管理層發言
Please stand by. Your program is about to begin. Good day, everyone. And welcome to the Helmerich & Payne Fiscal Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star and 1 on your telephone keypad. You may withdraw your question. Please note this call is being recorded. Operators will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Kris Nicol, Vice President of Investor Relations.
Welcome everyone to Helmerich & Payne's conference call and webcast for the Third Fiscal Quarter of 26. On today's call, Trey Adams, our President and CEO, will be joined by Todd Scruggs, our Chief Financial Officer, and Mike Lennox, Executive Vice President of the Western Hemisphere. Before we begin our prepared remarks, I would like to remind everyone that this call will include forward-looking statements as defined under securities laws. Although management believes that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that the expectations will prove to be correct. Please refer to our filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. Adjusted EBITDA, direct margin, adjusted EPS, and free cash flow are non-GAAP measures. The most directly comparable GAAP measures and reconciliations are included in our earnings release and investor materials on our investor relations website. I also want to highlight that we have a presentation which supports the prepared remarks from the management team and can be found on the IR website. With that, I will turn the call over to Trey.
Thank you, Kris. Hello, everyone. Thank you for joining us. As always, we appreciate your interest in Helmerich & Payne. I will begin with an overview of our quarter results, and I will then turn to discuss the broader macro environment, current rig market dynamics, and several key commercial developments, including a specific update on our activities in the Vaca Muerta in Argentina. Todd will then walk through our financial results, share details on our financial framework, and discuss additional cost optimization actions we are initiating. He will then provide guidance for the fourth fiscal quarter and full year. To wrap up, I will then return to summarize the key takeaways before opening the line for questions. Turning to slide 4 of the presentation, I would like to begin by walking through some of our key highlights from the fiscal third quarter. We delivered strong financial and operational performance during the quarter, led by our operations in the U.S. Adjusted EBITDA was $236 million, coming in comfortably ahead of the implied midpoint of our guidance. We also generated strong free cash flows during the quarter. One of the most pleasing aspects was exceeding the midpoint of our direct margin guidance in all operating segments, despite ongoing disruption in the Middle East and recent market volatility. We experienced a strong rebound in activity in North America Solutions, averaging 142 rigs during the quarter and direct margins of $241 million, coming in at the high end of the guidance range. Our talented teams and leading technology continue to deliver for our customers, generating industry-leading margins of $18.7 thousand per day, up over $1 thousand a day sequentially. Being able to deliver this margin growth across the largest fleet in the Lower 48 while reactivating 10 rigs during the quarter demonstrates our differentiated capability to efficiently and economically reactivate rigs. Despite recent commodity price volatility, we have continued to experience strong customer demand and exited the quarter with 147 rigs running in the Lower 48. The combination of a stronger activity landscape and pricing environment has enabled us to increase our fiscal fourth quarter and full year guidance for North America Solutions. In International Solutions, we saw a significant sequential increase in direct margins. During the quarter, we delivered a direct margin of $31 million, aligning with the high end of our guidance range. This was led by strong performance in our Latin America region, as well as slightly less than expected impacts from the ongoing conflict in the Middle East. We continue to closely monitor developments in the region, and I have just returned from a trip to Saudi Arabia last week. I spent time in the field with our teams, and met with our customers and partners in the kingdom. Despite the ongoing conflict, we continue to do an exceptional job maintaining continuity of operations and navigating supply chain constraints. I left encouraged by our customer interactions, and we are seeing ongoing commercial momentum despite the conflict as we look ahead to 2027. During the quarter, operational activity remained stable in the region. We continued rig reactivations in Saudi, although at a slower pace than planned. We closed the quarter with four rigs fully reactivated, and our fifth rig began drilling early this quarter. This takes us to a total of 22 rigs operating in the Kingdom, and we expect to maintain this level of activity through the fiscal fourth quarter. Even with these delays, the broader portfolio continues to perform as expected. We remain confident of achieving the midpoint of the annual rig guidance range we set out at the start of the year. We also remain on course to get the quarterly direct margin run rate to at least $45 million, with strong growth in Argentina offsetting some of the near-term conflict-related activity changes in the Middle East. Our offshore segment delivered another quarter of strong operational and financial results, coming in above the high end of our guidance range. This was, again, driven by the achievement of several performance-related bonuses during the quarter. In addition to our robust operational performance, we have maintained a clear emphasis on strengthening our balance sheet and optimizing our enterprise. As we begin preparing for 2027, we are implementing several new initiatives to accelerate debt repayment, optimize our cost structure, and position our portfolio to support the anticipated multiyear growth cycle. Todd will elaborate on these efforts shortly. Looking at the broader macro environment, on slide 5, the Middle East conflict continues to dominate the direction of travel of commodity prices. Over the past three months, we have navigated a highly volatile pricing environment, with prices initially retreating to preconflict levels before rebounding as geopolitical tensions once again intensified. Given the volatile situation, visibility remains somewhat limited. Regardless, with the 12-month strip remaining around $70 per barrel WTI, we are confident that our customers will be using higher planning price assumptions this budget season compared to what they used last year, pointing to upstream spending growth in 2027. Beyond the short-term market dynamics, what has not changed is our belief that the world will require significantly more energy than it consumes today, driven by expanding populations and growing prosperity in emerging markets, along with rising power needs from AI advancements in many developed nations. At the same time, the potential bifurcation of supply and energy security concerns caused by this shock support the view that we may now need even more energy supply. This dynamic strengthens our view that demand for oil and gas will persist and grow for many years to come, and therefore increases the need for our global drilling solution and will likely bring forward activity sooner than we anticipated. Looking at the rest of this calendar year, we have not seen any deviation from the recent ramp-up in drilling activity from private operators. We are on track to surpass 150 rigs during the quarter, which is at least 17 more than we were operating in a recent trough in February. We are confident that our rig activity will persist at these levels throughout the remainder of the year and is likely to continue into 2027 assuming commodity prices remain supported. The majority of these additions have originated from private and small independent operators who typically are more price sensitive. Larger operators have so far focused on adding technology to existing rigs. We are encouraged by this dynamic heading into 2027, as we believe all operators will need to increase drilling programs to maintain, if not grow, production. With utilization of the super-spec fleet already trending at 95%, we see further tightening of the market, which will be supportive of direct margins. As of today, we have around 10 rigs remaining that can go back to work relatively quickly, for maintenance CapEx levels or less. Importantly, we are not solely reliant on operators in the Lower 48 picking up these rigs. We are seeing strong demand in the Vaca Muerta. Geothermal continues to grow, and we are in several discussions to strengthen our FlexRig footprint in the Middle East and Australia. More specifically in the Middle East, as was the case last quarter, the uptick in activity remains less defined as the conflict continues to create disruption. However, we remain hopeful that more rigs will be required in 2027 with several of the NOCs stating plans to grow production. Lastly, offshore continues to be an area of strength for us, and the market more broadly, with several projects progressing. We are hopeful that we can continue to capture increasing scopes of work as operators seek to maximize output from existing assets. In sum, we remain positive on the outlook despite the market volatility created by the ongoing conflict. This will be led by North America Solutions, our most important market, and supplemented by growth in Argentina and the ongoing recovery in the Middle East. Importantly, we believe this is the early innings of a multiyear growth cycle. Turning to slide 6, on the commercial front, we continue to make progress during the third fiscal quarter. And while market conditions remain dynamic, we are encouraged by the level of customer engagement and the opportunities developing across our diversified portfolio. These opportunities are taking shape in North America Solutions, where demand from private operators drove 10 incremental rig additions during the quarter. That activity reflects the constructive industry outlook that we discussed earlier. As operators continue to advance development programs despite commodity price volatility, we also continue to advance the deployment of FlexRobotics, with a second package now operating on a rig for a super-major customer in the Permian, marking another key milestone in the rollout of this innovative technology. As these systems transition from initial commitment to field deployment, they are demonstrating the effectiveness of our automation strategy and strengthening the competitive advantage of our super-spec fleet. Beyond traditional oil and gas, geothermal activity continues to expand, representing an exciting opportunity to leverage our drilling expertise and technology in a growing adjacent market. We recently signed agreements for three additional rigs to work on geothermal projects in the U.S. Combined with our existing projects in the U.S. and Europe, we are well on our way to hitting a double-digit rig count. That commercial momentum extends across our international operations. We are encouraged by the progress in Argentina, where activity levels and customer engagement continue to increase. We are nearing 100% utilization, securing multiyear contracts for our remaining idle flex rigs available in country, as well as contracts for an additional three rigs that will be exported from the United States. Operational performance remains a key differentiator for us in the basin, and we are particularly pleased with the results being delivered through our technology portfolio. In the Middle East, activity remained stable as conflict-related disruptions began to ease. As a result, we have now resumed operations on the two suspended rigs in Bahrain during the fourth quarter. Elsewhere internationally, Australia continues to gain momentum. We are pleased to announce the award for a third rig, which will be exported from the U.S. as development activity continues to build in the Beetaloo Basin. Lastly, in Offshore Solutions, we secured a multimillion-dollar four-year contract renewal with an operator in Norway, strengthening the durability of our offshore backlog. We also continued to advance several opportunities, including potential multiyear contract renewals and possible rig mobilizations in the Gulf of America, which could further enhance the resilience and growth prospects of our offshore portfolio. Taken together, these developments reinforce our confidence in the competitive position of our business. We continue to see opportunities to expand our technology footprint, deepen customer relationships, and create long-term value for our shareholders. Turning to the next slide, I want to spend some time on our operations in the Vaca Muerta. We have been in Argentina since 2000 and currently have nine rigs operating, which represents approximately 25% market share, making Helmerich & Payne one of the region's leading drilling contractors. The Vaca Muerta continues to gain momentum and is quickly transitioning into one of the most attractive and advanced shale basins outside the Lower 48. Production growth continues to accelerate, with Argentina's oil output recently reaching its highest level in more than two decades. The quality of the resource has never been in doubt, but several changes led by the Milei government, including the Rigi investment framework, are providing greater fiscal and regulatory stability. Combined with large-scale infrastructure investments, including several pipeline and LNG projects, the strengthening long-term demand visibility is influencing not only domestic operators, but several IOCs to deploy capital across the basin. Looking ahead, the rig demand outlook remains favorable. Wood Mackenzie's energy analytics forecast Vaca Muerta production could grow by greater than 50% between 2026 and 2030, supported by approximately $60 billion of investment in unconventional resource development and infrastructure projects. Growing operator focus on reducing well costs and maximizing drilling efficiency continues to reinforce the value proposition of super-spec rigs and advanced technology solutions. Recently, Helmerich & Payne drilled a record-setting well in the Vaca Muerta, completing the well 13% faster than the operator's previous record while coming in 15% below the operator's budget. The project was executed under a performance-based contract, demonstrating our ability to translate operational excellence into tangible customer value. We also continue to extend our technology leadership in the basin, recently deploying automated slide drilling automation that enabled zero manual slides. This success is creating opportunities to expand adoption of Helmerich & Payne's broader automation and drilling technology suite across customer programs. As operators shift to larger pads, longer laterals, and more repeatable drilling programs, the importance of reliable execution continues to increase. These dynamics play directly into Helmerich & Payne's core strengths, particularly as the region remains in the early stages of its evolution. In addition to the nine flex rigs we are currently operating in Vaca Muerta, we expect to activate our 10th and 11th rigs by the end of August. We have contracted our last flex rig that is in Argentina and then plan to export three more from the U.S. later this year. This will take our total to 15 FlexRigs, which we expect to all be drilling by this time next year with potential to deploy more rigs through 2027. As well as the strong growth, the most important aspect for us is the healthy margin rates we are able to achieve on longer-duration contracts in country, adding further strength and diversity to our international drilling solutions portfolio. Overall, we view the Vaca Muerta as a basin with substantial long-term potential. With proven drilling performance and growing customer demand for super-spec rigs, we believe Helmerich & Payne is well positioned to expand alongside the basin. To close, let me briefly recap. Our third quarter performance highlights the momentum we are building across Helmerich & Payne. We delivered a strong set of results, led by our operations in the Lower 48 where we gained share and increased margins. Latin American offshore also made strong contributions, alongside ongoing resilience in the Middle East. This strong performance is a testament to our teams around the world, and I want to thank them for their dedication and commitment to Helmerich & Payne and to our customers. We appreciate the continued partnership. On that positive note, I will now hand it over to our new CFO, Todd Scruggs, to walk you through our financial results, our updated financial framework, and our guidance for the fiscal fourth quarter and full year.
Thank you, Trey. I will start by reviewing our third quarter financial results and share details on the performance of our segments. As this is my first earnings call after stepping into the CFO role, I also want to provide an update on our financial framework as well as several projects we will be embarking on across finance and the broader organization to accelerate our enterprise optimization initiative. I will conclude by outlining our guidance for the fiscal fourth quarter and full year before handing it back to Trey. Turning to slide 9, we delivered strong financial and operating results in the quarter while continuing to navigate the dynamic situation in the Middle East. During the quarter, the company generated revenues of over $1 billion, up 11% sequentially. We generated $236 million of adjusted EBITDA, and exceeded the midpoint of our direct margin guidance in all operating segments. On EPS, we reported a net profit of $0.74 per diluted share. These results were supplemented by the gain from the sale of Utica Square. Absent this and other select items, we recorded a loss of $0.11 per share. Gross capital expenditures for the third quarter were $70 million, which continued to trend below anticipated spending levels. This was attributable to the reordering of capital expenditures from the third to the fourth quarter in North America Solutions as well as delayed expenditure on rig reactivations in the Middle East. Free cash flow during the quarter came in strong at $98 million. Let me now turn to our North America Solutions segment on Slide 10, which was a particular highlight this quarter. We experienced a stronger-than-anticipated ramp-up in activity, averaging 142 contracted rigs during the third quarter, coming in above the midpoint of our activity expectations. Segment direct margin for North America Solutions was $241 million, also exceeding the high end of our guidance range. The most impressive aspect of this result was our direct margin of $18.7 thousand per day, up over $1 thousand per day sequentially, led by strong pricing and performance-related bonuses during the quarter. We also saw operating cost per day improve despite absorbing the recommissioning cost of 10 rigs. We added back more rigs at higher margins for a lower cost than anyone else in the industry. In addition to the 10 rigs I just mentioned, we still have enough capacity that can be reactivated at or below our $1 million maintenance capital level to reach 160 rigs operating in the Lower 48. But as Trey pointed out, some of these rigs could also go to Argentina or beyond. Turning to International Solutions on slide 11, the segment generated $31 million in direct margins, coming in at the high end of our guidance range. The Vaca Muerta, in particular, was an area of strength during the quarter. In the Middle East, we continued to navigate the dynamics around the ongoing conflict. During the quarter, our rigs in Iraq and Bahrain remained suspended, and we faced further delays in the reactivation of our rigs in Saudi. As of today, we have five of the reactivated rigs turning to the right, taking us to a total of 22 rigs operating in the country. As Trey mentioned, we now expect to maintain that average throughout the balance of the fiscal year. Despite these challenges, we experienced a lower impact from the conflict on our direct margins than we expected as travel routes and logistical challenges incrementally eased throughout the quarter. Lastly, in Offshore, we generated a direct margin of $29 million during the quarter, which also came in ahead of the high end of our guidance range. We had three active rigs and 30 management contracts in operation. The strong performance of our offshore segment was led by several performance-related bonuses that the teams achieved across our offshore fleet. We remain excited about this business and the consistent and stable results that it delivers. It requires minimal capital, generates steady cash flow, and continues to provide strong diversification in our portfolio. Turning to slide 13, I want to provide an update on our financial framework and some of the details around our enterprise optimization initiatives, which includes several projects we are working on across our global organization. This includes a broad spectrum of initiatives with the aim of making Helmerich & Payne a simpler and more profitable business. Many of you will welcome the news that we will also be examining ways in which we can simplify the way we report as well as the timing of our fiscal year end. With regard to our balance sheet, our focus remains unchanged. My top priority is to continue to drive our leverage towards one turn of net debt to EBITDA. In a relatively short time, we have made great progress, paying off our term loan of $400 million ahead of schedule, and we are now focused on retiring our $350 million bond due at the end of 2027. I am eager to accelerate this program wherever possible. Over the coming quarters, we will be streamlining our central functions, reducing duplication, and deploying a standard operating model for all regions as well as harmonizing our ERP systems. We expect to see significant operational and financial benefits from this exercise, and anticipate reducing our corporate costs by an annualized $40 million by the end of 2027. We are also looking at ways to further reduce our overhead costs, which will have a positive impact on our direct margins. Additionally, there are several remaining areas of our portfolio and operations that we are looking to streamline and simplify. We will continue to exit noncore geographies and monetize assets where possible. Collectively, these initiatives will now help us raise over $160 million from asset sales, which we are targeting to complete by the end of fiscal 2027, if not sooner. Finally, we are also conducting a thorough review of our working capital and inventory management practices to unify processes and enhance our free cash flow generation. All of these actions, when coupled with growing EBITDA and free cash flows and an improving market backdrop, will enable us to quickly delever and reach our one turn of net debt to EBITDA target. At that point, our optionality to maximize shareholder value through effective capital allocation increases significantly. Turning to slide 14, I want to provide a bit more detail on how we think about our capital allocation evolution, particularly related to shareholder returns and capital expenditures. On the left-hand side of the slide, we are showing the current state, which will take us through the end of 2027. Our base dividend is a core element of our shareholder return strategy, and we are very proud that we have been able to consistently pay a dividend for 34 years. During this deleveraging phase, we will maintain our dividend, which accounts for around $100 million per year of spending. Beyond the dividend, our capital allocation is focused on the balance between capital investment and debt repayment in the near term. As illustrated on the chart, we break out our capital investment into three categories. Maintenance CapEx is the minimum amount of capital we need to allocate to keep our rigs running in the field. Based on today's activity levels and average maintenance CapEx costs, our total spend amounts to around $250 million annually for maintenance capital. Importantly, we feel confident that we can maintain this level of spend for several years. Beyond that, we have what we call sustaining CapEx. These are investments we consistently make to our rig fleet to maintain their technology and performance leadership. Examples of this type of expenditure include walking conversions, larger setbacks, heavier hook loads, and rig floor automation packages. We plan to invest $50 million every year in these enhancements. The last category considers growth projects which may include new country entries or the expansion of fleets in key growth markets. We also include FlexRobotics within this category. To start with, all these investments must meet a return threshold. Beyond that, we assess the duration, scalability, and durability of the geography and customer relationship. Lastly, our ability to drive technology adoption and performance-based contracts are also key considerations. As we approach our deleveraging target, we expect to have significantly more financial flexibility from 2028 onwards, which we highlight on the right-hand side of the chart. This will be achieved through the discipline of our capital investment programs, higher cash flow from operations, and the retirement of our $350 million bond. This frees up significant capital, which can be deployed most effectively to maximize shareholder value through a balanced combination of dividends and buybacks, further strengthening the balance sheet, and disciplined investment in growth projects. Now I want to transition to our fourth quarter and full year guidance on slide 15. Looking ahead to the fourth quarter for North America Solutions, we expect our operating rig count to show solid sequential growth as we see no deviation from the activity ramp we experienced in the Lower 48 in the third quarter. As a result, we expect direct margins in our fourth quarter to average between $245 and $255 million based on an anticipated rig count of between 145 and 151 rigs during the quarter. Given the better-than-expected result in the third quarter and our upgraded guidance for the fourth quarter, we are also raising our full year rig count range to 140-144 rigs. As we have said, we see continued momentum for the U.S. Lower 48 into 2027 and feel comfortable at least maintaining similar levels of activity and margins across the portfolio, assuming commodity pricing remains supportive. For International, we anticipate the rig count to average between 60 to 70 rigs in the fourth quarter and we remain confident in achieving the midpoint of the annual rig guidance range we set out at the start of the year. We are seeing increased levels of activity in Latin America as we move toward full utilization of the fleet in Argentina, offsetting some of the activity changes we have experienced in the Middle East. We expect International Solutions to generate a direct margin between $25 and $45 million. The wider range captures the spectrum of potential outcomes regarding the ongoing conflict in the Middle East. For Offshore, we anticipate an average of 30 to 35 management contracts and operating rigs. We expect the direct margin rate in the fiscal fourth quarter to range between $26 million and $30 million. Given the strong performance year to date, we are also upgrading the full year guidance range to $113 million to $117 million. CapEx came in lighter than expected during the quarter largely due to the timing of spending on several projects across the business. This variance primarily reflects deferred spending rather than any change in project scope, and we therefore expect capital expenditures to increase sequentially in the fourth quarter. Importantly, we expect to remain within our guidance range of $270 million to $310 million for the full year. Reflecting the tax impact of the Utica Square sale and stronger financial performance in North America Solutions, we have increased our cash tax outlook and now expect payments to range between $150 to $180 million. In summary, the positive tailwinds from activity and direct margins from the third quarter are expected to carry forward into the fiscal fourth quarter. Despite some project timing shifts, which impact capital expenditures, the fundamentals of the business remain strong. We continue to believe we are well positioned to capitalize on continued customer demand and carry this momentum into fiscal 2027. And with that, I will hand it back to Trey for some closing remarks.
Thank you, Todd. Before we open the line for questions, I would like to leave you with a few key takeaways. We delivered a strong third quarter, exceeding the midpoint across all three operating segments, and demonstrating the strength of our people, technology, and diversified portfolio. Activity in the U.S. Lower 48 continues to build. Our international business is benefiting from growing opportunities in Latin America, and offshore remains a consistent source of value and cash flow. While calendar 2026 got off to a slow start, we were confident that we had the discipline, the portfolio, and the customers to make up the lost ground. Despite all the challenges and volatility created by the conflict in the Middle East, we are well positioned to deliver full year results which exceed original expectations. Looking ahead, we remain optimistic on the outlook for our business in 2027 and beyond, supported by our advanced technologies and strong operational execution. At the same time, we are excited by the value we can unlock from our enterprise optimization initiatives, all with the aim of simplifying our business, increasing profitability, and maximizing the long-term value we create for shareholders. Building upon this positive momentum, we hope to see you at our Technology Day on October 8th, which we are hosting here in Tulsa. We will be providing a deeper look at our FlexRobotics technology as well as showcasing some of the critical technologies and solutions that truly differentiate Helmerich & Payne. That concludes our prepared remarks. And we will now turn it back to the operator for questions.
分析師問答
Thank you. Once again, to ask a question, please limit yourself to one question. We will pause for just a moment to allow everyone a chance to join the queue. Thank you. We will take our first question from Derek Podhaizer with Piper Sandler. Please go ahead.
Hey. Good morning, Trey and Todd. Just wanted to start things off here with maybe walking through the different puts and takes for your fiscal Q4 guide and how you expect to sustain momentum that you are building into fiscal 27. If you can hit on NAS, international and offshore, I think that would be great.
Yeah. Good morning, and thank you for the question. I will start and then turn it over to Todd to give a bit more color on the full year and fourth-quarter guide. But in general, the sequential improvement that we are seeing from Q3 to Q4 in our implied EBITDA guide, which is approximately 5% quarter-over-quarter, is really underpinned by activity growth across the business. We have talked a lot about North America Solutions and the activity additions that we have seen throughout that segment through Q3, and we are continuing to see rig count grow and be additive into Q4. It is also the same story across International Solutions today. We have seen great growth in Latin America and are really proud of the rig reactivation we have been on in the Middle East. Our offshore segment just provides such stability and durability to our portfolio. All three segments together are what is guiding us up as we look through Q3 into Q4 and have been fairly constructive. Broadly across the market, customer conversations have been constructive. We are feeling very confident in our Q4 and, as we look beyond into fiscal 2027, customer conversations are constructive and present a good backdrop for us.
Yeah. And thanks, Derek. I do not have a ton to add, but I do think there are a couple things that are worth pointing out. We feel like we can really grow our EBITDA over the next few quarters and into the next couple of years, and our fourth-quarter guide is emblematic of that where we see continued organic growth in our International Solutions portfolio. That is going to be the fastest-growing part of the company. In this case, we are seeing some increased activity in Argentina and the Middle East, and we think that will continue for a little while until we get to our $45 million quarterly run rate, which we still have a lot of confidence in getting to. Similarly, you continue to see sequential improvement in North America. I think of the roughly $250 million per quarter level as a really good level of profitability for us to benchmark. We are probably a bit less focused on the exact rig count and more focused on making that aggregate dollar amount go up every quarter. Offshore continues to be a very steady, very ratable piece of business that we think is going to continue. Trey mentioned the trajectory into 2027: going into 2026, things felt relatively bearish, but it is quite a different story right now. We think this fourth quarter is a pretty good marker for where we are going to be in 2027, and we actually think we will be improving from this base into 2027. It is a good place to start thinking about where EBITDA levels are going to be next year.
Okay. Thanks for all that. I appreciate the color. I will turn it back.
Your next question comes from the line of Scott Gruber with Citigroup. Please go ahead.
Yes, good morning. A lot of good trends going on here for Helmerich & Payne, so good to hear. I want to unpack the outlook for North America Solutions a bit more. You beat on fiscal Q3 margins, but then Q4 is down a bit. How much are activation and reactivation costs weighing on margins? How much did the performance bonuses contribute to Q3, and how do you think about those going forward? And then obviously, rates are rising, so I would expect that to be a bit of a tailwind. What I am really trying to understand is, if we stabilize around 150 rigs, where can margins get to as we start calendar 2027? Maybe unpack the near-term trends and a little bit of color on where you think you can get margins to in a couple quarters.
Yeah. Thank you for the question. I will start, and then I will hand it over to our Executive Vice President of the Western Hemisphere and head of global ops support, Mike Lennox, to add further detail and specificity about what we are seeing in North America. First, I'm really proud of the team. Our ability to reactivate 10 rigs in Q3 and sequentially grow margins $1 thousand a day is a huge testament to what we have been building towards for the past two decades. It was encouraging to see that execution hit its mark in Q3. More broadly across the U.S. Lower 48, our rig count and rig additions have been mostly underwritten by private E&Ps up to this point. As the forward strip has improved, those private E&Ps have used risk management tools and hedge positions to be more confident in their forward approach, which has been a real positive. Public companies have been more disciplined and focused on capital return frameworks and budgets, and we've seen some churn from public E&Ps through the summer months. But as we look into fiscal 2027 and calendar 2027, the underlying price points that our public E&Ps will use for budgets are dramatically different in 2027 than they were in 2026. Crude was in the fifties toward the end of calendar 2025, so there was not the same backdrop. The service intensity required to maintain or grow production in 2027 will require more rigs. We are 95% utilized on super-specs today, so the market is tight. That tightness applies both to U.S. demand and international demand for similar assets. I'll turn it over to Mike to provide more specifics on pricing and reactivations.
Scott, thank you for the question. I want to thank our teams who have taken part in recommissioning these rigs — sales, operations, crews, and customers for trusting Helmerich & Payne. Since our trough in March, we've actually reactivated 17 rigs, and doing that while improving margins is fantastic work by the team. To be direct, a lot of the quarter-over-quarter fluctuation is due to the lumpiness of bonuses and some conservatism in modeling. More than 50% of our rigs are on performance-based contracts, and as we perform, some of those bonuses come in somewhat lumpy, which drives some of the fluctuation you see in margins. Rig reactivations have been a smaller component of margin change. We have roughly 10 more rigs we could bring online at maintenance CapEx-related costs. Beyond that, we'd hit another tranche. Our high-spec rigs are in demand. We have been upgrading rigs for additional setback, additional hook load, to drill longer and more complex wells. We've invested significantly in technology, which matters for drilling complex wells: it helps keep the bit on bottom and adds customer value. On the robotics front, we have one rig deployed running a robotic system; our second is rigging up and should start drilling probably this weekend, and that rig is performing very well. We brought that rig out expecting P50 performance — at least as well as our people — and out of the gate it has exceeded that average. For that customer it is their top rig among a high-twenties rig fleet. We expect demand in the robotics space to continue, with the potential of five robotic rigs deployed to the field by February.
That is great. Appreciate all the color. I will turn it back.
Your next question comes from the line of Arun Jayaram with JPMorgan. Please go ahead.
Yeah. Good morning, Trey, Todd. I wanted to dig in a little bit on your financial framework. You have given us some interesting views on how you see capital progressing beyond 2026. You highlighted the $300 million maintenance plus sustaining program. How do you think about maintaining that level of CapEx in an environment where your international activity will be growing? Obviously, you highlighted the growth opportunities in Argentina, but talk a little bit about that confidence because keeping capital relatively low could unlock a lot of free cash flow.
Thanks for the question, Arun. It was important to lay this out now as there has been change at the company and as we evolve. Let me talk about capital and the enterprise initiatives. We have a lot of internal work to do on cost reductions, realigning as a global organization, and finding ways to operate differently. That translates to capital spending and how we return capital to shareholders. On slide 14, we laid out the framework. First, Helmerich & Payne has invested a lot to create a uniform fleet with strong operating practices that meet customers' needs. We believe that is a durable advantage. Two big takeaways: number one, we remain committed to debt reduction in the near term — hitting our 1x net debt to EBITDA target — and number two, over the longer term, we will remain very disciplined with overall spending. We think we can unlock a lot of growth in the current portfolio without spending a lot of capital; many opportunities do not require incremental rig counts and therefore not incremental capital. The acquisitions and changes we have made over the years created a global platform where we can grow without major capital projects. For example, moving rigs to Argentina is similar in scope to recommissioning a rig in North America and shipping it. We are not spending tens of millions on those rigs. We feel we are at a point where we can generate substantial free cash flow. We do not view that free cash flow as a new way to spend money indiscriminately; we see it as a way to return more capital to shareholders sustainably. We will take advantage of opportunities, but we will stay disciplined as we reduce debt and, later, deploy capital to dividends, buybacks, or disciplined growth.
Your next question comes from the line of Saurabh Pant with Bank of America. Please go ahead.
Hi. Good morning, Trey and Todd. Trey, I saw your recent visit to Saudi — thanks for sharing the pictures. Can you talk about what you are seeing in the region, the Middle East in general and Saudi in particular, in terms of current operations and new opportunities? I see you have successfully got to five of the seven Saudi rigs you were supposed to bring back after the suspension. Can you talk to the timeline on the other two, and should we think about opportunities for more rigs beyond the seven that are coming off suspension?
Thanks for the question. It was great to spend time in Saudi with our teams, partners, and customers. I left encouraged. One anecdote: someone told me, having spent most of my career in the U.S. Lower 48, that we are now a 'real oil company' because we are present in Saudi Arabia. That was a proud moment. The strength and resilience of our team across the GCC and Saudi is notable. Reactivating five rigs since March in the midst of the conflict is a testament to our teams and customers' long-term thinking. Regarding the overall environment, I'll comment on conventional rig reactivations first and then Jafurah and our unconventional story. The five rigs we have reactivated provide a great base load; we are at 22 rigs. The other two rigs are not included in our Q4 forecast or guide, and right now we are focused on achieving the international solutions segment target of $45 million per quarter. Our focus is on discipline, simplification, and the core business. As timelines for rigs six and seven firm up, we will update everyone. The Jafurah story is very positive. We have eight FlexRigs running there today. I spent time in the field and saw parallels to our work in the Lower 48 and Vaca Muerta. We are not starting from zero in Jafurah; we are layering benefits and accelerating well programs. Our rigs are well suited to unlock efficiencies safely, which positions us uniquely as that resource base expands. Beyond Saudi, we have reactivated two rigs in Bahrain this summer. Customers in the region think long-term, and production increase targets are playing out. We are active in those geographies and having constructive customer conversations. Outside of Jafurah, there are other unconventional opportunities across the region. Overall, I left very encouraged, but we remain focused on achieving the $45 million-plus quarterly goal for International Solutions and increasing economic viability of our current assets.
Thanks. That is very helpful. I will turn it back.
Your next question comes from the line of Keith MacKey with RBC. Please go ahead.
Hi. Good morning, team. Just on Argentina: your presentation quoted 25% market share in the Vaca Muerta with nine rigs today expanding to 15. With that expected unconventional investment in the basin through 2030, how do you see the competitive landscape evolving? And as you export those three rigs from the U.S., can you help us understand the reactivation timelines and margin economics you are writing on those contracts relative to the international average?
I'd be happy to address that, Keith. Argentina has been a real positive for us. The super-spec supply in the market is tight, and the assets we are moving to the Vaca Muerta are very similar to what we operate in the U.S. Lower 48. That alignment of fleet optimization, operational expertise, and technology positions us well. Customers in Argentina are not starting from zero; they want automation and technology integrated. I feel encouraged by the opportunity. I'll turn to Mike for additional color on timelines and margins.
Keith, thanks for the question. I've been spending more time in country and the opportunity is growing as infrastructure comes online. We have line of sight to 15 rigs down there. There are many discussions about more, but we'll be disciplined and understand the economics before sending additional rigs. Regarding timeline, within the next six to eight months those rigs will be sent. As far as margins, they are very much in line with what we are seeing here in the U.S., and they have the opportunity to be strong because of technology expansion. They are early innings in technology adoption, so we can expand technology use there. On costs, rigs similar to U.S. rigs have added costs for trucking to port, packing, shipping to Argentina, and trucking to Vaca Muerta. Some equipment such as top drives and well control equipment has API requirements with five-year timelines. These contracts are often five years, so we change out top drives and well control equipment ahead of deployment so we don't have to replace them two years in. Equipment we take off can be repurposed and used domestically.
Got it. Thanks for the color.
Your next question comes from the line of Eddie Kim with Barclays. Please go ahead.
Good morning. Just wanted to touch on your involvement in and opportunity in geothermal. You mentioned you recently signed agreements for three rigs on geothermal projects in the U.S., and you said you have projects in the U.S. and Europe. With these three-rig adds, how many rigs will you have on geothermal projects in total? Do you expect to get to double digits maybe by sometime next year? And in terms of the return profile, how do the returns of your geothermal rigs compare to oil and gas — similar, worse, or better? Any color would be great.
Thanks for the question. Geothermal has been a strong growth story for us. We've leaned in on enhanced geothermal projects globally. We have projects in Europe and in the U.S., and the great thing is that many of our efficiencies and technology are directly transferable from our Lower 48 fleet to geothermal. This demand is pulling on the same supply base as Lower 48 and Vaca Muerta, and it is additive to the tightness in the super-spec market. We believe this further supports margins and utilization. Marc and Mike can layer in more detail on counts and pricing.
Eddie, to add, we're thinking roughly six rigs in U.S. operations for geothermal as a starting point, with discussions for more. A concentration of rigs in an area creates efficiencies, and as Trey mentioned, the application of our rigs is similar to other basins but applied to very hot and very hard rock. Our technology helps keep the bit on bottom, which is meaningful for customers. As far as margins, they are very much in line with our Lower 48 margins.
Got it. Thank you. Actually, just a clarification: how many rigs do you have currently in geothermal across both the U.S. and Europe?
I believe we said six in the U.S. and some in Europe today; overall we are still below the double-digit mark. We think the double-digit marker is a reasonable target for the near term, but we are not guiding to that exact number today. We view geothermal as a potential mid-continent, steady baseload for us, and it plays to our strengths of expertise, technology, and delivering customer value.
Great. It all makes sense. Thanks for the color. I will turn it back.
Due to time constraints, this concludes our question-and-answer session.
I will now turn the call back to Trey Adams for closing remarks. Yes. Thank you to everyone for joining the call today.
This does conclude today's call. Thank you for your participation. You may disconnect at this time.