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Text: Such statements are based upon current information and management's expectations as of this date and they 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.
Relieved that one of the most difficult years in the company's 100-year history is behind us and optimistic considering market share gains accomplished during the first fiscal quarter of 2021 and strengthening oil prices, which enhanced financial health of our customers.
We entered the new year, with 94 rigs running in U.S. land that's double the number we had in August, and the upward trend continues.
Around this time last year VTI prices were trading in the low-50s there were approximately 800 rigs operating in the U.S. land market and H&P was operating in a 194 of those rigs.
Contrast that with today, where oil prices are up over 10%, up into the upper 50s and the industry rig count is approximately 415 rigs and H&P is running 103 FlexRigs.
Obviously, a lot of happened between these two data points, and it shouldn't surprise anyone that the short and medium term activity outlook from E&P companies is taking a while to take shape.
However, if market expectations for U.S. production levels continue to drop that should have a positive impact on oil prices, which further supports consensus of expectations for approximately 500 active rigs in the U.S. at year-end.
Taking this a step further, by our count, there are approximately 630 super-spec rigs available in the U.S. market.
Looking forward, we believe the vast majority of all working rigs drilling horizontal wells will continue to trend toward the super-spec classification and if activity does reach 500 rigs, the industry rig count would begin to approach utilization levels that have historically provided pricing power.
Today, we are hopeful and encouraged by the recent worldwide deployment of COVID-19 vaccines.
We are encouraged with an improving crude oil price picture and we're encouraged by the progress we continue to make on strategic efforts to deploy additional digital technology solutions and to advance new commercial models.
Even with the early success of vaccines for COVID-19, there remains a significant level of uncertainty regarding the global economic recovery as well as the changing political environment, and that certainly tempers our short-term optimism.
While it's encouraging to see oil prices higher than expectations, we are cognizant that even in a stable or improving environment, there remain several challenges ahead for the industry.
We are encouraged seeing the industry rig count begin to recover, the customers are still in the budgeting process to determine their capital allocation and those levels will set the tone for activity during the remainder of 2021.
We do expect public E&Ps to maintain financial discipline, related to their announced budgets.
We also expect private E&Ps to add rigs, however, we don't expect an outsized increase in fiscal '21 rig count, even if oil prices reach $60 per barrel.
A return-driven capital allocation strategy is in the best long-term interest of our industry, and that's what we're aiming to support with our solutions based offering.
H&P has a differentiated customer-centric approach of combining our people, rigs and leading-edge automation technology, which enables us to deliver the highest value wells for our customers.
And underlying principle of our performance contracts is the creation of a sustainable win-win scenario based not only on efficiency, but also by employing the advantages of automation related to wellbore quality and placement.
Our patented drilling automation software is a key driver in improving well economics for the customer by enabling the drilling of consistently higher quality and better placed wellbores throughout the drilling program.
To-date our autonomous AutoSlide technology is deployed on 25% to 30% of our FlexRig fleet and we currently have similar percentages for performance-based contracts.
Automation solutions improve the drilling efficiency of the well, but it also has a significant influence on the lifetime value of the asset by delivering a better wellbore to the completion phase, which will ultimately enhance production economics.
When successful, the combination of the FlexRig and digital technology solutions leads to superior well economics by lowering risk and increasing returns, for our customers, as well as for H&P.
We can't control the macro challenges, but we can remain laser focused on our technology solution deployment, our performance-based contracts and our value accretion for customers.
We're encouraged that several customers have adopted these new solutions, but we recognize that more work is ahead, an additional efforts aimed at change management must occur within the industry.
Accordingly, improvements in technology solutions and performance-based contract adoptions are not likely to be linear and may not always correlate with our rig count.
That said, we're seeing remarkable progress as being made today and we're steadfast and confident in our ability to lead and effect change in our industry.
I'm very pleased with our people's service attitude and the ability to quickly respond to customer demand and improve activity by roughly 35% during the first fiscal quarter.
Our market share today is back to pre-pandemic levels.
We are adding back more rigs in the competition due to our proven ability to reactivate rig safely, efficiently and cost effectively.
We believe there is an opportunity to grow our market share above 25%.
If you look at previous downturns we have faced since the 2008 Financial Crisis, we have emerged stronger with greater capability as we differentiated our offerings and grew market share in the premium part of the market.
Going forward, in a structurally smaller U.S. market, we believe super-spec rigs combined with digital technology solutions that provide improved value through wellbore quality will prevail.
Relative to the 800 rig drilling a year ago, many idle SCR and less-capable AC rigs may be permanently sidelined.
Further, not all of our competitors with super-spec rigs have the ability to enable firm coordination[Phonetic] features that many customers are beginning to require.
In the super-spec classification segment, we have approximately 37% of the U.S. capacity with 234 super-spec FlexRigs that are unique with their digital technology capability across our uniform fleet.
Another aspect of our asset deployment strategy, we plan to execute, will occur over the medium to long-term in international markets.
That strategy is to opportunistically reduce our U.S. super-spec concentration over time by deploying rigs internationally for appropriately scaled contracts.
Our international business development team is seeing some bidding activity in Argentina, Colombia, the Middle East as well as other markets.
At this time, these prospects are in early stages, but we are encouraged by the customer interest in H&P FlexRigs due to a combination of our expertise and unconventional drilling.
Our strong historical performance in these areas and the need for, what we would consider an imminent legacy rig replacement, driven by an evolution toward digital technology for wellbore quality and placement.
These are great opportunities for H&P in addition to our initiatives to improve our cost structure, where Mark will provide more details in his remarks.
On the last call, we discussed having made investments in geothermal projects and you may have seen some recent announcements by our strategic partners.
Along with looking at admissions reducing opportunities like geothermal, H&P will continue to explore and invest in new and diversified technologies as well as expand our digital technology capabilities for the long-term sustainability of the company.
Before turning the call over to Mark, I want to underscore once more the focus and success our company has made on its strategic objectives, particularly given the economic and industry headwinds we are navigating.
As we've indicated previously, introducing disruptive technologies and new business models, is a long, arduous and sometimes, unpredictable process.
I believe our dedicated teams are well equipped and our conservative financial stewardship will enable us to capitalize on the challenges and opportunities ahead.
Today, I will review our fiscal first quarter 2021 operating results, provide guidance for the second quarter, update full fiscal year 2021 guidance as appropriate and comment on our financial position.
Let me start with highlights for the recently completed first quarter ended December 31, 2020.
The company generated quarterly revenues of $246 million versus $208 million in the previous quarter.
The quarterly increase in revenue was due to higher rig count activity in North America Solutions as operators resumed some drilling activity.
Total direct operating costs incurred were $200 million for the first quarter versus $164 million for the previous quarter.
The sequential increase is attributable to the aforementioned additional rig count in the North America Solutions segment and the related rig recommissioning expenses.
General and administrative expenses totaled $39 million for the first quarter, higher than our previous quarter due to the resumption of short-term incentive accruals for fiscal 2021, but within our guidance for full fiscal year '21.
During the first quarter, we closed on the sale of an offshore platform rig to its long-standing customer as per a provision in the original long-term contract.
The sale closed for consideration of $12 million paid out over two years.
The rig had an aggregate net book value of $2.8 million and the resulting gain of $9.2 million as reported as a part of the sale of assets on our consolidated statement of operations.
In connection with the sale, we entered into a long-term management contract for this rig in our Gulf of Mexico segment.
Our Q1 effective tax rate was approximately 19%, which is on the lower end of our guided range due to a discrete tax expense.
To summarize this quarter's results, H&P incurred a loss of $0.66 per diluted share versus a loss of $0.55 in the previous quarter.
Absent these select items, adjusted diluted loss per share was $0.82 in the first fiscal quarter versus an adjusted $0.74 loss during the fourth fiscal quarter.
Capital expenditures for the first quarter of fiscal '21 were $14 million below our previous implied guidance.
This is primarily due to the timing of spending, which has shifted to the remaining three quarters of the fiscal year.
Turning to our three segments, beginning with the North America Solutions segment.
We averaged 81 contracted rigs during the first quarter, up from an average of 65 rigs in fiscal Q4.
I will note here that at the end of fiscal Q1, all idle but contracted rigs, which I will refer to as IBC rigs thereafter have returned to work compared to an average of approximately 15 IBC rigs in the previous quarter.
During the first quarter, we doubled our rig activity from the prior quarter low of 47 active rigs.
We exited the first fiscal quarter with 94 contracted rigs, which was slightly above our guidance expectations as demand for rigs continue to expand from the low, reached midway through the end of the previous quarter.
Revenues were sequentially higher by $53 million due to the previously mentioned activity increase included in this quarter's revenues were roughly $4 million of unexpected early termination revenue from the cancellation of one rig contract.
North America Solutions operating expenses increased $47 million sequentially in the first quarter, primarily due to adding 25 rigs, a 35% increase in North America activity as well as reactivating 10 idle but contracted rigs, both of which resulting in one-time reactivation expenses of approximately $10.6 million.
Looking ahead to the second quarter of fiscal 2021 for North America Solutions.
As I mentioned earlier, we exited Q1 with slightly more rigs contracted and running than expected.
The activity level has continued to grow, albeit at a more moderate pace than the prior quarter as operators add rigs to maintain production levels with oil above $50 per barrel.
As of today's call, we have 103 rigs contracted with no IBC rigs remaining.
We expect to end the second fiscal quarter of '21 with between 105 and 110 contracted rigs.
As John discussed, our performance contracts are gaining customer acceptance and of the approximately 34 rigs that we have added to the active H&P rig count after September 30th through today, more than a quarter, are working under such performance contracts.
In the North America Solutions segment, we expect gross margins to range between $60 million to $70 million with new early termination revenue expected.
As we continue to add rigs, we will also incur related one-time reactivation expenses, such expenses are expected to be approximately $6 million in the second quarter.
As we have seen in previous cycles, there is a correlation between the reactivation cost per rig and the length of time a rig has been idle.
As a reminder, most of our rigs were stacked back in April of 2020, nine months ago.
Historical experience indicates that rig stacked for nine months or longer will incur cost of $400,000 to $500,000 to reactivate.
Reactivation costs are incurred in the quarter of start-up, so the absence of such costs in future quarters is margin accretive.
Our current revenue backlog from our North America Solutions fleet is roughly $448 million for rigs under term contract, but importantly this figure does not include additional margin that H&P can earn is performance contract criteria are met.
Regarding our International Solutions segment.
International Solutions business activity declined from five active rigs at the end of the fourth fiscal quarter to four active rigs at December 31.
This decrease is the result of an expected rig release in Abu Dhabi, due in large part to the disruption created by the ongoing COVID-19 pandemic.
As we look toward the second quarter of fiscal '21 for International, our activity in Bahrain is holding steady with three rigs working.
We also have one rig under contract in Argentina.
In the second quarter, we expect to have a loss of between $1 million to $3 million, apart from any foreign exchange impacts, as the legacy structural cost in Argentina continue to hamper International margins.
Also we still have a pending rig deployment in Colombia that continues to be delayed, as our customer awaits on required regulatory approvals to begin work.
Turning to our Offshore Gulf of Mexico segment.
We currently have four of our seven offshore platform rigs contracted and we have active management contracts on three customer owned rigs, one of which is on full active rig.
Offshore generated a gross margin of $6 million during the quarter, which was at the lower end of our estimates.
As we look toward the second quarter of fiscal '21 for the Offshore segment.
We expect that Offshore will generate between $6 million to $9 million of operating gross margin.
Now let me look forward to the second fiscal quarter and update full fiscal year 2021 guidance as appropriate.
Capital expenditures for the full fiscal of '21 year are still expected to range between $85 million to 180 -- a 105 -- $85 million to $105 million, with remaining's been distributed over the last three fiscal quarters.
Our expectations for general and administrative expenses for the full fiscal 2021 year, have not changed and remain at approximately $160 million.
We also remain comfortable with the 19% to 24% range for estimated annual effective tax rate and do not anticipate incurring any significant cash tax in fiscal 2021.
The difference in effective tax versus statutory rate, is related to permanent book-to-tax differences as well as state and foreign income taxes.
Now looking at our financial position.
Helmerich & Payne had cash and short-term investments of approximately $524 million at December 31, 2020 versus $577 million at September 30.
Including our revolving credit facility availability, our liquidity was approximately $1.3 billion, not included in the previously mentioned the cash balance is approximately $35 million of income taxes receivable and related interest that we collected after the end of the first fiscal quarter.
Our debt-to-capital at quarter end was about 13% and our net cash position exceeds our outstanding bond.
H&P's debt metrics continue to be in best-in-class measurement among our peer group, but allows us to keep our focus on maximizing our long-term position.
As a reminder, we have no debt maturing until 2025 and our credit rating remains investment grade.
Now a couple of notes on working capital.
Our trade accounts receivable at fiscal year-end of $150 million grew by $38 million to approximately $188 million, due to the added rig activity, as previously mentioned.
The preponderance of our AR continues to be less than 60 days outstanding from billing day.
Also included in AR, there is another approximately $10 million of tax refund receivables.
Our inventory balances have declined approximately $5 million sequentially from June -- from September 30th to $99 million and we continue to leverage consumables across the entirety of U.S. basins to use and reduce inventory on hand.
These efforts are resulting in better spending rationalizations, that are reducing our out-of-pocket expenditures.
Our accounts payable terms optimization project, mentioned on the last earnings call will extend our payable terms with certain key vendors.
And finally of note, our one, the majority of our annual ad valorem taxes accrued through the year are paid annually in the fourth calendar quarter.
And two, the short-term incentive compensation accruing for fiscal year '21 will not be paid until the first quarter of fiscal year '22.
As I mentioned on the November call, we expected to use a modest amount of cash on hand, as we work toward a 100-plus rig count activity level.
As mentioned earlier in my comments we arrived at a 100 rig count level, during this second quarter.
We believe that this activity level, our point forward quarterly operating earnings, will fund our maintenance capital expenditures that service cost and dividends.
Based on our updated forecast, we expect to end fiscal 2021 with cash and short-term investments at or above the $500 million.
In closing, we are continuously working to manage our costs, both operating and SG&A expenses, as well as capital expenditures.
We believe active cost management is crucial in the now structurally smaller United States upstream market.
Various initiatives are under way to identify and drive our costs where possible to enhance margins going forward.
That concludes our prepared comments for the first fiscal quarter.

user
q1 loss per share $0.66.
qtrly adjusted loss per share $0.82.
helmerich and payne - expect north america solutions operating gross margins to be between $60-$70 million for q2.
helmerich and payne - sees fy 2021 gross capital expenditures are still expected to be approximately $85 to $105 million.
fiscal year 2021 gross capital expenditures are still expected to be about $85 to $105 million.
helmerich and payne - ended quarter with $524 million in cash and short-term investments and no amounts drawn on its $750 million revolving credit facility.

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