Energy Prospectus

Helmerich & Payne, Inc. is primarily a contract drilling company. As of April 26, 2012, the Company's existing fleet included 270 land rigs in the U.S., 26 international land rigs and nine offshore platform rigs. In addition, the Company is scheduled to complete another 34 new H&P-designed and operated FlexRigs under long-term contracts with customers. Upon completion of these commitments, the Company's global fleet is expected to have a total of 330 land rigs, including 293 FlexRigs.

Chairman and CEO Hans Helmerich commented, "The U.S. land market transition towards oil and liquids-rich-gas directed drilling continues, along with a clear trend towards more complex well designs and higher performance rig requirements. Our FlexRigs(R)*, combined with our premium service offering, are well positioned to make the transition. We are fortunate to have a customer roster with substantial multi-year drilling inventory that is capable of shifting targets and taking advantage of strong oil prices. These customers are also continuing to strive for added drilling efficiencies and allowed us to add nine previously announced new builds to our order book during the quarter. As we enter the second half of fiscal 2012, we continue to deliver four new rigs per month on time and on budget."

Hey Dan
With so many new rigs apparently being delivered to HP/PTEN and I assume other drillers do you think it likely that there could be pricing pressure due to simply too much capacity???

BOB: All onshore rigs are not the same. The new high horse power rigs needed in the red hot shale plays like the Bakken and Eagle Ford remain in very high demand. HP Flex Rigs and PTEN Apex Rigs only go out on long-term contracts.

There is always a seasonal dip in the active rig count. We normally see the bottom in May. Through mid-April the active rig count is up over 8% year-over-year and dayrates are higher. Take a hard look at the top of my PTEN and HP models and you will see what I mean.

I am still expecting the average rig count to go up in Q3 and Q4. Keep in mind that the Majors and Large-Cap E&P companies are primarily oil producers. They are doing quite well and capital budgets are being expanded. Right now we are just in the middle of the normal seasonal dip + operating costs are somewhat higher due to the movement of rigs from the dry gas areas to the more liquid prone plays. As long as oil prices stay this high, the onshore and offshore drillers will be fine.

BTW the dip in pressure pumping rates is good news for our E&P companies in the Sweet-16.

Dan, I very much appreciate your on going commentary on the drillers. If your numbers are correct the value is compelling. While they are not in the Sweet 16 - your updates are very interesting to me.

Bob

I want to be clear that I am not recommending the onshore driller just yet. I think Q2 results will be soft (but still very profitable). I think the outlook for all the drillers, onshore and offshore, is going to look much brighter in a few months. The rig count is holding up quite well, as you would expect with $100/bbl oil.

The repositioning of rigs from the dry gas areas to the more liquid prone areas is adding some expenses but nothing they can't handle.

The main reason I'm bullish on the drillers is that I don't see the E&P companies cutting capital expenditures. If fact, I am hearing a lot of companies talking about expanding budgets and drilling more wells. If early drilling in the Utica Shale goes well, there could be a lot of demand for rigs in the second half of the year.

Remember, there is ALWAYS a seasonal dip in drilling during Q2. It is called "Spring Break-up". The gang on Wall Street tends to forget this. They often take short-term trends and make long-term (stupid) decisions.

Also, MIND is a leading indicator for the drillers. More spending on seismic leads to more drilling. MIND is posting record activity and record earnings. They are going to report outstanding Q1 results. It may be the best quarter in the long history of the company.