Tags: Helmerich | Payne | shale | HP

Helmerich & Payne Powers Past Shale Gas Glut

By    |   Tuesday, 17 April 2012 05:06 PM

Helmerich & Payne (HP) combines cutting-edge technology in the oil and gas drilling business with a fortunate boom in shale exploration, building a large business backlog even as it grows internationally. Analysts think it will be able to power past the U.S. shale gas glut and grow into the years ahead. 

Helmerich & Payne is primarily engaged in contract drilling of oil and gas wells. It has three reporting segments, U.S. land drilling, offshore drilling, and international land drilling.

U.S. land drilling takes place in multiple states. Offshore drilling operations are conducted in the Gulf of Mexico, and off California, Trinidad and Equatorial Guinea. The international land segment operates in Ecuador, Colombia, Argentina, Mexico, Tunisia and Bahrain.

Helmerich & Payne also is engaged in the ownership, development and operation of commercial real estate and the research and development of rotary steerable technology. Each of the businesses operates independently of the others through wholly-owned subsidiaries. In fiscal 2011, about 57 percent of consolidated operating revenues came from the company’s 10 largest contract drilling customers.

As of Sept. 30, 2011, it had 158 rigs under fixed-term contracts. The company reported a contract drilling backlog of $3.789 billion

“Approximately 61 percent of the total Sept. 30, 2011 backlog is not reasonably expected to be filled in fiscal 2012. A portion of the backlog represents term contracts for new rigs that will be constructed in the future,” management told investors in the latest annual report.

Helmerich & Payne is a $5.53 billion market cap firm, a bit lower than the average in its sector of energy equipment and services. Its 12-month trailing P/E ratio is 12.37, compared to 19.22 for the sector.

The company’s five-year projected price-to-earnings-growth (PEG) ratio is 0.61 compared to 0.97 for the sector. Its projected earnings per share growth in the coming year is 11.39 percent, less than half that of the sector, at 27.71 percent.

Multiple buy calls

Wall Street is excited about Helmerich & Payne, offering up multiple buy calls, including from Citigroup, Standard & Poor’s, Stifel Nicolaus, and EVA Dimensions.

“We believe HP, with the best utilization (89 percent) in the land drilling segment, has gained pricing power despite rig oversupply. On rising operator spending, specifically in U.S. shale plays, HP's FlexRigs saw a pickup in activity in FY 10 (Sep.), while older rigs became idle or were retired,” S&P analysts wrote in mid-February.

“With the overhaul of its U.S. fleet near completion, we think HP will market its FlexRigs more aggressively globally,” they wrote.

Helmerich & Payne next reports on April 26.

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