Helmerich & Payne will benefit from increasing utilization

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Helmerich & Payne (HP), the oil and gas drilling company, has seen profits become losses as revenues collapsed 45% after the oil price crash.  However there are reasons to believe an inflexion point has been reached as utilization ratios increased from a low of 24% to 31% at the end of last year.  Reports are that fracking supply companies are seeing surging demand for sand proppant and oil giants are returning.

Q2 results disappointed as losses increased as costs rose but the increased cost was due to putting idle rigs back to work.   HP’s fleet utilization bottomed out in Q3 2016  at 87 active rigs. Since then it has increased to 168 active rigs with 41 active rigs added in Q2 alone. Those rigs will increase revenues in the coming quarters and, with lower spending rates, margins and profits will again increase.

“We also see encouraging signs indicating that the recovery in the U.S. Land market has legs”

CEO John Lindsay said at the second quarter results meeting that , “We also see encouraging signs indicating that the recovery in the U.S. Land market has legs and could continue to build momentum, even though the rate of increase in activity may slow to a more modest pace.“

Recovery may take a while but HP is a market leader and has a strong balance sheet.  With the stock still down over 30% it looks attractive.

 

Risk Disclaimer: This article does not constitute a recommendation to buy or sell. Investing in stocks or other securities and derivatives is a high-risk activity and not suitable for everyone. It is strongly recommended that individuals should consult with a SEC-registered investment adviser prior to making any investment decisions.

Disclosure: The author holds no positions in any of the stocks mentioned nor has any intentions to initiate any in the next 72 hours.

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