8/13/2019 Are the Glory Days Over for This Driller
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1/27/2014 Are the Glory Days Over for This Driller? -
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ENERGY, MATERIALS, AND UTILITIES
Are the Glory Days Over for ThisDriller?
H&P will find it difficult to maintain industry-
leading margins as the technologyleadership
on land drilling rigs diminishes.
With the gains in drilling-rig efficiency limiting demand, are
the glory days
over for Helmerich & Payne (NYSE: HP)? According to this
WSJ
article, the company and the CEO are credited with developing
the next-
generation drilling rigs used to create the U.S. energy
boom.
With oil above $100, one would expect a driller to trade well.
The
domestic land-drilling market, however, has faced lower
drilling-rig
demand due to plunging natural gas prices and more importantly
the
dramatically improved efficiencies gained in the last couple of
years. The
stock is sitting close to all-time highs. Now investors must
analyze
whether future natural gas export demand and possible demand
from
Mexico can offset a weak domestic climate.
While H&P has had a technology lead for the better part of
the last
decade, investors have to wonder if the CEO isn't stepping up to
the
chairman position now that competitors Patterson-UTI Energy
(NASDAQ: PTEN) and Nabors Industries (NYSE: NBR) are closing
the
technology gap.
Rig demand
The weekly Baker Hughesrig reports continue to show weak demand
for
http://blogs.wsj.com/corporate-intelligence/2013/08/22/founding-father-of-the-shale-boom-says-the-best-is-yet-to-come/?mod=yahoo_hshttp://blogs.wsj.com/corporate-intelligence/2013/08/22/founding-father-of-the-shale-boom-says-the-best-is-yet-to-come/?mod=yahoo_hshttp://www.fool.com/http://caps.fool.com/Ticker/NBR.aspxhttp://blogs.wsj.com/corporate-intelligence/2013/08/22/founding-father-of-the-shale-boom-says-the-best-is-yet-to-come/?mod=yahoo_hshttp://caps.fool.com/Ticker/HP.aspxhttp://www.fool.com/
8/13/2019 Are the Glory Days Over for This Driller
2/5
1/27/2014 Are the Glory Days Over for This Driller? -
Fool.com
http://www.fool.com/investing/general/2013/09/24/are-the-glory-days-over-for-this-driller.aspx
drilling rigs. The demand that does exist is shifting in favor
of the ones
that have higher-horsepower AC-powered rigs that serve
growing
demand for horizontal drilling in unconventional shale
plays.
H&P clearly leads the AC-rig sector with around 270 domestic
rigs and
300 in total; Patterson-UTI is closing the gap with 117 APEX
rigs. Nabors
lists a fleet of roughly 245 premium-quality rigs that include
some SCR-Plus rigs that reportedly match the capabilities of an
AC-drive rig.
Impressive margins
H&P continues to maintain impressive margins even in the
face of
declining revenue. In fact, during Q2, H&P was actually able
to increase
the average daily margin by $244 per rig.On top of that, the
company
already has daily margins on the domestic land rigs that greatly
exceed
those of competitors Patterson-UTI and Nabors
Patterson now operates roughly 185 rigs in the U.S. and Canada
with an
average daily operating margin of $8,730 during the second
quarter due
to lower daily revenue of only $22,990 and higher costs.
Nabors saw an average daily operating margin of $9,388 per day
during
Q2 with new AC rigs working at average day rates of $22,265.
The
company had 183 rigs working with 134 of them being AC and 101
pad-
capable.
The end of the Helmerich line
The year 2014 will begin with the end of a legacy at H&P, as
the last
Helmerich will step down in March as the CEO to become the
chairman.
In 1920, his grandfather founded the company. This move will
place the
first non-family member in charge of the business and question
whether
the decision relates to a desire to leave as the business is
peaking.
Though he has been in the business a long time, he is only 54
years old.
At the annual shareholder meeting, Hans Helmerich will turn over
the
reigns to the current COO, John Lindsay. Mr. Lindsay has been
with the
company since 1987, providing tons of experience at the company.
He
was no doubt instrumental in the technological lead and surging
rig
demand built up in the 2000s.
Bottom line
