Helmerich & Payne, Inc.
Rock Hill Advisors
Leah RubinRice University, Class of
2018Major: Mathematical
Economic Analysis, Minor: Business
Eli EngelmanTulane University, Class of
2018Major: Finance, Minor:
Sociology
Tate SmithRice University, Class of 2018
Major: Economics, Minor: Business
Nick KumlebenUniversity of Virginia, Class of
2018Major: History, Minor: Commerce, Politics
Parker DonaldsonUniversity of Texas, Class of
2018Major: Economics, Minor:
Mathematics
Will OlsonUniversity of Virginia, Class of
2018Major: Public Policy &
Leadership, Minor: Entrepreneurship
AgendaI. Executive SummaryII. Market UpdateIII. Company OverviewIV. Peer ComparisonV. Possible RisksVI. DCF & ValuationVII. Recommendation
214
Flex 3Industry Standard onshore drilling rig
78
Flex 4Customizeable offshore rig
49
Flex 5Revolutionary multi-well pad with extended reach for unconventional shale resources
3Production Sites & InfrastructureLand owned and production factories in OK, TX, and LA
Shift in Market. The oil market bottoming creates future opportunity for H&P
Supply changes. Middle East & U.S are begnining to represent greater market share leading to unique H&P advantage
Future increase in oil prices. Projected price increase will allow H&P to expand
New contracts. H&P is well-positioned to be awarded new contracts with superior products offered
Strong Backlog. ~$100m guaranteed contracts in FY16, ~$80m during FY17, and ~$50m during FY18
Utilization Rates. HP has over 290 rigs that can be easily utilized as contract numbers expand
Impressive Technology. H&P owns 50% of all 1500hp rigs in the U.S and is the leading U.S. unconventional driller
Strong Balance Sheet: smaller debt-to-capitalization than competitors
H&P is an attractive acquisition
Positive future outlook
OFS market leader
Attractive hard assets with ample liquidity
Executive SummaryMarket Background Market Sentiment
Position Highlights Investment Thesis
Source: Wall Street Research, company website.
Asset Overview
Market Update
Source: FactSet.
Announces all-time high of annual revenue. 89
new rig contracts in previous 12 months.
Posted net loss during Q4 of $21M. With high
expectations, low oil prices, and a volatile market, H&P
entered a decline.
Positivity enters the market as rig counts rise, E&P
expansion continues, and the 2016 onshore drilling
outlook improves.
Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-1620%
30%
40%
50%
60%
70%
80%
90%
100%
110%
(60%)
(56%)
(39%)
(32%)(32%)
Volume Helmerich& Payne PeerGroup WTI HHUB S&P500OFS
Peer group: PTEN, NBR, PDS, UNT
Industry Trends & Overview
Feb-11 Dec-11 Oct-12 Aug-13 Jun-14 Apr-15 Feb-160
500
1000
1500
2000
2500 “We currently assume HP holds its current market
share as the cycle rebounds, as we see other drillers’ high-spec offerings as competitive with HP’s Flex 3s/5s. To its credit, HP has highlighted that it owns 50% of the available 1,500HP rigs in the US market, and we generally believe it is regarded by customers as ‘best in class.’”
“We believe the US land rig market has clearly bottomed and begun a slow grind higher into 2H-17. H&P remains the clear market leader with its Tier 1 rig fleet, a position we expect them to hold into the next cycle.”
“The current fleet of capable rigs may be able adequately to support the activity levels needed to maintain or grow production without getting in any significant ‘under-supply’ problem.”
Morgan Stanley (7/29/2016)
UBS (7/29/2016)
Credit Suisse (8/1/2016)
Jan-96 Jan-01 Jan-06 Jan-11 Jan-160%
20%
40%
60%
80%
100%
Directional or Horizontal VerticalSource: Baker Hughes, Wall Street Research.
U.S. Rig Count
U.S. Rig Activity by Drill Type
Peer Commentary
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E
96111
127 130 128151
193224
254 257281
320340
374390 397
U.S. Land International Land Offshore
Company Overview
9%
15%
17%
13%
11% 11%
14%
11%10%
7%
5%6%
5%4%
3%
HP PTEN NBR PDS UNT
Source: Company website.
H&P Market Share
Founded in 1920, Helmerich & Payne, Inc. is one of the oldest contract drillers in the United States
H&P went public on the NYSE in 1963 H&P has steadily grown since its
founding to become the largest U.S. land driller by market cap in 2011
Today, Helmerich & Payne has three main business segments:
U.S. Land International Land Offshore
Outside of contract drilling, H&P engages in research and development of rotary steerable technology through their subsidiary TerraVici Drilling Solutions
H&P Rig Count
~1,925 Active Rigs ~1,930 Active Rigs ~380 Active Rigs
October 2008 October 2014 May 2016
Management Team
Source: Bloomberg, LinkedIn, Reuters.
Name Position(s) Age Previous Positions / Other Biographical
John W. Lindsay President, Chief Executive Officer & Director 55
n Has served as President since 2012, Chief Executive Officer since 2014, and Director since 2012. and also serves as President of subsidiary companies
n Joined H&P in 1987 and has recently served in various positions including Executive Vice President, U.S. and International Operations (2006-2010), Executive Vice President and COO (2010-2012)
n Received a Bachelor of Science degree in Petroleum Engineering from the University of Tulsa n On the Board of Directors at H&P and Tulsa Area United Way
Juan Pablo Tardio Chief Financial Officer & Vice President 50 n Has served as CFO and Vice President of H&P since 2010n Joined H&P in 2001 and previously served as Manager of Investor Relations (2005-2008) and
Director of Investor Relations (2008-2010)n Received undergraduate degree as well as an MBA from the University of Houston
Cara M. Hair Chief Compliance Officer, VP & General Counsel 39
n Has served as Vice President and Chief Compliance Officer of the Company since 2015 and currently serves as Deputy General Counsel
n Joined H&P in 2006 as a corporate attorneyn Received undergraduate degree from Oklahoma State University and J.D. from the University of
Oklahoma College of Law
Gordon K. Helm Vice President & Controller 61n Has served as Vice President since 2008 and Controller since 1993n Received his undergraduate degree as well as an MBA degree from Oral Roberts University.
n Received a Bachelor of Science degree in Petroleum Engineering from the University of Tulsa
Jonathan M. Cinocca Corporate Secretary 44n Has served as Corporate Secretary since 2014 and joined H&P in 2001 as a Senior Attorneyn Received undergraduate degree from University of Oklahoma and J.D. from Oklahoma College of
Law
Robert L. Stauder Senior Vice President and Chief Engineer 53n Has served as Senior Vice President and Chief Engineer, Helmerich & Payne International Drilling
Co., since 2012n Received undergraduate degree from the University of Oklahoma
Jeffrey L. Flaherty Senior Vice President of Operations 52 n Has served as Senior Vice President of Operations, Helmerich & Payne International Drilling Co., since 2014
Board MembersName Position(s) Age Previous Positions / Other Biographical
Hans C. Helmerich Chairman 57n Joined H&P in 1989 as CEO and transitioned into current role as Chairman in 2012 n Holds leadership positions at The Northwestern Mutual Life Insurance Company, Director of
Atwood Oceanics, Inc,, and Cimarex Energy Co. n Received undergraduate degree from Dartmouth
Thomas A. Petrie Independent Director 70n Joined H&P in 2012 and serves as current Chairman of Petrie Partners, LLC and former Vice
Chairman of Bank Of America, previously Merrill Lynchn Received undergraduate degree from West Point and Master's degree from Boston University
Donald F. Robillard, Jr. Independent Director 64n Joined H&P in 2012 and serves as current CFO, Chief Risk Officer and EVP of Hunt Consolidated
Inc. as well as Independent Director of Cheniere Energy, Inc.n Received undergraduate degree from University of Texas in Austin
L. Francis Rooney, III Independent Director 62n Joined H&P in 2008 and serves as President and CEO of Rooney Holdings, Inc. and Independent
Director at Laredo Petroleum, Inc.n Received undergraduate degree and JD from Georgetown University
Randy A. Foutch Independent Director 64n Joined H&P in 2007 and serves as Chairman and CEO of Laredo Petroleum, LLC, Independent
Director at Madagascar Oil Limited, and Gryphon Exploration Companyn Foutch has more than 30 years of experience in the oil and gas industry
Paula A. Marshall-Chapman Independent Director 62n Joined H&P in 2002 and serves as President and CEO of The Bama Companies, Inc. and Director
American Fidelity Assurance Company and American Fidelity Corporationn Received undergraduate degree and PHD from Oklahoma City University
Edward Barry Rust, Jr. Independent Director 64n Joined H&P in 1997 and serves as Presiding Director at Caterpillar Inc., Director at Peoria, Ill,
and Director at State Farm Investment Management Corp.n Received undergraduate degree at Illinois Wesleyan as well as a JD and MBA from Southern
Methodist University
John D. Zeglis Independent Director 68n Joined H&P in 1989 and serves as Director of State Farm Bank, F.S.B., Georgia Pacific
Corporation and State Farm Insurance and previously served as President of AT&T Corporationn Received undergraduate degree from University of Illinois and JD from Harvard
Source: Bloomberg, LinkedIn, Reuters.
Financial Overview
Source: Company filings, FactSet.
HP
Headquarters Tulsa
Employees 6,738
Market Valuation
Stock Price as of 8/10/16 $63.08
52 Week High 70.28
% off 52 Week High (10.2%)
Equity Value ($MM) $6,817
Enterprise Value ($MM) 6,393
Trading Multiples:
EV / 2016E EBITDA 16.8x
EV / 2017E EBITDA 18.8x
P / 2016E Cash Flow 11.6x
P / 2017E Cash Flow 17.5x
Credit Statistics
Net Debt / Net Capitalization (Market) (10%)
Net Debt / 2017E EBITDA 1.4x
Capitalization
Cash $956.6
Current Debt $39.2
Long-Term Debt 493.2
Total Debt $532.38
Net Debt (424.2)
Common Equity Value (Book) 4,701.5
Total Book Capitalization $5,233.8
Net Capitalization 4,277.2
Liquidity
Revolving Credit Facility $300.0
Debt Outstanding $532.4
Letters of Credit $52.3
Cash $956.6
Available Capacity $683.9 *values in millions
($3.0)
($2.0)
($1.0)
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
HP PTEN UNT NBR PDS
2012 2013 2014 2015 2016
HP owns 20% of all major horizontal drilling rigs. Closest peer owns 12%
HP has been a market leader in tech advancements since 1920
HP has a larger market cap (6.7B) than PTEN (2.85B), NBR (2.54B), PDS (1.37B), and UNT (632.42M)
HP has a lower Debt: Capitalization ratio (~10%) versus PTEN (~25%), UNT (~41%), NBR (~47%), and PDS (~49%)
Source: Company filings, FactSet.
Peer Comparison
Rolling EBITDA
Stock Performance
EPS Comparison
Market Size Technological Advancements
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-160
20
40
60
80
100
120
140
HP-US NBR PKD PTEN UNT
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-150x 1x 2x 3x 4x 5x 6x 7x 8x 9x
HP Peer GroupPeer group: PTEN, NBR, PDS, UNT
Source: Trading comp. spreadsheet.
0.5x
1.6x
3.1x
3.8x
2.5x
DEBT/EBITDA
HP PTEN NBR PKD UNT
-40.5%-53.3%
34.5%
-43.2%-42.0%
10.0%
-26.5%
-40.0%
35.1%
-45.7%
-31.1%
45.5%
Revenue Growth
HP PTEN NBR PKD UNT
10.00%
25.00%
47.00% 49.00%
41.00%
HP PTEN NBR PKD UNT
Peer Comparison continuedEV/EBITDA
Revenue Growth
DEBT/EBITDA
Total-Debt to Total-Capitalization
2014 – 2015E 2015E – 2016E
2016E – 2017E-14.9%
-55.8%
-2.0%
HP PTEN NBR PKD UNT
16.9x18.4x
9.8x
22.8x
7.4x
18.9x
14.7x
8.9x 8.8x
5.4x
2016E 2017E
Peer Analysis: Transaction Comparables
H&P scales internally
Good Management leads to good
profits
H&P has maintained a
prudent growth strategy
• H&P has had exactly two transactions since 1920: selling natural gas assets in August 1996 to Occidental Petroleum Corp. and acquiring Key Productions Co. Inc. in February 2002
• The management of H&P believes that growth can come within: profits should be generated by providing a superior quality product with superior service
• Morningstar research report (7/13/2016): “Management has avoided costly acquisitions, the most pernicious category of value destruction via poor stewardship [and] refused to issue debt… …as some peers regrettably did.”
• NBR (24 May '15): Nabors Industries Ltd. acquires Nabors Arabia Co. Ltd• PKD (17 Apr '15): Parker Drilling Co. acquires 2M-Tek, Inc.• PTEN (20 Oct '14): Patterson-UTI Energy, Inc. acquires Texas Pressure Pumping Assets• PES (17 Sep '14): Basic Energy Services, Inc. acquires Pioneer Fishing & Rental Services LLC
Recent Peer M&A Highlights
HP NBR PKD PTEN PES
2
38
12
31
13
Total M&A Deals
Source: Company website, FactSet, Wall Street Research.
U.S. Land
California
Colorado
Louisiana
Mississippi
Montana
Nevada
New Mexico
North Dakota
Ohio
Oklahoma
Pennsylvania
Texas
Utah
West Virginia
Wyoming
International Land
Argentina
Bahrain
Colombia
Ecuador
Mozambique
UAE
Offshore
Equatorial Guinea
Gulf of Mexico
Source: AM Charts.
Asset Overview
Company Risks
Oil and gas prices South American operations
Argentina Colombia
Other international operations Middle East Africa
Lawsuit(s) Ongoing lawsuit vs. Venezuela, PDVSA Only one pending – Keel v. HPIDS
Best-in-class safety record
Source: Company filings.
Valuation Analysis
Source: Company filings, FactSet.
Assumptions
Exit Multiple
#### 6.0x 8.0x 10.0x 12.0x 14.0x12% $4,588 $5,866 $7,144 $8,423 $9,701
11% $4,763 $6,100 $7,437 $8,774 $10,111
10% $4,949 $6,348 $7,747 $9,146 $10,545
9% $5,145 $6,609 $8,074 $9,538 $11,002
8% $5,352 $6,886 $8,419 $9,952 $11,485
Disc
ount
Rate
Sensitivities
$2,764
$5,468
$9,011
$3,455
$6,835
$11,264
$4,145
$8,202
$13,517
NTM EBITDA
LTM EBITDA
Base Case
Used transaction comparables to derive appropriate exit multiples Assumptions
Revenue Growth: 5.5%
G&A: 10% of Revenue Capex: 15% of Revenue Tax Rate: 37%
Oil Price OutlookYears TPH % Change WS % Change Avg. % Change
2017 40.1% 26.7% 33.4%2018 0.0% 9.3% 4.6%2019 6.3% 5.9% 6.1%2020 5.6% 5.9% 5.7%
Average Composite 5.5%
DCF Summary
Recommendation: Buy Believe the market undervalues H&P at an enterprise value
of $6.33b and that $7.75b more accurately portrays value
H&P owns nearly half of all available multi-dimensional rigs in the U.S.
Combined with its reputation for its “best in class” quality, H&P will be a popular partner to drillers returning to the industry in the near and far future
H&P rigs are often considered to be technologically superior to its competitors. In an industry where efficiency is vital, partnering with a tech leader will be an enticing opportunity
Future projections of oil market suggest an increase in E&P and thus an increase in contracts awarded to OFS companies
As a result of its high cash holdings, H&P is well positioned to rapidly increase investment and production as the oil market grows
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