Helmerich & Payne, Inc. (HP) Q2 2018 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the second quarter earnings conference call. At this time, all participants are in a listen-only mode. Later you'll have the opportunity to ask questions during the question-and-answer session. Please note today's call may be recorded and I'll be standing by, if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Dave Wilson, Manager of Investor Relations. Please go ahead, sir. Dave Wilson - Helmerich & Payne, Inc.: Thank you, Erika. And welcome, everyone, to Helmerich & Payne's conference call and webcast corresponding to the second quarter of fiscal 2018. 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 the call for questions. As usual and as defined by the U.S. Private Security 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 also will 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. That said, I'll turn the call over to John Lindsay. John W. Lindsay - Helmerich & Payne, Inc.: Thank you, Dave. Good morning, everyone. Our second quarter operational results were strong and our team continues to execute in superb fashion in this steadily-improving market. Higher crude oil prices bolstered increases in the U.S. rig count, which in turn supported rig pricing improvements during the quarter. In the current oil price environment, we expect pricing to increase for rigs and auxiliary services according performance and H&P's unique value proposition. Today, I'll focus on four areas: what we're experiencing as it relates to market demand; our work in the Permian Basin, which is the epicenter of the industry's recovery; what we're seeing in International and Offshore markets; and finally, how our leading-edge technology is addressing the trend toward increasing well complexity throughout the industry. The demand for super-spec rigs persists and the industry's fleet remains nearly 100% utilized. H&P continues its leadership position with more than 40% as a super-sec market share in U.S. Land unconventional plays. We also have about half of the industry's idle rig capacity that is viable for upgrading to super-spec classification in this current pricing environment. This factor, combined with our robust financial position, the composition of our fleet and the infrastructure supporting the FlexRig value proposition, will continue to enable the company to respond to current and future demand for super-spec FlexRigs. The Permian Basin in Texas and New Mexico is the most active basin in the U.S. and has really been the focal point for the industry's recovery since the downturn in 2014. Today, H&P has 107 rigs operating in this region and we have a leading market share of over 20%, which we expect to grow further over the next several quarters. The tightness of labor in the Permian is well-documented, but our attention to work for staffing during the downturn, as well as the quality reputation H&P has earned as an employer is enabling us to attract and retain experienced individuals, build high-performing crews that are focused on safety and put rigs to work quickly. Strengthening crude oil prices have also been encouraging for International and Offshore markets, and we've started to see a long-awaited increase in the number of inquiries and bid opportunities in these segments. Juan Pablo will provide additional context to this improvements during his prepared remarks. Well complexity defined by longer laterals and tighter well spacing is underscoring the importance of the quality and placement of a wellbore for the success of our customers' operations. As a result, our subsidiaries, MOTIVE and MagVAR, which remain at the technological forefront for these capabilities, are experiencing impressive growth in activity. A few examples of expansion during the past quarter is MOTIVE's rig activity has doubled to approximately 28 rigs and approximately 40% of their activity is on FlexRigs. They also announced in March that they achieved an industry-leading 5 million feet of guided wellbore and with the increased activity are already nearing 6 million feet in total. MagVAR's activity has improved by 25% during the quarter and they corrected surveys on more than 800 wells. While MOTIVE and MagVAR will continue to operate independently with a variety of rig contractors and directional drillers, these technology offerings, combined with our digital FlexRig platform, are a significant value-add for our customers that clearly are being recognized. In fact, as an example, both companies collaborated on the FlexRig platform and helped deliver record well performance in both the Midland and Delaware Basin for several operators during the last quarter. We believe this collaboration creates a path towards automation. Our ongoing effort to provide the right rig for our customers from our family of solutions enables H&P to serve a wider segment of the market and further enhances our market share. As we've seen in other industries, as complexity grows, combining the best equipment with the best technology creates an unmatched competitive advantage. We believe these competitive advantages will serve us well, both now and in the future. And I will now turn the call over to Juan Pablo. Juan Pablo Tardio - Helmerich & Payne, Inc.: Thank you, John, and good morning, everyone. As usual, 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, let me first highlight some of the details related to our growth in activity during the last few months. Since the last earnings call on January 25, 2018, our activity has increased by 10 rigs. The Permian again led the way, with a 5 rig increase. The Eagle Ford followed with a 4 rig increase, along with other minor up and down movements in other basins. Our three most active basins today are the Permian, the Eagle Ford and the SCOOP and STACK play. As John mentioned, the Permian remains our most active operation with 107 rigs contracted. In the Eagle Ford and SCOOP and STACK today, we have 35 and 30 rigs contracted, respectively. We still have 47 idle FlexRigs in the Permian, 26 of which have 1,500 horsepower drawworks ratings. We also have 30 idle FlexRigs in the Eagle Ford, 29 of which have 1,500 horsepower drawworks rating. As for the overall U.S. Land segment results corresponding to the second fiscal quarter, we exited the period with 213 contracted rigs and had an increase of approximately 4% in the number of active rigs quarter-to-quarter. We continued to experience growth in activity from beginning to end of the quarter, and now expect an even higher increase through the end of the third quarter of fiscal 2018. Increasingly favorable market conditions continue to allow pricing improvements that more than offset the decreasing proportion of rigs under long-term contracts that were priced years ago during strong markets and that continued to roll off during the second fiscal quarter. We also experienced a higher level of revenue from auxiliary services or what we have also referred to in the past as ancillary services. As a result, the adjusted average rig revenue per day increased by $544 to $22,711 for the quarter. Auxiliary or ancillary services provided to our customers include trucking, casing running tools, other equipment rentals, additional crew members, et cetera. The average rig expense per day increased by $540 to $14,086, which is generally in line with previously stated expectations. Looking ahead at the third quarter of fiscal 2018, we expect a sequential increase of roughly 7% in the quarterly number of revenue days. Compared to the second quarter at $22,711 per day, we expect the adjusted average rig revenue per day to increase to approximately $23,000. The expected increase is primarily related to wage increases in the Permian that are effectively absorbed by our customers through day rate adjustments. We expect the underlying dynamics of new-build term contract roll offs to continue to at least partially offset increasing spot pricing. Although our average day rate in the spot market remains in the high teen and now only slightly under $20,000, leading-edge super-spec FlexRig pricing is in the low to mid-20s. The average rig expense per day level is expected to increase to approximately $14,400. The expected increase is primarily driven by the mentioned wage increases in the Permian. The normalized average rig expense per day directly related to rigs working in the U.S. Land segment was only a couple of percentage points over $13,000 during the second quarter, mostly as a result of expenses related to growing revenues for auxiliary services. As we also include the impact of the Permian wage increase, the average expense per day for rigs that are actually working is now expected to increase to roughly $13,500 per day going forward. This estimate excludes the impact of expenses directly related to inactive rigs and upfront reactivation expenses related to rigs that have been idle for a significant amount of time. We had an average of 119.5 active rigs under term contract during the second quarter. 128 of our 216 contracted rigs today are under term contracts. And 33 of the 128 rigs under term contracts were priced during strong markets before the 2014 downturn. The remaining rigs under term contracts were priced since the downturn and have a remaining average duration of less than one year. The expected average rig margin per day for all of our rigs already under term contracts in this segment during the third fiscal quarter is roughly $10,200 for an average of 124.5 rigs. The expected average rig margin per day numbers for rigs already under term contracts for the fourth quarter of fiscal 2018, for all of fiscal 2019, and for all of fiscal 2020 are roughly $10,500, $11,500, and $14,500, respectively. The average number of corresponding rigs that we already have under term contracts for each of those three time periods is approximately as follows: 103 for the fourth quarter of fiscal 2018, 52 for fiscal 2019, and 11 for fiscal 2020. No early termination notices for rigs under long-term contracts in this segment have been received since mid-2016, but given prior terminations, we expect to generate approximately $2 million during the third fiscal quarter and a total of approximately $3 million during the following two quarters in early termination revenues. Let me now transition to our Offshore Operations. We had five rigs contracted through the quarter. The average rig margin per day decreased sequentially by $2,871 to $9,504. The greater than expected decline was driven by self-insurance expense adjustments in the quarter. Management contracts contributed approximately $5 million to operating income. As we look at the third quarter of fiscal 2018, quarterly revenue days are expected to increase by approximately 15% as one previously idle rig is returning to work during the quarter. The average rig margin per day is expected to increase to approximately $10,500 during the quarter. Management contracts are expected to contribute approximately $4 million to $5 million to the quarter's operating income. Moving on to our International Land Operations, as expected, the number of quarterly revenue days decreased sequentially by approximately 4%. The average rig margin per day in this segment decreased by $2,818 to $8,533. The decline was lower, that is more favorable, than expected considering non-recurring items included in the prior quarter and better than expected performance during the second fiscal quarter. As we look at the third quarter of fiscal 2018, quarterly revenue days are expected to increase by about 5% to 10% as three rigs in Colombia are scheduled to return to work during the third fiscal quarter. Accordingly, we expect to end the quarter with 20 active rigs in the segment, including 16 in Argentina, three in Colombia and one in Bahrain. The average rig margin per day is expected to be approximately $9,000. Let me now comment on corporate level details. We have been pleased to see an increasing level of activity and continued opportunities to upgrade FlexRigs to super-spec capacity and have adjusted our CapEx estimates, accordingly, during the last few months to be in the range of $400 million to $450 million. Roughly 40% of that estimated range is attributable to maintenance CapEx, including tubulars. Our balance sheet, liquidity level and term contract backlog remains strong and provide great flexibility to pursue plenty of opportunities, while at the same time sustaining current dividend levels. Our increasing CapEx level, along with corresponding FlexRig upgrades, resulted in some adjustments to our depreciation estimates for fiscal 2018. Depreciation is expected to increase by approximately 2% to $550 million, plus roughly $35 million in abandonments primarily related to super-spec FlexRig upgrades. The total depreciation estimate of $585 million compares to an original estimate of $560 million, including roughly $20 million in abandonment charges. Our general and administrative expenses for the second fiscal quarter were higher than expected, primarily as a result of a greater level of resources and initiatives in support of our increasingly differentiated offering. We believe that there is great value in enhancing our organizational capabilities and promoting innovation and applied technology. We now expect fiscal 2018 G&A expenses to be approximately $190 million. As mentioned in the press release, we made a slight and favorable adjustment to our deferred income tax liability, as we continue to work on the impact of the new federal income tax law. As we mentioned last quarter, the statutory U.S. federal income tax rate for our 2018 fiscal year, given our September 30 year end, is approximately 25%, and is expected to move to 21% for our 2019 fiscal year. In addition to those statutory rates, of course, there are state and foreign income taxes to consider. It is not useful to provide an overall income tax rate estimate for fiscal 2018, given that income before taxes is expected to be a relatively small number. Nevertheless, and as also mentioned during the last quarter's call, we would not be surprised to have a total blended statutory income tax rate of around 25% during fiscal 2019 and beyond. Let me now turn the call back to John. John W. Lindsay - Helmerich & Payne, Inc.: Thank you, Juan Pablo. The market for super-spec rigs remains very tight. We believe the available super-spec fleet is effectively at 100% utilization, and the industry super-spec capable fleet, which includes both upgraded and readily upgradable rigs, is over 80% utilized. And this high level of utilization should continue to drive higher day rates. As we discussed on our January call, our return requirements for FlexRig super-spec upgrades require a 12 to 24-month term contract and day rates in the low to mid-$20,000 range. We have been investing significant capital in upgrading our FlexRigs since the fall of 2016, along with also investing in the capabilities of our operational support services for the purpose of delivering even higher value to our customers. As we move forward, our expectation is that our super-spec FlexRigs, including those in the spot market, will have day rates in the low to mid-$20,000 range within the next few months. Before opening the call for Q&A, I would like to acknowledge that this will be Juan Pablo's last call as CFO of H&P. And everyone at H&P would like to extend our blessings and thanks for his contributions to the company for the past 16 years. For those of you that followed the company before JP, we call him JP around here, not Juan Pablo, before JP took over as the IR director, you would remember the lower profile IR effort we had 13 years ago. Juan Pablo took that effort and transformed it into a key differentiator that has been recognized as industry-leading and award-winning. He took over as CFO in 2010 and has been at the helm during one of the company's most prolific growth spurts. Those were fun times, and equally prolific industry collapse. Through it all, he provided a steady hand. JP, we appreciate your leadership and we appreciate the tone that you set for employees, the IR community and long-term shareholders. We wish nothing but the best for you and your family as you set out on this new journey. So, thank you very much. We appreciate that. Juan Pablo Tardio - Helmerich & Payne, Inc.: Thank you very, very much, John. Very much appreciate that. John W. Lindsay - Helmerich & Payne, Inc.: And, Erika, we'll now turn the call over to you to open up for Q&A.

Thank you. We'll go first to the line of Byron Pope from Tudor, Pickering, Holt. Please go ahead. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc.: Good morning, guys. John W. Lindsay - Helmerich & Payne, Inc.: Good morning, Byron. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc.: Juan Pablo, I'm sure you'll obviously be missed there at Helmerich & Payne, but those of us on the sell side will also miss you. You're a good man, so congratulations on your retirement. Juan Pablo Tardio - Helmerich & Payne, Inc.: Thank you very much, Byron. Very much appreciated. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc.: John, just one question for you, as we think about the Permian market, and you guys have the leading market share, obviously, and so you made a comment about expecting to continue to grow your market share over time. And it makes sense, given that you've got the lion's share of the idle and super-spec capacity there, upgradeable to super-spec capacity in the basin. But could you just speak to – as you have your customer conversations in the basin, do you see that customer mix shifting more toward the larger independents or maybe some of the smaller? Just speak to the customer mix, how you think that evolves in the Permian as you place incremental rigs? John W. Lindsay - Helmerich & Payne, Inc.: Sure. Byron, I think one of the things – and you've heard us say this several times, the only good thing about a downturn that I can see is it gives you an opportunity to work for a lot of customers that you didn't previously have the opportunity to work with. And I think we have 70 customers today in U.S. Land, which is more than we had at the peak in 2014 when we had 300 rigs running. And so I think, really, it's going be a combination of both, I think, fortunately for us. We're seeing our traditional customers, and they're adding rigs, but we're also seeing a lot of new companies, smaller companies, companies that previously didn't have access to FlexRig technology, and in some cases, didn't really need the FlexRig technology because the types of wells that they were drilling then versus the types of wells we're drilling today. So, I see it as a great opportunity to continue to grow. And as you've heard us, again, talk about for years, it's not just the rig, it's not just having a super-spec classification rig, it's also the organizational support structure that we have built at H&P that we've spent a lot of time and effort to construct, to support performance in the field and to provide the highest levels of value that we can for our customers. So, I think that also gives us a good competitive advantage. And particularly, as you think about some of the smaller companies that haven't invested as much in new technology, because – either because they're just smaller or because they just don't have the resources and the STACK to do that. So, I think that gives us an opportunity as well. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc.: Appreciate the color. Thanks, John. John W. Lindsay - Helmerich & Payne, Inc.: Thank you.

Thank you. We'll go next to the line of Colin Davies from Bernstein. Please go ahead. Colin Davies - Sanford C. Bernstein & Co. LLC: Yeah, let me echo Byron's comments. Juan Pablo, it's been great working with you and wish you all the very best for a very long and happy retirement. Juan Pablo Tardio - Helmerich & Payne, Inc.: Thank you so much. Colin. Colin Davies - Sanford C. Bernstein & Co. LLC: Just talking about the CapEx guidance, the CapEx guidance obviously moved up steadily as the pace of upgrades continued. If I work through the pace so far, it seems like the upgrade is about 80% still the cheaper, skiddable upgrades. Is that a fair comment? Juan Pablo Tardio - Helmerich & Payne, Inc.: We certainly have upgraded more rigs with skidding packages than with walking rigs. We have upgraded more walking rigs this fiscal year as compared to last year. And so, the rate of increase there is encouraging. We're seeing demand. We expect to continue to gain market share with that type of offering. As we move forward, as we've mentioned in the past, it's been good to see the 30 that we have upgraded so far. In the past, we've mentioned that we were more or less expecting a cadence of 12 per quarter. I think we continue more or less in that direction, but most importantly, well prepared to react to a potentially greater level of demand and be able to put more rigs out. And so, our CapEx level remains flexible at this time. Certainly, expect to be in that range, but if conditions improve, that CapEx estimate might continue to increase going forward. Colin Davies - Sanford C. Bernstein & Co. LLC: Yeah. And just as a follow-on, if we expect that cadence of around 30 through the first half of the fiscal year to continue through the second half for the – against the CapEx, but the percentage of the walkables to go up, is the CapEx likely to creep up against that? Juan Pablo Tardio - Helmerich & Payne, Inc.: I'd hesitate to give you a firm answer on that because we do have some assumptions related to that. Competitively speaking, we prefer not to provide that level of granularity. But to your point, I think that we will have a continuing level of increase in demand for walking upgrades. But at the end of the year, we certainly expect to have more skidding upgrades than walking upgrades. John W. Lindsay - Helmerich & Payne, Inc.: Colin, I might add a little additional color that we talked about on the last call that's still valid today, which is what we want to avoid is overbuilding that super-spec capacity. And so, while we're projecting the amount of rigs we're going to add per quarter, we're assuming that there's going to continue to be high levels of demand for that type of rig. I don't see it. I don't see that that demand goes away, but that's one of the things to make certain that we keep in sight as well. Colin Davies - Sanford C. Bernstein & Co. LLC: Yeah. Juan Pablo Tardio - Helmerich & Payne, Inc.: And just to give you a sense, this is Juan Pablo, if I may add to that. About a third of the 30 upgrades, probably a little under a third, have been walking rigs, and then more than two thirds skidding package upgrades. Colin Davies - Sanford C. Bernstein & Co. LLC: Okay, that's helpful, Juan Pablo. Thank you. Is there any difference in where the walkables are going? Are they still going into the Permian or are they going into other plays? John W. Lindsay - Helmerich & Payne, Inc.: I think just by virtue of the Permian being where the majority of the demand is and the draw is for super-spec rigs, most of those are going to Permian, but we do have them in other areas as well. We have some in the northeast. We have Haynesville. So, I mentioned Utica. Three or four in the Eagle Ford. So, there's definitely some demand pull. I want to say about half of them are probably going into the Permian. Colin Davies - Sanford C. Bernstein & Co. LLC: That's very helpful. Thank you very much. I'll turn it back. John W. Lindsay - Helmerich & Payne, Inc.: Thank you.

Thank you. We'll go next to the line of Tommy Moll from Stephens. Please go ahead.

Good morning. Thanks for taking my question. John W. Lindsay - Helmerich & Payne, Inc.: Good morning. Juan Pablo Tardio - Helmerich & Payne, Inc.: Good morning, Tommy.

So, you said you think the market is about 80% utilized in terms of the current super-spec fleet, plus upgradable rigs. Where do you think that 80% needs to go before we get a next leg up in day rates to where we're firmly in the mid-20s? John W. Lindsay - Helmerich & Payne, Inc.: Well, that's a great question. I'm not certain what the number is. I think if you look at, historically speaking, when – the utilization of the fleet, and I think in previous cycles, we would typically look at the overall fleet, available fleet, but clearly, this market has a bifurcation with super-spec capacity and that's where the demand is. And so, I think recognizing in past cycles when you reset 80% or so hurdle is when you really begin to see pricing power. So, I think it's just a function of that and a function of time. I think we've mentioned on previous calls, coming out of a downturn, it's challenging to get rates moving off of the bottom, but in a stronger environment, it's obviously a little bit easier. I think the other thing for us that we continue to drive home internally and externally is, not only are we investing a lot of dollars, a lot of capital, we're also providing very high levels of value for customers. And I think that's the part that we have to make certain that we don't lose sight of. And so, our experience is, customers are willing to pay for that value proposition. So, I know it's not a direct answer to your question because I don't have the exact timing or answer, can't go into a whole lot on the strategy behind our pricing strategy in general, but we recognize that pricing needs to improve.

Okay. Thank you. And if I could ask one follow-up. I wanted to talk about the daily OpEx for the U.S. fleet. Did I hear correctly in the prepared remarks that the primary driver of the increase, both in the past quarter and in the current quarter, is related to labor, particularly in the Permian? And also, do you have any visibility into when, at the gross profit level, we could get back into the $9,000 a day range? Thanks. Juan Pablo Tardio - Helmerich & Payne, Inc.: Tommy, this is Juan Pablo. The expected increase from the second quarter to the third fiscal quarter, which would be a little over – I guess, a little under $14,100 to approximately $14,400, that difference is driven primarily by wage increases in the Permian. The wage increases did not apply until the beginning of this third fiscal quarter, so that does not apply to the difference that we spoke about or the transition between Q1 and Q2. So, I think that addresses your first question. Of course, let me also clarify that those increases in our total expenses are, in essence, passed through to the customer, through day rate adjustments. And so, as we mentioned during our comments, we expect the increase in average rig revenue per day to also be affected by this wage increase. As relates to your second question, we do not provide guidance into future quarters other than the immediately-following quarter, which would be, in this case, the third fiscal quarter; so, I cannot answer your question directly. What we try to do is provide the foundation of all the information that anybody would require to model, accordingly. And depending on what somebody's assumptions might be related to continued improvement in pricing or activity, that allows the analyst to be able to come up with average margin expectations during the next two, three years and the corresponding quarters, of course. So, do we think that that is possible? Absolutely. I mean, we've been at much higher levels in the past and we hope that continuing market improvements, as we have seen and continue to see, may certainly drive to that. We're encouraged with the continued pricing increases in the spot market and, as John mentioned, the expected acceleration, given tightening market conditions. So, we're very pleased to see that, and we see that as very favorable in terms of the rest of the year.

Great. Thank you. That's all for me. Juan Pablo Tardio - Helmerich & Payne, Inc.: Thank you. John W. Lindsay - Helmerich & Payne, Inc.: Thank you.

Thank you. And we'll go next to the line of Michael Lamotte from Guggenheim.

Thanks. Good morning, guys. And, Juan Pablo, let me also offer my congratulations. You're going to be missed. Juan Pablo Tardio - Helmerich & Payne, Inc.: Thank you so much, Michael. Appreciate that.

Of course. And the question, John, is on rig performance. If I look at prior cycles, rig performance is largely measured by ROP and the reduction in days per well. And rightly or wrongly, you and your peers were often criticized for not capturing that value because day rates generally reflected new build costs for rigs. As the definition of rig performance shifts from efficiency more towards wellbore quality and placement, how does HP protect itself from losing sort of the value capture there and better insulate itself and share the value capture more effectively with the customer? John W. Lindsay - Helmerich & Payne, Inc.: Michael, that's a great question. No doubt the day rate model and the performance that we've seen over the last five years has been impressive. We do have different business models that we're looking at; obviously, not in a position to talk in great deal with that. But I think the facts are, there's still a lot of opportunity on the drilling side, on the ROP and the days per well. Now, not in any basin. Some basins that – use the Eagle Ford as an example, we've been drilling horizontal wells there for a long, long time and it's a very fast drilling environment. But in other areas, and Permian being one of them, there's still a lot of opportunity. So, I think the combination of high ROP, lower days per well, in combination with higher levels of wellbore quality, less tortuosity, better wellbore placement combined together is very – I think is very important. I think, overall, as an industry, there's not a great recognition overall of just wellbore quality and placement in terms of actual. So, I think that's an opportunity. So, I hear your question and not a direct answer that I can provide here, but we do recognize it and see it as an opportunity.

And I think that's – opportunity versus risk, I think, is sort of the key differentiating point there, because I think it is an opportunity to price a service that's effectively separate and discrete from day rate, whether it's performance or fixed fee, whatever. John W. Lindsay - Helmerich & Payne, Inc.: Right.

It'll be interesting to see how that unfolds. As a quick follow-up, or maybe it's not so quick, I don't know, on the International green shoots, can you speak a little bit more specifically about where and order of magnitude? John W. Lindsay - Helmerich & Payne, Inc.: Michael, most of the immediate opportunities, International, that we see are in South America. Argentina, no surprise to anyone, is probably the number one opportunity, in terms of sending additional FlexRig3s into Argentina. I think that's a great opportunity for this, this year and into 2019. Colombia is a great opportunity in terms of getting rigs back to work, get them reactivated. I'm not quite as clear on if there's great opportunities to send additional rigs into Colombia. I think we still have a little bit of time to go there. There are some Middle East opportunities, but at least our experience, and you've probably seen it as well, is those opportunities take a very long time to materialize, and we see opportunities, but it's really hard to see – well, I think we can safely say that's not going to happen in 2018. It would be a 2019 event at least for H&P.

Okay, appreciate it. Thanks. John W. Lindsay - Helmerich & Payne, Inc.: Okay. Thanks, Michael.

Thank you. And we'll go next to the line of Blake Hancock from Howard Weil.

Thank you. Good morning. Juan Pablo Tardio - Helmerich & Payne, Inc.: Good morning. John W. Lindsay - Helmerich & Payne, Inc.: Good morning Blake.

John, maybe first, can we talk about the activity increases? You're maintaining kind of the same cadence of upgrades. On the 12 rigs kind of that we're net adding here in this quarter and going forward, can you talk about the visibility? Are those all net in your opinion to the rig count or are they kind of replacing competitors' rigs either from performance or because you do have this super-spec? Just trying to couch that for us on what you're seeing? John W. Lindsay - Helmerich & Payne, Inc.: Yeah. It's interesting because the rig count's up, what, 80 or 90 rigs, I think it's 80 rigs this year, this calendar year. And we have actually seen a slight increase in some of the legacy rigs that may be as a result of – I think, it's primarily SCR rigs, being able to go to work because we can't provide – the overall industry can't provide enough AC rigs to satisfy demand. I think what you've described is, no surprise, it's a mix. I think we see examples where we're adding a rig or two to a customer's – or in some cases even more than a rig or two to a customer's overall fleet. In other cases, we are replacing lower-performing rigs. And then, the question then becomes that rig that gets replaced, where does it go? And depending on the quality of that rig, it may end up bumping additional rigs. But in a flat, kind of a flattish outlook, even with the rig count fairly flat, I think you still see high-quality rigs, super-spec rigs coming in and displacing some lower tier rigs and they ultimately would fall off the bottom. Now, if the rig count needs to grow another 80 to 100 rigs through the rest of the year, then I think the industry will be responding with whatever we can bring to market. Obviously, for H&P, we're very well-positioned in that we can respond with AC drive super-spec rigs and others will have to go a different route.

That's perfect. And then to follow-up on the International questions or the commentary, do you view those Latin American opportunities still in 2018 or – we're already halfway through the year, would that be more 2019? Kind of help us with the timing there and maybe from the magnitude of the number of rigs that you could see added potentially. John W. Lindsay - Helmerich & Payne, Inc.: I think if we can make it happen – well, we could make it happen, I think, in this calendar year, probably not in this fiscal year in terms of rigs moving out of the U.S. to – say, as an example, to Argentina. I think we do reactivate additional rigs in South America this fiscal year, but in terms of getting additional rigs into country, that's probably at least a – I would imagine, a six month type of effort. So, it would be towards the back half of this year and then hopefully into 2019.

That's great. Thank you, guys. John W. Lindsay - Helmerich & Payne, Inc.: Thanks, Blake.

Thank you. We'll go next to the line of Sean Meakim from JPMorgan.

Hey, morning, everyone. Juan Pablo Tardio - Helmerich & Payne, Inc.: Morning, Sean.

And Juan Pablo, best of luck in your next steps. Really appreciate all the insights over the years. Juan Pablo Tardio - Helmerich & Payne, Inc.: Thank you very much, Sean. Appreciate that.

So just a couple smaller items here. Just thinking about your contracted day rates in the fleet today, just how much dispersion would you say there is in your book of contracts? And then just thinking about the upgrades that are – I'm sorry, the new contracts on upgraded rigs, 12 to 24 months, are the rates firm or are we building any ratchet provisions in either direction for those contracts? Juan Pablo Tardio - Helmerich & Payne, Inc.: Thank you, Sean. This is Juan Pablo. Yeah, we have a wide array of rigs under term contracts in the U.S. Land segment. As I mentioned during my comments, I think we have a little over 30 of rigs that are still legacy type rigs, meaning new build type rigs that we contracted – that we've secured pricing on, at least, before the downturn in 2014. And the rest of the term contracts were negotiated after the downturn. Those have less than a year duration, on average, remaining. We'll see some favorable impact from the roll off of those contracts negotiated after the downturn because, obviously, we expect those to be rolling off of those term contracts and going into higher day rates. So, that is great. We're pleased with that. In general, we're pleased with the overall trajectory, even though the average rig margin and average rig revenue per day has been coming down for rigs under term contract. As a result, that is a result of great news and that we continue to contract rigs at higher than spot pricing, as John mentioned. When we upgrade rigs, we put those rigs to work in the low to mid-20s. Many of them, if not all, are under term contracts. And so, those term contracts continue to get better and better. In terms of the new contracts having fixed day rates, I believe that most of those new term contracts have fixed day rates. There may be a few that have some fluctuation, depending on certain variables, some performance-driven contracts. I'm not prepared to comment on those. I'm not sure if we have many of those. John, you may have a (48:29). John W. Lindsay - Helmerich & Payne, Inc.: Yeah. I think there may be some performance upside on some and there may be some oil price metrics, (48:37) as well, but that's a very small number. In general, they're kind of a standard term contract provision.

Got it. No, that's very helpful. Thank you for that feedback. And maybe just thinking about capital allocation, right now, you're focused on capturing market share, meeting customer needs, which make sense, and obviously, you've been executing well. So, near-term looks promising, but I guess the further out we go, certainly there's more uncertainty. So, looking forward, I'm just curious if any updated thoughts on how you see cash flow progressing towards dividend coverage and how you think about balancing growth versus dividend coverage in your capital allocation? Juan Pablo Tardio - Helmerich & Payne, Inc.: Thank you, Sean. This is Juan Pablo again. As we've mentioned before, we are optimistic in terms of the trajectory of market conditions during the next year, and actually, during the next few years. And so, as we look at how our cash flow of generation potential might evolve and what our CapEx level might be, and of course, the current liquidity level that we have, we're pleased to see that we are prepared to – and in good position to continue to sustain the dividend and potentially even increase it as we have for so many years on an annual basis. On the other hand, we have great flexibility not only to continue pay the dividend but to pursue a significant amount of opportunities through capital allocation, through growing the business. Obviously, what we've been focusing on so far over the last few years are upgrades, but who knows what other opportunities might emerge. Of course, we've acquired two technology companies that complements our offering very, very well. As we move forward, we don't think that we are capital-restrained. We have a great balance sheet that we can tap into. And given the right opportunity, we'll be glad to do so. So, very pleased to see our position in that regard and only favorable expectations as we move forward in terms of the possibilities. John W. Lindsay - Helmerich & Payne, Inc.: Yeah, Sean, I couldn't agree more. I think we're in a great place and looking forward to continuing to grow the business. And again, hopefully, there's some additional opportunities for acquisitions in the technology space that we'll see.

Understood. That's all fair. Thank you very much. John W. Lindsay - Helmerich & Payne, Inc.: Thank you. Juan Pablo Tardio - Helmerich & Payne, Inc.: Thank you.

Thank you. We'll go next to the line of Marc Bianchi from Cowen & Company. Juan Pablo Tardio - Helmerich & Payne, Inc.: Hi, Marc? John W. Lindsay - Helmerich & Payne, Inc.: Hi, Marc. Are you there?

Marc, your line is open. And looks like he may have left the queue. So, we'll go next to the line of Tom Curran from B. Riley FBR.

Good morning, guys. John W. Lindsay - Helmerich & Payne, Inc.: Good morning. Tom. Juan Pablo Tardio - Helmerich & Payne, Inc.: Good morning. Tom.

Hey, Juan Pablo, please add my voice to this call's chorus. Thanks for everything and all the best. Juan Pablo Tardio - Helmerich & Payne, Inc.: Thank you, Tom. I appreciate that. Thanks.

John, I just want to try to put some crisper fine-tuning around how you believe the super-spec market has evolved. So, if we were to go back to the end of fiscal 2017, you put the total industry super-spec fleet at that time at around 400 total industry potential upgrades at 250 and then HP with over 100 eligible upgrades. It sounds as if now you estimate that the total industry fleet has grown to it sounds like around 445 and that we know HP has upgraded 30. Does that mean that the rest of the industry, since September 30, has essentially added just about 15 rigs? John W. Lindsay - Helmerich & Payne, Inc.: Does that – that sounds low to me. Dave Wilson - Helmerich & Payne, Inc.: Yeah, it sounds – yeah, I think – I'm not sure. Tom, are you talking from December year end or from September 30?

I'm talking from September 30, right? So that's what you highlight in the press release, right? That since October 1, you've added 30 upgraded super-spec rigs to the industry super-spec fleet. Correct? Dave Wilson - Helmerich & Payne, Inc.: Correct. And then, so others in the industry have also added as well. But as we said before, their capacity to add as many as ours isn't as great. So, you're seeing less adds to the super-spec classification from them versus – compared to us.

That makes sense. Juan Pablo Tardio - Helmerich & Payne, Inc.: Tom, this is Juan Pablo. If I may add, conceptually, I think your assumption is in the ballpark in terms of what we've seen and that is that H&P continues to upgrade rigs to super-spec capacity at a much greater rate than anybody else can because of the availability of rigs that we have to do that as compared to others that are, as Dave just mentioned, very limited.

Okay. And I can take this offline with Dave after the call to try to fine tune these numbers. I just want to make sure I was in the ballpark. John, you mentioned how the collaboration progress occurring between HP's Center of Excellence and broader digital platform in MOTIVE and MagVAR is creating a path towards automation. What would be the next major steps, technologically, on the path to automation, both on the hardware and the software sides? And at this point, does it seem as if you're more likely to pursue those steps, the internal R&D, additional acquisitions or a combination? John W. Lindsay - Helmerich & Payne, Inc.: Well, Tom, I think with the current – with MOTIVE and MagVAR and our current capability, I think there's a lot of the steps of automation are there. You probably heard us say that automation is a iterative step. It's not entirely unlike the autonomous vehicles where you don't remove the steering wheel in step one or two. It's step six or seven down the path. And so, I think we are in that position with the capacity to get to the point where we're automating more of the functions that are today done by human. That, of course, will enhance reliability, will enhance performance in a pretty large way. So, I think we have that capacity internal. The question is how does that automation package change and, over time, based on what kind of demands customers have? I think that's ultimately the question, which would address the what other technologies do you need. I think where we are right now, we feel pretty good about where we are.

Okay. I appreciate the answers, guys. Thanks for squeezing me in. John W. Lindsay - Helmerich & Payne, Inc.: All right. Thank you. Juan Pablo Tardio - Helmerich & Payne, Inc.: Thank you, Tom.

Thank you. And we'll go next to Chase Mulvehill with Wolfe Research.

Hey, thanks for squeezing me in. Juan Pablo, enjoy retirement. Hopefully, you get to move south and get to spend some time in some warmer weather. Juan Pablo Tardio - Helmerich & Payne, Inc.: All right. Thank you, sir. I look forward to that, Chase. Appreciate it.

I guess, the first question kind of on super-spec, if we think about what's driving customer demand for super-spec, if you had to rank it in order of importance, would it be wellbore quality, rate of penetration or lateral length? John W. Lindsay - Helmerich & Payne, Inc.: I think the lateral length and the rate of penetration, as well as pad capability, are the primary drivers for super-spec rigs. The average lateral, I believe, is around 8,000, maybe a little over 8,000. I think that's where you begin to see the traditional 5,000-psi mud-pumping system kind of get to the point of being maxed out. And so, that's when you need to really have 7500-psi. And your rate of penetration drops off, your risk associated with getting stuck because you can't circulate the well like you should be able to. And then, the other piece is, like I said, the pad capability. Those rigs, if designed right and run properly, you're lowering risk and you're enhancing reliability associated with the offering. The other portion that you mentioned, Chase, as far as wellbore quality, that probably isn't talked about as much as what I think it will be going forward. And so, I think that's one of the things we're really excited about with MOTIVE and MagVAR is the ability to work with customers to not only drill highly-reliable, high ROP wells, lower-cost wells, but also do it with better wellbore quality and better placement.

All right. That's great color. Appreciate all that. I guess, one quick follow-up, since we're a little bit over the hour. Your rig count today, I didn't see that in the press release anywhere. Could you give us the rig count today and kind of where you think it'll end the quarter? Juan Pablo Tardio - Helmerich & Payne, Inc.: So, you're talking about our U.S. Land segment, Chase?

Sorry. Sorry. Yes, U.S. Land. Juan Pablo Tardio - Helmerich & Payne, Inc.: I believe we are at 216. And what we mentioned is that we – I think we're excited about, of course, a 7% increase quarter-to-quarter in terms of revenue days. What that would suggest is an average close to 220 rigs for the third fiscal quarter, and hopefully, an exit number that is closer to 230 or between 225 to 230. So hopefully, that helps.

That helps. All righty. We'll turn it over. Juan Pablo Tardio - Helmerich & Payne, Inc.: All right. Well, thank you very much, everybody. I think we are out of time. So, we'll turn the call back to John for some closing remarks. John W. Lindsay - Helmerich & Payne, Inc.: Yeah, just real quickly. Again, thank you all for attending. I wanted to, first of all, thank our people for their commitment and focus on safety and driving high level of performance for customers. You heard us say before. We think we're very well positioned to continue to grow the business by upgrading our FlexRigs to super-spec. We're going to continue to invest in our support services, going to continue to innovate to drive new technology that are differentiating and add value to our customers. So, thank you again. I appreciate all of your attendance today. Thank you. Juan Pablo Tardio - Helmerich & Payne, Inc.: Thank you and have a good day.

We'd like to thank everybody for their participation on today's conference call. Please feel free to disconnect your line at any time.