Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10‑Q (“Form 10‑Q”) 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 Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included in this Form 10-Q are forward-looking statements. Forward-looking statements may 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, and such statements include, but are not limited to, statements regarding the Acquisition and the anticipated benefits and impact of such transaction, the timing and terms of recommencement of suspended rigs related to the Acquisition, our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management. Forward-looking statements are based upon current plans, estimates, and expectations that are subject to risks, uncertainties, and assumptions, many of which are beyond our control and any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. 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. The inclusion of such statements should not be regarded as a representation that such plans, estimates, or expectations will be achieved.
Factors that could cause actual results to differ materially from those expressed in or implied by such forward-looking statements include, but are not limited to:
• our ability to achieve the strategic and other objectives relating to the Acquisition;
• the risk that we are unable to integrate KCA Deutag International Limited's ("KCA Deutag") operations in a successful manner and in the expected time period;
• the volatility of future oil and natural gas prices;
• contracting of our rigs and actions by current or potential customers;
• 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, upgrade or acquisition of rigs;
• 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;
• the impact of federal, state and foreign legislative and regulatory actions and policies, affecting our costs and increasing operating 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;
• the impact of geopolitical developments and tensions, war and uncertainty involving or in the geographic region of oil-producing countries (including the ongoing armed conflicts between Russia and Ukraine, the military conflict with Iran and the associated disruption to the Strait of Hormuz, other conflicts in the Middle East, and any related political or economic responses and counter-responses or otherwise by various global actors or the general effect on the global economy);
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• global economic conditions, such as a general slowdown in the global economy, supply chain disruptions, inflationary pressures, the impact of new or additional tariffs, currency fluctuations, and instability of financial institutions, and their impact on the Company;
• 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;
• the occurrence of security incidents, including breaches of security, or other attack, destruction, alteration, corruption, or unauthorized access to our information technology systems or destruction, loss, alteration, corruption or misuse or unauthorized disclosure of or access to data;
• potential impacts on our business resulting from climate change, greenhouse gas regulations, and the impact of climate change related changes in the frequency and severity of weather patterns;
• potential long-lived asset impairments; and
• our sustainability strategy, including expectations, plans, or goals related to corporate responsibility, sustainability and environmental matters, and any related reputational risks as a result of execution of this strategy.
Additional factors that could cause actual results to differ materially from our expectations or results discussed in the forward‑looking statements are disclosed in our 2025 Annual Report on Form 10‑K under Part I, 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, express or implied, are expressly qualified in their entirety by such cautionary statements.
All forward-looking statements speak only as of the date they are made and are based on information available at that time. 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.
Executive Summary
H&P 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 March 31, 2026, our drilling rig fleet included a total of 337 drilling rigs. Our reportable operating business segments consist of the North America Solutions segment with 203 rigs, the International Solutions segment with 130 rigs, and the Offshore Solutions segment with four offshore platform rigs as of March 31, 2026. Although the Offshore Solutions segment has a fleet of platform rigs, the majority of its revenues are derived from asset-light management contracts. At the close of the second quarter of fiscal year 2026, we had 204 active contracted rigs, of which 138 were under a fixed-term contract and 66 were working well-to-well, compared to 208 contracted rigs at September 30, 2025. Our long-term strategy remains focused on innovation, technology, safety, operational excellence, and reliability. As we move forward, we believe that our rig fleet, technology offerings, financial strength, contract backlog and strong customer and employee base position us very well to respond to continued cyclical and often times volatile market conditions and to take advantage of future opportunities.
Market Outlook
Our revenues are primarily 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 capital budgets set to achieve respective production targets in relation to current and expected future prices of crude oil and natural gas, which are determined by various supply and demand factors and have historically been volatile. Over time, however, E&Ps have become more fiscally disciplined in their level of capital expenditures relative to commodity price fluctuations and the amount of free cash flows that can be returned to their shareholders, which has resulted in more stable and predictable demand for oilfield service businesses, including our operations.
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In early calendar year 2025, the announcements by the U.S. government regarding the implementation of global tariffs and OPEC+ regarding the planned increase of crude oil supply created continued uncertainty in the global energy markets. More recently, heightened geopolitical tensions in the Middle East including ongoing armed conflict and instability affecting key energy-producing and transit regions, such as the Strait of Hormuz, and ongoing political developments in Venezuela have perpetuated and elevated the level of uncertainty further. These developments have contributed to increased volatility in global crude oil and natural gas prices and have led market participants to reassess supply risks, transportation reliability, and near-term capital allocation decisions. Although we do not anticipate that these announcements and events will have a direct material impact on the Company's operations or financial results, we believe the indirect effects of sustained geopolitical uncertainty, including the potential for supply-side disruptions and transportation risks may support increased drilling activity levels as operators seek to mitigate these potential disruptions and respond to elevated or more volatile commodity prices. Both crude oil and natural gas prices are volatile and global economic conditions heavily influence activity levels in the United States. In our international operations, commodity pricing has an impact on potential activity by our customers; however, other variables have a heavy influence on those activity levels, including disparate country budgets and the need to fund other commitments in certain areas.
During the six months ended March 31, 2026, we received notifications to resume operations on seven rigs in Saudi Arabia scheduled for the first half of calendar year 2026. Of these, six rigs are expected to be operational within that timeframe, while the reactivation date for the seventh rig is yet to be determined. As a result of these resumptions, the total number of operating rigs in the country is projected to reach 23 by the middle of calendar year 2026.
Recent Developments
Assets Held-for-Sale
In October 2025 , we committed to a plan to scrap certain rigs and related assets across our operating segments as part of our fleet rationalization strategy. As a result, these assets were reclassified as held-for-sale and, where applicable, written down to fair value less cost to sell. This resulted in non-cash impairment charges of $97.9 million and $2.1 million in the North America Solutions and Offshore Solutions segments, respectively during the six months ended March 31, 2026.
Additionally, in March 2026, we identified an international drilling rig within our International Solutions segment that met the asset held-for-sale criteria and was therefore written down to fair value less cost to sell. This resulted in a non-cash impairment charge of $23.3 million during the six months ended March 31, 2026. During the six months ended March 31, 2026, we also recognized a non-cash impairment charge of $2.8 million related to assets previously classified as held-for-sale within our International Solutions segment.
Sale of Utica Square Property
Subsequent to March 31, 2026, we completed the sale of Utica Square, a shopping center comprising approximately 371,000 leasable square feet located in Tulsa, Oklahoma, and included within our "Other" operations, receiving net proceeds of approximately $129.0 million, after deducting $4.9 million in selling fees. The property was classified as held-for-sale as of March 31, 2026, with a net book value of $12.9 million.
Repayment of Term Loan
Subsequent to March 31, 2026, the Company fully repaid the remaining balance of $140.0 million outstanding under the Term Loan Credit Agreement. As a result of this repayment, no amounts remain outstanding under the Term Loan Credit Agreement.
Contract Backlog
As of March 31, 2026 and September 30, 2025, our total contract drilling backlog, being the expected future dayrate revenue from executed contracts, was $8.3 billion and $7.0 billion, respectively. The increase was primarily due to an extension of an offshore operations and maintenance contract with a five-year term and additional extension options. Approximately 13.3 percent of the March 31, 2026 total backlog is reasonably expected to be fulfilled throughout the remainder of fiscal year 2026, as a majority of our contracts are long term.
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The following table sets forth the total backlog by reportable segment as of March 31, 2026 and September 30, 2025:
(in billions) March 31, 2026 September 30, 2025
Firm contracts 1 :
North America Solutions $ 0.6 $ 0.5
International Solutions
3.4 3.4
Offshore Solutions 1.4 0.9
5.4 4.8
Optional contract extension periods:
International Solutions 2
0.8 0.7
Offshore Solutions 2.1 1.5
2.9 2.2
Total backlog
$ 8.3 $ 7.0
(1) These amounts do not include anticipated contract renewals or expected performance bonuses.
(2) Included in the International Solutions reportable segment's backlog balance at March 31, 2026 is $0.5 billion of expected revenue from certain contracts in Saudi Arabia that have been temporarily suspended and are expected to gradually resume operations. The information presented in the table above reflects the fact that we expect these contracts to be extended for a period of time at least equal to the expected suspension period.
The early termination of a contract or suspension of operations 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. Some of our revenue agreements contain provisions for optional early termination or suspension without any associated early termination fees. Early terminations could cause the actual amount of revenue earned to significantly vary from the backlog reported. See Item 1A—"Risk Factors— Our current backlog of drilling services and solutions revenue may decline and may not be fully realized as fixed‑term contracts and, in certain instances, these contracts can be terminated without an early termination payment or suspended without standby or force majeure compensation. ” and Item 1A—Risk Factors—" The impact and effects of public health crises, pandemics and epidemics could have a material adverse effect on our business, financial condition and results of operations ” within our 2025 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), regarding fixed term contract risk.
Results of Operations for the Three Months Ended March 31, 2026 and 2025
It is important to note that results presented for the three months ended March 31, 2025 reflect a full 90 days of H&P operations and 75 days of KCA Deutag operations, as the Acquisition was completed on January 16, 2025.
Consolidated Results of Operations
Net Income (Loss) Attributable to Helmerich & Payne Inc. We recorded a loss of $58.6 million ($(0.59) diluted share) for the three months ended March 31, 2026 compared to income of $1.7 million ($0.01 diluted share) for the three months ended March 31, 2025.
Operating Revenue During the three months ended March 31, 2026 and 2025, consolidated operating revenues were $0.9 billion and $1.0 billion, respectively. The decrease was primarily driven by lower activity levels in our North America Solutions and International Solutions segments, partially offset by higher activity levels in our Offshore Solutions segment.
Direct Operating Expenses, Excluding Depreciation and Amortization Direct operating expenses were $661.2 million and $701.7 million for the three months ended March 31, 2026 and 2025, respectively. The decrease was also primarily driven by lower activity levels in our North America Solutions and International Solutions segments, partially offset by higher activity levels in our Offshore Solutions segment.
Other Operating Expenses Other operating expenses were $24.8 million and $3.5 million for the three months ended March 31, 2026 and 2025, respectively. The increase was primarily driven by $21.3 million of incremental BENTEC™ manufacturing and engineering costs resulting from an additional 15 days of KCA Deutag operations during the three months ended March 31, 2026.
Depreciation and Amortization Expense Depreciation and amortization expense increased to $180.7 million during the three months ended March 31, 2026 compared to $157.7 million during the three months ended March 31, 2025. The increase was primarily driven by $22.3 million of incremental depreciation and amortization expense resulting from an additional 15 days of KCA Deutag operations during the three months ended March 31, 2026..
Selling, General and Administrative Expense Selling, general and administrative expenses decreased to $71.1 million during the three months ended March 31, 2026 compared to $80.8 million during the three months ended March 31, 2025. The $9.7 million decrease was primarily driven by a $3.1 million decrease in labor and labor-related expenses and a $6.6 million decrease in other miscellaneous expenses.
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Asset Impairment Charges Dur ing the three months ended March 31, 2026, we recorded a non-cash impairment charge of $26.1 million primarily related to certain assets that were reclassified as held‑for‑sale within our International Solutions segment. The reclassification required us to adjust the assets to their fair value, which corresponded to their scrap value, resulting in the impairment. See Note 3—Property, Plant and Equipment for additional details related to the impairment charges.
Interest Expense Interest expenses were $25.8 million and $28.3 million for the three months ended March 31, 2026 and 2025, respectively. The decrease was mainly attributable to lower debt balances due to advanced payments on our unsecured term loan agreement . See Note 5—Debt for additional details related to our debt agreements.
Gain on Investment Securities During the three months ended March 31, 2026, we recognized an aggregate gain of $14.4 million on investment securities. The aggregate gain primarily consisted of a $19.5 million gain on our investment in Tamboran due to a change in the fair value of the investment. The gain was partially offset by a $5.0 million loss on a geothermal equity security due to a change in the fair value of the investment. During the three months ended March 31, 2025, we recognized a gain of $27.8 million on investment securities. The aggregate gain primarily consisted of $14.4 million, $10.2 million, and $3.2 million of gains on various geothermal investments, our investment in Galileo, and our investment in Tamboran, respectively, due to changes in the fair value of the investments.
Income Taxes For the three months ended March 31, 2026, we recorded income tax expense of $9.3 million (which includes a discrete tax expense of $0.5 million primarily related to equity compensation and unrecognized tax benefits) compared to income tax expense of $41.5 million for the three months ended March 31, 2025. Our statutory federal income tax rate for fiscal year 2026 and 2025 is 21.0 percent (before incremental state and foreign taxes).
North America Solutions
Three Months Ended March 31,
(in thousands, except operating statistics) 2026 2025 % Change
Operating revenues $ 517,245 $ 599,694 (13.7) %
Direct operating expenses 302,038 334,073 (9.6)
Depreciation and amortization 82,955 87,151 (4.8)
Research and development 7,115 9,502 (25.1)
Selling, general and administrative expense 13,401 15,484 (13.5)
Acquisition transaction and integration costs
— 34 (100.0)
Asset impairment charges — 1,507 (100.0)
Restructuring charges
402 — —
Segment operating income $ 111,334 $ 151,943 (26.7)
Financial Data and Other Operating Statistics 1 :
Direct margin (Non-GAAP) 2
$ 215,207 $ 265,621 (19.0)
Revenue days 3
12,208 13,416 (9.0)
Average active rigs 4
136 149 (8.7)
Number of active rigs at the end of period 5
137 150 (8.7)
Number of available rigs at the end of period 203 224 (9.4)
Reimbursements of "out-of-pocket" expenses $ 60,401 $ 77,607 (22.2)
(1) These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results.
(2) Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.
(3) Defined as the number of contractual days for owned and leased rigs with recognized revenue during the period.
(4) Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 90 days).
(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues were $517.2 million and $599.7 million in the three months ended March 31, 2026 and 2025, respectively. The decrease in operating revenues was primarily due to lower activity levels and per revenue day pricing levels.
Direct Operating Expenses Direct operating expenses decreased to $302.0 million during the three months ended March 31, 2026 as compared to $334.1 million during the three months ended March 31, 2025. This decrease was primarily due to lower activity levels as discussed above.
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Depreciation and Amortization Expense Depreciation expense decreased to $83.0 million during the three months ended March 31, 2026 compared to $87.2 million during the three months ended March 31, 2025. The decrease was primarily driven by a reduction in depreciable asset balances associated with the reclassification of assets to held‑for‑sale during the first quarter of fiscal year 2026. See Note 3—Property, Plant and Equipment for additional details related to our held-for-sale assets.
International Solutions
Three Months Ended March 31,
(in thousands, except operating statistics) 2026 2025 % Change
Operating revenues $ 218,321 $ 247,909 (11.9) %
Direct operating expenses 206,826 220,983 (6.4)
Depreciation and amortization 79,257 57,153 38.7
Selling, general and administrative expense 4,249 4,546 (6.5)
Acquisition transaction and integration costs
1,198 210 470.5
Asset impairment charges 26,101 — —
Restructuring charges 302 — —
Segment operating loss $ (99,612) $ (34,983) (184.7)
Financial Data and Other Operating Statistics 1 :
Direct margin (Non-GAAP) 2
$ 11,495 $ 26,926 (57.3)
Revenue days 3
5,492 6,198 (11.4)
Average active rigs 4
61 69 (11.6)
Number of active rigs at the end of period 5
64 76 (15.8)
Number of available rigs at the end of period 130 153 (15.0)
Reimbursements of "out-of-pocket" expenses $ 12,785 $ 8,470 50.9
(1) These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results.
(2) Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.
(3) Defined as the number of contractual days for owned and leased rigs with recognized revenue during the period.
(4) Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 90 days).
(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues were $218.3 million and $247.9 million in the three months ended March 31, 2026 and 2025, respectively. The $29.6 million decrease in operating revenues was primarily driven by lower activity levels, including the impact of a full‑period rig suspensions in Saudi Arabia during the three months ended March 31, 2026 compared to partial‑period rig suspensions during the three months ended March 31, 2025.
Direct Operating Expenses Direct operating expenses decreased to $206.8 million during the three months ended March 31, 2026 as compared to $221.0 million during the three months ended March 31, 2025. The decrease was primarily driven by lower activity levels as discussed above.
Depreciation and Amortization Expense Depreciation expense increased to $79.3 million during the three months ended March 31, 2026 compared to $57.2 million during the three months ended March 31, 2025. The increase was primarily driven by $19.0 million of incremental depreciation and amortization expense resulting from an additional 15 days of KCA Deutag operations during the three months ended March 31, 2026.
Asset Impairment Charges Dur ing the three months ended March 31, 2026, we recorded a non-cash impairment charge of $26.1 million primarily related to certain assets that were reclassified as held‑for‑sale. The reclassification required us to adjust the assets to their fair value, which corresponded to their scrap value, resulting in the impairment. See Note 3—Property, Plant and Equipment for additional details related to the impairment charges.
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Offshore Solutions
Three Months Ended March 31,
(in thousands, except operating statistics) 2026 2025 % Change
Operating revenues $ 171,378 $ 149,080 15.0 %
Direct operating expenses 144,495 122,904 17.6
Depreciation and amortization 9,862 7,777 26.8
Selling, general and administrative expense 2,654 964 175.3
Acquisition transaction and integration costs
352 60 486.7
Segment operating income $ 14,015 $ 17,375 (19.3)
Financial Data and Other Operating Statistics 1 :
Direct margin (Non-GAAP) 2
$ 26,883 $ 26,176 2.7
Revenue days 3
270 270 —
Average active rigs 4
3 3 —
Number of active rigs at the end of period 5
3 3 —
Number of available rigs at the end of period 4 7 (42.9)
Reimbursements of "out-of-pocket" expenses $ 27,575 $ 26,936 2.4
(1) These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results.
(2) Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.
(3) Defined as the number of contractual days for owned and leased rigs with recognized revenue during the period.
(4) Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 90 days).
(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues were $171.4 million and $149.1 million in the three months ended March 31, 2026 and 2025, respectively. The increase was primarily driven by $19.1 million of incremental operating revenues resulting from an additional 15 days of KCA Deutag operations during the three months ended March 31, 2026.
Direct Operating Expenses Direct operating expenses increased to $144.5 million during the three months ended March 31, 2026 as compared to $122.9 million during the three months ended March 31, 2025. The increase was primarily driven by $20.6 million of incremental direct operating expenses resulting from an additional 15 days of KCA Deutag operations during the three months ended March 31, 2026.
Other Operations
Results of our other operations, excluding corporate selling, general and administrative costs, and corporate depreciation, are as follows:
Three Months Ended March 31,
(in thousands) 2026 2025 % Change
Operating revenues $ 48,607 $ 45,524 6.8 %
Direct operating expenses 50,617 43,088 17.5
Depreciation and amortization
1,900 1,531 24.1
Selling, general and administrative expense 3,325 2,259 47.2
Acquisition transaction and integration costs
162 21 671.4
Operating loss
$ (7,397) $ (1,375) (438.0)
Operating Revenues We continue to use our Captive insurance companies to insure the deductibles for our domestic workers’ compensation, general liability, automobile liability claims programs, and medical stop-loss program and to insure the deductibles from the Company's international casualty and rig property programs. Operating revenues of $48.6 million and $45.5 million during the three months ended March 31, 2026 and 2025, respectively, consisted of $19.5 million and $17.9 million in intercompany premium revenues recorded by the Captives, respectively. These revenues were eliminated upon consolidation. Dur ing the three months ended March 31, 2026 and 2025, operating revenues also consisted of $26.4 million and $24.7 million from BENTEC's manufacturing and engineering operations, respectively, of which, $3.2 million and $7.9 million are related to intercompany revenues that were eliminated upon consolidation, respectively.
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Direct Operating Expenses Direct operating expenses of $50.6 million and $43.1 million during the three months ended March 31, 2026 and 2025, respectively, consisted of $3.7 million and $10.3 million, respectively, in adjustments to accruals for estimated losses allocated to the Captives, rig and casualty insurance premiums of $11.8 million and $11.2 million, respectively, and medical stop loss expenses of $4.1 million and $5.2 million, respectively. The change to accruals for estimated losses was primarily due to actuarial valuation adjustments by our third-party actuary. During the three months ended March 31, 2026, direct operating expenses also consisted of $26.9 million from BENTEC's manufacturing and engineering operations, of which $3.2 million is related to intercompany expenses that were eliminated in consolidation. During the three months ended March 31, 2025, direct operating expenses also consisted of $12.2 million from BENTEC's manufacturing and engineering operations.
Results of Operations for the Six Months Ended March 31, 2026 and 2025
It is important to note that results presented for the six months ended March 31, 2025 reflect a full 182 days of H&P operations and 75 days of KCA Deutag operations, as the Acquisition was completed on January 16, 2025.
Consolidated Results of Operations
Net Income (Loss) Attributable to Helmerich & Payne Inc. We recorded a loss of $155.3 million ($(1.57) diluted share) for the six months ended March 31, 2026 compared to income of $56.4 million ($0.56 diluted share) for the six months ended March 31, 2025.
Operating Revenue During the six months ended March 31, 2026 and 2025, consolidated operating revenues were $1.9 billion and $1.7 billion, respectively. The increase was primarily driven by completion of the Acquisition, resulting in an additional $352.8 million of revenue during the six months ended March 31, 2026. The increase was partially offset by lower activity levels in the North America Solutions segment.
Direct Operating Expenses, Excluding Depreciation and Amortization Direct operating expenses were $1.3 billion and $1.1 billion for the six months ended March 31, 2026 and 2025, respectively. The increase was primarily driven by completion of the Acquisition, resulting in an additional $296.5 million of direct operating expenses during the six months ended March 31, 2026. The increase was partially offset by lower activity levels in the North America Solutions segment.
Other Operating Expenses Other operating expenses were $56.1 million and $4.6 million for the six months ended March 31, 2026 and 2025, respectively. The increase was primarily driven by completion of the Acquisition, resulting in an additional $51.3 million of costs associated with BENTEC™ manufacturing and engineering operations during the six months ended March 31, 2026.
Depreciation and Amortization Expense Depreciation and amortization expense increased to $362.7 million during the six months ended March 31, 2026 compared to $256.7 million during the six months ended March 31, 2025. The increase was primarily driven by completion of the Acquisition, resulting in an additional $101.6 million of depreciation and amortization expense during the six months ended March 31, 2026.
Selling, General and Administrative Expense Selling, general and administrative expenses decreased to $141.5 million during the six months ended March 31, 2026 compared to $143.9 million during the six months ended March 31, 2025.
Asset Impairment Charges Dur ing the six months ended March 31, 2026, we recorded a non-cash impairment charge of $129.2 million primarily related to certain assets that were reclassified as held‑for‑sale within our North America Solutions, International Solutions, and Offshore Solutions segments. The reclassifications required us to adjust the assets to their fair value, which corresponded to their scrap value, resulting in the impairment. See Note 3—Property, Plant and Equipment for additional details related to the impairment charges.
Interest Expense Interest expenses were $51.4 million and $50.6 million for the six months ended March 31, 2026 and 2025, respectively. See Note 5—Debt for additional details related to our debt agreements.
Gain on Investment Securities During the six months ended March 31, 2026, we recognized an aggregate gain of $15.3 million on investment securities. The aggregate gain primarily consisted of a $21.0 million gain on our investment in Tamboran due to a change in the fair value of the investment. The gain was partially offset by a $5.0 million loss on a geothermal equity security due to a change in the fair value of the investment. During the six months ended March 31, 2025, we recognized an aggregate gain of $14.4 million on investment securities. The aggregate gain primarily consisted of $14.4 million, $10.2 million, and $2.1 million of gains on various geothermal investments, our investment in Galileo, and our investment in Tamboran, respectively, due to changes in the fair value of the investments. The gain was partially offset by a $12.4 million loss on our sale of equity investments in ADNOC Drilling.
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Income Taxes For the six months ended March 31, 2026, we recorded income tax expense of $20.5 million (which includes a discrete tax expense of $4.8 million primarily related to equity compensation and unrecognized tax benefits) compared to income tax expense of $63.1 million (which includes a discrete tax expense of $0.7 million related to equity compensation) for the six months ended March 31, 2025. Our statutory federal income tax rate for fiscal year 2026 and 2025 is 21.0 percent (before incremental state and foreign taxes).
North America Solutions
Six Months Ended March 31,
(in thousands, except operating statistics) 2026 2025 % Change
Operating revenues $ 1,081,183 $ 1,197,839 (9.7) %
Direct operating expenses 627,171 666,420 (5.9)
Depreciation and amortization 167,199 175,487 (4.7)
Research and development 13,523 18,943 (28.6)
Selling, general and administrative expense 27,423 31,294 (12.4)
Acquisition transaction and integration costs
— 34 (100.0)
Asset impairment charges 97,922 1,507 6,397.8
Restructuring charges
402 — —
Segment operating income $ 147,543 $ 304,154 (51.5)
Financial Data and Other Operating Statistics 1 :
Direct margin (Non-GAAP) 2
$ 454,012 $ 531,419 (14.6)
Revenue days 3
25,334 27,123 (6.6)
Average active rigs 4
139 149 (6.7)
Number of active rigs at the end of period 5
137 150 (8.7)
Number of available rigs at the end of period 203 224 (9.4)
Reimbursements of "out-of-pocket" expenses $ 133,198 $ 146,034 (8.8)
(1) These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results.
(2) Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.
(3) Defined as the number of contractual days for owned and leased rigs with recognized revenue during the period.
(4) Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 182 days).
(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues were $1.1 billion and $1.2 billion in the six months ended March 31, 2026 and 2025, respectively. The decrease in operating revenues was primarily due to lower activity levels and per revenue day pricing levels.
Direct Operating Expenses Direct operating expenses decreased to $627.2 million during the six months ended March 31, 2026 as compared to $666.4 million during the six months ended March 31, 2025. This decrease was primarily due to lower activity levels as discussed above.
Depreciation and Amortization Expense Depreciation expense decreased to $167.2 million during the six months ended March 31, 2026 compared to $175.5 million during the six months ended March 31, 2025. The decrease was primarily driven by a reduction in depreciable asset balances associated with the reclassification of assets to held‑for‑sale during the first quarter of fiscal year 2026. See Note 3—Property, Plant and Equipment for additional details related to our held-for-sale assets.
Asset Impairment Charges Dur ing the six months ended March 31, 2026, we recorded a non-cash impairment charge of $97.9 million primarily related to certain assets that were reclassified as held‑for‑sale. The reclassification required us to adjust the assets to their fair value, which corresponded to their scrap value, resulting in the impairment. See Note 3—Property, Plant and Equipment for additional details related to the impairment charges.
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International Solutions
Six Months Ended March 31,
(in thousands, except operating statistics) 2026 2025 % Change
Operating revenues $ 452,609 $ 295,389 53.2 %
Direct operating expenses 412,399 275,411 49.7
Depreciation and amortization 157,378 61,981 153.9
Selling, general and administrative expense 8,394 7,254 15.7
Acquisition transaction and integration costs
1,634 210 678.1
Asset impairment charges 26,101 — —
Restructuring charges 1,620 — —
Segment operating loss $ (154,917) $ (49,467) (213.2)
Financial Data and Other Operating Statistics 1 :
Direct margin (Non-GAAP) 2
$ 40,210 $ 19,978 101.3
Revenue days 3
10,936 7,887 38.7
Average active rigs 4
60 43 39.5
Number of active rigs at the end of period 5
64 76 (15.8)
Number of available rigs at the end of period 130 153 (15.0)
Reimbursements of "out-of-pocket" expenses $ 24,553 $ 10,589 131.9
(1) These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results.
(2) Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.
(3) Defined as the number of contractual days for owned and leased rigs with recognized revenue during the period.
(4) Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 182 days).
(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues were $452.6 million and $295.4 million in the six months ended March 31, 2026 and 2025, respectively. The $157.2 million increase in operating revenues was primarily driven by additional $110.3 million in revenue generated from expanded operations following the Acquistion, and an additional $35.6 million in revenue from increased FlexRig ® activity in Saudi Arabia, which began operations during the first quarter of fiscal year 2025.
Direct Operating Expenses Direct operating expenses increased to $412.4 million during the six months ended March 31, 2026 as compared to $275.4 million during the six months ended March 31, 2025. The increase was primarily driven by completion of the Acquisition, resulting in an additional $124.0 million in direct operating expenses. Additionally, direct operating expenses increased by $5.4 million attributable to increased FlexRig ® activity in Saudi Arabia.
Depreciation and Amortization Expense Depreciation expense increased to $157.4 million during the six months ended March 31, 2026 compared to $62.0 million during the six months ended March 31, 2025. The increase was primarily driven by completion of the Acquisition, resulting in an additional $86.4 million in depreciation and amortization expense during the six months ended March 31, 2026.
Asset Impairment Charges Dur ing the six months ended March 31, 2026, we recorded a non-cash impairment charge of $26.1 million primarily related to certain assets that were reclassified as held‑for‑sale. The reclassification required us to adjust the assets to their fair value, which corresponded to their scrap value, resulting in the impairment. See Note 3—Property, Plant and Equipment for additional details related to the impairment charges.
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Offshore Solutions
Six Months Ended March 31,
(in thousands, except operating statistics) 2026 2025 % Change
Operating revenues $ 359,660 $ 178,290 101.7 %
Direct operating expenses 301,775 145,565 107.3
Depreciation and amortization 20,682 9,757 112.0
Selling, general and administrative expense 3,698 2,028 82.3
Acquisition transaction and integration costs
925 60 1,441.7
Asset impairment charges 2,128 — —
Segment operating income $ 30,452 $ 20,880 45.8
Financial Data and Other Operating Statistics 1 :
Direct margin (Non-GAAP) 2
$ 57,885 $ 32,725 76.9
Revenue days 3
546 546 —
Average active rigs 4
3 3 —
Number of active rigs at the end of period 5
3 3 —
Number of available rigs at the end of period 4 7 (42.9)
Reimbursements of "out-of-pocket" expenses $ 67,239 $ 34,161 96.8
(1) These operating metrics and financial data, including average active rigs, are provided to allow investors to analyze the various components of segment financial results in terms of activity, utilization and other key results. Management uses these metrics to analyze historical segment financial results and as the key inputs for forecasting and budgeting segment financial results.
(2) Direct margin, which is considered a non-GAAP metric, is defined as operating revenues less direct operating expenses and is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. See — Non-GAAP Measurements below for a reconciliation of segment operating income (loss) to direct margin.
(3) Defined as the number of contractual days for owned and leased rigs with recognized revenue during the period.
(4) Active rigs generate revenue for the Company; accordingly, 'average active rigs' represents the average number of rigs generating revenue during the applicable time period. This metric is calculated by dividing revenue days by total days in the applicable period (i.e., 182 days).
(5) Defined as the number of rigs generating revenue at the applicable end date of the time period.
Operating Revenues Operating revenues were $359.7 million and $178.3 million in the six months ended March 31, 2026 and 2025, respectively. The $181.4 million increase in operating revenues was primarily driven by an additional $174.2 million in revenue generated from expanded operations following the Acquisition.
Direct Operating Expenses Direct operating expenses increased to $301.8 million during the six months ended March 31, 2026 as compared to $145.6 million during the six months ended March 31, 2025. The increase was primarily driven by completion of the Acquisition, resulting in an additional $154.7 million in direct operating expenses during the six months ended March 31, 2026.
Depreciation and Amortization Expense Depreciation expense increased to $20.7 million during the six months ended March 31, 2026 compared to $9.8 million during the six months ended March 31, 2025. The increase was primarily driven by completion of the Acquisition, resulting in an additional $12.2 million of depreciation and amortization expense during the six months ended March 31, 2026.
Asset Impairment Charges Dur ing the six months ended March 31, 2026, we recorded a non-cash impairment charge of $2.1 million related to certain assets that were reclassified as held‑for‑sale. The reclassification required us to adjust the assets to their fair value, which corresponded to their scrap value, resulting in the impairment. See Note 3—Property, Plant and Equipment for additional details related to the impairment charges
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Other Operations
Results of our other operations, excluding corporate selling, general and administrative costs, and corporate depreciation, are as follows:
Six Months Ended March 31,
(in thousands) 2026 2025 % Change
Operating revenues $ 106,513 $ 64,806 64.4 %
Direct operating expenses 100,324 60,825 64.9
Depreciation and amortization
3,799 1,933 96.5
Research and development 309 — —
Selling, general and administrative expense 7,086 2,628 169.6
Acquisition transaction and integration costs
306 21 1,357.1
Asset impairment charges
3,036 — —
Restructuring charges
273 — —
Operating loss
$ (8,620) $ (601) (1,334.3)
Operating Revenues We continue to use our Captive insurance companies to insure the deductibles for our domestic workers’ compensation, general liability, automobile liability claims programs, and medical stop-loss program and to insure the deductibles from the Company's international casualty and rig property programs. Operating revenues of $106.5 million and $64.8 million during the six months ended March 31, 2026 and 2025, respectively, consisted of $37.9 million and $34.5 million in intercompany premium revenues recorded by the Captives, respectively. These revenues were eliminated upon consolidation. Dur ing the six months ended March 31, 2026 and 2025, operating revenues also consisted of $63.3 million and $24.7 million from BENTEC's manufacturing and engineering operations, respectively, of which, $6.8 million and $7.9 million are related to intercompany revenues that were eliminated upon consolidation, respectively.
Direct Operating Expenses Direct operating expenses of $100.3 million and $60.8 million during the six months ended March 31, 2026 and 2025, respectively, consisted of $2.1 million and $14.2 million, respectively, in adjustments to accruals for estimated losses allocated to the Captives, rig and casualty insurance premiums of $23.3 million and $21.7 million, respectively, and medical stop loss expenses of $6.7 million and $10.4 million, respectively. The change to accruals for estimated losses was primarily due to actuarial valuation adjustments by our third-party actuary. During the six months ended March 31, 2026, direct operating expenses also consisted of $60.6 million from BENTEC's manufacturing and engineering operations, of which $6.8 million is related to intercompany expenses that were eliminated in consolidation. During the six months ended March 31, 2025, direct operating expenses also consisted of $12.2 million from BENTEC's manufacturing and engineering operations.
Asset Impairment Charges Dur ing the six months ended March 31, 2026, we recorded a non-cash impairment charge of $3.0 million associated with previously capitalized in-process research and development expenses that were determined to have no alternative future use.
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 Amended 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 investments. Likewise, if we are generating excess cash flows or have cash balances on hand beyond our near-term needs, we may return cash to shareholders through dividends or share repurchases, or 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, highly rated corporate bonds and commercial paper, certificates of deposit and money market funds. However, in some international locations we may make short-term investments that are less conservative, as equivalent highly rated investments are unavailable.
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 Amended 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.
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Cash Flows
Our cash flows fluctuate depending on a number of factors, including, among others, the number of our drilling rigs under contract, the revenue we receive under those contracts, the efficiency with which we operate our drilling rigs, the timing of collections on outstanding accounts receivable, the timing of payments to our vendors for operating costs, and capital expenditures. 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.
Net working capital (defined as current assets less current liabilities) was $609.4 million and $650.6 million as of March 31, 2026 and September 30, 2025, respectively.
As of March 31, 2026, we had cash and cash equivalents of $177.2 million and short-term investments of $22.0 million. Our cash flows for the six months ended March 31, 2026, and 2025 are presented below:
Six Months Ended
March 31,
(in thousands) 2026 2025
Net cash provided by (used in):
Operating activities $ 219,008 $ 214,404
Investing activities (112,322) (1,815,523)
Financing activities (128,082) 311,107
Effect of exchange rate changes on cash, cash equivalents and restricted cash (471) 6,406
Net decrease in cash, cash equivalents and restricted cash
$ (21,867) $ (1,283,606)
Operating Activities
Cash flows provided by operating activities were $219.0 million and $214.4 million for the six months ended March 31, 2026 and 2025, respectively. The change in cash provided by operating activities is primarily attributable to increased activity resulting from the completion of the Acquisition. Net cash outflows related to the change in working capital was $107.8 million and $55.0 million for the six months ended March 31, 2026 and 2025, respectively.
Investing Activities
Capital Expenditures Our capital expenditures during the six months ended March 31, 2026 were $130.4 million compared to $265.2 million during the six months ended March 31, 2025. The decrease in capital expenditures is driven by lower equipment overhauls and certain long-term projects.
Net Purchases and Sales of Short-Term Investments Our net purchases of short-term investments during the six months ended March 31, 2026 were $2.0 million compared to net sales of $261.6 million during the six months ended March 31, 2025. The activity during the six months ended March 31, 2025 is primarily driven by $193.3 million of net proceeds received from the liquidation of shares in ADNOC Drilling and our ongoing liquidity management.
Payment for the Acquisition of Business, Net of Cash Received During the six months ended March 31, 2025, H&P completed the Acquisition by paying approximately $2.0 billion in cash. This included acquiring $196.7 million in cash and cash equivalents, resulting in a net cash payment of $1.8 billion.
Sale of Assets Our proceeds from asset sales during the six months ended March 31, 2026 were $21.8 million compared to proceeds of $26.1 million during the six months ended March 31, 2025. The decrease in proceeds is mainly driven by lower reimbursement from customers for lost or damaged drill pipe and other used drilling equipment.
Financing Activities
Dividends We paid cash dividends of $0.50 per share during the six months ended March 31, 2026 and 2025. Total dividends paid were $50.7 million and $50.3 million during the six months ended March 31, 2026 and 2025, respectively.
Debt Issuance Proceeds On January 16, 2025, we received $400.0 million of proceeds from the Term Loan Credit Agreement. During the six months ended March 31, 2025 , the Company received the final draw down of $1.4 million on the 2024 Oman facility. The receipt of funds from the 2024 Oman facility is reflected in Other within cash flows from financing activities of the Unaudited Condensed Consolidated Statements of Cash Flows. For additional information regarding debt issuance, refer to Note 5—Debt.
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Debt Payments During the six months ended March 31, 2026, the Company repaid $60.0 million of the outstanding balance on the Term Loan Credit Agreement compared to $25.0 million repaid d uring the six months ended March 31, 2025. Additionally, during the six months ended March 31, 2026, the Company repaid an aggregate of $3.4 million under its 2024 and 2023 Oman facilities compared to an aggregate of $1.7 million repaid d uring the six months ended March 31, 2025. The repayments for the Oman facilities are reflected in Other within cash flows from financing activities of the Unaudited Condensed Consolidated Statements of Cash Flows. For additional information regarding debt issuance and repayment, refer to Note 5—Debt.
Senior Notes Issued in Fiscal Year 2024
On September 17, 2024, we completed a private offering of $1.25 billion aggregate principal amount of senior notes, comprised of the following tranches (collectively, the “Notes”): $350.0 million aggregate principal amount of 4.65 percent senior notes due 2027 issued at a price equal to 99.958 percent of their face value, $350.0 million aggregate principal amount of 4.85 percent senior notes due 2029 issued at a price equal to 99.883 percent of their face value and $550.0 million aggregate principal amount of 5.50 percent senior notes due 2034 issued at a price equal to 99.670 percent of their face value. Interest on the Notes is payable semi-annually on June 1 and December 1 of each year, commencing on June 1, 2025.
The indenture governing the Notes contains certain covenants that, among other things, limit the ability of the Company and its subsidiaries to incur certain liens; engage in sale and lease-back transactions; and consolidate, merge or transfer all or substantially all of the assets of the Company. The indenture governing the Notes also contains customary events of default with respect to the Notes.
Senior Notes Issued in Fiscal Year 2021
On September 29, 2021, we issued $550.0 million aggregate principal amount of the 2.90 percent senior notes due 2031 ("the 2031 Notes") in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act as amended (the "Securities Act") and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S under the Securities Act. Interest on the 2031 Notes is payable semi-annually on March 29 and September 29 of each year, commencing on March 29, 2022.
In June 2022, we settled a registered exchange offer (the “2022 Registered Exchange Offer”) to exchange the 2031 Notes for new, SEC-registered notes that are substantially identical to the terms of the 2031 Notes, except that the offer and issuance of the new notes have been registered under the Securities Act and certain transfer restrictions, registration rights and additional interest provisions relating to the 2031 Notes do not apply to the new notes. All of the 2031 Notes were exchanged in the 2022 Registered Exchange Offer.
The indenture governing the 2031 Notes contains certain covenants that, among other things and subject to certain exceptions, limit the ability of the Company and its subsidiaries to incur certain liens; engage in sale and lease-back transactions; and consolidate, merge or transfer all or substantially all of the assets of the Company. The indenture governing the 2031 Notes also contains customary events of default with respect to the 2031 Notes.
Term Loan Credit Agreement
On August 14, 2024, the Company entered into an unsecured term loan credit agreement (the "Term Loan Credit Agreement"), among the Company, Morgan Stanley Senior Funding, Inc. (“MSSF”) as administrative agent, and the other lenders party thereto. On the Closing Date, the Company drew an aggregate principal amount of $400.0 million under the Term Loan Credit Agreement for purposes of financing the Acquisition. The Term Loan Credit Agreement matures at the two-year anniversary of the funding of the term loan unless earlier terminated pursuant to the terms of the Term Loan Credit Agreement. On January 16, 2025, H&P completed the Acquisition, and the Company used the proceeds from the Term Loan Credit Agreement, together with the net proceeds from the Notes, and cash on hand, to finance the purchase price for the Acquisition, to repay or redeem certain of KCA Deutag's outstanding indebtedness, and to pay related fees and expenses. During the three and six months ended March 31, 2026, the Company repaid $30.0 million and $60.0 million of the outstanding balance on the Term Loan Credit Agreement, respectively. As the debt was scheduled to mature in January 2027, the outstanding balance as of March 31, 2026, in the amount of $140.0 million, was reclassified to Current portion of long-term debt, net on the Unaudited Condensed Consolidated Balance Sheet as of March 31, 2026. In April 2026, we repaid the remaining $140.0 million balance outstanding on the Term Loan Credit Agreement.
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The benchmark rate is the Secured Overnight Financing Rate ("SOFR"). We can elect to borrow at either an adjusted SOFR rate or an adjusted base rate, plus an applicable margin. The adjusted SOFR rate is the forward-looking term rate based on SOFR for the applicable tenor of one, three, or six months, plus 0.10 percent per annum. The adjusted base rate is a fluctuating rate per annum equal to the highest of (i) the administrative agent's prime rate, (ii) the federal funds effective rate plus 0.50 percent, or (iii) the one-month adjusted SOFR rate plus 1.0 percent. 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 applicable margin for SOFR borrowings and adjusted base rate borrowings ranges from 1.0 percent to 1.625 percent per annum and zero to 0.625 percent per annum, respectively. Commitment fees for both rates range from 0.10 percent to 0.250 percent per annum. Based on the unsecured debt rating of the Company on March 31, 2026, the spread over SOFR was 1.375 percent and commitment fees were 0.175 percent. As of March 31, 2026, the interest rate on the Term Loan Credit Agreement was 5.143 percent per annum. The weighted average variable interest rate on all amounts outstanding under the Term Loan Credit Agreement was 5.166 percent and 5.339 percent for the three and six months ended March 31, 2026, respectively.
2024 Oman Facility
The 2024 Oman Facility provides for term loan borrowings of $45.5 million, which was originally fully drawn, but subsequently reduced by quarterly debt repayments. These secured bank loans are wholly denominated in Omani rial. The value of these borrowings in Omani rial is OMR 17.6 million. The commitments under the 2024 Oman Facility mature December 31, 2034.
During the fiscal year ended September 30, 2025, our 2024 Oman Facility was amended to bear interest payable quarterly at a fixed rate of 6.00 percent per annum for two years and thereafter, at a rate that is the higher of (x) 5.00 percent and (y) the reference rate specified in the 2024 Oman Facility plus 1.75 percent. During the three and six months ended March 31, 2026, the Company repaid $0.8 million and $1.7 million of the outstanding balance on the facility, respectively. Of the $41.4 million borrowings outstanding at March 31, 2026, a total of $3.4 million is payable within one year.
There is an annual financial covenant in the 2024 Oman Facility that requires KCAD Energy to maintain a debt service coverage ratio of at least 1.20:1.00. The 2024 Oman Facility and related agreements contain additional terms, conditions, restrictions and covenants that we believe are usual and customary in secured debt arrangements for companies of similar size and credit quality.
2023 Oman Facility
The 2023 Oman Facility provides for term loan borrowings of $45.6 million, which was originally fully drawn, but subsequently reduced by quarterly debt repayments. These secured bank loans are wholly denominated in Omani rial. The value of these borrowings in Omani rial is OMR 17.6 million. The commitments under the 2023 Oman Facility mature December 31, 2033.
During the fiscal year ended September 30, 2025, our 2023 Oman Facility was amended to bear interest payable quarterly at a fixed rate of 6.00 percent per annum for two years and thereafter, at a rate that is the higher of (x) 5.00 percent and (y) the reference rate specified in the 2023 Oman Facility plus 1.75 percent. During the three and six months ended March 31, 2026, the Company repaid $0.8 million and $1.7 million of the outstanding balance on the facility, respectively. Of the $38.1 million borrowings outstanding at March 31, 2026, a total of $3.4 million is payable within one year.
There is an annual financial covenant in the 2023 Oman Facility that requires KCAD Energy to maintain a debt service coverage ratio of at least 1.20:1.00. The 2023 Oman Facility and related agreements contain additional terms, conditions, restrictions and covenants that we believe are usual and customary in secured debt arrangements for companies of similar size and credit quality.
Amended Credit Facility
On August 14, 2024, the Company entered into an Amended and Restated Credit Agreement (the "Amended Credit Facility") with the lenders party thereto (the "Revolving Credit Agreement Lenders"), the issuing lenders party thereto and Wells Fargo ("Wells Fargo") as administrative agent, swingline lender and issuing lender, which amended and restated the Credit Agreement, dated as of November 13, 2018 (as amended through Amendment No. 2 to the Credit Agreement dated as of March 8, 2022, the “Existing Credit Agreement”), among the Company, the lenders party thereto and Wells Fargo, as administrative agent, swingline lender and issuing lender.
Under the terms of the Amended Credit Facility, the Company may obtain unsecured revolving loans in an aggregate principal amount not to exceed $950.0 million outstanding at any time. $775.0 million of the revolving commitments under the Amended Credit Facility expire on November 12, 2028 and $175.0 million of the revolving commitments mature on November 10, 2027 (the “Stated Maturity Date”), but the Company may request two one-year extensions of the Stated Maturity Date, subject to satisfaction of certain conditions. Commitments under the Amended Credit Facility may be increased by up to $100.0 million, subject to the agreement of the Company and new or existing Revolving Credit Agreement Lenders.
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The proceeds of the loans made under the Amended Credit Facility may be used by the Company for (i) working capital and other general corporate purposes, (ii) for the payment of fees and expenses related to the entering into of the Amended Credit Facility and the other credit documents and (iii) for the refinancing of the extensions of credit under the Existing Credit Agreement.
The benchmark rate is the SOFR. We can elect to borrow at either an adjusted SOFR rate or an adjusted base rate, plus an applicable margin. The adjusted SOFR rate is the forward-looking term rate based on SOFR for the applicable tenor of one, three, or six months, plus 0.10 percent per annum. The adjusted base rate is a fluctuating rate per annum equal to the highest of (i) the administrative agent's prime rate, (ii) the federal funds effective rate plus 0.50 percent, or (iii) the one-month adjusted SOFR rate plus 1.0 percent. 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 applicable margin for SOFR borrowings and adjusted base rate borrowings ranges from 0.875 percent to 1.500 percent per annum and zero to 0.50 percent per annum, respectively. Commitment fees for both rates range from 0.075 percent to 0.200 percent per annum. Based on the unsecured debt rating of the Company on March 31, 2026, the spread over SOFR would have been 1.250 percent had borrowings been outstanding under the Amended Credit Facility and commitment fees would have been 0.150 percent. There is a financial covenant in the Amended Credit Facility that requires us to maintain a total funded debt to total capitalization ratio of less than or equal to 55.0 percent. The Amended 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 March 31, 2026, there were no borrowings or letters of credit outstanding, leaving $950.0 million available to borrow under the Amended Credit Facility.
As of March 31, 2026, we had $420.0 million in uncommitted bilateral credit facilities, for the purpose of obtaining the issuance of international letters of credit, bank guarantees, and performance bonds. Of the $420.0 million, $234.4 million was outstanding as of March 31, 2026.
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 March 31, 2026, we were in compliance with all debt covenants.
Future Cash Requirements
Our operating cash requirements, scheduled debt repayments, interest payments, any declared dividends, and estimated capital expenditures for fiscal year 2026 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. If needed, we may decide to obtain additional funding from our $950.0 million Amended Credit Facility. Our indebtedness under our unsecured senior notes totaled $1.8 billion at March 31, 2026 and comprised of the following maturities: $350.0 million due December 2027, $350.0 million due December 2029, $550.0 million due September 2031, and $550.0 million due December 2034. Our indebtedness under our unsecured term loan credit agreement totaled $140.0 million at March 31, 2026 and was fully repaid in April 2026. Our indebtedness under our secured term loan credit agreements totaled $79.5 million at March 31, 2026, of which $6.9 million is due within one year, and the remaining balance is required to be paid on a quarterly basis through the respective maturity dates of December 2033 and December 2034. This debt was allocated specifically to finance rig construction activities in Oman.
As of March 31, 2026, we had a $617.9 million deferred tax liability on our Unaudited Condensed Consolidated Balance Sheets, primarily related to temporary differences between the financial and income tax basis of property, plant and equipment. Our 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. As of March 31, 2026, we have recorded unrecognized tax benefits and related interest and penalties of approximately $18.9 million.
Material Commitments
Material commitments as reported in our 2025 Annual Report on Form 10-K have not changed significantly as of March 31, 2026, other than those disclosed in Note 5—Debt and Note 11—Commitments and Contingencies to the Unaudited Condensed Consolidated Financial Statements. As stated in Note 13—Subsequent Events, subsequent to March 31, 2026, the Company fully repaid the remaining balance of $ 140.0 million outstanding under the Term Loan Credit Agreement. As a result of this repayment, no amounts remain outstanding under the Term Loan Credit Agreement.
Q2 FY26 FORM 10-Q | 46
Critical Accounting Policies and Estimates
Our accounting policies and estimates that are critical or the most important to understand our financial condition and results of operations, and that require management to make the most difficult judgments, are described in our 2025 Annual Report on Form 10-K. Based on management's evaluation, there have been no material changes in these critical accounting policies and estimates.
Recently Issued Accounting Standards
See Note 2—Summary of Significant Accounting Policies, Related Risks and Uncertainties to the Unaudited Condensed Consolidated Financial Statements for new accounting standards not yet adopted.
Non-GAAP Measurements
Direct Margin
Direct margin is considered a non-GAAP metric. We define "Direct margin" as operating revenues less direct operating expenses. Direct margin is included as a supplemental disclosure because we believe it is useful in assessing and understanding our current operational performance, especially in making comparisons over time. Direct margin is not a substitute for financial measures prepared in accordance with U.S. GAAP and should therefore be considered only as supplemental to such U.S. GAAP financial measures.
The following table reconciles direct margin to segment operating income (loss), which we believe is the financial measure calculated and presented in accordance with U.S. GAAP that is most directly comparable to direct margin.
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
(in thousands) 2026 2025 2026 2025
NORTH AMERICA SOLUTIONS
Segment operating income $ 111,334 $ 151,943 $ 147,543 $ 304,154
Add back:
Depreciation and amortization 82,955 87,151 167,199 175,487
Research and development 7,115 9,502 13,523 18,943
Selling, general and administrative expense 13,401 15,484 27,423 31,294
Acquisition transaction and integration costs
— 34 — 34
Asset impairment charges — 1,507 97,922 1,507
Restructuring charges
402 — 402 —
Direct margin (Non-GAAP) $ 215,207 $ 265,621 $ 454,012 $ 531,419
INTERNATIONAL SOLUTIONS
Segment operating loss $ (99,612) $ (34,983) $ (154,917) $ (49,467)
Add back:
Depreciation and amortization 79,257 57,153 157,378 61,981
Selling, general and administrative expense 4,249 4,546 8,394 7,254
Acquisition transaction and integration costs
1,198 210 1,634 210
Asset impairment charges 26,101 — 26,101 —
Restructuring charges
302 — 1,620 —
Direct margin (Non-GAAP) $ 11,495 $ 26,926 $ 40,210 $ 19,978
OFFSHORE SOLUTIONS
Segment operating income $ 14,015 $ 17,375 $ 30,452 $ 20,880
Add back:
Depreciation and amortization 9,862 7,777 20,682 9,757
Selling, general and administrative expense 2,654 964 3,698 2,028
Acquisition transaction and integration costs
352 60 925 60
Asset impairment charges — — 2,128 —
Direct margin (Non-GAAP) $ 26,883 $ 26,176 $ 57,885 $ 32,725
Q2 FY26 FORM 10-Q | 47
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.