Helmerich & Payne, Inc. 2026 Q3 Earnings Call

Thank you, Chris. Hello, everyone. Thank you for joining us. As always, we appreciate your interest in H&P. I'll begin with an overview of our fiscal third quarter results. I will then turn to discuss the broader macro environment, current rig market dynamics, and several key commercial developments, including a specific update on our activities in the Vaca Muerta in Argentina. Todd will then walk through our financial results, share details on our financial framework, and discuss additional cost optimization actions we are initiating. He will then provide guidance for the fourth fiscal quarter and full year. To wrap up, I will then return to summarize the key takeaways before opening the line for questions. Turning to slide four of the presentation, I'd like to begin by walking through some of our key highlights from the fiscal third quarter.

We delivered strong financial and operational performance during the quarter, led by our operations in the U.S. Adjusted EBITDA was $236 million, coming in comfortably ahead of the implied midpoint of our guidance. We also generated strong free cash flows during the quarter. One of the most pleasing aspects was exceeding the midpoint of our direct margin guidance in all operating segments, despite ongoing disruption in the Middle East and recent market volatility. We experienced a strong rebound in activity in North America Solutions, averaging 142 rigs during the quarter and direct margins of $241 million, coming in at the high end of the guidance range. Our talented teams and leading technology continue to deliver for our customers, generating industry-leading margins of $18,700 per day, up over $1,000 a day sequentially.

Being able to deliver this margin growth across the largest fleet in the Lower 48 while reactivating 10 rigs during the quarter demonstrates our differentiated capability to efficiently and economically reactivate rigs. Despite recent commodity price volatility, we have continued to experience strong customer demand and exited the quarter with 147 rigs running in the Lower 48. The combination of a stronger activity landscape and pricing environment has enabled us to increase our fiscal fourth quarter and full year guidance for North America Solutions. In International Solutions, we saw a significant sequential increase in direct margins. During the quarter, we delivered a direct margin of $31 million, aligning with the high end of our guidance range. This was led by strong performance in our Latin America region, as well as slightly less than expected impacts from the ongoing conflict in the Middle East.

We continue to closely monitor developments in the region. I have just returned from a trip to Saudi Arabia last week. I spent time in the field with our teams and met with our customer and partners in the Kingdom. Despite the ongoing conflict, we continue to do an exceptional job in maintaining continuity of operations and navigating supply chain constraints. I left encouraged by our customer interactions, and we're seeing ongoing commercial momentum despite the conflict as we look ahead to 2027. During the quarter, operational activity remained stable in the region. We continued rig reactivations in Saudi, although at a slower pace than planned. We closed the quarter with four rigs fully reactivated, and our fifth rig began drilling early this quarter.

This takes us to a total of 22 rigs operating in the Kingdom. We expect to maintain this level of activity through the fiscal fourth quarter. Even with these delays, the broader portfolio continues to perform as expected. We remain confident in achieving the midpoint of the annual rig guidance range we set out at the start of the year. We also remain on course to get the quarterly direct margin run rate to at least $45 million, with strong growth in Argentina offsetting some of the near-term conflict-related activity changes in the Middle East. Our Offshore Solutions delivered another quarter of strong operational and financial results, coming in above the high end of our guidance range. This was again driven by the achievement of several performance-related bonuses during the quarter.

In addition to our robust operational performance, we have maintained a clear emphasis on strengthening our balance sheet and optimizing our enterprise. We begin preparing for 2027, we are implementing several new initiatives to accelerate debt repayment, optimize our cost structure, and position our portfolio to support the anticipated multi-year growth cycle. Todd will elaborate on these efforts shortly. Looking at the broader macro environment on slide five, the Middle East conflict continues to dominate the direction of travel of commodity prices. Over the past three months, we have navigated a highly volatile pricing environment, with prices initially retreating to pre-conflict levels before rebounding as geopolitical tensions once again intensified. Given the volatile situation, visibility remains somewhat limited.

Regardless, with the 12-month strip remaining around $70 per barrel WTI, we are confident that our customers will be using higher planning price assumptions this budget season compared to what they used last year, pointing to upstream spending growth in 2027. Beyond the short-term market dynamics, what has not changed is that our belief that the world will require significantly more energy than it consumes today, driven by expanding populations and growing prosperity in emerging markets, along with rising power needs from AI advancements in many developed nations. At the same time, the potential bifurcation of supply and energy security concerns caused by this shock supports the view that we may now need even more energy supply.

This dynamic strengthens our view that demand for oil and gas will persist and grow for many years to come, and therefore increases the need for our global drilling solutions, and will now likely bring forward activity sooner than we anticipated. Looking at the rest of this calendar year, we have not seen any deviation from the recent ramp-up in drilling activity from private operators. We are on track to surpass 150 rigs during the quarter, which is at least 17 more than we were operating at our recent trough in February. We are confident that our rig activity will persist at these levels throughout the remainder of the year and is likely to continue into 2027, assuming commodity prices remain supported. The majority of these additions have originated from private and small independent operators who typically are more price sensitive.

Larger operators have so far focused on adding term and additional technology to existing rigs. We are encouraged by this dynamic heading into 2027, as we believe all operators will need to increase drilling programs to maintain, if not grow, production. With utilization of the super-spec fleet already trending at 95%, we see further tightening of the market, which will be supportive of direct margins. As of today, we have around 10 rigs remaining that can go back to work relatively quickly for maintenance CapEx levels or less. Importantly, we are not solely reliant on operators in the lower 48 picking up these rigs. We are seeing strong demand in the Vaca Muerta, geothermal continues to grow, and we are in several discussions to strengthen our FlexRig footprint in the Middle East and Australia.

More specifically in the Middle East, as was the case last quarter, the uptick in activity remains less defined as the conflict continues to create disruption. However, we remain hopeful that more rigs will be required in 2027, with several of the NOCs stating plans to grow production. Lastly, offshore continues to be an area of strength for us and the market more broadly, with several projects progressing. We are hopeful that we can continue to capture increasing scopes of work as operators seek to maximize output from existing assets. In summary, we remain positive on the outlook despite the market volatility created by the ongoing conflict. This will be led by North America Solutions, our most important market, and supplemented by growth in Argentina and the ongoing recovery in the Middle East. Importantly, we believe this is the early innings of a multi-year upstream growth cycle.

Turning to slide six. While market conditions remain dynamic, we are encouraged by the level of customer engagement and the opportunities developing across our diversified portfolio. These opportunities are taking shape in North America Solutions, where demand from private operators drove 10 incremental rig additions during the quarter. That activity reflects the constructive industry outlook that we discussed earlier, as operators continue to advance development programs despite commodity price volatility. We also continue to advance the deployment of Flex Robotics, with a second package now operating on a rig for a super major customer in the Permian Basin, marking another key milestone in the rollout of this innovative technology.

As these systems transition from initial commitment to field deployment, they are demonstrating the effectiveness of our automation strategy and strengthening the competitive advantage of our super-spec fleet. Beyond traditional oil and gas, geothermal activity continues to expand, representing an exciting opportunity to leverage our drilling expertise and technology in a growing adjacent market. We recently signed agreements for three additional rigs to work on geothermal projects in the U.S. Combined with our existing projects in the U.S. and Europe, we are well on our way to hitting a double-digit rig count. That commercial momentum extends across our international operations. We are encouraged by the progress in Argentina, where activity levels and customer engagement continue to increase.