Energy Cuts to Idle 43% of Tulsa Contractor H&P's U.S. Land Fleet

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In a dark portrait of the spreading energy-sector gloom, Tulsa drilling contractor Helmerich and Payne expects 43 percent of its U.S. land rig fleet will be idle by the end of March.

In a U.S. Securities and Exchange Commission report and investor presentation Friday, the Tulsa-based contract driller said only 102 of its 196 U.S. land rigs are now under long-term contracts. Another 30 have other contracts, leaving 64 rigs idle.

Helmerich expects that stacked rig count will rise to 83 by March 31, the end of its second fiscal quarter, as more exploration and production companies hibernate or shut down operations under today's continued lower commodity prices.

Even H&P's highly touted FlexRigs have not proven immune. Helmerich said term contracts ended early for 16 of its proprietary, next-generation drilling rigs. Of H&P's 48 idled spot-market rigs, 22 were FlexRigs.

"This isn't unique to Helmerich and Payne," said analyst M. "Jake" Dollarhide, chief executive of Longbow Asset Management of Tulsa. "This is affecting small operators, big players. This is industry-wide. There is no one immune to this painful slowdown. And it's probably going to get much worse in the industry. Even when the economy turns around, the energy industry may take longer to come back."

Squeezed by plunging energy prices over the last six months, customers have issued early terminations on 9 percent of H&P's remaining contract revenue days, Helmerich said Friday. The company said it intends to invoice more than $100 million in fees this fiscal year.

These forecasts continue trends Helmerich reported last month with its fiscal first-quarter earnings report. For that three-month period ended Dec. 31, the company recorded an 8.1-percent rise in average U.S. land rig revenue per day to $27,066. Average rig margin increased 12 percent to $14,820 a day.

But both key operating categories included $1,100 in early contract termination payments.

These dropped contracts extend beyond fiscal 2009. Of its 132 new builds and 13 other U.S. rigs rolling over from term contracts, Helmerich said nine projected for completion this year have been terminated, along with 18 in fiscal 2010 and one in fiscal 2011.

The softening contract drilling market has idled eight of H&P's 32 international rigs. Only nine now operate under term contracts.

On Jan. 29, Helmerich announced plans to idle its 11 Venezuelan rigs as their unpaid Petroleos de Venezuela SA contracts expired. With two sidelined at the end of January and five others last month, the Tulsa company said Friday it intended to maintain those plans until Petroleos paid down its debt.

Those rigs accounted for 51 percent of Helmerich's $328.2 million international drilling revenues in fiscal 2008, according to the company's annual report. …