Helmerich & Payne, Inc. · NYSE:HP
Helmerich & Payne — Investor Presentation (January 2018)
64 slides from Helmerich & Payne's investor presentation, Jan 11, 2018
Slide 1: Forward-looking Statements
Statements within this presentation are “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, and are based on current expectations and assumptions that are subject to risks and uncertainties. All statements other than statements of hi
Slide 2: About Helmerich & Payne (H&P)
Very strong balance sheet Most capable land drilling fleet Market share leader in the U.S. Robust term contract backlog Operational strategy focused on continued innovation, safety, performance excellence, reliability and customer satisfaction About Helmerich & Payne (H&P)
Slide 3: H&P's Strong Balance Sheet
H&P’s Strong Balance Sheet (As of September 30, 2017) 1. Total Capitalization is defined as Total Debt plus Shareholders' Equity. Total-Debt-to-Total-Capitalization Ratio1 Source: Company Filings.
Slide 4: Current Dividend Yields
Current Dividend Yields Source: Nasdaq IR Insight (FactSet). Yields calculated as of market close on January 2, 2018. 0% 1% 2% 3% 4% 5% HP NBR PTEN PDS UNT Dividend Yield (%)
Slide 5: H&P's Global Rig Fleet
H&P’s Global Rig Fleet *The U.S. Land Super-Spec portion of the 2018E global rig fleet is as of 1/9/2018. The Company plans to upgrade additional rigs to super-spec status throughout 2018.
Slide 6: U.S. Land Market Share Leader
U.S. Land Market Share Leader As of December 2017 (~990 Active Rigs in U.S. Land) Note: The above estimates corresponding to market share are derived from Rig Data. Additionally, the drawworks capacity of each land rig included in the above analysis was equal to or greater than 600 horsepower. Value
Slide 7: H&P Global Fleet Under Term Contract
The above term contract coverage excludes long-term contracts for which the Company received early contract termination notifications as of 1/9/18. Given notifications as of 1/9/18, the Company expects to generate approximately $4 million in the first fiscal quarter of 2018 and approximately $10 mil
Slide 8: U.S. Land Drilling Market Conditions
U.S. Land Drilling Market Conditions Recent oil price improvements could provide opportunities for increased drilling demand and dayrate improvement. Additional demand for super-spec rigs as the replacement cycle persists and well complexity increases. Ongoing trend toward more complex wells also re
Slide 9: AC Drive Gains Share with Relatively Flat Rig Count
Source: The above estimates corresponding to AC Drive market share are derived from Rig Data. AC Drive Gains Share with Relatively Flat Rig Count (Historical Example: January 2013 – January 2014)
Slide 10: Super-Spec Rigs Rapidly Gaining Market Share
Source: The above estimates corresponding to “Super-Spec* Market Share” are derived from multiple sources including Rig Data. “Super-Spec*” Rigs Rapidly Gaining Market Share * The combined rig specifications of AC drive with 1,500 hp drawworks, 750,000# hookload ratings, 7,500 psi mud circulating sy
Slide 11: U.S. Activity by Well and Rig Type
U.S. Activity by Well and Rig Type Note: The above estimates corresponding to rig activity and rig type are derived from multiple sources including Rig Data and corporate filings. Additionally, the drawworks capacity of each land rig included in the above analysis was equal to or greater than 600 ho
Slide 12: Active AC Drive U.S. Rig Market Share
(~670 Rigs as of December 2017) Active AC Drive U.S. Rig Market Share Note: The above estimates corresponding to rig activity are derived from multiple sources including Rig Data and corporate filings. Additionally, the drawworks capacity of each land rig included in the above analysis was greater t
Slide 13: H&P Uniquely Positioned – Family of Solutions
H&P Uniquely Positioned – Family of SolutionsTM Positioned to take market share in a strong or moderate market recovery Uniquely leveraged to provide E&P companies the rig of choice Design of FlexRig fleet allows for broad range of rig upgrades
Slide 14: CapEx Upgrade Opportunities
CapEx Upgrade Opportunities 7,500 psi mud circulating systems Investing in multi-well pad drilling capability FlexRig3 skid systems FlexRig3 walking systems Third mud pump 25,000+ ft setback capability Increased mud volume capability Other customer specific upgrades
Slide 15: H&P U.S. Land Fleet – Family of Solutions
* 70% are optimal for multiple-well pad drilling applications. H&P U.S. Land Fleet – Family of SolutionsTM 1,500 hp AC Drive FlexRigs*, including 270 Upgraded or Upgradeable to Rig Specifications in High Demand** 350 Available H&P U.S. Land Rigs ** AC drive FlexRigs with 1,500 hp drawworks and 750,0
Slide 16: AC Fleet Size Creates Opportunity
AC Fleet Size Creates Opportunity Greater scale than any competitor; ability to upgrade and deploy a total of 270 FlexRigs to rig specifications in highest demand without investing in new builds. 101 upgradeable FlexRigs remaining (31 already contracted); attractive leverage to our bottom line. High
Slide 17: H&P's Lead in U.S. Land AC Drive Rigs
H&P’s Lead in U.S. Land AC Drive Rigs with 1,500hp Drawworks Rating and 750,000 lbs. Mast Hookload * The above estimates corresponding to U.S. lower 48 1,500 hp AC Drive fleets with a 750,000 lbs. mast hookload are derived from Rig Data and corporate filings. ** Values for PTEN include active AC dri
Slide 18: H&P's Lead in U.S. Land AC Drive Rigs
H&P’s Lead in U.S. Land AC Drive Rigs * The above estimates corresponding to U.S. lower 48 1,500 hp AC Drive fleets with a 750,000 lbs. mast hookload are derived from Rig Data and corporate filings. ** Values for PTEN include active AC drive rigs recently acquired from Seventy Seven Energy (SVNT). *
Slide 19: H&P's Lead in U.S. Land AC Drive Rigs
H&P’s Lead in U.S. Land AC Drive Rigs December 2017 activity (all U.S. land rigs) with 1,500hp Drawworks Rating and 750,000 lbs. Mast Hookload 2014 Peak activity (all U.S. land rigs) * The above estimates corresponding to U.S. lower 48 1,500 hp AC Drive fleets with a 750,000 lbs. mast hookload are d
Slide 20: Industry's Super-Spec and Upgradable Utilization
Source: The above estimates corresponding to “Super-Spec” rig count are derived from multiple sources including Rig Data. Industry’s “Super-Spec*” and Upgradable Utilization * AC drive FlexRigs with 1,500 hp drawworks and 750,000# hookload ratings that do not already have 7,500 psi mud circulating s
Slide 21: H&P U.S. Land Fleet – Family of Solutions
H&P U.S. Land Fleet – Family of SolutionsTM 1,500 hp AC Drive FlexRigs*, including 197 Upgraded or Upgradeable to Rig Specifications in High Demand** 204 Contracted H&P U.S. Land Rigs ** AC drive FlexRigs with 1,500 hp drawworks and 750,000# hookload ratings (197) that do not already have 7,500 psi
Slide 22: U.S. Land Market Share Gains Since 2014 Peak
U.S. Land Market Share Gains Since 2014 Peak Note: The above estimates corresponding to market share are derived from Rig Data. Additionally, the drawworks capacity of each land rig included in the above analysis was equal to or greater than 600 horsepower. * Values for PTEN include active rigs rece
Slide 23: H&P's Experience and Expertise
H&P’s Experience and Expertise People, systems and the operational support structures in place to drive high performance and reliability 2,000+ rig years of AC drive operational experience Expertise within an integrated business model (designing, building and upgrading fleet) provides the best value
Slide 24: Benefits of an Integrated Model
Benefits of an Integrated Model CONTINUOUS IMPROVEMENT DESIGN (and redesign) FABRICATE (and upgrade) OPERATE (and improve)
Slide 25: FlexRig Family of Solutions - Pad Design
FlexRig Family of SolutionsTM - Pad Design FlexRig3 skid system is designed to meet the requirements for standard pad drilling. Typically customers drill 2-4 wells per pad. FlexRig5 skid system is a bi-directional design, with the typical pad having 2-4 wells, and in some cases range from 6-8 wells.
Slide 26: Family of Solutions Matches Pad Drilling Trends
The H&P Family of SolutionsTM provides options that clearly match pad drilling trends. Source: Coras Research, LLC. % of Horizontal Wells Drilled (Permian ONLY) H&P’s Family of SolutionsTM Matches Pad Drilling Trends
Slide 27: U.S. Land Market Share Gains Since 2016 Trough
U.S. Land Market Share Gains Since 2016 Trough (As Every Contractor’s Best Rigs Competed for Work) Note: The above estimates corresponding to market share are derived from Rig Data. Additionally, the drawworks capacity of each land rig included in the above analysis was equal to or greater than 600
Slide 28: H&P's U.S. Land Fleet Activity
H&P’s U.S. Land Fleet Activity (1) Includes rigs on standby dayrates. Includes completed new builds pending delivery and not generating revenue days. (2) 118 73 28 29 26 22 10 19 33 59 95 93 97 101 179 158 128 117 104 84 72 67 73 87 87 98 103 103 297 233 161 153 134 111 87 91 109 147 183 191 200 204
Slide 29: Ongoing U.S. Land Market Trends
Ongoing U.S. Land Market Trends Unconventional plays continue to shape the landscape. Increasingly complex well designs, including longer laterals and more challenging drilling requirements. Customers continue to focus on safety, efficiency, technology, and reliable drilling performance. AC drive ri
Slide 30: Leading U.S. Unconventional Driller
Leading U.S. Unconventional Driller (204 H&P Contracted Land Rigs as of 1/9/18) Permian Basin , 99 Oklahoma Woodford , 32 Eagle Ford Shale , 31 Haynesville/Cotton Valley , 11 Piceance Basin , 7 Bakken Shale , 6 Utica Shale , 5 Niobrara Shale , 4 Marcellus Shale , 4 Other Gas (Dry and Liquids Rich) ,
Slide 31: Unconventional Drilling in the Permian
Unconventional Drilling in the Permian Note: The above estimates are derived from Rig Data. Additionally, the drawworks capacity of each land rig included in the above analysis was greater than or equal to 600 horsepower. (As of December 2017) H&P’s Active Rigs in the Permian Basin Total Active Rigs
Slide 32: Increasing Focus on More Difficult Drilling
Increasing Focus on More Difficult Drilling 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of Active U.S. Rigs (BHI North American Rotary Rig Count) U.S. Rig Activity by Drilling Type Vertical Drilling Horizontal or Directional Drilling
Slide 33: U.S. Land Horizontal and Directional Activity
Note: The above estimates corresponding to horizontal and directional rig activity by power type are derived from multiple sources including Rig Data and corporate filings. Additionally, the drawworks capacity of each land rig included in the above analysis was greater than or equal to 600 horsepowe
Slide 34: The Replacement Cycle: Customer Adoption
The Replacement Cycle: Customer Adoption Next ~125 E&P Operators (~585 Active Rigs by Power Type) Top 10 E&P Operators (~220 Active Rigs by Power Type) Remaining E&P Operators (~185 Active Rigs by Power Type) Top 10 E&P Operators Next ~125 E&P Operators Remaining E&P Operators They represent the 10
Slide 35: The Replacement Cycle Continues
As of October 2014 (Peak) (~1,930 Active Rigs in U.S. Land By Power Type) The Replacement Cycle Continues As of October 2008 (Peak) (~1,925 Active Rigs in U.S. Land By Power Type) As of December 2017 (~990 Active Rigs in U.S. Land By Power Type) Note: The above estimates corresponding to rig activit
Slide 36: U.S. Land Horizontal and Directional Activity
U.S. Land Horizontal and Directional Activity (~905 Rigs as of December 2017) Note: The above estimates corresponding to rig activity are derived from multiple sources including Rig Data and corporate filings. Additionally, the drawworks capacity of each land rig included in the above analysis was g
Slide 37: Performance Is Not Only About Better Rigs
Performance Is Not Only About Better Rigs Our competitive advantage is also about: People Safety Experience Training Culture Uniform Fleet Size & Scale Operational Support Network Processes/Data Maintenance Supply Chain
Slide 38: Center of Excellence – Tulsa, OK
Center of Excellence – Tulsa, OK Support Structure Data Analysis Best Practices 24/7 Technical and Performance Solutions:
Slide 39: H&P Adding to the Family of Solutions
H&P Adding to the Family of SolutionsTM Recent MOTIVE and MagVAR acquisitions create a powerful software platform and compelling value opportunity for E&P companies Offers flexibility to select best technology regardless of drilling contractor Brings new level of accuracy to directional drilling MOT
Slide 40: MOTIVE Drilling Technologies, Inc.
MOTIVE Drilling Technologies, Inc. MOTIVE’s proprietary Bit Guidance System is a unique directional drilling technology. Industry leader in the use of cognitive computing to guide the directional drilling process Algorithm-driven system More than 300 horizontal wells to date and over 4 million feet
Slide 41: MOTIVE Case Study
MOTIVE Case Study Industry Problem: Higher than expected drilling and lifting costs due to the inability to consistently follow a prescribed well path and to hit and stay within the targets identified collectively by the operator’s geologists, geophysicists, and reservoir engineers. H&P Solution: MO
Slide 42: MagVAR
MagVAR MagVAR is a leading provider of MWD geomagnetic referencing and survey quality management Real-time center serving over 180 active horizontal rigs drilling in North America Utilized for over 40 E&P companies 3,000+ wells analyzed and corrected
Slide 43: Well Placement is Critical
Well Placement is Critical MagVAR services reduce standard surveying uncertainty by 50-60%, increasing horizontal well economics while reducing risk. Precise well placement enables maximum reservoir drainage More accurate positional data leads to better geological models Less positional uncertainty
Slide 44: Customer Satisfaction Matters
Customer Satisfaction Matters Value creation for the customer is not only driven by having the right rig. It is also driven by service; the ability of an organization to deliver top performance with that rig. Better service drives value, customer satisfaction, market share and pricing. H&P has been
Slide 45: H&P's Long Term Strategy
H&P’s Long Term Strategy Innovation Technology Safety, operational excellence and reliability Customer satisfaction Financial strength
Slide 46: H&P's Long Term Strategy
| H&P’s Long Term Strategy > Innovation > Technology > Safety, operational excellence and reliability > Customer satisfaction > Financial strength
Slide 47: Tax Cuts and Jobs Act
Tax Cuts and Job Act The lower federal income tax rate of 21% (down from 35%) is expected to favorably impact our future after-tax cash flows and profits Our deferred income tax liability (currently at around $1.3 billion) will be adjusted to reflect the new rate; we expect this liability to reduce
Slide 48: Estimated H&P Activity as of January 9, 2018
Slightly under 230 rigs are optimal for multiple-well pad drilling (97% of which are equipped with skidding systems and the remainder (or six rigs) with walking systems). The remaining SCR rigs in the U.S. Land segment have a 3,000 hp drawworks rating. Estimated H&P Activity as of January 9, 2018 Ri
Slide 49: H&P Global Fleet Under Term Contract
Number of Rigs Already Under Long-Term Contracts* (Estimated Quarterly Average - as of 1/9/18) H&P Global Fleet Under Term Contract Segment Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY18 FY18 FY18 FY19 FY19 FY19 FY19 U.S. Land 94.7 80.4 65.5 55.7 28.6 24.5 20.9 International Land 10.8 10.0 10.0 10.0 10.0 10.0 10.0 Offsh
Slide 50: U.S. Land Average Rig Expense per Day
U.S. Land Average Rig Expense per Day * Excludes extraordinary items mentioned in a particular quarter’s press release (e.g. lawsuit settlement charges). ** Estimated average rig expense per day for operating rigs only excludes estimated expenses associated with transitory and idle rig costs (e.g. r
Slide 51: H&P's International Land Operations
Contracted Idle Total Long-term Contracts Argentina 16 3 19 10 Bahrain 1 2 3 Colombia 8 8 Ecuador 6 6 U.A.E. 2 2 Total 17 21 38 10 H&P’s International Land Operations Rigs on term contract that have greater than or equal to 180 days remaining. 10 of 25 FlexRigs, included in the international fleet o
Slide 52: H&P vs. Industry U.S. Land Customer Base
H&P vs. Industry U.S. Land Customer Base Note: The above estimates corresponding to the active rig fleet in the U.S. are derived from multiple sources including Rig Data. The category “Large Operators” includes majors and large independent E&P operators.
Slide 53: The FlexRig Difference: Key Advantages
The FlexRig Difference: Key Advantages Increased drilling productivity and reliability Variable frequency AC technology providing precise control and increased capability Computerized electronic driller more precisely controls down-hole parameters FlexRig designs are suited for both efficient well t
Slide 54: The Value Proposition: The Power of Efficiency
Theoretical 20% Efficiency 40% Efficiency Base Case Improvement Improvement 1. Drilling days average 13.5 10.8 8.1 Other days average 5.0 4.0 3.0 Moving days average (several multi-well pads) 1.5 1.2 0.9 Total rig days per well 20.0 16.0 12.0 Efficiency (Reduced Well Cycle Time) - 20% 40% 2. Drillin
Slide 55: H&P's Margin Premium
Technology & Quality Service Make a Difference (1) Does not include the impact of early contract termination revenue. (2) Represents weighted-average rig margin per day for PTEN, NBR, PDS, and UNT. H&P’s Margin Premium (1) (2)
Slide 56: H&P's Lead in U.S. Land AC Drive Rigs
H&P’s Lead in U.S. Land AC Drive Rigs * The above estimates corresponding to U.S. lower 48 AC Drive fleets are derived from Rig Data and corporate filings. ** Values for PTEN include AC drive rigs recently acquired from Seventy Seven Energy (SVNT). *** Estimated number of all other available AC Driv
Slide 57: H&P's Lead in U.S. Land AC Drive Rigs with 1,500hp Drawworks
H&P’s Lead in U.S. Land AC Drive Rigs with 1,500hp Drawworks Rating * The above estimates corresponding to U.S. lower 48 1,500 hp AC Drive fleets are derived from Rig Data and corporate filings. ** Values for PTEN include AC drive rigs recently acquired from Seventy Seven Energy (SVNT). *** Estimate
Slide 58: H&P Very Well Positioned to Gain Share
H&P Very Well Positioned to Gain Share Note: The above estimates are derived from multiple sources including Rig Data and corporate filings. * Includes ~70 FlexRigs that have been or can be upgraded to what some industry followers refer to as “super-spec” rigs. ** Values for PTEN include AC drive ri
Slide 59: Drilling Activity in the U.S.
Drilling Activity in the U.S. 0 500 1,000 1,500 2,000 2,500 Number of Active U.S. Land Rigs (BHI North American Rotary Rig Count) BHI U.S. Land Rig Count
Slide 60: Ten-Year Relative Shareholder Return
Ten-Year Relative Shareholder Return Source: Nasdaq IR Insight (FactSet) as of January 2, 2018. 0% 100% 200% 300% 400% HP NBR PTEN UNT PDS
Slide 61: Land Drilling Market Valuations
Land Drilling Market Valuations Source: Nasdaq IR Insight (FactSet) as of January 2, 2018. $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 HP PTEN NBR UNT PDS Market Capitalization (Millions)
Slide 62: Oil vs. Natural Gas Directed Rig Count
Oil vs. Natural Gas Directed Rig Count 0 500 1,000 1,500 2,000 2,500 Number of Active U.S. Rigs (BHI North American Rotary Rig Count) Total Active Rigs Rigs Drilling for Oil Rigs Drilling for Gas
Slide 63: Oil and Natural Gas Prices
Oil and Natural Gas Prices Source: Energy Information Administration and Nasdaq IR Insight (FactSet). Oil Prices Natural Gas Prices $0 $20 $40 $60 $80 $100 $120 $140 $160 $0 $2 $4 $6 $8 $10 $12 $14 $16 U.S. Dollars per Million British Thermal Units U.S. Dollars per Barrel Daily Prices Henry Hub Spot
Slide 64: Oil and Natural Gas Prices
U.S. Dollars per Million British Thermal Units I Oil and Natural Gas Prices Oil Prices Natural Gas Prices —Henry Hub Spot —West Texas Intermediate Spot © 9 SIN A ee ee 99 oF oP IP ol FS aM gi ol? FP aM ot? 8 Po Daily Prices ‘Source: Energy Information Administration and Nasdag IR Insight (FactSet),
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