2020
ANNUAL
REPORT
Stockholders’ Meeting
Helmerich & Payne shareholders are
invited to attend our annual meeting
which will be held on March 2, 2021.
Stock Transfer Agent and Registrar
Computershare Trust Company, N.A.
First Class/Registered/Certified Mail
PO Box 505000
Louisville, KY 40233-5022
Courier Services
462 South 4th Street
Suite 1600
Louisville, KY 40202
Shareholder Services
781.575.2879
800.884.4225 (Toll Free)
Independent Registered Public
Accounting Firm
Ernst & Young LLP
Tulsa, Oklahoma
Direct Inquiries To
David T. Wilson
Vice President, Investor Relations
Helmerich & Payne, Inc.
1437 South Boulder Avenue
Tulsa, Oklahoma 74119
918.742.5531
NYSE : HP
helmerichpayne.com
DIRECTORS
THE H&P WAY
THE H&P WAY IS A CORE SET OF PILLARS THAT LAY THE FOUNDATION
OF HOW WE CREATE, INTERACT AND COMMUNICATE.
OUR PURPOSE
Improving lives through efficient and responsible energy
WHAT WE DO
We safely provide performance-driven drilling solutions
OUR VALUES
Our values reflect who we are and the way we interact with one another,
our customers, partners and shareholders
Actively C.A.R.E.
We treat one another with respect. We
care about each other. We are committed
to Controlling and Removing Exposures
for ourselves and others.
Service Attitude
We do our part and more for those
around us. We consider the needs of
others and provide solutions to meet
their needs.
Innovative Spirit
We constantly work to improve and try
new approaches. We make decisions
based on our clients’ challenges and
goals with the long-term view in mind.
Teamwork
We listen to one another and work
across teams toward a common goal.
We collaborate to achieve results and
focus on success with our customers
and shareholders.
Do the Right Thing
We are honest and transparent. We
tackle tough situations, make decisions
and speak up when needed.
Randy A. Foutch **(***)
Lead Director
Director since 2007
Chairman, Retired, Laredo Petroleum, Inc.
Director since 2012
Thomas A. Petrie **(***)
Chairman, Petrie Partners, LLC
Delaney Bellinger *(***)
Vice President and Chief Information Officer,
Retired, Huntsman Corporation
Director since 2018
Kevin G. Cramton *(***)
Operating Partner, HCI Equity Partners
Director since 2017
Hans Helmerich
Chairman of the Board
Director since 1987
John W. Lindsay
President and Chief Executive Officer
Director since 2012
José R. Mas **(***)
Chief Executive Officer, MasTec, Inc.
Director since 2017
Donald F. Robillard, Jr. *(***)
Executive Vice President, Chief Financial
Officer and Chief Risk Officer, Retired,
Hunt Consolidated, Inc.
Director since 2012
Edward B. Rust, Jr. *(***)
Chairman and Chief Executive Officer,
Retired, State Farm Mutual Automobile
Insurance Company
Director since 1997
Mary M. VanDeWeghe **(***)
President and Chief Executive Officer,
Forte Consulting, Inc.
Director since 2019
John D. Zeglis *(***)
Chairman and Chief Executive Officer,
Retired, AT&T Wireless Services, Inc.
Director since 1989
*
Member
Audit Committee
**
Member
Human Resources Committee
***
Nominating & Corporate
Governance Committee
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4221
HELMERICH & PAYNE, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Delaware
73-0679879
1437 South Boulder Avenue, Suite 1400, Tulsa, Oklahoma 74119
(Address of principal executive offices) (Zip Code)
(918) 742-5531
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock ($0.10 par value)
HP
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes
No
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b 2 of the
Exchange Act.
Large accelerated filer
Accelerated filer
Smaller reporting company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b 2 of the Exchange Act). Yes
No
At March 31, 2020, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the Registrant’s common
stock held by non affiliates was approximately $1.68 billion based on the closing price of such stock on the New York Stock Exchange on such date of $15.65.
Number of shares of common stock outstanding at November 12, 2020: 107,601,988
Portions of the Registrant’s 2020 Proxy Statement for the Annual Meeting of Stockholders to be held on March 2, 2021 are incorporated by reference into Part III of this
Form 10 K. The 2020 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this
Form 10 K relates.
HELMERICH & PAYNE, INC.
INDEX TO FORM 10 K
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10 K Summary
Signatures
Page
4
4
16
30
30
30
30
31
31
33
34
48
50
98
98
98
98
98
98
99
99
99
99
99
102
103
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10 K (“Form 10 K”) contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities and Exchange Act of 1934, as
amended (the “Exchange Act”). All statements other than statements of historical facts included in this Form 10-K, including without
limitation, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives
of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be
identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,”
“predict,” “project,” “target,” “continue,” or the negative thereof or similar terminology. Forward-looking statements are based upon
current plans, estimates, and expectations that are subject to risks, uncertainties, and assumptions. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will
prove to be correct. Actual results may vary materially from those indicated or anticipated by such forward-looking statements. The
inclusion of such statements should not be regarded as a representation that such plans, estimates, or expectations will be
achieved.
These forward-looking statements include, among others, such things as:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our business strategy;
estimates of our revenues, income, earnings per share, and market share;
our capital structure and our ability to return cash to stockholders through dividends or share repurchases;
the amount and nature of our future capital expenditures and how we expect to fund our capital expenditures;
the volatility of future oil and natural gas prices;
the effects of actions by, or disputes among or between, members of the Organization of Petroleum Exporting
Countries (“OPEC”) and other oil producing nations (together, “OPEC+”) with respect to production levels or
other matters related to the prices of oil and natural gas;
changes in future levels of drilling activity and capital expenditures by our customers, whether as a result of
global capital markets and liquidity, changes in prices of oil and natural gas or otherwise, which may cause us to
idle or stack additional rigs, or increase our capital expenditures and the construction or acquisition of rigs;
the effect, impact, potential duration or other implications of the ongoing outbreak of a novel strain of coronavirus
("COVID-19") and the oil price collapse in 2020, and any expectations we may have with respect thereto;
changes in worldwide rig supply and demand, competition, or technology;
possible cancellation, suspension, renegotiation or termination (with or without cause) of our contracts as a result
of general or industry-specific economic conditions, mechanical difficulties, performance or other reasons;
expansion and growth of our business and operations;
our belief that the final outcome of our legal proceedings will not materially affect our financial results;
impact of federal and state legislative and regulatory actions, including as a result of the U.S. presidential
election, affecting our costs and increasing operation restrictions or delay and other adverse impacts on our
business;
environmental or other liabilities, risks, damages or losses, whether related to storms or hurricanes (including
wreckage or debris removal), collisions, grounding, blowouts, fires, explosions, other accidents, terrorism or
otherwise, for which insurance coverage and contractual indemnities may be insufficient, unenforceable or
otherwise unavailable;
our financial condition and liquidity;
tax matters, including our effective tax rates, tax positions, results of audits, changes in tax laws, treaties and
regulations, tax assessments and liabilities for taxes; and
potential long-lived asset impairments.
Important factors that could cause actual results to differ materially from our expectations or results discussed in the
forward looking statements are disclosed in this Form 10 K under Item 1A— “Risk Factors” and Item 7— “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” All subsequent written and oral forward looking
statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by such cautionary
statements. Because of the underlying risks and uncertainties, we caution you against placing undue reliance on these forward-
looking statements. We assume no duty to update or revise these forward looking statements based on changes in internal
estimates, expectations or otherwise, except as required by law.
3
PART I
Item 1. BUSINESS
Overview
Helmerich & Payne, Inc. ("H&P," which, together with its subsidiaries, is identified as the “Company,” “we,” “us” or “our,”
except where stated or the context requires otherwise) was incorporated under the laws of the State of Delaware on February 3,
1940 and is successor to a business originally organized in 1920. We provide performance-driven drilling solutions that are
intended to make hydrocarbon recovery safer and more economical for oil and gas exploration and production companies. We are
an important vendor for a number of oil and gas exploration and production companies, but we focus primarily on the drilling
segment of the oil and gas production value chain.
Our global business is composed of three reportable business segments: North America Solutions, Offshore Gulf of
Mexico, and International Solutions. During the third quarter of fiscal year 2020, as part of our restructuring efforts (see Note 19—
Restructuring Charges to our Consolidated Financial Statements) and consistent with the manner in which our chief operating
decision maker evaluates performance and allocates resources, we implemented organizational changes. We are moving from a
product-based offering, such as a rig or separate technology package, to an integrated solution-based approach by combining
proprietary rig technology, automation software, and digital expertise into our rig operations. Operations previously reported within
the former U.S. Land and H&P Technologies operating and reportable segments are now managed and presented within the North
America Solutions reportable segment. Our technology services focus on developing, promoting and commercializing technologies
designed to improve the efficiency and accuracy of drilling operations, as well as wellbore quality and placement.
During the fiscal year ended September 30, 2020, our North America Solutions operations were primarily located in
Colorado, Ohio, Oklahoma, New Mexico, North Dakota, Pennsylvania, Texas, West Virginia and Wyoming. Our Offshore Gulf of
Mexico operations were conducted in Louisiana and in U.S. federal waters in the Gulf of Mexico. Our International Solutions
operations had rigs located in four international locations during fiscal year 2020: Argentina, Bahrain, Colombia and United Arab
Emirates (“U.A.E.”).
We also own, develop and operate limited commercial real estate properties. Our real estate investments, which are
located exclusively within Tulsa, Oklahoma, include a shopping center containing approximately 389,000 leasable square feet and
approximately 210 acres of undeveloped real estate. Our research and development endeavors include both internal development
and external acquisition of developing technologies. On October 1, 2019, we elected to utilize a wholly-owned insurance captive
(“Captive”) to insure the deductibles for our workers’ compensation, general liability and automobile liability insurance programs.
The Company and the Captive maintain excess property and casualty reinsurance programs with third-party insurers in an effort to
limit the financial impact of significant events covered under these programs. Our real estate operations, our incubator program for
new research and development projects, and our wholly-owned captive insurance companies are included in "Other."
Drilling Fleet
The following map shows the number of working rigs by basin in our North America Solutions reportable segment as of
September 30, 2020:
4
The following table sets forth certain information concerning our North America Solutions drilling rigs as of September 30,
2020:
North America Solutions Fleet
Super-Spec FlexRig
(1)
®
Non Super-Spec FlexRig
(2)
®
Total Fleet
Current Location
Total Available
Rigs Contracted
Total Available
Rigs Contracted
Total Available
Rigs Contracted
TX
OK
NM
ND
CO
PA
OH
WY
WV
Totals
156
26
25
10
2
3
5
4
3
234
42
4
12
4
1
—
1
—
3
67
7
2
—
4
11
4
—
—
—
28
—
—
—
—
2
—
—
—
—
2
163
28
25
14
13
7
5
4
3
262
42
4
12
4
3
—
1
—
3
69
(1) AC drive, minimum of 1,500 horsepower drawworks, minimum of 750,000 lbs. hookload rating, 7,500 psi mud circulating system, and multiple-
well pad capability.
(2) AC drive, 1,500 horsepower drawworks, 500,000 or 750,000 lbs. hookload rating, 5,000 or 7,500 psi mud circulating system, may or may not
have multiple-well pad capability.
The following table sets forth certain information concerning our Offshore Gulf of Mexico drilling rigs as of September 30,
2020:
Current
Location
Louisiana (2)
Gulf of Mexico
Totals
Offshore Gulf of Mexico Fleet
Shallow Water (1)
Deep Water (1)
Total Fleet
Total Available
Rigs Contracted
Total Available
Rigs Contracted
Total Available
Rigs Contracted
3
2
5
—
2
2
—
3
3
—
3
3
3
5
8
—
5
5
(1) Deep water rigs operate on floating facilities and shallow water rigs operate on fixed facilities.
(2) Rigs are idle, stacked on land and not in state waters.
The following table sets forth certain information concerning our International Solutions drilling rigs as of September 30,
2020:
International Solutions Fleet
AC (FlexRig® 3) (1)
AC (FlexRig® 4) (2)
Other AC
SCR (3)
Total Fleet
Current
Location
Total
Available
Rigs
Contracted
Total
Available (1)
Rigs
Contracted
Total
Available (1)
Rigs
Contracted
Total
Available (1)
Rigs
Contracted
Total
Available
Rigs
Contracted
Argentina
Colombia
Bahrain
U.A.E.
Totals
12
2
—
2
16
2
—
—
—
2
4
2
3
—
9
—
—
3
—
3
—
1
—
—
1
—
—
—
—
—
4
2
—
—
6
—
—
—
—
—
20
7
3
2
32
2
—
3
—
5
(1) Other than one super–spec rig (as described above) in Argentina, the FlexRig® 3 is equipped with an AC drive, 1,500 horsepower drawworks,
and a 750,000 lb. hookload rating. It can be equipped with an optional skid or walking system, third mud pump, and 7,500 psi high pressure
mud system. The other 11 rigs in Argentina are equipped with skid systems.
(2) The FlexRig® 4 model has a small footprint and is designed to be highly mobile. The rig is equipped with a 300,000 lb. mast, 400HP top drive
and two mud pumps. Range 3 drill pipe is used without setback. The rig is capable of horizontal and vertical drilling.
(3) A silicon-controlled-rectifier (“SCR”) system converts alternate current (“AC”) produced by one or more AC generator sets into direct current
(“DC”). Of the six SCR rigs, one is equipped with 2,100 horsepower drawworks and the remaining five are equipped with 3,000 horsepower
drawworks to drill deep conventional wells.
5
Drilling Services and Solutions
General
We are the largest provider of super-spec AC drive land rigs in the Western Hemisphere. Operating principally in North
and South America, we specialize in shale and unconventional resource plays, drilling challenging and complex wells in oil and gas
producing basins in the United States and in international locations. In the United States, we have a diverse mix of customers
consisting of large independent, major, mid-sized and small cap oil companies and private independent companies (including
private equity-backed companies) that are focused on unconventional shale basins. In South America and the Middle East, our
customers primarily include major international and national oil companies. We do not operate any legacy mechanical rigs.
We had revenues from individual customers, within our North America Solutions segment, that constituted 10 percent or
more of our total revenues as follows:
(in thousands)
EOG Resources, Inc.
2018
$
258,194
We did not have any individual customers that represented 10% or more of our total consolidated revenues in fiscal years
2019 or 2020.
The following table presents our average active rigs per day (a measure of activity and utilization over the fiscal year) and
average utilization for the fiscal years 2020, 2019, and 2018:
North America Solutions
Offshore Gulf of Mexico
International Solutions
2020 (1)
2019 (2)
2018
2020
2019
2018
2020
2019 (3)
2018
Year Ended September 30,
Average active rigs per day
134.3
224.1
213.6
Average utilization (4)
47%
67%
61%
5.3
66%
5.9
74%
5.6
70%
12.6
40%
17.6
55%
18.3
49%
(1) At the beginning of the third quarter of fiscal year 2020, the fleet was downsized by 37 rigs. See Note 5—Property, Plant and Equipment to our
Consolidated Financial Statements.
(2) At the end of the third quarter of fiscal year 2019, the fleet was downsized by 51 rigs. See Note 5—Property, Plant and Equipment to our
Consolidated Financial Statements.
(3) At the end of the third quarter of fiscal year 2019, the fleet was downsized by two rigs. See Note 5—Property, Plant and Equipment to our
Consolidated Financial Statements.
(4) A rig is considered to be utilized when it is operating (or otherwise deployed for a customer) or being moved, assembled or dismantled
pursuant to a drilling contract, or stacked under contract.
Our Segments
North America Solutions Segment
We believe we operate the largest technologically advanced AC drive drilling rig fleet in North America and have a
presence in most of the U.S. shale and unconventional basins. We have a leading market share in the three most active oil basins,
which include the Permian Basin, Eagle Ford Shale, and Woodford Shale. Nearly all of our active rigs are drilling horizontal or
directional wells. As of September 30, 2020, we had approximately 20 percent of the total market share in U.S. land drilling and
approximately 29 percent of the super-spec market share in U.S. land drilling. In the United States, we have the industry's largest
super-spec fleet with 234 rigs, of which 67 were under contract at September 30, 2020. In total, 69 of our 262 marketed rigs were
under contract, 54 were under fixed term contracts, and 15 were working well-to-well as of September 30, 2020.
Our drilling technology solutions within this segment enables a holistic solution-based approach that includes products,
services and capabilities. This approach provides performance-driven drilling services intended to deliver greater levels of
accuracy, consistency, optimization and a reduction of human error to create higher quality wellbores. This technology is intended
to address our customers' unique challenges and should result in less wellbore tortuosity and reduce positional uncertainty in the
directional drilling process. During fiscal year 2019, we released AutoSlide®, which integrates the MOTIVE Bit Guidance System®
and several FlexApps to function within the FlexRig® operating system and fully automates the control of mud motors while sliding
during the vertical, the curve, and the lateral hole sections during horizontal drilling operations. Currently, our AutoSlide®
application is commercially available in all U.S. oil and gas basins. Many components of our digital technology, including the
MOTIVE Bit Guidance System® technology and MagVarTM survey correction, can be used on any rig, regardless of the drilling or
service provider, allowing our customers to benefit from these technologies on all rigs.
6
Our North America Solutions segment contributed approximately 83.1 percent ($1.5 billion) of our consolidated operating
revenues during fiscal year 2020, compared to approximately 86.7 percent ($2.4 billion) and 84.2 percent ($2.1 billion) of our
consolidated operating revenues during fiscal years 2019 and 2018, respectively. In North America, our customers are primarily
from the major oil companies, large independent oil companies, small cap oil companies and private independent companies
(including private equity-backed companies).
Offshore Gulf of Mexico Segment
Our Offshore Gulf of Mexico segment has been in operation since 1968 and currently consists of eight platform rigs in the
Gulf of Mexico. We supply the rig equipment and crews and the operator who owns the platform will typically provide production
equipment or other necessary facilities. Our offshore rig fleet operates on conventional fixed leg platforms and floating platforms
attached to the sea floor with mooring lines, such as Spars and Tension Leg Platforms. Additionally, we provide management
contract services to customer platforms where the customer owns the drilling rig.
As of September 30, 2020, five of the eight offshore rigs were under contract. Our Offshore Gulf of Mexico operations
contributed approximately 8.1 percent ($143.1 million) of our consolidated operating revenues during fiscal year 2020, compared to
approximately 5.3 percent ($147.6 million) and 5.7 percent ($142.5 million) of our consolidated operating revenues during fiscal
years 2019 and 2018, respectively. Revenues from drilling services performed for our largest offshore drilling customer totaled
approximately 81.1 percent ($116.1 million) of offshore revenues during fiscal year 2020.
International Solutions Segment
Our International Solutions segment operates primarily in Argentina, Colombia, Bahrain and U.A.E. During the fourth
quarter of fiscal year 2018, we ceased operations in Ecuador. As of September 30, 2020, we had 5 land rigs contracted for work in
locations outside of the United States. Our International Solutions operations contributed approximately 8.1 percent ($144.2 million)
of our consolidated operating revenues during fiscal year 2020, compared to approximately 7.6 percent ($211.7 million) and 9.6
percent ($238.4 million) of our consolidated operating revenues during fiscal years 2019 and 2018, respectively.
Argentina As of September 30, 2020, we had 20 rigs in Argentina. Revenues generated by Argentine drilling operations
contributed approximately 4.8 percent ($84.4 million) of our consolidated operating revenues during fiscal year 2020 compared to
approximately 5.9 percent ($165.7 million) and 7.6 percent ($190.0 million) of our consolidated operating revenues during fiscal
years 2019 and 2018, respectively. Revenues from drilling services performed for our two largest customers in Argentina totaled
approximately 3.6 percent of our consolidated operating revenues and approximately 43.9 percent of our international operating
revenues during fiscal year 2020. The Argentine drilling contracts are primarily with large international or national oil companies.
Colombia As of September 30, 2020, we had seven rigs in Colombia. Revenues generated by Colombian drilling
operations contributed approximately 0.4 percent ($6.4 million) of our consolidated operating revenues in fiscal year 2020,
compared to approximately 1.1 percent ($29.8 million) and 1.6 percent ($38.8 million) of our consolidated operating revenues
during fiscal years 2019 and 2018, respectively. Revenues from drilling services performed for our two largest customers in
Colombia totaled approximately 0.4 percent of our consolidated operating revenues and approximately 4.4 percent of our
international operating revenues during fiscal year 2020. The Colombian drilling contracts are primarily with large international or
national oil companies.
Bahrain As of September 30, 2020, we had three rigs in Bahrain. Revenues generated by Bahrain drilling operations
contributed approximately 1.6 percent ($28.7 million) of our consolidated operating revenues in fiscal year 2020, compared to
approximately 0.4 percent ($11.5 million) and 0.4 percent ($9.5 million) of our consolidated operating revenues during fiscal years
2019 and 2018, respectively. All of our revenues in Bahrain are from a partner of the local national oil company.
United Arab Emirates As of September 30, 2020, we had two rigs in the U.A.E. Revenues generated by U.A.E. drilling
operations contributed approximately 1.4 percent ($24.7 million) of our consolidated operating revenues in fiscal year 2020,
compared to approximately 0.2 percent ($4.7 million) in fiscal year 2019 and nominal amounts in fiscal year 2018.
Other Operations
Other Operations include additional non-reportable operating segments. We own, develop and operate limited
commercial real estate properties. Our real estate investments, which are located exclusively within Tulsa, Oklahoma, include a
shopping center and undeveloped real estate.
7
On October 1, 2019, we elected to utilize the Captive to insure the deductibles for our workers’ compensation, general
liability and automobile liability insurance programs. Casualty claims occurring prior to October 1, 2019 will remain recorded within
each of the operating segments and future adjustments to these claims will continue to be reflected within the operating segments.
Reserves for legacy claims occurring prior to October 1, 2019, will remain as liabilities in our operating segments until they have
been resolved. Changes in those reserves will be reflected in segment earnings as they occur. We will continue to utilize the
Captive to finance the risk of loss to equipment and rig property assets. The Company and the Captive maintain excess property
and casualty reinsurance programs with third-party insurers in an effort to limit the financial impact of significant events covered
under these programs. Our operating subsidiaries are paying premiums to the Captive, typically on a monthly basis, for the
estimated losses based on the external actuarial analysis. The Company is also utilizing the Captive to provide stop-loss coverage
over its self-insured employee health plan, which covers insured claims in excess of employee deductibles. The Company did not
previously purchase any stop-loss coverage.
During the third quarter of fiscal year 2019, the Company established an incubator program for new research and
development projects, the results of which have been included in "Other" within our segment disclosures.
Rigs, Equipment, R&D, and Facilities
During the late 1990’s, we undertook a strategic initiative to develop a new generation drilling rig that would be the safest,
fastest-moving and highest performing rig in the land drilling market. Our first FlexRig® drilling rig entered the market in 1998. The
original 18 rigs were designated as FlexRig® 1 and FlexRig® 2 rigs and were designed to drill wells with a depth of between 8,000
and 18,000 feet. From 2002 to 2004, we designed, built and delivered 32 of the next generation, AC drive rigs, known as “FlexRig®
3 rigs,” which incorporated new drilling technology and improved the safety and environmental design. The FlexRig® 3 rigs found
immediate success by delivering higher value wells to the customer and marked the beginning of the AC land rig revolution. We
also changed our pricing and contracting strategy, and beginning in 2005, predominantly all new FlexRig® drilling rigs were built
supported by a firm contract and attractive returns. To date, we have built over 200 FlexRig® 3 rigs that align with this strategy. An
important part of our strategy was to design a rig that could support continuous improvement through upgrade capability of the
hardware and software on the rigs to take advantage of technology improvements and lengthening the industry rig replacement
cycle. These upgrades included, but were not limited to, enhanced drilling control systems and software, skid and walking systems
for drilling multiple well pads, 7,500 psi mud systems, set back capacity to accommodate the pipe that the longer laterals
demanded, and additional mud system capacity.
H&P has a strategic advantage due to our ability to utilize our AC rig design and operational and engineering expertise to
exploit different well depths and designs that customers demand. In 2006, we introduced the FlexRig®4 drilling rig, which was
designed to efficiently drill shallower wells on multi-well pads. The FlexRig® 4 design offers two options that include trailerized or
multi-well pad drilling capability, both of which incorporate additional environmental and safety by design improvements. While the
trailerized FlexRig® 4 design provides for more efficient moves between individual well pads, the multi-well pad design uses a
skidding capability that allows for drilling multiple wells from a single pad, which results in significantly reduced environmental
impact and increased production from a smaller footprint.
In 2011, we announced the introduction of the FlexRig® 5 drilling rig. The FlexRig® 5 drilling rig was designed for deeper
wells than the FlexRig® 4 drilling rig and long lateral drilling of multiple wells from a single location and is designed for drilling
horizontally in unconventional shale reservoirs. The new design preserves the key performance features of the FlexRig® 3 rig
design but adds a bi-directional skidding system and equipment capacities suitable for wells in excess of 25,000 feet of measured
depth.
In 2016, we saw the progression of longer lateral wells and the technical challenges involved in drilling longer lateral wells.
At that time, we began delivering rigs to the market that were equipped and capable of drilling the longer lateral wells. The industry
would later refer to these rigs as super-spec rigs, which have the following specific characteristics: AC drive, minimum 1,500
horsepower drawworks, minimum of 750,000 lbs. hookload rating, 7,500 psi mud circulating system, and multiple-well pad
capability. Additionally, our competency in design and construction as well as our financial strength enabled us to efficiently
upgrade our other existing rigs to super-spec, resulting in what we believe to be the largest fleet of super-spec rigs in the world. As
of September 30, 2020, we held approximately 29 percent of the super-spec market share in the U.S. land drilling market with 234
super-spec rigs. In 2017, we introduced our first walking rig by reconfiguring our skid designed FlexRig® 3 drilling rigs. Since then,
we have reconfigured, converted, and upgraded a total of 44 FlexRig® drilling rigs to super-spec walking rigs.
Years of designing and building our fleet of AC drive FlexRig® drilling rigs has given us many competitive benefits. One
key advantage is fleet uniformity. We have overseen the design and assembly of all of our AC FlexRig® drilling rigs, and our
different rig classes share many common components. We co-designed the control systems for our rigs and have the right to
make any changes or modifications to those systems that we desire. A uniform fleet creates an adaptive environment to reach
maximum efficiency for employees, equipment and technology and is critical to our ability to provide consistent, safe and reliable
operations in increasingly complex basins. In addition, our fleet has greater scale than any other competitor, which enables us to
upgrade our existing FlexRig® drilling rigs to super-spec in a capital efficient way. High levels of uniformity in crew training and
rotation and our ability to control and remove safety exposures across a more standard fleet allow us to deliver higher performance
in a safer and more reliable manner for the customer. Further, our fleet is supported by a cost-effective Company-owned supply
chain that provides standardized materials directly to the rigs from our regional warehouses.
8
A long-standing challenge in our industry is providing high quality and consistent results. In addressing the challenge of
providing safe, high quality and consistent results, we utilize process excellence techniques that are developed internally. We
provide experienced drilling and maintenance support for our operations, which provides value by reducing nonproductive time in
our operations and improving drilling performance through our Rig Systems Monitoring and Support Center (“RSMS”) and Remote
Operations Centers ("ROCs"). Our RSMS and ROCs are manned 24 hours a day, seven days a week, with the ability to monitor
and detect trends in drilling and drilling services performance onboard our rigs. Our monitoring group within the RSMS provides
real-time help and feedback to our wellsite employees, as well as our customers, to fully optimize our operational performance.
Additionally, our RSMS and ROCs have staffs of engineers and industry experts that work with our customers to enhance wellbore
positioning, drilling program execution and overall drilling performance. The monitoring group and our performance engineers
capture our drilling work steps to help provide high quality and reliable results for our customers.
We currently have two facilities that provide vertically integrated solutions for drilling rig manufacturing, upgrades, retrofits
and modifications, as well as overhauling, recertification, and repairs as it relates to our rigs and equipment. These facilities utilize
lean manufacturing processes to enhance quality and efficiency as well as provide important insights in the maintenance and wear
of equipment on our rigs. Our assembly facility is located near Houston, Texas. Our facility near Tulsa, Oklahoma is utilized for
overhauling, recertification, and repairs.
During fiscal year 2020, we continued to see adoption and growth with our technologies and automation focused
solutions. Our FlexApp solutions, which layer on top of our FlexRig® drilling control system, continue to add value for our
customers. Our AutoSlide® service, which is powered by our Motive Bit Guidance System® technology, continued to grow in
commercial feet steered, new customer adoption and the number of deployments. Our MagVarTM, Drillscan® and Motive Bit
Guidance System® solutions continue to be available on both H&P and third-party rigs. These solutions continue to provide
differentiated value for our customers in the areas of drilling engineering, wellbore placement, and wellbore quality. Our path to
autonomous drilling continues to evolve with several solutions in Alpha and Beta testing. All of our automation focused solutions
and applications are enabled by our uniform digital fleet and are designed to provide additional value to our customers' well
programs by providing a platform for machine-human collaboration during the drilling process to improve efficiency. All of our
technologies play an important role in developing our strategy as we head towards autonomous drilling.
The technologies that are currently in use include the following:
Application Name
FlexTorque™
Hardware and software designed to decrease downhole drilling vibration and "slip-stick" during drilling. This helps with
drilling efficiency and is intended to help extend bit and downhole tool life to help reduce costly nonproductive time.
Description
Flex-Oscillator 2.0™
Rig control software that automates drill string rotation during directional "slide" operations, which helps reduce
downhole drag and the potential for stuck pipe. It also helps support more effective directional drilling.
FlexB2D™
FlexDrill 1.0™
AutoSlide
®
MagVarTM
DrillScan
®
Software to engage and disengage the bit during connections in an established controlled and consistent manner that
is intended to help extend bit and downhole tool life, better drilling parameters and less costly bit trips out of the hole.
Software licensed from ExxonMobil to help maximize the bit's rate of penetration, which we have automated, that is
intended to allow the drilling control system to achieve the ideal mechanical specific energy at the bit.
Powered by Motive’s Bit Guidance System
with FlexRig
®
control systems to allow for automatic slide drilling via computer control.
®
technology and utilizes machine learning and automation to help interface
Solution intended to help improve surveying accuracy and contribute to increased horizontal well economics while
reducing collision risk.
Industry leader in physics-based modeling software to help select bottom hole assemblies and help provide real-time
drilling dynamics evaluation.
MOTIVE Bit Guidance
System
®
Automated directional drilling guidance system that helps improve wellbore quality with a scalable, repeatable data
driven platform approach to help increase horizontal well economics and help reduce risk.
We have historically offered ancillary services, which are now referred to as FlexServices®. These services include
trucking, surface equipment, casing running services and pipe rental.
Markets and Competition
Our business largely depends on the level of capital spending by oil and gas companies for exploration and production
activities. The level of capital spending is correlated to oil and gas prices. Oil and gas prices can be volatile at times depending
upon both near and long-term supply and demand factors. Sustained increases or decreases in the prices of oil and natural gas
generally have a material impact on the exploration and production activities of our customers. As such, significant declines in the
prices of oil and natural gas may have a material adverse effect on our business, financial condition and results of operations. As
of September 30, 2020, we had 79 rigs under contract, compared to 218 and 259 rigs under contract as of September 30, 2019
and 2018, respectively. For further information concerning risks associated with our business, including volatility surrounding oil
and natural gas prices and the impact of low oil prices on our business, see Item 1A— “Risk Factors” and Item 7— “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included in this Form 10 K.
9
Our industry is highly competitive, and we strive to differentiate our services based upon the quality of our FlexRig® drilling
rigs and our engineering design expertise, operational efficiency, software technologies, safety and environmental awareness. The
number of available rigs generally exceeds demand in many of our markets, resulting in significant price competition. We compete
against many drilling companies, some of whom are present in more than one of our operating regions. In the United States, we
compete with Nabors Industries Ltd., Patterson-UTI Energy, Inc. and many other competitors with regional operations.
Internationally, we compete directly with various contractors at each location where we operate. In the Gulf of Mexico platform rig
market, we primarily compete with Nabors Industries Ltd. and Blake International Rigs, LLC.
Drilling Contracts
Our drilling contracts are obtained through competitive bidding or as a result of direct negotiations with customers. Our
contracts vary in their terms and rates depending on the nature of the operations to be performed, the duration of the work, the
amount and type of equipment and services provided, the geographic areas involved, market conditions and other variables. In
many instances, our contracts cover multi well and multi year projects. Except for a limited number of rigs operated under master
agreements, each drilling rig operates under a separate drilling contract.
During fiscal year 2020, a majority of our drilling services were performed on a “daywork” contract basis, under which we
charged a rate per day, with the price determined by the location, depth and complexity of the well to be drilled, operating
conditions, the duration of the contract, and the competitive forces of the market. We may also enter into contracts where we
charge a fixed rate per foot of hole drilled to a stated depth, with a fixed rate per day for the remainder of the hole. Contracts
performed on a “footage” basis generally involve a greater element of risk to H&P compared to contracts performed on a “daywork”
basis. Also, we may enter into “lump-sum” contracts under which we charge a fixed sum to deliver a hole to a stated depth and
agree to furnish services such as testing, coring and casing the hole which are not normally done on a “footage” basis. “Lump-sum”
contracts entail varying degrees of risk greater than the usual “footage” contract. We also actively pursue “performance daywork”
contracts, pursuant to which we are compensated based upon our performance against a mutually agreed upon set of
predetermined targets. These contracts typically have a lower base dayrate but give us the opportunity to receive additional
compensation by meeting or exceeding certain performance targets. The risks associated with these contracts relate to the failure
to reach the agreed upon performance targets. If we do not meet these targets, we will not receive additional compensation beyond
the base dayrate and will recognize less overall drilling services revenue than we would by utilizing other types of contracts. We
are seeing a growing adoption of performance contracts by our customers and we expect this trend to continue.
The duration of our drilling contracts are generally either “well to well” or for a fixed term. “Well to well” contracts can be
terminated at the option of either party upon the completion of drilling of any one well. Fixed-term contracts generally have a
minimum term of at least six months up to multiple years. These contracts customarily provide for termination at the election of the
customer but may include an “early termination payment” to be paid to us if the contract is terminated prior to the expiration of the
fixed term. However, under certain limited circumstances such as destruction of a drilling rig, bankruptcy, sustained unacceptable
performance by us or delivery of a rig beyond certain grace and/or liquidated damage periods, no early termination payment would
be paid to us.
Contracts generally contain renewal or extension provisions exercisable at the option of the customer at prices mutually
agreeable to us and the customer. In most instances, contracts provide for additional payments for mobilization and demobilization
of the rig.
Contract Backlog
Drilling contract backlog is the expected future dayrate revenue from executed contracts. We calculate backlog as the
total expected revenue from fixed-term contracts and do not include any anticipated contract renewals as part of its calculation.
Additionally, contracts that currently contain month-to-month terms are represented in our backlog as one month of unsatisfied
performance obligations. In addition to depicting the total expected revenue from fixed-term contracts, backlog is indicative of
expected future cash flow that the Company expects to receive regardless of whether a customer honors the fixed-term contract to
expiration of a contract or decides to terminate the contract early and pay an early termination payment. In the event of an early
termination payment, the timing of the recognition of backlog and the total amount of revenue may differ; however, the overall
associated cash flow is preserved. As such, management finds backlog a useful metric for future planning and budgeting, whereas
investors consider it in estimating future revenue and cash flows of the Company. As of September 30, 2020, and 2019, our drilling
contract backlog was $0.7 billion and $1.2 billion, respectively. The decrease in backlog at September 30, 2020 from
September 30, 2019 is primarily due to prevailing market conditions causing a decline in the number of drilling contracts executed
and to some extent an increase in the number of early terminations of contracts. Approximately 33.3 percent of the total
September 30, 2020 backlog is reasonably expected to be filled in fiscal year 2022 and thereafter.
Fixed-term contracts customarily provide for termination at the election of the customer, with an early termination payment
to be paid to us if a contract is terminated prior to the expiration of the fixed term. As a result of the depressed market conditions
and negative outlook for the near term, beginning in the second quarter of fiscal year 2020, certain of our customers, as well as
those of our competitors, have opted to renegotiate or early terminate existing drilling contracts. Such renegotiations have included
requests to lower the contract dayrate in exchange for additional terms, temporary stacking of the rig, and other proposals. During
the fiscal years ended September 30, 2020 and 2019, early termination revenue associated with term contracts was $73.4 million
and $11.3 million, respectively.
10
In response to the current market conditions, several operators included in our North America Solutions operating
segment have opted to place their rigs in an idle-but-contracted state as an alternative to early termination. This includes "warm
stacking" and "cold stacking." Warm stacking occurs when a rig remains on-site while pausing drilling activity, while cold stacking
occurs when a rig is demobilized and returned to the yard temporarily until next steps are determined. When rigs are stacked, they
remain under the terms of the contract but typically pay a reduced rate, where the remaining term days are generally not reduced,
but our operating expenses are reduced. In many instances for stacked rigs, for the total days stacked there are proportional days
added to the original contract length at the original contracted rate. As of September 30, 2020, there are five rigs that are warm
stacked, five rigs that are cold stacked within the North America Solutions segment.
The following table sets forth the total backlog by reportable segment as of September 30, 2020 and 2019, and the
percentage of the September 30, 2020 backlog reasonably expected to be filled in fiscal year 2022 and thereafter:
(in billions)
North America Solutions
Offshore Gulf of Mexico
International Solutions
Total Backlog Revenue
September 30, 2020 September 30, 2019
Percentage Reasonably
Expected to be Filled in Fiscal
Year 2022 and Thereafter
$
$
0.6
$
—
0.1
0.7
$
1.0
—
0.2
1.2
33.3%
—
39.3
The early termination of a contract may result in a rig being idle for an extended period of time, which could adversely
affect our financial condition, results of operations and cash flows. In some limited circumstances, such as sustained unacceptable
performance by us, no early termination payment would be paid to us. Early terminations could cause the actual amount of
revenue earned to vary from the backlog reported. See Item 1A— “Risk Factors — Our current backlog of drilling services and
solutions revenue may continue to decline and may not be ultimately realized as fixed term contracts and may, in certain instances,
be terminated without an early termination payment" within this Form 10-K regarding fixed-term contract risk. Additionally, see
Item 1A— “Risk Factors — The impact and effects of public health crises, pandemics and epidemics, such as the ongoing outbreak
of COVID-19, have adversely affected and are expected to continue to adversely affect our business, financial condition and
results of operations" within this Form 10-K.
Employees
As of September 30, 2020, we had 3,634 employees within the United States and 504 employees in our international
operations. The number of employees fluctuates depending on the current and expected demand for our services. We consider our
employee relations to be robust. None of our U.S. employees are represented by a union. However, some of our international
employees are unionized.
Human Capital Objectives and Programs
We strive to create a culture and work environment that enables us to attract, train, promote, and retain a diverse group of
talented employees who together can help us gain a competitive advantage.
Recruiting
Our recruiting practices and decisions on whom to hire are among our most important activities. In a downturn year such
as fiscal year 2020, we maintain relationships with former employees and prioritize recalling our most experienced people for field
positions. In addition, we utilize social media, local job fairs and educational organizations across the United States to find diverse,
motivated and responsible employees.
Core Values and Culture
Fostering and maintaining a strong, healthy culture is a key strategic focus. Our core values reflect who we are and the
way our employees interact with one another, our customers, partners and shareholders. Our core value of Actively C.A.R.E.
means that we treat one another with respect. We care about each other, and from a safety perspective, our employees are
committed to Controlling and Removing Exposures for themselves and others. Our core value of Service Attitude means that we
do our part and more for those around us. We consider the needs of others and provide solutions to meet their needs. Our core
value of Innovative Spirit means that we constantly work to improve and are willing to try new approaches. We make decisions with
the long-term view in mind. Our core value of teamwork means that we listen to one another and work across teams toward a
common goal. We collaborate to achieve results and focus on success for our customers and shareholders. Finally, we do the right
thing. That means we are honest and transparent. We tackle tough situations, make decisions, and speak up when needed.
To further encourage living out our core values, during fiscal year 2020, an average of 10 organizational health sessions
per month were conducted with employee teams.
11
Education and Training
We are dedicated to the continual training and development of our employees, especially of those in field operations, to
ensure we can develop future managers and leaders from within our organization. Our training starts right at the beginning with on-
boarding procedures that focus on safety, responsibility, ethical conduct and inclusive teamwork.
In addition to on–boarding training, we provide extensive ongoing training and career development focused on:
•
•
•
compliance with our Code of Business Conduct and Ethics and laws applicable to our business
skills and competencies directly related to employees' positions; and
responsibility for personal safety and the safety of fellow employees, others on location and the environment.
Safety Training and Serious Injury and/or Fatality ("SIF") Reduction Program
Over the last three years, 94% of our Rig Managers and 91% of Drillers received in-field coaching from a Safety
Leadership Coach and employees received, on average, 26 hours of training.
One of our most critical responsibilities is the safety of our employees and the employees of our customers. Traditional
approaches to safety focused on lagging indicators that centered on reacting to injuries after they occurred. However, we believe
the best approach is to focus on exposures (leading indicators) and controlling and removing them, thus helping prevent injuries
before they occur. Accordingly, we have moved to tracking potential SIFs with annual goals targeted at reducing SIFs. In calendar
year 2019, we focused on reducing the number of SIF incidents by improving pre-job planning tools as a means for reducing
incidents with SIF potential, year-over-year reduction in incidents related to handling of tubulars and year-over-year increase in
seatbelt usage among employees based on self-reported seatbelt use.
Educational Assistance Plan
We offer an Educational Assistance Plan for eligible employees pursuing an undergraduate degree and, in some cases,
post-graduate degrees.
Health and Welfare
We support our employees’ and their families’ health by offering full medical, dental, and vision insurance for employees
and their families, life insurance and long-term disability plans, and health and dependent care flexible spending accounts. We
foster teamwork and a sense of community amongst our employees through our H&P Way Fund that provides assistance to
employees and their families experiencing emergencies.
Retirement
We provide a variety of resources and services to help our employees for Retirement. H&P offers a comprehensive retiree
medical plan for those who meet eligibility requirements. In addition, we provide a 401(k) plan with a company match.
Insurance and Risk Management
Our operations are subject to a number of operational risks, including personal injury and death, environmental, and
weather risks, which could expose us to significant losses and damage claims. We are not fully insured against all of these risks
and our contractual indemnity provisions may not fully protect us. Furthermore, if a significant accident or other event occurs and is
not fully covered by insurance or an enforceable or recoverable indemnity from a customer, it could have a material adverse effect
on our business, financial condition and results of operations.
We have indemnification agreements with many of our customers and we also maintain liability and other forms of
insurance. In general, our drilling contracts contain provisions requiring our customers to indemnify us for, among other things,
pollution and reservoir damage. However, our contractual rights to indemnification may be unenforceable or limited due to
negligent or willful acts by us, or subcontractors and/or suppliers or by reason of state anti-indemnity laws. Our customers and
other third parties may also dispute these indemnification provisions, or we may be unable to transfer these risks to our drilling
customers or other third parties by contract or indemnification agreements.
We insure working land rigs and related equipment at values that approximate the current replacement costs on the
inception date of the policies. However, we self-insure large deductibles under these policies. We also carry insurance with varying
deductibles and coverage limits with respect to stacked rigs, offshore platform rigs, and “named wind storm” risk in the Gulf of
Mexico.
We have insurance coverage for comprehensive general liability, automobile liability, workers’ compensation and
employer’s liability, and certain other specific risks. Insurance is purchased over deductibles to reduce our exposure to catastrophic
events. We retain a significant portion of our expected losses under our workers’ compensation, general liability and automobile
liability programs. We self-insure a number of other risks including loss of earnings and business interruption. We are unable to
obtain significant amounts of insurance to cover risks of underground reservoir damage.
12
Our insurance may not in all situations provide sufficient funds to protect us from all liabilities that could result from our
operations. Our coverage includes aggregate policy limits. As a result, we retain the risk for any loss in excess of these limits. No
assurance can be given that all or a portion of our coverage will not be canceled, that insurance coverage will continue to be
available at rates considered reasonable or that our coverage will respond to a specific loss. Further, we may experience difficulties
in collecting from our insurers or our insurers may deny all or a portion of our claims for insurance coverage.
Government Regulations
Our operations are affected from time to time and in varying degrees by foreign and domestic political developments and
a variety of federal, state, foreign, regional and local laws, rules and regulations, including those relating to:
• drilling of oil and natural gas wells;
• directional drilling services;
• protection of the environment;
• workplace health and safety;
• labor and employment;
• data privacy;
• taxation;
• exportation or importation of equipment, technology and software; and
• currency conversion and repatriation.
Environmental laws and regulations that apply to our operations include the Clean Air Act, the Clean Water Act, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), the Resource Conservation and
Recovery Act (each, as amended) and similar laws that provide for responses to, and liability for, air emissions, water discharges or
releases of oil or hazardous substances into the environment, including damages to natural resources. Applicable environmental
laws and regulations also include similar foreign, state or local counterparts to the above-mentioned federal laws, which regulate
air emissions, water discharges and hazardous substances and waste. Environmental laws can have a material adverse effect on
the drilling industry, including our operations, and compliance with such laws may require us to make significant capital
expenditures, such as the installation of costly equipment or operational changes, and may affect the resale values or useful lives
of our drilling rigs.
The Occupational Safety and Health Act (“OSHA”) and other similar laws and regulations govern the protection of the
health and safety of employees. The OSHA hazard communication standard, the Environmental Protection Agency community
right-to-know regulations under Title III of CERCLA, the Emergency Planning and Community Right-to-Know Act and similar state
statutes and local regulations require that information be maintained about hazardous materials used in our operations and that
this information be provided to employees, state and local governments, emergency responders and citizens.
A number of countries actively regulate and control the importation and/or exportation of oil and gas and other aspects of
the oil and gas industries in their countries. In addition, government actions and initiatives by OPEC+ may continue to contribute to
oil price volatility. In some areas of the world, government activity has adversely affected the amount of exploration and
development work done by oil and gas companies and influenced their need for drilling services, and likely will continue to do so.
In addition, we are subject to a variety of other U.S. and foreign laws and regulations, including, but not limited to, the U.S.
Foreign Corrupt Practices Act and other anti-bribery and anti-corruption laws. The U.S. Foreign Corrupt Practices Act and similar
anti-bribery and anti-corruption laws in other jurisdictions generally prohibit companies and their intermediaries from making
improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Failure to comply with applicable laws or
regulations or acts of misconduct could subject us to fines, penalties or other sanctions. For more information, see Item 1A— “Risk
Factors — Failure to comply with the U.S. Foreign Corrupt Practices Act or foreign anti bribery legislation could adversely affect our
business.”
We are also subject to the jurisdiction of the U.S. Treasury Department’s Office of Foreign Assets Control, the U.S.
Commerce Department’s Bureau of Industry and Security, the U.S. Customs and Border Protection and other U.S. and non-U.S.
laws and regulations governing the international trade of goods, services and technology. Such regulations regarding exports and
imports of covered goods or dealings with sanctioned countries, persons or entities include licensing, recordkeeping and reporting
requirements. Failure to comply with applicable laws and regulations relating to customs, tariffs, sanctions and export controls may
subject us to criminal sanctions or civil remedies, including fines, denial of export privileges, injunctions or seizures of assets. For
more information, see Item 1A— “Risk Factors — Government policies, mandates, and regulations specifically affecting the energy
sector and related industries, regulatory policies or matters that affect a variety of businesses, taxation polices, and political
instability could adversely affect our financial condition and results of operations.”
We are also subject to regulation by numerous other regulatory agencies, including, but not limited to, the U.S.
Department of Labor, which sets employment practice standards for workers. In addition, we are subject to certain requirements to
contribute to retirement funds or other benefit plans, and laws in some jurisdictions restrict our ability to dismiss employees.
13
We monitor our compliance with applicable governmental rules and regulations in each country of operation. We have
made and will continue to make the required expenditures to comply with current and future regulatory requirements. We do not
anticipate that compliance with currently applicable rules and regulations and required controls will significantly change our
competitive position, capital spending or earnings during 2021. We believe we are in material compliance with applicable rules and
regulations and, to date, the cost of such compliance has not been material to our business or financial condition. However, future
events such as additional laws and regulations, changes in existing laws and regulations or their interpretation or more vigorous
enforcement policies of regulatory agencies, may require additional expenditures by us, which may be material. Specifically, the
expansion of the scope of laws or regulations protecting the environment has accelerated in recent years, particularly outside the
United States, and we expect this trend to continue. Accordingly, there can be no assurance that we will not incur significant
compliance costs in the future. See Item 1A— “Risk Factors — Failure to comply with or changes to governmental and
environmental laws could adversely affect our business.”
Sustainability
We marked our 100 year anniversary in 2020 in a cyclical industry that at times has proven to be highly volatile. Much
planning and work goes into our Company by all its employees, both past and present, to ensure our sustainability. The Company
continues to refine its comprehensive sustainability strategy rooted in our core value to "do the right thing," as discussed under "—
Human Capital Objectives and Programs — Core Values and Culture." This strategy uses data to better understand our impacts in
areas like emissions, diversity, and safety so we can make any necessary improvements.
Improving Lives Through Affordable and Responsible Energy
We believe affordable and responsible energy improves lives globally. With a focus on leading-edge technology, we strive
to deliver industry-leading efficiency, safety, and value while continuing to reduce the environmental impact of our solutions.
Energy has been essential to human life, but the forms of energy that have been relied on have evolved over time.
People have relied upon and harnessed energy from resources like fire, water, wind, horsepower, fossil fuels, nuclear, solar, and
more, with each having its own unique societal benefits and costs.
At a certain point, the continued growth of the world’s population highlighted a need to capture more concentrated forms
of energy, making a reliance on fossil fuels increasingly central. Over the last several decades, those responsible for producing
fossil fuels gained more expertise and became more specialized. A “service sector” developed to supply the most scientific and
technologically specialized needs of the oil and gas sector. We provide highly specialized services in this narrow segment of the
very broad and constantly evolving energy sector. We continue to innovate in an effort to increase efficiency for our customers and
provide continued societal benefits with less impact to the environment.
Focused on Safer and More Efficient Drilling
We design, build and operate rigs that make drilling for oil and gas safer and more efficient. Focused on the drilling
segment of the oil and gas production value chain, we provide the expertise, technology and equipment to drill oil and gas wells for
our customers - the exploration and production ("E&P") companies. Our E&P customers then determine if and when to extract
those resources from the ground, following completion of the well.
H&P and the Fossil Fuel Value Chain
While we do play an important role in helping our customers make overall production as safe and efficient as possible, our
most critical responsibility is ensuring the safety of our employees and the employees of our customers. Although many of the
environmental and safety risks associated with the oil and gas sector fall outside of our operations, we remain committed to
utilizing our expertise and advancing our technologies to aid our customers in minimizing personal and environmental risks and
maximizing industry sustainability efforts.
Below is a description of the roles that H&P plays, in the oil and gas value chain, as a drilling solutions provider in
comparison to the roles that participants in other sectors of the oil and gas industry play.
H&P:
build and renovates drilling rigs at two industrial facilities in Texas and Oklahoma;
oversees drilling operations on its rigs on customer sites;
drills predominantly on-shore in the United States (88 percent of available rigs are on onshore);
• makes drilling for oil safer and more efficient;
•
•
•
• makes significant and impactful investments in research and development and new technologies;
•
•
employs over 4,100 people; and
provides robust benefit plans to protect the physical and financial health of its valued employees.
14
Other Sectors of the Oil and Gas Industry:
•
•
•
•
•
•
•
buy, lease, prepare, manage or restore land or are responsible for the protection of wildlife on or biodiversity of
property;
engage in hydraulic fracturing;
pump oil or gas from the ground;
procure, transport or pump water underground, or treat or remove wastewater from the site, or arrange for its
disposal;
assume responsibility for the prevention of fugitive releases or emissions associated with the oil and gas production
process;
engage in oil and gas transport, refining or storage; and
engage in downstream operations.
Human Capital
For a description of our recruiting practices, education and training for employees, and employee benefits, see "— Human
Capital Programs and Objectives" above.
Available Information
Our website is located at www.hpinc.com. Annual reports on Form 10 K, quarterly reports on Form 10 Q, current reports
on Form 8 K, and amendments to those reports, earnings releases, and financial statements are made available free of charge on
the investor relations section of our website as soon as reasonably practicable after we electronically file such materials with, or
furnish such materials to, the Securities and Exchange Commission ("SEC"). The information contained on our website, or
accessible from our website, is not incorporated into, and should not be considered part of, this Form 10 K or any other documents
we file with, or furnish to, the SEC. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding issuers that file electronically with the SEC. Annual reports, quarterly
reports, current reports, amendments to those reports, earnings releases, financial statements and our various corporate
governance documents are also available free of charge upon written request.
Investors and others should note that we announce material financial information to our investors using our investor
relations website (https://helmerichandpayneinc.gcs-web.com/), SEC filings, press releases, public conference calls and webcasts.
We use these channels as well as social media to communicate with our stockholders and the public about our company, our
services and other issues. It is possible that the information we post on social media could be deemed to be material information.
Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the
social media channels listed on our investor relations website.
15
Item 1A. RISK FACTORS
An investment in our securities involves a variety of risks. In addition to the other information included and incorporated
by reference in this Form 10-K and the risk factors discussed elsewhere in this Form 10-K, the following risk factors should be
carefully considered, as they could have a material adverse effect on our business, financial condition and results of operations.
There may be other additional risks, uncertainties and matters not presently known to us or that we believe to be immaterial that
could nevertheless have a material adverse effect on our business, financial condition and results of operations.
Business and Operating Risks
The impact and effects of public health crises, pandemics and epidemics, such as the ongoing outbreak of COVID-19,
have adversely affected and are expected to continue to adversely affect our business, financial condition and results of
operations.
Public health crises, pandemics and epidemics, such as the ongoing outbreak of COVID-19, have adversely impacted
and are expected to continue to adversely impact our operations, the operations of our customers and the global economy,
including the worldwide demand for oil and natural gas and the level of demand for our services. Fear of such events has also
altered the level of capital spending by oil and gas companies for exploration and production activities and adversely affected the
economies and financial markets of many countries (or globally), resulting in an economic downturn that has affected demand for
our services. For instance, the outbreak of COVID-19 and its development into a pandemic has caused governmental authorities
in many countries in which we operate to impose mandatory closures, seek voluntary closures and impose restrictions on, or
advisories with respect to, travel, business operations and public gatherings or interactions. Among other matters, these actions
have resulted in our "remote work" model for office personnel and the quarantine of some of our personnel, which, in turn, has
caused the inability or unwillingness of certain personnel to access our offices, rigs or customer facilities and could decrease
organizational effectiveness. Governmental authorities have also implemented multi-step policies with the goal of re-opening
various sectors of the economy. However, certain jurisdictions began re-opening only to return to restrictions in the face of
increases in new COVID-19 cases, while other jurisdictions are continuing to re-open or have nearly completed the re-opening
process despite increases in COVID-19 cases. The COVID-19 outbreak may significantly worsen during the upcoming months,
which may cause governmental authorities to reconsider restrictions on business and social activities. In the event governmental
authorities increase restrictions, the re-opening of the economy may be further curtailed. We have experienced, and expect to
continue to experience, some resulting disruptions to our business operations, as these restrictions have significantly impacted,
and may continue to impact, many sectors of the economy. In addition, the perceived risk of infection and health risk associated
with COVID-19, and the illness of many individuals across the globe, has resulted in many of the same effects intended by such
governmental authorities to stop the spread of COVID-19. Further, in early March 2020, the increase in crude oil supply resulting
from production escalations from OPEC+ combined with a decrease in crude oil demand stemming from the global response and
uncertainties surrounding the COVID-19 pandemic resulted in a sharp decline in crude oil prices. Although OPEC+ subsequently
agreed to cut oil production and has extended such production cuts through December 2020, crude oil prices remain depressed
as a result of an increasingly utilized global storage network and the decrease in crude oil demand due to COVID-19. These
events have had, and could continue to have, an adverse impact on numerous aspects of our business, financial condition and
results of operations, including, but not limited to, our growth, costs, labor or equipment shortages, logistics constraints, customer
demand for our services and industry demand generally, capital spending by oil and gas companies, our liquidity, the price of our
securities and trading markets with respect thereto, our ability to access capital markets, asset impairments and other accounting
changes, certain of our customers experiencing bankruptcy or otherwise becoming unable to pay vendors, including us, and the
global economy and financial markets generally. The ultimate extent of the impact of COVID-19 on our business, financial
condition and results of operations will depend largely on future developments, including the duration and spread of the outbreak
within the United States and the parts of the world in which we operate and the related impact on the oil and gas industry, the
impact of governmental actions designed to prevent the spread of COVID-19 and the development and availability of effective
treatments and vaccines, all of which are highly uncertain and cannot be predicted with certainty at this time.
Our business depends on the level of activity in the oil and natural gas industry, which is significantly impacted by the
volatility of oil and natural gas prices and other factors.
Our business depends on the conditions of the land and offshore oil and natural gas industry. Demand for our services
and the rates we are able to charge for such services depend on oil and natural gas industry exploration and production activity
and expenditure levels, which are directly affected by trends in oil and natural gas prices and market expectations regarding such
prices. The sharp decline in oil prices resulting from the COVID-19 outbreak and the activities of OPEC+ has caused a significant
decline in both drilling activity and prices for our services, which has had and is expected to continue to have a material adverse
effect on our business, financial condition and results of operations.
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Oil and natural gas prices and production levels, as well as market expectations regarding such prices and production
levels, have been volatile, which has had, and may in the future have, adverse effects on our business and operations. The
volatility in prices and production levels are impacted by many factors beyond our control, including:
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the domestic and foreign supply of, and demand for, oil, natural gas and related products;
the cost of exploring for, developing, producing and delivering oil and natural gas;
uncertainty in capital and commodities markets and the ability of oil and natural gas producers to access
capital;
the availability of and constraints in storage and transportation capacity, including, for example, concerns
regarding storage availability that has been exacerbated by the significant reduction in demand and
corresponding oversupply of oil and natural gas as a result of the global COVID-19 pandemic, as well as
takeaway constraints experienced in the Permian Basin over the past several years;
the worldwide economy;
expectations about future oil and natural gas prices and production levels;
local and international political, economic, health and weather conditions, especially in oil and natural gas
producing countries, including, for example, the impacts of local and international pandemics and other
disasters or events such as the global COVID-19 pandemic;
actions of OPEC, its members and other oil producing nations, such as Russia, relating to oil price and
production levels, including announcements of potential changes to such levels;
the levels of production of oil and natural gas of non-OPEC countries;
the continued development of shale plays which may influence worldwide supply and prices;
tax policies of the United States and other countries involved in global energy markets;
political and military conflicts in oil producing regions or other geographical areas or acts of terrorism in the
United States or elsewhere;
technological advances that are related to oil and natural gas recovery or that affect the global demand for
energy;
the development and exploitation of alternative energy sources;
legal and other limitations or restrictions on exportation and/or importation of oil and natural gas;
laws and governmental regulations affecting the use of oil and natural gas; and
the environmental and other laws and governmental regulations affecting exploration and development of oil
and natural gas reserves.
The level of land and offshore exploration, development and production activity and the prices of oil and natural gas are
volatile and are likely to continue to be volatile in the future. Higher oil and natural gas prices do not necessarily translate into
increased activity because demand for our services is typically driven by our customers’ expectations of future commodity prices,
as well as our customers' ability to access sources of capital to fund their operating and capital expenditures. However, a
sustained decline in worldwide demand for oil and natural gas, as well as excess supply of oil or natural gas coupled with storage
and transportation capacity constraints, shutting in of wells or wells being drilled but not completed, prolonged low oil or natural
gas prices or a reduction in the ability of our customers to access capital, has resulted in, and may in the future result in, reduced
exploration and development of land and offshore areas and a decline in the demand for our services, which has had, and may in
the future, have a material adverse effect on our business, financial condition and results of operations.
Global economic conditions and volatility in oil and gas prices may adversely affect our business.
An economic slowdown or recession in the United States or in any other country that significantly affects the supply of or
demand for oil or natural gas could negatively impact our operations and therefore adversely affect our results. Global economic
conditions have a significant impact on oil and natural gas prices and any stagnation or deterioration in global economic
conditions could result in less demand for our services and could cause our customers to reduce their planned spending on
exploration and development drilling. Adverse global economic conditions may cause our customers, vendors and/or suppliers to
lose access to the financing necessary to sustain or increase their current level of operations, fulfill their commitments and/or fund
future operations and obligations. Furthermore, challenging economic conditions may result in certain of our customers
experiencing bankruptcy or otherwise becoming unable to pay vendors, including us. In the past, global economic conditions, and
expectations for future global economic conditions, have sometimes experienced significant deterioration in a relatively short
period of time and there can be no assurance that global economic conditions or expectations for future global economic
conditions will not quickly deteriorate again due to one or more factors. These conditions could have a material adverse effect on
our business, financial condition and results of operations.
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The drilling services and solutions business is highly competitive, and a surplus of available drilling rigs may adversely
affect our rig utilization and profit margins.
Competition in drilling services and solutions involves such factors as price, efficiency, condition, type and operational
capability of equipment, reputation, operating safety, environmental impact, customer relations, rig availability and excess rig
capacity in the industry. Competition is primarily on a regional basis and may vary significantly by region at any particular time.
Land drilling rigs can be readily moved from one region to another in response to changes in levels of activity, which could result
in an oversupply of rigs in any region, leading to increased price competition. In addition, development of new drilling technology
by competitors has increased in recent years, which could negatively affect our ability to differentiate our services.
We periodically seek to increase the prices on our services to offset rising costs, earn returns on our capital investment
and otherwise generate higher returns for our stockholders. However, we operate in a very competitive industry and we are not
always successful in raising or maintaining our existing prices. With the active rig count below the peak reached in 2014 and
many rigs, including highly capable AC rigs, still idle, there is considerable pricing pressure in the industry. Even if we are able to
increase our prices, we may not be able to do so at a rate that is sufficient to offset rising costs without adversely affecting our
activity levels. The inability to maintain our pricing and to increase our pricing as costs increase could have a material adverse
effect on our business, financial position, results of operations and cash flows.
Following periods of downturn in our industry, there may be substantially more drilling rigs available than necessary to
meet demand even as oil and natural gas prices, and drilling activity, rebound. In the event of a surplus of available and more
competitive drilling rigs, we may continue to experience difficulty in replacing fixed term contracts, extending expiring contracts or
obtaining new contracts in the spot market, and new contracts may contain lower dayrates and substantially less favorable terms,
which could have a material adverse effect on our business, financial condition and results of operations. As of September 30,
2020, 223 of our available rigs were not under contract.
Further, as a result of the significant reduced demand for oil and natural gas services due to the global COVID-19
pandemic, certain of our competitors may engage in bankruptcy proceedings, debt refinancing transactions, management
changes, or other strategic initiatives in an attempt to reduce operating costs to maintain a position in the market. This could
result in such competitors emerging with stronger or healthier balance sheets and in turn an improved ability to compete with us in
the future. We may also see corporate consolidations among our competitors, which could significantly alter industry conditions
and competition within the industry, and have a material adverse effect on our business, financial condition and results of
operations.
New technologies may cause our drilling methods and equipment to become less competitive and it may become
necessary to incur higher levels of capital expenditures in order to keep pace with the disruptive trends in the drilling
industry. Growth through the building of new drilling rigs and improvement of existing rigs is not assured.
The market for our services is characterized by continual technological developments that have resulted in, and will likely
continue to result in, substantial improvements in the functionality and performance of rigs and equipment. Our customers
increasingly demand the services of newer, higher specification drilling rigs. This results in a bifurcation of the drilling fleet and is
evidenced by the higher specification drilling rigs (e.g., AC rigs) generally operating at higher overall utilization levels and dayrates
than the lower specification drilling rigs (e.g., SCR rigs). In addition, a significant number of lower specification rigs are being
stacked and/or removed from service.
Although we take measures to ensure that we develop and use advanced oil and natural gas drilling technology,
changes in technology or improvements by competitors could make our equipment less competitive. There can be no assurance
that we will:
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have sufficient capital resources to improve existing rigs or build new, technologically advanced drilling rigs;
avoid cost overruns inherent in large fabrication projects resulting from numerous factors such as shortages or
unscheduled delays in delivery of equipment or materials, inadequate levels of skilled labor, unanticipated
increases in costs of equipment, materials and labor, design and engineering problems, and financial or other
difficulties;
successfully deploy idle, stacked, new or upgraded drilling rigs;
effectively manage the increased size or future growth of our organization and drilling fleet;
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existing drilling rigs or building new drilling rigs.
In the event that we are successful in developing new technologies for use in our business, there is no guarantee of
future demand for those technologies. Customers may be reluctant or unwilling to adopt our new technologies. We may also have
difficulty negotiating satisfactory terms for our technology services or may be unable to secure prices sufficient to obtain expected
returns on our investment in the research and development of new technologies.
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If we are not successful in upgrading existing rigs and equipment or building new rigs in a timely and cost effective
manner suitable to customer needs, demand for our services could decline and we could lose market share. One or more
technologies that we may implement in the future may not work as we expect and our business, financial condition, results of
operations and reputation could be adversely affected as a result. Additionally, new technologies, services or standards could
render some of our services, drilling rigs or equipment obsolete, which could reduce our competitiveness and have a material
adverse impact on our business, financial condition and results of operations.
Our drilling and technology related operations are subject to a number of operational risks, including environmental and
weather risks, which could expose us to significant losses and damage claims. We are not fully insured against all of
these risks and our contractual indemnity provisions may not fully protect us.
Our operations are subject to the many hazards inherent in the business, including inclement weather, blowouts,
explosions, well fires, loss of well control, equipment failure, pollution, and reservoir damage. These hazards could cause
significant environmental and reservoir damage, personal injury and death, suspension of operations, serious damage or
destruction of equipment and property and substantial damage to producing formations and surrounding lands and waters. An
accident or other event resulting in significant environmental or property damage, or injuries or fatalities involving our employees
or other persons could also trigger investigations by federal, state or local authorities. Such an accident or other event and
subsequent crisis management efforts could cause us to incur substantial expenses in connection with investigation and
remediation as well as cause lasting damage to our reputation, loss of customers and an inability to obtain insurance.
Our Offshore Gulf of Mexico operations are also subject to potentially significant risks and liabilities attributable to or
resulting from adverse environmental conditions, including pollution of offshore waters and related negative impact on wildlife and
habitat, adverse sea conditions and platform damage or destruction due to collision with aircraft or marine vessels. Our Offshore
Gulf of Mexico operations may also be negatively affected by a blowout or an uncontrolled release of oil or hazardous substances
by third parties whose offshore operations are unrelated to our operations. We operate several platform rigs in the Gulf of Mexico.
The Gulf of Mexico experiences hurricanes and other extreme weather conditions on a frequent basis, which may increase with
any climate change. See below “— The physical effects of climate change and the regulation of greenhouse gases and climate
change could have a negative impact on our business.” Damage caused by high winds and turbulent seas could potentially curtail
operations on our platform rigs for significant periods of time until the damage can be repaired. Moreover, we may experience
disruptions in operations due to damage to customer platforms and other related facilities in the area. We also lease a fabrication
facility near the Houston, Texas ship channel, and our principal fabricator and other vendors are also located in the gulf coast
region and could be exposed to damage or disruption by hurricanes and other extreme weather conditions, including coastal
flooding, which in turn could affect our business, financial condition and results of operations.
It is customary in our business to have mutual indemnification agreements with customers on a “knock-for-knock” basis,
which means that we and our customers assume liability for our respective personnel, subcontractors, and property. In general,
our drilling contracts contain provisions requiring our customers to indemnify us for, among other things, pollution and reservoir
damage. However, our contractual rights to indemnification may be unenforceable or limited due to negligent or willful acts by us,
our subcontractors and/or suppliers. Additionally, certain states, including Texas, New Mexico, Wyoming, and Louisiana, have
enacted statutes generally referred to as "oilfield anti-indemnity acts," which expressly limit certain indemnity agreements
contained in or related to indemnification in contracts, and could expose the Company to financial loss. Furthermore, other states
may enact similar oilfield anti-indemnity acts.
Our customers and other third parties may also dispute, or be unable to meet, their contractual indemnification
obligations to us. Accordingly, we may be unable to transfer these risks to our customers and other third parties by contract or
indemnification agreements. Incurring a liability for which we are not fully indemnified or insured could have a material adverse
effect on our business, financial condition and results of operations.
We insure working land rigs and related equipment at values that approximate the current replacement cost on the
inception date of the policies. We also carry insurance with varying deductibles and coverage limits with respect to stacked rigs,
offshore platform rigs, and “named wind storm” risk in the Gulf of Mexico. In addition, we have insurance coverage for
comprehensive general liability, automobile liability, workers’ compensation and employer’s liability, and certain other specific
risks. Insurance is purchased over deductibles to reduce our exposure to catastrophic events. In some cases, we self-insure large
deductibles on certain insurance policies. We retain a significant portion of our expected losses under our workers’ compensation,
general liability and automobile liability programs. The Company self insures a number of other risks, including loss of earnings
and business interruption. We are unable to obtain significant amounts of insurance to cover risks of underground reservoir
damage. Our insurance will not in all situations provide sufficient funds to protect us from all losses and liabilities that could result
from our operations. Our coverage includes aggregate policy limits. As a result, we retain the risk for any loss in excess of these
limits. No assurance can be given that insurance coverage will continue to be available at rates considered reasonable or that our
coverage will respond to a specific loss. In addition, our insurance may not cover losses associated with pandemics such as the
COVID-19 pandemic. Further, we may experience difficulties in collecting from our insurers or our insurers may deny all or a
portion of our claims for insurance coverage.
If a significant accident or other event occurs and is not fully covered by insurance or an enforceable or recoverable
indemnity from a customer, it could have a material adverse effect on our business, financial condition and results of operations.
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Our business is subject to cybersecurity risks.
Our operations depend on effective and secure information technology systems. Threats to information technology
systems, including as a result of cyberattacks and cyber incidents, continue to grow. Cybersecurity risks could include, but are not
limited to, malicious software, attempts to gain unauthorized access to our data and the unauthorized release, corruption or loss
of our data and personal information, interruptions in communication, loss of our intellectual property or theft of our FlexRig® and
other sensitive or proprietary technology, loss or damage to our data delivery systems, or other cybersecurity and infrastructure
systems, including our property and equipment. In response to the COVID-19 pandemic, the Company moved to a "remote work"
model for office personnel in March 2020. This model has significantly increased the use of remote networking and online
conferencing services that enable employees to work outside of our corporate infrastructure and, in some cases, use their own
personal devices. This has resulted in increased demand for information technology resources and exposes the Company to
additional cybersecurity risks, including unauthorized access to sensitive information as a result of increased remote access and
other cybersecurity related incidents.
These cybersecurity risks could:
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disrupt our operations and damage our information technology systems,
negatively impact our ability to compete,
enable the theft or misappropriation of funds,
cause the loss, corruption or misappropriation of proprietary or confidential information,
expose us to litigation, and
result in injury to our reputation, downtime, loss of revenue, and increased costs to prevent, respond to or
mitigate cybersecurity events.
It is possible that our business, financial and other systems could be compromised, which could go unnoticed for a
prolonged period of time. While various procedures and controls are being utilized to mitigate exposure to such risk, there can be
no assurance that the procedures and controls that we implement, or which we cause third party service providers to implement,
will be sufficient to protect our systems, information or other property. Additionally, customers or third parties upon whom we rely
face similar threats, which could directly or indirectly impact our business and operations. The occurrence of a cyber incident or
attack could have a material adverse effect on our business, financial condition and results of operations. Further, as cyber
incidents continue to evolve, we may be required to incur additional costs to continue to modify or enhance our protective
measures or to investigate or remediate the effects of cyber incidents.
Our acquisitions, dispositions and investments may not result in anticipated benefits and may present risks not
originally contemplated, which may have a material adverse effect on our liquidity, consolidated results of operations
and consolidated financial condition.
We continually seek opportunities to maximize efficiency and value through various transactions, including purchases or
sales of assets, businesses, investments, or joint venture interests. For example, in November 2018 and August 2019,
we completed the acquisitions of Angus Jamieson Consulting and DrillScan Energy SAS, respectively. These strategic
transactions, among others, are intended to (but may not) result in the realization of savings, the creation of efficiencies, the
offering of new products or services, the generation of cash or income, or the reduction of risk. Acquisition transactions may use
cash on hand or be financed by additional borrowings or by the issuance of our common stock. These transactions may also
affect our liquidity, consolidated results of operations and consolidated financial condition.
These transactions also involve risks, and we cannot ensure that:
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any acquisitions we attempt will be completed on the terms announced, or at all;
any acquisitions would result in an increase in income or provide an adequate return of capital or other anticipated
benefits;
any acquisitions would be successfully integrated into our operations and internal controls;
the due diligence conducted prior to an acquisition would uncover situations that could result in financial or legal
exposure, or that we will appropriately quantify the exposure from known risks;
any disposition would not result in decreased earnings, revenue, or cash flow;
use of cash for acquisitions would not adversely affect our cash available for capital expenditures and other uses;
or
any dispositions, investments, or acquisitions, including integration efforts, would not divert management
resources.
We have allocated a portion of the purchase price of certain acquisitions to goodwill and other intangible assets.
Generally, the amount allocated to goodwill is the excess of the purchase price over the net identifiable assets acquired. At
September 30, 2020, we had goodwill of $45.7 million and other intangible assets, net of $81.0 million. If we experience future
negative changes in our business climate or our results of operations such that we determine that goodwill or intangible assets
are impaired, we will be required to record impairment charges with respect to such assets.
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Technology disputes could negatively impact our operations or increase our costs.
Drilling rigs use proprietary technology and equipment which can involve potential infringement of a third party’s rights, or
a third party’s infringement of our rights, including patent rights. The majority of the intellectual property rights relating to our
drilling rigs and technology services are owned by us or certain of our supplying vendors. However, in the event that we or one of
our customers or supplying vendors becomes involved in a dispute over infringement of intellectual property rights relating to
equipment or technology owned or used by us, we may lose access to important equipment or technology, be required to cease
use of some equipment or technology be forced to modify our drilling rigs or technology, or be required to pay license fees or
royalties for the use of equipment or technology. In addition, we may lose a competitive advantage in the event we are
unsuccessful in enforcing our rights against third parties. As a result, any technology disputes involving us or our customers or
supplying vendors could have a material adverse impact on our business, financial condition and results of operations.
Unexpected events could disrupt our business and adversely affect our results of operations.
Unexpected or unanticipated events, including, without limitation, computer system disruptions, unplanned power
outages, fires or explosions at drilling rigs, natural disasters such as hurricanes and tornadoes, war or terrorist activities, supply
disruptions, failure of equipment, changes in laws and/or regulations impacting our businesses, pandemic illness and other
unforeseeable circumstances that may arise from our increasingly connected world or otherwise, could adversely affect our
business. It is not possible for us to predict the occurrence or consequence of any such events. However, any such events could
create unforeseen liabilities, reduce our ability to provide drilling and related technology services, reduce demand for our services,
or make it more difficult or costly to provide services, any of which may ultimately have a material adverse effect on our business,
financial condition and results of operations.
Reliance on management and competition for experienced personnel may negatively impact our operations or financial
results.
We greatly depend on the efforts of our executive officers and other key employees to manage our operations. Similarly,
we utilize highly skilled personnel in operating and supporting our businesses and in developing new technologies. In times of
high utilization, it can be difficult to find and retain qualified individuals and, during the recent period of sustained declines in oil
and natural gas prices, there have been reductions in the oil field services workforce, both of which could result in higher labor
costs. The loss of members of management or the inability to attract and retain qualified personnel could have a material adverse
effect on our business, financial condition and results of operations. In addition, the unexpected loss of members of management,
qualified personnel or a significant number of employees due to disease, including COVID-19, disability, or death, could have a
detrimental effect on us.
The loss of one or a number of our large customers could have a material adverse effect on our business, financial
condition and results of operations.
In fiscal year 2020, we received approximately 46 percent of our consolidated operating revenues from our ten largest
drilling services and solutions customers and approximately 20 percent of our consolidated operating revenues from our three
largest customers (including their affiliates). If one or more of our larger customers terminated their contracts, failed to renew
existing contracts with us, or refused to award us with new contracts, it could have a material adverse effect on our business,
financial condition and results of operations. Further, consolidation among oil and natural gas exploration and production
companies may reduce the number of available customers.
Our current backlog of drilling services and solutions revenue may continue to decline and may not be ultimately
realized as fixed term contracts and may, in certain instances, be terminated without an early termination payment.
Fixed term drilling contracts customarily provide for termination at the election of the customer, with an “early termination
payment” to be paid to us if a contract is terminated prior to the expiration of the fixed term. However, under certain limited
circumstances, such as destruction of a drilling rig, our bankruptcy, sustained unacceptable performance by us or delivery of a rig
beyond certain grace and/or liquidated damage periods, no early termination payment would be paid to us. Even if an early
termination payment is owed to us, a customer may be unable or may refuse to pay the early termination payment. We also may
not be able to perform under these contracts due to events beyond our control, and our customers may seek to cancel or
renegotiate our contracts for various reasons, such as depressed market conditions. As of September 30, 2020, our drilling
services backlog was approximately $0.7 billion for future revenues under firm commitments. Our drilling services backlog may
decline over time as existing contract term coverage may not be offset by new term contracts or price modifications for existing
contracts, as a result of any number of factors, such as low or declining oil prices and capital spending reductions by our
customers. Our inability or the inability of our customers to perform under our or their contractual obligations may have a material
adverse impact on our business, financial condition and results of operations.
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Our contracts with national oil companies may expose us to greater risks than we normally assume in contracts with
non-governmental customers.
We currently own and operate rigs and have deployed technology under contracts with foreign national oil
companies. In the future, we may expand our international solutions operations and enter into additional, significant contracts
with national oil companies. The terms of these contracts may contain non-negotiable provisions and may expose us to greater
commercial, political, operational and other risks than we assume in other contracts. Foreign contracts may expose us to
materially greater environmental liability and other claims for damages (including consequential damages) and personal injury
related to our operations, or the risk that the contract may be terminated by our customer without cause on short-term notice,
contractually or by governmental action, or under certain conditions that may not provide us with an early termination
payment. We can provide no assurance that increased risk exposure will not have an adverse impact on our future operations or
that we will not increase the number of rigs contracted, or the amount of technology deployed, to national oil companies with
commensurate additional contractual risks. Risks that accompany contracts with national oil companies could ultimately have a
material adverse impact on our business, financial condition and results of operations.
Our drilling services operating expense includes fixed costs that may not decline in proportion to decreases in rig
utilization and dayrates.
Our drilling services operating expense includes all direct and indirect costs associated with the operation, maintenance
and support of our drilling equipment, which is often not affected by changes in dayrates and utilization. During periods of
reduced revenue and/or activity, certain of our fixed costs (such as depreciation) may not decline and often we may incur
additional costs. During times of reduced utilization, reductions in costs may not be immediate as we may incur additional costs
associated with maintaining and cold stacking a rig, or we may not be able to fully reduce the cost of our support operations in a
particular geographic region due to the need to support the remaining drilling rigs in that region. Accordingly, a decline in revenue
due to lower dayrates and/or utilization may not be offset by a corresponding decrease in drilling services and solutions
expense, which could have a material adverse impact on our business, financial condition and results of operations.
We depend on a limited number of vendors, some of which are thinly capitalized, and the loss of any of which could
disrupt our operations.
Certain key rig components, parts and equipment are either purchased from or fabricated by a single or limited number
of vendors, and we have no long term contracts with many of these vendors. Shortages could occur in these essential
components due to an interruption of supply, the acquisition of a vendor by a competitor, increased demands in the industry or
other reasons beyond our control. Similarly, certain key rig components, parts and equipment are obtained from vendors that are,
in some cases, thinly capitalized, independent companies that generate significant portions of their business from us or from a
small group of companies in the energy industry. These vendors may be disproportionately affected by any loss of business,
downturn in the energy industry or reduction or unavailability of credit. If we are unable to procure certain of such rig components,
parts or equipment, our ability to maintain, improve, upgrade or construct drilling rigs could be impaired, which could have a
material adverse effect on our business, financial condition and results of operations.
Shortages of drilling equipment and supplies could adversely affect our operations.
The drilling services and solutions business is highly cyclical. During periods of increased demand for drilling services
and solutions and periods of supply chain disruption, including as a result of COVID-19, delays in delivery and shortages of
drilling equipment and supplies can occur. Suppliers may experience quality control issues as they seek to rapidly increase
production of equipment and supplies necessary for our operations. Additionally, suppliers may seek to increase prices for
equipment and supplies, which we are unable to pass through to our customers, either due to contractual obligations or market
constraints in the drilling services and solutions business. These risks are intensified during periods when the industry
experiences significant new drilling rig construction or refurbishment. Any such delays or shortages could have a material adverse
effect on our business, financial condition and results of operations.
Unionization efforts and labor regulations in certain countries in which we operate could materially increase our costs or
limit our flexibility.
Certain of our international employees are unionized, and efforts may be made from time to time to unionize other
portions of our workforce. We may in the future be subject to strikes or work stoppages and other labor disruptions in connection
with unionization efforts or renegotiation of existing contracts with unions representing our international employees. For example,
worker strikes of short duration are common in Argentina and our operations have experienced such strikes in the past. Additional
unionization efforts, if successful, new collective bargaining agreements or work stoppages could materially increase our labor
costs, reduce our revenues or limit our operational flexibility.
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Improvements in or new discoveries of alternative energy technologies could have a material adverse effect on our
financial condition and results of operations.
Since our business depends on the level of activity in the oil and natural gas industry, any improvement in or new
discoveries of alternative energy technologies that increase the use of alternative forms of energy and reduce the demand for oil
and natural gas could have a material adverse effect on our business, financial condition and results of operations.
Our business and results of operations may be adversely affected by foreign political, economic and social instability
risks, foreign currency restrictions and devaluation, and various local laws associated with doing business in certain
foreign countries.
We currently have drilling operations in South America (primarily Argentina and Colombia) and the Middle East. In the
future, we may further expand the geographic reach of our operations. As a result, we are exposed to certain political, economic
and other uncertainties not encountered in U.S. operations, including increased risks of social unrest, strikes, terrorism, war,
kidnapping of employees, nationalization, forced negotiation or modification of contracts, difficulty resolving disputes (including
technology disputes) and enforcing contract provisions, expropriation of equipment as well as expropriation of oil and gas
exploration and drilling rights, taxation policies, foreign exchange restrictions and restrictions on repatriation of income and
capital, currency rate fluctuations, increased governmental ownership and regulation of the economy and industry in the markets
in which we operate, economic and financial instability of national oil companies, and restrictive governmental regulation,
bureaucratic delays and general hazards associated with foreign sovereignty over certain areas in which operations are
conducted.
South American countries, in particular, have historically experienced uneven periods of economic growth, as well as
recession, periods of high inflation and general economic and political instability. From time to time, these risks have impacted
our business. For example, in Argentina, while our dayrate is denominated in U.S. dollars, we are paid in Argentine pesos. The
Argentine branch of one of our second-tier subsidiaries then remits U.S. dollars to its U.S. parent by converting the Argentine
pesos into U.S. dollars through the Argentine Foreign Exchange Market and repatriating the U.S. dollars. Argentina also has a
history of implementing currency controls, which restrict the conversion and repatriation of U.S. dollars, including controls which
were implemented in September 2019 and September 2020. As a result of these currency controls, our ability to remit funds from
our Argentine subsidiary to its U.S. parent has been limited. Argentina’s economy is currently considered highly inflationary, which
is defined as cumulative inflation rates exceeding 100 percent in the most recent three-year period based on inflation data
published by the respective governments. Nonetheless, all of our foreign operations use the U.S. dollar as the functional currency
and local currency monetary assets and liabilities are remeasured into U.S. dollars with gains and losses resulting from foreign
currency transactions included in current results of operations. For fiscal year 2020, we experienced aggregate foreign currency
losses of $7.6 million in Argentina. Our aggregate foreign currency losses across all of our operations for fiscal years 2020 and
2019 were $8.8 million and $8.2 million, respectively. However, in the future, we may incur larger currency devaluations, foreign
exchange restrictions or other difficulties repatriating U.S. dollars from Argentina or elsewhere, which could have a material
adverse impact on our business, financial condition and results of operations.
Additionally, there can be no assurance that there will not be changes in local laws, regulations and administrative
requirements or the interpretation thereof, which could have a material adverse effect on the profitability of our operations or on
our ability to continue operations in certain areas. Because of the impact of local laws, our future operations in certain areas may
be conducted through entities in which local citizens own interests and through entities (including joint ventures) in which we have
limited control or hold only a minority interest or pursuant to arrangements under which we conduct operations under contract to
local entities. There can be no assurance that we will in all cases be able to structure or restructure our operations to conform to
local law (or the administration thereof) on terms we find acceptable.
The future occurrence of one or more international events arising from the types of risks described above could have a
material adverse impact on our business, financial condition and results of operations.
Financial Risks
Covenants in our debt agreements restrict our ability to engage in certain activities.
Our current debt agreements pertaining to certain long term unsecured debt and our unsecured revolving credit facility
contain, and our future financing arrangements likely will contain, various covenants that may in certain instances restrict our
ability to, among other things, incur, assume or guarantee additional indebtedness, incur liens, sell or otherwise dispose of all or
substantially all of our assets, enter into new lines of business, and merge or consolidate. In addition, our credit facility requires us
to maintain a funded leverage ratio (as defined therein) of less than or equal to 50 percent and certain priority debt (as defined
therein) may not exceed 17.5 percent of our net worth (as defined therein). Such restrictions may limit our ability to successfully
execute our business plans, which may have adverse consequences on our operations.
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We may be required to record impairment charges with respect to our drilling rigs and other assets.
We evaluate our drilling rigs and other assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Lower utilization and dayrates adversely affect our revenues and
profitability. Prolonged periods of low utilization and dayrates may result in the recognition of impairment charges if future cash
flow estimates, based upon information available to management at the time, indicate that the carrying value of an asset group
may not be recoverable. Drilling rigs in our fleet may become impaired in the future if oil and gas prices remain low for a
prolonged period of time, decline further or if market conditions deteriorate or if we restructured our drilling fleet. For example, in
fiscal years 2020 and 2019, we recognized impairment charges of $563.2 million and $224.3 million, respectively, related to
tangible assets and equipment. If we experience future negative changes in our business climate such that we determine that one
or more of our asset groups are impaired, we will be required to record additional impairment charges with respect to such asset
groups.
Any impairment could have a material adverse effect on our consolidated financial statements. The facts and
circumstances included in our impairment assessments are described in Part II, Item 8— “Financial Statements and
Supplementary Data.”
A downgrade in our credit ratings could negatively impact our cost of and ability to access capital.
Our ability to access capital markets or to otherwise obtain sufficient financing is enhanced by our senior unsecured debt
ratings as provided by major U.S. credit rating agencies. Factors that may impact our credit ratings include debt levels, liquidity,
asset quality, cost structure, commodity pricing levels, industry conditions and other considerations, including the impact of
COVID-19. A ratings downgrade could adversely impact our ability in the future to access debt markets, increase the cost of future
debt, and potentially require us to post letters of credit for certain obligations.
Our ability to access capital markets could be limited.
From time to time, we may need to access capital markets to obtain financing. Our ability to access capital markets for
financing could be limited by oil and gas prices, our existing capital structure, our credit ratings, the state of the economy, the
health or market perceptions of the drilling and overall oil and gas industry, the liquidity of the capital markets and other factors,
including the impact of COVID-19. There have also been efforts in recent years aimed at the investment community, including
investment advisors, sovereign wealth funds, public pension funds, universities and other groups, promoting the divestment of
fossil fuel equities as well as to pressure lenders and other financial services companies to limit or curtail activities with
companies engaged in the extraction of fossil fuel reserves, which, if successful, could limit our ability to access capital markets.
Many of the factors that affect our ability to access capital markets are outside of our control. No assurance can be given that we
will be able to access capital markets on terms acceptable to us when required to do so, which could have a material adverse
impact on our business, financial condition and results of operations.
Our marketable securities may lose significant value due to credit, market and interest rate risks.
At September 30, 2020, we had marketable securities, primarily consisting of equity in Schlumberger, Ltd., with a total
fair value of approximately $7.3 million. The total fair value of the security was $16.3 million at September 30, 2019. At
November 12, 2020, the fair value increased to approximately $8.1 million. The value of this investment is subject to general
credit, liquidity, market and interest rate risks, which may be exacerbated by unusual events, such as the COVID-19 pandemic. A
further significant loss in value of the investment would negatively impact our debt ratio and financial strength.
We may not be able to generate cash to service all of our indebtedness and may be forced to take other actions to
satisfy our obligations.
Our ability to make future scheduled payments on or to refinance our debt obligations, including any future debt
obligations, depends on our financial position, results of operations and cash flows. We may not be able to maintain a level of
cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness. If our cash flows
and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investment
decisions and capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. Furthermore,
these alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our
ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial position at such
time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants,
which could further restrict our business operations. Any failure to make payments of interest and principal on our outstanding
indebtedness on a timely basis would be a default (if not waived) and would likely result in a reduction of our credit rating, which
could harm our ability to seek additional capital or restructure or refinance our indebtedness.
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Changes in the method of determining the London Interbank Offered Rate, or the replacement of the London Interbank
Offered Rate with an alternative reference rate, may adversely affect interest expense related to outstanding debt.
Amounts drawn under our current debt agreements, including the 2018 Credit Facility (as defined herein), may bear
interest at rates based on the London Interbank Offered Rate (“LIBOR”). On July 27, 2017, the Financial Conduct Authority in the
United Kingdom announced that it would phase out LIBOR as a benchmark by the end of 2021. It is unclear whether new
methods of calculating LIBOR will be established such that it continues to exist after 2021. The 2018 Credit Facility provides for a
mechanism to amend the facility to reflect the establishment of an alternative rate of interest upon the occurrence of certain
events related to the phase-out of LIBOR. However, we have not yet pursued any technical amendment or other contractual
alternative to address this matter and are currently evaluating the impact of the potential replacement of the LIBOR interest rate.
In the United States, the Alternative Reference Rates Committee has proposed the Secured Overnight Financing Rate ("SOFR")
as an alternative to LIBOR for use in contracts that are currently indexed to U.S. dollar LIBOR and has proposed a paced market
transition plan to SOFR. It is not presently known whether SOFR or any other alternative reference rates that have been proposed
will attain market acceptance as replacements of LIBOR. In addition, the overall financial markets may be disrupted as a result of
the phase-out or replacement of LIBOR. Uncertainty as to the nature of such potential phase-out and alternative reference rates
or disruption in the financial market could have a material adverse effect on our financial condition, results of operations and cash
flows.
Legal and Regulatory Risks
The physical effects of climate change and the regulation of greenhouse gases and climate change could have a
negative impact on our business.
The physical and regulatory effects of climate change could have a negative impact on our operations, our customers’
operations and the overall demand for our customers' products and services. Scientific studies have suggested that emissions of
certain gases, commonly referred to as “greenhouse gases” (“GHGs”) and including carbon dioxide and methane, may be
contributing to warming of the earth’s atmosphere and other climatic changes. In response to such studies, the issue of climate
change and the effect of GHG emissions, in particular emissions from fossil fuels, is attracting increasing attention worldwide.
We are aware of the increasing focus of local, state, regional, national and international regulatory bodies on GHG
emissions and climate change issues. Legislation to regulate GHG emissions has periodically been introduced in the U.S.
Congress and such legislation may be proposed or adopted in the future. In addition, in December 2015, the United States joined
the international community at the 21st Conference of the Parties of the United Nations Framework Convention on Climate
Change (the “UNFCCC”) in Paris, France in creating an agreement (the “Paris Agreement”) that requires member countries to
review and “represent a progression” in their intended nationally determined GHG contributions, which set GHG emission
reduction goals every five years beginning in 2020. The agreement entered into full force in November 2016. The U.S. President
announced the United States planned to withdraw from the Paris Agreement in June 2017. This withdrawal formally took effect
November 4, 2020. The terms and timeline under which the United States may reenter the Paris Agreement, or a separately
negotiated agreement, are unclear at this time.
The aim of the Paris Agreement was to hold the increase in the average global temperature to well below 2ºC (3.6ºF)
above pre-industrial levels with efforts to limit the rise to 1.5ºC (2.7ºF) to protect against the more severe consequences of climate
forecasted by scientific studies. These consequences include increased coastal flooding, droughts and associated wildfires,
heavy precipitation events, stresses on water supply and agriculture, increased poverty, and negative impacts on health. In
connection with the decision to adopt the Paris Agreement, the UNFCCC invited the Intergovernmental Panel on Climate Change
(the “IPCC”) to prepare a special report focused on the impacts of an increase in the average global temperature of 1.5ºC above
pre-industrial levels and related GHG emission pathways. The 2018 IPCC Report concludes that the measures set forth in the
Paris Agreement are insufficient and that more aggressive targets and measures will be needed. The 2018 IPCC Report indicates
that GHGs must be reduced from 2010 levels by 45 percent by 2030 and 100 percent by 2050 to prevent global warming of 1.5ºC
above pre-industrial levels.
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It is not possible at this time to predict the timing and effect of climate change or to predict the timing or effect of rejoining
the Paris Agreement or whether additional GHG legislation, regulations or other measures will be adopted at the federal, state or
local levels. However, more aggressive efforts by governments and non-governmental organizations to reduce GHG emissions
appear likely based on the findings set forth in the 2018 IPCC Report and any such future laws and regulations could result in
increased compliance costs, additional operating restrictions or affect the demand for our customers' products and, accordingly,
our services. For example, a coalition of over 20 governors of U.S. states formed the United States Climate Alliance to advance
the objectives of the Paris Agreement, and several U.S. cities have committed to advance the objectives of the Paris Agreement
at the state or local level despite the federal withdrawal. To this end, the California governor issued an executive order on
September 23, 2020 ordering actions to pursue GHG emissions reductions, including a direction to the California State Air
Resources Board to develop and propose regulations to require increasing volumes of new zero-emission passenger vehicles
and trucks sold in California over time, with a targeted ban of the sale of new gasoline vehicles by 2035. If we are unable to
recover or pass through a significant level of our costs related to complying with climate change regulatory requirements imposed
on us, it could have a material adverse impact on our business, financial condition and results of operations. Further, to the extent
financial markets view climate change and GHG emissions as a financial risk, this could negatively impact our cost of or access to
capital. Climate change and GHG regulation could also negatively impact the drilling programs of our customers and,
consequently, delay, limit or reduce the services we provide. An increased focus by the public on the reduction of GHG emissions
as well as the results of the physical impacts of climate change could affect the demand for our customers’ products and have a
negative effect on our business.
Beyond financial and regulatory impacts, the projected severe effects of climate change have the potential to directly
affect our facilities and operations and those of our customers. See above “—Our drilling and technology related operations are
subject to a number of operational risks, including environmental and weather risks, which could expose us to significant losses
and damage claims. We are not fully insured against all of these risks and our contractual indemnity provisions may not fully
protect us.”
New legislation and regulatory initiatives relating to hydraulic fracturing or other aspects of the oil and gas industry
could negatively impact the drilling programs of our customers and, consequently, delay, limit or reduce the services we
provide.
Several political and regulatory authorities, governmental bodies, and environmental groups devote resources to
campaigns aimed at eradicating hydraulic fracking. We do not engage in any hydraulic fracturing activities. However, it is a
common practice in our industry for our customers to recover natural gas and oil from shale and other formations through the use
of horizontal drilling combined with hydraulic fracturing. Hydraulic fracturing is the process of creating or expanding cracks, or
fractures, in formations using water, sand and other additives pumped under high pressure into the formation. The hydraulic
fracturing process is typically regulated by state oil and natural gas commissions. Several states have adopted or are considering
adopting regulations that could impose more stringent permitting, public disclosure, waste disposal and/or well construction
requirements on oil and gas development, including hydraulic fracturing operations, or otherwise seek to ban fracturing activities
altogether. In addition to state laws, some local municipalities have adopted or are considering adopting land use restrictions,
such as city ordinances, that may restrict or prohibit the performance of well drilling in general and/or hydraulic fracturing in
particular. Members of the U.S. Congress are analyzing, and a number of federal agencies have historically been requested to
review, and, under a new administration, may be requested to review again, a variety of environmental issues associated with
hydraulic fracturing and the possibility of more stringent regulation. At September 30, 2020, we had approximately 15 rigs placed
on federal land and eight rigs in federal waters. Any new laws, regulations or permitting requirements regarding hydraulic
fracturing could negatively impact the drilling programs of our customers and, consequently, delay, limit or reduce the services we
provide. For example, the Environmental Protection Agency has asserted federal regulatory authority pursuant to the federal Safe
Drinking Water Act over certain hydraulic fracturing activities involving the use of diesel fuels. Widespread regulation significantly
restricting or prohibiting hydraulic fracturing or other drilling activity by our customers could have a material adverse impact on our
business, financial condition and results of operations.
Further, we conduct drilling activities in numerous states, including Oklahoma, where seismic activity may occur. In
recent years, Oklahoma has experienced an increase in earthquakes. Although the extent of any correlation has been and
remains the subject of studies of both federal and state agencies, some parties believe that there is a correlation between
hydraulic fracturing related activities and the increased occurrence of seismic activity. As a result, federal and state legislatures
and agencies may seek to further regulate, restrict or prohibit hydraulic fracturing activities. Increased regulation and attention
given to the hydraulic fracturing process could lead to greater opposition to oil and gas production activities using hydraulic
fracturing techniques, operational delays or increased operating and compliance costs in the production of oil and natural gas
from shale plays, added difficulty in performing hydraulic fracturing, and potentially a decline in the completion of new oil and gas
wells, which could negatively impact the drilling programs of our customers and, consequently, delay, limit or reduce the services
we provide.
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Failure to comply with the U.S. Foreign Corrupt Practices Act or foreign anti bribery legislation could adversely affect
our business.
The U.S. Foreign Corrupt Practices Act (“FCPA”) and similar anti bribery laws in other jurisdictions, including the United
Kingdom Bribery Act 2010, generally prohibit companies and their intermediaries from making improper payments to non-U.S.
officials for the purpose of obtaining or retaining business. We operate in many parts of the world that have experienced
governmental corruption to some degree and, in certain circumstances, strict compliance with anti bribery laws may conflict with
local customs and practices and impact our business. Although we have programs in place requiring compliance with anti bribery
legislation, any failure to comply with the FCPA or other anti bribery legislation could subject us to civil and criminal penalties or
other sanctions, which could have a material adverse impact on our business, financial condition and results of operation. In
addition, investors could negatively view potential violations, inquiries or allegations of misconduct under the FCPA or similar
laws, which could adversely affect our reputation and the market for our shares. We could also face fines, sanctions and other
penalties from authorities in the relevant foreign jurisdictions, including prohibition of our participating in or curtailment of business
operations in those jurisdictions and the seizure of drilling rigs or other assets.
Our business is subject to complex and evolving laws and regulations regarding privacy and data protection.
The regulatory environment surrounding data privacy and protection is constantly evolving and can be subject to
significant change. New laws and regulations governing data privacy and the unauthorized disclosure of confidential information
pose increasingly complex compliance challenges and potentially elevate our costs. For example, the EU has adopted EU
General Data Protection Regulation 2016/679 (Regulation (EU) 2016/679 of the European Parliament and of the Council of 27
April 2016), which imposes severe penalties of up to the greater of 4% of worldwide turnover or 20 million Euro.
Any failure, or perceived failure, by us to comply with applicable data protection laws could result in heightened risk of
litigation, including private rights of action, and proceedings or actions against us by governmental entities or others, subject us to
significant fines, penalties, judgments and negative publicity, require us to change our business practices, increase the costs and
complexity of compliance, and adversely affect our business. As noted above, we are also subject to the possibility of cyber
incidents or attacks, which themselves may result in a violation of these laws. Additionally, if we acquire a company that has
violated or is not in compliance with applicable data protection laws, we may incur significant liabilities and penalties as a result.
Government policies, mandates, and regulations specifically affecting the energy sector and related industries,
regulatory policies or matters that affect a variety of businesses, taxation polices, and political instability could
adversely affect our financial condition and results of operations.
Energy production and trade flows are subject to government policies, mandates, regulations, and trade agreements.
Governmental policies affecting the energy industry, such as taxes, tariffs, duties, price controls, subsidies, incentives, foreign
exchange rates, economic sanctions and import and export restrictions, can influence the viability and volume of production of
certain commodities, the volume and types of imports and exports, whether unprocessed or processed commodity products are
traded, and industry profitability. For example, the decision of the U.S. government to impose tariffs on certain Chinese imports
and the resulting retaliation by the Chinese government imposing a 25 percent tariff on U.S. liquefied natural gas have disrupted
aspects of the energy market. Disruptions of this sort can affect the price of oil and natural gas and may cause our customers to
change their plans for exploration and production levels, in turn reducing the demand for our services. Moreover, many countries,
including the United States, control the import and export of certain goods, services and technology and impose related import
and export recordkeeping and reporting obligations. Governments also may impose economic sanctions against certain
countries, persons and other entities that may restrict or prohibit transactions involving such countries, persons and entities. In
particular, U.S. sanctions are targeted against certain countries that are heavily involved in the petroleum and petrochemical
industries, which includes drilling activities.
Future government policies may adversely affect the supply of, demand for, and prices of oil and natural gas, restrict our
ability to do business in existing and target markets, and adversely affect our business, financial condition and results of
operations. The laws and regulations concerning import and export activity, recordkeeping and reporting, including customs,
export controls and economic sanctions, are complex and constantly changing. These laws and regulations may be enacted,
amended, enforced or interpreted in a manner materially impacting our operations. Ongoing economic challenges may increase
some governments’ efforts to enact, enforce, amend or interpret laws and regulations as a method to increase revenue.
Shipments can be delayed and denied import or export for a variety of reasons, some of which are outside our control and some
of which may result from failure to comply with existing legal and regulatory regimes. Shipping delays or denials could cause
unscheduled operational downtime. Any failure to comply with applicable legal or regulatory requirements governing international
trade could also result in criminal and civil penalties and sanctions, such as fines, imprisonment, debarment from government
contracts, seizure of shipments and loss of import and export privileges.
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Our business, financial condition and results of operations could be affected by political instability and by changes in
other governmental policies, mandates, regulations, and trade agreements, including monetary, fiscal and environmental policies,
laws, regulations, acquisition approvals, and other activities of governments, agencies, and similar organizations. These risks
include, but are not limited to, changes in a country’s or region’s economic or political conditions, local labor conditions and
regulations, safety and environmental regulations, reduced protection of intellectual property rights, changes in the regulatory or
legal environment, restrictions on currency exchange activities, currency exchange fluctuations, burdensome taxes and tariffs,
enforceability of legal agreements and judgments, adverse tax, administrative agency or judicial outcomes, and regulation or
taxation of greenhouse gases. International risks and uncertainties, including changing social and economic conditions as well as
terrorism, political hostilities, and war, could limit our ability to transact business in these markets and could adversely affect our
business, financial condition and results of operations.
Legal claims and litigation could have a negative impact on our business.
The nature of our business makes us susceptible to legal proceedings and governmental investigations from time to
time. We design much of our own equipment and fabricate and upgrade such equipment in facilities that we operate. We also
design and develop our own technology. If such equipment or technology fails to perform as expected, or if we fail to maintain or
operate the equipment properly, there could be personal injuries, property damage, and environmental contamination, which
could result in claims against us. Our ownership and use of proprietary technology and equipment could also result in
infringement of intellectual property claims against us. See above “— Technology disputes could negatively impact our operations
or increase our costs." In addition, during periods of depressed market conditions we may be subject to an increased risk of our
customers, vendors, former employees and others initiating legal proceedings against us. Further, actions or decisions we have
taken or may take as a consequence of COVID-19 may result in investigations, litigation or legal claims against us. Lawsuits or
claims against us could have a material adverse effect on our business, financial condition and results of operations. Any litigation
or claims, even if fully indemnified or insured, could negatively impact our reputation among our customers and the public, and
make it more difficult for us to compete effectively or obtain adequate insurance in the future.
Additional tax liabilities and/or our significant net deferred tax liability could affect our financial condition, income tax
provision, net income, and cash flows.
We are subject to income taxes in the United States and numerous other jurisdictions. Significant judgment is required in
determining our worldwide provision for income taxes and other tax liabilities. In the ordinary course of our business, there are
many transactions and calculations where the ultimate tax determination is uncertain. We are regularly audited by tax authorities.
Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be
materially different than what is reflected in income tax provisions and accruals. An audit or litigation could materially affect our
financial position, income tax provision, net income, or cash flows in the period or periods challenged. Tax rates in the various
jurisdictions in which our subsidiaries are organized and conduct their operations may change significantly as a result of political
or economic factors beyond our control. It is also possible that future changes to tax laws (including tax treaties in any of the
jurisdictions that we operate in) could impact our ability to realize the tax savings recorded to date. Additionally, our future effective
tax rates could be adversely affected by changes in tax laws (including tax treaties) or their interpretation.
Our deferred tax liability associated with property, plant and equipment is significant, which could materially increase the
amount of cash income taxes that we pay in the future and, thus, adversely affect our cash flows. Our future capital expenditures,
our results of operations and changes in income tax laws could significantly impact the timing of the reversal of our deferred tax
liabilities and the timing and amount of our future cash income taxes. While management intends to minimize our income taxes
payable in future years to the extent possible, the amount and timing of cash income taxes ultimately paid are based on the
aforementioned factors as well as others and are subject to change.
Failure to comply with or changes to governmental and environmental laws could adversely affect our business.
Many aspects of our operations are subject to various laws and regulations in the jurisdictions where we operate,
including those relating to drilling practices and comprehensive and frequently changing laws and regulations relating to the safety
and to the protection of human health and the environment. Environmental laws apply to the oil and gas industry including those
regulating air emissions, discharges to water, and the transport, storage, use, treatment, disposal and remediation of, and
exposure to, solid and hazardous wastes and materials. These laws can have a material adverse effect on the drilling industry,
including our operations, and compliance with such laws may require us to make significant capital expenditures, such as the
installation of costly equipment or operational changes, and may affect the resale values or useful lives of our drilling rigs. If we
fail to comply with these laws and regulations, we could be exposed to substantial administrative, civil and criminal penalties,
delays in permitting or performance of projects and, in some cases, injunctive relief. Violations of environmental laws may also
result in liabilities for personal injuries, property and natural resource damage and other costs and claims. In addition,
environmental laws and regulations in the United States impose a variety of requirements on “responsible parties” related to the
prevention of oil spills and liability for damages from such spills. As an owner and operator of drilling rigs, we may be deemed to
be a responsible party under these laws and regulations.
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Additional legislation or regulation and changes to existing legislation and regulation may reasonably be anticipated, and
the effect thereof on our operations cannot be predicted. The expansion of the scope of laws or regulations protecting the
environment has accelerated in recent years, particularly outside the United States, and we expect this trend to continue. To the
extent new laws are enacted or other governmental actions are taken that prohibit or restrict drilling in areas where we operate or
impose additional environmental protection requirements that result in increased costs to the oil and gas industry, in general, or
the drilling industry, in particular, our business or prospects could be materially adversely affected.
Risks Related to Our Common Stock and Corporate Structure
We may reduce or suspend our dividend in the future.
We have paid a quarterly dividend for many years. Our most recent quarterly dividend was $0.25 per share. In the future,
our Board of Directors may, without advance notice, determine to reduce or suspend our dividend in order to maintain our
financial flexibility and best position the Company for long term success. The declaration and amount of future dividends is at the
discretion of our Board of Directors and will depend on our financial condition, results of operations, cash flows, prospects,
industry conditions, capital requirements and other factors and restrictions our Board of Directors deems relevant. The likelihood
that dividends will be reduced or suspended is increased during periods of prolonged market weakness or uncertainty, such as
the current downturn as a result of the COVID-19 outbreak and the oil price collapse in 2020. In addition, our ability to pay
dividends may be limited by agreements governing our indebtedness now or in the future. There can be no assurance that we will
not reduce our dividend or that we will continue to pay a dividend in the future.
The market price of our common stock may be highly volatile, and investors may not be able to resell shares at or above
the price paid.
The trading price of our common stock may be volatile. Securities markets worldwide experience significant price and
volume fluctuations. This market volatility, as well as other general economic, market or political conditions, could reduce the
market price of our common stock in spite of our operating or financial performance. The following factors, in addition to other
factors described in this “Risk Factors” section and elsewhere in this Form 10-K, may have a significant impact on the market
price of our common stock:
•
•
•
•
•
•
•
•
•
changes in customer needs, expectations or trends and our ability to maintain relationships with key customers;
our ability to implement our business strategy;
changes in our capital structure, including the issuance of additional debt;
public announcements (including the timing of these announcements) regarding our business, financial
performance and prospects or new products or services, product enhancements, technological advances or
strategic actions, such as acquisitions, restructurings or significant contracts, by our competitors or us;
trading activity in our stock, including portfolio transactions in our stock by us, our executive officers and directors,
and significant stockholders or trading activity that results from the ordinary course rebalancing of stock indices in
which we may be included;
short-interest in our common stock, which could be significant from time to time;
our inclusion in, or removal from, any stock indices;
investor perception of us and the industry and markets in which we operate;
increased focus by the investment community on sustainability practices at our company and in the oil and natural
gas industry generally;
changes in earnings estimates or buy/sell recommendations by securities analysts;
•
• whether or not we meet earnings estimates of securities analysts who follow us;
•
•
regulatory or legal developments in the United States and foreign countries where we operate; and
general financial, domestic, international, economic, and market conditions, including overall fluctuations in the
U.S. equity markets.
Certain provisions of our corporate governing documents could make an acquisition of our company more difficult.
The following provisions of our charter documents, as currently in effect, and Delaware law could discourage potential
proposals to acquire us, delay or prevent a change in control of us or limit the price that investors may be willing to pay in the
future for shares of our common stock:
•
•
our certificate of incorporation permits our Board of Directors to issue and set the terms of preferred stock and to
adopt amendments to our bylaws;
our bylaws contain restrictions regarding the right of stockholders to nominate directors and to submit proposals to
be considered at stockholder meetings;
our bylaws restrict the right of stockholders to call a special meeting of stockholders; and
•
• we are subject to provisions of Delaware law which restrict us from engaging in any of a broad range of business
transactions with an “interested stockholder” for a period of three years following the date such stockholder
became classified as an interested stockholder.
29
Item 1B. UNRESOLVED STAFF COMMENTS
We have received no written comments regarding our periodic or current reports from the staff of the SEC that were
issued 180 days or more preceding the end of fiscal year 2020 and that remain unresolved.
Item 2. PROPERTIES
Drilling Services and Solutions Operations
Our property consists primarily of drilling rigs and ancillary equipment. We own substantially all of the equipment used in
our businesses. For further information on the status of our drilling fleet, see Item 1— “Business — Drilling Fleet.”
Real Property
We own or lease office and yard space to support our ongoing operations, including field and district offices in the United
States and internationally. In addition, we have a fabrication and assembly facility near Houston, Texas as well as a maintenance
and overhaul facility near Tulsa, Oklahoma.
We also own several commercial real estate properties for investment purposes. Our real estate investments are located
exclusively within Tulsa, Oklahoma, and include a shopping center and undeveloped real estate.
Item 3. LEGAL PROCEEDINGS
See Note 17—Commitments and Contingencies to our Consolidated Financial Statements for information regarding our
legal proceedings.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
30
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
Market Information and Dividends
The principal market on which our common stock is traded is the New York Stock Exchange under the symbol “HP.” As of
November 12, 2020, there were 425 record holders of our common stock as listed by our transfer agent’s records.
We have paid quarterly cash dividends on our common stock during the past two fiscal years. Payment of future dividends
will depend on earnings and other factors.
Stock Price Range and Dividends
$72.94
$58.05
$64.51
$52.15
$44.95
$48.05
$48.40
$45.54
$47.15
$36.36
$36.40
$0.71
$0.71
$0.71
$0.71
$0.71
$28.29
$0.71
$12.80
$14.24
$20.48
$13.48
$0.25
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
Stock price low
Stock price high
Dividend
Performance Graph
The following performance graph reflects the yearly percentage change in our cumulative total stockholder return on
common stock as compared with the cumulative total return on the S&P 500 Index and the S&P 1500 Oil and Gas Drilling Index. All
cumulative returns assume an initial investment of $100, the reinvestment of dividends and are calculated on a fiscal year basis
ending on September 30 of each year.
Company / Index
Helmerich & Payne, Inc.
S&P 500 Index
Dow Jones U.S. Select Oil Equipment & Services Index
PHLX Oil Service Index
Base Period
INDEXED RETURNS
Years Ending
Sep 2015
Sep 2016 Sep 2017 Sep 2018 Sep 2019
Sep 2020
100.00
100.00
100.00
100.00
148.00
122.00
163.00
109.00
60.00
115.00
136.00
159.00
166.00
189.00
110.00
102.00
105.00
106.00
94.00
100.00
55.00
48.00
27.00
25.00
31
$200
$150
$100
$50
$0
Sep 15
Comparison of Cumulative Five Year Total Return
Sep 16
Sep 17
Sep 18
Sep 19
Sep 20
Helmerich & Payne, Inc.
S&P 500 Index
Dow Jones U.S. Select Oil Equipment & Services Index
Philadelphia Stock Exchange Oil Service Sector Index
The above performance graph and related information shall not be deemed to be “soliciting material” or to be “filed” with
the SEC or subject to Regulation 14A or 14C under the Exchange Act or to the liabilities of Section 18 of the Exchange Act, and
shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the
extent we specifically incorporate it by reference into such a filing.
Stock Portfolio
Information required by this item regarding our marketable securities may be found in, and is incorporated by reference to,
Item 7— “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital
Resources — Investing Activities — Marketable Securities” included in this Form 10 K.
32
Item 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial information and should be read in conjunction with Item 7—
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8— “Financial Statements and
Supplementary Data” included in this Form 10 K.
(in thousands except per share amounts)
2020
2019
2018
2017
2016
Five year Summary of Selected Financial Data
Statements of Operations Selected Data
Operating revenues
Depreciation and amortization
Selling, general and administrative
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Per Share Data
$ 1,773,927
$
2,798,490
$
2,487,268
$ 1,804,741
$ 1,624,332
481,885
167,513
(496,392)
1,895
(494,497)
562,803
194,416
(32,510)
(1,146)
(33,656)
583,802
199,257
493,010
(10,338)
482,672
585,543
147,548
(127,863)
(349)
(128,212)
598,587
140,486
(52,990)
(3,838)
(56,828)
Basic earnings (loss) per share from continuing
operations
Basic earnings (loss) per share from discontinued
operations
Basic earnings (loss) per share
Diluted earnings (loss) per share from continuing
operations
Diluted earnings (loss) per share from discontinued
operations
Diluted earnings (loss) per share
Cash dividends declared per common share
$
$
$
$
$
Balance Sheet Data
(4.62)
$
(0.33)
$
4.49
$
(1.20)
$
(0.50)
0.02
(0.01)
(0.10)
—
(4.60)
$
(0.34)
$
4.39
$
(1.20)
$
(0.04)
(0.54)
(4.62)
$
(0.33)
$
4.47
$
(1.20)
$
(0.50)
0.02
(4.60)
2.38
$
$
(0.01)
(0.34)
2.84
$
$
(0.10)
4.37
2.82
$
$
—
(1.20)
$
(0.04)
(0.54)
2.80
$
2.78
Cash, cash equivalents and short-term investments
$
577,219
$
400,903
$
325,816
$
565,866
$
949,709
Property, plant and equipment, net
Total assets (1)
Total debt (2)
Total shareholders' equity
Debt to capital ratio (3)
Net debt to net capital ratio (4)
Net working capital (5)
3,646,341
4,829,621
487,148
3,318,514
4,502,084
5,839,515
487,148
4,857,382
6,214,867
500,000
5,001,051
6,439,988
500,000
5,144,733
6,832,019
500,000
4,012,223
4,382,735
4,164,591
4,560,925
12.8 %
(2.7)%
10.8%
2.1%
10.2%
3.8%
10.7 %
(1.6)%
9.9 %
(9.9)%
$
194,198
$
381,708
$
490,663
$
401,499
$
368,965
(1) Total assets for all years include amounts related to discontinued operations. Our Venezuelan subsidiary was classified as discontinued
operations on June 30, 2010, after the seizure of our drilling assets in that country by the Venezuelan government.
(2) Total debt excludes unamortized discount and debt issuance cost. Refer to Note 8—Debt.
(3) The debt to capital ratio is calculated by dividing total debt by total capitalization (total debt, excluding unamortized discount and debt issuance
cost, plus shareholders’ equity). The debt to capital ratio is not a measure of operating performance or liquidity defined by U.S. GAAP and may
not be comparable to similarly titled measures presented by other companies.
(4) Net debt to net capital ratio is calculated as the excess of our total debt over total cash, cash equivalents and short-term investments divided
by total shareholders' equity plus any positive net debt balances. The net debt to net capital ratio is not a measure of operating performance or
liquidity defined by U.S. GAAP and may not be comparable to similarly titled measures presented by other companies.
(5) For the purpose of understanding the impact on our Cash Flow from Operations, net working capital is calculated as current assets, excluding
cash and short-term investments, less current liabilities, excluding dividends payable, short–term debt and the current portion of long–term
debt. Net working capital is not a measure of operating performance or liquidity defined by U.S. GAAP and may not be comparable to similarly
titled measures presented by other companies.
33
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Part I of this Form 10 K as well as the Consolidated
Financial Statements and related notes thereto included in Item 8— “Financial Statements and Supplementary Data” of this
Form 10 K. Our future operating results may be affected by various trends and factors which are beyond our control. Our actual
results may differ materially from those anticipated in these forward-looking statements as a result of a variety of risks and
uncertainties, including those described in this Form 10-K under “Cautionary Note regarding Forward-Looking Statements” and
Item 1A-- “Risk Factors.” Accordingly, past results and trends should not be used by investors to anticipate future results or trends.
Executive Summary
Helmerich & Payne, Inc. (“H&P,” which, together with its subsidiaries, is identified as the “Company,” “we,” “us,” or “our,”
except where stated or the context requires otherwise) through its operating subsidiaries provides performance-driven drilling
solutions and technologies that are intended to make hydrocarbon recovery safer and more economical for oil and gas exploration
and production companies. As of September 30, 2020, our drilling rig fleet included a total of 302 drilling rigs. Our drilling services
and solutions segments consist of the North America Solutions segment with 262 rigs, the Offshore Gulf of Mexico segment with
eight offshore platform rigs and the International Solutions segment with 32 rigs as of September 30, 2020. At the close of fiscal
year 2020, we had 79 contracted rigs, of which 56 were under a fixed-term contract and 23 were working well-to-well, compared to
218 contracted rigs at September 30, 2019. Our long-term strategy remains focused on innovation, technology, safety, operational
excellence and reliability. As we move forward, we believe that our advanced uniform rig fleet, technology offerings, financial
strength, contract backlog and strong customer and employee base position us very well to respond to continued volatile market
conditions and take advantage of future opportunities.
Market Outlook
Our revenues are derived from the capital expenditures of companies involved in the exploration, development and
production of crude oil and natural gas (“E&Ps”). Generally, the level of capital expenditures is dictated by current and expected
future prices of crude oil and natural gas, which are determined by various supply and demand factors. Both commodities have
historically been, and we expect them to continue to be, cyclical and highly volatile.
With respect to North America Solutions, the resurgence of oil and natural gas production coming from the United States
brought about by unconventional shale drilling for oil has significantly impacted the supply of oil and natural gas and the type of rig
utilized in the U.S. land drilling industry. The advent of unconventional drilling for oil in the United States began in early 2009 and
continues to evolve as E&Ps drill longer lateral wells with tighter well spacing. During this time, we designed, built and delivered to
the market new technology AC drive rigs (FlexRig®), substantially growing our fleet. The pace of progress of unconventional drilling
over the years has been cyclical and volatile, dictated by crude oil and natural gas price fluctuations, which at times have proven to
be dramatic.
Throughout this time, the length of the lateral section of wells drilled in the United States has continued to grow. The
progression of longer lateral wells has required many of the industry’s rigs to be upgraded to certain specifications in order to meet
the technical challenges of drilling longer lateral wells. The upgraded rigs meeting those specifications are commonly referred to in
the industry as super-spec rigs and have the following specific characteristics: AC drive, minimum of 1,500 horsepower drawworks,
minimum of 750,000 lbs. hookload rating, 7,500 psi mud circulating system, and multiple-well pad capability.
The technical requirements of drilling longer lateral wells often necessitate the use of super-spec rigs and even when not
required for shorter lateral wells, there is a strong customer preference for super-spec due to the drilling efficiencies gained in
utilizing a super-spec rig. As a result, there has been a structural decline in the use of non-super-spec rigs across the industry.
However, as a result of having a large super-spec fleet, we gained market share and became the largest provider of super-spec
rigs in the industry. As such, we believe we are well positioned to respond to various market conditions.
In early March 2020, the increase in crude oil supply resulting from production escalations from the Organization of the
Petroleum Exporting Countries and other oil producing nations ("OPEC+") combined with a decrease in crude oil demand
stemming from the global response and uncertainties surrounding the COVID-19 pandemic resulted in a sharp decline in crude oil
prices. Since the beginning of the calendar year 2020, crude oil prices fell from approximately $60 per barrel to the low-to-mid-$20
per barrel range, lower in some cases. Consequently, we have seen a significant decrease in customer 2020 capital budgets
representing a decline of nearly 50% from calendar year 2019 levels. There has been a corresponding dramatic decline in the
demand for land rigs, such that the overall rig count for calendar year 2020 will average significantly less than in calendar year
2019.
34
During calendar year 2020, our North American Solutions rig count has declined from 195 contracted rigs at December
31, 2019 to 69 contracted rigs at September 30, 2020. Of the 69 contracted rigs at September 30, 2020, 58 are active with 11
stacked. When contracted rigs are stacked, they remain under the terms of the contract but typically pay a reduced rate, where the
remaining term days are generally not reduced, but our operating expenses are typically reduced. We experienced much of our rig
count decline during our second and third fiscal quarters with the absolute level of our rigs remaining relatively stable during the
fourth fiscal quarter. Additionally, during our fourth fiscal quarter, the market experienced a stabilization of crude oil prices in the
$40 per barrel range. At such levels, we believe our customers will have more robust capital budgets entering into 2021 and are
already seeing evidence of this in our near-term rig count activity projections. Consequently, we believe we will experience a
higher level of rig activity in fiscal year 2021 compared to where we stand today. However, given the current levels of commodity
prices and the lasting impacts of the global pandemic, we do not expect or anticipate customers' capital budgets will support
activity levels like those experienced prior to March 2020.
Utilization for our super-spec FlexRig® fleet peaked in late calendar year 2018 with 216 of 221 super-spec rigs working
(98 percent utilization); however, the recent decline in the demand for land rigs resulted in customers idling a large portion of our
super-spec FlexRig® fleet. At September 30, 2020, we had 167 idle super-spec rigs out of our FlexRig® fleet of 234 super-spec rigs
(29% percent utilization).
Collectively, our other business segments, Offshore Gulf of Mexico and International Solutions, are exposed to the same
macro environment adversely affecting our North America Solutions segment and those unfavorable factors are creating similar
challenges for these business segments as well.
H&P recognizes the uncertainties and concerns caused by the COVID-19 pandemic; however, we have managed the
Company over time to be in a position of strength both financially and operationally when facing uncertainties of this magnitude.
The COVID-19 pandemic has had an indirect, yet significant financial impact on the Company. The global response to coping with
the pandemic has resulted in a drop in demand for crude oil, which, when combined with a more than adequate supply of crude oil,
has resulted in a sharp decline in crude oil prices, causing our customers to have pronounced pullbacks in their operations and
planned capital expenditures. The direct impact of COVID-19 on H&P's operations has created some challenges that we believe
the Company is adequately addressing to ensure a robust continuation of our operations albeit at a lower activity level.
The Company is an ‘essential critical infrastructure’ company as defined by the Department of Homeland Security and the
Cybersecurity and Infrastructure Security Agency and, as such, continues to operate rigs and technology solutions, providing
valuable services to our customers in support of the global energy infrastructure.
The health and safety of all H&P stakeholders - our employees, customers, and vendors - remain a top priority at the
Company. Accordingly, H&P has implemented additional policies and procedures designed to protect the well-being of our
stakeholders and to minimize the impact of COVID-19 on our ongoing operations. Some of the safeguards we have implemented
include:
The Company mobilized a global COVID-19 response team to manage the evolving situation
The Company moved to a global "remote work" model for office personnel (beginning March 13, 2020)
The Company suspended all non-essential travel
•
•
•
• We are adhering to Center for Disease Control ("CDC") guidelines for evaluating actual and potential COVID-19
exposures
Operational and third-party personnel are required to complete a COVID-19 questionnaire prior to
reporting to a field location and office personnel are required to complete one prior to returning to their
respective offices in order to evaluate actual and potential COVID-19 exposures and individuals
identified as being high risk are not allowed on location
The temperatures of operational personnel are taken prior to them being allowed to enter a rig site
The Company has implemented enhanced sanitization and cleaning protocols
• We are complying with local governmental jurisdiction policies and procedures where our operations reside; in
some instances, policies and procedures are more stringent in our foreign operations than in our North America
operations and this has resulted in a complete suspension, for a certain period of time, of all drilling operations in
at least one foreign jurisdiction
As of September 30, 2020, the Company was aware that 109 out of its approximately 4,100 employees have had
confirmed cases of COVID-19 since the COVID-19 outbreak began, of which we believe approximately 52% contracted the virus
outside of their work location. We have had no fatalities and 100 of 109 employees who had confirmed cases have returned to
work. Upon being notified that an employee has tested positive, the Company follows pre-established guidelines and places the
employee on leave as appropriate. Per CDC Guidelines, employees testing positive are permitted to return to their worksite after
10 days. Employees who are considered a Level 1 exposure but who have not tested positive are required to quarantine and are
permitted to return to their worksite after 14 days. In addition, the Company applies its enhanced sanitization procedures to the
employee’s work location prior to allowing employees to re-enter the location. Since the COVID-19 outbreak began, no rigs have
been fully shut down (other than temporary shutdowns for disinfecting) and such measures to disinfect facilities have not had a
significant impact on service. We believe our service levels are unchanged from pre-pandemic levels.
35
From a financial perspective we believe the Company is well positioned to continue as a going concern even through a
more protracted disruption caused by COVID-19. We have taken measures to reduce costs and capital expenditures to levels that
better reflect a lower activity environment. Actions taken during the second quarter of fiscal year 2020 included a reduction to the
annual dividend of approximately $200 million, a reduction in planned fiscal year 2020 capital spend of $95 million, and a reduction
of over $50 million in fixed operational overhead. During the third quarter of fiscal year 2020, the Company took further steps to
reduce its planned fiscal year 2020 capital spend by another $40 million and its selling, general and administrative cost structures
by another $25 million on an annualized basis. The culmination of these cost-saving initiatives resulted in a $16.0 million
restructuring charge during fiscal year 2020. We anticipate further cost reductions in our International Solutions operations as well
and are working through local jurisdictional regulations to implement those measures. At September 30, 2020, the Company had
cash and cash equivalents and short-term investments of $577.2 million and availability under the 2018 Credit Facility (as defined
herein) of $750.0 million resulting in approximately $1.3 billion in near-term liquidity. We currently do not anticipate the need to
draw on the 2018 Credit Facility.
As part of the Company's normal operations, we regularly monitor the creditworthiness of our customers and vendors,
screening out those that we believe have a high risk of failure to honor their counter-party obligations either through payment or
delivery of goods or services. We also perform routine reviews of our accounts receivable and other amounts owed to us to
assess and quantify the ultimate collectability of those amounts. At September 30, 2020, the Company had a net allowance against
its accounts receivable of $1.8 million and incurred bad debt expense of $2.2 million during fiscal year 2020. Subsequent to March
31, 2020, we adjusted our credit risk monitoring for specific customers, in response to the recent economic events described
above.
The nature of the COVID-19 pandemic is inherently uncertain, and as a result, the Company is unable to reasonably
estimate the duration and ultimate impacts of the pandemic, including the timing or level of any subsequent recovery. As a result,
the Company cannot be certain of the degree of impact on the Company’s business, results of operations and/or financial position
for future periods.
Recent Developments
Restructuring
Beginning in the third quarter of fiscal year 2020, we implemented cost controls and began evaluating further measures to
respond to the combination of weakened commodity prices, uncertainties related to the COVID-19 pandemic, and the resulting
market volatility. We restructured our operations to accommodate scale during an industry downturn and to re-organize our
operations to align to new marketing and management strategies. We commenced a number of restructuring efforts as a result of
this evaluation, which included, among other things a reduction in our capital allocation plans, changes to our organizational
structure, and a reduction of staffing levels. Refer to Note 19—Restructuring Charges to our Consolidated Financial Statements.
Business Segments
During the third quarter of fiscal year 2020, as part of our restructuring efforts (see Note 19—Restructuring Charges to our
Consolidated Financial Statements) and consistent with the manner in which our chief operating decision maker evaluates
performance and allocates resources, we implemented organizational changes. We are moving from a product-based offering,
such as a rig or separate technology package, to an integrated solution-based approach by combining proprietary rig technology,
automation software, and digital expertise into our rig operations. Operations previously reported within the former U.S. Land and
H&P Technologies operating and reportable segments are now managed and presented within the North America Solutions
reportable segment. As a result, beginning with the third quarter of fiscal year 2020, our drilling services operations are organized
into the following reportable operating business segments: North America Solutions, Offshore Gulf of Mexico and International
Solutions. All prior period segment disclosures have been recast for these segment changes. Our real estate operations, our
incubator program for new research and development projects, and our wholly-owned captive insurance companies are included in
"Other." Consolidated revenues and expenses reflect the elimination of intercompany transactions.
36
Self-Insurance
On October 1, 2019, we elected to utilize a wholly-owned insurance captive (“Captive”) to insure the deductibles for our
workers’ compensation, general liability and automobile liability insurance programs. Casualty claims occurring prior to October 1,
2019 will remain recorded within each of the operating segments' and future adjustments to these claims will continue to be
reflected within the operating segments. Reserves for legacy claims occurring prior to October 1, 2019, will remain as liabilities in
our operating segments until they have been resolved. Changes in those reserves will be reflected in segment earnings as they
occur. We will continue to utilize the Captive to finance the risk of loss to equipment and rig property assets. The Company and the
Captive maintain excess property and casualty reinsurance programs with third-party insurers in an effort to limit the financial
impact of significant events covered under these programs. Our operating subsidiaries are paying premiums to the Captive,
typically on a monthly basis, for the estimated losses based on an external actuarial analysis. These premiums are currently held in
a restricted account, resulting in a transfer of risk from our operating subsidiaries to the Captive. The actuarial estimated
underwriting expenses for the fiscal year ended September 30, 2020 were approximately $16.4 million and were recorded within
drilling services operating expenses in our Consolidated Statement of Operations. Intercompany premium revenues and expenses
during the fiscal year ended September 30, 2020 amounted to $36.9 million, which were eliminated upon consolidation. These
intercompany insurance premiums are reflected as segment operating expenses within the North America Solutions, Offshore Gulf
of Mexico, and International Solutions reportable operating segments and are reflected as intersegment sales within "Other." The
Company self-insures employee health plan exposures in excess of employee deductibles. Starting in the second quarter of fiscal
year 2020, the Captive insurer issued a stop-loss program that will reimburse the Company's health plan for claims that exceed
$50,000. This program will also be reviewed at the end of each policy year by an outside actuary. One hundred percent of the stop-
loss premium is being set aside by the Captive as reserves. The stop-loss program does not have a material impact on a
consolidated basis.
Dispositions
During the fiscal year ended September 30, 2020, we closed on the sale of a portion of our real estate investment
portfolio, including six industrial sites, for total consideration, net of selling related expenses, of $40.7 million and an aggregate net
book value of $13.5 million, resulting in a gain of $27.2 million, which is included within Gain on Sale of Assets on our Consolidated
Statement of Operations.
In December 2019, we closed on the sale of a wholly-owned subsidiary of Helmerich & Payne International Drilling Co.
("HPIDC"), TerraVici Drilling Solutions, Inc. ("TerraVici"). As a result of the sale, 100% of TerraVici's outstanding capital stock was
transferred to the purchaser in exchange for approximately $15.1 million, resulting in a total gain on the sale of TerraVici of
approximately $15.0 million. Prior to the sale, TerraVici was a component of the North America Solutions operating segment. This
transaction does not represent a strategic shift in our operations and will not have a significant effect on our operations and
financial results going forward.
Impairments
During the second quarter of fiscal year 2020, several significant economic events took place that severely impacted the
current demand on drilling services, including the significant drop in crude oil prices caused by OPEC+'s price war coupled with the
decrease in the demand due to the COVID-19 pandemic.
Property, Plant and Equipment and Inventory During the second quarter of fiscal year 2020, to maintain a competitive
edge in a challenging market, the Company’s management introduced a new strategy focused on operating various types of highly
capable upgraded rigs and phasing out the older, less capable fleet. This resulted in grouping the super-spec rigs of our legacy
Domestic FlexRig® 3 asset group and our FlexRig® 5 asset group creating a new "Domestic super-spec FlexRig®" asset group,
while combining the legacy Domestic conventional asset group, FlexRig® 4 asset group and FlexRig® 3 non-super-spec rigs into
one asset group (Domestic non-super-spec asset group). Given the current and projected low utilization for our Domestic non-
super-spec asset group and all International asset groups, we considered these economic factors to be indicators that these asset
groups may be impaired.
As a result of these indicators, we performed impairment testing at March 31, 2020 on each of our Domestic non-super-
spec and International conventional, FlexRig® 3, and FlexRig® 4 asset groups which had an aggregate net book value of $605.8
million. We concluded that the net book value of each asset group is not recoverable through estimated undiscounted cash flows
and recorded a non-cash impairment charge of $441.4 million in the Consolidated Statement of Operations for the fiscal year
ended September 30, 2020. Of the $441.4 million total impairment charge recorded, $292.4 million and $149.0 million was
recorded in the North America Solutions and International Solutions segments, respectively. Impairment was measured as the
amount by which the net book value of each asset group exceeds its fair value. No further impairments were recognized in fiscal
year 2020.
The most significant assumptions used in our undiscounted cash flow model include timing on awards of future drilling
contracts, drilling rig utilization, estimated remaining useful life, and net proceeds received upon future sale/disposition. These
assumptions are classified as Level 3 inputs by Accounting Standards Codification ("ASC") Topic 820 Fair Value Measurement and
Disclosures as they are based upon unobservable inputs and primarily rely on management assumptions and forecasts.
37
In determining the fair value of each asset group, we utilized a combination of income and market approaches. The
significant assumptions in the valuation are based on those of a market participant and are classified as Level 2 and Level 3 inputs
by ASC Topic 820 Fair Value Measurement and Disclosures.
As of March 31, 2020, the Company also recorded an additional non-cash impairment charge related to in-progress
drilling equipment and rotational inventory of $44.9 million and $38.6 million, respectively, which had aggregate book values of
$68.4 million and $38.6 million, respectively, in the Consolidated Statement of Operations for the fiscal year ended September 30,
2020. Of the $83.5 million total impairment charge recorded for in-progress drilling equipment and rotational inventory, $75.8 million
and $7.7 million was recorded in the North America Solutions and International Solutions segments, respectively.
Goodwill Consistent with our policy, we test goodwill annually for impairment in the fourth quarter of our fiscal year, or
more frequently if there are indicators that goodwill might be impaired. Due to the market conditions described above, during the
second quarter of fiscal year 2020, we concluded that goodwill and intangible assets might be impaired and tested the H&P
Technologies reporting unit, where the goodwill balance is allocated and the intangible assets are recorded, for recoverability. This
resulted in a goodwill only non-cash impairment charge of $38.3 million recorded in Asset Impairment Charge on the Consolidated
Statement of Operations during the fiscal year ended September 30, 2020.
The recoverable amount of the H&P Technologies reporting unit was determined based on a fair value calculation which
uses cash flow projections based on the Company’s financial projections presented to the Board covering a five-year period, and a
discount rate of 14 percent. Cash flows beyond that five-year period were extrapolated using the fifth-year data with no implied
growth factor. The reporting unit level is defined as an operating segment or one level below an operating segment.
The recoverable amount of the intangible assets tested for impairment within the H&P Technologies reporting unit is
determined based on undiscounted cash flow projections using the Company’s financial projections presented to the Board
covering a five-year period and extrapolated for the remaining weighted average useful lives of the intangible assets.
The most significant assumptions used in our cash flow model include timing on awards of future contracts, commercial
pricing terms, utilization, discount rate, and the terminal value. These assumptions are classified as Level 3 inputs by ASC Topic
820 Fair Value Measurement and Disclosures as they are based upon unobservable inputs and primarily rely on management
assumptions and forecasts. Although we believe the assumptions used in our analysis and the probability-weighted average of
expected future cash flows are reasonable and appropriate, different assumptions and estimates could materially impact the
analysis and our resulting conclusion.
Results of Operations for the Fiscal Years Ended September 30, 2020 and 2019
Consolidated Results of Operations
All per share amounts included in the Results of Operations discussion are stated on a diluted basis. Except as
specifically discussed, the following results of operations pertain only to our continuing operations.
Net Loss We reported a loss from continuing operations of $496.4 million ($4.62 loss per diluted share) from operating
revenues of $1.8 billion for the fiscal year ended September 30, 2020 compared to a loss from continuing operations of $32.5
million ($0.33 loss per diluted share) from operating revenues of $2.8 billion for the fiscal year ended September 30, 2019. Included
in the net loss for the fiscal year ended September 30, 2020 is income of $1.9 million ($0.02 impact per diluted share) from
discontinued operations. Including discontinued operations, we recorded a net loss of $494.5 million ($4.60 loss per diluted share)
for the fiscal year ended September 30, 2020 compared to a net loss of $33.7 million ($0.34 loss per diluted share) for the fiscal
year ended September 30, 2019.
Revenue Consolidated operating revenues were $1.8 billion in fiscal year 2020 and $2.8 billion in fiscal year 2019,
including early termination revenue of $73.4 million and $11.3 million in each respective fiscal year. Excluding early termination
revenue, operating revenue decreased $1.1 billion in fiscal year 2020 compared to fiscal year 2019. The decrease in fiscal year
2020 from fiscal year 2019 was driven by lower activity and pricing as a result of the collapse in oil prices that occurred in March
2020, which drove our customers to quickly reduce rig activity beginning in the second half of March 2020 and continuing
throughout the remainder of fiscal year 2020.
Direct Operating Expenses, Excluding Depreciation and Amortization Direct operating expenses in fiscal year 2020
were $1.2 billion, compared with $1.8 billion in fiscal year 2019. The decrease in fiscal year 2020 from fiscal year 2019 was
primarily attributable to the previously-mentioned lower activity levels.
Depreciation and Amortization Depreciation and amortization expense was $481.9 million in fiscal year 2020 and
$562.8 million in fiscal year 2019. The decrease in depreciation and amortization during fiscal year ended September 30, 2020
compared to fiscal year ended September 30, 2019 was primarily attributable to the lower carrying cost of our impaired assets.
Depreciation and amortization includes amortization of intangible assets of $7.2 million and $5.8 million in fiscal years 2020 and
2019, respectively, and abandonments of equipment of $4.0 million and $11.4 million in fiscal years 2020 and 2019, respectively.
38
Research and Development For the fiscal years ended September 30, 2020 and 2019, we incurred $21.6 million and
$27.5 million, respectively, of research and development expenses. The decrease in expense was primarily due to reduced
spending related to the development of rotary steerable system tools given the December 2019 sale of TerraVici.
Selling, General and Administrative Expense Selling, general and administrative expenses decreased to $167.5 million
in the fiscal year ended September 30, 2020 compared to $194.4 million in the fiscal year ended September 30, 2019. The $26.9
million decrease in fiscal year 2020 compared to fiscal year 2019 is primarily due to lower accrued variable compensation expense
and a reduction of staffing levels that was implemented in third quarter of fiscal year 2020.
Asset Impairment During the fiscal year ended September 30, 2020, we impaired several assets, including inventory,
property, plant and equipment, and goodwill, which resulted in a non-cash impairment charge of $563.2 million ($437.5 million, net
of tax, or $5.21 per diluted share), which is included in Asset Impairment Charge on the Consolidated Statement of Operations.
Comparatively, during the fiscal year ended September 30, 2019, mainly driven by the downsizing of our fleet of FlexRig® 4 drilling
rigs, we wrote down excess capital spares and drilling support equipment, which had an aggregate net book value of $235.3
million, and as a result, an asset impairment charge of $224.3 million ($195.0 million, net of tax, or $1.78 per diluted share) was
recorded in our Consolidated Statements of Operations.
Restructuring Charges Beginning in the third quarter of fiscal year 2020, we implemented cost controls and began
evaluating further measures to respond to the combination of weakened commodity prices, uncertainties related to the COVID-19
pandemic, and the resulting market volatility. We commenced a number of restructuring efforts as a result of this evaluation, which
included, among other things, a reduction in our capital allocation plans, changes to our organizational structure, and a reduction of
staffing levels. For the fiscal year ended September 30, 2020, we incurred $16.0 million in restructuring charges.
Interest and Dividend Income Interest and dividend income was $7.3 million and $9.5 million in fiscal years 2020 and
2019, respectively. The decrease in interest and dividend income in fiscal year 2020 was primarily due to lower interest rates.
Interest Expense Interest expense totaled $24.5 million in fiscal year 2020 and $25.2 million in fiscal year 2019. Interest
expense is primarily attributable to fixed rate debt outstanding.
Income Taxes We had an income tax benefit of $140.1 million in fiscal year 2020 compared to an income tax benefit of
$18.7 million in fiscal year 2019. The effective income tax rate was 22.0 percent in fiscal year 2020 compared to 36.5 percent in
fiscal year 2019. The effective rates differ from the U.S. federal statutory rate (21.0 percent for fiscal years 2020 and 2019) due to
non-deductible permanent items, state and foreign income taxes, and adjustments to the deferred state income tax rate.
Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of
our assets and liabilities. Recoverability of any tax assets are evaluated, and necessary allowances are provided. The carrying
values of the net deferred tax assets are based on management’s judgments using certain estimates and assumptions that we will
be able to generate sufficient future taxable income in certain tax jurisdictions to realize the benefits of such assets. If these
estimates and related assumptions change in the future, additional valuation allowances may be recorded against the deferred tax
assets resulting in additional income tax expense in the future. See Note 9—Income Taxes to our Consolidated Financial
Statements for additional income tax disclosures.
Discontinued Operations Expenses incurred within the country of Venezuela are reported as discontinued operations.
Our wholly-owned subsidiaries, HPIDC and Helmerich & Payne de Venezuela, C.A., filed a lawsuit in the United States District
Court for the District of Columbia on September 23, 2011 against the Bolivarian Republic of Venezuela, Petroleos de Venezuela,
S.A. and PDVSA Petroleo, S.A. We are seeking damages for the taking of our Venezuelan drilling business in violation of
international law and for breach of contract. While there exists the possibility of realizing a recovery, we are currently unable to
determine the timing or amounts we may receive, if any, or the likelihood of recovery. In March 2016, the Venezuelan government
implemented the previously announced plans for a new foreign currency exchange system. Activity within discontinued operations
for both fiscal years 2020 and 2019 is primarily a result of the impact of exchange rate fluctuations due to the remeasurement of
uncertain tax liabilities.
39
North America Solutions
The following table presents certain information with respect to our North America Solutions reportable segment:
(in thousands, except operating statistics)
Operating revenues
Direct operating expenses
Depreciation
Research and development
Selling, general and administrative expense
Asset impairment charge
Restructuring charges
Segment operating income (loss)
Operating Statistics (2):
Revenue days
Average rig revenue per day (3)
Average rig expense per day (3)
Average rig margin per day (3)
Number of rigs at the end of period
Rig utilization
2020
2019 (1)
% Change
$
1,474,380
$
2,426,191
(39.2)%
942,277
438,039
20,699
53,714
406,548
7,005
1,532,576
504,466
25,164
66,179
216,908
—
(38.5)
(13.2)
(17.7)
(18.8)
87.4
—
$
(393,902)
$
80,898
(586.9)
$
$
49,003
26,589
15,730
10,859
$
$
262
47%
81,805
26,167
15,243
10,924
299
67%
(40.1)
1.6
3.2
(0.6)
(12.4)
(29.9)
(1) Operations previously reported within the H&P Technologies reportable segment are now managed and presented within the North America
Solutions reportable segment.
(2) These operating metrics allow investors to analyze the various components of segment financial results in terms of volume, revenue per unit,
cost per unit and margin per unit. Management uses these metrics to analyze historical segment financial results and as the key inputs for
forecasting and budgeting segment financial results.
(3) Operating statistics for per day revenue, expense and margin do not include reimbursements of “out of pocket” expenses of $171.5 million
and $285.6 million for fiscal years 2020 and 2019, respectively.
Operating Income (Loss) The North America Solutions segment had an operating loss of $393.9 million for the fiscal
year ended September 30, 2020 compared to operating income of $80.9 million for the fiscal year ended September 30, 2019. The
decrease was primarily driven by increased asset impairment charges and reduced rig activity in fiscal year 2020. Revenues were
$1.5 billion and $2.4 billion in fiscal year 2020 and 2019, respectively. Included in revenues for fiscal year 2020 is early termination
revenue of $68.8 million compared to $6.4 million during fiscal year 2019. Fixed term contracts customarily provide for termination
at the election of the customer, with an early termination payment to be paid to us if a contract is terminated prior to the expiration
of the fixed term (except in limited circumstances including sustained unacceptable performance by us).
Revenue Excluding early termination per day revenue of $1,404 and $78 for fiscal years 2020 and 2019, respectively,
average rig revenue per day decreased by $904 to $25,185 primarily due to a portion of our contracted rigs operating in an idle-
but-contracted state during the third and fourth quarters of fiscal year 2020, with lower average daily revenue and average daily
expense and lower pricing for rigs working in the spot market. Compared to fiscal year 2019, our revenue days declined by 40.1
percent. This decline was initially driven by the collapse in oil prices that occurred in March of 2020, which led our customers to
quickly reduce rig activity beginning in the second half of March 2020 and continuing throughout fiscal year 2020. Our level of
contracted rigs hit a low of 62 rigs in August of 2020 before modestly recovery to 69 rigs at fiscal year end.
Direct Operating Expenses Average rig expense per day increased $487 to $15,730 during the fiscal year ended
September 30, 2020 compared to the fiscal year ended September 30, 2019. The increase is due to higher self-insurance
expenses and idle rig expenses, partially offset by the previously mentioned effect of idle-but-contracted rigs.
Depreciation Depreciation expense decreased to $438.0 million during the fiscal year ended September 30, 2020
compared to the fiscal year ended September 30, 2019. The decrease in depreciation during fiscal year ended September 30,
2020 compared to fiscal year ended September 30, 2019 was primarily attributable to the lower carrying cost of our impaired
assets. Depreciation includes charges for abandoned equipment of $2.5 million and $10.6 million for the fiscal years ended
September 30, 2020 and 2019, respectively. In the fiscal year ended September 30, 2020, depreciation expense included $1.5
million of accelerated depreciation for components on rigs that are scheduled for conversion in fiscal year 2021 as compared to
$4.7 million of accelerated depreciation for fiscal year ended September 30, 2019.
40
Asset Impairment Charge During the fiscal year ended September 30, 2020, we impaired our Domestic non-super-spec
asset group, in addition to in-progress drilling equipment and rotational inventory. This resulted in an aggregate non-cash
impairment charge of $368.2 million ($284.1 million, net of tax, or $3.41 per diluted share) for the fiscal year ended September 30,
2020. During the fiscal year ended September 30, 2020, we also recorded a goodwill impairment loss of $38.3 million ($29.6
million, net of tax, or $0.35 per diluted share). Comparatively, during the fiscal year ended September 30, 2019, we recorded an
asset impairment charge of $216.9 million ($188.6 million, net of tax, or $1.72 per diluted share), mainly driven by the downsizing
of our fleet of FlexRig® 4 drilling rigs. These non-cash impairment charges are included in Asset Impairment Charge on the
Consolidated Statements of Operations for the fiscal years ended September 30, 2020 and 2019.
Restructuring Charges For the fiscal year ended September 30, 2020, we incurred $7.0 million in restructuring charges
primarily comprised of one-time severance benefits to employees as a result of headcount reductions that occurred during the third
fiscal quarter of 2020.
Utilization Rig utilization decreased to 47 percent for the fiscal year ended September 30, 2020 compared to 67 percent
during the fiscal year ended September 30, 2019. In addition to the previously mentioned reduction in revenue days, we
decommissioned two rigs and 35 rigs from our legacy Domestic Conventional asset group and FlexRig® 3 asset group,
respectively effective as of April 30, 2020. At September 30, 2020, 69 out of 262 existing rigs in the North America Solutions
segment were contracted. Of the 69 contracted rigs, 54 were under fixed-term contracts and 15 were working in the spot market.
Offshore Gulf of Mexico
The following table presents certain information with respect to our Offshore Gulf of Mexico reportable segment:
(in thousands, except operating statistics)
Operating revenues
Direct operating expenses
Depreciation
Selling, general and administrative expense
Restructuring charges
(1):
Segment operating income
Operating Statistics
Revenue days
Average rig revenue per day (2)
Average rig expense per day (2)
Average rig margin per day (2)
Number of rigs at the end of period
Rig utilization
$
$
$
$
2020
143,149
119,371
11,681
3,365
1,254
7,478
1,922
45,145
37,410
7,735
8
66%
$
$
$
$
2019
147,635
114,306
10,010
3,725
—
19,594
2,163
37,478
28,663
8,815
8
74%
% Change
(3.0)%
4.4
16.7
(9.7)
—
(61.8)
(11.1)
20.5
30.5
(12.3)
—
(10.8)
(1) These operating metrics allow investors to analyze the various components of segment financial results in terms of volume, revenue per unit,
cost per unit and margin per unit. Management uses these metrics to analyze historical segment financial results and as the key inputs for
forecasting and budgeting segment financial results.
(2) Operating statistics for per day revenue, expense and margin do not include reimbursements of “out of pocket” expenses of $30.4 million and
$26.4 million for fiscal years 2020 and 2019, respectively. The operating statistics only include rigs that we own and exclude offshore platform
management and contract labor service revenues of $26.0 million and $40.1 million, offshore platform management and contract labor service
expenses of $17.0 million and $25.9 million, and currency revaluation expense of $30.1 thousand and $1.0 thousand for fiscal years 2020 and
2019, respectively.
Operating Income During the fiscal year ended September 30, 2020, the Offshore Gulf of Mexico segment had operating
income of $7.5 million compared to operating income of $19.6 million for the fiscal year ended September 30, 2019. This decrease
is primarily attributable to lower contribution from two rigs that demobilized back to shore during the first quarter of fiscal year 2020.
One of the two rigs began mobilizing to a new platform during March 2020 and commenced drilling operations during the third
quarter of fiscal year 2020. Additionally, we incurred $4.2 million of bad debt expense during fiscal year 2020.
Revenue Average rig revenue per day increased 20.5 percent to $45,145 in fiscal year 2020 compared to fiscal year
2019. This was primarily due to one of our customers shifting its activity from a customer-owned rig managed by H&P to a rig
owned by H&P.
Direct Operating Expenses Average rig expense per day increased to $37,410 during fiscal year 2020 from $28,663
during fiscal year 2019, primarily due to factors mentioned above.
Restructuring Charges For the fiscal year ended September 30, 2020, we incurred $1.3 million in restructuring charges
primarily comprised of one-time severance benefits to employees as a result of headcount reductions that occurred during the third
fiscal quarter of 2020.
Utilization As of September 30, 2020, five of our eight available platform rigs were under contract, compared to six of our
eight available platform rigs as of September 30, 2019.
41
International Solutions
The following table presents certain information with respect to our International Solutions reportable segment:
(in thousands, except operating statistics)
Operating revenues
Direct operating expenses
Depreciation
Selling, general and administrative expense
Asset impairment charge
Restructuring charges
Segment operating income (loss)
Operating Statistics (1):
Revenue days
Average rig revenue per day (2)
Average rig expense per day (2)
Average rig margin per day (2)
Number of rigs at the end of period
Rig utilization
2020
2019
% Change
$
144,185
$
211,731
(31.9)%
124,791
17,531
4,565
156,686
2,980
$
(162,368)
$
$
$
4,605
29,116
23,066
6,050
$
$
32
40%
157,856
35,466
5,624
7,419
—
5,366
6,426
31,269
21,626
9,643
31
55%
(20.9)
(50.6)
(18.8)
2,012.0
—
(3,125.9)
(28.3)
(6.9)
6.7
(37.3)
3.2
(27.3)
(1) These operating metrics allow investors to analyze the various components of segment financial results in terms of volume, revenue per unit,
cost per unit and margin per unit. Management uses these metrics to analyze historical segment financial results and as the key inputs for
forecasting and budgeting segment financial results.
(2) Operating statistics for per day revenue, expense and margin do not include reimbursements of “out of pocket” expenses of $10.1 million and
$10.8 million for fiscal years 2020 and 2019, respectively. Also excluded are the effects of currency revaluation expense of $8.5 million and
$8.1 million for fiscal years 2020 and 2019, respectively.
Operating Income (Loss) The International Solutions segment had an operating loss of $162.4 million for fiscal year
2020 compared to operating income of $5.4 million for fiscal year 2019. The decrease was primarily driven by asset impairment
charges during fiscal year 2020.
Revenue We experienced a 28.3 percent decrease in revenue days when comparing fiscal year 2020 to fiscal year 2019.
The average number of active rigs was 12.6 during fiscal year 2020 compared to 17.6 during fiscal year 2019. Average rig revenue
per day decreased by 6.9 percent primarily due to a shifting rig mix.
Direct Operating Expenses Average rig expense per day increased to $23,066 during fiscal year 2020 as compared to
$21,626 during fiscal year 2019. The increase was driven by lower activity coupled with fixed minimum levels of country overhead.
Depreciation Depreciation expense decreased to $17.5 million during the fiscal year ended September 30, 2020
compared to the fiscal year ended September 30, 2019. The decrease in depreciation during fiscal year ended September 30,
2020 compared to fiscal year ended September 30, 2019 was primarily attributable to the lower carrying cost of our impaired
assets.
Asset Impairment Charge During the fiscal year ended September 30, 2020, we impaired our International
Conventional, FlexRig® 3, and FlexRig® 4 asset groups, in addition to rotational inventory. This resulted in an aggregate non-cash
impairment charge of $156.7 million ($123.8 million, net of tax, or $1.45 per diluted share), which is included in Asset Impairment
Charge on the Consolidated Statements of Operations for the fiscal year ended September 30, 2020. Comparatively, during the
fiscal year ended September 30, 2019, mainly driven by the downsizing of our fleet of FlexRig® 4 drilling rigs, we wrote down
capital spares and drilling support equipment and, as a result, we recorded an asset impairment charge of $7.4 million, in our
Consolidated Statements of Operations for the fiscal year ended September 30, 2019.
Restructuring Charges For the fiscal year ended September 30, 2020, we incurred $3.0 million in restructuring charges
primarily comprised of one-time severance benefits to employees as a result of headcount reductions that occurred during the third
fiscal quarter of 2020.
Utilization Our utilization decreased during fiscal year 2020 compared to fiscal year 2019. At September 30, 2020, five
out of 32 existing rigs in the International Solutions segment were contracted. Of the five contracted rigs, two were under fixed-term
contracts and three were working in the spot market.
42
Other Operations
Results of our other operations, excluding corporate selling, general and administrative costs, corporate restructuring, and
corporate depreciation, are as follows:
(in thousands)
Operating revenues
Direct operating expenses
Depreciation and amortization
Research and development
Selling, general and administrative expense
Restructuring charges
Operating income
2020
2019
% Change
$
49,114
$
41,027
1,241
946
1,237
260
$
4,403
$
12,933
5,382
1,523
2,303
350
—
3,375
279.8%
662.3
(18.5)
(58.9)
253.4
—
30.5
Operating Income On October 1, 2019, we elected to utilize the Captive to insure the deductibles for our workers’
compensation, general liability and automobile liability claims programs. Direct operating costs include accruals for estimated
losses of approximately $16.4 million allocated to the Captive during the fiscal year ended September 30, 2020. Intercompany
premium revenues recorded by the Captive during the fiscal year ended September 30, 2020 amounted to $36.9 million, which
were eliminated upon consolidation.
Results of Operations for the Fiscal Years Ended September 30, 2019 and 2018
A discussion of our results of operations for the fiscal year ended September 30, 2019 compared to the fiscal year ended
September 30, 2018 is included in Part II, Item 7— "Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, filed with the SEC on November 15,
2019, and is incorporated by reference into this Form 10-K.
Liquidity and Capital Resources
Sources of Liquidity
Our sources of available liquidity include existing cash balances on hand, cash flows from operations, and availability
under the 2018 Credit Facility. Our liquidity requirements include meeting ongoing working capital needs, funding our capital
expenditure projects, paying dividends declared, and repaying our outstanding indebtedness. Historically, we have financed
operations primarily through internally generated cash flows. During periods when internally generated cash flows are not sufficient
to meet liquidity needs, we may utilize cash on hand, borrow from available credit sources, access capital markets or sell our
marketable securities. Likewise, if we are generating excess cash flows, we may invest in highly rated short term money market
and debt securities. These investments can include U.S. Treasury securities, U.S. Agency issued debt securities, corporate bonds
and commercial paper, certificates of deposit and money market funds. Our marketable securities are recorded at fair value.
We may seek to access the debt and equity capital markets from time to time to raise additional capital, increase liquidity
as necessary, fund our additional purchases, exchange or redeem senior notes, or repay any amounts under the 2018 Credit
Facility. Our ability to access the debt and equity capital markets depends on a number of factors, including our credit rating,
market and industry conditions and market perceptions of our industry, general economic conditions, our revenue backlog and our
capital expenditure commitments.
The effects of the COVID-19 outbreak and the oil price collapse in 2020 have had significant adverse consequences for
general economic, financial and business conditions, as well as for our business and financial position and the business and
financial position of our customers, suppliers and vendors and may, among other things, impact our ability to generate cash flows
from operations, access the capital markets on acceptable terms or at all and affect our future need or ability to borrow under the
2018 Credit Facility. In addition to our potential sources of funding, the effects of such global events may impact our liquidity or
need to alter our allocation or sources of capital, implement additional cost reduction measures and further change our financial
strategy. Although the COVID-19 outbreak and the oil price collapse could have a broad range of effects on our sources and uses
of liquidity, the ultimate effect thereon, if any, will depend on future developments, which cannot be predicted at this time.
Cash Flows
Our cash flows fluctuate depending on a number of factors, including, among others, the number of our drilling rigs under
contract, the dayrates we receive under those contracts, the efficiency with which we operate our drilling units, the timing of
collections on outstanding accounts receivable, the timing of payments to our vendors for operating costs, and capital
expenditures, all of which was impacted by the COVID-19 outbreak and the oil price collapse in 2020. As our revenues increase,
net working capital is typically a use of capital, while conversely, as our revenues decrease, net working capital is typically a source
of capital. To date, general inflationary trends have not had a material effect on our operating margins.
43
As of September 30, 2020, we had $487.9 million of cash and cash equivalents on hand and $89.3 million of short-term
investments. Our cash flows for the fiscal years ended September 30, 2020, 2019 and 2018 are presented below:
(in thousands)
Net cash provided (used) by:
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents and restricted cash
Operating Activities
Year Ended September 30,
2020
2019
2018
$
$
538,881
$
855,751
$
557,852
(87,885)
(297,220)
(422,636)
(376,329)
(472,362)
(319,814)
153,776
$
56,786
$
(234,324)
For the purpose of understanding the impact on our Cash Flow from Operations, net working capital is calculated as
current assets, excluding cash and short-term investments, less current liabilities, excluding dividends payable, short–term debt
and the current portion of long–term debt. Net working capital was $194.2 million as of September 30, 2020 compared to $381.7
million as of September 30, 2019. Included in accounts receivable as of September 30, 2020 were $5.2 million of early termination
fees and $42.4 million of income tax receivables. Cash flows provided by operating activities was $538.9 million in fiscal year 2020
compared to $855.8 million fiscal year 2019. The decrease in cash provided by operating activities is primarily driven by lower
operating activity and a favorable variance in the use of working capital. Cash flows provided by operating activities in fiscal year
2018 was $557.9 million. The $297.9 million increase compared to fiscal year 2019 was primarily due to a decrease in working
capital.
Investing Activities
Capital Expenditures Our investing activities are primarily related to capital expenditures for our fleet. Our capital
expenditures were $140.8 million, $458.4 million and $466.6 million in fiscal years 2020, 2019 and 2018, respectively. The year-
over-year decrease in capital expenditures is driven by a decrease in super-spec upgrades and lower maintenance capital
expenditure levels as a result of lower activity. Our fiscal year 2021 capital spending is currently estimated to be between $85 and
$105 million. This estimate includes normal capital maintenance requirements, information technology spending and a limited
number of upgrades primarily related to augmenting the capabilities of our existing rig fleet.
Acquisition of Business We paid $16.2 million and $47.9 million, net of cash acquired, during the 2019 and 2018 fiscal
year, respectively, for the acquisition of drilling technology companies.
Sale of Assets Our proceeds from asset sales totaled $78.4 million, $50.8 million and $44.4 million in fiscal year 2020,
2019 and 2018, respectively. The current year increase is primarily driven by the sale of a portion of our real estate investment
portfolio. During the fiscal year ended September 30, 2020, we closed on the sale of a portion of our real estate investment
portfolio, including six industrial sites, for total consideration, net of selling related expenses, of $40.7 million.
Sale of Subsidiary In December 2019, we closed on the sale of a wholly-owned subsidiary of HPIDC, TerraVici. As a
result of the sale, 100% of TerraVici's outstanding capital stock was transferred to the purchaser in exchange for approximately
$15.1 million, resulting in a total gain on the sale of TerraVici of approximately $15.0 million.
Marketable Securities In September 2019, we sold our remaining 1.6 million shares in Valaris, previously known as
Ensco Rowan plc, for total proceeds of approximately $12.0 million. As of September 30, 2020, our marketable securities consist
primarily of common shares in Schlumberger, Ltd. that, at the close of fiscal year 2020, had a fair value of $7.3 million. The value of
our securities are subject to fluctuation in the market and may vary considerably over time. Our marketable securities are recorded
at fair value on our balance sheet.
Our equity investment in Schlumberger Ltd. held as of September 30, 2020 is presented below:
(in thousands, except for share amounts)
Number of Shares
Cost Basis
Market Value
Schlumberger, Ltd.
Financing Activities
467,500
3,713
7,274
Repurchase of Shares During fiscal year 2020, we repurchased 1.5 million shares for $28.5 million compared to one
million shares for $42.8 million during fiscal year 2019.
44
Dividends We paid dividends of $2.38, $2.84, and $2.82 per share during fiscal years 2020, 2019 and 2018, respectively.
Total dividends paid were $260.3 million, $313.4 million and $308.4 million in fiscal years 2020, 2019 and 2018, respectively. On
June 3, 2020, we reduced our quarterly cash dividend to $0.25 per share and on September 9, 2020, declared a cash dividend in
that amount for shareholders of record on November 13, 2020, payable on December 1, 2020. The declaration and amount of
future dividends is at the discretion of the Board and subject to our financial condition, results of operations, cash flows, and other
factors the Board deems relevant.
Credit Facilities
On November 13, 2018, we entered into a credit agreement by and among the Company, as borrower, Wells Fargo Bank,
National Association, as administrative agent, and the lenders party thereto, which was amended on November 13, 2019, providing
for an unsecured revolving credit facility (the “2018 Credit Facility”) that is set to mature on November 13, 2024. The 2018 Credit
Facility has $750.0 million in aggregate availability with a maximum of $75.0 million available for use as letters of credit. The 2018
Credit Facility also permits aggregate commitments under the facility to be increased by $300.0 million, subject to the satisfaction
of certain conditions and the procurement of additional commitments from new or existing lenders. The borrowings under the 2018
Credit Facility accrue interest at a spread over either the London Interbank Offered Rate ("LIBOR") or the Base Rate. We also pay
a commitment fee on the unused balance of the facility. Borrowing spreads as well as commitment fees are determined based on
the debt rating for senior unsecured debt of the Company, as determined by Moody’s and Standard & Poor's. The spread over
LIBOR ranges from 0.875 percent to 1.500 percent per annum and commitment fees range from 0.075 percent to 0.200 percent
per annum. Based on the unsecured debt rating of the Company on September 30, 2020, the spread over LIBOR would have been
1.125 percent had borrowings been outstanding under the 2018 Credit Facility and commitment fees are 0.125 percent. There is a
financial covenant in the 2018 Credit Facility that requires us to maintain a total debt to total capitalization ratio of less than or equal
to 50 percent. The 2018 Credit Facility contains additional terms, conditions, restrictions and covenants that we believe are usual
and customary in unsecured debt arrangements for companies of similar size and credit quality, including a limitation that priority
debt (as defined in the credit agreement) may not exceed 17.5 percent of the net worth of the Company. At September 30, 2020,
we were in compliance with all debt covenants, and we anticipate that we will continue to be in compliance during the next quarter
of fiscal year 2021. As of September 30, 2020, there were no borrowings or letters of credit outstanding, leaving $750.0 million
available to borrow under the 2018 Credit Facility.
As of September 30, 2020, we had two separate outstanding letters of credit with banks, in the amounts of $24.8 million
and $2.1 million, respectively.
As of September 30, 2020, we also had a $20.0 million unsecured standalone line of credit facility, for the purpose of
obtaining the issuance of international letters of credit, bank guarantees, and performance bonds. Of the $20.0 million, $4.3 million
of financial guarantees were outstanding as of September 30, 2020. Subsequent to September 30, 2020, $2.6 million in financial
guarantees have expired.
The applicable agreements for all unsecured debt contain additional terms, conditions and restrictions that we believe are
usual and customary in unsecured debt arrangements for companies that are similar in size and credit quality.
Senior Notes
Exchange Offer, Consent Solicitation and Redemption
On December 20, 2018, we settled an offer to exchange (the “Exchange Offer”) any and all outstanding 4.65 percent
unsecured senior notes due 2025 of HPIDC (the "HPIDC 2025 Notes") for (i) up to $500.0 million aggregate principal amount of
new 4.65 percent unsecured senior notes due 2025 of the Company (the “Company 2025 Notes”), with registration rights, and (ii)
cash, pursuant to which we issued approximately $487.1 million in aggregate principal amount of Company 2025 Notes. Interest on
the Company 2025 Notes is payable semi-annually on March 15 and September 15 of each year, commencing March 15, 2019.
The debt issuance costs are being amortized straight-line over the stated life of the obligation, which approximates the effective
interest method.
Following the consummation of the Exchange Offer, HPIDC had outstanding approximately $12.9 million in aggregate
principal amount of HPIDC 2025 Notes. On December 20, 2018, HPIDC, the Company and Wells Fargo Bank, National
Association, as trustee, entered into a supplemental indenture to the indenture governing the HPIDC 2025 Notes to adopt certain
proposed amendments pursuant to a consent solicitation conducted concurrently with the Exchange Offer.
On September 27, 2019, we redeemed the remaining approximately $12.9 million in aggregate principal amount of HPIDC
2025 Notes for approximately $14.6 million, including accrued interest and a prepayment premium. Simultaneously with the
redemption of the HPIDC 2025 Notes, HPIDC was released as a guarantor under the Company 2025 Notes and the 2018 Credit
Facility. As a result of such release, H&P is the only obligor under the Company 2025 Notes and the 2018 Credit Facility.
45
Repurchase of Common Shares
We have an evergreen authorization from the Board for the purchase of up to four million common shares in any calendar
year. During the fiscal year ended September 30, 2020, we purchased 1.5 million common shares at an aggregate cost of $28.5
million, which are held as treasury shares. We purchased 1.0 million common shares at an aggregate cost of $42.8 million, which
are held as treasury shares, during the fiscal year ended September 30, 2019. We had no purchases of common shares during the
fiscal year ended September 30, 2018.
Future Cash Requirements
Our operating cash requirements, scheduled debt repayments, interest payments, any declared dividends, and estimated
capital expenditures for fiscal year 2021 are expected to be funded through current cash and cash to be provided from operating
activities. However, there can be no assurance that we will continue to generate cash flows at current levels. On June 3, 2020, we
reduced our quarterly cash dividend to $0.25 per share. If needed, we may decide to obtain additional funding from our $750.0
million 2018 Credit Facility. Our indebtedness under our unsecured senior notes totaled $487.1 million at September 30, 2020 and
matures on March 19, 2025.
As of September 30, 2020, we had a $650.7 million deferred tax liability on our Consolidated Balance Sheets, primarily
related to temporary differences between the financial and income tax basis of property, plant and equipment. Our increased levels
of capital expenditures over the last several years have been subject to accelerated depreciation methods (including bonus
depreciation) available under the Internal Revenue Code of 1986, as amended, enabling us to defer a portion of cash tax payments
to future years. Future levels of capital expenditures and results of operations will determine the timing and amount of future cash
tax payments. We expect to be able to meet any such obligations utilizing cash and investments on hand, as well as cash
generated from ongoing operations.
The long term debt to total capitalization ratio was 12.8 percent at September 30, 2020 compared to 10.8 percent at
September 30, 2019. For additional information regarding debt agreements, refer to Note 8—Debt to our Consolidated Financial
Statements.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements as that term is defined in Item 303(a)(4)(ii) of Regulation S-K. For information
regarding our drilling contract backlog, see Item 1— “Business — Contract Backlog”.
Material Commitments
Our contractual obligations as of September 30, 2020 are summarized in the table below:
(in thousands)
Long-term debt
Interest (1)
Operating leases (2)
Purchase obligations (3)
Total
2021
2022
2023
2024
2025
Thereafter
Payments due by year
$ 487,148
$
— $
— $
— $
— $ 487,148
$
101,934
38,166
2,692
22,652
11,680
2,692
22,652
8,133
—
22,652
7,466
—
22,652
7,018
—
11,326
3,231
—
—
—
638
—
638
Total contractual obligations
$ 629,940
$
37,024
$
30,785
$
30,118
$
29,670
$ 501,705
$
(1)
Interest on fixed rate debt was estimated based on principal maturities. See Note 8—Debt to our Consolidated Financial Statements.
(2) See Note 6—Leases to our Consolidated Financial Statements.
(3) See Note 17—Commitments and Contingencies to our Consolidated Financial Statements.
The above table does not include obligations for our pension plan or amounts recorded for uncertain tax positions. In
fiscal years 2020 and 2019, we did not make any contributions to the pension plan. Contributions may be made in fiscal year 2021
to fund unexpected distributions in lieu of liquidating pension assets. Future contributions beyond fiscal year 2021 are difficult to
estimate due to multiple variables involved.
At September 30, 2020, we had $16.3 million recorded for uncertain tax positions and related interest and penalties.
However, the timing of such payments to the respective taxing authorities cannot be estimated at this time. Income taxes are more
fully described in Note 9—Income Taxes to our Consolidated Financial Statements.
46
Critical Accounting Policies and Estimates
Accounting policies that we consider significant are summarized in Note 2—Summary of Significant Accounting Policies,
Risks and Uncertainties to our Consolidated Financial Statements included in Part II, Item 8— "Financial Statements and
Supplementary Data" of this Form 10-K. The preparation of our financial statements in conformity with U.S. GAAP requires
management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. Estimates are based on
historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. These estimates and assumptions are evaluated on an on going basis. Actual results may differ from these
estimates under different assumptions or conditions. The following is a discussion of the critical accounting policies and estimates
used in our financial statements.
Property, Plant and Equipment
Property, plant and equipment, including renewals and betterments, are capitalized at cost, while maintenance and repairs
are expensed as incurred. The interest expense applicable to the construction of qualifying assets is capitalized as a component of
the cost of such assets. We account for the depreciation of property, plant and equipment using the straight line method over the
estimated useful lives of the assets considering the estimated salvage value of the property, plant and equipment. Both the
estimated useful lives and salvage values require the use of management estimates. Certain events, such as unforeseen changes
in operations, technology or market conditions, could materially affect our estimates and assumptions related to depreciation or
result in abandonments. For the fiscal years presented in this Form 10-K, no significant changes were made to the determinations
of useful lives or salvage values. Upon retirement or other disposal of fixed assets, the cost and related accumulated depreciation
are removed from the respective accounts and any gains or losses are recorded in the results of operations.
Impairment of Long lived Assets, Goodwill and Other Intangible Assets
Management assesses the potential impairment of our long lived assets and finite-lived intangibles whenever events or
changes in circumstances indicate that the carrying value may not be recoverable. Changes that could prompt such an
assessment may include equipment obsolescence, changes in the market demand, periods of relatively low rig utilization, declining
revenue per day, declining cash margin per day, completion of specific contracts, change in technology and/or overall changes in
general market conditions. If a review of the long lived assets and finite-lived intangibles indicates that the carrying value of certain
of these assets or asset groups is more than the estimated undiscounted future cash flows, an impairment charge is made, as
required, to adjust the carrying value to the estimated fair value. Cash flows are estimated by management considering factors
such as prospective market demand, recent changes in rig technology and its effect on each rig’s marketability, any cash
investment required to make a rig marketable, suitability of rig size and makeup to existing platforms, and competitive dynamics
including utilization. The fair value of drilling rigs is determined based upon either an income approach using estimated discounted
future cash flows, a market approach considering factors such as recent market sales of rigs of other companies and our own sales
of rigs, appraisals and other factors, a cost approach utilizing reproduction costs new as adjusted for the asset age and condition,
and/or a combination of multiple approaches. The use of different assumptions could increase or decrease the estimated fair value
of assets and could therefore affect any impairment measurement.
We review goodwill for impairment annually in the fourth fiscal quarter or more frequently if events or changes in
circumstances indicate it is more likely than not that the carrying amount of the reporting unit holding such goodwill may exceed its
fair value. We initially assess goodwill for impairment based on qualitative factors to determine whether the existence of events or
circumstances leads to a determination that it is more likely than not that the fair value of one of our reporting units is greater than
its carrying amount.
If further testing is necessary or a quantitative test is elected, we quantitatively compare the fair value of a reporting unit
with its carrying amount, including goodwill. If the carrying amount exceeds the fair value, an impairment charge will be recognized
in an amount equal to the excess; however, the loss recognized would not exceed the total amount of goodwill allocated to that
reporting unit.
Self Insurance Accruals
We self insure a significant portion of expected losses relating to workers’ compensation, general liability, employer’s
liability and automobile liability. Generally, deductibles range from $1 million to $10 million per occurrence depending on the
coverage and whether a claim occurs outside or inside of the United States. Insurance is purchased over deductibles to reduce our
exposure to catastrophic events but there can be no assurance that such coverage will apply or be adequate in all circumstances.
Estimates are recorded for incurred outstanding liabilities for workers’ compensation and other casualty claims. Retained losses
are estimated and accrued based upon our estimates of the aggregate liability for claims incurred. Estimates for liabilities and
retained losses are based on adjusters’ estimates, our historical loss experience and statistical methods commonly used within the
insurance industry that we believe are reliable. We also engage a third-party actuary to perform a periodic review of our domestic
casualty losses. Nonetheless, insurance estimates include certain assumptions and management judgments regarding the
frequency and severity of claims, claim development and settlement practices. Unanticipated changes in these factors may
produce materially different amounts of expense that would be reported under these programs.
47
Our wholly owned captive insurance company finances a significant portion of the physical damage risk on
company owned drilling rigs as well as international casualty deductibles. An actuary reviews our captive losses on an annual
basis.
We insure working land rigs and related equipment at values that approximate the current replacement costs on the
inception date of the policies. However, we self-insure large deductibles under these policies. We also carry insurance with varying
deductibles and coverage limits with respect to stacked rigs, offshore platform rigs, and “named wind storm” risk in the Gulf of
Mexico. We self insure a number of other risks, including loss of earnings and business interruption, and most cyber risks.
Revenue Recognition
Drilling services and solutions revenues are comprised of daywork drilling contracts for which the related revenues and
expenses are recognized as services are performed and collection is reasonably assured. For certain contracts, we receive
payments contractually designated for the mobilization of rigs and other drilling equipment. Mobilization payments received, and
direct costs incurred for the mobilization, are deferred and recognized on a straight-line basis as the drilling service is provided.
Costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as
incurred. Reimbursements received for out of pocket expenses are recorded as revenue. For contracts that are terminated prior to
the specified term, early termination payments received by us are recognized as revenues when all contractual requirements are
met.
Income Taxes
Deferred income taxes are accounted for under the liability method, which takes into account the differences between the
basis of the assets and liabilities for financial reporting purposes and amounts recognized for income tax purposes. Our net
deferred tax liability balance at year-end reflects the application of our income tax accounting policies and is based on
management’s estimates, judgments and assumptions. Included in our net deferred tax liability balance are deferred tax assets
that are assessed for realizability. If it is more likely than not that a portion of the deferred tax assets will not be realized in a future
period, the deferred tax assets will be reduced by a valuation allowance based on management’s estimates.
In addition, we operate in several countries throughout the world and our tax returns filed in those jurisdictions are subject
to review and examination by tax authorities within those jurisdictions. We recognize uncertain tax positions we believe have a
greater than 50 percent likelihood of being sustained. We cannot predict or provide assurance as to the ultimate outcome of any
existing or future assessments.
New Accounting Standards
See Note 2—Summary of Significant Accounting Policies, Risks and Uncertainties to our Consolidated Financial
Statements for recently adopted accounting standards and new accounting standards not yet adopted.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financial position is exposed to a variety of risks, including foreign currency exchange risk, commodity price risk,
credit and capital market risk, interest rate risk and equity price risk. We have seen an increase in these risks and related
uncertainties with increased volatility in oil and gas prices and the financial markets as a result of the COVID-19 pandemic.
Foreign Currency Exchange Rate Risk
Our drilling contracts in foreign countries generally provide for payment in U.S. dollars. Historically, in Argentina, while the
contracts were denominated in the U.S. dollar, we were paid in Argentine pesos. We are currently receiving some customer
payments in U.S. dollars, but we will likely receive future payments in Argentine pesos as we have in the past. The Argentine
branch of one of our second tier subsidiaries remits U.S. dollars to its U.S. parent by converting the Argentine pesos into U.S.
dollars through the Argentine Foreign Exchange Market and repatriating the U.S. dollars. In the future, other contracts or applicable
law may require payments to be made in foreign currencies. As such, there can be no assurance that we will not experience in
Argentina or elsewhere a devaluation of foreign currency, foreign exchange restrictions or other difficulties repatriating U.S. dollars
even if we are able to negotiate the contract provisions designed to mitigate such risks. At September 30, 2020, a hypothetical
decrease in value of 10 percent would result in an insignificant decrease in value of our monetary assets and liabilities
denominated in Argentine pesos by approximately $2.2 million.
Argentina’s economy is currently considered highly inflationary, which is defined as cumulative inflation rates exceeding
100 percent in the most recent three year period based on inflation data published by the respective governments. Nonetheless, all
of our foreign operations use the U.S. dollar as the functional currency and local currency monetary assets and liabilities are
remeasured into U.S. dollars with gains and losses resulting from foreign currency transactions included in current results of
operations.
48
Commodity Price Risk
The demand for drilling services and solutions is derived from exploration and production companies spending money to
explore and develop drilling prospects in search of crude oil and natural gas. Their spending is driven by their cash flow and
financial strength, which is affected by trends in crude oil and natural gas commodity prices. Crude oil prices are determined by a
number of factors including global supply and demand, the establishment of and compliance with production quotas by oil
exporting countries, worldwide economic conditions and geopolitical factors. Crude oil and natural gas prices have historically been
volatile and very difficult to predict with any degree of certainty. While current energy prices are important contributors to positive
cash flow for customers, expectations about future prices and price volatility are generally more important for determining future
spending levels. This volatility can lead many exploration and production companies to base their capital spending on much more
conservative estimates of commodity prices. As a result, demand for drilling services and solutions is not always purely a function
of the movement of commodity prices.
Credit and Capital Market Risk
Customers may finance their exploration activities through cash flow from operations, the incurrence of debt or the
issuance of equity. Any deterioration in the credit and capital markets, as experienced in the past, can make it difficult for customers
to obtain funding for their capital needs. A reduction of cash flow resulting from declines in commodity prices or a reduction of
available financing may result in customer credit defaults or reduced demand for our services, which could have a material adverse
effect on our business, financial condition and results of operations. Similarly, we may need to access capital markets to obtain
financing. Our ability to access capital markets for financing could be limited by, among other things, oil and gas prices, our existing
capital structure, our credit ratings, the state of the economy, the health of the drilling and overall oil and gas industry, and the
liquidity of the capital markets. Many of the factors that affect our ability to access capital markets are outside of our control. No
assurance can be given that we will be able to access capital markets on terms acceptable to us when required to do so, which
could have a material adverse impact on our business, financial condition and results of operations.
Further, we attempt to secure favorable prices through advanced ordering and purchasing for drilling rig components.
While these materials have generally been available at acceptable prices, there is no assurance the prices will not vary significantly
in the future. Any fluctuations in market conditions causing increased prices in materials and supplies could have a material
adverse effect on future operating costs.
Interest Rate Risk
Our interest rate risk exposure results primarily from short term rates, mainly LIBOR based, on any borrowings from our
revolving credit facility. There were no outstanding borrowings under this facility at September 30, 2020, and our outstanding debt
consisted of $487.1 million (face amount) in senior unsecured notes, which have a fixed rate of 4.65 percent. The fair value of the
fixed-rate debt was estimated to be $534.5 million and $526.4 million for fiscal years 2020 and 2019, respectively.
Equity Price Risk
On September 30, 2020, we had marketable equity securities with a total fair value of $7.3 million. The total fair value of
our marketable securities was $16.3 million at September 30, 2019. A hypothetical 10 percent decrease in the market price for our
marketable equity securities as of September 30, 2020 would decrease the fair value by $0.7 million. We make no specific plans to
sell securities, but rather sell securities based on market conditions and other circumstances. These securities are subject to a
wide variety and number of market related risks that could substantially reduce or increase the fair value of our holdings.
At November 12, 2020, the total fair value of our marketable securities increased to approximately $8.1 million. We
continually monitor the fair value of the investments but are unable to predict future market volatility and any potential impact to the
Consolidated Financial Statements.
49
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Management’s Report on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets at September 30, 2020 and 2019
Consolidated Statements of Operations for the Years Ended September 30, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended September 30, 2020, 2019 and
2018
Consolidated Statements of Shareholders’ Equity for the Years Ended September 30, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended September 30, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Page
51
52
56
57
58
59
60
61
50
Management’s Report on Internal Control over Financial Reporting
Management of Helmerich & Payne, Inc. is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rule 13a 15(f) or 15d 15(f) under the Securities Exchange Act of 1934. Our internal control over
financial reporting was designed under the supervision of the Chief Executive Officer and Chief Financial Officer to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America, and includes those policies
and procedures that:
(i)
(ii)
(iii)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are
being made only in accordance with authorizations of our management and the Board of Directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30,
2020. In making this assessment, management used the criteria established in the Internal Control—Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the criteria in
Internal Control-Integrated Framework (2013), management has concluded that the Company maintained effective internal control
over financial reporting as of September 30, 2020.
Ernst & Young LLP, an independent registered public accounting firm, has issued an attestation report on the
effectiveness of the Company’s internal control over financial reporting as of September 30, 2020, as stated in their report which
appears herein.
Helmerich & Payne, Inc.
by
/s/ John W. Lindsay
/s/ Mark W. Smith
John W. Lindsay
Director, President and Chief Executive Officer
Mark W. Smith
Senior Vice President and Chief Financial Officer
November 20, 2020
November 20, 2020
51
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Helmerich & Payne, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Helmerich & Payne, Inc. (the Company) as of
September 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), shareholders'
equity and cash flows for each of the three years in the period ended September 30, 2020, and the related notes (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at September 30, 2020 and 2019, and the results of its operations and its
cash flows for each of the three years in the period ended September 30, 2020, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2020, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated November 20, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters
or on the accounts or disclosures to which they relate.
Description of the Matter The Company's self-insurance liability for workers’ compensation and other casualty claims was
Self-Insurance Accruals
$73.8 million at September 30, 2020. As described in Note 2 to the consolidated financial
statements, this liability is based on a third-party actuarial analysis, which includes an estimate for
incurred but not reported claims. The actuarial analysis considers a variety of factors, including third-
party adjusters’ estimates, historic experience, and statistical methods commonly used within the
insurance industry.
Auditing the Company's reserve for self-insured risks for worker’s compensation and other casualty
claims is complex and required us to use our actuarial specialists due to the significant measurement
uncertainty associated with the estimate, management’s application of significant judgment, and the
use of various actuarial methods.
52
How We Addressed the
Matter in Our Audit
We evaluated the design and tested the operating effectiveness of the Company’s controls over the
workers’ compensation and other casualty claims accrual process. For example, we tested controls
over management’s determination of the appropriateness of the significant assumptions used in the
calculation and the completeness and accuracy of the data underlying the reserve.
To evaluate the self-insurance liability for worker’s compensation and other casualty claims, we
performed audit procedures that included, among others, testing the completeness and accuracy of
the underlying claims data provided to management’s actuary and obtaining legal confirmation letters
to evaluate the reserves recorded on significant litigated matters. Additionally, we involved our
actuarial specialists to assist in our evaluation of the methodologies applied by management’s
actuary in establishing the actuarially determined reserve. We compared the Company’s
assumptions to ranges of assumptions independently developed by our actuarial specialists.
Description of the Matter
Impairment of Long-Lived Assets
As more fully described in Note 5 to the consolidated financial statements, the Company recognized
a $441.4 million impairment charge in 2020 due to projected low utilization of the domestic non-super
spec and all international asset groups.
Auditing the Company's impairment analysis involved a high degree of subjectivity as the
determination of undiscounted cash flows was based on assumptions about future market and
economic conditions. Significant assumptions used in the Company’s undiscounted cash flow
estimate included drilling rig utilization and net proceeds received upon future sale/disposition.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of
controls over the Company's process to estimate the undiscounted cash flows of the asset groups
that were tested for recoverability. For example, we tested controls over management's assessment
of the appropriateness of the significant assumptions underlying the undiscounted cash flows.
Our testing of the Company’s undiscounted cash flows included, among other procedures,
evaluating the significant assumptions used and testing the completeness and accuracy of the
underlying data. For example, we compared the projected drilling rig utilization assumption to current
and forecasted industry and market information and any ongoing bid and contracting activity and
compared the estimated net proceeds received upon future sale/disposition to industry ranges,
market quotes and the Company’s historical experience. We also compared the Company’s historical
experience and market activity to peer averages. Furthermore, we searched for and evaluated
information that corroborates or contradicts the Company’s assumptions, performed retrospective
reviews of projected cash flows to historical actuals, and performed a sensitivity analysis to evaluate
the change in the projected cash flows that would result from changes in the underlying
assumptions.
Valuation of Goodwill and Finite-lived Intangibles
Description of the Matter As more fully described in Note 7 to the consolidated financial statements, during 2020 the Company
performed goodwill and finite-lived intangible impairment analyses, resulting in a $38.3 million goodwill
impairment charge.
How We Addressed the
Matter in Our Audit
Auditing the Company’s impairment analyses was complex and highly judgmental due to the significant
estimation required to determine the estimated future cash flows. In particular, the fair value estimate
was sensitive to significant assumptions, such as changes in the utilization, discount rate, and terminal
value, which are affected by expectations about future market and economic conditions.
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s goodwill and finite-lived intangibles impairment review process, including controls
over management’s review of the significant assumptions described above. For example, we evaluated
controls over the Company’s forecasting process used to develop the estimated future cash flows. We
also tested controls over management’s review of the data used in their valuation models and the
significant assumptions such as the estimation of utilization, discount rate and terminal value.
To test the estimated cash flows of the applicable reporting unit and finite-lived intangibles, we performed
audit procedures that included, among others, assessing methodologies and testing the significant
assumptions discussed above and the underlying data used by the Company in its analyses. We
compared the projected cash flows to available industry and market forecast information. We involved
our valuation specialists to assist in testing the discount rate. We assessed the historical accuracy of
management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the
changes in the fair value of the reporting unit and finite-lived intangibles that would result from changes
in the assumptions. For finite-lived intangibles, we also assessed whether the assumptions used were
consistent with those used in the goodwill impairment review process.
53
We have served as the Company’s auditor since 1994.
Tulsa, Oklahoma
November 20, 2020
/s/Ernst & Young LLP
54
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Helmerich & Payne, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Helmerich & Payne, Inc.’s internal control over financial reporting as of September 30, 2020, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Helmerich & Payne, Inc. (the Company) maintained,
in all material respects, effective internal control over financial reporting as of September 30, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2020 and 2019, the related consolidated
statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the
period ended September 30, 2020, and the related notes and our report dated November 20, 2020 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Tulsa, Oklahoma
November 20, 2020
/s/ Ernst & Young LLP
55
HELMERICH & PAYNE, INC.
Consolidated Balance Sheets
(in thousands except share data and per share amounts)
Assets
Current Assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance of $1,820 and $9,927, respectively
Inventories of materials and supplies, net
Prepaid expenses and other
Total current assets
Investments
Property, plant and equipment, net
Other Noncurrent Assets:
Goodwill
Intangible assets, net
Operating lease right-of-use asset
Other assets
Total other noncurrent assets
September 30,
2020
2019
$
487,884
$
347,943
89,335
192,623
104,180
89,305
963,327
52,960
495,602
149,653
68,928
1,115,086
31,585
31,991
3,646,341
4,502,084
45,653
81,027
44,583
17,105
188,368
82,786
86,716
—
20,852
190,354
Total assets
$
4,829,621
$
5,839,515
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable
Dividends payable
Accrued liabilities
Total current liabilities
Noncurrent Liabilities:
Long-term debt, net
Deferred income taxes
Other
Noncurrent liabilities - discontinued operations
Total noncurrent liabilities
Commitments and Contingencies (Note 17)
Shareholders' Equity:
Common stock, $.10 par value, 160,000,000 shares authorized, 112,151,563 and 112,080,262 shares
issued as of September 30, 2020 and 2019, respectively, and 107,488,242 and 108,437,904 shares
outstanding as of September 30, 2020 and 2019, respectively
Preferred stock, no par value, 1,000,000 shares authorized, no shares issued
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost, 4,663,321 shares and 3,642,358 shares as of September 30, 2020 and 2019,
respectively
Total shareholders’ equity
Total liabilities and shareholders' equity
$
36,468
$
27,226
155,442
219,136
480,727
650,675
147,180
13,389
45,383
77,763
287,092
410,238
479,356
806,611
115,746
15,341
1,291,971
1,417,054
11,215
—
521,628
3,010,012
11,208
—
510,305
3,714,307
(26,188)
(28,635)
(198,153)
(194,962)
3,318,514
4,012,223
$
4,829,621
$
5,839,515
The accompanying notes are an integral part of these consolidated financial statements.
56
HELMERICH & PAYNE, INC.
Consolidated Statements of Operations
Year Ended September 30,
2020
2019
2018
$
1,761,714
$
2,785,557
$
2,474,458
12,213
12,933
12,810
1,773,927
2,798,490
2,487,268
(in thousands, except per share amounts)
Operating revenues
Drilling services
Other
Operating costs and expenses
Drilling services operating expenses, excluding depreciation and amortization
1,184,788
1,803,204
1,647,557
Other operating expenses
Depreciation and amortization
Research and development
Selling, general and administrative
Asset impairment charge
Restructuring charges
Gain on sale of assets
Operating income (loss) from continuing operations
Other income (expense)
Interest and dividend income
Interest expense
Gain (loss) on investment securities
Gain on sale of subsidiary
Other
Income (loss) from continuing operations before income taxes
Income tax benefit
Income (loss) from continuing operations
Income from discontinued operations before income taxes
Income tax provision
Income (loss) from discontinued operations
Net income (loss)
Basic earnings (loss) per common share:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Diluted earnings (loss) per common share:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Weighted average shares outstanding:
Basic
Diluted
5,777
481,885
21,645
167,513
563,234
16,047
5,382
562,803
27,467
194,416
224,327
—
5,053
583,802
18,167
199,257
23,128
—
(46,775)
(39,691)
(22,660)
2,394,114
2,777,908
2,454,304
(620,187)
20,582
32,964
7,304
(24,474)
(8,720)
14,963
(5,384)
(16,311)
(636,498)
(140,106)
(496,392)
30,580
28,685
1,895
9,468
(25,188)
(54,488)
—
(1,596)
(71,804)
(51,222)
(18,712)
(32,510)
32,848
33,994
(1,146)
8,017
(24,265)
1
—
(876)
(17,123)
15,841
(477,169)
493,010
23,389
33,727
(10,338)
$
$
$
$
$
$
$
(494,497) $
(33,656) $
482,672
(4.62) $
0.02
(4.60) $
(4.62) $
0.02
(4.60) $
(0.33) $
(0.01)
(0.34) $
(0.33) $
(0.01)
(0.34) $
4.49
(0.10)
4.39
4.47
(0.10)
4.37
108,009
108,009
109,216
109,216
108,851
109,387
The accompanying notes are an integral part of these consolidated financial statements.
57
HELMERICH & PAYNE, INC.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
Net income (loss)
Other comprehensive income (loss), net of income taxes:
Unrealized appreciation on securities, net of income taxes of $3.3 million at
September 30, 2018
Minimum pension liability adjustments, net of income taxes of $0.8 million at September
30, 2020, $(3.5) million at September 30, 2019 and $1.9 million at September 30, 2018
Other comprehensive income (loss)
Comprehensive income (loss)
Year ended September 30,
2020
2019
2018
$
(494,497) $
(33,656) $
482,672
—
2,447
2,447
—
9,001
(11,875)
(11,875)
5,249
14,250
$
(492,050) $
(45,531) $
496,922
The accompanying notes are an integral part of these consolidated financial statements.
58
HELMERICH & PAYNE, INC.
Consolidated Statements of Shareholders’ Equity
(in thousands, except per share
amounts)
Shares
Amount
Common Stock
Additional
Paid-In
Capital
Retained
Earnings
Balance at September 30, 2017
111,957
$ 11,196
$
487,248
$ 3,855,686
Accumulated
Other
Comprehensive
Income (Loss)
$
2,300
Treasury Stock
Shares
Amount
Total
3,353
$ (191,839) $ 4,164,591
Comprehensive income:
Net income
Other comprehensive income
Dividends declared ($2.82 per
share)
Exercise of employee stock
options, net of shares withheld
for employee taxes
Vesting of restricted stock
awards, net of shares withheld
for employee taxes
Stock-based compensation
Adoption of ASU 2016-09
—
—
—
1
51
—
—
—
—
—
—
5
—
—
—
—
—
482,672
—
(310,024)
(7,557)
(11,857)
31,687
872
—
—
—
(555)
—
14,250
—
—
—
—
—
—
—
—
—
—
—
482,672
14,250
(310,024)
(202)
10,992
3,435
(136)
7,659
—
—
—
—
(4,193)
31,687
317
Balance at September 30, 2018
112,009
11,201
500,393
4,027,779
16,550
3,015
(173,188)
4,382,735
Comprehensive loss:
Net loss
Other comprehensive loss
Dividends declared ($2.84 per
share)
Exercise of employee stock
options, net of shares withheld
for employee taxes
Vesting of restricted stock
awards, net of shares withheld
for employee taxes
Stock-based compensation
Share repurchases
Cumulative effect adjustment for
adoption of ASU No. 2014-09
Cumulative effect adjustment for
adoption of ASU No. 2016-01
(Note 10)
Reclassification of stranded tax
effect for adoption of ASU No.
2018-02
—
—
—
—
71
—
—
—
—
—
—
—
—
—
7
—
—
—
—
—
—
—
—
(33,656)
—
(313,088)
—
—
—
—
(38)
(7,153)
(17,227)
34,292
—
—
—
—
—
(11,875)
—
—
—
—
—
—
—
—
—
—
—
—
(33,656)
(11,875)
(313,088)
(151)
8,474
1,321
(222)
12,531
—
—
(4,689)
34,292
1,000
(42,779)
(42,779)
—
—
—
—
—
—
(38)
—
—
29,071
(29,071)
4,239
(4,239)
Balance at September 30, 2019
112,080
11,208
510,305
3,714,307
(28,635)
3,642
(194,962)
4,012,223
Comprehensive income (loss):
Net loss
Other comprehensive income
Dividends declared ($1.92 per
share)
Exercise of employee stock
options, net of shares withheld
for employee taxes
Vesting of restricted stock
awards, net of shares withheld
for employee taxes
Stock-based compensation
Share repurchases
—
—
—
—
71
—
—
—
—
—
—
7
—
—
—
—
—
(494,497)
—
(209,798)
(3,151)
(21,855)
36,329
—
—
—
—
—
—
2,447
—
—
—
—
—
—
—
—
—
—
—
(494,497)
2,447
(209,798)
(110)
7,195
4,044
(329)
18,119
—
—
(3,729)
36,329
1,460
(28,505)
(28,505)
Balance at September 30, 2020
112,151
$ 11,215
$
521,628
$ 3,010,012
$
(26,188)
4,663
$ (198,153) $ 3,318,514
The accompanying notes are an integral part of these consolidated financial statements.
59
HELMERICH & PAYNE, INC.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Year Ended September 30,
2019
2018
2020
Net income (loss)
Adjustment for (income) loss from discontinued operations
Income (loss) from continuing operations
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
$
(494,497) $
(1,895)
(496,392)
(33,656) $
1,146
(32,510)
482,672
10,338
493,010
Depreciation and amortization
Asset impairment charges
Amortization of debt discount and debt issuance costs
Provision for bad debt
Stock-based compensation
Loss (gain) on investment securities
Gain on sale of assets
Gain on sale of subsidiary
Deferred income tax benefit
Other
Change in assets and liabilities:
Accounts receivable
Inventories of materials and supplies
Prepaid expenses and other
Other noncurrent assets
Accounts payable
Accrued liabilities
Deferred income tax liability
Other noncurrent liabilities
Net cash provided by operating activities from continuing operations
Net cash used in operating activities from discontinued operations
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Purchase of short-term investments
Payment for acquisition of business, net of cash acquired
Proceeds from sale of short-term investments
Proceeds from sale of subsidiary
Proceeds from sale of marketable securities
Proceeds from asset sales
Other
Net cash used in investing activities
Cash flows from financing activities:
Dividends paid
Debt issuance costs
Proceeds from stock option exercises
Payments for employee taxes on net settlement of equity awards
Payment of contingent consideration from acquisition of business
Payments for early extinguishment of long-term debt
Share repurchases
Other
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash, beginning of period
Cash and cash equivalents and restricted cash, end of period
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest paid
Income tax paid (refund), net
Payments for operating leases
Changes in accounts payable and accrued liabilities related to purchases of property,
plant and equipment
481,885
563,234
1,817
2,203
36,329
8,720
(46,775)
(14,963)
(157,555)
(200)
300,807
7,197
(5,506)
2,820
(9,414)
(138,414)
908
2,227
538,928
(47)
538,881
(140,795)
(134,641)
—
94,646
15,056
—
78,399
(550)
(87,885)
(260,335)
—
4,100
(3,784)
(8,250)
—
(28,505)
(446)
(297,220)
153,776
382,971
536,747
22,928
46,700
18,646
3,123
$
$
562,803
224,327
1,732
2,321
34,292
54,488
(39,691)
—
(44,554)
(3,295)
70,323
1,821
(176)
(10,430)
(9,147)
40,887
371
2,251
855,813
(62)
855,751
(458,402)
(97,652)
(16,163)
86,765
—
11,999
50,817
—
(422,636)
(313,421)
(3,912)
3,053
(6,418)
—
(12,852)
(42,779)
—
(376,329)
56,786
326,185
382,971
26,739
16,218
—
17,771
$
$
583,802
23,128
1,067
2,193
31,687
(1)
(22,660)
—
(486,758)
7,623
(85,202)
(22,427)
(3,827)
5,568
(4,461)
43,798
2,268
(10,787)
558,021
(169)
557,852
(466,584)
(71,049)
(47,886)
68,776
—
—
44,381
—
(472,362)
(308,430)
—
6,355
(7,114)
(10,625)
—
—
—
(319,814)
(234,324)
560,509
326,185
20,502
(38,400)
—
(2,245)
$
$
The accompanying notes are an integral part of these consolidated financial statements.
60
HELMERICH & PAYNE, INC.
Notes to Consolidated Financial Statements
NOTE 1 NATURE OF OPERATIONS
Helmerich & Payne, Inc. (“H&P,” which, together with its subsidiaries, is identified as the “Company,” “we,” “us,” or “our,”
except where stated or the context requires otherwise) through its operating subsidiaries provides performance-driven drilling
solutions and technologies that are intended to make hydrocarbon recovery safer and more economical for oil and gas exploration
and production companies.
During the third quarter of fiscal year 2020, we restructured our operations (see Note 19—Restructuring Charges) to
accommodate scale during an industry downturn and to re-organize our operations to align to new marketing and management
strategies. This is consistent with the manner in which our chief operating decision maker evaluates performance and allocates
resources. Operations previously reported within the former U.S. Land and H&P Technologies operating and reportable segments
are now managed and presented within the North America Solutions reportable segment. As a result, beginning with the third
quarter of fiscal year 2020, our drilling services operations were organized into the following reportable operating business
segments: North America Solutions, Offshore Gulf of Mexico and International Solutions. All segment disclosures have been recast
for these segment changes. Our real estate operations, our incubator program for new research and development projects and our
wholly-owned captive insurance companies are included in "Other." Refer to Note 18—Business Segments and Geographic
Information for further details on our reportable segments.
Our North America Solutions operations are primarily located in Colorado, Ohio, Oklahoma, New Mexico, North Dakota,
Pennsylvania, Texas, West Virginia and Wyoming. Additionally, Offshore Gulf of Mexico operations are conducted in Louisiana and
in U.S. federal waters in the Gulf of Mexico and our International Solutions operations have rigs primarily located in four
international locations: Argentina, Bahrain, Colombia and United Arab Emirates.
We also own, develop and operate limited commercial real estate properties. Our real estate investments, which are
located exclusively within Tulsa, Oklahoma, include a shopping center and undeveloped real estate.
Dispositions
In December 2019, we closed on the sale of a wholly-owned subsidiary of Helmerich & Payne International Drilling Co.
("HPIDC"), TerraVici Drilling Solutions, Inc. ("TerraVici"). As a result of the sale, 100% of TerraVici's outstanding capital stock was
transferred to the purchaser in exchange for approximately $15.1 million, resulting in a total gain on the sale of TerraVici of
approximately $15.0 million. Prior to the sale, TerraVici was a component of the North America Solutions operating segment. This
transaction does not represent a strategic shift in our operations and will not have a significant effect on our operations and
financial results going forward.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, RISKS AND UNCERTAINTIES
Basis of Presentation
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”).
We classified our former Venezuelan operation as a discontinued operation in the third quarter of fiscal year 2010, as
more fully described in Note 4—Discontinued Operations. Unless indicated otherwise, the information in the Notes to Consolidated
Financial Statements relates only to our continuing operations.
Principles of Consolidation
The consolidated financial statements include the accounts of Helmerich & Payne, Inc. and its domestic and foreign
subsidiaries. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the
Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the
fiscal year are included in the consolidated statement of operations and comprehensive income (loss) from the date the Company
gains control until the date when the Company ceases to control the subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
61
COVID-19 and OPEC+ Production Impacts
The outbreak of a novel strain of coronavirus (“COVID-19”) and its development into a pandemic have resulted in
significant global economic disruption, including North America and many of the other geographic areas where we operate, or
where our customers are located, or suppliers or vendors operate. Actions taken to prevent the spread of COVID-19 by
governmental authorities around the world, including imposing mandatory closures of all non-essential business facilities, seeking
voluntary closures of such facilities and imposing restrictions on, or advisories with respect to, travel, business operations and
public gatherings or interactions, have significantly reduced global economic activity, thereby resulting in lower demand for crude
oil. In particular, the travel restrictions in certain countries where we operate, including the closure of their borders to travel into the
country, have resulted in an inability to effectively staff or rotate personnel at, and thereby operate, certain of our rigs and could
lead to an inability to fulfill our contractual obligations under contracts with customers. Governmental authorities have also
implemented multi-step policies with the goal of re-opening various sectors of the economy. However, certain jurisdictions began
re-opening only to return to restrictions in the face of increases in new COVID-19 cases, while other jurisdictions are continuing to
re-open or have nearly completed the re-opening process despite increases in COVID-19 cases. The COVID-19 outbreak may
significantly worsen during the upcoming months, which may cause governmental authorities to reconsider restrictions on business
and social activities. In the event governmental authorities increase restrictions, the re-opening of the economy may be further
curtailed. We have experienced, and expect to continue to experience, some resulting in disruptions to our business operations, as
these restrictions have significantly impacted, and may continue to impact, many sectors of the economy. In addition, the perceived
risk of infection and health risk associated with COVID-19, and the illness of many individuals across the globe, has and will
continue to alter behaviors of consumers, and policies of companies around the world, resulting in many of the same effects
intended by such governmental authorities to stop the spread of COVID-19, such as self-imposed or voluntary social distancing
and quarantining and remote work policies. We are complying with local governmental jurisdiction policies and procedures where
our operations reside. In some cases, policies and procedures are more stringent in our foreign operations than in our North
America operations and this has resulted in a complete suspension, for a certain period of time, of all drilling operations in at least
one foreign jurisdiction. In addition, a customer in one foreign jurisdiction has claimed force majeure resulting in zero chargeable
revenues during the suspension period.
In early March 2020, the increase in crude oil supply resulting from production escalations from the Organization of the
Petroleum Exporting Countries and other oil producing nations (“OPEC+”) combined with a decrease in crude oil demand
stemming from the global response and uncertainties surrounding the COVID-19 pandemic resulted in a sharp decline in crude oil
prices. Consequently, we have seen a significant decrease in customer 2020 capital budgets and a corresponding dramatic
decline in the demand for land rigs. In April 2020, OPEC+ finalized an agreement to cut oil production by 9.7 million barrels per day
during May and June 2020. On June 6, 2020, OPEC+ agreed to extend such production cuts until the end of July 2020. On July
15, 2020, OPEC+ agreed to ease the production cuts from 9.7 million barrels per day to 7.7 million barrels per day from August to
December 2020. Despite the production cuts, prices in the oil and gas market have remained depressed, as the oversupply and
lack of demand in the market persist. Oil and natural gas prices are expected to continue to be volatile as a result of the near-term
production instability and the ongoing COVID-19 outbreak and as changes in oil and natural gas inventories, industry demand and
global and national economic performance are reported.
These events have had, and could continue to have, an adverse impact on numerous aspects of our business, financial
condition and results of operations. The ultimate extent of the impact of COVID-19 and prolonged excess oil supply on our
business, financial condition and results of operations will depend largely on future developments, including the duration and
spread of the COVID-19 outbreak within the United States and the parts of the world in which we operate and the related impact on
the oil and gas industry, the impact of governmental actions designed to prevent the spread of COVID-19 and the development and
availability of effective treatments and vaccines, all of which are highly uncertain and cannot be predicted with certainty at this time.
From a financial perspective, we believe the Company is operationally and financially well positioned to continue
operating even through a more protracted disruption caused by COVID-19, oil oversupply and low oil prices. At September 30,
2020, the Company had cash and cash equivalents and short-term investments of $577.2 million. The 2018 Credit Facility (as
defined within Note 8—Debt) has $750.0 million in aggregate availability with a maximum of $75.0 million available for use as
letters of credit. As of September 30, 2020, there were no borrowings or letters of credit outstanding, leaving $750.0 million
available to borrow under the 2018 Credit Facility. We currently do not anticipate the need to draw on the 2018 Credit Facility.
Furthermore, the Company 2025 Notes (as defined within Note 8—Debt) do not mature until March 19, 2025.
Foreign Currencies
Our functional currency, together with all our foreign subsidiaries, is the U.S. dollar. Monetary assets and liabilities
denominated in currencies other than the U.S. dollar are translated at exchange rates in effect at the end of the period, and the
resulting gains and losses are recorded on our statement of operations. Aggregate foreign currency losses of $8.8 million, $8.2
million and $4.0 million in fiscal years 2020, 2019 and 2018, respectively, are included in drilling services operating expenses.
62
Use of Estimates
The preparation of our financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash on hand, demand deposits with banks and all highly liquid investments with
original maturities of three months or less. Our cash, cash equivalents and short-term investments are subject to potential credit
risk, and certain of our cash accounts carry balances greater than the federally insured limits.
We had restricted cash and cash equivalents of $48.9 million and $35.0 million at September 30, 2020 and 2019,
respectively. Of the total at September 30, 2020 and 2019, $3.6 million and $3.0 million, respectively, is related to the acquisition of
drilling technology companies described in Note 3—Business Combinations, $2.0 million as of both fiscal year ends is from the
initial capitalization of the captive insurance company, and $43.1 million and $30.0 million, respectively, represents an additional
amount management has elected to restrict for the purpose of potential insurance claims in our wholly-owned captive insurance
company. The restricted amounts are primarily invested in short-term money market securities.
The restricted cash and cash equivalents are reflected in the Consolidated Balance Sheets as follows:
(in thousands)
Cash
Restricted Cash
Prepaid expenses and other
Other assets
Total cash, cash equivalents, and restricted cash
Accounts Receivable
September 30,
2020
2019
2018
$
487,884
$
347,943
$
284,355
45,577
3,286
31,291
3,737
39,830
2,000
$
536,747
$
382,971
$
326,185
Accounts receivable represents valid claims against our customers for our services rendered, net of allowances for
doubtful accounts. We perform credit evaluations of customers and do not typically require collateral in support for trade
receivables. We provide an allowance for doubtful accounts, when necessary, to cover estimated credit losses. Outstanding
customer receivables are reviewed regularly for possible nonpayment indicators, and allowances for doubtful accounts are
recorded based upon management’s estimate of collectability at each balance sheet date. Refer to Note 16—Supplemental
Balance Sheet Information.
Inventories of Materials and Supplies
Inventories are primarily replacement parts and supplies held for consumption in our drilling operations. Inventories are
valued at the lower of cost or net realizable value. Cost is determined on a weighted average basis and includes the cost of
materials, shipping, duties and labor. Net realizable value is defined as the estimated selling price in the ordinary course of
business, less reasonably predictable costs of completion, disposal and transportation. The reserves for excess and obsolete
inventory were $36.5 million and $11.5 million for fiscal years 2020 and 2019, respectively.
Investments
We maintain investments in equity securities of certain publicly traded companies. We recognize our marketable equity
securities that have readily determinable fair values at fair value, with changes in such values reflected in net income.
Property, Plant, and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Substantially all property, plant and
equipment are depreciated using the straight-line method based on the estimated useful lives of the assets after deducting their
salvage values. The amount of depreciation expense we record is dependent upon certain assumptions, including an asset’s
estimated useful life, rate of consumption, and corresponding salvage value. We periodically review these assumptions and may
change one or more of these assumptions. Changes in our assumptions may require us to recognize, on a prospective basis,
increased or decreased depreciation expense.
We capitalize interest on major projects during construction. Interest is capitalized based on the average interest rate on
related debt. We had no capitalized interest during fiscal years 2020 and 2019 and $0.4 million of capitalized interest during fiscal
year 2018.
63
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Changes that could prompt such an assessment include a significant decline in
revenue or cash margin per day, extended periods of low rig asset group utilization, changes in market demand for a specific asset,
obsolescence, completion of specific contracts, restructuring of our drilling fleet, and/or overall general market conditions. If the
review of the long-lived assets indicates that the carrying value of these assets/asset groups is more than the estimated
undiscounted future cash flows projected to be realized from the use of the asset and its eventual disposal an impairment charge is
made, as required, to adjust the carrying value down to the estimated fair value of the asset. The estimated fair value is
determined based upon either an income approach using estimated discounted future cash flows, a market approach considering
factors such as recent market sales of rigs of other companies and our own sales of rigs, appraisals and other factors, a cost
approach utilizing reproduction costs new as adjusted for the asset age and condition, and/or a combination of multiple
approaches.
Cash flows are estimated by management considering factors such as prospective market demand, margins, recent
changes in rig technology and its effect on each rig’s marketability, any investment required to make a rig operational, suitability of
rig size and make up to existing platforms, and competitive dynamics including industry utilization. Long-lived assets that are held
for sale are recorded at the lower of carrying value or the fair value less costs to sell.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a
business combination, at the date of acquisition. Goodwill is not amortized but is tested for potential impairment at the reporting
unit level at a minimum on an annual basis in the fourth fiscal quarter of each fiscal year or when it is more likely than not that the
carrying value may exceed fair value. If an impairment is determined to exist, an impairment charge for the amount by which the
carrying amount exceeds the reporting unit’s fair value is recognized, limited to the total amount of goodwill allocated to that
reporting unit. The reporting unit level is defined as an operating segment or one level below an operating segment.
Finite-lived intangible assets are amortized using the straight-line method over the period in which these assets contribute
to our cash flows, generally estimated to be 5 to 20 years, and are evaluated for impairment in accordance with our policies for
valuation of long-lived assets.
Drilling Revenues
Drilling services revenues are comprised of daywork drilling contracts for which the related revenues and expenses are
recognized as services are performed and collection is reasonably assured. For certain contracts, we receive payments
contractually designated for the mobilization of rigs and other drilling equipment. Mobilization payments received, and direct costs
incurred for the mobilization, are deferred and recognized on a straight-line basis as the drilling service is provided. Costs incurred
to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as
incurred. Reimbursements received for out-of-pocket expenses are recorded as both revenues and direct costs. Reimbursements
for fiscal years 2020, 2019 and 2018 were $212.0 million, $322.8 million and $274.7 million, respectively. For contracts that are
terminated by customers prior to the expirations of their fixed terms, contractual provisions customarily require early termination
amounts to be paid to us. Revenues from early terminated contracts are recognized when all contractual requirements have been
met. Early termination revenue for fiscal years 2020, 2019 and 2018 was approximately $73.4 million, $11.3 million and $17.1
million, respectively.
Rent Revenues
We enter into leases with tenants in our rental properties consisting primarily of retail and multi-tenant warehouse
space. The lease terms of tenants occupying space in the retail centers and warehouse buildings generally range from three to ten
years. Minimum rents are recognized on a straight-line basis over the term of the related leases. Overage and percentage rents
are based on tenants’ sales volume. Recoveries from tenants for property taxes and operating expenses are recognized in other
operating revenues in the Consolidated Statements of Operations.
During the fiscal year ended September 30, 2020, we closed on the sale of a portion of our real estate investment
portfolio, including six industrial sites. See Note 5—Property, Plant and Equipment for additional details.
Our rent revenues are as follows:
(in thousands)
Minimum rents
Overage and percentage rents
Year Ended September 30,
2020
2019
2018
$
9,245
$
10,168
$
656
932
9,950
1,040
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At September 30, 2020, minimum future rental income to be received on noncancelable operating leases was as follows
(in thousands):
Fiscal Year
2021
2022
2023
2024
2025
Thereafter
Total
$
Amount
5,512
4,553
3,564
2,975
2,350
5,358
$
24,312
Leasehold improvement allowances are capitalized and amortized over the lease term.
At September 30, 2020 and 2019, the cost and accumulated depreciation for real estate properties were as follows:
(in thousands)
Real estate properties
Accumulated depreciation
Income Taxes
September 30,
2020
2019
$
$
43,389
$
(27,588)
15,801
$
72,507
(43,570)
28,937
Current income tax expense is the amount of income taxes expected to be payable for the current fiscal year. Deferred
income taxes are computed using the liability method and are provided on all temporary differences between the financial basis
and the tax basis of our assets and liabilities.
We take tax positions in our tax returns from time to time that may not ultimately be allowed by the relevant taxing
authority. When we take such positions, we evaluate the likelihood of sustaining those positions and determine the amount of tax
benefit arising from such positions, if any, that should be recognized in our financial statements. We recognize uncertain tax
positions we believe have a greater than 50 percent likelihood of being sustained. Tax benefits not recognized by us are recorded
as a liability for unrecognized tax benefits, which represents our potential future obligation to various taxing authorities if the tax
positions are not sustained. See Note 9—Income Taxes. Amounts for uncertain tax positions are adjusted in periods when new
information becomes available or when positions are effectively settled. We recognize accrued interest related to unrecognized tax
benefits in interest expense and penalties in other expense in the Consolidated Statements of Operations.
Earnings per Common Share
Basic earnings per share is computed utilizing the two-class method and is calculated based on the weighted-average
number of common shares outstanding during the periods presented. Diluted earnings per share is computed using the weighted-
average number of common and common equivalent shares outstanding during the periods utilizing the two-class method for stock
options, nonvested restricted stock and performance share units. We have granted and expect to continue to grant to employees
restricted stock grants that contain non-forfeitable rights to dividends. Such grants are considered participating securities under
Accounting Standards Codification ("ASC") 260, Earnings Per Share. As such, we have included these grants in the calculation of
our basic earnings per share.
Stock-Based Compensation
Stock-based compensation expense is determined using a fair-value-based measurement method for all awards
granted. Beginning in fiscal year 2019, we replaced stock options with performance share units as a component of our executives’
long-term equity incentive compensation. We have also eliminated stock options as an element of our non-employee director
compensation program. The Board of Directors (the "Board") has determined to award stock-based compensation to non-employee
directors solely in the form of restricted stock.
The fair value of each option granted prior to fiscal year 2019 was estimated on the date of grant based on the Black-
Scholes options-pricing model utilizing assumptions for a risk-free interest rate, volatility, dividend yield and expected remaining
term of the awards. The assumptions used in calculating the fair value of stock-based payment awards represented management’s
best estimates, but these estimates involve inherent uncertainties and the application of management's judgment.
65
The grant date fair value of performance share units is determined through the use of the Monte Carlo simulation method.
The Monte Carlo simulation method requires the use of highly subjective assumptions. Our key assumptions in the method include
the price and the expected volatility of our stock and our self-determined peer group of companies’ (the "Peer Group") stock, risk
free rate of return, dividend yields and cross-correlations between the Company and our Peer Group.
Stock-based compensation is recognized on a straight-line basis over the requisite service periods of the stock awards,
which is generally the vesting period. Compensation expense is recorded as a component of drilling services operating expenses,
research and development expenses and selling, general and administrative expenses in the Consolidated Statements of
Operations. See Note 12—Stock-based Compensation for additional discussion on stock-based compensation.
Treasury Stock
Treasury stock purchases are accounted for under the cost method whereby the cost of the acquired stock is recorded as
treasury stock. Gains and losses on the subsequent reissuance of shares are credited or charged to additional paid-in capital using
the average-cost method. Treasury stock may be issued under the Helmerich & Payne, Inc. 2020 Omnibus Incentive Plan.
Comprehensive Income or Loss
Other comprehensive income or loss refers to revenues, expenses, gains, and losses that are included in comprehensive
income or loss but excluded from net income or loss. We report the components of other comprehensive income or loss, net of tax,
by their nature and disclose the tax effect allocated to each component in the Consolidated Statements of Comprehensive Income
(Loss).
Leases
We lease various offices, warehouses, equipment and vehicles. Rental contracts are typically made for fixed periods of
one to 15 years but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of
different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security
for borrowing purposes.
Up until the end of fiscal year 2019, leases of property, plant and equipment were classified as either capital or operating
leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to the income
statement on a straight-line basis over the period of the lease (“levelized lease cost”).
Beginning October 1, 2019, leases are recognized as a right-of-use asset and a corresponding liability within accrued
liabilities and other non-current liabilities at the date at which the leased asset is available for use by the Company. Each lease
payment is allocated between the liability and finance cost. The finance cost is recognized over the lease period to produce a
constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over
the shorter of the asset's useful life and the lease term on a straight-line basis for finance type leases and as the difference
between the levelized lease cost and the finance cost for operating leases.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net
present value of the following lease payments:
•
•
•
•
•
Fixed payments (including in-substance fixed payments), less any lease incentives receivable
Variable lease payments that are based on an index or a rate
Amounts expected to be payable by the lessee under residual value guarantees
The exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and
Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the
lessee’s incremental borrowing rate is used, which is the rate that the lessee would have to pay to borrow the funds necessary to
obtain an asset of similar value in a similar economic environment with similar terms and conditions.
Right-of-use assets are measured at cost and are comprised of the following:
•
•
•
•
The amount of the initial measurement of lease liability
Any lease payments made at or before the commencement date less any lease incentives received
Any initial direct costs, and
Asset retirement obligations related to that lease, as applicable.
Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets are comprised of IT-
equipment and office furniture.
66
In determining the lease term, management considers all facts and circumstances that create an economic incentive to
exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only
included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a
significant event or a significant change in circumstances occurs and is within the control of the lessee. Refer to Note 6—Leases for
additional information regarding our leases.
Recently Issued Accounting Updates
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting
Standards Updates ("ASUs") to the FASB ASC. We consider the applicability and impact of all ASUs. ASUs not listed below were
assessed and determined to be either not applicable, clarifications of ASUs listed below, immaterial, or already adopted by the
Company.
The following table provides a brief description of recent accounting pronouncements and our analysis of the effects on
our financial statements:
Standard
Description
Recently Adopted Accounting Pronouncements
ASU No. 2016-02,
Leases (Topic 842)
and related ASUs
issued subsequent
ASU No. 2018-15,
Intangibles -
Goodwill and Other -
Internal Use
Software (Subtopic
350-40): Customer's
Accounting for
Implementation
Costs Incurred in a
Cloud Computing
Arrangement That is
a Service Contract
ASU No. 2016-02 requires organizations that lease assets
— referred to as “lessees” — to recognize on the balance
sheet the assets and liabilities for the rights and obligations
created by those leases with lease terms of more than 12
months. Lessor accounting remains substantially similar to
current U.S. GAAP. In addition, disclosures of leasing
activities are to be expanded to include qualitative along with
specific quantitative information. ASU No. 2016-02 is
effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. ASU
2016-02 mandates a modified retrospective transition
method of adoption with an option to use certain practical
expedients.
This ASU aims to reduce complexity in the accounting for
costs of implementing a cloud computing service
arrangement. ASU No. 2018-15 aligns the requirements for
capitalizing implementation costs incurred in a hosting
arrangement that is a service contract with the requirements
for capitalizing implementation costs incurred to develop or
obtain internal-use software (and hosting arrangements that
include an internal-use software license). This update is
effective for annual and interim periods beginning after
December 15, 2019. The amendments in this update should
be applied either retrospectively or prospectively to all
implementation costs incurred after the date of adoption.
Early adoption is permitted.
Standards that are not yet adopted as of September 30, 2020
ASU No. 2016-13,
Financial
Instruments – Credit
Losses (Topic 326)
and related ASUs
issued subsequent
This ASU introduces a new model for recognizing credit
losses on financial instruments based on an estimate of
current expected credit losses. The new model will apply to:
(1) loans, accounts receivable, trade receivables, and other
financial assets measured at amortized cost, (2) loan
commitments and certain other off-balance sheet credit
exposures, (3) debt securities and other financial assets
measured at fair value through other comprehensive
income(loss), and (4) beneficial interests in securitized
financial assets. This update is effective for annual and
interim periods beginning after December 15, 2019.
67
Date of
Adoption
October 1,
2019
Effect on the Financial
Statements or Other
Significant Matters
We adopted this ASU
during the first quarter of
fiscal year 2020, as
required. Refer to Note 6
—Leases for additional
information.
October 1,
2019
October 1,
2020
We early adopted this
ASU during the first
quarter of fiscal year
2020 on a prospective
basis. The prospective
impact is not material to
our consolidated financial
statements and
disclosures.
The guidance will be
applied using the
modified retrospective
method with a cumulative
effect adjustment to our
beginning retained
earnings balance. This
update will apply
primarily to receivables
arising from revenue
transactions. We have
analyzed our historical
credit losses and
considered current
economic conditions in
developing our expected
credit loss rate. We are
currently finalizing our
processes, internal
controls and disclosures
that are required upon
adoption. We do not
believe the
implementation of this
guidance will have a
material impact on our
consolidated financial
statements and
disclosures.
Description
This ASU simplifies the accounting for income taxes by
removing certain exceptions related to Topic 740. The ASU
also improves consistent application of and simplifies GAAP
for other areas of Topic 740 by clarifying and amending
existing guidance. This update is effective for annual and
interim periods beginning after December 15, 2020. Early
adoption of the amendment is permitted, including adoption
in any interim period for public entities for periods for which
financial statements have not yet been issued. An entity that
elects to early adopt the amendments in an interim period
should reflect any adjustments as of the beginning of the
annual period that includes that interim period. Additionally,
an entity that elects early adoption must adopt all the
amendments in the same period. Upon adoption, the
amendments addressed in this ASU will be applied either
prospectively, retrospectively or on a modified retrospective
basis through a cumulative-effect adjustment to retained
earnings.
This ASU amends ASC 715 to add, remove, and clarify
disclosure requirements related to defined benefit, pension
and other postretirement plans. This update is effective for
annual and interim periods ending after December 15, 2020.
Upon adoption, the guidance will be applied on a
retrospective basis to all periods presented.
Date of
Adoption
October 1,
2021
Effect on the Financial
Statements or Other
Significant Matters
We are currently
evaluating the impact the
new guidance may have
on our consolidated
financial statements and
disclosures.
October 1,
2021
We are currently
evaluating the impact the
new guidance may have
on our consolidated
financial statements and
disclosures.
Standard
ASU No. 2019-12,
Financial
Instruments –
Income Taxes (Topic
740): Simplifying the
Accounting for
Income Taxes
ASU No. 2018-14,
Compensation –
Retirement Benefits
– Defined Benefit
Plans—General
(Topic 715-20):
Disclosure
Framework –
Changes to the
Disclosure
Requirements for
Defined Benefit
Plans
Concentration of Credit Risk
Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of temporary cash
investments, short-term investments and trade receivables. The industry concentration has the potential to impact our overall
exposure to market and credit risks, either positively or negatively, in that our customers could be affected by similar changes in
economic, industry or other conditions. However, we believe that the credit risk posed by this industry concentration is offset by the
creditworthiness of our customer base.
We had revenues from individual customers, within our North America Solutions segment, that constituted 10 percent or
more of our total revenues as follows:
(in thousands)
EOG Resources, Inc.
2018
$
258,194
In fiscal years 2020 and 2019, no individual customers constituted 10 percent or more of our total revenues.
We place temporary cash investments in the United States with established financial institutions and invest in a diversified
portfolio of highly rated, short-term money market instruments. Our trade receivables, primarily with established companies in the
oil and gas industry, may impact credit risk as customers may be similarly affected by prolonged changes in economic and industry
conditions. International sales also present various risks including governmental activities that may limit or disrupt markets and
restrict the movement of funds. Most of our international sales, however, are to large international or government-owned national
oil companies.
Volatility of Market
Our operations can be materially affected by oil and gas prices. Oil and natural gas prices have been historically volatile
and difficult to predict with any degree of certainty. While current energy prices are important contributors to positive cash flow for
customers, expectations about future prices and price volatility are generally more important for determining a customer’s future
spending levels. This volatility, along with the difficulty in predicting future prices, can lead many exploration and production
companies to base their capital spending on more conservative estimates of commodity prices. As a result, demand for drilling
services is not always purely a function of the movement of commodity prices.
In addition, customers may finance their exploration activities through cash flow from operations, the incurrence of debt or
the issuance of equity. Any deterioration in the credit and capital markets may cause difficulty for customers to obtain funding for
their capital needs. A reduction of cash flow resulting from declines in commodity prices or a reduction of available financing may
result in a reduction in customer spending and the demand for our services. This reduction in spending could have a material
adverse effect on our operations.
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Self-Insurance
We have accrued a liability for estimated workers’ compensation and other casualty claims incurred based upon cash
reserves plus an estimate of loss development and incurred but not reported claims. The estimate is based upon historical
trends. Insurance recoveries related to such liability are recorded when considered probable.
We self-insure a significant portion of expected losses relating to workers’ compensation, general liability and automobile
liability. Generally, deductibles range from $1 million to $10 million per occurrence depending on the coverage and whether a claim
occurs outside or inside of the United States. Insurance is purchased over deductibles to reduce our exposure to catastrophic
events. Estimates are recorded for incurred outstanding liabilities for workers’ compensation, general liability claims and claims that
are incurred but not reported. Estimates are based on adjusters’ estimates, historical experience and statistical methods commonly
used within the insurance industry that we believe are reliable. We have also engaged a third-party actuary to perform a review of
our domestic casualty losses as well as losses in our captive insurance companies. Nonetheless, insurance estimates include
certain assumptions and management judgments regarding the frequency and severity of claims, claim development and
settlement practices. Unanticipated changes in these factors may produce materially different amounts of expense that would be
reported under these programs.
On October 1, 2019, we elected to utilize the Captive to insure the deductibles for our workers’ compensation, general
liability and automobile liability insurance programs. Casualty claims occurring prior to October 1, 2019 will remain recorded within
each of the operating segments and future adjustments to these claims will continue to be reflected within the operating segments.
Reserves for legacy claims occurring prior to October 1, 2019, will remain as liabilities in our operating segments until they have
been resolved. Changes in those reserves will be reflected in segment earnings as they occur. We will continue to utilize the
Captive to finance the risk of loss to equipment and rig property assets. The Company and the Captive maintain excess property
and casualty reinsurance programs with third-party insurers in an effort to limit the financial impact of significant events covered
under these programs. Our operating subsidiaries are paying premiums to the Captive, typically on a monthly basis, for the
estimated losses based on an external actuarial analysis. These premiums are currently held in a restricted account, resulting in a
transfer of risk from our operating subsidiaries to the Captive. The actuarial estimated underwriting expenses for the fiscal year
ended September 30, 2020 were approximately $16.4 million and were recorded within drilling services operating expenses in our
Consolidated Statement of Operations. Intercompany premium revenues and expenses during the fiscal year ended
September 30, 2020 amounted to $36.9 million, which were eliminated upon consolidation. These intercompany insurance
premiums are reflected as segment operating expenses within the North America Solutions, Offshore Gulf of Mexico, and
International Solutions reportable operating segments and are reflected as intersegment sales within "Other." The Company self-
insures employee health plan exposures in excess of employee deductibles. Starting in the second quarter of fiscal year 2020, the
Captive insurer issued a stop-loss program that will reimburse the Company's health plan for claims that exceed $50,000. This
program will also be reviewed at the end of each policy year by an outside actuary. One hundred percent of the stop-loss premium
is being set aside by the Captive as reserves. The stop-loss program does not have a material impact on a consolidated basis.
International Solutions Drilling Risks
International Solutions drilling operations may significantly contribute to our revenues and net operating income. There
can be no assurance that we will be able to successfully conduct such operations, and a failure to do so may have an adverse
effect on our financial position, results of operations, and cash flows. Also, the success of our International Solutions operations will
be subject to numerous contingencies, some of which are beyond management’s control. These contingencies include general and
regional economic conditions, fluctuations in currency exchange rates, modified exchange controls, changes in international
regulatory requirements and international employment issues, risk of expropriation of real and personal property and the burden of
complying with foreign laws. Additionally, in the event that extended labor strikes occur or a country experiences significant
political, economic or social instability, we could experience shortages in labor and/or material and supplies necessary to operate
some of our drilling rigs, thereby potentially causing an adverse material effect on our business, financial condition and results of
operations.
Many of the countries in which we operate have implemented measures in response to the COVID-19 pandemic. These
measures, including imposing mandatory closures of all non-essential business facilities, seeking voluntary closures of such
facilities and imposing restrictions on, or advisories with respect to, travel, business operations and public gatherings or
interactions, have significantly reduced global economic activity, thereby, resulting in lower demand for crude oil. In particular, the
travel restrictions in certain countries where we operate, including the closure of their borders to travel into the country, have
resulted in an inability to effectively staff or rotate personnel at, and thereby operate, certain of our rigs and could lead to an
inability to fulfill our contractual obligations under contracts with customers.
69
We have also experienced certain risks related to our Argentine operations. In Argentina, while our dayrate is
denominated in U.S. dollars, we are paid in Argentine pesos. The Argentine branch of one of our second-tier subsidiaries remits
U.S. dollars to its U.S. parent by converting the Argentine pesos into U.S. dollars through the Argentine Foreign Exchange Market
and repatriating the U.S. dollars. Argentina also has a history of implementing currency controls which restrict the conversion and
repatriation of U.S. dollars, including controls that were implemented in September 2019. In September 2020, Argentina
implemented additional currency controls in an effort to preserve Argentina's U.S. dollar reserves. As a result of these currency
controls, our ability to remit funds from our Argentine subsidiary to its U.S. parent has been limited. In the past, the Argentine
government has also instituted price controls on crude oil, diesel and gasoline prices and instituted an exchange rate freeze in
connection with those prices. These price controls and an exchange rate freeze could be instituted again in the future. In addition,
in March 2020, the Argentine government introduced labor regulations that prohibit employee dismissals or suspensions without
just cause, for lack of (or reduction in) work or due to force majeure, subject to certain exceptions that may result in the payment of
compensation to suspended employees and/or increased severance costs to the company. These prohibitions have resulted in
significant challenges for our Argentine operations during fiscal year 2020 and it remains uncertain for how long they will be in
effect. Further, there are additional concerns regarding Argentina's debt burden, notwithstanding Argentina's recent restructuring
deal with international bondholders in August 2020, as Argentina attempts to manage its substantial sovereign debt issues. These
concerns could further negatively impact Argentina's economy and adversely affect our Argentine operations. Argentina’s economy
is considered highly inflationary, which is defined as cumulative inflation rates exceeding 100 percent in the most recent three-year
period based on inflation data published by the respective governments. Nonetheless, all of our foreign subsidiaries use the U.S.
dollar as the functional currency and local currency monetary assets and liabilities are remeasured into U.S. dollars with gains and
losses resulting from foreign currency transactions included in current results of operations.
Because of the impact of local laws, our future operations in certain areas may be conducted through entities in which
local citizens own interests and through entities (including joint ventures) in which we hold only a minority interest or pursuant to
arrangements under which we conduct operations under contract to local entities. While we believe that neither operating through
such entities nor pursuant to such arrangements would have a material adverse effect on our operations or revenues, there can be
no assurance that we will in all cases be able to structure or restructure our operations to conform to local law (or the
administration thereof) on terms acceptable to us.
Although we attempt to minimize the potential impact of such risks by operating in more than one geographical area,
during the fiscal year ended September 30, 2020, approximately 8.3 percent of our operating revenues were generated from
international locations in our drilling services business compared to 7.6 percent during the fiscal year ended September 30, 2019.
During the fiscal year ended September 30, 2020, approximately 61.6 percent of operating revenues from international locations
were from operations in South America compared to 91.6 percent during the fiscal year ended September 30, 2019. Substantially
all of the South American operating revenues were from Argentina and Colombia. The future occurrence of one or more
international events arising from the types of risks described above could have a material adverse impact on our business, financial
condition and results of operations.
NOTE 3 BUSINESS COMBINATIONS
Fiscal Year 2019 Acquisitions
On August 21, 2019, we completed an acquisition of an unaffiliated company, DrillScan Energy SAS and its subsidiaries
("DrillScan®"), which is now a wholly-owned subsidiary of the Company, for total consideration of approximately $32.7 million,
which includes $17.7 million of contingent consideration. The fair value of total assets acquired, and liabilities assumed, as of the
acquisition date, were $36.3 million and $3.6 million, respectively, including goodwill of $14.9 million. Of the total assets acquired,
$19.1 million was allocated to identifiable intangible assets. DrillScan® is a leading provider of proprietary drilling engineering
software, well engineering services and training for the oil and gas industry. The operations of DrillScan® are included in the North
America Solutions reportable segment. The acquisition of DrillScan® was accounted for as a business combination in accordance
with FASB ASC 805, Business Combinations, which requires the assets acquired and liabilities assumed to be recorded at their
acquisition date fair values. In accordance with GAAP, an entity is allowed a reasonable period of time (not to exceed one year) to
obtain the information necessary to identify and measure the fair value of the assets acquired and liabilities assumed in a business
combination. During the second quarter of fiscal year 2020, as a result of new information identified related to the acquisition of
DrillScan®, the acquisition date fair value of the contingent consideration and goodwill increased by approximately $1.2 million. This
acquisition's measurement period closed during the quarter ended June 30, 2020 and, as a result, the purchase price accounting
was finalized.
On November 1, 2018, we completed an acquisition of an unaffiliated company, Angus Jamieson Consulting (“AJC”),
which is now a wholly-owned subsidiary of the Company, for total consideration of approximately $3.4 million. AJC is a software-
based training and consultancy company based in Inverness, Scotland and is widely recognized as an industry leader in wellbore
positioning. The operations of AJC are included in the North America Solutions reportable segment. The acquisition of AJC has
been accounted for as a business combination in accordance with FASB ASC 805, Business Combinations, which requires the
assets acquired and liabilities assumed to be recorded at their acquisition date fair values. The allocation of the purchase price
included goodwill of $3.1 million.
70
NOTE 4 DISCONTINUED OPERATIONS
Current and noncurrent liabilities from discontinued operations consist of municipal and income taxes payable and social
obligations due within the country of Venezuela. Expenses incurred for in-country obligations are reported as discontinued
operations within our Consolidated Statements of Operations.
The activity for the fiscal year ended September 30, 2020 was primarily due to the remeasurement of uncertain tax
liabilities as a result of the devaluation of the Venezuela Bolivar. Early in 2018, the Venezuelan government announced that it
changed the existing dual-rate foreign currency exchange system by eliminating its heavily subsidized foreign exchange rate,
which was 10 Bolivars per United States dollar, and relaunched an exchange system known as DICOM. The Venezuela
government also established a new currency called the “Sovereign Bolivar,” which was determined by the elimination of five zeros
from the old currency. The DICOM floating rate was approximately 436,677, 21,028, and 62 Bolivars per United States dollar at
September 30, 2020, 2019 and 2018, respectively. The DICOM floating rate might not reflect the barter market exchange rates.
NOTE 5 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of September 30, 2020 and 2019 consisted of the following:
(in thousands)
Drilling services equipment
Tubulars
Real estate properties
Other
Construction in progress (1)
Accumulated depreciation
Property, plant and equipment, net
Estimated Useful Lives
September 30, 2020
September 30, 2019
4 - 15 years
$
7,313,234
4 years
10 - 45 years
2 - 23 years
615,281
43,389
464,704
49,592
8,486,200
(4,839,859)
$
3,646,341
$
7,881,323
618,310
72,507
471,803
117,761
9,161,704
(4,659,620)
4,502,084
(1)
Included in construction in progress are costs for projects in progress to upgrade or refurbish certain rigs in our existing fleet. Additionally, we
include other capital maintenance purchase-orders that are open/in process. As these various projects are completed, the costs are then
classified to their appropriate useful life category.
Impairments - Fiscal Year 2020
Consistent with our policy, we evaluate our drilling rigs and related equipment for impairment whenever events or changes
in circumstances indicate the carrying value of these assets may exceed the estimated undiscounted future net cash flows. Our
evaluation, among other things, includes a review of external market factors and an assessment on the future marketability of
specific rigs’ asset group.
During the second quarter of fiscal year 2020, several significant economic events took place that severely impacted the
current demand on drilling services, including the significant drop in crude oil prices caused by OPEC+'s price war coupled with the
decrease in the demand due to the COVID-19 pandemic. To maintain a competitive edge in a challenging market, the Company’s
management introduced a new strategy focused on operating various types of highly capable upgraded rigs and phasing out the
older, less capable fleet. This resulted in grouping the super-spec rigs of our legacy Domestic FlexRig® 3 asset group and our
FlexRig® 5 asset group creating a new "Domestic super-spec FlexRig®" asset group, while combining the legacy Domestic
conventional asset group, FlexRig® 4 asset group and FlexRig® 3 non-super-spec rigs into one asset group (Domestic non-super-
spec asset group). Given the current and projected low utilization for our Domestic non-super-spec asset group and all
International asset groups, we considered these economic factors to be indicators that these asset groups may be impaired.
As a result of these indicators, we performed impairment testing at March 31, 2020 on each of our Domestic non super-
spec and International conventional, FlexRig® 3, and FlexRig® 4 asset groups, which had an aggregate net book value of $605.8
million. We concluded that the net book value of each asset group is not recoverable through estimated undiscounted cash flows
and recorded a non-cash impairment charge of $441.4 million in the Consolidated Statement of Operations for the fiscal year
ended September 30, 2020. Of the $441.4 million total impairment charge recorded, $292.4 million and $149.0 million was
recorded in the North America Solutions and International Solutions segments, respectively. No further impairments were
recognized in fiscal year 2020. Impairment was measured as the amount by which the net book value of each asset group exceeds
its fair value.
The most significant assumptions used in our undiscounted cash flow model include timing on awards of future drilling
contracts, drilling rig utilization, estimated remaining useful life, and net proceeds received upon future sale/disposition. These
assumptions are classified as Level 3 inputs by ASC Topic 820 Fair Value Measurement and Disclosures as they are based upon
unobservable inputs and primarily rely on management assumptions and forecasts.
71
In determining the fair value of each asset group, we utilized a combination of income and market approaches. The
significant assumptions in the valuation are based on those of a market participant and are classified as Level 2 and Level 3 inputs
by ASC Topic 820 Fair Value Measurement and Disclosures.
As of March 31, 2020, the Company also recorded an additional non-cash impairment charge related to in-progress
drilling equipment and rotational inventory of $44.9 million and $38.6 million, respectively, which had aggregate book values of
$68.4 million and $38.6 million, respectively, in the Consolidated Statement of Operations for the fiscal year ended September 30,
2020. Of the $83.5 million total impairment charge recorded for in-progress drilling equipment and rotational inventory, $75.8 million
and $7.7 million was recorded in the North America Solutions and International Solutions segments, respectively.
Impairment - Fiscal Year 2019
During the third quarter of fiscal year 2019, the Company's management performed a detailed assessment, considering a
number of approaches, to maximize the utilization and enhance the margins of the domestic and international FlexRig® 4 asset
groups. In June 2019, this assessment concluded that marketing a smaller fleet of these two asset groups would provide the best
economic outcome. As such, the decision was made to downsize the number of domestic and international FlexRig® 4 drilling rigs,
to be marketed to our customers, from 71 rigs to 20 domestic rigs and from 10 rigs to 8 international rigs and utilize the major
interchangeable components of the decommissioned drilling rigs within these asset groups as capital spares for all of our
remaining rig fleet. This reduced the aggregate net book values of the FlexRig® 4 asset groups as of June 30, 2019 from $317.8
million to $107.5 million for domestic rigs and from $55.7 million to $47.8 million for international rigs. Following the downsizing
process, we performed a detailed study to optimize the quantities of capital spares and drilling support equipment required to
support the future operations of our rig fleet going forward. These decisions and analysis resulted in a write down of excess capital
spares and drilling support equipment, which had an aggregate net book value of $235.3 million, to their estimated proceeds to
ultimately be received on sale or disposal based on our historical experience with sales and disposals of similar assets, resulting in
an impairment of $224.3 million, which was recorded in our Consolidated Statement of Operations for the fiscal year ended
September 30, 2019. Of the $224.3 million total impairment charge recorded, $216.9 million and $7.4 million was recorded in our
North America Solutions and International Solutions segments, respectively. The significant assumptions in the valuation are
classified as Level 2 inputs by ASC Topic 820, Fair Value Measurement and Disclosures.
Due to the downsizing of our domestic and international FlexRig® 4 asset groups, at June 30, 2019, we performed
impairment testing on these two asset groups. We concluded that the net book values of the asset groups are recoverable through
estimated undiscounted cash flows with a surplus. The most significant assumptions used in our undiscounted cash flow model
include timing on awards of future drilling contracts, operating dayrates, operating costs, rig reactivation costs, drilling rig utilization,
estimated remaining useful life, and net proceeds received upon future sale/disposition. The assumptions are consistent with the
Company's internal forecasts for future years. Although we believe the assumptions used in our analysis are reasonable and
appropriate and the probability-weighted average of expected future undiscounted net cash flows exceed the net book value for
each of the domestic and international FlexRig® 4 asset groups as of June 30, 2019, different assumptions and estimates could
materially impact the analysis and our resulting conclusion.
Impairments - Fiscal Year 2018
During the fourth quarter of fiscal year 2018, after ceasing operations in Ecuador, we entered into a sales negotiation with
respect to the six conventional rigs, within a separate international conventional rigs’ asset group, with net book values of $20.8
million, present in the country, pursuant to which the rigs, together with associated equipment and machinery, were sold to a third
party to be recycled. Certain components of these rigs, with an $8.5 million net book value, that were not subject to the sale
agreement were transferred to the United States to be utilized on other FlexRig® drilling rigs with high activity and demand. The
sales transaction was completed in November 2018. We recorded a non-cash impairment charge within our International Solutions
segment of $9.2 million, which is included in Asset Impairment Charge on the Consolidated Statement of Operations for the fiscal
year ended September 30, 2018. As a result, the remaining rig within the same asset group, not to be disposed of, was written
down resulting in an additional impairment charge of $1.4 million. The assets were recorded at fair value based on the sales
agreement and as such are classified as Level 2 within the fair value hierarchy.
Furthermore, during the fourth quarter of fiscal year 2018, within our North America Solutions segment, management
committed to a plan to auction several previously decommissioned rigs during fiscal year 2019. As a result, we wrote them down to
their estimated fair values. We recorded a non-cash impairment charge of $5.7 million, which is included in Asset Impairment
Charge on the Consolidated Statements of Operations for the fiscal year ended September 30, 2018. The assets were recorded at
fair value based on the auction price and as such are classified as Level 2 of the fair value hierarchy.
72
Decommissioning
While the crude oil market imbalance is a global phenomenon, it has more acutely impacted the U.S. market as a result of
storage limitations during the last two quarters of fiscal year 2020. The abruptness of and the overall size of the decrease in
demand for refined products, such as gasoline and diesel, has created an abundance of supply for such products which has
caused the inventory levels of crude oil and its related refined products to become greatly elevated, reaching the high end of
storage capabilities. This has greatly reduced the need, or in some cases, entirely eliminated the ability of refineries to use crude
oil as a feedstock. As such, exploration and production ("E&P") companies, our customers, may have limited opportunities to
offload their production and even then, the selling price could be at very low, uneconomical prices. Consequently, some E&P
companies have chosen to shut-in and stop production, not complete additional wells drilled and/or not drill any more wells until the
market imbalance corrects and it is economical to resume production and drilling wells.
During the fiscal year ended September 30, 2020, we decommissioned two rigs and 35 rigs from our legacy Domestic
Conventional asset group and FlexRig® 3 asset group, respectively. The decommissioned rigs were impaired as of March 31, 2020.
Depreciation
Depreciation in the Consolidated Statements of Operations of $474.7 million, $556.9 million and $578.4 million includes
abandonments of $4.0 million, $11.4 million and $27.7 million for fiscal years 2020, 2019 and 2018, respectively.
Gain on Sale of Assets
We had a gain on sale of assets of $46.8 million, $39.7 million and $22.7 million in fiscal years 2020, 2019 and 2018,
respectively. These gains were related to customer reimbursement for the replacement value of drill pipe damaged or lost in drilling
operations. Additionally, during the fiscal year ended September 30, 2020, we closed on the sale of a portion of our real estate
investment portfolio, including six industrial sites, for total consideration, net of selling related expenses, of $40.7 million and an
aggregate net book value of $13.5 million, resulting in a gain of $27.2 million, which is included within Gain on Sale of Assets on
our Consolidated Statement of Operations.
NOTE 6 LEASES
ASC 842 Adoption
On October 1, 2019, we adopted ASC 842, retrospectively through a cumulative-effect adjustment without restating
comparative periods for the 2019 and 2018 fiscal years as permitted under the specific transitional provisions in ASC 842. The
reclassifications and the adjustments arising from the new leasing rules are therefore recognized in the opening balance sheet on
October 1, 2019.
Upon the adoption of ASC 842, we recognized lease liabilities in relation to leases that had previously been classified as
operating leases under the principles of ASC 840. These liabilities were measured at the present value of the remaining lease
payments, discounted using the lessee’s incremental borrowing rate as of October 1, 2019, as most of our contracts do not provide
an implicit rate. The weighted average lessee’s incremental borrowing rate applied to the operating lease liabilities on October 1,
2019 was approximately 2.9%.
The change in accounting policy affected the following items in the balance sheet on October 1, 2019:
(in thousands)
Other Noncurrent Assets:
September 30, 2019
Adjustments
October 1, 2019
Operating lease right-of-use asset
$
— $
56,071
$
Current Liabilities:
Accrued Liabilities
Noncurrent Liabilities:
Other
—
—
16,277
39,794
56,071
16,277
39,794
73
As of September 30, 2020, segment assets and liabilities have all increased from September 30, 2019 as a result of the
change in accounting policy. All reportable segments were affected by the change in policy.
In applying ASC 842 for the first time, we have used the following practical expedients permitted by the topic:
The use of a single discount rate to a portfolio of leases with reasonably similar characteristics,
•
• Not to reassess whether a contract is, or contains a lease at the date of initial application; instead, for contracts
entered into before the transition date, we relied on our assessment in which we applied ASC 840 prior to the
adoption date,
The option to not reassess initial direct cost for existing leases, and
The use of hindsight in determining the lease term where the contract contains options to extend or terminate the
lease.
•
•
We have made the accounting policy election to not recognize a right-of-use asset and corresponding liability for leases
with a term of 12 months or less and leases of low-value. Additionally, ASC 842 provides lessors with a practical expedient, by
class of underlying asset, to not separate lease and non-lease components and account for the combined component under ASC
606 when the non-lease component is the predominant element of the combined component. The lessor practical expedient is
limited to circumstances in which the lease, if accounted for separately, would be classified as an operating lease under ASC 842.
With respect to our drilling service contracts that commenced or were amended during the fiscal year ended
September 30, 2020, we concluded that our drilling contracts contain a lease component and that the non-lease component is the
predominant element of the combined component of such contracts. As such, we elected to apply the practical expedient to not
separate the lease and non-lease components and account for the combined component under ASC 606. Therefore, we do not
expect any change in our revenue recognition patterns or disclosures as a result of our adoption of ASC 842.
Lease Position
(in thousands)
Operating lease commitments, including probable extensions (1)
Discounted using the lessee's incremental borrowing rate at the date of initial application
(Less): short-term leases recognized on a straight-line basis as expense
Lease liability recognized
Of which:
Current lease liabilities
Non-current lease liabilities
$
$
$
$
October 1, 2019
September 30, 2020
62,218
$
48,695
57,323
$
(1,252)
56,071
$
16,277
$
39,794
46,706
(1,456)
45,250
11,364
33,886
(1) Our future minimal rental payments exclude optional extensions that have not been exercised but are probable to be exercised in the future,
those probable extensions are included in the operating lease liability balance.
The recognized right-of-use assets relate to the following types of assets:
(in thousands)
Properties
Equipment
Other
Total right-of-use assets
October 1, 2019
September 30, 2020
$
$
52,188
$
3,652
231
56,071
$
42,448
1,394
741
44,583
The right-of-use assets were measured at the amount equal to the lease liability, adjusted for the amount of any prepaid
or accrued lease payments recognized on the balance sheet at September 30, 2019.
Lease Costs
The following table presents certain information related to the lease costs for our operating leases:
(in thousands)
Operating lease cost
Short-term lease cost
Total lease cost
Year Ended
September 30, 2020
$
$
16,953
1,693
18,646
74
Lease Terms and Discount Rates
The table below presents certain information related to the weighted average remaining lease terms and weighted
average discount rates for our operating leases as of September 30, 2020.
Weighted average remaining lease term
Weighted average discount rate
Lease Obligations
September 30, 2020
4.9
2.7%
Future minimum rental payments required under operating leases having initial or remaining non-cancelable lease terms
in excess of one year at September 30, 2020 (in thousands) are as follows:
Fiscal Year
2021
2022
2023
2024
2025
Thereafter
Total (1)
Amount
11,680
8,133
7,466
7,018
3,231
638
38,166
$
$
(1) Our future minimal rental payments exclude optional extensions that have not been exercised but are probable to be exercised in the future,
those probable extensions are included in the operating lease liability balance.
Total rent expense was $18.6 million, $15.5 million and $13.7 million for the fiscal years ended September 30, 2020, 2019
and 2018, respectively. The future minimum lease payments for our Tulsa corporate office and our Tulsa industrial facility represent
a material portion of the amounts shown in the table above. The lease agreement for our Tulsa corporate office commenced on
May 30, 2003 and has subsequently been amended, most recently on March 12, 2018. The agreement will expire on January 31,
2025; however, we have two five-year renewal options, which were not recognized as part of our right-of-use assets and lease
liabilities. The lease agreement for our Tulsa industrial facility, where we perform maintenance and assembly of FlexRig®
components commenced on December 21, 2018 and will expire on June 30, 2025; however, we have two two-year renewal
options which were recognized as part of our right-of-use assets and lease liabilities.
NOTE 7 GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill represents the excess of the purchase price over the fair values of the assets acquired and liabilities assumed in
a business combination, at the date of acquisition. Goodwill is not amortized but is tested for potential impairment at the reporting
unit level, at a minimum on an annual basis, or when indications of potential impairment exist. All of our goodwill is within our North
America Solutions reportable segment.
The following is a summary of changes in goodwill (in thousands):
September 30, 2017
Additions
Impairment
September 30, 2018
Additions
September 30, 2019
Additions
Impairment
September 30, 2020
$
$
51,705
17,791
(4,719)
64,777
18,009
82,786
1,200
(38,333)
45,653
During the second quarter of fiscal year 2020, as a result of new information identified related to the acquisition of
DrillScan®, the acquisition date fair value of the contingent consideration and goodwill increased by approximately $1.2 million.
75
Intangible Assets
Finite-lived intangible assets are amortized using the straight-line method over the period in which these assets contribute
to our cash flows and are evaluated for impairment in accordance with our policies for valuation of long-lived assets. All of our
intangible assets are within our North America Solutions reportable segment. Intangible assets consisted of the following:
September 30, 2020
September 30, 2019
Weighted
Average
Estimated
Useful Lives
Gross
Carrying
Amount
Accumulated
Amortization
Net
Gross
Carrying
Amount
Accumulated
Amortization
Net
(in thousands)
Finite-lived intangible asset:
Developed technology
15 years
$
89,096
$
16,222
$
72,874
$
89,096
$
10,256
$
78,840
Intellectual property
Trade name
Customer relationships
13 years
20 years
5 years
1,500
5,865
4,000
103
842
2,267
1,397
5,023
1,733
—
5,865
4,000
—
522
1,467
—
5,343
2,533
$ 100,461
$
19,434
$
81,027
$
98,961
$
12,245
$
86,716
Amortization expense in the Consolidated Statements of Operations was $7.2 million, $5.8 million and $5.4 million for
fiscal years 2020, 2019 and 2018, respectively, and is estimated to be $7.2 million for each of the next two succeeding fiscal years,
approximately $6.5 million for fiscal year 2023 and approximately $6.4 million for fiscal years 2024 and 2025.
Impairment - Fiscal Year 2020
Consistent with our policy, we test goodwill annually for impairment in the fourth quarter of our fiscal year, or more
frequently if there are indicators that goodwill might be impaired.
Due to the market conditions described in Note 5—Property, Plant and Equipment, during the second quarter of fiscal
year 2020, we concluded that goodwill and intangible assets might be impaired and tested the H&P Technologies reporting unit,
where the goodwill balance is allocated and the intangible assets are recorded, for recoverability. This resulted in a goodwill only
non-cash impairment charge of $38.3 million recorded in the Consolidated Statement of Operations during the fiscal year ended
September 30, 2020.
The recoverable amount of the H&P Technologies reporting unit was determined based on a fair value calculation which
uses cash flow projections based on the Company's financial projections presented to the Board covering a five-year period, and a
discount rate of 14 percent. Cash flows beyond that five-year period were extrapolated using the fifth-year data with no implied
growth factor. The reporting unit level is defined as an operating segment or one level below an operating segment.
The recoverable amount of the intangible assets tested for impairment within the H&P Technologies reporting unit is
determined based on undiscounted cash flow projections using the Company's financial projections presented to the Board
covering a five-year period and extrapolated for the remaining weighted average useful lives of the intangible assets.
The most significant assumptions used in our cash flow model include timing of awarded future contracts, commercial
pricing terms, utilization, discount rate, and the terminal value. These assumptions are classified as Level 3 inputs by ASC Topic
820 Fair Value Measurement and Disclosures as they are based upon unobservable inputs and primarily rely on management
assumptions and forecasts. Although we believe the assumptions used in our analysis and the probability-weighted average of
expected future cash flows are reasonable and appropriate, different assumptions and estimates could materially impact the
analysis and our resulting conclusion.
Impairment - Fiscal Year 2018
During the fourth quarter of fiscal year 2018, and as part of our annual goodwill impairment test, we performed a detailed
assessment of the TerraVici reporting unit, where $4.7 million of goodwill was allocated. We determined that the estimated fair
value of this reporting unit was less than its carrying amount and we recorded goodwill impairment losses of $4.7 million. In
addition, we recorded an intangible assets impairment loss of $0.9 million. These impairment losses are included in Asset
Impairment Charge on the Consolidated Statements of Operations for the fiscal year ended September 30, 2018. Our goodwill
impairment analysis performed on our remaining technology reporting units in the fourth quarter of fiscal year 2018 did not result in
an impairment charge.
76
NOTE 8 DEBT
We had the following unsecured long-term debt outstanding with maturities shown in the following table:
September 30, 2020
September 30, 2019
Face
Amount
Unamortized
Discount and
Debt Issuance
Cost
Book
Value
Face
Amount
Unamortized
Discount and
Debt Issuance
Cost
Book
Value
$ 487,148
$
(6,421) $ 480,727
$ 487,148
$
(7,792) $ 479,356
487,148
—
(6,421)
480,727
487,148
(7,792)
479,356
—
—
—
—
—
$ 487,148
$
(6,421) $ 480,727
$ 487,148
$
(7,792) $ 479,356
(in thousands)
Unsecured senior notes:
Due March 19, 2025
Less long-term debt due within one year
Long-term debt
Senior Notes
HPIDC 2025 Notes
On March 19, 2015, our subsidiary, HPIDC issued $500.0 million of 4.65 percent unsecured senior notes due 2025 of
HPIDC (the "HPIDC 2025 Notes"), which were redeemed in full on September 27, 2019 as described under "––Exchange Offer,
Consent Solicitation and Redemption." Interest on the HPIDC 2025 Notes was payable semi-annually on March 15 and September
15. The debt discount was being amortized to interest expense using the effective interest method. The debt issuance costs were
being amortized straight-line over the stated life of the obligation, which approximated the effective interest method.
Exchange Offer, Consent Solicitation and Redemption
On December 20, 2018, we settled an offer to exchange (the “Exchange Offer”) any and all outstanding HPIDC 2025
Notes for (i) up to $500.0 million aggregate principal amount of new 4.65 percent unsecured senior notes due 2025 of the
Company (the “Company 2025 Notes”), with registration rights, and (ii) cash, pursuant to which we issued approximately $487.1
million in aggregate principal amount of Company 2025 Notes. Interest on the Company 2025 Notes is payable semi-annually on
March 15 and September 15 of each year, commencing March 15, 2019. The debt issuance costs are being amortized straight-line
over the stated life of the obligation, which approximates the effective interest method.
Following the consummation of the Exchange Offer, HPIDC had outstanding approximately $12.9 million in aggregate
principal amount of HPIDC 2025 Notes. On December 20, 2018, HPIDC, the Company and Wells Fargo Bank, National
Association, as trustee, entered into a supplemental indenture to the indenture governing the HPIDC 2025 Notes to adopt certain
proposed amendments pursuant to a consent solicitation conducted concurrently with the Exchange Offer.
On September 27, 2019, we redeemed the remaining approximately $12.9 million in aggregate principal amount of HPIDC
2025 Notes for approximately $14.6 million, including accrued interest and a prepayment premium. Simultaneously with the
redemption of the HPIDC 2025 Notes, HPIDC was released as a guarantor under the Company 2025 Notes and the 2018 Credit
Facility. As a result of such release, H&P is the only obligor under the Company 2025 Notes and the 2018 Credit Facility.
Credit Facilities
On November 13, 2018, we entered into a credit agreement by and among the Company, as borrower, Wells Fargo Bank,
National Association, as administrative agent, and the lenders party thereto, which was amended on November 13, 2019, providing
for an unsecured revolving credit facility (the “2018 Credit Facility”) that is set to mature on November 13, 2024. The 2018 Credit
Facility has $750.0 million in aggregate availability with a maximum of $75.0 million available for use as letters of credit. The 2018
Credit Facility also permits aggregate commitments under the facility to be increased by $300.0 million, subject to the satisfaction
of certain conditions and the procurement of additional commitments from new or existing lenders. The borrowings under the 2018
Credit Facility accrue interest at a spread over either the London Interbank Offered Rate ("LIBOR") or the Base Rate. We also pay
a commitment fee on the unused balance of the facility. Borrowing spreads as well as commitment fees are determined based on
the debt rating for senior unsecured debt of the Company, as determined by Moody’s and Standard & Poor’s. The spread over
LIBOR ranges from 0.875 percent to 1.500 percent per annum and commitment fees range from 0.075 percent to 0.200 percent
per annum. Based on the unsecured debt rating of the Company on September 30, 2020, the spread over LIBOR would have been
1.125 percent had borrowings been outstanding under the 2018 Credit Facility and commitment fees are 0.125 percent. There is a
financial covenant in the 2018 Credit Facility that requires us to maintain a total debt to total capitalization ratio of less than or equal
to 50 percent. The 2018 Credit Facility contains additional terms, conditions, restrictions and covenants that we believe are usual
and customary in unsecured debt arrangements for companies of similar size and credit quality, including a limitation that priority
debt (as defined in the credit agreement) may not exceed 17.5 percent of the net worth of the Company. As of September 30,
2020, there were no borrowings or letters of credit outstanding, leaving $750.0 million available to borrow under the 2018 Credit
Facility.
77
As of September 30, 2020, we had two separate outstanding letters of credit with banks, in the amounts of $24.8 million
and $2.1 million.
As of September 30, 2020, we also had a $20.0 million unsecured standalone line of credit facility, for the purpose of
obtaining the issuance of international letters of credit, bank guarantees, and performance bonds. Of the $20.0 million, $4.3 million
of financial guarantees were outstanding as of September 30, 2020. Subsequent to September 30, 2020, $2.6 million in financial
guarantees have expired.
The applicable agreements for all unsecured debt contain additional terms, conditions and restrictions that we believe are
usual and customary in unsecured debt arrangements for companies that are similar in size and credit quality. At September 30,
2020, we were in compliance with all debt covenants.
At September 30, 2020, aggregate maturities of long-term debt are as follows (in thousands):
Year ending September 30,
2021
2022
2023
2024
2025
Thereafter
NOTE 9 INCOME TAXES
Income Tax Benefit and Rate
The components of the benefit for income taxes are as follows:
(in thousands)
Current:
Federal
Foreign
State
Deferred:
Federal
Foreign
State
Total benefit
$
$
—
—
—
—
487,148
—
487,148
Year Ended September 30,
2019
2018
2020
$
$
$
15,431
1,495
523
17,449
(127,096)
(12,390)
(18,069)
(157,555)
(140,106) $
$
21,745
732
3,365
25,842
(35,809)
2,804
(11,549)
(44,554)
(18,712) $
757
6,492
2,340
9,589
(508,256)
7,415
14,083
(486,758)
(477,169)
The amounts of domestic and foreign income (loss) before income taxes are as follows:
(in thousands)
Domestic
Foreign
Year Ended September 30,
2020
2019
2018
$
$
(458,364) $
(45,118) $
(178,134)
(6,104)
(636,498) $
(51,222) $
27,436
(11,595)
15,841
78
Effective income tax rates as compared to the U.S. Federal income tax rate are as follows:
U.S. Federal income tax rate
Effect of foreign taxes
State income taxes, net of federal tax benefit
Remeasurement of deferred tax related to Tax Cuts and Jobs Act
Other impact of foreign operations
Non-deductible meals and entertainment
Equity compensation
Excess officer's compensation
Contingent consideration adjustment
Other
Effective income tax rate
Year Ended September 30,
2020
2019
2018
21.0%
(0.2)
2.8
—
(0.5)
(0.2)
(0.3)
(0.2)
—
(0.4)
21.0%
(0.6)
17.2
—
0.9
(2.5)
2.7
(1.9)
4.5
(4.8)
24.5 %
87.8
68.8
(3,169.4)
(43.4)
8.2
(5.3)
1.7
10.7
4.1
22.0%
36.5%
(3,012.3)%
Effective tax rates differ from the U.S. federal statutory rate of 21.0 percent due to state and foreign income taxes and the
tax effect of non-deductible expenditures.
Deferred Taxes
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis
of our assets and liabilities. Recoverability of any tax assets are evaluated, and necessary valuation allowances are provided. The
carrying value of the net deferred tax assets is based on management’s judgments using certain estimates and assumptions that
we will be able to generate sufficient future taxable income in certain tax jurisdictions to realize the benefits of such assets. If these
estimates and related assumptions change in the future, additional valuation allowances may be recorded against the deferred tax
assets resulting in additional income tax expense in the future.
The components of our net deferred tax liabilities are as follows:
(in thousands)
Deferred tax liabilities:
Property, plant and equipment
Marketable securities
Other
Total deferred tax liabilities
Deferred tax assets:
Marketable securities
Pension reserves
Self-insurance reserves
Net operating loss, foreign tax credit, and other federal tax credit carryforwards
Financial accruals
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Net deferred tax liabilities
September 30,
2020
2019
$
685,389
$
867,909
1,957
26,138
713,484
—
7,369
10,360
33,747
32,481
15,632
99,589
(36,780)
62,809
—
15,681
883,590
771
7,324
14,294
41,126
54,511
2,531
120,557
(43,578)
76,979
$
650,675
$
806,611
The change in our net deferred tax assets and liabilities is impacted by foreign currency remeasurement.
As of September 30, 2020, we had federal, state and foreign tax net operating loss carryforwards of $7.3 million, $25.7
million and $39.9 million, respectively, and foreign tax credit carryforwards of approximately $23.9 million (of which $19.1 million is
reflected as a deferred tax asset in our Consolidated Financial Statements prior to consideration of our valuation allowance) which
will expire in fiscal years 2021 through 2040. The valuation allowance is primarily attributable to foreign net operating loss
carryforwards of $11.3 million, foreign tax credit carryforwards of $19.1 million, equity compensation of $4.9 million, and foreign
minimum tax credit carryforwards of $1.4 million which more likely than not will not be utilized.
79
Unrecognized Tax Benefits
We recognize accrued interest related to unrecognized tax benefits in interest expense, and penalties in other expense in
the Consolidated Statements of Operations. As of September 30, 2020, and 2019, we had accrued interest and penalties of $2.8
million and $2.1 million, respectively. A reconciliation of the change in our gross unrecognized tax benefits for the fiscal years
ended September 30, 2020 and 2019 is as follows:
(in thousands)
Unrecognized tax benefits at October 1,
Gross decreases - current period effect of tax positions
Gross increases - current period effect of tax positions
Expiration of statute of limitations for assessments
Unrecognized tax benefits at September 30,
2020
2019
15,759
$
14,905
(2,338)
20
(1)
(28)
1,067
(185)
13,440
$
15,759
$
$
As of September 30, 2020, and 2019, our liability for unrecognized tax benefits includes $13.0 million and $15.3 million,
respectively, of unrecognized tax benefits related to discontinued operations that, if recognized, would not affect the effective tax
rate. The remaining unrecognized tax benefits would affect the effective tax rate if recognized. The liabilities for unrecognized tax
benefits and related interest and penalties are included in other noncurrent liabilities in our Consolidated Balance Sheets.
For the next 12 months, we cannot predict with certainty whether we will achieve ultimate resolution of any uncertain tax
position associated with our U.S. and international operations that could result in increases or decreases of our unrecognized tax
benefits. However, we do not expect the increases or decreases to have a material effect on our results of operations or financial
position.
Tax Returns
We file a consolidated U.S. federal income tax return, as well as income tax returns in various states and foreign
jurisdictions. The tax years that remain open to examination by U.S. federal and state jurisdictions include fiscal years 2016
through 2019, with exception of certain state jurisdictions currently under audit. The tax years remaining open to examination by
foreign jurisdictions include 2003 through 2019.
NOTE 10 SHAREHOLDERS’ EQUITY
The Company has an evergreen authorization from the Board for the repurchase of up to four million common shares in
any calendar year. The repurchases may be made using our cash and cash equivalents or other available sources. During the
fiscal year ended September 30, 2020, we purchased 1.5 million common shares at an aggregate cost of $28.5 million, which are
held as treasury shares. We purchased 1.0 million common shares at an aggregate cost of $42.8 million, which are held as
treasury shares, during the fiscal year ended September 30, 2019. We had no purchases of common shares during the fiscal year
ended September 30, 2018.
As of September 30, 2020, we declared $209.8 million in cash dividends. A cash dividend of $0.25 per share was
declared on September 9, 2020 for shareholders of record on November 13, 2020, payable on December 1, 2020. As a result, we
recorded a Dividend Payable of $27.2 million on our Consolidated Balance Sheets as of September 30, 2020.
Accumulated Other Comprehensive Income (Loss)
Components of accumulated other comprehensive income (loss) were as follows:
(in thousands)
Pre-tax amounts:
Unrealized appreciation on securities (1)
Unrealized actuarial loss
After-tax amounts:
Unrealized appreciation on securities (1)
Unrealized actuarial loss
September 30,
2020
2019
2018
$
$
$
$
— $
— $
(33,923)
(37,084)
(33,923) $
(37,084) $
— $
— $
(26,188)
(28,635)
(26,188) $
(28,635) $
44,023
(21,693)
22,330
29,071
(12,521)
16,550
(1) We adopted ASU No. 2016-01 on October 1, 2018. The standard requires that changes in the fair value of our equity investments must be
recognized in net income.
The following is a summary of the changes in accumulated other comprehensive loss, net of tax, by component for the
fiscal year ended September 30, 2020:
80
(in thousands)
Balance at September 30, 2019
Activity during the period
Amounts reclassified from accumulated other comprehensive loss
Net current-period other comprehensive loss
Balance at September 30, 2020
NOTE 11 REVENUE FROM CONTRACTS WITH CUSTOMERS
Drilling Services Revenue
Defined Benefit
Pension Plan
$
$
(28,635)
2,447
2,447
(26,188)
The majority of our drilling services are performed on a “daywork” contract basis, under which we charge a rate per day,
with the price determined by the location, depth and complexity of the well to be drilled, operating conditions, the duration of the
contract, and the competitive forces of the market. These drilling services, including our technology solutions, represent a series of
distinct daily services that are substantially the same, with the same pattern of transfer to the customer. Because our customers
benefit equally throughout the service period and our efforts in providing drilling services are incurred relatively evenly over the
period of performance, revenue is recognized over time using a time-based input measure as we provide services to the customer.
Contracts generally contain renewal or extension provisions exercisable at the option of the customer at prices mutually
agreeable to us and the customer. For contracts that are terminated by customers prior to the expirations of their fixed terms,
contractual provisions customarily require early termination amounts to be paid to us. Revenues from early terminated contracts
are recognized when all contractual requirements have been met. During the fiscal years ended September 30, 2020, 2019 and
2018, early termination revenue associated with term contracts was approximately $73.4 million, $11.3 million and $17.1 million,
respectively. During the fiscal years ended September 30, 2020, 2019 and 2018, notification fee revenue related to well-to-well
contracts was approximately $2.9 million, $1.2 million and $0.2 million, respectively.
We also act as a principal for certain reimbursable services and auxiliary equipment provided by us to our clients, for
which we incur costs and earn revenues. Many of these costs are variable, or dependent upon the activity that is performed each
day under the related contract. Accordingly, reimbursements that we receive for out-of-pocket expenses are recorded as revenues
and the out-of-pocket expenses for which they relate are recorded as operating costs during the period to which they relate within
the series of distinct time increments. All of our revenues are recognized net of sales taxes, when applicable.
With most drilling contracts, we also receive payments contractually designated for the mobilization and demobilization of
drilling rigs and other equipment to and from the client’s drill site. Revenues associated with the mobilization and demobilization of
our drilling rigs to and from the client’s drill site do not relate to a distinct good or service. These revenues are deferred and
recognized ratably over the related contract term that drilling services are provided.
Demobilization fees expected to be received upon contract completion are estimated at contract inception and recognized
on a straight-line basis over the contract term. The amount of demobilization revenue that we ultimately collect is dependent upon
the specific contractual terms, most of which include provisions for reduced or no payment for demobilization when, among other
things, the contract is renewed or extended with the same client, or when the rig is subsequently contracted with another client
prior to the termination of the current contract. Since revenues associated with demobilization activity are typically variable, at each
period end, they are estimated at the most likely amount, and constrained when the likelihood of a significant reversal is probable.
Any change in the expected amount of demobilization revenue is accounted for with the net cumulative impact of the change in
estimate recognized in the period during which the revenue estimate is revised.
Contract Costs
Mobilization costs include certain direct costs incurred for mobilization of contracted rigs. These costs relate directly to a
contract, enhance resources that will be used in satisfying the future performance obligations and are expected to be recovered.
These costs are capitalized when incurred and recorded as current or noncurrent contract fulfillment cost assets (depending on the
length of the initial contract term), and are amortized on a systematic basis consistent with the pattern of the transfer of the goods
or services to which the asset relates which typically includes the initial term of the related drilling contract or a period longer than
the initial contract term if management anticipates a customer will renew or extend a contract, which we expect to benefit from the
cost of mobilizing the rig. Abnormal mobilization costs are fulfillment costs that are incurred from excessive resources, wasted or
spoiled materials, and unproductive labor costs that are not otherwise anticipated in the contract price and are expensed as
incurred. As of September 30, 2020, and 2019, we had capitalized fulfillment costs of $6.2 million and $13.9 million, respectively.
If capital modification costs are incurred for rig modifications or if upgrades are required for a contract, these costs are
considered to be capital improvements. These costs are capitalized as property, plant and equipment and depreciated over the
estimated useful life of the improvement.
81
Remaining Performance Obligations
The total aggregate transaction price allocated to the unsatisfied performance obligations, commonly referred to as
backlog, as of September 30, 2020 was approximately $670.1 million, of which $446.7 million is expected to be recognized during
fiscal year 2021, and approximately $223.4 million in fiscal year 2022 and thereafter. These amounts do not include anticipated
contract renewals. Additionally, contracts that currently contain month-to-month terms are represented in our backlog as one month
of unsatisfied performance obligations. Our contracts are subject to cancellation or modification at the election of the customer;
however, due to the level of capital deployed by our customers on underlying projects, we have not been materially adversely
affected by contract cancellations or modifications in the past. However, the impact of the COVID-19 pandemic is inherently
uncertain, and, as a result, the Company is unable to reasonably estimate the duration and ultimate impacts of the pandemic,
including the effect it may have on our contractual obligations with our customers.
Contract Assets and Liabilities
Amounts owed from our customers under our revenue contracts are typically billed on a monthly basis as the service is
being provided and are due within 30 days of billing. Such amounts are classified as accounts receivable on our Consolidated
Balance Sheets. Under certain of our contracts, we recognize revenues in excess of billings, referred to as contract assets, within
prepaid expenses and other current assets within our Consolidated Balance Sheets.
Under certain of our contracts, we may be entitled to receive payments in advance of satisfying our performance
obligations under the contract. We recognize a liability for these payments in excess of revenue recognized, referred to as deferred
revenue or contract liabilities, within accrued liabilities and other noncurrent liabilities in our Consolidated Balance Sheets. Contract
balances are presented at the net amount at a contract level.
The following table summarizes the balances of our contract assets and liabilities at the dates indicated:
(in thousands)
Contract assets
(in thousands)
Contract liabilities balance at October 1, 2018
Payment received/accrued and deferred
Revenue recognized during the period
Contract liabilities balance at September 30, 2019
Payment received/accrued and deferred
Revenue recognized during the period
Contract liabilities balance at September 30, 2020
NOTE 12 STOCK-BASED COMPENSATION
September 30, 2020
September 30, 2019
$
2,367
$
2,151
September 30, 2020
$
$
38,472
30,863
(45,981)
23,354
19,312
(34,030)
8,636
On March 3, 2020, the Helmerich & Payne, Inc. 2020 Omnibus Incentive Plan (the “2020 Plan”) was approved by our
stockholders. The 2020 Plan replaces our stockholder-approved Helmerich & Payne, Inc. 2016 Omnibus Incentive Plan (the
"2016 Plan"). The 2020 Plan is a stock and cash-based incentive plan that, among other things, authorizes the Board or Human
Resources Committee of the Board to grant executive officers, employees and non-employee directors stock options, stock
appreciation rights, restricted shares and restricted share units (including performance share units), share bonuses, other share-
based awards and cash awards. Restricted stock may be granted for no consideration other than prior and future services. The
purchase price per share for stock options may not be less than market price of the underlying stock on the date of grant. Stock
options expire ten years after the grant date. Awards outstanding under the Helmerich & Payne, Inc. 2005 Long-Term Incentive
Plan, the Helmerich & Payne, Inc. 2010 Long-Term Incentive Plan and the 2016 Plan remain subject to the terms and conditions
of those plans. Beginning with fiscal year 2019, we replaced stock options with performance share units as a component of our
executives' long-term equity incentive compensation. As a result, there were no stock options granted during the fiscal years
ended September 30, 2020 and 2019. We have also eliminated stock options as an element of our non-employee director
compensation program. The Board has determined to award stock-based compensation to non-employee directors solely in the
form of restricted stock. During the fiscal year ended September 30, 2020, 727,009 shares of restricted stock awards and 258,857
performance share units were granted under the 2016 Plan and 54,118 shares of restricted stock awards were granted under the
2020 Plan.
82
A summary of compensation cost for stock-based payment arrangements recognized in drilling services operating
expense, research and development expense and selling, general and administrative expense in fiscal years 2020, 2019 and
2018 is as follows:
(in thousands)
Stock-based compensation expense
Stock options
Restricted stock
Performance share units
Stock-based compensation benefit included in restructuring charges
September 30,
2020
2019
2018
$
$
1,753
$
3,721
$
30,605
7,454
(3,483)
26,149
4,422
—
7,913
23,774
—
—
36,329
$
34,292
$
31,687
Of the total stock-based compensation expense, $9.1 million was recorded in drilling services operating expense, $0.8
million was recorded in research and development expense, $29.9 million in selling, general and administrative expense and
$(3.5) million was recorded in restructuring charges during the year ended September 30, 2020 on our Consolidated Statements
of Operations.
Stock Options
Vesting requirements for stock options are determined by the Human Resources Committee of the Board. Options
currently outstanding began vesting one year after the grant date with 25 percent of the options vesting for four consecutive
years.
We use the Black-Scholes formula to estimate the fair value of stock options granted to employees. The fair value of the
options is amortized to compensation expense on a straight-line basis over the requisite service periods of the stock awards,
which are generally the vesting periods.
Risk-free interest rate (1)
Expected stock volatility (2)
Dividend yield (3)
Expected term (in years) (4)
2018
2.2%
36.1%
4.7%
6.0
(1) The risk-free interest rate is based on U.S. Treasury securities for the expected term of the option.
(2) Expected volatilities are based on the daily closing price of our stock based upon historical experience over a period which approximates
the expected term of the option.
(3) The dividend yield is based on our current dividend yield.
(4) The expected term of the options granted represents the period of time that they are expected to be outstanding. We estimate term of
option granted based on historical experience with grants and exercise.
Based on these calculations, the weighted-average fair value per option granted to acquire a share of common stock
was $13.17 per share for fiscal year 2018.
The following summary reflects the stock option activity for our common stock and related information for fiscal years
2020, 2019 and 2018:
(shares in thousands)
Outstanding at October 1,
Granted
Exercised
Forfeited/Expired
Outstanding on September 30,
Exercisable on September 30,
2020
Weighted-
Average
Exercise Price
Shares
2019
Weighted-
Average
Exercise Price
Shares
2018
Weighted-
Average
Exercise Price
60.86
—
38.02
61.76
62.41
62.38
3,499
$
—
(217)
(44)
3,238
2,482
$
$
58.62
—
24.46
62.14
60.86
60.38
3,278
$
694
(375)
(98)
3,499
2,193
$
$
56.41
59.03
36.88
70.77
58.62
56.31
Shares
3,238
$
—
(201)
(174)
2,863
2,516
$
$
83
The following table summarizes information about stock options at September 30, 2020 (shares in thousands):
Range of Exercise Prices
$40.00 to $55.00
$55.00 to $70.00
$70.00 to $85.00
Outstanding Stock Options
Exercisable Stock Options
Shares
Weighted-Average
Remaining Life
Weighted-Average
Exercise Price
Shares
Weighted-Average
Exercise Price
472
1,918
473
2,863
$
1.82
5.07
4.92
51.86
60.56
80.47
462
$
1,641
412
2,515
51.83
60.82
80.43
At September 30, 2020, the weighted-average remaining life of exercisable stock options was 4.16 years and the
aggregate intrinsic value was zero with a weighted-average exercise price of $62.38 per share.
The number of options vested or expected to vest at September 30, 2020 was 347,093 with an aggregate intrinsic value
of zero and a weighted-average exercise price of $62.63 per share.
As of September 30, 2020, the unrecognized compensation cost related to the stock options was $1.2 million. That cost
is expected to be recognized over a weighted-average period of 1.22 years.
The total intrinsic value of options exercised during fiscal years 2020, 2019 and 2018 was $0.3 million, $7.9 million and
$9.9 million, respectively.
The grant date fair value of shares vested during fiscal years 2020, 2019 and 2018 was $6.0 million, $8.0 million and
$8.8 million, respectively.
Restricted Stock
Restricted stock awards consist of our common stock and are time-vested over four years. Non-forfeitable dividends are
paid on non-vested shares of restricted stock. We recognize compensation expense on a straight-line basis over the vesting
period. The fair value of restricted stock awards is determined based on the closing price of our shares on the grant date. As of
September 30, 2020, there was $31.4 million of total unrecognized compensation cost related to unvested restricted stock
awards. That cost is expected to be recognized over a weighted-average period of 2.4 years.
A summary of the status of our restricted stock awards as of September 30, 2020, and of changes in restricted stock
outstanding during the fiscal years ended September 30, 2020, 2019 and 2018, is as follows:
(shares in thousands)
Shares
2020
2019
2018
Weighted-Average
Grant Date Fair
Value per Share
Shares
Weighted-Average
Grant Date Fair
Value per Share
Shares
Weighted-Average
Grant Date Fair
Value per Share
Non-vested restricted stock outstanding
at October 1,
1,085
$
61.28
1,001
$
Granted (1)
Vested
(2)
Forfeited
781
(501)
(85)
39.99
59.46
48.98
475
(371)
(20)
63.74
58.45
64.32
60.85
$
659
626
(258)
(26)
Non-vested restricted stock outstanding
at September 30,
1,280
$
49.81
1,085
$
61.28
1,001
$
70.76
59.53
70.60
66.73
63.74
(1) The number of restricted stock awards granted includes phantom shares that confer the benefits of owning company stock without the actual
ownership or transfer of any shares. There were 20,616 phantom shares granted during fiscal year 2020.
(2) The number of restricted stock awards vested includes shares that we withheld on behalf of our employees to satisfy the statutory tax
withholding requirements.
84
Performance Share Units
We have made awards to certain employees that are subject to market-based performance conditions ("performance
share units"). Subject to the terms and conditions set forth in the applicable performance share unit award agreements and the
2016 Plan, grants of performance share units are subject to a vesting period of three years (the “Vesting Period”) that is
dependent on the achievement of certain performance goals. Such performance share unit awards consist of two separate
components. Performance share units that comprise the first component are subject to a three-year performance
cycle. Performance share units that comprise the second component are further divided into three separate tranches, each of
which is subject to a separate one-year performance cycle within the full three-year performance cycle. The vesting of the
performance share units is generally dependent on (i) the achievement of the Company’s total shareholder return (“TSR”)
performance goals relative to the TSR achievement of a peer group of companies (the “Peer Group”) over the applicable
performance cycle, and (ii) the continued employment of the recipient of the performance share unit award throughout the Vesting
Period.
At the end of the Vesting Period, recipients receive dividend equivalents, if any, with respect to the number of vested
performance share units. The vesting of units ranges from zero to 200 percent of the units granted depending on the Company’s
TSR relative to the TSR of the Peer Group on the vesting date.
The grant date fair value of performance share units was determined through use of the Monte Carlo simulation method.
The Monte Carlo simulation method requires the use of highly subjective assumptions. Our key assumptions in the method
include the price and the expected volatility of our stock and our self-determined Peer Group companies' stock, risk free rate of
return and cross-correlations between the Company and our Peer Group companies. The valuation model assumes dividends are
immediately reinvested. As of September 30, 2020, there was $6.6 million of unrecognized compensation cost related to unvested
performance share units. That cost is expected to be recognized over a weighted-average period of 1.9 years.
A summary of the status of our performance share units as of September 30, 2020 and changes in non-vested
performance share units outstanding during the fiscal year ended September 30, 2020 is presented below:
(in thousands, except per share amounts)
Shares
2020
Weighted-
Average Grant
Date Fair Value
per Share
2019
Weighted-
Average Grant
Date Fair Value
per Share
Shares
Non-vested performance share units outstanding at September 30, 2019
Granted
Forfeited
$
145
259
(67)
Non-vested performance share units outstanding at September 30, 2020
337
$
62.66
43.40
46.35
51.09
— $
145
—
145
$
—
62.66
—
62.66
The weighted-average fair value calculations for performance share units granted within the fiscal period are based on
the following weighted-average assumptions set forth in the table below.
Risk-free interest rate (1)
Expected stock volatility (2)
Expected term (in years)
2020
2019
1.6%
34.8%
3.2
2.7%
35.9%
3.0
(1) The risk-free interest rate is based on U.S. Treasury securities for the expected term of the performance share units.
(2) Expected volatilities are based on the daily closing price of our stock based upon historical experience over a period which approximates
the expected term of the performance share units.
NOTE 13 EARNINGS (LOSSES) PER COMMON SHARE
ASC 260, Earnings per Share, requires companies to treat unvested share-based payment awards that have non-
forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings per share. We have
granted and expect to continue to grant to employees restricted stock grants that contain non-forfeitable rights to dividends. Such
grants are considered participating securities under ASC 260. As such, we are required to include these grants in the calculation of
our basic earnings per share and calculate basic earnings per share using the two-class method. The two-class method of
computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock
and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings.
Basic earnings per share is computed utilizing the two-class method and is calculated based on the weighted-average
number of common shares outstanding during the periods presented.
85
Diluted earnings per share is computed using the weighted-average number of common and common equivalent shares
outstanding during the periods utilizing the two-class method for stock options, nonvested restricted stock and performance share
units.
Under the two-class method of calculating earnings per share, dividends paid and a portion of undistributed net income,
but not losses, are allocated to unvested restricted stock grants that receive dividends, which are considered participating
securities.
The following table sets forth the computation of basic and diluted earnings per share:
(in thousands, except per share amounts)
Numerator:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Adjustment for basic earnings per share
Earnings allocated to unvested shareholders
Numerator for basic earnings (loss) per share:
From continuing operations
From discontinued operations
Adjustment for diluted earnings (loss) per share:
September 30,
2020
2019
2018
$
(496,392) $
(32,510) $
493,010
1,895
(494,497)
(1,146)
(33,656)
(10,338)
482,672
(2,647)
(3,102)
(4,346)
(499,039)
1,895
(497,144)
(35,612)
(1,146)
(36,758)
488,664
(10,338)
478,326
Effect of reallocating undistributed earnings of unvested shareholders
—
—
7
Numerator for diluted earnings (loss) per share:
From continuing operations
From discontinued operations
Denominator:
(499,039)
1,895
(35,612)
(1,146)
488,671
(10,338)
$
(497,144) $
(36,758) $
478,340
Denominator for basic earnings (loss) per share - weighted-average shares
108,009
109,216
Effect of dilutive shares from stock options, restricted stock and performance share units
—
—
Denominator for diluted earnings (loss) per share - adjusted weighted-average shares
108,009
109,216
Basic earnings (loss) per common share:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Diluted earnings (loss) per common share:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Net income (loss)
$
$
$
$
(4.62) $
0.02
(4.60) $
(4.62) $
0.02
(4.60) $
(0.33) $
(0.01)
(0.34) $
(0.33) $
(0.01)
(0.34) $
108,851
536
109,387
4.49
(0.10)
4.39
4.47
(0.10)
4.37
We had a net loss for fiscal years 2020 and 2019. Accordingly, our diluted earnings per share calculation for those years
were equivalent to our basic earnings per share calculation since diluted earnings per share excluded any assumed exercise of
equity awards. These were excluded because they were deemed to be anti-dilutive, meaning their inclusion would have reduced
the reported net loss per share in the applicable period.
The following potentially dilutive average shares attributable to outstanding equity awards were excluded from the
calculation of diluted earnings (losses) per share because their inclusion would have been anti-dilutive:
(in thousands, except per share amounts)
Potentially dilutive shares excluded as anti-dilutive
Weighted-average price per share
2020
2019
2018
4,004
3,031
$
60.72
$
63.33
$
1,559
68.28
86
NOTE 14 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS
We have certain assets and liabilities that are required to be measured and disclosed at fair value. Fair value is defined as
the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We
use the fair value hierarchy established in ASC 820-10 to measure fair value to prioritize the inputs:
•
•
•
Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity
can access at the measurement date.
Level 2 — Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar
assets or liabilities in active markets; quoted prices for similar assets and liabilities in markets that are not active;
or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair
value of the assets or liabilities. This includes pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.
The assets held in a Non-Qualified Supplemental Savings Plan are carried at fair value and totaled $19.8 million and
$15.7 million at September 30, 2020 and 2019, respectively. The assets are comprised of mutual funds that are measured using
Level 1 inputs.
Short-term investments include securities classified as trading securities. Both realized and unrealized gains and losses
on trading securities are included in other income (expense) in the Consolidated Statements of Operations. The securities are
recorded at fair value.
Our non-financial assets, such as intangible assets, goodwill and property, plant and equipment, are recorded at fair value
when acquired in a business combination or when an impairment charge is recognized. If measured at fair value in the
Consolidated Balance Sheets, these would generally be classified within Level 2 or 3 of the fair value hierarchy.
The majority of cash equivalents are invested in highly-liquid money-market mutual funds invested primarily in direct or
indirect obligations of the U.S. Government and in federally insured deposit accounts. The carrying amount of cash and cash
equivalents approximates fair value due to the short maturity of those investments.
The carrying value of other current assets, accrued liabilities and other liabilities approximated fair value at September 30,
2020 and 2019.
The following table summarizes our assets and liabilities measured at fair value presented in our Consolidated Balance
Sheet:
(in thousands)
Recurring fair value measurements:
Short-term investments:
Certificates of deposit
Corporate and municipal debt securities
U.S. government and federal agency securities
Other
Total short-term investments
Cash and cash equivalents
Investments
Other current assets
Other assets
September 30, 2020
Fair Value
Level 1
Level 2
Level 3
$
$
$
$
$
$
1,370
78,156
7,817
1,992
89,335
487,884
11,766
45,577
3,286
— $
— $
1,370
78,156
$
$
7,817
$
1,992
9,809
487,884
7,274
45,577
3,286
— $
—
79,526
—
3,992
—
—
—
—
—
—
—
—
500
—
—
500
Total assets measured at fair value
$
637,848
$
553,830
$
83,518
$
Liabilities:
Contingent earnout liability
$
9,123
$
— $
— $
9,123
At September 30, 2020, our financial instruments measured at fair value utilizing Level 1 inputs include cash equivalents,
U.S. Agency issued debt securities, equity securities with active markets, and money market funds that are classified as restricted
assets. The current portion of restricted amounts are included in prepaid expenses and other, and the noncurrent portion is
included in other assets. For these items, quoted current market prices are readily available.
At September 30, 2020, assets measured at fair value using Level 2 inputs include certificates of deposit, municipal bonds
and corporate bonds measured using broker quotations that utilize observable market inputs.
87
Our financial instruments measured using Level 3 unobservable inputs primarily consist of potential earnout payments
primarily associated with our business acquisitions in fiscal year 2019.
The following table presents a reconciliation of changes in the fair value of our financial liabilities classified as Level 3 fair
value measurements in the fair value hierarchy for fiscal years 2020 and 2019:
(in thousands)
Net liabilities at beginning of period
Additions
Total gains or losses:
Included in earnings
Settlements (1)
Net liabilities at end of period
2020
2019
$
18,373
$
1,500
(2,500)
(8,250)
11,160
18,373
(11,160)
—
$
9,123
$
18,373
(1) Settlements represent earnout payments that have been earned or paid during the period.
The following table provides quantitative information (in thousands) about our Level 3 unobservable inputs related to our
financial liabilities at September 30, 2020:
Fair Value
Valuation Technique
Unobservable Input
Unobservable Input
Range
Weighted Average (1)
$1,000
Monte Carlo simulation
Discount rate
$8,123
Probability Analysis
Revenue Volatility
Risk free rate
Discount rate
Payment amounts
Probabilities
1.6%
46.2%
1.2%
1.0%
$5,250 - $7,000
$
40% - 60%
6,400
53%
(1) The weighted average of the payment amounts and the probabilities (Level 3 unobservable inputs), associated with the contingent
consideration valued using probability analysis, were weighted by the relative undiscounted fair value of payment amounts and of probability
payment amounts, respectively.
The above significant unobservable inputs are subject to change based on changes in economic and market conditions.
The use of significant unobservable inputs creates uncertainty in the measurement of fair value as of the reporting date. The
significant unobservable inputs used in the fair value measurement of the contingent consideration using Monte Carlo simulation
are (i) discount rate, (ii) revenue volatility and (iii) risk-free rate. Significant increases or decreases in the discount rate and risk-free
rate in isolation would result in a significantly lower or higher fair value measurement. Significant changes in revenue volatility in
isolation would result in a significantly lower or higher fair value measurement. The significant unobservable inputs used in the fair
value measurement of the contingent consideration using probability analysis are (i) discount rate, (ii) payment amounts and (iii)
probabilities. Significant increases or decreases in the discount rate in isolation would result in a significantly lower or higher fair
value measurement. Significant increases or decreases in the payment amounts or probabilities in isolation would result in a
significantly higher or lower fair value measurement. It is not possible for us to predict the effect of future economic or market
conditions on our estimated fair values.
The following information presents the supplemental fair value information about long-term fixed-rate debt at
September 30, 2020 and 2019:
(in millions)
Carrying value of long-term fixed-rate debt
Fair value of long-term fixed-rate debt
September 30,
2020
2019
$
$
480.7
534.5
$
$
479.4
526.4
The fair value for the $534.5 million fixed-rate debt was based on broker quotes at September 30, 2020. The notes are
classified within Level 2 of the fair value hierarchy as they are not actively traded in markets.
The estimated fair value of our investments, reflected on our Consolidated Balance Sheets as Investments, is primarily
based on Level 1 inputs. As a result of the change in the fair value of our investments, we recorded a loss of $8.7 million for the
fiscal year ended September 30, 2020. In September 2019, we sold our remaining 1.6 million shares in Valaris, previously known
as Ensco Rowan plc, for total proceeds of approximately $12.0 million.
88
NOTE 15 EMPLOYEE BENEFIT PLANS
We maintain a domestic noncontributory defined benefit pension plan covering certain U.S. employees who meet certain
age and service requirements. In July 2003, we revised the Helmerich & Payne, Inc. Employee Retirement Plan (“Pension Plan”) to
close the Pension Plan to new participants effective October 1, 2003, and reduce benefit accruals for current participants through
September 30, 2006, at which time benefit accruals were discontinued and the Pension Plan was frozen.
The following table provides a reconciliation of the changes in the pension benefit obligations and fair value of Pension
Plan assets over the two-year period ended September 30, 2020 and a statement of the funded status as of September 30, 2020
and 2019:
(in thousands)
Accumulated Benefit Obligation
Changes in projected benefit obligations
Projected benefit obligation at beginning of year
Interest cost
Actuarial (gain) loss
Benefits paid
Projected benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Benefits paid
Fair value of plan assets at end of year
Funded status of the plan at end of year
2020
2019
116,146
$
119,845
119,845
$
106,205
3,598
4,310
(11,607)
4,389
16,914
(7,663)
116,146
$
119,845
91,142
$
6,535
33
(11,607)
86,103
$
94,897
3,865
43
(7,663)
91,142
(30,043) $
(28,703)
$
$
$
$
$
$
The amounts recognized in the Consolidated Balance Sheets at September 30, 2020 and 2019 are as follows (in
thousands):
Accrued liabilities
Noncurrent liabilities-other
Net amount recognized
$
$
(18) $
(30,025)
(30,043) $
(50)
(28,653)
(28,703)
The amounts recognized in Accumulated Other Comprehensive Income (Loss) at September 30, 2020 and 2019, and not
yet reflected in net periodic benefit cost, are as follows (in thousands):
Net actuarial loss
$
(33,923) $
(37,084)
The amount recognized in Accumulated Other Comprehensive Income (Loss) and not yet reflected in periodic benefit cost
expected to be amortized in next year’s periodic benefit cost is a net actuarial loss of $2.4 million.
The weighted average assumptions used for the pension calculations were as follows:
Discount rate for net periodic benefit costs
Discount rate for year-end obligations
Expected return on plan assets
September 30,
2020
2019
2018
3.16%
2.66%
4.65%
4.27%
3.16%
5.60%
3.79%
4.27%
6.06%
The mortality table issued by the Society of Actuaries in October 2019 was used for the September 30, 2020 pension
calculation.
We did not make any contributions to the Pension Plan in fiscal year 2020. In fiscal year 2021, we do not expect minimum
contributions required by law to be needed. However, we may make contributions in fiscal year 2021 if needed to fund unexpected
distributions in lieu of liquidating pension assets.
89
Components of the net periodic pension expense were as follows:
(in thousands)
Interest cost
Expected return on plan assets
Recognized net actuarial loss
Settlement
Net pension expense
Year Ended September 30,
2020
2019
2018
$
$
3,598
$
4,389
$
(4,784)
2,718
3,001
(5,523)
1,229
1,953
4,533
$
2,048
$
4,077
(5,555)
1,926
913
1,361
We record settlement expense when benefit payments exceed the total annual interest costs.
The following table reflects the expected benefits to be paid from the Pension Plan in each of the next five fiscal years,
and in the aggregate for the five years thereafter (in thousands).
2021
2022
2023
2024
2025
2026 – 2030
Total
$
5,931
$
6,910
$
6,980
$
7,023
$
7,141
$
33,599
$
67,584
Year Ended September 30,
Included in the Pension Plan is an unfunded supplemental executive retirement plan.
Investment Strategy and Asset Allocation
Our investment policy and strategies are established with a long-term view in mind. The investment strategy is intended to
help pay the cost of the Pension Plan while providing adequate security to meet the benefits promised under the Pension Plan. We
maintain a diversified asset mix to minimize the risk of a material loss to the portfolio value that might occur from devaluation of any
single investment. In determining the appropriate asset mix, our financial strength and ability to fund potential shortfalls are
considered. Pension Plan assets are invested in portfolios of diversified public-market equity securities and fixed income
securities. The Pension Plan does not directly hold securities of the Company.
The expected long-term rate of return on Pension Plan assets is based on historical and projected rates of return for
current and planned asset classes in the Pension Plan’s investment portfolio after analyzing historical experience and future
expectations of the return and volatility of various asset classes.
The target allocation for 2021 and the asset allocation for the Pension Plan at the end of fiscal years 2020 and 2019, by
asset category, follows:
Asset Category
U.S. equities
International equities
Fixed income
Total
Plan Assets
Target Allocation
September 30,
2021
2020
2019
45%
20
35
100%
42%
22
36
100%
47%
16
37
100%
The fair value of Pension Plan assets at September 30, 2020 and 2019, summarized by level within the fair value
hierarchy described in Note 14—Fair Value Measurement of Financial Instruments, are as follows:
(in thousands)
Short-term investments
Mutual funds:
Domestic stock funds
Bond funds
Balanced funds
International stock funds
Total mutual funds
Oil and gas properties
Total
September 30, 2020
Total
Level 1
Level 2
Level 3
$
1,541
$
1,541
$
— $
35,660
17,328
17,447
14,044
84,479
83
35,660
17,328
17,447
14,044
84,479
—
—
—
—
—
—
—
$
86,103
$
86,020
$
— $
—
—
—
—
—
—
83
83
90
(in thousands)
Short-term investments
Mutual funds:
Domestic stock funds
Bond funds
Balanced funds
International stock funds
Total mutual funds
Domestic common stock
Oil and gas properties
Total
September 30, 2019
Total
Level 1
Level 2
Level 3
$
3,072
$
3,072
$
— $
17,555
18,034
17,878
14,181
67,648
20,261
161
17,555
18,034
17,878
14,181
67,648
17,748
—
—
—
—
—
—
2,513
—
$
91,142
$
88,468
$
2,513
$
—
—
—
—
—
—
—
161
161
As of September 30, 2020, and 2019, the Pension Plan’s financial assets utilizing Level 1 inputs are valued based on
quoted prices in active markets for identical securities. As of September 30, 2019, the Pension Plan’s Level 2 financial assets
include domestic common stock. As of September 30, 2020, and 2019, the Pension Plan’s assets utilizing Level 3 inputs consist of
oil and gas properties. The fair value of oil and gas properties is determined by Wells Fargo Bank, N.A., based upon actual revenue
received for the previous twelve-month period and experience with similar assets.
The following table sets forth a summary of changes in the fair value of the Pension Plan’s Level 3 assets for the fiscal
years ended September 30, 2020 and 2019:
(in thousands)
Balance, beginning of year
Unrealized gains (losses) relating to property still held at the reporting date
Balance, end of year
Defined Contribution Plan
Oil and Gas Properties
Year Ended September 30,
2020
2019
$
$
161
$
(78)
83
$
116
45
161
Substantially all employees on the U.S. payroll may elect to participate in our 401(k)/Thrift Plan by contributing a portion of
their earnings. We contribute an amount equal to 100 percent of the first five percent of the participant’s compensation subject to
certain limitations. The annual expense incurred for this defined contribution plan was $23.8 million, $30.5 million and $26.6 million
in fiscal years 2020, 2019 and 2018, respectively.
NOTE 16 SUPPLEMENTAL BALANCE SHEET INFORMATION
The following reflects the activity in our reserve for bad debt for fiscal years 2020, 2019 and 2018:
(in thousands)
Reserve for bad debt:
Balance at October 1,
Provision for bad debt
(Write-off) recovery of bad debt
Balance at September 30,
2020
2019
2018
$
$
9,927
$
6,217
$
2,203
(10,310)
2,321
1,389
1,820
$
9,927
$
5,721
2,193
(1,697)
6,217
91
Accounts receivable, prepaid expenses and other current assets, accrued liabilities and long-term liabilities at
September 30, 2020 and 2019 consist of the following:
(in thousands)
Accounts receivable, net of reserve:
Trade receivables
Income tax receivable
Total accounts receivable, net of reserve
Prepaid expenses and other current assets:
Restricted cash
Deferred mobilization
Prepaid insurance
Prepaid value added tax
Prepaid maintenance and rent
Accrued demobilization
Other
Total prepaid expenses and other current assets
Accrued liabilities:
Accrued operating costs
Payroll and employee benefits
Taxes payable, other than income tax
Self-insurance liabilities
Deferred income
Deferred mobilization revenue
Accrued income taxes
Escrow
Litigation and claims
Contingent earnout liability
Operating lease liability
Other
Total accrued liabilities
Noncurrent liabilities — Other:
Pension and other non-qualified retirement plans
Self-insurance liabilities
Contingent earnout liability
Deferred revenue
Uncertain tax positions including interest and penalties
Operating lease liability
Payroll tax deferral(1)
Other
$
$
$
$
$
$
$
September 30,
2020
2019
150,249
$
461,774
42,374
33,828
192,623
$
495,602
45,577
$
4,528
8,655
7,484
7,273
2,367
13,421
31,291
10,571
5,556
5,209
9,113
2,151
5,037
89,305
$
68,928
10,942
$
27,068
39,762
36,518
9,266
5,705
—
138
393
4,926
11,364
9,360
34,992
79,465
50,566
37,117
25,426
14,737
19,277
1,388
9,990
5,535
—
8,599
155,442
$
287,092
54,043
$
37,369
4,197
2,955
2,895
33,886
10,205
1,630
51,768
37,118
12,838
9,471
2,544
—
—
2,007
Total noncurrent liabilities — other
$
147,180
$
115,746
(1) Deferral related to the provisions within the Coronavirus Aid, Relief, and Economic Security Act, passed on March 27, 2020, which allows for
the deferral of the employer share of Social Security tax.
NOTE 17 COMMITMENTS AND CONTINGENCIES
Purchase Commitments
Equipment, parts and supplies are ordered in advance to promote efficient construction and capital improvement
progress. At September 30, 2020, we had purchase commitments for equipment, parts and supplies of approximately $2.7 million.
Lease Obligations
Refer to Note 6—Leases for additional information on our lease obligations.
92
Guarantee Arrangements
We are contingently liable to sureties in respect of bonds issued by the sureties in connection with certain commitments
entered into by us in the normal course of business. We have agreed to indemnify the sureties for any payments made by them in
respect of such bonds.
Contingencies
During the ordinary course of our business, contingencies arise resulting from an existing condition, situation or set of
circumstances involving an uncertainty as to the realization of a possible gain or loss contingency. We account for gain
contingencies in accordance with the provisions of ASC 450, Contingencies, and, therefore, we do not record gain contingencies or
recognize income until realized. The property and equipment of our Venezuelan subsidiary was seized by the Venezuelan
government on June 30, 2010. Our wholly-owned subsidiaries, HPIDC, and Helmerich & Payne de Venezuela, C.A. filed a lawsuit
in the United States District Court for the District of Columbia on September 23, 2011 against the Bolivarian Republic of Venezuela,
Petroleos de Venezuela, S.A. and PDVSA Petroleo, S.A., seeking damages for the taking of their Venezuelan drilling business in
violation of international law and for breach of contract. While there exists the possibility of realizing a recovery, we are currently
unable to determine the timing or amounts we may receive, if any, or the likelihood of recovery.
In January 2018, an employee of HPIDC suffered personal injury and subsequently brought a lawsuit against the
operator and H&P. Pursuant to the terms of the drilling contract between HPIDC and the operator, HPIDC indemnified the operator
in the lawsuit, subject to certain limitations. H&P has settled this matter on behalf of itself and the operator with $21.0 million of the
settlement amount to be paid by the Company. The settlement was paid out during the fiscal year ended September 30,
2019. While we believe we had meritorious defenses to the matter, we determined that settlement was a reasonable alternative to
the uncertainty and expense associated with a jury trial.
In October 2017, an employee of HPIDC suffered personal injury and subsequently brought a lawsuit against the
operator. Pursuant to the terms of the drilling contract between HPIDC and the operator, HPIDC indemnified the operator in the
lawsuit, subject to certain limitations. A settlement agreement was reached with the operator. As of September 30, 2019, we
accrued $9.5 million for this lawsuit, which was subsequently paid out during the fiscal year ended September 30, 2020.
The Company and its subsidiaries are parties to various other pending legal actions arising in the ordinary course of our
business. We maintain insurance against certain business risks subject to certain deductibles. Although no assurance can be
given, we believe, based on our experiences to date and taking into account established reserves and insurance, that the ultimate
resolution of such items will not have a material adverse impact on our financial condition, cash flows, or results of operations.
When we determine a loss is probable of occurring and is reasonably estimable, we accrue an undiscounted liability for such
contingencies based on our best estimate using information available at that time. If the estimated loss is a range of potential
outcomes and there is no better estimate within the range, we accrue the amount at the low end of the range. We disclose
contingencies where an adverse outcome may be material, or in the judgment of management, we conclude the matter should
otherwise be disclosed.
NOTE 18 BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
Description of the Business
We are a performance-driven drilling solutions and technologies company based in Tulsa, Oklahoma with operations in all
major U.S. onshore basins as well as South America and the Middle East. Our drilling operations consist mainly of contracting
Company-owned drilling equipment primarily to large oil and gas exploration companies. We believe we are the recognized
industry leader in drilling as well as technological innovation.
During the third quarter of fiscal year 2020, as part of our restructuring efforts (see Note 19—Restructuring Charges) and
consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources, we
implemented organizational changes. We are moving from a product-based offering, such as a rig or separate technology package,
to an integrated solution-based approach by combining proprietary rig technology, automation software, and digital expertise into
our rig operations. Operations previously reported within the former U.S. Land and H&P Technologies operating and reportable
segments are now managed and presented within the North America Solutions reportable segment. As a result, beginning with the
third quarter of fiscal year 2020, our drilling services operations are organized into the following reportable operating business
segments: North America Solutions, Offshore Gulf of Mexico and International Solutions. All prior period segment disclosures have
been recast for these segment changes. Our real estate operations, our incubator program for new research and development
projects, and our wholly-owned captive insurance companies are included in "Other." Consolidated revenues and expenses reflect
the elimination of intercompany transactions.
Each reportable operating segment is a strategic business unit that is managed separately, and consolidated revenues
and expenses reflect the elimination of all material intercompany transactions. Other includes additional non-reportable operating
segments. External revenues included in "Other" primarily consist of rental income.
93
Segment Performance
We evaluate segment performance based on income or loss from continuing operations (segment operating income
(loss)) before income taxes which includes:
• Revenues from external and internal customers
• Direct operating costs
• Depreciation and amortization
• Allocated general and administrative costs
• Asset impairment charges
• Restructuring charges
but excludes gain on sale of assets and corporate selling, general and administrative costs, corporate depreciation, and corporate
restructuring charges.
General and administrative costs are allocated to the segments based primarily on specific identification and, to the extent
that such identification is not practical, on other methods which we believe to be a reasonable reflection of the utilization of services
provided.
Summarized financial information of our reportable segments for the fiscal years ended September 30, 2020, 2019 and
2018 is shown in the following tables:
Segment operating income (loss)
Depreciation and amortization
(393,902)
438,039
7,478
11,681
(in thousands)
External sales
Intersegment
Total sales
(in thousands)
External sales
Intersegment
Total sales
(in thousands)
External sales
Intersegment
Total sales
September 30, 2020
North
America
Solutions
Offshore Gulf
of Mexico
International
Solutions
Other
Eliminations
Total
$
1,474,380
$
143,149
$
144,185
$
12,213
$
— $
1,773,927
—
—
1,474,380
143,149
—
144,185
(162,368)
17,531
36,901
49,114
4,403
1,241
(36,901)
(36,901)
—
1,773,927
—
—
(544,389)
468,492
September 30, 2019
North
America
Solutions (1)
Offshore Gulf
of Mexico
International
Solutions
Other
Eliminations
Total
$
2,426,191
$
147,635
$
211,731
$
12,933
$
— $
2,798,490
—
—
—
—
2,426,191
147,635
211,731
12,933
Segment operating income
Depreciation and amortization
80,898
504,466
19,594
10,010
5,366
35,466
3,375
1,523
(1) Operations previously reported within the H&P Technologies reportable segment are now managed and presented within the North America
Solutions reportable segment.
September 30, 2018
North
America
Solutions (1)
Offshore Gulf
of Mexico
International
Solutions
Other
Eliminations
Total
$
2,093,601
$
142,500
$
238,356
$
12,811
$
— $
2,487,268
—
—
—
—
2,093,601
142,500
238,356
12,811
Segment operating income (loss)
Depreciation and amortization
108,697
511,958
26,124
10,392
(683)
46,826
5,883
1,486
(1) Operations previously reported within the H&P Technologies reportable segment are now managed and presented within the North America
Solutions reportable segment.
94
—
—
—
—
—
2,798,490
109,233
551,465
—
—
—
—
—
2,487,268
140,021
570,662
The following table reconciles segment operating income (loss) per the tables above to income (loss) from continuing
operations before income taxes as reported on the Consolidated Statements of Operations:
(in thousands)
Segment operating income (loss)
Gain on sale of assets
Corporate selling, general and administrative costs, corporate depreciation and corporate
restructuring charges
Operating income (loss) from continuing operations
Other income (expense)
Interest and dividend income
Interest expense
Gain (loss) on investment securities
Gain on sale of subsidiary
Other
Total unallocated amounts
Year Ended September 30,
2020
2019
2018
$
(544,389) $
109,233
$
140,021
46,775
39,691
22,660
(122,573)
(620,187)
(128,342)
(129,717)
20,582
32,964
7,304
(24,474)
(8,720)
14,963
(5,384)
(16,311)
9,468
(25,188)
(54,488)
—
(1,596)
(71,804)
8,017
(24,265)
1
—
(876)
(17,123)
Income (loss) from continuing operations before income taxes
$
(636,498) $
(51,222) $
15,841
The following table reconciles segment total assets to total assets as reported on the Consolidated Balance Sheets:
(in thousands)
Total assets (1)
North America Solutions (2)
Offshore Gulf of Mexico
International Solutions
Other
Investments and corporate operations
Total assets from continuing operations
Discontinued operations
Year Ended September 30,
2020
2019
$
3,812,718
$
5,284,141
93,501
181,181
22,144
4,109,544
720,077
4,829,621
—
102,442
217,094
32,532
5,636,209
203,306
5,839,515
—
$
4,829,621
$
5,839,515
(1) Assets by segment exclude investments in subsidiaries and intersegment activity.
(2) Operations previously reported within the H&P Technologies reportable segment are now managed and presented within the North America
Solutions reportable segment.
The following table presents revenues from external customers by country based on the location of service provided:
(in thousands)
Operating revenues
United States
Argentina
Bahrain
United Arab Emirates
Colombia
Other Foreign
Total
Year Ended September 30,
2020
2019
2018
$
1,626,407
$
2,585,008
$
2,247,400
84,402
28,653
24,716
6,414
3,335
165,718
190,038
11,528
4,728
29,757
1,751
9,525
—
38,793
1,512
$
1,773,927
$
2,798,490
$
2,487,268
95
The following table presents property, plant and equipment by country based on the location of service provided:
(in thousands)
Property, plant and equipment, net
United States
Argentina
Colombia
Other Foreign
Total
NOTE 19 RESTRUCTURING CHARGES
Year Ended September 30,
2020
2019
$
3,562,525
$
4,269,405
49,419
21,740
12,657
132,321
61,757
38,601
$
3,646,341
$
4,502,084
Beginning in the third quarter of fiscal year 2020, we implemented cost controls and began evaluating further measures to
respond to the combination of weakened commodity prices, uncertainties related to the COVID-19 pandemic, and the resulting
market volatility. We restructured our operations to accommodate scale during an industry downturn and to re-organize our
operations to align to new marketing and management strategies. We commenced a number of restructuring efforts as a result of
this evaluation, which included, among other things a reduction in our capital allocation plans, changes to our organizational
structure, and a reduction of staffing levels. Costs incurred, as of September 30, 2020, in connection with the restructuring are
comprised of one-time severance benefits to employees who were voluntarily or involuntarily terminated, benefits related to
forfeitures and costs related to modification of stock-based compensation awards.
The following table summarizes the Company's restructuring charges incurred during the fiscal year ended September 30,
2020:
(in thousands)
Employee termination benefits
Stock-based compensation benefit
Total restructuring charges
$
$
North
America
Solutions
Offshore Gulf
of Mexico
International
Solutions
Other
Corporate
G&A
Total
10,041
$
1,432
$
2,991
$
321
$
4,745
$
(3,036)
(178)
(11)
(61)
(197)
7,005
$
1,254
$
2,980
$
260
$
4,548
$
19,530
(3,483)
16,047
The following table summarizes the Company's accrual for restructuring charges for the fiscal year ended September 30,
2020:
(in thousands)
Accrued restructuring charges at September 30, 2019
Charges
Cash payments
Accrued restructuring charges at September 30, 2020
Employee
Termination
Benefits
$
$
—
19,530
(18,979)
551
These expenses are recorded within restructuring charges on our Consolidated Statements of Operations for the fiscal
year ended September 30, 2020 and the related liability is recorded within accounts payable on our Consolidated Balance Sheets
at September 30, 2020.
96
NOTE 20 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share amounts)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total (1)
Fiscal Year 2020 Quarters Ended
Operating revenues
Operating income (loss)
Income (loss) from continuing operations
Net income (loss)
Basic earnings per common share:
Income (loss) from continuing operations
Net income (loss)
Diluted earnings per common share:
Income (loss) from continuing operations
Net income (loss)
$
614,657
$
633,639
$
317,364
$
208,267
$
1,773,927
31,368
30,729
30,605
0.27
0.27
0.27
0.27
(518,541)
(420,468)
(420,540)
(3.88)
(3.88)
(3.88)
(3.88)
(57,584)
(46,007)
(45,599)
(0.43)
(0.43)
(0.43)
(0.43)
(75,430)
(60,646)
(58,963)
(0.57)
(0.55)
(0.57)
(0.55)
(620,187)
(496,392)
(494,497)
(4.62)
(4.60)
(4.62)
(4.60)
(1) The sum of earnings per share for the four quarters may not equal the total earnings per share for the fiscal year due to changes in the
average number of common shares outstanding.
(in thousands, except per share amounts)
Included within net income (loss):
Gain from the sale of assets, after tax
Asset impairment charges, after tax
Restructuring charges, after tax
Effect on diluted earnings per common share:
Gain from the sale of assets, after tax
Asset impairment charges, after tax
Restructuring charges, after tax
Fiscal Year 2020 Quarters Ended
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
3,314
—
—
0.03
—
—
7,985
(436,225)
3,254
—
—
(12,001)
21,674
—
(428)
0.07
(4.02)
—
0.03
—
(0.11)
0.2
—
—
(in thousands, except per share amounts)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total (1)
Fiscal Year 2019 Quarters Ended
Operating revenues
Operating income (loss)
Income (loss) from continuing operations
Net income (loss)
Basic earnings per common share:
Income (loss) from continuing operations
Net income (loss)
Diluted earnings per common share:
Income (loss) from continuing operations
Net income (loss)
$
740,598
$
720,868
$
687,974
$
649,050
$
2,798,490
54,289
8,364
18,959
0.07
0.17
0.07
0.17
95,146
71,857
60,891
0.65
0.55
0.65
0.55
(167,874)
(154,621)
(154,683)
(1.42)
(1.42)
(1.42)
(1.42)
39,021
41,890
41,177
0.38
0.37
0.38
0.37
20,582
(32,510)
(33,656)
(0.33)
(0.34)
(0.33)
(0.34)
(1) The sum of earnings per share for the four quarters may not equal the total earnings per share for the year due to changes in the average
number of common shares outstanding.
(in thousands, except per share amounts)
Included within net income (loss):
Gain from the sale of assets, after tax
Asset impairment charges, after tax
Effect on diluted earnings per common share:
Gain from the sale of assets, after tax
Asset impairment charges, after tax
Fiscal Year 2019 Quarters Ended
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
8,886
—
0.08
—
7,718
(173,227)
0.07
(1.58)
9,752
—
0.09
—
4,268
—
0.04
—
97
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
a) Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
as of the end of the period covered by this report have been designed and are effective at the reasonable assurance level
so that the information required to be disclosed by us in our periodic SEC filings, is recorded, processed, summarized and
reported within the time periods specific in the SEC’s rules, regulations, and forms and is communicated to management.
We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that
the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been detected.
Our assessment of our system of internal controls included the consideration of a high proportion of our control
owners and control performers working remotely due to Federal and State social distancing guidelines.
b) Management’s Report on Internal Control over Financial Reporting.
A copy of our Management’s Report on Internal Control over Financial Reporting is included in Item 8 of this
Form 10-K.
c) Attestation Report of the Independent Registered Public Accounting Firm.
A copy of the report of Ernst & Young LLP, our independent registered public accounting firm, is included in Item
8 of this Form 10-K.
d) Changes in Internal Control Over Financial Reporting.
None.
Item 9B. OTHER INFORMATION
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated herein by reference to the material under the captions “Proposal 1—
Election of Directors,” “Corporate Governance,” “Executive Officers” and “Delinquent Section 16(a) Reports” in our definitive Proxy
Statement for the Annual Meeting of Stockholders to be held March 2, 2021, to be filed with the SEC not later than 120 days after
September 30, 2020.
We have adopted a Code of Ethics for Principal Executive Officer and Senior Financial Officers. The text of this code is
located on our website under “Corporate Governance.” Our Internet address is www.hpinc.com. We intend to disclose any
amendments to or waivers from this code on our website.
Item 11. EXECUTIVE COMPENSATION
The information required by this item regarding executive compensation, as well as director compensation and
compensation committee interlocks and insider participation, is incorporated herein by reference to the material beginning with the
caption “Executive Compensation Discussion and Analysis” and ending with the caption “Potential Payments Upon
Change in Control”, as well as under the captions “Director Compensation in Fiscal Year 2020” and “Corporate Governance—
Compensation Committee Interlocks and Insider Participation” in our definitive Proxy Statement for the Annual Meeting of
Stockholders to be held March 2, 2021, to be filed with the SEC not later than 120 days after September 30, 2020.
98
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated herein by reference to the material under the captions “Summary of
All Existing Equity Compensation Plans,” “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Directors
and Management” in our definitive Proxy Statement for the Annual Meeting of Stockholders to be held March 2, 2021, to be filed
with the SEC not later than 120 days after September 30, 2020.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference to the material under the captions “Corporate
Governance—Transactions With Related Persons, Promoters and Certain Control Persons” and “Corporate Governance—Director
Independence” in our definitive Proxy Statement for the Annual Meeting of Stockholders to be held March 2, 2021, to be filed with
the SEC not later than 120 days after September 30, 2020.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference to the material under the caption “Proposal 2—
Ratification of Appointment of Independent Auditors—Audit Fees” in our definitive Proxy Statement for the Annual Meeting of
Stockholders to be held March 2, 2021, to be filed with the SEC not later than 120 days after September 30, 2020.
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements: Our consolidated financial statements, together with the notes thereto and the report of Ernst &
Young LLP dated November 20, 2020, are listed below and included in Item 8— “Financial Statements and Supplementary
Data” of this Form 10 K.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at September 30, 2020 and 2019
Consolidated Statements of Operations for the Years Ended September 30, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended September 30, 2020, 2019 and 2018
Consolidated Statements of Shareholders’ Equity for the Years Ended September 30, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended September 30, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Page
52
56
57
58
59
60
61
2. Financial Statement Schedules: All schedules are omitted because they are not applicable or required or because the
required information is contained in the financial statements or included in the notes thereto.
3. Exhibits: The following documents are included as exhibits to this Form 10 K. Exhibits incorporated by reference are duly
noted as such.
2.1
3.1
3.2
4.1
4.2
Agreement and Plan of Merger dated May 22, 2017, by and among Helmerich & Payne, Inc., MOTIVE Drilling Technologies,
Inc., Spring Merger Sub, Inc., and Shareholder Representative Services LLC (incorporated herein by reference to Exhibit
2.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, SEC File No. 001-04221).
Amended and Restated Certificate of Incorporation of Helmerich & Payne, Inc. (incorporated herein by reference to
Exhibit 3.1 of the Company’s Form 8 K filed on March 14, 2012, SEC File No. 001 04221).
Amended and Restated By laws of Helmerich & Payne, Inc. (incorporated herein by reference to Exhibit 3.1 of the
Company’s Form 8 K filed on December 5, 2017, SEC File No. 001 04221).
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated herein by
reference to Exhibit 4.1 of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019, SEC
File No. 001-04221).
Indenture, dated March 19, 2015, among Helmerich & Payne International Drilling Co., Helmerich & Payne, Inc. and Wells
Fargo Bank, National Association, as trustee (incorporated herein by reference to Exhibit 4.1 of the Company’s Form 8 K
filed on March 19, 2015, SEC File No. 001 04221).
99
4.3
4.4
4.5
4.6
4.7
10.1
10.2
First Supplemental Indenture, dated March 19, 2015, to the Indenture, dated March 19, 2015, among Helmerich & Payne
International Drilling Co., Helmerich & Payne, Inc. and Wells Fargo Bank, National Association, as trustee (including the
form of 4.65% Senior Note due 2025) (incorporated herein by reference to Exhibit 4.2 of the Company’s Form 8 K filed on
March 19, 2015, SEC File No. 001 04221).
Second Supplemental Indenture, dated December 20, 2018, to the Indenture, dated March 19, 2015, among Helmerich &
Payne International Drilling Co., Helmerich & Payne, Inc. and Wells Fargo Bank, National Association, as trustee
(incorporated herein by reference to Exhibit 4.6 of the Company’s Form 8 K filed on December 20, 2018, SEC File
No. 001 04221).
Indenture, dated December 20, 2018, among Helmerich & Payne, Inc., Helmerich & Payne International Drilling Co. and
Wells Fargo Bank, National Association, as trustee (incorporated herein by reference to Exhibit 4.1 of the Company’s Form
8-K filed on December 20, 2018, SEC File No. 001-04221).
First Supplemental Indenture, dated December 20, 2018, to the Indenture, dated December 20, 2018, among Helmerich &
Payne, Inc., Helmerich & Payne International Drilling Co. and Wells Fargo Bank, National Association, as trustee (including
the forms of 4.65% Senior Note due 2025) (incorporated herein by reference to Exhibit 4.2 of the Company’s Form 8 K filed
on December 20, 2018, SEC File No. 001 04221).
Registration Rights Agreement, dated December 20, 2018, among Helmerich & Payne, Inc., Helmerich & Payne
International Drilling Co., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC
(incorporated herein by reference to Exhibit 4.3 of the Company’s Form 8-K filed on December 20, 2018, SEC File No.
001-04221).
Credit Agreement, dated November 13, 2018, among Helmerich & Payne, Inc., the lenders from time to time party thereto
and Wells Fargo Bank, National Association (incorporated herein by reference to Exhibit 10.2 of the Company’s Annual
Report on Form 10-K for the fiscal year ended September 30, 2018, SEC File No. 001-04221).
Amendment No. 1 to Credit Agreement, dated November 13, 2019, among Helmerich & Payne, Inc., the lenders party
thereto and Wells Fargo Bank, National Association (incorporated herein by reference to Exhibit 10.2 of the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 2019, SEC File No. 001-04221).
*10.3
Form of Change of Control Agreement applicable to executive officers and certain other employees of Helmerich & Payne,
Inc., adopted September 9, 2020 (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed on
September 14, 2020, SEC File No. 001-04221).
*10.4
Helmerich & Payne, Inc. 2005 Long-Term Incentive Plan (incorporated herein by reference to Appendix “A” of the
Company’s Proxy Statement on Schedule 14A filed on January 26, 2006, SEC File No. 001-04221).
*10.5
2012-1 Amendment to Helmerich & Payne, Inc. 2005 Long-Term Incentive Plan (incorporated herein by reference to Exhibit
10.6 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, SEC File No. 001-04221).
*10.6
*10.7
*10.8
*10.9
Form of Agreements for the Helmerich & Payne, Inc. 2005 Long-Term Incentive Plan applicable to certain executives: (i)
Nonqualified Stock Option Agreement, (ii) Incentive Stock Option Agreement, and (iii) Restricted Stock Award Agreement
(incorporated herein by reference to Exhibit 10.2 of the Company’s Form 8-K filed on December 7, 2009, SEC File No.
001-04221).
Form of Agreements for the Helmerich & Payne, Inc. 2005 Long-Term Incentive Plan applicable to participants other than
certain executives: (i) Nonqualified Stock Option Agreement, (ii) Inventive Stock Option Agreement, and (iii) Restricted Stock
Award Agreement (incorporated herein by reference to Exhibit 10.3 of the Company’s Form 8-K filed on December 7, 2009,
SEC File No. 001-04221).
Form of Amendment to Nonqualified Stock Option Award Agreements and Amendment to Restricted Stock Award
Agreements for the Helmerich & Payne, Inc. 2005 Long-Term Incentive Plan applicable to certain executive officers
(incorporated herein by reference to Exhibit 10.4 of the Company’s Form 8-K filed on December 7, 2009, SEC File No.
001-04221).
Form of Amendment to Nonqualified Stock Option Award Agreements and Amendment to Restricted Stock Award
Agreements for the Helmerich & Payne, Inc. 2005 Long-Term Incentive Plan applicable to participants other than certain
executive officers (incorporated herein by reference to Exhibit 10.5 of the Company’s Form 8-K filed on December 7, 2009,
SEC File No. 001-04221).
*10.10
Helmerich & Payne, Inc. 2010 Long-Term Incentive Plan (incorporated herein by reference to Appendix “A” of the
Company’s Proxy Statement on Schedule 14A filed on January 26, 2011, SEC File No. 001-04221).
*10.11
Form of Agreements for the Helmerich & Payne, Inc. 2010 Long-Term Incentive Plan applicable to certain executives: (i)
Nonqualified Stock Option Agreement and (ii) Restricted Stock Award Agreement (incorporated herein by reference to
Exhibit 10.1 of the Company’s Form 8-K filed on March 14, 2012, SEC File No. 001-04221).
100
*10.12
Form of Agreements for the Helmerich & Payne, Inc. 2010 Long-Term Incentive Plan applicable to participants other than
certain executives: (i) Nonqualified Stock Option Agreement and (ii) Restricted Stock Award Agreement (incorporated herein
by reference to Exhibit 10.2 of the Company’s Form 8-K filed on March 14, 2012, SEC File No. 001-04221).
*10.13
Form of Restricted Stock Award Agreement for the Helmerich & Payne, Inc. 2010 Long-Term Incentive Plan applicable to
certain executives (incorporated herein by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for
the quarter ended December 31, 2013, SEC File No. 001-04221).
*10.14
Form of Restricted Stock Award Agreement for the Helmerich & Payne, Inc. 2010 Long-Term Incentive Plan applicable to
participants other than certain executives (incorporated herein by reference to Exhibit 10.2 of the Company’s Quarterly
Report on Form 10-Q for the quarter ended December 31, 2013, SEC File No. 001-04221).
*10.15
Form of Agreements for the Helmerich & Payne, Inc. 2010 Long-Term Incentive Plan applicable to Directors: (i) Nonqualified
Stock Option Agreement and (ii) Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.3 of the
Company’s Form 8-K filed on March 14, 2012, SEC File No. 001-04221).
*10.16
Helmerich & Payne, Inc. 2016 Omnibus Incentive Plan (incorporated herein by reference to Appendix “A” of the Company’s
Proxy Statement on Schedule 14A filed on January 19, 2016, SEC File No. 001-04221).
*10.17
*10.18
Form of Agreements for the Helmerich & Payne, Inc. 2016 Omnibus Incentive Plan applicable to certain executives: (i)
Nonqualified Stock Option Agreement and (ii) Restricted Stock Award Agreement (incorporated herein by reference to
Exhibit 10.26 of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2016, SEC File
No. 001-04221).
Form of Agreements for the Helmerich & Payne, Inc. 2016 Omnibus Incentive Plan applicable to participants other than
certain executives: (i) Nonqualified Stock Option Agreement and (ii) Restricted Stock Award Agreement (incorporated herein
by reference to Exhibit 10.27 of the Company’s Annual Report on Form 10-K for fiscal year ended September 30, 2016,
SEC File No. 001-04221).
*10.19
Form of Agreements for the Helmerich & Payne, Inc. 2016 Omnibus Incentive Plan applicable to Directors: (i) Nonqualified
Stock Option Agreement and (ii) Restricted Stock Award Agreement (incorporated herein by reference to Exhibit 10.28 of the
Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2016, SEC File No. 001-04221).
*10.20
Supplemental Retirement Income Plan for Salaried Employees of Helmerich & Payne, Inc. (incorporated herein by reference
to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2008, SEC File No.
001-04221).
*10.21
Supplemental Savings Plan for Salaried Employees of Helmerich & Payne, Inc. (incorporated herein by reference to Exhibit
10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2008, SEC File No. 001-04221).
*10.22
Helmerich & Payne, Inc. Director Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.3 of the
Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2008, SEC File No. 001-04221).
*10.23
Form of Performance-Vested Restricted Share Unit Award Agreement for the Helmerich & Payne, Inc. 2016 Omnibus
Incentive Plan (incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed on December 18, 2018,
SEC File No. 001-04221).
*10.24
Helmerich & Payne, Inc. 2020 Omnibus Incentive Plan (incorporated herein by reference to Appendix “A” of the Company’s
Proxy Statement on Schedule 14A filed on January 21, 2020, SEC File No. 001-04221).
*10.25
Helmerich & Payne, Inc. Director Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.2 of the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, SEC File No. 001-04221).
*10.26
Form of Restricted Stock Award Agreement for the Helmerich & Payne, Inc. 2020 Omnibus Incentive Plan applicable to
Directors (incorporated herein by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2020, SEC File No. 001-04221).
*10.27
Form of Annual Three-Year Performance-Vested Restricted Share Unit Award Agreement for the Helmerich & Payne, Inc.
2020 Omnibus Incentive Plan.
*10.28
Form of Standard Three-Year Performance-Vested Restricted Share Unit Award Agreement for the Helmerich & Payne, Inc.
2020 Omnibus Incentive Plan.
*10.29
Form of Restricted Stock Award Agreement for the Helmerich & Payne, Inc. 2020 Omnibus Incentive Plan applicable to
employees.
*10.30
Agreement and Release, dated July 17, 2020, between Rob Stauder and Helmerich & Payne International Drilling Co.
101
21
List of Subsidiaries of the Company.
23.1
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Rule 13a 14(a) promulgated under the Securities Exchange Act of 1934,
as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Rule 13a 14(a) promulgated under the Securities Exchange Act of 1934,
as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes Oxley Act of 2002.
31.1
31.2
32
101
Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of
Comprehensive Income (Loss), (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements
of Cash Flows and (vi) the Notes to Consolidated Financial Statements.
104
Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101).
*Management or Compensatory Plan or Arrangement.
Item 16. FORM 10-K SUMMARY
None.
102
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:
SIGNATURES
HELMERICH & PAYNE, INC.
By:
/s/ John W. Lindsay
John W. Lindsay,
Director, President and Chief Executive Officer
Date: November 20, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Company and in the capacities and on the dates indicated:
Signature
/s/ John W. Lindsay
John W. Lindsay
/s/ Mark W. Smith
Mark W. Smith
/s/ Sara M. Momper
Sara M. Momper
/s/ Hans Helmerich
Hans Helmerich
/s/ Delaney Bellinger
Delaney Bellinger
/s/ Kevin G. Cramton
Kevin G. Cramton
/s/ Randy A. Foutch
Randy A. Foutch
/s/ Jose R. Mas
Jose R. Mas
/s/ Thomas A. Petrie
Thomas A. Petrie
/s/ Donald F. Robillard, Jr.
Donald F. Robillard, Jr.
/s/ Edward B. Rust, Jr.
Edward B. Rust, Jr.
/s/ Mary M. VanDeWeghe
Mary M. VanDeWeghe
/s/ John D. Zeglis
John D. Zeglis
Title
Date
Director, President and Chief Executive
Officer (Principal Executive Officer)
November 20, 2020
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
November 20, 2020
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
November 20, 2020
Director and Chairman of the Board
November 20, 2020
Director
Director
Director
Director
Director
Director
Director
Director
Director
103
November 20, 2020
November 20, 2020
November 20, 2020
November 20, 2020
November 20, 2020
November 20, 2020
November 20, 2020
November 20, 2020
November 20, 2020
(This page has been left blank intentionally.)
DIRECTORS
THE H&P WAY
THE H&P WAY IS A CORE SET OF PILLARS THAT LAY THE FOUNDATION
OF HOW WE CREATE, INTERACT AND COMMUNICATE.
OUR PURPOSE
Improving lives through efficient and responsible energy
WHAT WE DO
We safely provide performance-driven drilling solutions
OUR VALUES
Our values reflect who we are and the way we interact with one another,
our customers, partners and shareholders
Actively C.A.R.E.
Teamwork
We treat one another with respect. We
We listen to one another and work
care about each other. We are committed
across teams toward a common goal.
to Controlling and Removing Exposures
We collaborate to achieve results and
for ourselves and others.
focus on success with our customers
and shareholders.
Do the Right Thing
We are honest and transparent. We
tackle tough situations, make decisions
and speak up when needed.
Service Attitude
We do our part and more for those
around us. We consider the needs of
others and provide solutions to meet
their needs.
Innovative Spirit
We constantly work to improve and try
new approaches. We make decisions
based on our clients’ challenges and
goals with the long-term view in mind.
Randy A. Foutch **(***)
Lead Director
Chairman, Retired, Laredo Petroleum, Inc.
Director since 2007
Delaney Bellinger *(***)
Vice President and Chief Information Officer,
Retired, Huntsman Corporation
Director since 2018
Kevin G. Cramton *(***)
Operating Partner, HCI Equity Partners
Director since 2017
Hans Helmerich
Chairman of the Board
Director since 1987
John W. Lindsay
President and Chief Executive Officer
Director since 2012
José R. Mas **(***)
Chief Executive Officer, MasTec, Inc.
Director since 2017
Thomas A. Petrie **(***)
Chairman, Petrie Partners, LLC
Director since 2012
Donald F. Robillard, Jr. *(***)
Executive Vice President, Chief Financial
Officer and Chief Risk Officer, Retired,
Hunt Consolidated, Inc.
Director since 2012
Edward B. Rust, Jr. *(***)
Chairman and Chief Executive Officer,
Retired, State Farm Mutual Automobile
Insurance Company
Director since 1997
Mary M. VanDeWeghe **(***)
President and Chief Executive Officer,
Forte Consulting, Inc.
Director since 2019
John D. Zeglis *(***)
Chairman and Chief Executive Officer,
Retired, AT&T Wireless Services, Inc.
Director since 1989
*
Member
Audit Committee
**
Member
Human Resources Committee
***
Nominating & Corporate
Governance Committee
2020
ANNUAL
REPORT
Stockholders’ Meeting
Helmerich & Payne shareholders are
invited to attend our annual meeting
which will be held on March 2, 2021.
Stock Transfer Agent and Registrar
Computershare Trust Company, N.A.
First Class/Registered/Certified Mail
PO Box 505000
Louisville, KY 40233-5022
Courier Services
462 South 4th Street
Suite 1600
Louisville, KY 40202
Shareholder Services
781.575.2879
800.884.4225 (Toll Free)
Independent Registered Public
Accounting Firm
Ernst & Young LLP
Tulsa, Oklahoma
Direct Inquiries To
David T. Wilson
Vice President, Investor Relations
Helmerich & Payne, Inc.
1437 South Boulder Avenue
Tulsa, Oklahoma 74119
918.742.5531
NYSE : HP
helmerichpayne.com