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Item 1A. Risk Factors

2021-02-09 compared with 2020-07-29 · 7 added, 100 removed, 17 unchanged (86% of the section changed)

There are numerous factors that affect our business and results of operations, many of which are beyond our control.

In addition to the risk factors set forth below and the other information presented in this Form 10-Q, you should carefully read and consider Item 1A— “Risk Factors” and Item 7— "Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2019 Annual Report on Form 10-K, which contain descriptions of significant risks that might cause our actual results of operations in future periods to differ materially from those currently anticipated or expected;

however, the potential effects of the recent and ongoing outbreak of COVID-19 discussed below could potentially also impact most of those risks.

The impact and effects of public health crises, pandemics and epidemics, such as the recent and 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 recent and 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 recent outbreak of COVID-19 and its development into a pandemic have resulted in 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.

State and local authorities have also implemented multi-step policies with the goal of re-opening.

However, certain jurisdictions have begun re-opening only to return to restrictions in the face of increases in new COVID-19 cases, which has resulted in us experiencing further disruptions to our business operations.

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+ finalized an agreement in April 2020 to cut oil production by 9.7 million barrels per day during May and June 2020, and OPEC+ agreed in June 2020 to extend such production cuts until the end of July 2020, crude oil prices have 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, 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, 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 recent sharp decline in oil prices resulting from the COVID-19 outbreak and the activities of OPEC+ have 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.

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.

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 is impacted by many factors beyond our control, including:

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, recent 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 The Organization of Petroleum Exporting Countries (“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;

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.

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, or prolonged low oil or natural gas prices, 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.

The contract drilling services business is highly competitive, and a surplus of available drilling rigs may adversely affect our rig utilization and profit margins.

The contract drilling services business is highly competitive.

Competition in contract drilling services 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.

Development of new drilling technology by competitors has increased in recent years and future improvements in operational efficiency and safety by our competitors could further negatively affect our ability to differentiate our services.

Furthermore, in the event that commodity prices decline, the strategy of differentiation may be less effective if the lower demand for drilling and related technology services intensifies price competition and diminishes the importance of other factors.

We periodically seek to increase the prices on our services to offset rising costs and to 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.

The oil and natural gas services industry in the United States has experienced downturns in demand during the last decade, including a significant downturn that started in 2014 and bottomed out in 2016 and the current downturn we are experiencing as a result of the global COVID-19 pandemic and the March 2020 crude oil production escalations of the OPEC+ member nations.

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.

As such, we may have difficulty sustaining or increasing pricing, rig utilization and profit margins in the future, which could have a material adverse effect on our business, financial condition and results of operations.

As of June 30, 2020 , 221 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.

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.

The loss of members of management could have a material effect on our business.

Similarly, we utilize highly skilled personnel in operating and supporting our businesses.

In times of high utilization, it can be difficult to retain, and in some cases find, qualified individuals, which may result in higher labor costs.

During such periods, our labor costs could increase at a greater rate than our ability to raise prices for our services.

Additionally, during the recent period of sustained declines in oil and natural gas prices, there has been a significant decline in the oil field services workforce.

This has reduced the skilled labor force available to the energy industry, which could result in higher labor costs.

An inability to obtain or find a sufficient number of 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.

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:

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 actions 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.

There have been no material changes in the risk factors previously disclosed in Part 1, Item 1A— “Risk Factors” in our 2020 Annual Report on Form 10-K.

The following documents are included as exhibits to this Form 10-Q.

1 unchanged sentence

If no parenthetical appears after an exhibit, the exhibit is filed or furnished herewith.

Number Description

3.1 Amended and Restated Certificate of Incorporation of Helmerich & Payne, Inc.

2 unchanged sentences

(incorporated herein by reference to Exhibit 3.1 of the Company’s Form 8‑K filed on December 5, 2017, SEC File No.

Form of Restricted Stock Agreement for the Helmerich & Payne, Inc.

2020 Omnibus Incentive Plan applicable to Directors.

31.1 Certification of Chief Executive Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

3 unchanged sentences

101 Financial statements from the quarterly report on Form 10-Q of Helmerich & Payne, Inc.

for the quarter ended June 30, 2020, filed on July 29, 2020, formatted in Inline Extensive Business Reporting Language (XBRL):

for the quarter ended December 31, 2020, filed on February 9, 2021, formatted in Inline Extensive Business Reporting Language (XBRL):

(i) the Unaudited Condensed Consolidated Balance Sheets, (ii) the Unaudited Condensed Consolidated Statements of Operations, (iii) the Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Unaudited Condensed Consolidated Statements of Shareholders’ Equity, (v) the Unaudited Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Unaudited Condensed Consolidated Financial Statements.

104 Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101).

*Management or Compensatory Plan or Arrangement

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HELMERICH & PAYNE, INC.

July 29, 2020

Lindsay, Chief Executive Officer

July 29, 2020

Smith, Chief Financial Officer

February 9, 2021 By:

Director, President and Chief Executive Officer

February 9, 2021 By:

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors