potential for AC drive rigs in the Permian…”

Net income rose to $174.6 million ($1.59/share) from $151.1 million ($1.39) in the year-ago period. Revenues were $893.4 million versus $838.3 million in fiscal 1Q2013 and $889.2 million in 1Q2014.

U.S. land operations income was $245.1 million in 2Q2014, compared with $226 million in the year-ago fiscal period and $251 million in 1Q2014. The number of revenue days for the segment increased by 836 (3.6%) to 24,300. However, operating income declined sequentially primarily as a result of close to $10 million in early termination fees. Excluding the fees, the average rig revenue per day decreased sequentially by $9.00 to $28,037, and the average rig margin per day decreased sequentially by $155 to $14,957. Rig expenses per day averaged higher by $146 to $13,080.

Rig utilization for the U.S. land segment was 86%, compared with 82% in the year-ago period and 84% in fiscal 1Q2014. At the end of March, H&P’s U.S. land segment had 282 contracted rigs, including 159 under term contracts, and 40 idle rigs.

H&P expects U.S. land revenue activity to increase sequentially by around 7% in fiscal 3Q2014, with average rig revenue per day flat at around $28,000 and the average rig expense per day roughly $13,000.