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

Thank you, Todd, and welcome, everyone, to Helmerich & Payne's conference call and webcast for the fourth quarter and full fiscal year of 2024. With us today are John Lindsay, President and CEO and Kevin Vann, Senior Vice President and CFO. Both John and Kevin will be sharing some comments with us, after which we will open the call for questions. Before we begin our prepared remarks, I will remind everyone that this call will include forward-looking statements as defined under the securities laws. Such statements are based 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 undue reliance on forward-looking statements, and we undertake no obligation to publicly update these forward-looking statements. We also make reference to certain non-GAAP financial measures, such as segment operating income, direct margin and other operating statistics. You will find the GAAP reconciliation comments and calculations in yesterday's press release. Finally, as you'll hear probably a couple times on this call, unless expressly identified otherwise, statements made during this call relate to H&P on a standalone basis and do not include any amounts or guidance related to KCA Deutag or on a combined enterprise basis resulting from the pending KCA acquisition. With that said, I'll turn the call over to John Lindsay.

Thank you, Dave. Good morning, everyone, and we appreciate you joining us today. The company delivered another strong year in fiscal 2024. I'm extremely pleased. We continue to lead the industry in safety, customer satisfaction and margin generation. Looking back on our expectations and how we executed on our strategies in a challenging market, three elements standout in my mind as being noteworthy and will continue to be pivotal for the company going forward. First, our focus on achieving the best customer outcomes by executing strategies that deliver safety, operational expertise and technology solutions continue to generate superior contract economics and industry-leading rig performance and margin generation. Second, our teams swiftly adapted to a market where customer consolidation and commodity price volatility was driving a lot of rig churn in the U.S. In tandem, these two factors drove the U.S. industry rig count down about 5% year-over-year, while the H&P North America Solutions rig count experienced a slight increase. Under those conditions, our teams delivered solid performance, generated healthy margins and grew market share to approximately 28%. The third element is the progress we've made in our International Solutions growth strategy. We've delivered five of eight FlexRigs in Saudi Arabia, and the first rig has commenced operations for Aramco. Additionally, we are executing on the transformational acquisition of KCA Deutag, which will position us as a global drilling leader, and we expect to close that transaction in December or January depending upon regulatory approvals. Looking at the fourth fiscal quarter results, our North America Solutions rig activity trended as we expected, up a handful of rigs from the previous quarter and exiting at 151 rigs. Along with the increased rig count, the North America Solutions segment was also able to sustain healthy direct margins, which again, is a testament to…

Thanks, John. Today, I will review our fiscal fourth quarter and full-year 2024 operating results, and provide operational guidance for the first fiscal quarter of 2025. Additionally, I also want to spend some time to address our annual fiscal 2025 projections, our financial position and provide an update on our strategic and transformative acquisition of KCA Deutag and our focused efforts to lower our leverage position resulting from it. Let me start with highlights for the recently completed fourth quarter and fiscal year ended September 30, 2024. In general, the fourth quarter looks very similar to the third quarter of this year. I'm pleased to say that we did not miss the fairway on any of our guided metrics. We were right down the middle. The company generated quarterly revenues of $694 million versus $698 million in the previous quarter. Correspondingly, total direct operating costs incurred were $409 million for the fourth quarter versus $418 million for the previous quarter. General and administrative expenses totaled $67 million for the fourth quarter and $245 million for fiscal 2024, which is in line with our expectations. The fiscal 2024 effective tax rate was approximately 28.5%, which is at the high end of the previously guided range due to some acquisition costs that could not be expensed for tax purposes. To summarize fourth quarter's results, we are reporting net income of $0.76 per diluted share versus $0.88 in the previous quarter. Earnings per share for the full-year of $3.43 per share was negatively impacted by some unusual non-cash items and absent those items, would have been $3.50 per share. Capital expenditures for the fourth quarter were $106 million, with full-year 2024 totaling $495 million, which was in line with our expectations from the July earnings call. H&P generated $169 million in operating cash…

Thank you. [Operator Instructions] Our first question will come from Arun Jayaram with JPMorgan. Please go ahead.

Yes. Good morning, gentlemen. I wanted to get your thoughts on what you view as the potential run rate for KCA Deutag. John, you mentioned some of the one-year rig suspensions. I know at the time of the acquisition, you'd highlighted around $340 million of run rate EBITDA plus $25 million of synergies. But if we're going to incorporate some of the suspensions, what would you give us in terms of a range of EBITDA on a run rate basis for KCA, thinking about 2025?

We haven't really given any other additional guidance.

Yes, Arun, we can't really quantify right now what – because they say it for up to 12 months, and that's – it could be six months, it could be 12 months, it could be two months. So it's too much of a big of a range there to really give you anything with clarity.

Okay. Fair enough. I wanted to talk about your outlook, John, that you highlighted for North American Solutions. You mentioned that you expected maybe the rig count to be flat to up in the first half of the year and maybe have a similar profile as this year, maybe with some seasonality, maybe the back half trends down a little bit. How would you expect HP – your activity to kind of trend in this kind of outlook, if I characterize that correctly?

No, you did, Arun. And I think we'll perform well, as I had mentioned in my prepared remarks. We have focused really hard in delivering value to customers and maintaining pricing, really trying to generate that 50% gross margin target that we've been talking about now for several years. But during that process, even in a declining market, we've been able to pick up a little bit of share that really hasn't been our focus. But I think when you look at the wells that are being drilled, the complexity of the wells. You hear more and more about three-mile laterals, four-mile laterals, there's various complexities related to the wells that we're drilling. And so super-spec capacity rigs, technology, having a good digital technology platform is really helping us deliver greater value for customers. And so I think it's a great opportunity for us to continue to pick up share while defending pricing, again, just based on this 50% gross margin target that we have. Of course, there's a lot that we don't know in terms of nat gas prices. I think if natural gas prices were to improve, then I think there's an opportunity to put some additional rigs back to work. But based on what we're seeing right now, I think it's a very similar trend to what we saw in 2024. And I think in that environment, will perform pretty well.

And just to circle back on your question about projections and relationship to the rig suspensions. Obviously, as Dave said, it's almost impossible to really model that out, and we're limited in terms of what we can and can't do and what we can and can't talk about just because of the fact that the deal has not closed. But if you look at it through my lens, and you look at the things that I do have clarity on versus the way we had originally modeled them whenever we signed the deal back in July, some things have definitely come in positive in our favor. Number one, if you look at just the amount of CapEx reduction that we've got on our side going to help us to reach the kind of the leverage goals that we had stated by the end of 2025 and 2026, coupled with the original purchase – our sales price associated with the ADNOC Drilling shares, that was at $60 million or $70 million higher than what we had originally modeled whenever we were thinking about our deleveraging plans. In addition to that, the interest rates that we achieved on the bonds, that came in significantly lower than the originally planned upon financing. So the items for which we've got clarity on puts us really on track to what we had originally anticipated, which was being below a turn of leverage by the end of 2026. So actually halfway between 2025 and 2026. We look based upon the projections that we had at the time in which we did the deal, we're still right on track to get back to that level.

All right. Thanks a lot.

Thank you.

Thank you. Our next question will come from Eddie Kim with Barclays. Please go ahead.

Good morning. I just wanted to circle back on the commentary on the forecast of the U.S. land rig count next year. Say flat to slightly up in the first half before trending down in the second half. Does that second half trajectory trending? Does that reflect just normal seasonality? Or is there something more to it than that? I think there was an expectation in the market that potentially some gas rigs or gas activity could increase in the second half of the year. Should we read into your commentary that you don't believe that, that is going to take place that might get pushed out sometime into 2026? How should we kind of read into the commentary about the trending down in the second half?

Yes, that's a good point. And we've actually seen this over the last couple of years. And again, I think we had mentioned, we've been in this range of rig activity of 144 to 156 rigs over the last 18 months or more. And that trending down in the second half of the year is not anticipating an improvement in gas prices. Obviously, we're hopeful that there will be an improvement in gas prices, but that isn't what we're expecting right now. I think the downward trend is historically related to budgets, related to performance. In our case, we've been successful in being able to high grade what the additional share that we have picked up has really been a function of high grading. And so that's been beneficial for us. But you know how hard it is to predict these rig counts. It seemed to us logical that without anything changing in terms of the commodity deck that we would see this same trend that we saw last year, where we're seeing a little bit of increase in calendar Q4 and then calendar Q1 and then it peaks and then starts declining slightly. Again, it's about a 30-rig differentiation from the peak of activity in that March, April timeframe to where we are today.

Got it. That's very clear. Thank you. My follow-up is just on your free cash flow expectations for next year for stand-alone HP, excluding KCA Deutag. You did about $190 million of free cash flow this fiscal year. For next year, you guided CapEx to decline by almost $200 million year-over-year. Just doing simple math, I mean is there any reason we shouldn't expect free cash flow to potentially be up close to that $200 million level for next year? Or what, if any, of that should we be thinking about as it relates to your free cash flow expectations?

No, you're exactly right. I think you should – the math is pretty simple when you're cutting $200 million of CapEx out of 2025 projections just because of – you should see some of the capital efficiency start to come into play as a result of just the expected earnings and free cash flow to be generated in 2025. But again, margins being consistently what we're anticipating with margins being consistent in 2025 versus 2024. Your simple math is right on.

Got it. Great. Thank you for that color. I will turn it back.

Thank you.

Thank you. Our next question will come from Doug Becker with Capital One. Please go ahead.

Thank you. Just to start off on the U.S. guidance for margins to be flat heading into the fiscal first quarter. Is there any shift in terms of that revenue per day or costs? Just trying to think about if pricing’s stable and we're still in that 19,000 to 19,500 a day on the cost side going forward?

I think that's what we're modeling is a similar, both revenue and cost side of the equation.

I think what you've seen over the last couple of quarters is kind of consistent with our expectations going into 2025, which around that 19 to 20 per day.

That's really encouraging in the current environment. And then shifting to international, continue to hear rumblings about potential for additional suspensions in Saudi Arabia. Just from your market intelligence, do you have any context? Is it something you think is likely? Or we shouldn't read too much into that?

I think we all see the same rumors and commentary, and it's – obviously, we're not in a position to comment on it. There was a question earlier about the suspensions and there was an announcement by KCA back earlier a month or so ago about a suspension of the eight rigs. As we've stressed, we're still two separate companies until closing, so it really isn't appropriate for us to comment. They actually had a public announcement on this. So there hasn't been any additional updates on that. We have seen in the various publications that there's around 50 rigs overall in the industry that have been suspended. Some onshore, some offshore, but that's really about all that we can speak to. It's really the same thing that everybody else sees at this point.

Fair. And I appreciate you can't speak to KCA Deutag, but certainly, it doesn't sound like your conversations for the rigs that you're bringing in. Those conversations, there's been nothing that suggests?

Correct. We have the five rigs in country, the one has spud and the others are in various positions in terms of getting ready to spud. And so no, we have not had any notifications of suspensions of the FlexRigs.

Got it. Thank you very much.

Thank you. Our next question will come from Scott Gruber with Citigroup. Please go ahead.

Yes. Good morning. The resiliency of our domestic margins has been really impressive and it looks to continue here. So I'm curious, in light of the performance-based contract model that you guys pushed over the last two years, as we decompose the stable margins, are you seeing basically kind of flat base day rates on the rig and a relatively flattish bonus contribution? Or is the size and the breadth of the bonus contribution increased, offsetting some modest erosion in base rates? And how would you kind of describe the impact of the bonuses on the stability of your domestic margins?

Yes. Scott, on that with regards to the performance contracts, historically, we see an uplift of $1,000 to $2,000 a day on the margins relative to what they would get under a straight day rate contract. These last couple of quarters, that's trended to the higher side, and that's something that we've worked really hard to do. And hopefully, in the future, I could change that range to something even higher. But right now, we're still kind of $1,000 to $2,000 a day. But the last couple of quarters, it's been towards the top end of that range.

I think the other thing to stress – the other thing to stress here, Scott, is that in this performance contract, it's a win-win. And so when we're doing better, if we're doing better, our customer is also doing better because they're getting wells to deliver at a faster pace and at lower cost. So that's the beauty of the performance-based contract when constructed properly is that both parties win. And as Dave said, we had a great quarter last quarter, and that also means that our customers are doing better as well.

That's great to hear. Great to see the model really providing benefit in capturing some of the efficiency gains that you guys are helping to deliver. And as you think about 2025, are you able to push the model? Any further in terms of the penetration rate across the customer base? Are you having success, say, pushing it into private? And generally, with these efficiency gains that the industry is achieving, how does the benchmarks change in terms of capturing the next round of bonus awards?

Well, I think performance-based contracts are like anything. There's an adoption period and we've had some great adoption. We've also had some churn with rigs. But I do think we'll have some additional customers adopt performance base. If you look at it today, it's really across the board. I mean, we have both super majors, large independents, and we have private companies that also are investing in the performance-based contracts as well. So I think there's a lot of upside opportunity there. It's a great opportunity for us to deploy our technologies, our digital technologies. There's a lot of advantages associated with that. The adoption curve in general on technology is increasing, both on performance-based and nonperformance-based contracts. We see both of those as being very positive for the organization and quite frankly, really, really positive for the industry because it drives greater reliability. It also had – there's also a safety aspect to it that's very important. So again, I feel good about the direction that it's trending and feel like we'll continue to have adoption in the coming year.

Appreciate the color. Thank you.

Thank you.

Thank you. Our next question will come from Jeff LeBlanc with TPH. Please go ahead.

Good morning, John and team. Thank you for taking my questions.

Good morning.

I wanted to ask, as upstream companies continue to highlight drilling efficiency gains, how should we think about the stickiness of HP's share of their fleet as these gains get incorporated into the forward outlook? And then additionally, how should we think about the opportunity for M&A related high-grades as it appears that operators have been slower than we initially thought to migrate legacy programs to the preferred drilling contractor? Thank you.

Yes. I think I don't know of anyone in the industry that isn't interested in higher levels of performance and number one. And I think even greater than that is the reliability. We continue to get that feedback from customers, drilling a record well, that's great. But what they really want is reliably drilling wells at whatever level of performance that they're targeting and doing that consistently day in and day out. I don't see – in most cases, I don't see well complexity being less going forward. I think well complexity continues to increase. We see more 3-mile laterals going to 4-mile laterals. You've seen the – some of the U-Turn configurations. It seems like there's going to be more of that sort of drilling. And so when you consider that, that means that companies like H&P with the best rigs, best people and the best technology are going to grow share. So I think there's a great opportunity there. And then the other – and maybe you asked this, but as I just think about it logically, Tier 1 and then shifting more to Tier 2 acreage. And I know I don't have a real clear definition for myself Tier 1, Tier 2, but what I do know is that typically speaking, customers are going to drill their best wells first and then they're going to have additional acreage that so we call it Tier 2, that's going to, again, I think, drive a push towards greater efficiencies. I'd mentioned in my prepared remarks that the super-spec fleet today makes up 76% of the working fleet. I don't remember the exact numbers, but probably five years ago, it was 50% or maybe even less. So super-spec capability requirements, better rigs are going to be what customers are going to want. And again, so that puts H&P in a great place here in the unconventional plays here in the U.S. and really, I think, globally as well.

Thank you very much for the color. I'll hand the call back to the operator. Thank you.

Thank you.

Thank you. Our next question will come from Kurt Hallead with Benchmark. Please go ahead.

Hey. Good morning, everybody.

Hi, Kurt.

Hey. I always appreciate the color. I'm really curious, right, John, that there's been a significant improvement in drilling efficiency, well efficiency. We've talked about it quite a bit, not just on this call, but over the past few and how it's benefited HP, right? So I'm kind of thinking on the lines of what you're seeing right now, what do you think this means in terms of the potential for rig attrition in the U.S., right? So the 76% of the total rig fleet going to 100% and these other rigs essentially just kind of either dying off the line. And then in conjunction to that, right, just high-level thought process for HP, right? Does it mean that there's a possibility that you can cannibalize some of your existing assets? The rig count basically remains flat? Just high-level thoughts from you?

Well, I don't think there's any doubt that well efficiencies are going to continue to improve for a lot of reasons. The rig and the downhole technology, the technologies that we're bringing to bear, all those things are going to drive greater efficiencies. And I think as you – what ends up driving additional rigs is a stronger commodity price environment. I do think – I mean, again, just look at how many rigs have been retired over the last 15, 10, 15 years in the U.S. And so I think that's – there'll be much less of that going forward now, I think. But I do think that that's something that the industry will continue to watch very closely. I feel good about where we are in terms of positioning and the fleet that we have, most recently, the most – we had 191 rigs. Yes. And then we have another 10, 15 rigs past that we could put to work. So feel good about our positioning there. Anything you guys would add?

Just, Kurt, the only thing I'd add, you talked about rig efficiency. Yes around that. You look at our rig count in West Texas two years ago, we're within one or two rigs of that count today. So obviously, there's been efficiencies gained in the markets in the past two years, but yet the H&P rig count in West Texas has remained pretty resilient. So I think that, as John said, that speaks to the value proposition that we bring, the performance that we bring to customers. And when they see that, they want more of it, not less.

That's great. I appreciate that color. Maybe just a follow-up then on the context of your opportunity set in the Middle East as it relates to not your existing contracts that you have and then the KCA Deutag. I guess my question is along these lines, right? So you had a bit of a mix shift taking place in Saudi and they've kind of shifted their spend a little bit off of the oil front and on to the unconventional natural gas, which have to be placed to your spec rigs. But do you ultimately see that there is the prospect for absolute displacement of unconventional rigs in Saudi going forward?

I think when you think about, I think it's early times, of course, on the unconventional side in Saudi. And I'm not an expert on the types of rigs that are drilling in the unconventional plays. But my sense is that there's rigs that are doing both conventional and unconventional work that are of the same rig category. If that makes sense. And the FlexRig is going into Saudi to do nothing but conventional – or pardon me, unconventional drilling, which is what we're doing in Argentina, which is what we're doing in Australia. I think we even have – I think we may be doing some unconventional work in another countries to probably hesitate to mention it at this stage. But in general, we think that there are opportunities to do that. And I think just logically, the more – the conventional rig fleet will continue to drill conventional oil and conventional gas. I don't know if that answers your question or not.

Yes, generally, again, I'm just looking back at what's transpired here in the U.S., right? And we've gone from mechanical [indiscernible] two rigs and maybe in some ways, we've gone from conventional well drilling to unconventional, right? So I was just curious if there is a similar trend we should be looking at starting to evolve in the Middle East. So yes, it's all incremental, John.

Yes. I think there's a dramatic difference in the types of wells, conventional wells that we drill or that are being drilled in the Middle East compared to the conventional work that oil wells that are drilled in the U.S. There's just – there's a night and day difference in the types of wells and the complexity with those conventional wells, the depth, the casing size, the pressure, 10,000, 15,000 pressure rating. So there's a lot to be said. It's an entirely different market at least the way I look at it in the Middle East than what we have in the U.S. than we've ever had in the U.S., quite frankly.

Yes. That’s exactly what I was hoping for. Thank you. Really appreciate it.

Thank you. Our last question will come from Thomas Curran with Seaport Research Partners. Please go ahead.

Good morning, guys.

Good morning.

John, I wanted to shift gears to technology, had returned specifically to the data point you shared in your opening remarks about having reduced GHG emissions by 10%. Could you expound upon what contributed to that with the main drivers were? And then update us on your strategy for powering the fleet sort of over the long-term, what kind of fuel mix would you like to move towards for the U.S. [indiscernible] drilling rig fleet?

John, do you want to go ahead.

No. Go ahead.

Tom, part of that is just the efficiency of our fleet, getting better, drilling more feet per day in less time. Another part of that is having more rigs on high line power. And really, it's a collaborative effort with the customer. So going forward, we want to be able to provide the power solutions that they want and they need. And so that's really kind of working hand-in-hand with our customers and providing that whatever technology they choose, whether that's all diesel high line natural gas or combination of that or using battery, we've explored all kinds and we're willing to work with customers on whatever makes sense for them.

The other thing I would add is that we do have automation associated with our on-off powering of our engines. And so the beauty there is that the engine load is going to be adjusted based upon the amount of load that we're actually undergoing depending on whether you're drilling ahead or whether you're running casing as an example. And so with a higher load, you're going to have three or four engines running. With a lesser load, you're going to have one or two engines running. The beauty is, is you don't have to send a person down to turn off or turn on an engine, it does it autonomously, it does it automatically. So that's one of the advantages. I think what Dave said, at the end of the day, we're not paying for the energy on the location. So whether it's diesel or whether it's high line power, natural gas, we're going to do and support what our customer wants to do. But we're definitely trending in the right direction and continuing to lower our emissions as we move forward.

Got it. Could you give us an idea of how many rigs within the current active fleet are on high line power or being fueled by natural gas?

I think the high line power number last time I saw was between 15 and 20 rigs. The natural gas, I don't remember what our count is, but it's a, for us, it's a relatively small number of natural gas engines. Again, it's just shifting from a diesel power to a natural gas is quite expensive, but there are some fuel mix. There is some hybrid ways that we're going to be looking at that. We'll be talking more about that next year.

Got it. We'll stay tuned for that. Last one for me. As you guys have shifted the focus of your strategy, solving for your international growth goals via the pending acquisition of KCA D, are you seeing any of your peers who own the remainder of the idle super-spec inventory in the U.S.? Maybe step it up and either start to market some of their available inventory into foreign markets, start to bid on tenders or if they're already doing that become more aggressive because they think the big dog with the lion's share of that inventory who had been taking that approach is now pivoting and therefore, creating a bit of an opportunity. I'm just wondering if you're seeing any of your competitors change their behavior when it comes to exploring and pursuing international opportunities for their idle super-spec rigs?

There have been a few examples where some of our peers in the U.S. are moving some of their assets. I think some assets that were idle, some assets that over time has been active, but they weren't as successful in a particular basin and decided to send them to international markets. I do think that, that is possible. With our larger footprint with KCA Deutag, we definitely feel like we've got exposure to countries that we didn't have exposure to before with FlexRig fleet. So our ability like we did in Saudi, the ability to mobilize additional FlexRigs out of the U.S. to international markets, I think, present a great opportunity. And so I'm sure others are looking at that as well.

Makes sense. Thanks for squeezing me in and taking all my questions. Those are helpful.

Thank you.

Thank you. At this time, I'd like to turn the call back over to John for any additional or closing remarks.

All right. Thank you, Todd. In closing today, the company is going to continue to strive to execute with a customer-centric approach and a safety focus. That's really ingrained in our company culture. As we've said, we look forward to closing the acquisition with KCA Deutag and taking advantage of the additional opportunities that, that acquisition will provide us and the opportunities that will come up in the coming quarters. I really appreciate our people's efforts on the integration front. We have a lot going on. At the same time, we've got pre-close integration ongoing, continuing to focus on delivering value for our customers and doing it the H&P way. And as always, keeping safety at the forefront of everything we do. So thank you again for joining us, and we'll talk to you later. Thank you.

This concludes the Helmerich & Payne fiscal fourth quarter earnings call. Thank you for your participation. You may disconnect at any time.