Weak oil demand weighs on Helmerich and Payne inventories

Actions of Helmerich & Payne (NYSE: HP) have recovered a substantial part of their lost value since OPEC imposed mandatory production cuts last year. The company is a supplier of drilling services to exploration and production companies in the United States. In 2020, US and international operations contributed 92% and 8% of the company’s total revenues, respectively. As the company has implemented organizational changes to focus on integrated, solution-based approaches to focus on software and digital services, Trefis believes the stock currently faces downside risk due to the news. restrictive measures imposed in Europe, reducing demand for crude oil and natural gas. Additionally, the EIA expects benchmark prices to trend downward in the second half of the year as OPEC eases production cuts. Our interactive dashboard analysis highlights Helmerich & Payne’s stock market performance during the current crisis with that of the 2008 recession.

Timeline of the 2020 crisis so far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 01/31/2020: WHO declares global health emergency.
  • 02/19/2020: Signs of effective containment in China and hopes of monetary easing from major central banks help S&P 500 reach record high
  • 03/23/2020: S&P 500 34% drop of the maximum level observed on February 19, as cases of Covid-19 accelerate outside China. It doesn’t help that oil prices collapse in mid-March amid the Saudi-led price war
  • From 03/24/2020: S&P 500 recovers 78% from lows on March 23, as the Fed’s multibillion-dollar stimulus package removes short-term survival anxiety and puts liquidity into the system.

In contrast, here is how HP and the broader market fared during the 2007/2008 crisis.

Timeline of the 2007-08 crisis

  • 10/01/2007: Approximate pre-crisis peak of the S&P 500 index
  • 09/01/2008 – 10/01/2008: Accelerated decline in the market corresponding to Lehman’s bankruptcy filing (09/15/08)
  • 03/01/2009: Approximate low point of the S&P 500 index
  • 01/01/2010: Initial recovery to pre-accelerated decline levels (around 09/01/2008)

Helmerich & Payne Stock vs. Performance of the S & P500 during the 2007-08 Financial Crisis

HP stock fell from levels of around $ 52 in September 2008 (pre-crisis peak) to levels of around $ 24 in March 2009 (as markets bottomed out), implying that HP stock is down 54% from its approximate pre-crisis peak. It recovered from the 2008 crisis to levels of around $ 40 in early 2010, increasing 68% between March 2009 and January 2010. In comparison, the S & P500 index initially fell 51% to following the recession before recovering by 48% in January 2010.

Asset write-downs reduced the company’s asset base by 20%

Helmerich & Payne’s revenues fell 28% from $ 2.5 billion in 2018 to $ 1.8 billion in 2020 as the pandemic caused demand to drop and benchmark prices to drop. While the profit margin declined further due to an impairment charge of $ 500 million, the company’s balance sheet declined 17% (year-over-year) in 2020. Improving the company’s finances largely depends global crude oil demand and OPEC supply constraints. With major oil companies including Exxon Mobil

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With BP and Royal Dutch Shell also recording significant depreciation charges, we expect demand for oil to gradually improve in the post-pandemic period.


Phases of the Covid-19 crisis:

  • Beginning to mid-March 2020: Fear of the rapid spread of the coronavirus epidemic is reflected in reality, the number of cases accelerating in the world
  • End of March 2020: social distancing measures + confinements
  • April 2020: Fed stimulus suppresses short-term survival anxiety
  • May-June 2020: Resumption of demand, with a gradual lifting of confinements – no more panic despite a regular increase in the number of cases
  • Since the end of 2020: Weak, but persistent quarterly results demand improvement and advances in vaccine development boost market sentiment

While the company plans to maintain a cautious investment plan in 2021 to focus on long-term shareholder returns, Trefis believes the stock has reached its near-term potential given the EIA’s expectations of a downturn. reference prices during the second half of the year.

2020 has created a lot of price discontinuities that can provide some exciting business opportunities. For example, you will be surprised at how the valuation of stocks for New Jersey Resources vs. World Wrestling Entertainment shows a disconnect with their relative operational growth. You can find a lot of these discontinuous pairs here.

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Felix J. Dixon