(HP) Helmerich & Payne Secures Rig Deal

Global contract drilling company Helmerich & Payne Inc. (HP) signed a deal to manufacture and operate 12 additional FlexRigs. Eight exploration and production companies, names of which were not disclosed, contracted Helmerich & Payne for the construction job.

Although the rigs are slated to be completed and operational in 2012, Helmerich does not expect the deal to have any significant impact on its previously announced 2011 capital expenditure forecast.

Helmerich’s proprietary FlexRig design makes the rigs move faster than the conventional ones, drills quicker and more efficiently and allows for a safer operating environment. As such, these are better suited for the new demands of the exploration business and, therefore, command higher dayrates and utilization than rigs from other land drillers.

Since March 2005, the company has committed to install 197 new FlexRigs. Currently, Helmerich has 26 rigs under construction, including the 12 recently announced ones. Following the completion of these commitments in 2012, the global land fleet of the company will comprise 247 FlexRigs, of which 236 will be utilized in the domestic land market.

As of June 30, 2011, the company’s existing fleet consisted of 245 U.S. land rigs (about 213 are active), 24 international land rigs (17 active) and 9 offshore platform rigs (7 active).

Helmerich & Payne is a major land and offshore drilling contractor in the western hemisphere, having an efficient drilling fleet with major work contracts from well capitalized and large independent oil companies.

We believe Helmerich’s technologically advanced FlexRigs will help it to increase its active rig count and maintain relatively strong daily-rate margins even during the current market uncertainty period. Moreover, the uptrend in the U.S.land rig market will lead to improved demand for the company’s services in the coming months.

However, with unstable oil and natural gas fundamentals, supply-demand imbalance, challenging international operations and stiff competition from peers such as Nabors Industries Ltd. (NBR) and Noble Corp. (NE), we maintain our long-term Neutral rating on the stock.

HELMERICH&PAYNE (HP): Free Stock Analysis Report

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