| | | HP/ Helmerich & Payne -
One of the largest contract drillers of O&G wells, in operation since 1920s. 2014 revenues were 3.8B US, 1.1B International, 0.1B Offshore. 56% of revs came from ten largest customers including Occidental (11%), Marathon (8%), BHP (7%). Has aggressively expanded rig capacity last 5 years (US Land 329/ 302/ 282/ 248/ 220) with the additions primarily state of the art AC/ FlexRigs (good for directional/ horizontal drilling) and the decommissions primarily mechanical rigs. US day rates are about 28k/ day.
Active rig counts have declined precipitously the past 6 months, illustrated for BHI:
For HP:
Note that rig utilization as of June 2015 was 55% or 153 contracted rigs (not fully shown on above chart).
In the short term HP’s revenue is being propped up by early termination fees but management guidance is a substantial decline for H2 2015 with Q3 32% decline in revenue days for US Land, daily rig rev decline to 26-27k (from 28k in 2014) and rig expense per day increased to 14k (from 13k in 2014). In spite of this they are maintaining their capital program for now “to be prepared when demand resumes.” Management is opposed to acquisitions which would be “dilutive” and instead prefers organic growth. Read: if everyone has terminated their contracts, it’s a great opportunity to steal your competition’s customers with one of the highest AC/ Tot rig ratios in the industry. This rather ruthless variant of M&A probably accounts for HP’s status as the largest pure contract driller and stead growth the past several decades.
Price: 60-65
NCAVPS: -7.2
Market Cap: 7B
Cash/ Cap: 0.10
D/ E: 0.08
P/ TB: 1.4
EV/ Rev ttm: 1.8
EV/ Rev fwd: 2.3
EV/ EBITDA ttm: 4.1
EV/ EBITDA fwd: 6.1
EV/ FCF ttm: 219
ROE ttm: 15%
ROA ttm: 11%
ROIC ttm: 14%
10Y rev growth: 20%
10Y tbook growth: 18%
Short float is around 10% and insiders have dumped indiscriminately the way down. I’d love to see some insider buying before I start, but no one can predict Brent so I’ll probably hold back a bit and wait for the bad news to settle in. This is a bit different from my strategy on the E&Ps where I like to buy at the point of steepest decline in the mid to high 50s. The logic here is that service companies are somewhat less volatile so I don’t see much value in buying into a free fall.
Appreciate thoughts and critique,
Graham |
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