Helmerich & Payne, Inc. (HP) Q2 2017 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Helmerich & Payne Second Fiscal Quarter Earnings Conference Call. Currently, all phone lines are in a listen-only mode. Later, there will be an opportunity to ask questions during the question-and-answer session. Please be advised, today's program may be recorded. It is now my pleasure to turn the program over to Mr. David Hardie, Manager of Investor Relations. You may begin, sir. David Hardie - Helmerich & Payne, Inc.: Thank you, Aaron, and welcome, everyone, to Helmerich & Payne's conference call and webcast corresponding to the second quarter of fiscal 2017. With us today are John Lindsay, President and CEO, and Juan Pablo Tardio, Vice President and CFO. John and Juan Pablo will be sharing some comments with us, after which we'll open up the call for questions. As usual and as defined by the U.S. Private Securities Litigation Reform Act of 1995, all forward-looking statements made during this call are based on current expectations and assumptions that are subject to risks and uncertainties as discussed in the company's annual report on Form 10-K and quarterly reports on Form 10-Q. The company's actual results may differ materially from those indicated or implied by such forward-looking statements. We will also be making reference to certain non-GAAP financial measures such as segment operating income and operating statistics. You may find the GAAP reconciliation comments and calculations in today's press release. I'll now turn the call over to John Lindsay. John W. Lindsay - Helmerich & Payne, Inc.: Thank you, Dave, and good morning, everyone. Welcome to our second quarter call. As you saw in our press release, we experienced additional activity and spot pricing improvements in the U.S. Land market during the second fiscal quarter and H&P continues to lead the industry in AC drive, rig reactivation and market share. 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. Unfortunately, we expect international and offshore markets to remain challenging for the foreseeable future. The company is well positioned to successfully manage the new market dynamics. Organizational effectiveness initiatives implemented during the downturn have enhanced our ability to respond to demand and add value to our customers. H&P's fleet uniformity and size afford us scale that is unmatched in the U.S. land AC drive segment and is providing us with opportunities to capture additional market share. FlexRig technology, supported by our integrated business model, has a track record of over 1,900 rig years and is the preferred AC drive rig offering in the marketplace. We are excited about what lies ahead in the future. We have referenced our integrated business model in the past, and this morning, I plan to expand on the good things that are happening because of this approach and point to some examples of how this model benefits the company and our customers. At the heart of this strategy is an organization that is increasingly geared to capture experience and design, construction and technology, and then to mesh that with the learnings we glean everyday from our field operations. This capability is allowing us to upgrade to FlexRig to meet the specific needs of a customer as well as provide the best technology, reliability and results, which ultimately delivers our value proposition to both customers and shareholders. Having a uniform fleet of FlexRigs enables us to provide a Family of Solutions for our customers; a fleet designed to adapt to the future technology needs in the market and the capacity to deliver the right rig for their project. Here is where this is paying dividends. Today, we lead the industry with 122 super-spec capable FlexRigs in the U.S. Land market and another 50 rigs that are currently active and can also be upgraded to super-spec capability. The current and informal industry definition for super-spec capability refers to rigs with at least the following attributes: AC drive technology, 1,500 horsepower drawworks capacity, 750,000 pound hook load rating, 7,500 psi mud systems, and multiple well pad drilling capability. H&P not only has a significant lead in active super-spec rigs, but we also have approximately 100 idle AC FlexRigs that are candidates for upgrade to super-spec status should there be market demand to do so. This represents about two thirds of the number of idle high-spec AC drive rigs in the U.S. land industry fleet today. Uniform design characteristics allow us to upgrade FlexRigs to super-spec capability in a very capital efficient manner utilizing the lean manufacturing approach we successfully employed during our previous expansion. At this early stage in past cycles, we would've been sold out of FlexRigs, but today, we are positioned to respond quickly to demand across the spectrum of our customers' drilling needs. Most in our industry have a more challenging position to contend with, but here are few considerations to ponder as you think about the next several quarters and how they could play out. As you may recall, during the downturn from late 2014 to hitting bottom in the summer of 2016, all E&Ps across the industry were releasing rigs regardless of rig specifications or performance. We were idling over 200 AC drive FlexRigs, while many of our competitors were idling AC drive rigs as well as idling hundreds of old conventional rigs. At the trough rig count last summer, we had approximately 280 idle AC drive FlexRigs in the U.S. Land segment. After leading the charge in terms of rig redeployments and market share gains, we currently have approximately 170 idle AC drive FlexRigs available to return to work and approximately 100 of those are 1,500 horsepower AC drive FlexRigs that can quickly be upgraded to super-spec capability. In contrast, most of the industry seems to be in a position where they will have to build or buy AC drive rigs in order to grow their activity level in a meaningful way. Note also that rig specification requirements have been increasing during this recovery, so non-AC rigs are mostly redundant today. If we were to assume, and we realize that maybe a big if, but if market continues to improve over the coming years, we could very feasibly exceed H&P's 2014 peak level of quarterly activity of approximately 300 active rigs in the U.S. with our existing FlexRig fleet, including the upgrades required for the rigs drilling more complex wells. Other large land drillers in the segment are currently experiencing activity levels of less than or close to half of their 2014 peak levels, and are reportedly already constrained to grow using their existing idled rigs, many of which are not suitable for upgrades. Our strategy going forward is to continue growing market share in this favorable environment. We don't foresee investing in new rigs at this stage of the cycle, especially as we continue to demonstrate we can upgrade our fleet to meet the needs in the market and deliver best-in-class performance with our FlexRig fleet. And now I'll turn the call over to Juan Pablo. Juan Pablo Tardio - Helmerich & Payne, Inc.: Thanks, John, and good morning, everyone. You may have noticed that we are now providing additional data in our press release, including some reference tables in the back. I will expand on some of the announced information on each of our three drilling segments, followed by some comments on corporate level details. On our U.S. Land drilling segment; first, let me highlight our continuing success in reactivating FlexRigs. Since the last earnings call on January 26, 2017, we have put 42 FlexRigs to work, which is the equivalent to delivering a FlexRig to active status every 52 hours. Of those rigs, 37 are in the spot market and five on term contract. The Permian led the way with 21 rigs, 10 in the Eagle Ford, three in the SCOOP and STACK play, two each in the Bakken and Haynesville, and one a piece in the Barnett, Piceance, Utica and Woodbine. From a FlexRig model perspective, 35 of the 42 were FlexRig3s, four were FlexRig4s, and three were FlexRig5s. As we commented on the last call, we continue to have great demand for the FlexRig3. It is the workhorse of the fleet and delivers great value for the customer on single well and pad applications. Of these 35 rigs, approximately half were classified as super-spec. We have also added eight new customers since the last call and momentum has been building as a result of the performance our folks are delivering. Our three most active basins today are the Permian, the Eagle Ford and the SCOOP and STACK play. The Permian remains our most active operation and we have 80 rigs contracted coming off a low of 38 contracted rigs, and at one point last summer, we only had 23 actively operating rigs. We have 50 idle FlexRigs in the area, 31 of which are 1,500 horsepower, and we expect to continue to have opportunities to grow our active fleet in the Permian. For perspective, we had 85 rigs contracted in the Permian during the 2014 peak. In the Eagle Ford and SCOOP and STACK today, we have 30 and 29 rigs contracted, coming off the low of 16 and 15 contracted rigs, respectively. As for the overall U.S. Land segment results corresponding to the second fiscal quarter, we exited the quarter with 168 contracted rigs, driving a remarkable increase of approximately 35% in total quarterly revenue days. The increasing proportion of rigs priced under recent market conditions drove the 7% decline in adjusted average rig revenue per day to $22,201 in the quarter. The average rig expense per day increased by about 4% to $15,612, mostly driven by upfront expenses on a larger-than-expected number of rigs returning to work. No early termination notices for rigs in this segment have been received since last summer. But, given prior notifications, we expect to generate approximately $5 million during the third fiscal quarter and a total of over $18 million during several quarters thereafter in early termination revenues. Looking ahead at the third quarter of fiscal 2017, we expect continued improvement in activity and a sequential increase of roughly 25% in quarterly revenue days. With average spot pricing up 9% since our last call and currently in the high teens, we expect the adjusted average rig revenue per day to decline to approximately $21,000. The average rig expense per day level is expected to significantly decrease to roughly $14,300 as rigs start-up expenses sequentially have a lower level of impact on the average during the third fiscal quarter. One important consideration is that about half of our 177 contracted rigs today are under term contracts, and roughly two-thirds of our rigs under term contracts were priced during strong market before the 2014 downturn. The remaining rigs under term contract, approximately 30, were priced during the downturn and have a remaining average duration of less than one year. As a result, the current expected average rig margin per day for all of our rigs under term contracts in the segment during the next few quarters is in the $12,000 to $13,000 range. Let me now transition to our offshore operations. The number of quarterly revenue days decreased by approximately 8% as we exited the second fiscal quarter with six contracted rigs. The average rig margin per day increased sequentially by about 3% to $10,817. Management contracts contributed approximately $4 million to operating income. As we look at the third quarter of fiscal 2017, quarterly revenue days are expected to decrease by approximately 10% to 15%, exiting the quarter with five contracted rigs. Average rig margin per day is expected to increase to approximately $12,500. In collaborating with a long-term customer, we sold one of the company's idle offshore rigs to an E&P company that recently acquired the corresponding offshore platform from our customer. Moving on to our international land operations, the previously announced early termination notice from a customer for five rigs under long-term contracts in Argentina had a significant impact on both activity and margins. We exited the quarter with eight contracted rigs, and quarterly revenue days decreased sequentially by approximately 25%. The adjusted average rig margin per day decreased sequentially to under $4,000. As we look at the third quarter of fiscal 2017, quarterly revenue days are expected to decrease by approximately 10%, averaging over 8.5 active rigs during the third fiscal quarter as we now expect to exit the quarter with 10 or 11 active rigs. The two to three incremental rigs at the end of the quarter relate to our customer in Argentina withdrawing the mentioned early termination notice for five rigs and indicating its intention to farm out most of those rigs to another operator. The average rig margin per day is expected to remain under $4,000 given the low level of utilization in the segment. Let me now comment on corporate level details. Given the strength of our balance sheet, we continue to be in great position to sustain regular dividend levels along with ample flexibility to take advantage of opportunities going forward. The effective income tax rate for the second half of fiscal 2017 is expected to be around 32%. This relatively low rate is primarily related to foreign jurisdictions where tax benefits associated with operating losses remain uncertain. Let me now turn the call back to John. John W. Lindsay - Helmerich & Payne, Inc.: Thank you, Juan Pablo. There's a lot of industry talk regarding new builds by contractors in U.S. land, especially since the market has improved and the rig count has increased sufficiently to put pressure on the capability of the competitor fleet. One of the obvious barriers to rapid expansion of new builds is new build economics, meaning rates are currently too low to support investing in new rigs. So, while many of our peers may be forced to build new rigs at questionable economics to grow their AC drive fleets, we have been able and expect to continue to be able to maintain an industry-leading cadence by upgrading and reactivating FlexRigs. Since last September, our active fleet has increased by 89 rigs, including close to 60 rigs upgraded to super-spec capability. The technology and scale advantages we have with a uniform fleet of AC drive FlexRigs is significant. Our uniform fleet provides a platform to deploy technology and we believe this will continue to serve us well as technologies evolve. One measure of this is best illustrated by the success we have enjoyed in growing our U.S. land market share from 15% to 19% since the peak in 2014. The industry's capacity to provide additional super-spec technology rigs in a timely and cost effective way is another example of why most of the industry idle fleet may be limited in its ability to respond to the higher levels of well complexity, which positions H&P very well for future expansion. Finally, for H&P, the driving force behind this success is our people. Our ability to succeed is enabled by attracting and hiring, training and promoting the best people as they're the ones tasked with delivering industry-leading performance. Thanks to each of them as they have responded in a remarkable fashion during this upturn. And now, Aaron, we will open the call for questions.

Certainly And we can take our first question from Colin Davies with Sanford C. Bernstein. Your line is now open. Colin Davies - Sanford C. Bernstein & Co. LLC: Well, thank you very much and good morning. John W. Lindsay - Helmerich & Payne, Inc.: Good morning. Colin Davies - Sanford C. Bernstein & Co. LLC: Talk a little bit about your earlier comments at the beginning where you perhaps alluded to maybe the pace of growth of active rigs may be slowing a little bit. Are you actually seeing that in the current quarter? Or is that something you're anticipating as you go forward? And then I got one more follow-up. John W. Lindsay - Helmerich & Payne, Inc.: Colin, I would say that we're seeing less enquiries on rigs. We're still receiving enquiries, but not to the same level – not to the same pace that we were previously. Of course, you have to kind of put that in perspective. This has been – at least for us, it's been an increase in activity that we've never seen before. So it's not really surprising that we're seeing it pull back a little bit. That was our expectation. Quite frankly, my expectation would've been it would've pulled back a little sooner than what it has. So, again, we're still getting requests, we still see the fleet growing through the rest of the quarter. As you probably heard us say before, it's very challenging to see much past a month or two. We're going to be effectively growing based on what our customers are seeing in the future. Obviously, oil prices, the softness that we've experienced over the last month or so has not helped matters any. But, again, I think in general, if you see the rig count, where it is right now, depending on the rig count that you look at between 830 to 900 rigs, has really far exceeded anybody's expectation, I think. So I don't think any of us should really be surprised that it slowed down just a little bit. Colin Davies - Sanford C. Bernstein & Co. LLC: Yeah, that makes sense. And I guess, related to that, given the very high inventory of upgradable rigs that you guys have and that you were talking about earlier, presumably, you can sort of level set the cadence of those upgrades to that rig count outlook. And does that mean that the $14,300 OpEx starts to come down perhaps a little bit more rapidly as we go into the next few quarters? John W. Lindsay - Helmerich & Payne, Inc.: I think that's a reasonable expectation. As we've said, that's what's driving – that's what's driven the higher levels of cost per day. As we've said before, kind of on average, the working rigs have been in that $13,000 to $13,500. It's been the reactivations that's been driving those costs higher. Juan Pablo, you have anything more to add? Juan Pablo Tardio - Helmerich & Payne, Inc.: I think that's exactly right on. Colin Davies - Sanford C. Bernstein & Co. LLC: That was great. Thank you very much. John W. Lindsay - Helmerich & Payne, Inc.: All right, Colin. Thanks.

And we will take our next question from Timna Tanners with Bank of America Merrill Lynch. Your line is now open.

Yeah. Hey, good morning, gentlemen. John W. Lindsay - Helmerich & Payne, Inc.: Good morning, Timna. Juan Pablo Tardio - Helmerich & Payne, Inc.: Good morning, Timna.

I want to ask one – to start with one broader question on the industry, because on the one hand in John's comments, he was saying that because some of your competitors may be forced to build rigs uneconomically. And then he also said that they may not be able to expand because of less attractive economics, so just wanted to get a little more color on your expectations in terms of the discipline in the industry on adding rigs in tandem with the growing demand. Thanks. John W. Lindsay - Helmerich & Payne, Inc.: Yeah, Timna, well, I think there's not been a large scale discussion regarding new rigs, but there have been some new rigs that have been announced and, obviously, some new rigs that are continuing to be built. Based on what we're seeing, I think there's probably 10 or so if you were to add them all up. And obviously, there were some kits that were involved that had been previously acquired. So maybe that's part of what's driving it. I think in general though, when you look at the overall fleet of rigs that are working today and the number of those rigs that, again, to use the super-spec capability, and then those that have the ability to be upgraded to super-spec, best we can tell, there is a fairly limited amount of rigs there. So I think in order to see a significant growth going forward, that may be what many of our peers are faced with, is building new rigs as opposed to having a fleet that can scale up like what we've been able to do and meet that demand. Again, that's kind of our assumption at this point.

So you're in better position relative to peers. But do you think that peers are going to make the right economic decision and decide to be more measured in their growth or do you have any concerns about the pace of new rigs relative to this slower demand environment, albeit from high levels? John W. Lindsay - Helmerich & Payne, Inc.: Yeah, it's pretty hard for us to say. Again, all we've heard is that there's about 10 rigs and most of those rigs, I think, the kit or at least half of the kit or so had already been acquired back in either 2013 or 2014. So it's really hard for us to say. All we can really do is we're trying to create context of where we are in the market cycle. As I said in my remarks, in previous cycles, we would've more than likely been out of FlexRigs. And we're in a great position today in that we have that idle capacity that can be upgraded. Obviously, we have some rigs that are – 50 rigs that are running right now that can be upgraded to higher capacity if need be. And I think that's really one of the questions that is unanswered. Nobody knows for sure, but how many of the higher spec classification rigs are going to be required? The sense is, we continue to have requests from customers to upgrade existing rigs or as they're bringing a new rig out, they're wanting to see those rigs upgraded. So our sense is that it's going to continue to grow. I think there's one other point to make here and that's related to the number of legacy rigs, conventional rigs that are still working, that are drilling some of the more – or at least are drilling horizontal wells. I can't really speak to the complexity. So even in a flattening rig count environment, even if the rig count were to flatten at 900 or 950 or whatever the number may be, you're probably still going to see high grades taking place. I think that would make sense because some of those lower performing rigs are probably going to be displaced.

That makes sense. And before I hand it off, if you wouldn't mind, I know you gave some detail on overall pricing, but could you give us some fresh thoughts on where you're seeing the highest or super-spec rigs getting priced at? The latest that you're seeing, or what you're seeing into the second half of the calendar year? John W. Lindsay - Helmerich & Payne, Inc.: I think it's been – the highest end on spot pricing is around 19.5 to low-20s, depending on how the rig is set up in terms of the upgrades that we talked about. So that's kind of the range that we've seen as far as today. Does that answer your question? I want to make certain I...

Yeah, we've heard from other folks about into the next several quarters, perhaps seeing even higher rates on deliveries that are scheduled that far out. So I was just wondering if you have anything there. John W. Lindsay - Helmerich & Payne, Inc.: We don't have anything that I can think of scheduled out that far in the next few quarters. We have ongoing conversations with customers related to rigs and that timing. We don't have any new builds. We do have some discussions related to customers that have several rigs of ours running right now, saying, hey, we need to pick up a rig in August or we may need to pick up a couple or two rigs in the fall. This is the type of rig configuration that we're looking for. They're doing that to make certain that we're kind of reserving a spot in our schedule. But, again, I wouldn't even put that in the category of a commitment. It's just kind of a discussion. Obviously, you know this; it's just a function of what prices are going to do. And if oil prices remain in the $50 to $55 range, then I would imagine we're getting pretty close to where the rig count's going to kind of flatten out for a period of time. If it goes to $55 to $60, then I think we continue to possibly see some increases in activity.

Okay. Thanks so much.

And we can take our next question from Matthew Johnston with Nomura Securities International. Your line is now open.

Hey, good morning, guys. John W. Lindsay - Helmerich & Payne, Inc.: Good morning, Matt.

So, Juan Pablo, when you gave the breakdown for the rigs under term contract, I think you mentioned that you had about 30 of them that were priced during the downturn with average duration of less than a year. Just curious if you guys are getting any inquiries from your customers for term contracts of a longer duration? Anyone coming to you and asking to lock the rig up for two years or even longer at this point? Juan Pablo Tardio - Helmerich & Payne, Inc.: Sure, Matt. I believe we are seeing some requests. But most of our rigs are going to work in the spot market as you've probably noticed in the numbers. But perhaps John may have a little more color on that. John W. Lindsay - Helmerich & Payne, Inc.: Yeah, Matt. There have been a few rigs, Flex3s that have been termed up recently, anywhere from one to two-year type term contracts and low $20,000 type of contracts. So that's positive to see. Of course, the rigs are outfitted with skid systems, 7,500 psi. They're super-spec capable rigs. So that's an encouraging sign to see. And again, we're seeing pricing improvement on the spot market side as well.

Got it. Okay. And then, I guess, just connected to that real quick, is it fair to say that all of the term contracts that you are booking at this point you're booking them at a higher price than that spot rate in the high teens? John W. Lindsay - Helmerich & Payne, Inc.: Yes. That is our intention is to – if we're going to lock up a term contract today, it's going to be at a higher level than spot pricing.

Got it. Great. That's it for me, guys. Thanks. John W. Lindsay - Helmerich & Payne, Inc.: All right, Matt. Thanks.

And we will take our next question from Kurt Hallead with RBC Capital Markets. Your line is now open.

Hey, good morning. John W. Lindsay - Helmerich & Payne, Inc.: Good morning, Kurt. Juan Pablo Tardio - Helmerich & Payne, Inc.: Good morning, Kurt.

Hey, guys. I just wanted to gauge from you, I was kind of little bit on and off here this morning, a lot going on as you're probably aware with a lot of other conference calls and so on. So I apologize if I ask something you guys already answered. The dynamics on pricing, right, as rigs are filtering into the market, kind of getting the sense that there's super-spec rigs are able to get very good pricing and very good margins and let's just say price points in and around the $20,000 a day or maybe better than that. And then if it's not a super-spec rig, the price points are still not really moving very much. So I was wondering if you can talk a little bit about a bifurcation. And if there is a bifurcation and kind of how you see pricing evolving? John W. Lindsay - Helmerich & Payne, Inc.: Yeah, Kurt. This is John. Well, there's no doubt that the super-spec outfitted rigs are commanding higher price. So I think there is a level of bifurcation. We have seen an improvement in our spot pricing on FlexRigs that don't have the upgrades. But, clearly, those rates are not as high as a spot rate for a super-spec rig or, as we just mentioned a moment ago to Matt, related to term contracts, they're not – in most cases, they're not at that level. So I think it's logical that you would have that. I had mentioned earlier on the call, I don't know if you were on then, I think there are still – David, aren't we still seeing around 200 conventional rigs that are drilling horizontal directional wells? David Hardie - Helmerich & Payne, Inc.: That sounds correct. John W. Lindsay - Helmerich & Payne, Inc.: I think that's still generally correct, Kurt. And I'm sure the pricing on those are at a lower level than – depending on how they're outfitted, than the AC drive rigs. Again, those rigs, I think, are going to come under increasing pressure. I don't even know where all of them are working, but I think just in general, you're going to see more pressure on that legacy fleet.

That's great. I appreciate that color. Thank you. John W. Lindsay - Helmerich & Payne, Inc.: Thanks, Kurt.

And we can take our next question from Michael Lamotte with Guggenheim Securities. Your line is now open.

Hey, good morning. This is actually Jim Schumm for Michael. John W. Lindsay - Helmerich & Payne, Inc.: Hi, Jim.

Hi, how are you? I was wondering if you could update us on your new walking system. Just curious how the market is going – the marketing, rather, any issues? And if you'd be willing to share with us what the cost might be of the structure work? John W. Lindsay - Helmerich & Payne, Inc.: Yeah, Jim, the walking rig, the first Flex3 with a walking system, we have a commitment. We've had a couple of commitments over the last month or so and following through for one reason or another. But we do think that we've got a contract for the rig. Again, we're excited about it. We think that it does offer us an opportunity to capture some additional market share in that space where a walking rig – a competitor's rig that we can compete head-to-head with. So we're encouraged by that. We have another four or five that we have planned. Most likely, those rigs are going to go to the Northeast. That's kind of what we're seeing in terms of demand for the walking applications. And so, again, we think it's an opportunity for us. We had mentioned on the last call that we're – in addition to this new walking rig we also added additional 20 Flex3 skid systems. We've got 11 of those 20 that are committed. And so we're pleased that we're continuing to see demand for customers for Flex3 skid systems as well.

And then, just any rough guidance you could share about the cost per rig for the walking systems? John W. Lindsay - Helmerich & Payne, Inc.: Jim, at this stage, with the prototype in the stage that it is right now, we're trying to get from the kind of prototype stage to getting it to a more manufacturing cadence perspective. We did say and we've been pretty clear that this is more expensive than a Flex3 with a skid system upgrade because of the substructure design and new fabrication on the substructure. Obviously, when you're doing the level of upgrade that we're doing, we're also doing 7,500 psi, we're also doing other upgrades, and just generally putting the rig into a condition where it's, you could almost classify it as almost like new. So that drives some additional cost and every rig is going to be little bit different. So we will talk more about the cost in the future. But at this stage of the game, with it being the first rig, it really doesn't make sense to talk about the cost of it right now. And I will say this, from our perspective, it's very attractive when you look at the potential, again, to capture market share with "like new type rig" that can enter into the market and be highly competitive related to – particularly related to returns on invested capital.

Okay, great. And then, you guys just talked about this in terms of the term contract. And I think it was more about the operator appetite for longer-term contracts. I'm curious to hear your views on what your appetite would be for longer-term contracts. Clearly, the numbers you threw out seem to be pretty focused on the spot market. That obviously makes a lot of sense where we are in the cycle. But is there a day rate or a timeframe where you might start adding more term as we go through the year or is this more of a 2018 event or just how you're thinking about that? John W. Lindsay - Helmerich & Payne, Inc.: Well, Jim, it's really – there are a lot of variables in that and having to do with the location, having to do with the amount of investments you're putting in a rig, the customer, there's lots of variables there to enter into a one or two-year term contract on a Flex3 or a Flex5 with $1 million or $2 million investment in an upgrade kit makes a lot of sense. And so, from our perspective, sure, we'd be interested in doing that. So we have the appetite for it to a certain level. But, again, you have to have the other side of the equation. You have to have the demand pull from the customer. So I think, for those that we've entered into, I think it's a great value for both us and our customer.

Thank you very much. Appreciate the time. John W. Lindsay - Helmerich & Payne, Inc.: All right, Jim. Thank you.

We'll next go to Brad Handler with Jefferies & Company. Your line is now open.

Thanks, guys. Good morning. John W. Lindsay - Helmerich & Payne, Inc.: Good morning

I guess I'll follow along the same path, but maybe approach it slightly differently. Are you – it's just I'm not clear. From an upgrade perspective, are you doing that only with some form of contract, some sort of payback in hand, or are you approaching the market a bit more speculatively than that, again, purely on this upgrade to super-spec front? John W. Lindsay - Helmerich & Payne, Inc.: Well, Brad, you've probably heard us say before, six months ago or four months ago, if you didn't have the upgrade, the rig wasn't going to work.

Yeah. John W. Lindsay - Helmerich & Payne, Inc.: And today, obviously – maybe it hasn't been so obvious. We've put rigs to work without having the upgrade kit installed, because, when you're putting 30 out – approximately 30 out a quarter, if you have demand for 35, you can't get to it. So, you put it on later. In some cases, we're getting term, and in other cases, we're doing it in a spot market fashion. We don't have any concerns that that rig is not going to continue to work. So we think it's a great investment. We're definitely getting a return on our investment. Obviously, we don't have it locked into a year, or two years in some cases. But, again, based upon the performance we have, the track record we have, the rigs are going to work in an environment like we're seeing or even in a softer market. But we're still about 50% hedged on term contracts and, of course, some of those are previous contracts we entered into. So, to answer your question, we're doing both. We think it's the right thing to do longer term, and we're pleased – as we made the point in our prepared remarks, we're pleased that we can do that with our existing fleet, with $1 million and $2 million investments as opposed to having to go out and build a new rig.

Right. No, I understand and I appreciate that color. I may have missed this, but just what is your expected CapEx for 2017? Sort of without labeling it... (42:37) John W. Lindsay - Helmerich & Payne, Inc.: We're at $350 million.

Okay. So that's unchanged. So, you're sort of following – it sounds like you're sort of following the game plan including these upgrade moves. John W. Lindsay - Helmerich & Payne, Inc.: Correct, correct. Yeah, I think we prepared ourselves during the course of the year. We made certain that we were not resource constrained. We've got the CapEx; we've got the long lead items on order. It's really no different from our perspective than building new rigs. We're just building new kits and installing them in kind of a lean fashion. So that helps a lot.

Sure, sure. Okay. Moving to a separate question, I guess you took some charges for rig abandonment, and it sounds like there's some more coming, so $40 million total. Can you tell us what rigs that applies to? Just give a little color around that, please. Juan Pablo Tardio - Helmerich & Payne, Inc.: Brad, this is Juan Pablo. We'd be glad to. It mostly relates to our U.S. Land segment. As you can imagine, it relates to the rigs that we are performing upgrades on. As we go through the upgrades, there are pieces of equipment that previously pertained to the rig that no longer have any use. And as that equipment is being replaced, then we decommission that equipment, and that's what creates the abandonment charge which is included in depreciation.

Oh, I got it. Okay. Glad I asked. I understand that. Okay. And then maybe just a last one – not exactly sure what I'm after here, but there's increasing talk around drilling automation packages and the like. A couple of different offerings coming from a couple of different parties, some homegrown I suppose, and then others are third-party offerings. I guess I'm curious for – if I presume that your fleet is equipped to handle those apps, if you will, I guess I'm curious for the appetite you have for that and any color you might be able to offer. And then, if I may, sort of wrapped within the same question, there is – wired pipe seems like it's actually hitting the market today. And I guess I'd be curious for if you have had some experience dealing with wired pipe and again, what you see as the future with that? John W. Lindsay - Helmerich & Payne, Inc.: Sure, Brad. Yeah, the – and I'm assuming the automation – I think you said this, it's down-hole. It's automation, trying to limit the human intervention from a driller and from a directional driller. So, yes, we've been involved really for several years in working towards that type of an effort. And so we've seen the other folks that have talked through it. Number one question that you had is, are our rigs capable? Yes, the rigs are capable. We do have in-house capability on some of the things that we're working on. It's been a bit of iterative process over time, which isn't completely surprising. It's, in some respects, a little similar to, if you think about autonomous vehicles and the different steps that need to be taken along the way to get to more of a full automation, you can imagine there's an advisory mode step in there somewhere. And so we've said now for quite some time that, yes, there's going to be multiple solutions. H&P will, we believe, will be a part of having a solution. At the same time, we also have to have a platform – our FlexRigs have to have a platform to accept other solutions, because that's what customers are going to work. So it's a little bit of a plug-and-play type of an environment where you can come in and plug in other apps. Our operating system and set up that we have has that capability. So we're excited about the future as it relates to that, clearly, I think kind of goes back into that Family of Solutions that we've talked about and applying technology to provide a fleet that's going to perform well in the future. As far as wired drill pipe, wired drill pipe has been around for a long time. We have had wired drill pipe on our rigs. I couldn't tell you if it's happened three times or a dozen times in the last year, but we do have – we have had exposure to wired drill pipe. Obviously, NOV is a big player in that space and we've worked with NOV for many, many years. So I think we'll continue to see opportunities to work with companies like NOV to develop that kind of technology going forward.

That's helpful just to touch on that. Okay, great. Thank you. I'll turn it back. John W. Lindsay - Helmerich & Payne, Inc.: All right, Brad. Thank you.

Juan Pablo Tardio - Helmerich & Payne, Inc.: Aaron, this is Juan Pablo, given that there are no other questions, John would like to make a few concluding comments. John W. Lindsay - Helmerich & Payne, Inc.: Yeah, Aaron, thank you, and thanks, everyone. We appreciate you joining us on the call this morning. Realize there's a lot of activity going on this morning, so we appreciate having your time. Just want to leave you with one thought. We remain confident about the future for H&P because of our competitive advantages that remain in our people, in our performance, our technology, reliability and our uniform FlexRig fleet. We think that positions us very well for the future, and we look forward to talking with you. Thank you again and have a great day.

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