Good day, everyone, and welcome to today's Helmerich & Payne's Fiscal Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note this call may be recorded and I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Dave Wilson, Vice President of Investor Relations.

Thank you, Brittany, and welcome, everyone, to Helmerich & Payne's conference call and webcast for the fourth quarter and fiscal year ended 2021. With us today are John Lindsay, President and CEO; Mark Smith, Senior Vice President and CFO; and John Bell, Senior Vice President International and Offshore Operations. John Lindsay and Mark will be sharing some comments with us, after which we'll open the call for questions. Before we begin our prepared remarks, I'll remind everyone that this call will include forward-looking statements as defined under the securities laws. Such statements are based up on current information and management's expectations as of this date and are not guarantees of future performance. Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict. 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. You should not place any undue reliance on forward-looking statements, and we undertake no obligation to publicly update these forward-looking statements. We will also be making reference to certain non-GAAP financial measures such as segment operating income and operating statistics. You'll find the GAAP reconciliation comments and calculations in yesterday's press release. With that said, I'll turn the call over to John Lindsay.

Thank you, Dave, and good morning, everyone. And thank you for joining us today. I'm excited to be in Abu Dhabi this week, having just participated in the ADIPEC conference which has provided a unique occasion to meet face-to-face with colleagues, customers and of course, our strong partner ADNOC Drilling. Also joining Mark and me today in Abu Dhabi is John Bell, Senior Vice President, International and Offshore Operations. And he'll be available for International and ADNOC specific questions. Before getting into our traditional discussion topics, I wanted to first mention that ADIPEC which is a Global Energy Conference in Abu Dhabi, and this week, there was over 150,000 attendees, 33 energy ministers and representatives from over 50 energy companies. I've been impressed with the focus on ESG and especially the discussions of the impacts on energy security for the globe. In addition to industry leaders sharing their focus on sustainability and ESG, there were also leaders of countries from around the globe that were present to give their perspectives on the energy transition and the importance of ongoing investments to ensure a smooth transition. Dr. Sultan Al Jaber, the ADNOC Group CEO and UAE Minister of Industry and Advanced Technology gave a very compelling speech at ADIPEC opening ceremony. He started with a reminder that energy transitions take multiple decades. And I quote, “rewiring the energy system is a multi-trillion dollar business opportunity that is good for humanity and good for economic growth.” He also had a call to action stating what the world really needs is to hold back emissions not progress. Let us together drive that progress. Let us always keep in mind, our industry must play a pivotal role in the energy transition. We have the knowledge, the skills and the people to make a difference…

Thanks, John. Today, I will review our fiscal fourth quarter and full year 2021 operating results, provide guidance for the first quarter and full fiscal year 2022 is appropriate and comment on our financial position. Let me start with highlights for the recently completed fourth quarter and fiscal year ended September 30, 2021. The company generated quarterly revenues of $344 million versus $332 million in the previous quarter. The increase in revenue corresponds to a modest increase in rig count during the quarter. Correspondingly, total direct operating costs incurred were 269 million for the fourth quarter versus 257 for the previous quarter. During the fourth quarter, we closed on two transactions with ADNOC drilling, first, H&P sold eight flex rig land rigs including two already in Abu Dhabi and six from the United States for delivery during 2022. Consideration received for this sale was 86.5 million and any gains above book values together with required investments to prepare and deliver the rigs will be recognized as each rig is delivered. Second H&P made a 100 million investment in ADNOC during drilling in conjunction with its initial public offering in early October. General and administrative expenses totaled $52 million for the fourth quarter. Higher than our previous guidance due primarily to professional services fees associated with the ADNOC transactions enter ongoing cost management efforts, as well as increases to the short-term incentive bonus plan accrual to reflect full fiscal year operating results. On September 27, we issued $550 million in unsecured senior note bonds to refinance our 487 million outstanding bonds that were due in May 2025. Our new issuance came at a coupon of 2.9% and a 10-year tenure maturing in September 2031. The additional debt of about 63 million funded the Mako provision and accrued interest for the call…

[Operator Instructions] And we will take our first question from Arun Jayaram with JPMorgan Chase.

Yes, good morning. I wanted to get a little bit more color around the fiscal year '22 CapEx program. It looks like you're spending around 90 million or so on the walking system upgrades, you mentioned 6.5 million to 7.5 million type upgrades. Can you give us a sense firstly of the 95 idle rigs at H&P, how many of those have walking systems on them? And for the next batch of reactivations that you expect to do, how many more upgrades you anticipate? And secondly, can you comment on the amount of reimbursements of and above your day work margin? What kind of reimbursement you're getting for those investments in the walking systems?

Arun, on the investments, I think we're -- Dave, correct me if I'm wrong, I think we've got one a month. Set. Is that right, on the walking rig?

That's correct.

Yes, that is right. We're planning about, John planning, one a month currently based on line of sight with customers. And that will adjust potentially up or down based on customer demand. By getting back -- come back to the pricing and term we're getting I just let John, maybe start us off with a little bit of a commentary on why customers are asking us to convert.

Yes, I mean, it's interesting Arun because there's about 214 idle, super spec rigs in the U.S. And 124 of those are walking rigs. And so, we've got significant demand and all of our walking rigs are active. And so we have significant demand for walking. So there's -- it's clear that there's more demand than just for walking. There's obviously demand for what H&P provides in terms of overall performance. So I think that's a key element. We are getting, I think the last contract, we probably had an 18-month term contract.

Specifically to your point Arun, we're getting term, we're shooting for two, the typical payback on these three years and commanding a premium price for doing so.

Great.

I wanted to clarify something, though Arun. I thought I heard you and maybe I misheard, you said 190 million on the walking rig upgrades.

No, I said 90 million.

Okay. I thought it was, yes, 84 to 90, but I thought you said 190. I misheard.

Okay, yes, it was 90 million. And just my follow up would be on the ADNOC rig, Mark 86.5 million of proceeds from that, obviously, you also get the 100 million investment. But can you comment on the CapEx required in fiscal year '22, to get those rigs in a condition to be sold?

Well, as I mentioned, it's about 24 million, 25 million, I think, in the prepared remarks. And it's a couple of things. There's some specific technical components that our partner wanted, one. Two, we're going to be recertifying everything so that for example, the BoP leaves with a five-year certification and the top drive leaves with seven years, et cetera, et cetera. But there's also the transit costs. So the shipping or mobilization cost to get those rigs across the water. What I have not commented on is the net book value by rig. Obviously, the eight have different values, and two are already in Abu Dhabi, the six in the U.S., 2 and 6 for super spec, as we've previously stated.

And we will take our next question from Derek Podhaizer with Barclays. Your line is now open.

Good morning, guys. Wanted to talk more about the ADNOC deal. Obviously, the news just came out. They just announced pretty significant tender just to support the growth of the 5 million barrels per day. You talked about expanding into the region. Can you just maybe expand to us a little bit more about what you're talking about? Are these can be more HPO and rigs going in there. I think you talked about consultancy work, just any more color you can give us on how you see yourself growing with ADNOC in this new partnership?

Yes, Derek. This is John. I'll start and hand it over to John Bell to give additional color. But I think in general, the strategic partnership with ADNOC is very important. But our hope is that we can continue to expand internationally both with ADNOC drilling as well, as you know, there are some areas that makes sense that the H&P operation would be there, but go ahead, John.

Yes, John, as you said, we have a -- now we are focused on just getting the rigs ready and getting people on board to start up the rigs, but also support that we're in the process of fine tuning a rig, and then at framework we are doing with that, will give us the structure we need to provide, not with the support, and then in areas like maintenance, supply chain, operational efficiencies, and so forth. And that's really what we're focused on. We have had discussions with them about different ways we might approach certain countries and customers in the region and we're open to looking at that, but there's nothing that we've firmed up at this point.

I think there's a real opportunity, though, on the partnership. I mean, I think this week has been a great example, we've had excellent meetings with ADNOC Drilling and they're very excited about the future. There are some, obviously different service contracts and technology opportunities that that we have to explore. And again, you said, you saw the announcement, 5 million barrels, and they have a goal of getting to natural gas independence. A lot of that work is unconventional. And that really, is as a sweet spot, obviously for H&P. And so, our hope is to be able to work closely with them to help them to achieve those goals. So it's a really exciting opportunity.

That's great. So switching over to North America side, the contract coverage has stepped up pretty significantly quarter-over-quarter, maybe, can you just talk to us about the confidence from your side, and the willingness from the customer side to start locking in that pricing and term instead of keeping contracts on short term? It looks like you're now extending that out and getting more contract coverage across your total fleet? So maybe just spend some time walking us through that?

Well, there's several factors. One is, which has been talked about on reactivation. I mean, we want to make certain that when we're reactivating a rig and these are $300,000, $400,000 $500,000 reactivation fees, and we want to make certain that we're either getting some lump sum, or we're getting some term coverage to cover to cover that cost. But I think in general, customers are willing to lock in, and I think part of the reason why they are, is because of the efficiencies and the startups that our people are able to provide, I mean, it's not unusual to see historically rig startup and really struggle for several months. And our teams are doing a great job just starting right out of the box and in some cases, even drilling record wells right out of the box. So there's a lot of a lot of reason why customers are willing and entering into these term contracts. Again, we're going to continue to push on pricing. It's a really tight market as it relates to super spec availability in terms of anything being ready to go and then there's really nothing ready to go right now. Everything's been idle for well over a year. Does that answer your question?

And we will take our next question from Ian Macpherson with Piper Sandler. Your line is now open.

I wanted to ask if we could peek a little bit past fiscal Q1 towards the trajectory of your margins in U.S. because we see with the more expensive reactivations it looks like your average reactivation cost per rig day is more than doubling and in this quarter, but that should improve with time with better absorption and a deceleration of those costs, and then you have your rates being pulled up, especially by the premiums, you're getting on expensive upgrades for walking rigs. So I would imagine those dynamics should point us towards the pretty good inflection, in your average daily margins. I just want to get more comfortable that will you see that happening in fiscal Q2? Or do you see cost pressures or other dynamics, maybe pushing that out into a later point in the year?

Well, I appreciate the question, Ian. I think, if I remember, right, looking at consensus estimates, had us adding 10 rigs in this quarter that we're giving guidance on, but we're going to be adding three times that and so there's a directional factor, the sheer volume of reactivation expenses with that really heavy increase in activity. To your point, coupled with the fact that I -- as I mentioned, in prepared remarks, we're also getting ready this quarter, several rigs that will actually commence work right after the turn of the calendar year. So that's kind of loading in some extra. So on a per rig basis, I think we will be pretty consistent at the end of the day. And as we look forward, we do expect the absence of that needed to be creative. It just depends on how you do the math, but you could see anywhere from 500 to 1000, at least per day accretion from the absence of that. So that's directionally, it's looking good for potential cash accretion. But there's going to be a question mark there, and that we still expect more rig accretion in the first calendar quarter. It's just too early to have clear line of sight through to March 31, what that volume will be. But then, we expect that our customers, especially public company customers, will hold pretty steady and maintain these new budgets from April through September of next year.

And we will take our next question from Neil Mehta with Goldman Sachs. Your line is now open.

I appreciate the visibility on 22 capital spending and I know 2023 is a really far away, away as it’s hard to get visibility but just how was -- we think about that CapEx budget, which was a little higher than consensus how much of that is one time-ish in nature. And as you look at '23, do get more to a maintenance type of program and the cash flow comes through in a more powerful way. Does that make sense? And any color that you can provide on the long term as opposed to just next year?

There are several things to consider when you consider the question. I think we're back end of that. As I mentioned, historical 750,000 to a million practice range, where that might go through time. Who knows for certain, but I hope it's, it's a little bit more muted through time we're experiencing the obvious inflation that we're including and guidance for this year, really ended the steel cost et cetera. Plus, we had really if you will take in a holiday from operating our flex rig machinery center in the last calendar year and we're having to get back in business recertifying top drives be BoP is especially, et cetera. So kind of a crank up of work there that might normalize a bit through time as well. And then, the big question Mark is what do our customers want to do related to walking rigs as John and I went through a few moments ago. We've had interestingly in the churn of rigs, this year, even the rig count stayed pretty steady. And, modestly increased in calendar Q2 and 3. We had some customers that picked up skidding rigs and actually exited walking rigs, while other customers quickly absorbed those walking rigs and as has been evidenced by commitments, we're still we're still seeing customers want our design of a walking rig and commit to those despite the availability of them in the broader market. So it's really just going to depend, you know, as we move towards better term and better pricing, and for those commitments to get the right return on capital and the new investment. Those can be easy decisions to make. So it's just going to depend Neil, is that helpful? Well, I will add one thing, let me just add one footnote, that corporate CapEx will come down. Once we get these IP projects done that's shifted from year-to-year, they're done. And some of these real estate matters will be done as well.

Yes, that is helpful. As we are all trying to figure out what normalized free cash flow power is. That's good clarity. On the positive side, I won't talk about market share and your market share levels, I think it's up to 26%, now, which is above historical level. Can you just provide us your perspective on your ability to continue to maintain that market share, what are the key competitive threats that you're monitoring, and what confidence you can give to the market around your ability to sustain these type of wins?

Well, fortunately, we've had a track record coming out of downturns, where we capture market share, so we fully expect that at least, there's a management team, the company in general felt like we had the opportunity to do that. It's interesting. Over the last year, there's been about 235 net adds to the market, rig wise, and 180 of those were from private companies. So 75% of the adds were private companies. And we're the largest -- we still had the largest market share of the private company, and I think we were up to 16% of that share. But the public companies and, of course, have only had 25% of that, we think it's probably going to go the other direction at least through Q4 and Q1, where we're going to see at least based on the commitments that we have, about 60% of our commitments are public company. So there's a little bit of shift there. And we've got about 31% of the public company market share. So our hope is, is that we can continue to gain share. And you say, well, why, why is that and how can you continue to do that? Well, I think a lot of is part of what I've already touched on is the ability to start up safely and efficiently and being able to really hit the ground running. We haven't talked about performance contracts this morning with the exception as our prepared remarks. But we have a lot of customers that are really interested in entering into win-win contracts. They see just like we do that the day rate contract really isn't structured to drive outperformance. And so fortunately, we've had customers that are willing to enter into those new types of contracts. So I think that's a driver. And I just -- I look at all the work that we've put in over the last four or five years organizationally and just continuing to invest in our people and our systems and processes. We're utilizing data today better than we ever have, and that helps us in terms of driving better performance. I mean, at the end of the day, that's what our customers want is they want better performance, they want, obviously, efficiency and reliability, and then there's an ESG component. And again, the data set that we have today and our ability we believe to be able to manage ESG at a better level than what our peers were -- are going to be able to do. So, again, I think those are some things and better ahead, hopefully, we can continue to take advantage of it.

And we will take our next question from Scott Gruber with Citibank Your line is open.

Yes, good morning.

Good morning, Scott.

Good evening. Good morning. How are you doing?

Quick follow-up on ADNOC -- really doing well, doing well. Quick follow-up on ADNOC, what's the vintage of the rigs been sold? It's just the restart CapEx and recertification can be somewhat deceiving when you live in the rigs abroad. And then do you think there's an opportunity to sell more rigs down the road?

Go ahead, John.

Scott, we -- you said vintage, you asked me about rig type --

Rig type and is the main question, but if you want to throw out ability here as well?

So Scott, just I'll jump in on the rig. The vintage, it varies across the eight, and there's less sort of recertification work that we're going to be doing for some of the componentry and there's more sort of some of the technical spec work. Remember two of the eight are super-specs though. A lot of this is really the cost to get some of the 60 Houston and get them across the Atlantic Ocean, the Mediterranean and the final destination. So --

Yes, that's the majority really, the expense is just getting ready for international and just getting over there. The -- but in terms of selling more rigs, that we don't have plans to sell more rigs, but we do have -- we want to -- we're not going to continue to put rigs working on a number of ways, and so we currently don't have any plans to sell them more.

I got you. So it's only two super-spec, sorry, I thought I -- I think I heard that wrong. I think it was two that were not super-spec, but it's only two that are super-spec?

No, correct. The two that are here are not super-spec, and then we're sending to over and then the rest will be non-super-spec.

Understood, understood. Okay, that makes sense. And then with respect to the rest of the international portfolio, just to confirm that the four rigs going to work with YPF, those would be incremental in Argentina?

Yes, there's one that's going to work this quarter, that has been planned for a bit, and then there'll be one, I think in Q, fiscal Q2 and two in fiscal Q3 At this stage, that timing could be subject to change, but all the remaining three after this quarter are planned for this fiscal year.

Got it.

So starting to get a little bit of scale -- starting to get a little bit of scale back in the Vaca Muerta operations there. So I think that's some exciting news for the Argentina team.

Well, definitely. And just thoughts on potential incremental demand beyond what's contracted to go back to work in Argentina and Colombia, because after those go back, you still have a fair bit of spare capacity on the international side. So any color on additional rig adds over the course of '22?

I'll let John comment further on customer specifics, but we don't have anything definitive. However, I will tell you that we are participating in bidding activity in both Colombia and Argentina today. John?

Yes, that's right. We were -- we've seen interest pick up in both Argentina and Colombia. We've seen the big rig work, in particular be of interest in Colombia and then, of course, Vaca Muerta with the gas plant that they recently put in place is resulting in some rigs going back to work in the Vaca Muerta.

And we will take our next question from Taylor Zurcher with Tudor Pickering. Your line is open.

Hi, John and Mark, thanks for taking my questions. First one, just wanted to circle back on costs in the Lower 48. I mean, clearly, there's some element of the cost increases, it's transitory with elevator reactivation costs, but a piece of that's going to stick with you on the inflationary side. So I was hoping you could help us understand if we just look on a per rig basis, where normalized costs are on a per rig basis after some of these reactivation costs temper down a bit in the back half of the year. I mean, we had $15,000, $16,000 a day or a different range on a per rig basis?

Taylor, thanks for the question. We are -- there's a lot of moving parts in here. Besides reactivation costs, we are -- there's several things to consider. There's labor cost increases that we alluded to, which will be margin-neutral that we have customer protection provisions and contracts. We also have as we've moved away from our previously harvested inventory of the quote unquote, penny stock, we've talked about in prior quarters and we're having to pull out of -- having to pull out of fully cost as inventory, there are adjustments there. I will say though that I don't anticipate a lot of working capital lockup for that sort of thing, as we have implemented a lot of processes, policies and systems improvements, so that our warehouses are live in Oracle and people across the United States can see all the warehouses. And we've put in place min-max programs to manage the amount of buying that we do. So, nonetheless, we will still see some, a little bit of maintenance cost to go up. But maintenance is not the largest component of OpEx, as you know, labor is. So I would say a guess, it's probably closer to $14,000 after all those moving parts. But we still have some time to go until we settle to the final number, I believe.

Okay, thanks for that. And just a quick follow-up on some of the smaller divestments you made in U.S. plant, the partnership with Parker around TRS, and it sounds like you've also exited the trucking business. Can you just talk a little bit about what the benefits to HP are in terms of why you decided to ultimately exit those businesses? I know they're not core to the Lower 48 business, but do add some additional revenue margin per day to your rig business. So just curious if you could help us think about why you're exiting those businesses and what the benefits are to HP?

I'll start with a couple of the numbers things and let John expand otherwise. As we look at these, we have approximate proceeds of initially, that are modest of $6 million to $7 million, which we'll be seeing coming out in our 10-K and later today, plus the potential for more revenue sharing through time, these are very much margin-neutral. So there's not a lot of accretion to per day margin. And if you think about it, they are very capital intensive businesses. So as we focus on our capital spend through time, that was one of our considerations. And then there's a bit of the -- just the time and attention that such margin-neutral businesses can bring for the management team. John?

Yes, Taylor, it's a great question. We've had both of those services for a long, long time. And at the end of the day, if you get right down to it, we could not grow those to significant scale. We couldn't get the -- we just continue to believe year-after-year that we would get to scale from the customer -- from our customer base. And I think it's just probably a function of the competitive nature out there for those particular services. But I think that probably the biggest thing for us is it simplifies what we're doing, it removes some complication as you just think about, I mean, trucking, running trucking is very complex, and as Mark said, it's capital intensive. And there's a lot of training and risk, it's different than rigs, and really kind of the same way with casing. So it just really didn't fit -- just didn't really fit our model. And so we added, they're great, both the trucking and the casing are best-in-class, there's no doubt about it, but again, it was very hard to grow it to the extent that we needed to.

And we will take our next question from Waqar Syed with ATB Capital Markets. Your line is open.

Thank you for taking my question, John, in terms of the contracted day rates comparing this quarter Q3 calendar to Q2, as you've added new rig contracts, has the contracted day rates gone up or if you look at maybe the forward Q, calendar Q4, has the contracted day rate gone up sequentially or is it still declined?

So, Waqar, as you know, we're working really hard to get out of the day rate business, and obviously, we can back into it, if you were to look at it on a day rate basis and you pull out the term contracts that we're entered into at an earlier date at much higher rates, then yes, the quarter-over-quarter, it is increasing. I don't know the amounts. Dave, you may add maybe something that you can mention if you have that information. But if you combine them all together because of the rigs that are rolling off with earlier term contracts that were at much higher rates, so it has a negative impact on the overall margin or overall Argentinian revenue.

So and just one other on the same topic, how does the contracted day rate for the 82 or so rigs that in a contract compared to the spot day rate right now?

Oh, that's a great question, Waqar. And design is -- let me see, hang on. But as we consider what John just said about some rigs rolling off that are signed on term in a better market than even our increasing day rate market that we have today, I think he knows -- as I -- as we just alluded to with a marquee price of $25,000 per day for a walking rig conversion that we're getting back to some better pricing level. In fact, we've had four existing term contracts and standing spot customers, we've been passing through rate increases, those don't all take effect at the same time, and we're still in negotiations with some customers about what that exact rate increase will be and when it will be. But suffice it to say that, we are pushing the pricing and more of that's going to be to come. Dave, any specifics on any numbers?

Yes, I'd just add, Waqar on the pricing, it's very region-specific, there's a couple of regions where the difference between the spot and the term isn't that great, but then there's other regions like in the West, where you're seeing still a disparity between the two of a couple of 1,000 per day or something like that.

Okay. John, just one last question, if I may, may ask you, if we go back like different cycles, H&P has always had a premium margin over its competitors. However, that seems to have gone away, and depending on how you treat the H&P Technology contribution, doesn't feel as if right now, there is a premium for, we've embedded in the numbers. Do you think that as the cycle -- as we continue into next year that you regain that margin premium or is it going to be kind of more in line with where competition is?

Yes, I think if you look at individual contracts that we win, we're winning at a premium. It's -- but obviously, these costs that we have, the reactivation costs and other costs that we're incurring have caused some challenges. I think if you go back to the 2017, 2018, 2019 market, we did have a premium margin at that time. So yes, I fully expect that we'll continue to have premium margins over our peers. You mentioned technology, no doubt, technology is going to play a larger role, and we're continuing to have adoption from customers. And again, we're continuing to work very hard on executing on new commercial models performance based in KPI. We have customers that love the model and they're willing to pay for a lot of the value that we provide. So more to come. We can talk about it all day, we just have to demonstrate it right.

And I would just footnote, Waqar that we're getting with these upticks that we're guiding to and talking about in rig activity, we're starting to get back to absorption rates with our scale, which will help with that margin accretion and historical industry leading margin.

Thank you, Waqar. We are too. Brittany, I think that -- was that our last question?

That was our last question for today. I will turn the program back over to John Lindsay for any additional or closing remarks.

Okay, thank you, Brittany. Appreciate it. Thanks again, everybody for joining us today. And as mentioned, we're very optimistic about the future, we think obviously our H&P FlexRigs, our digital solutions and our best-in-class people. So we're looking forward to the future and we'll talk to you next quarter. Thank you.

This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful day.