Helmerich & Payne, Inc. · NYSE:HP
Helmerich & Payne — Investor Presentation (March 2018)
66 slides from Helmerich & Payne's investor presentation, Mar 27, 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: Presentation Outline
Market Conditions H&P’s long term strategy Most capable and uniform land drilling fleet – Family of SolutionsTM Market share leader in the U.S. Technology driven wellbore quality and accuracy Very strong balance sheet and robust term contract backlog Presentation Outline
Slide 3: Drilling Market Conditions
Drilling Market Conditions Higher oil prices boding well for increasing drilling demand and continuing dayrate improvement Customer level of interest in putting additional rigs to work continues to increase Continue to experience additional demand for super-spec rigs as replacement cycle persists an
Slide 4: CapEx Upgrade Opportunities
CapEx Upgrade Opportunities Continuing to see additional demand for upgrades driving our capex estimates higher for fiscal 2018 Returns on upgrades are attractive Upgrading opportunities include: 7,500 psi mud circulating systems Investing in multi-well pad drilling capability Third mud pump 25,000+
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 3/27/2018. The Company plans to upgrade additional rigs to super- spec status throughout 2018. ** The combined rig specifications of AC drive with 1,500 hp drawworks, 750,000# hookload ratings, 7,500 psi
Slide 6: 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 7: 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 and provides a digital platform
Slide 8: Competitive Benefits of Uniform FlexRig Fleet
Competitive Benefits of Uniform FlexRig Fleet Uniform fleet creates adaptive environment to reach maximum efficiency for people, equipment and technology Uniform fleet is critical in increasingly complex basins providing consistent and reliable operations Uniform fleet is efficient and cost advantag
Slide 9: Most Capable & Uniform Fleet Creates Opportunity
Most Capable & Uniform Fleet Creates Opportunity Greater scale than any competitor; ability to upgrade and deploy a total of 270 FlexRigs in U.S. Land segment to rig specifications in highest demand without investing in new builds Approximately 40% market share of the active rigs in highest demand (
Slide 10: H&P's Lead in U.S. Land AC Drive Rigs
H&P’s Lead in U.S. Land AC Drive Rigs March 2018 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 deri
Slide 11: Super-Spec Rigs Rapidly Gain Market Share
Source: The above estimates corresponding to “Super-Spec* Market Share” are derived from multiple sources including Rig Data. “Super-Spec*” Rigs Rapidly Gain Market Share * The combined rig specifications of AC drive with 1,500 hp drawworks, 750,000# hookload ratings, 7,500 psi mud circulating syste
Slide 12: 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,
Slide 13: Active AC Drive U.S. Rig Market Share
(~695 Rigs as of March 2018) 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 than
Slide 14: U.S. Land Market Share Leader
U.S. Land Market Share Leader As of March 2018 (~1,030 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. Values
Slide 15: 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 16: Leading U.S. Unconventional Driller
Leading U.S. Unconventional Driller (212 H&P Contracted Land Rigs est. for 3/27/18) Permian Basin , 106 Eagle Ford Shale , 33 Oklahoma Woodford , 31 Haynesville/Cotton Valley , 9 Bakken Shale , 8 Piceance Basin , 8 Marcellus Shale , 5 Utica Shale , 5 Niobrara Shale , 3 Woodbine , 2 Mississippian , 1
Slide 17: 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 18: Customer Satisfaction Matters
Customer Satisfaction Matters H&P has been rated 1st in total customer satisfaction for TEN YEARS IN A ROW* 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 servic
Slide 19: Benefits of an Integrated Model
Benefits of an Integrated Model CONTINUOUS IMPROVEMENT DESIGN (and redesign) FABRICATE (and upgrade) OPERATE (and improve)
Slide 20: H&P Adding to the Family of Solutions
H&P Adding to the Family of SolutionsTM Wellbore Quality and Accuracy Critical to Extracting Value from Shale Assets 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
Slide 21: Challenge: Inconsistent Directional Drilling
Challenge: Inconsistent Directional Drilling Drilling Performance Varies Widely Increased Tortuosity of Wellbores Poor Drilling Accuracy – Missed Targets Downhole Tool Failures Late Target Changes at Landing These inefficiencies cost industry billions in lost time and production
Slide 22: Directional Complexity/Velocity Trend
Directional Complexity/Velocity Trend 24 S-Well Horizontal Extended Reach Turnazontal SPEED AND COMPLEXITY CONTINUOUSLY INCREASING Industry Attempting to Hire Artists, Need to Convert Art Into Science
Slide 23: Motive Bit Guidance System
Motive Bit Guidance System Bit Guidance is a completely new approach to directional drilling, enabling repeatable execution of High Quality Wellbores by: Completely Automating ALL of the Following Tasks: Data Analysis Real-Time Forward Modeling of Bit Position More Detailed and Truthful Survey and S
Slide 24: MOTIVE Drilling Technologies, Inc.
MOTIVE Drilling Technologies, Inc. MOTIVE is the industry leader in the use of cognitive computing to guide the directional drilling process. Motive has commercially drilled more than 5 million feet drilled across all of the major U.S. shale plays and Canada and has been issued 15 US Patents. The Mo
Slide 25: Value Driven Automation
Value Driven AutomationTM Target Zone Real-Time Economic Driven Decisions Millions of potential options are considered by Guidance System to find the optimal convergence back to the well plan. Convergence Planner considers costs and value associated with: Drilling Speed Risk Associated with Tortuosi
Slide 26: Challenge: Sensor Error Accumulates
Challenge: Sensor Error Accumulates 28 Objective Reality Accurate Placement/Spacing Critical to Maximize Well Economics
Slide 27: Accurate Wellbore Placement Matters
Accurate Wellbore Placement Matters Reservoir: Optimal drainage Completions: Controlling hydraulic communication Geology: Better data for geological mapping Regulatory: Greater confidence wells are within boundaries Drilling: Reduced collision risk for future in-fill drilling
Slide 28: Magnetic Variation Services
Magnetic Variation Services MagVAR is a leading provider of MWD geomagnetic referencing and survey quality management Real-time center serving active horizontal rigs drilling in North America Utilized for over 40 E&P companies 3,000+ wells analyzed and corrected
Slide 29: 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 30: H&P / Motive / MagVAR Strategic Value
H&P / Motive / MagVAR Strategic Value Technology Leaders: H&P Provides- Industry Leader for High Performance Rigs Largest and Most Standardized AC rig Fleet/Platform Solutions for Controls & Automation Market Share Leader in US Land Rig Deployment MOTIVE Provides- Leading Directional Decision Automa
Slide 31: 24/7 Technical and Performance Solutions
24/7 Technical and Performance Solutions Center of Excellence Tulsa, OK Staffed by Technicians & Drillers Motive Command Center Dallas, TX Staffed by Directional Drillers MagVAR Real-Time Center Denver, CO Staffed by Engineers
Slide 32: H&P's Strong Balance Sheet
H&P’s Strong Balance Sheet (As of December 31, 2017) 1. Total Capitalization is defined as Total Debt plus Shareholders' Equity. Total-Debt-to-Total-Capitalization Ratio1 Source: Company Filings.
Slide 33: 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 3/27/18. Given notifications as of 3/27/18, the Company expects to generate approximately $4 million in the second fiscal quarter of 2018 and approximately $6 m
Slide 34: FlexRig Fleet and a Digital Platform
FlexRig Fleet and a Digital Platform Most Capable and Uniform Fleet Growing Market Share Meeting Wellbore Quality & Accuracy Challenges Strong Balance Sheet Robust Backlog H&P Winning Strategy
Slide 35: H&P Winning Strategy
H&P Winning Strategy > FlexRig Fleet and a Digital Platform > Most Capable and Uniform Fleet >» Growing Market Share > Meeting Wellbore Quality & Accuracy Challenges > Strong Balance Sheet Robust Backlog
Slide 36: Additional References
Additional References
Slide 37: H&P Activity as of March 27, 2018
~235 rigs are optimal for multiple-well pad drilling (~96% of which are equipped with skidding systems and the remainder with walking systems). The remaining SCR rigs in the U.S. Land segment have a 3,000 hp drawworks rating. H&P Activity as of March 27, 2018 Rigs Working/ Contracted 212 212 0 5 18
Slide 38: 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 98 90 179 158 128 117 104 84 72 67 73 87 87 98 102 122 297 233 161 153 134 111 87 91 109 147 183 191 200 212
Slide 39: 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 40: 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 41: U.S. Land Horizontal and Directional Activity
U.S. Land Horizontal and Directional Activity (~940 Rigs as of March 2018) 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 grea
Slide 42: U.S. Land Horizontal and Directional Activity by Power Type
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 43: 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 44: 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 March 2018) H&P’s Active Rigs in the Permian Basin Total Active Rigs in
Slide 45: 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 46: 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 47: 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 48: 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 49: Center of Excellence – Tulsa, OK
Center of Excellence – Tulsa, OK 24/7 Technical and Performance Solutions: Support Structure Data Analysis Best Practices
Slide 50: 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 51: 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 205 Upgraded or Upgradeable to Rig Specifications in High Demand** 212 Contracted H&P U.S. Land Rigs ** AC drive FlexRigs with 1,500 hp drawworks and 750,000# hookload ratings (205) that do not already have 7,500 psi
Slide 52: 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 systems and multiple-well pad drilling systems (herein referred to as “Super-Spec Upgradable”) can be upgraded to include these two capabilities. These five combined rig speci
Slide 53: 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 54: 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 55: 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 56: 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 57: 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 March 2018 (~1,030 Active Rigs in U.S. Land By Power Type) Note: The above estimates corresponding to rig activity
Slide 58: The Replacement Cycle: Customer Adoption
The Replacement Cycle: Customer Adoption Next ~135 E&P Operators (~605 Active Rigs by Power Type) Top 10 E&P Operators (~240 Active Rigs by Power Type) Remaining E&P Operators (~185 Active Rigs by Power Type) Top 10 E&P Operators Next ~135 E&P Operators Remaining E&P Operators They represent the 10
Slide 59: 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 60: H&P Global Fleet Under Term Contract
Number of Rigs Already Under Long-Term Contracts* (Estimated Quarterly Average - as of 3/27/18) 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 118.1 117.8 95.1 83.6 46.2 36.9 29.4 International Land 10.8 10.0 10.0 10.0 10.0 10.0 10.0 Of
Slide 61: Technology & Quality Service Make a Difference
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 62: 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 63: Ten-Year Relative Shareholder Return
Ten-Year Relative Shareholder Return Source: Nasdaq IR Insight (FactSet) as of March 19, 2018. 0% 100% 200% 300% HP NBR PTEN UNT PDS
Slide 64: Current Dividend Yields
Current Dividend Yields Source: Nasdaq IR Insight (FactSet). Yields calculated as of market close on March 19, 2018. 0% 1% 2% 3% 4% 5% HP NBR PTEN PDS UNT Dividend Yield (%)
Slide 65: Land Drilling Market Valuations
Land Drilling Market Valuations Source: Nasdaq IR Insight (FactSet) as of March 19, 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 66: Land Drilling Market Valuations
Land Drilling Market Valuations $4,000 $3,000 $2,000 i | iz | ‘Source: Nasdaq IR Insight (FactSet) as of March 19, 2018 Market Capitalization (Millions)
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