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Text: Such statements are based upon current information and management's expectations as of this date and are not guarantees of future performance.
As such, our actual outcomes and results could differ materially.
You can learn more about these risks in our annual report on Form 10-K, our quarterly reports on Form 10-Q and our other SEC filings.
We'll also be making reference to certain non-GAAP financial measures such as segment operating income and operating statistics.
This past fourth fiscal quarter was one of the most challenging in the company's 100-year history.
The destruction of oil demand induced by COVID is well documented.
And in terms of drilling activity, our rig count hit bottom in August.
Despite the challenging quarter, our strong financial position has enabled us to remain focused on our long-term strategies.
Our people are developing new commercial models and innovative drilling and digital technologies that will help to transform the customer experience and shape the future of this business.
These efforts have progressed despite this difficult environment and will serve as the foundation from which the company will build as the market continues to recover.
Our customer-centric approach is one that prioritizes providing customized solutions by employing a combination of people, processes, rigs and automation technology to deliver more value and lower risk for our customers.
This approach is distinctive in the industry, resonates well across our customer base and with further developments on the horizon will be a major driver of growth as activity levels improve.
Excluding our two idle but contracted rigs, our current US FlexRig activity has improved to 80 rigs and we expect our active rig count will exit the first quarter at approximately 90 rigs.
This is almost double the number of rigs turning to the right compared to the lowest level reached in August.
The Permian has led the industry rig count recovery and H&P has earned approximately two-thirds of the incremental work in that basin.
As we anticipated, our rig count growth has exceeded that of our peers coming off of the bottom, allowing us to recoup 4 to 5 points of market share.
We believe that the quality of our field leadership, rig crews, FlexRig fleet and digital technology solutions will continue to advance this trend.
Concurrent with the increase in near-term activity, we are also experiencing increased customer utilization of our performance-based contracts in our rig automation software, AutoSlide.
We expect adoption of both to increase and become more prevalent in the industry.
H&P's touch of a button autonomous drilling approach is designed to optimize drilling of the vertical, curve and the lateral.
These automated solutions include real-time automated geosteering, rotary and sliding execution and improved wellbore quality and placement.
The uniqueness of our automated solutions is backed by a patented economic-driven approach where the software not only makes optimal cost benefit decisions and also directs the rig to execute those decisions without the need of human intervention.
This improves reliability, enhances value and reduces risk for our customers.
Let me give an example of the H&P value proposition autonomous directional drilling provides.
When customers use AutoSlide on our FlexRig, directional drilling personnel are no longer required at the rig site.
This is possible because the directional drilling decisions are being calculated using an algorithm in our patented rig guidance system, which can accurately process through thousands of variables in seconds rather than relying on the manual calculations of the traditional directional driller.
The software-enabled FlexRig allows the curve to be landed more accurately and reliably and the lateral to be placed more precisely in the shale, which results in lower drilling costs, improved production, reduced long-term maintenance costs for our customers and lower environmental impact.
Commercial models that reward performance coupled with rig automation software that enhances value are being adopted across the spectrum of the industry.
Mark will give additional details on performance contracts, but we have been successful in expanding our customer base with a wide range of E&Ps from super majors to small private companies.
Today, H&P owns more than a third of the estimated 635 super-spec rigs in the US market.
With many rig count forecasts ranging from 450 to 550 rigs over the next couple of years, we see significant further super-spec FlexRig market share growth and opportunities for improved pricing.
H&P continues to invest in new and diversified technologies for the long-term sustainability of the company.
Recently, we have made investments in and are supporting the efforts of a few companies driving the evolution of the geothermal industry.
The core of this evolution is a transition from geographically concentrated and naturally occurring hydrothermal resources to enhanced geothermal systems and closed loop systems.
John, could I ask you to pause for just a moment?
I think I'm understanding from my team that we're having a difficulty with their web link not working.
So we're going to pause for just one moment.
Get that online and continue.
Bear with us folks.
It is now my pleasure to turn today's program over to Mark Smith.
Again, our sincere apologies to all those on the phone -- on the telephone.
So, again, we do apologize.
We appreciate your patience and your interest in H&P.
In order to cure the problem, we will be posting the audio recording from this conference call within two hours from the conclusion.
We will be restarting from the top.
We will conduct a full one-hour conference call.
We hope you are available to stick with us and join us as we give you our fourth quarter fiscal '20 results and look ahead to fiscal 2021.
Such statements are based upon current information and management's expectations as of this date and are not guarantees of future performance.
As such, our outcomes and results could differ materially.
You can learn more about these risks in our annual report on Form 10-K, our quarterly reports on Form 10-Q and our other SEC filings.
We'll also be making reference to certain non-GAAP financial measures such as segment operating income and operating statistics.
This is yet another example that this fourth fiscal quarter is unprecedented in many ways and really challenging during the company's 100-year history.
The destruction of oil demand induced by COVID is well documented.
And in terms of drilling activity, our rig count hit bottom in August.
Despite the challenging quarter, our strong financial position has enabled us to remain focused on our long-term strategies.
Our people are developing new commercial models and innovative drilling and digital technologies that we believe will help transform the customer experience and shape the future of this business.
These efforts have progressed despite this difficult environment and will serve as the foundation from which the company will build as the market continues to recover.
Our customer-centric approach is one that prioritizes providing customized solutions by employing a combination of people, processes, rigs and automation technology to deliver more value and lower risk for our customers.
This approach is distinctive in the industry, it resonates well across our customer base and with further developments on the horizon will be a major driver of growth as activity levels improve.
Excluding our two idle but contracted rigs, our current US FlexRig activity has improved to 80 rigs and we expect our active rig count will exit the first quarter at approximately 90 rigs.
This is almost double the number of rigs turning to the right compared to the lowest level reached in August.
The Permian has led the industry rig count recovery and H&P has earned approximately two-thirds of the incremental work in that basin.
As we anticipated, our rig count growth has exceeded that of our peers coming off of the bottom, allowing us to recoup 4 to 5 points of market share.
We believe that the quality of our field leadership, our rig crews, our FlexRig fleet and our digital solutions will continue to advance this trend.
Concurrent with this increase in near-term activity, we are also experiencing increased customer utilization of our performance-based contracts in our rig automation software, AutoSlide.
We expect adoption of both to increase and become more prevalent in the industry.
H&P's touch-of-a-button autonomous drilling approach is designed to optimize drilling in the vertical, the curve and the lateral.
These automated solutions include real-time automated geosteering, rotary and sliding execution and improved wellbore quality and placement.
The uniqueness of our automated solutions is backed by a patented economic-driven approach where the software not only makes optimal cost benefit decisions but also directs the rig to execute those decisions without the need of human intervention.
This improves reliability, enhances value and reduces risk for our customers.
Let me give an example of the H&P value proposition autonomous directional drilling provides.
When customers use AutoSlide on our FlexRig, directional drilling personnel are no longer required at the rig site.
This is possible because the directional drilling decisions are being calculated using an algorithm in our patented rig guidance system, which can accurately process through thousands of variables in seconds rather than relying on the manual calculations of the traditional directional driller.
The software-enabled FlexRig allows the curve to be landed more accurately and reliably and the lateral to be placed more precisely in the shale, which results in lower drilling costs, improved production, reduced long-term maintenance costs for our customers and lower environmental impact.
Commercial models that reward performance coupled with rig automation software that enhances value are being adopted across the spectrum of the industry.
Mark will give additional details on performance contracts, but we have been successful in expanding our customer base with a wide range of E&Ps from super majors to small private companies.
Today, H&P owns more than a third of the estimated 635 super-spec rigs in the US market.
With many rig count forecasts ranging from 450 to 550 rigs over the next couple of years, we see significant further super-spec FlexRig market share growth and opportunities for improved pricing.
H&P continues to invest in new and diversified technologies for the long-term sustainability of the company.
Recently, we have made investments in and are supporting the efforts of a few companies driving the evolution of the geothermal industry.
The core of this evolution is a transition from geographically concentrated and naturally occurring hydrothermal resources to enhance geothermal systems and closed loop systems.
The technologies and techniques these companies are exploring are expected to improve project economics, leading to the ultimate scalability of geothermal as a source of energy.
The growth potential of unconventional geothermal energy applications represents a new opportunity for H&P to increase the utilization of its installed FlexRig asset base along with our digital technology solutions.
Our leadership position as a drilling solutions provider is a natural fit for the evolving geothermal market.
This is driven in part from our technology offerings that have already been utilized by some geothermal companies in Europe and are a proven success in unconventional oil and gas drilling in the US and internationally.
Modern geothermal drilling applications require the benefits that autonomous drilling and digital technology delivers for wellbore quality and placement.
We are encouraged by the successes, but we are also cognizant that a substantial amount of uncertainty remains in the market surrounding the impact of the pandemic.
It may take several quarters to understand what the new normal activity environment will look like.
That said, I continue to be impressed with our team's ability to manage through this difficult time and particularly the diligence they have demonstrated in keeping our employees and customers health and safety top of mind.
Today, I will review our fiscal fourth quarter and full year 2020 operating results, provide guidance for the first quarter and full fiscal year 2021 as appropriate and comment on our financial position.
Let me start with highlights for the recently completed fourth quarter and fiscal year ended September 30, 2020.
The company generated quarterly revenues of $208 million versus $317 million in the previous quarter.
The quarterly decrease in revenue is due to further declines in our rig count caused by the energy demand destruction associated with the COVID-19 pandemic as well as lower early termination revenues compared to the prior quarter.
Correspondingly, total direct operating costs incurred were $164 million for the fourth quarter versus $207 million for the previous quarter.
General and administrative expenses totaled $33 million for the fourth quarter, lower than our previous guidance.
During the fourth quarter, we closed on the sale of a portion of our real estate investment portfolio comprised of six industrial developments in Tulsa, Oklahoma for $40.7 million, which had an aggregate net book value of $13.5 million.
The resulting gain of $27.2 million is reported as the sale of assets on our consolidated operations.
Our Q4 effective tax rate was approximately 28% as we recognized an Oklahoma tax benefit related to the sale of our industrial properties in the state net operating losses.
To summarize this quarter's results, H&P incurred a loss of $0.55 per diluted share versus a loss to $0.43 in the previous quarter.
Absent these select items, adjusted diluted loss per share of $0.74 in the fourth fiscal quarter versus an adjusted $0.34 loss during the third fiscal quarter.
For fiscal 2020 as a whole, we incurred a loss of $4.60 per diluted share.
This was driven largely by the $563 million non-cash impairment announced in our second quarter as well as other select items, including restructuring charges and mark-to-market losses on our legacy securities portfolio.
Collectively, these select items constituted a loss of $3.74 per diluted share.
And absent these items, fiscal 2020 adjusted losses were $0.86 per diluted share.
Capital expenditures for the full fiscal 2020 totaled $141 million, below our previous guidance due to the combination of ongoing capital efficiency efforts as well as the timing of a small amount of supply chain spending that crossed into fiscal 2021.
This annual total is a reduction of $145 million from our initial fiscal 2020 budget and a reduction of over $315 million from fiscal 2019 capex.
H&P generated $539 million in operating cash flow during fiscal 2020, representing a decrease of approximately $317 million.
I will note that our cash and short-term investments balance increased by $176 million sequentially year-over-year, which I will discuss more in detail later in my remarks.
Turning now to our three segments, beginning with the North America Solutions segment.
We averaged 65 contracted rigs during the fourth quarter, approximately 15 of which were idle but contracted on some form of cold or warm stack rate.
I will refer to idle but contracted rigs with the acronym IBC hereafter.
This contracted average was down from an average of 89 rigs in Q3.
During the fourth quarter, we bottomed to 62 rigs contracted with about 16 IBC rigs resulting in 46 active rigs at the low activity point.
We exited the fourth quarter with 69 contracted rigs, of which 11 were IBC.
The exit count was slightly above our guidance expectations as demand for rigs found footing from the bottom late in the quarter.
Revenues were sequentially lower by $105 million due to the aforementioned activity decline as well as the IBC count.
Included in this quarter's revenues were $12 million of early termination revenue.
North America Solutions operating expenses decreased $43 million sequentially in the fourth quarter, primarily due to reduced activity and to the proactive operating initiatives at the field level that I discussed during the third quarter call.
That said, the sustained decline in rig activity during the quarter did cause per day expenses to increase on a per revenue day basis.
Expenses absorbed in the field include overhead for our field management and maintenance organizations, ongoing stacking costs, consumption of on-hand average cost inventory as we exhaust penny stock and limited reactivation costs for rigs returning to work.
Further, we had higher-than-expected self-insurance expenses, including numerous former employees on continued health and welfare benefits that will mostly expire toward the end of the first quarter fiscal 2021.
One comment to put these self-insurance expenses in context.
Our prior period self-insurance claims were generated with higher average rig activity, but some of these incurred but not reported claims are just now being developed when current operations are much smaller.
While we see both positive and negative volatility in our claims expenses as we true up the estimated liability each quarter, the percentage impact is more pronounced when our operations are smaller as they are today.
Now looking ahead to the first quarter of fiscal 2021 for North America Solutions.
As I mentioned earlier, we exited Q4 fiscal 2020 with more rigs contracted and running than expected.
The activity level has continued to grow as operators add rigs with oil hovering around $40 per barrel.
As of today's call, we have 82 rigs contracted with only two IBC rigs remaining.
The market remains uncertain with macro COVID demand pressures, political uncertainties and forward crude supply balances.
In all but two situations, operators with idle but contracted rigs have put them back to work and we are winning select opportunities for incremental rigs.
We expect to end the first fiscal quarter of 2021 with between 88 and 93 contracted rigs and we also expect the remaining two IBC rigs to return to work in late December or early January.
While the decrease in IBC rigs will not increase our contracted rig count, it will be accretive to activity and margins.
Almost all of these IBC rigs are on term contracts at rates entered into during the previous super-spec upgrade cycle.
As John discussed, our performance contracts are gaining customer acceptance.
And of the approximately 21 rigs we have added or expecting to add to the active H&P rig count, after September 30 through December 31, just over 30% are working under performance contracts.
As we mentioned in the May and July calls, our focus on solution-based performance contracts has driven us to evolve the nomenclature we used to present our business with investors.
We began this transition as we shifted our segment guidance to focus on the segment margins driven by rig and technology solutions rather than individual rig rates.
In the North America Solutions segment, we expect gross margins to range between $40 million to $50 million with approximately $1 million of that coming from early termination revenue.
This margin guidance is greater than the prior quarter in total.
And further, it is not impacted in any significant way by early termination revenues.
However, Q1 margins will be temporarily adversely impacted by reactivation costs as we rapidly add rigs from the recent bottom and recommissioning costs for a couple of walking rig conversions.
Our current revenue backlog from our North America Solutions fleet is roughly $554 million for rigs under term contract, but importantly is not inclusive of any potential performance bonuses.
This amount does not include the aforementioned $1 million of early terminations expected in Q1.
Regarding our International Solutions segment, International Solutions business activity declined from 11 active rigs during the third fiscal quarter to five active rigs at fiscal year-end.
This decrease is the result of rig releases in Argentina and Abu Dhabi, due in large part to the ongoing COVID-19 pandemic.
As we look toward the first fiscal quarter of 2021 for international, our activity in Bahrain is holding steady with the three rigs working, while our two rigs in Abu Dhabi and our entire Argentina and Colombia fleets are now idle.
In Argentina, we continue to work within an arduous regulatory environment, which has prevented us from reducing labor costs to levels that are more in proportion with reactivity potential.
This will lead us to incur a legacy cost structure into at least the first quarter and will cause international margins to be negative.
In the first quarter, we expect to have a loss of between $5 million to $7 million, apart from any foreign exchange impacts.
We still have a pending rig deployment in Colombia, but it has been delayed as our customer is still waiting on all the required regulatory approvals to begin work.
On the marketing front, our international business development team is seeing some bidding tendering activity in Argentina, Colombia, the Middle East and certain other markets.
At this juncture, these prospects are early in the process and are not included in our forward outlook.
Finally, turning to our Offshore Gulf of Mexico segment.
We have four of our eight offshore platform rigs contracted.
Offshore generated a gross margin of $4.6 million during the quarter, below our estimates, in part due to unfavorable adjustments to self-insurance reserves related to a prior period claim.
The previously mentioned gross margin also includes approximately $1 million of contribution from management contract rigs.
As we look toward the first quarter of fiscal 2021 for the Offshore segment, we expect that offshore rigs will generate between $5 million to $7 million of operating gross margin with offshore management contracts contributing an additional $1 million to $2 million.
Now, let me look forward to the first fiscal quarter and full fiscal year 2021 for certain consolidated and corporate items.
As we discussed in our May and July calls, we implemented numerous rightsizing efforts by reducing capital expenditures; reducing North America Solutions overhead; rightsizing selling, general and administrative overhead; and taking similar actions in the International segment where possible.
As mentioned, we are continuing to assess our international offices to appropriately calibrate for activity.
In all areas, we will continue to identify cost reduction opportunities and drive efficiency in our daily work activities.
Capital expenditures for the full fiscal 2021 year are expected to range between $85 million to $105 million, which is a reduction of approximately 33% to fiscal 2020 capex.
This capital outlay is comprised of three approximately equal buckets: First, maintenance capex to support our active rig fleet.
Given current activity levels, we have sufficient capacity to minimize new maintenance capex expenditures for the foreseeable future.
As you may recall, in fiscal 2019, we had bulk purchases in capex to scale up rotating componentry [Indecipherable] 200 plus working super-spec FlexRig count.
In addition, we continue to harvest components from previously impaired and decommissioned rigs to conserve capital.
As such, we expect fiscal 2020 year maintenance capex will range between $250,000 to $400,000 per active rig in the North America Solutions segment, well below our prior year guidance of $750,000 to $1 million.
Second, skidding to walking capability conversions.
For the customer with a want or need for walking rigs, we will invest to convert certain rigs from skidding to walking pad capability in exchange for a term contract as opposed to competitors walking rig capacity is fully utilized.
We have select customers who prefer certain rig design elements and are willing to enter into a contract with at least a year of term to enable that investment.
We estimate walking conversions to approximately $6 million to $7 million per rig.
Third, corporate capital investments.
The majority of this bucket is comprised of modernization for data center, data and analytics platforms and enterprise IT systems.
Our on-site data center has elements at the life cycle renewal stage and we are seizing the opportunity to move to both co-located data centers and cloud computing configurations that will be less capital intensive prospectively.
The data and analytics modernization focuses on the cloud forward approach for increased capability and scalability.
In the enterprise IT systems arena, we were implementing a new Human Capital Management system to better accommodate how we manage our diversified and dispersed employee base, including all phases of the employment cycle and employee experience.
Finally, a smaller amount of corporate capital is being allocated to office build outs as we reconfigure for new flex work arrangements with enhanced office capabilities that can facilitate smaller forward office footprints.
Depreciation for fiscal 2021 is expected to be approximately $430 million.
This is approximately $50 million less in fiscal 2020, primarily due to the second quarter impairments of non-super-spec rigs and associated capital spares.
Our general and administrative expenses for the full fiscal 2021 year are expected to be approximately $160 million.
The decrease sequentially is driven by our rightsizing efforts as discussed in the July conference call.
We believe our restructuring will enable us to achieve activity growth going forward without significant accretion of SG&A.
We are continuing our investment in research and development through the cycle as we push toward autonomous drilling.
Such innovation efforts will yield the next solution offering from our technology roadmap.
We expect R&D expenditures to be approximately $30 million in fiscal 2021.
The statutory US federal income tax rate for our fiscal 2021 year end is 21%.
In addition to the US statutory rate, we're expecting incremental state and foreign income taxes to impact our tax provision, resulting in an expected effective income tax rate range of 19% to 24%.
Based upon an estimated fiscal 2021operating results and capex, we are projecting a decrease to our deferred tax liability with no resulting material cash tax.
Now looking at our financial position.
Helmerich & Payne had cash and short-term investments of approximately $577 million at September 30, 2020 versus $492 million at June 30, 2020.
Including our revolving credit facility availability, our liquidity was in excess of $1.3 billion.
Our debt to capital at quarter end was about 13% with a positive net cash position as our cash on hand exceeds our outstanding bond.
Our debt metrics continue to be best-in-class measurement among our peer group.
As a reminder, we have no debt maturing until 2025 and our credit rating remains an investment grade.
Now, a couple of notes on working capital.
We earned cash flow from operations in the fourth quarter of approximately $93 million versus $214 million in fiscal Q3.
Our trade accounts receivable at fiscal year end was approximately $150 million with the preponderance being less than 60 days outstanding.
Our inventory balance is reduced $9 million sequentially from June 30 to $104 million at September 30 as we have leveraged consumables across the entirety of US basins and have reduced our min/max carrying targets to reflect the new activity levels.
As mentioned in the previous call, we commenced a project to optimize our accounts payable terms and negotiate additional or early payment discounts from suppliers.
These efforts continued to bear fruit during the fourth quarter.
We expect further benefits, but the impact will be relatively modest in comparison to what we have realized to-date.
The macro environment in fiscal 2020 drove capital allocation decisions, cost management measures and the rightsizing of the company to new activity levels.
These collective efforts undertaken to-date are aimed at generating free cash flow of that, when combined with the modest uses of cash on hand, will cover our capital expenditure plan, debt severance [Phonetic] cost and dividends in fiscal 2021.
Based on our budget for 2021 fiscal year, we expect to end fiscal 2021 with cash and short-term investments of approximately $450 million to $500 million.
The maintenance of our balance sheet strength and liquidity are foundational elements in our 100-year tradition of capital stewardship and they continue to be a significant differentiator in this volatile and cyclical industry.

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compname posts q4 loss per share of $0.55.
q4 loss per share $0.55.
expects its q1 of fiscal 2021 north america solutions rig count to exit at approximately 90 rigs up over 30% during quarter.

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