Good day everyone and welcome to the Fiscal Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note this call may be recorded. It is now my pleasure to turn the conference over to Director of Investor Relations David Wilson. Please go ahead.

Thank you, Keith, and welcome everyone to Helmerich & Payne's conference call and webcast for the second quarter of fiscal 2020. With us today are John Lindsay, President and CEO; and Mark Smith, Senior Vice President and CFO. John and Mark will be sharing some comments with us, after which, we will open the call for questions. Before we begin our prepared remarks, I will remind everyone that this call will include forward-looking statements as defined under the Securities Laws. Such statements are based on current information and management's expectations as of this date, and are not guarantees of future performance. Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict. As such, our outcomes and results could differ materially. You can learn more about these risks in our Annual Report on Form 10-K, our quarterly reports on Form 10-Q and our other SEC filings. You should not place undue reliance on forward-looking statements and we undertake no obligation to publicly update these forward-looking statements. We also will be making certain references to non-GAAP financial measures such as segment operating income and operating statistics. You will find the GAAP reconciliation comments and calculations in yesterday's press release. With that said, now I will turn the call over to John Lindsay.

Thank you, Dave, and good morning, everyone. The COVID-19 pandemic has no rivals in recent times for the dramatic and widespread impact it has unleashed on the world and our industry. Our highest priority over these past few months has remained focused on the health and safety of our employees, customers, and stakeholders. I want to begin by thanking all of our employees for their efforts to protect each other and our customers by adhering to physical distancing practices to control exposures and for following all of the protocols we put in place to protect our families and each other from the virus. Throughout our history, the company has sought to be in a position of strength, both operationally and financially, to face the uncertainty and inherent cyclicality of the energy industry. We have taken swift actions to maintain the health and safety of our employees and customers. We've also made difficult, measured, but necessary decisions aimed at preserving the company's longstanding financial strength and its future. These timely actions have served to minimize the impact of COVID-19 on our operations and helped to preserve our financial position. This market has been referred to as unprecedented by many. And during my 33-year career at H&P, we have weathered many downturns, though this one does have unique characteristics. While the crude oil market imbalance is a global phenomenon, it has more acutely impacted the US market as a result of storage limitations subsequent to March 31. The abruptness of and the overall size of the decrease in demand for refined products such as gasoline and diesel has created an abundance of supply which has caused refining capacity to shrink, resulting in excess crude oil. This crude oil overhang in supply has created a storage dilemma for E&P companies, limiting opportunities to market their production, and even when they can sell, the prices are very depressed. Consequently, some E&P companies have chosen to shut in production, postpone completions of drilled and uncompleted wells, and many E&Ps have stopped drilling wells entirely until the market imbalance rights itself and once again becomes economic to resume production and drilling. It is obvious that these current circumstances hold long-term negative implications for our industry. Our experience has shown us that two factors hold the key to surviving a downturn and ultimately furthering the strategic objectives of the company. First, maintaining financial strength; and second, maintaining a long-term view for future potential opportunities. In this regard, we will remain focused on establishing new commercial models, expanding our digital technology offerings to customers, increasing our international presence, and cost management. Liquidity is critically important at a time like this, and we are actively reducing expenses in a thoughtful and intentional manner. We are drawing on learnings from the 2015-2016 downturn to idle rigs more efficiently, and we're seeing additional innovative efforts throughout the company pay off and anticipate that this will continue. We also ended a 48-year run of paying an increased dividend per share by announcing our intention to reduce our dividend to $0.25 per quarter, beginning after our next dividend payment. Given this current environment, we are rightsizing our organization to reflect these new realities. Mark will discuss this in more detail during his remarks. We are also using this as an opportunity to ensure our talent reflects the company's direction as well as the industry overall. We are intentionally aligning our organization towards a performance-driven approach that drives higher reliability and simplifies our customers' experience and forms a stronger partnership. As we have discussed in previous calls, we are making efforts to develop new commercial pricing models that create win-win value capture for customers, and enable us to earn an equitable share of the value we create with our drilling solutions. We strive to align ourselves with the customers' objective to enhance economic returns through better performance and technology. We are working hard to put this shared focus and decision-making at the forefront of all of our partnerships. Such value is arguably even more pertinent in strained market conditions like we see today. While the reduction in our rig count has adversely affected the number of rigs we currently have under performance-based contracts, we expect the total of these to represent a larger percentage of our active FlexRig fleet over time. The importance of well economics is magnified under these stressed market conditions, and combining our digital technology solutions and the commercial model becomes even more appealing to some customers who recognize that wellbore quality and placement improves the lifetime value of the well. The COVID-19 pandemic has caused everyone to adjust to new realities such as remote office environments, and in our field operations, to the logistical challenge of reducing virus exposure and screening rig site crews and third-party personnel. As a result, we are also seeing a new surge in interest for remote drilling and automation technologies. Many of our customers not only see the financial advantage of de-manning certain positions at the rig site, but also recognize that this trend is inevitable as these automation capabilities mature at a time when physical distancing is needed. Although the timing of the recovery is not clear, the consensus of the industry is that when it does occur, it is likely to be at a higher velocity than previous recoveries. With deep cuts to personnel, we expect any recovery will occur without the benefit of a large portion of the industry's seasoned veterans, as many will likely leave the energy industry during this latest downturn. While the near-term focus is clearly on cost reduction, customers are not just reducing their human workforce, they are also asking how their organizations need to change to survive and be competitive with increasing cyclicality. And like other industries have experienced, automation and digitization of operations is common in these conversations. Despite the rapid reduction in industry rig activity, our automation solutions such as AutoSlide have remained stable and in fact have seen increased activity in recent months. We believe this is driven by both a move to reduce costs and human errors, but also a move to establish more manufacturing drilling through digital technology. In previous cycles, many of these efforts have centered around visualization and analytics rather than true automation, and while this has some value, a true redefinition of the workforce roles did not occur. However, given H&P's ability to show documented field success coupled with the financial pressure, and health concerns in this current environment, there are signs the log jam has been broken that has previously hindered progress toward automation at the rig. We believe that automation is the future, and we are well positioned with digital technology offerings through the strategic acquisitions we've made in recent years. We also feel our uniform flex rig fleet gives us a unique advantage and the ability to scale automation technology effectively for our customers. Our focus internationally continues to be on actively pursuing long-term growth opportunities and development of these will likely be affected by travel and operational hurdles due to COVID-19. Although we expect the third quarter's results to be negatively impacted, we are encouraged about what the future holds for H&P internationally. The capabilities that allowed H&P to grow market share in the U.S. over the past 15 years are some of the same capabilities that will benefit international growth in the future. Crucial to all of this is continuing to make investments that further our ESG efforts. We will continue to partner with customers to invest in areas that help lower the environmental impact of drilling for oil and gas through greenhouse gas emission reductions. Like many companies in today's environment, we continue to employ a global remote work model for office personnel and in our field operations where possible. While instituting the remote work platform required quick action, robust technology and greater communication we have not lost momentum. In fact, I think we're actually gaining momentum organizationally and with customers. During this time, we've digitized and automated processes to save time, money, and reduce the risk of human error. Our quick actions around COVID-19 at our rig sites are something that many of our customers and partners are modeling in their own operations, which underscores the fact that our commitment to health and safety is always paramount. H&P's people are difference makers on a daily basis. Our investment in the health of our organization has enabled us to remain agile at a time when the ability to adapt is one of the most critical competitive advantages a company can have. I have been very impressed by the quality of work provided by our teams during this very intense and challenging time. In closing, I mentioned earlier about our focus on cost reductions, which are critical at this time. However, just like our customers, we are also looking at our organizational structures and asking ourselves how can we streamline our operations and use technology and automation to enhance the health and growth of our business over the long-term. Automation and digitization of operations are common conversations with our customers today, and we are using this as an opportunity to innovate for the future of our business' success going forward. And now I'll turn the call over to Mark Smith.

Thanks, John. Today, I will review our fiscal second quarter 2020 operating results, provide guidance for the third quarter, update full fiscal year 2020 guidance as appropriate, and comment on our current cash management efforts and financial position. Let us start with highlights for the recently completed second quarter. The company generated quarterly revenues of $634 million versus $615 million in the previous quarter. The quarterly increase in revenue is primarily due to $10.4 million in early termination revenue and well-to-well notification fees as a result of rig releases in the U.S. land segment, due to the energy demand destruction caused by the COVID-19 pandemic as described in our press release. Total direct operating costs incurred were $419 million for the second quarter versus $401 million for the previous quarter. The increase is attributable to self-insurance adjustments related to prior year reserves and to costs incurred to demobilize and stack release rigs. During the fiscal second quarter, market events triggered an analysis of our non-super spec FlexRig fleet and particularly the expected future utilization of that portion of our fleet. This assessment combined with an evaluation of our intangible assets including goodwill, resulted in total non-cash impairment charges of approximately $563 million. The impairment impacted the value of the following asset classes: PP&E for less capable non-super spec rigs of $441 million, PP&E for excess capital equipment by $45 million, inventory of materials and supplies by $39 million, and goodwill by $38 million. A total of 95 rigs were impacted by the impairment of which 37 were decommissioned subsequent to the quarter end. As such, we have downsized the number of U.S. domestic non-super spec FlexRig, three drilling rigs marketed to customers from 43 rigs to 8 rigs in the U.S. General and administrative expenses totaled $42 million for the first quarter, a sequential decrease of $8 million primarily driven by the reversal of accrued annual incentive compensation. Our Q2 effective tax rate was approximately 20% as we are now forecasting a pretax book loss for the full fiscal year versus pretax book income, which is offset by local income tax in various U.S. states and international jurisdictions. At this juncture, let me summarize the results of the second quarter. H&P incurred a loss of $3.88 per diluted share versus a profit of $0.27 in the previous quarter. Second quarter earnings per share was negatively impacted by a net $3.87 loss per share of select items as highlighted in our press release. Absent these select items, adjusted earnings per share was a $0.01 loss in the second quarter versus an adjusted $0.13 profit during the first fiscal quarter. Capital expenditures for the second quarter of fiscal 2020 were $48 million as we have begun to wind down our canceled projects in light of market conditions. Turning to our four segments, beginning with the U.S. land segment. We averaged 190 working rigs during the second quarter. As the COVID-19 crisis developed, rig activity quickly declined during the last half of March and we exited the second fiscal quarter with 150 working rigs. Revenues were $21.9 million higher sequentially due to $10.2 million of early termination revenues in well-to-well notification fees. The balance of the added revenue is partly attributable to performance contracts through the quarter and partly to demobilization fees for rigs released in the last half of March. U.S. land operating expenses increased in the second quarter due to two factors. First, because of the quarter-end rig releases, we incurred trucking costs for demobilization as well as stacking costs when those rigs arrived at our various yards. Second, we increased self-insurance reserves related to legacy claims which occurred prior to October 1, 2019. These claims will remain liabilities in our operating segments until they have been resolved. As a reminder on October 1, 2019, we’d like to utilize the wholly-owned insurance captive to ensure the deductibles for our workers compensation and general liability and automotive liability insurance programs from that point forward. Looking ahead to the third quarter of fiscal 2020 for U.S. land segment. As John said, the COVID-19 pandemic and the resulting economic slowdown have created excess energy supplies and a shortage of storage. Given this situation, some customers are electing to shut in production and cease well completions and/or the drilling of new wells. This in turn has caused customers to continue to release rigs and we have seen more than 115 rig release notifications since early March. We expect to end the third quarter below 70 rigs with the vast majority of that decrease happening prior to June 1. Included in our contracted rigs are approximately 10 idled rigs that are generating some margin. Also, as John discussed, our performance contracts are gaining customer acceptance, and even in this environment, a larger portion of our working fleet is expected to shift to new commercial models. These models are designed around a win-win formula where H&P has the ability to participate in the value created through reduced overall well costs and other factors customers value like wellbore placement and quality. This value can be achieved on H&P FlexRigs through the utilization of software delivered from our H&P Technology segment. For example, in order to hit performance targets, we may elect to utilize some or all HPT solutions while drilling wells with an H&P FlexRig. In these cases, inter-segment charges for the software are incurred, which eliminate in consolidation. The combination of the FlexRig and the HPT software creates the best value solution for the customer and the best consolidated revenue in return on investment for H&P. Therefore, as we develop new commercial models such as performance contracts, we are able to utilize technology solutions and services across our segments to capture additional value. The value delivered to customers for wells drilled more efficiently and of higher quality requires different pricing discussions with our customers. We will now begin to speak in a different way as well in our discussions with investors. Our rig segment guidance from this point forward will be on segment margins, which are defined as operating revenues less direct operating expenses, and not on individual rig rates. We will continue to furnish per day rig information in the segment tables and press releases and public filings through the end of this current fiscal year. In the U.S. land segment, we expect the gross margins to range between $90 million to $105 million with approximately $45 million of that coming from early termination revenue. Our current revenue backlog from U.S. land fleet is roughly $640 million for rigs under term contracts. This amount does not include approximately $50 million of early terminations, of which $45 million is expected to be recognized during our third fiscal quarter. Regarding our international land segment. Our international land business averaged 17 active rigs during the second fiscal quarter, down slightly sequentially as increased activity in the Middle East offset most of the decline in Argentina. Segment gross margin was slightly up versus prior quarter as we benefited from mobilization revenue and lower startup costs. As we look toward the third quarter for fiscal 2020 for international, our activity in Argentina was already expected to suffer due to the local macroeconomic situation and roll-off of legacy contracts. The recent oil price declines have exacerbated and accelerated the pace of that decline. Due to falling activity in Argentina and associated force majeure provisions in response to COVID-19, we expect international margins to be negative with a loss of between $4 million to $6 million. Turning to our offshore operations segment, we currently have five of our eight offshore rigs contracted. One of those five rigs recently mobilized from the shipyard to a new platform for a short 90-day contract. Offshore generated a gross margin of $400,000 during the quarter, down roughly $10 million on a sequential basis primarily due to downtime repairs and demobilization as well as a bad debt expense incurred during the quarter. As we look toward the third quarter of fiscal 2020 for our offshore segment, we expect offshore to generate between $4 million to $6 million of operating gross margin with offshore management contracts generating another $2 million. Now looking at our H&P Technology segment. Many of our customers are seeing the benefits of wellbore quality and placement as evidenced in the seven technical papers presented by HPT team members at the IADC/SPE International Drilling Conference and Exhibition in Galveston, Texas on March 5th. As John mentioned, in this environment, we are seeing more customers interested in utilizing AutoSlide given an intensified effort to demand at the well site. HPT generated $18 million of revenue in the second fiscal quarter. We are expecting Q3 revenue for HPT to be between $4 million to $7 million. This expected sequential decline is a direct result of rig releases both for H&P and for the industry. As our HPT and U.S. land teams leverage successes and penetration performance contracts as a percentage of contracted rigs, we expect continued leverage of software to drive achievement of value delivery to customers. Now, let me look forward on corporate items for the third fiscal quarter and the remainder of the fiscal year. As a result of today's energy down cycle and the outlook for the oil and gas production business, we have undertaken a number of measures to maintain and extend H&P's financial strength. We have updated our capital allocation by reducing our future intended dividends. We have reduced our capital expenditures during this fiscal year, we are working to finalize the reorganization of our U.S. land operations for lower activity levels. We are assessing our international offices to appropriately calibrate for activity. And we have begun the rightsizing of our general and administrative overhead to serve to reduce scale for the near-to-midterm planning horizon. Let me take a few minutes to discuss each of these five areas. And I will close by discussing our working capital and liquidity and expectations for the next quarter. First, as John mentioned, and as we announced on March 31, our Board of Directors intends to reduce the size of future quarterly dividend payments by 65% from $0.71 to $0.25 per share per quarter. This reduction preserves approximately $200 million of cash on an annualized basis. Second, capital expenditures for the full fiscal 2020 year are now expected to range between $185 million to $205 million, which is a reduction of over $90 million from our initial fiscal 2020 budget and a reduction of over $260 million from fiscal 2019 CapEx. We expended $48 million in the second quarter as we reduced procurement activities and reined in projects. Note that components from the previously mentioned decommissioned rigs will be used to the extent possible as part of an effort to lower operating and capital costs for our fleet. A reminder that asset sales are primarily customer reimbursement for the replacement value of drill pipe that is damaged or lost in the hole during drilling operations. These sales offset a portion of our tubular purchases within CapEx and are expected to be between $30 million to $40 million this fiscal year. Third, U.S. land activity's precipitous drop has resulted in the aforementioned rig releases, and in the unfortunate reduction of our field workforce impacting over 2,800 individuals. Therefore, we are working in the month of May to finalize a reorganization of U.S. land and fixed operational overhead, with plans to reduce our number of districts from seven to four. This smaller administrative overhead structure should save approximately $50 million in direct operating expenses annually, while still allowing us to serve customers throughout the existing basins where we work. We have long owned the majority of the facilities where we operate and have our FlexRig fleet proportionately stored in those yards relative to the working rig utilization levels of this last cycle. Fourth, we have started an assessment of our international fixed operational overhead with the intention of sizing country offices to rig activity levels today, and with an eye toward medium-term potential market opportunities. Fifth and finally, we have begun the process of downsizing our general and administrative footprint to support a now smaller active rig business. Our current expectation for full fiscal 2020, general and administrative expenses is now $180 million reduced in part from initial fiscal year budget because of the reversal of accrued annual incentive compensation. We are now in the process of implementing evergreen cost reductions to our G&A service structure. Collectively, these downsizing decisions are difficult ones for the company and for our employees. Taken together, these cost reduction measures will allow us to meet the challenges of today's down cycle. These efforts are in process and we expect to complete the above outlined rightsizing across the company in the fiscal third quarter and expect to recognize a one-time restructuring charge as a result. This charge will include a cash component currently estimated at roughly $20 million. We will continue our investments in research and development through the cycle as we push toward autonomous drilling. We are estimating our annual effective tax rate to be in the range of 16% to 21% and do not anticipate incurring any significant additional cash tax related to the full 2020 fiscal year. The difference in effective rate versus statutory rate is related to permanent book to tax differences as well as state and foreign income taxes. Now looking at our financial position. Helmerich & Payne had cash and short-term investments of approximately $382 million at March 31, versus $412 million at December 31, 2019. Including our revolving credit facility availability, our liquidity was approximately $1.13 billion. We had cash flows from operations in the second quarter of approximately $121 million versus a $112 million in fiscal Q1. We expect operating income to be lower in the remaining quarters of the fiscal year. Conversely, we expect cash flows from operations to be higher in the second half of the fiscal year as the ongoing activity decline will result in a significant amount of working capital over the next several quarters. Additionally, we have several working capital improvement initiatives that are already in place prior to the downturn that will further enhance our cash position. Our debt-to-capital at quarter end was 12% with a 2.5% net debt to cap, which is a continued best-in-class measurement among our peer group. We have no debt maturing until 2025 and our credit rating remains investment grade. We’ve repurchased some shares in the second quarter as we have historically from time to time; no further share buybacks are contemplated at this time. Our expectations for the remainder of fiscal 2020, include continued declines in rig activity, most of which will occur in the third quarter. Simultaneously, we will be finalizing our cost management measures and rightsizing the company to new activity levels. These efforts should generate sufficient free cash flow to cover our selling, general and administrative expenses, our debt service costs, go-forward maintenance capital expenditures and intended lower dividend while preserving and building our cash on hand. Our balance sheet strength and liquidity level serve as a cornerstone upon which we have been able to endure for 100 years and they are a significant differentiator in this volatile and cyclical industry. That concludes our prepared comments for the second fiscal quarter. Let me now turn the call over to Keith for questions.

Operator Instructions] We'll go first to Sean Meakim with JP Morgan. Please go ahead.

Thank you. Hi, good morning.

Thanks, Sean.

So John, maybe to start on U.S. land, you're kind of trying to parse through the guidance that you put out. It looks like in fiscal 3Q, the margins could be quite compressed, particularly when trying to account for the early terminations impact. Are there any transitory costs associated with the pace of rig drops that maybe normalize as the rig count stabilizes into fiscal 4Q? Just how should we think about U.S. land operating gross margins on some kind of normalized basis, maybe say in fiscal 4Q relative to what it looked like in fiscal 2Q?

Mark, you have…

Yes. Sean, thanks for the question. We certainly are incurring transitory costs related to stacking, but offsetting that are more cost expense cuts still coming as I just finished describing a few minutes ago. So, still a little early to have a final look at what would be two quarters from now.

There's a lot happening very quickly, and you've noticed the decrease in the rig count. As I mentioned earlier, we're performing well in the field, but the situation is somewhat unstable due to the activity involving idled rigs and managing costs. Additionally, we have to navigate the challenges posed by COVID-19, including maintaining physical distance among our team, which is changing our processes. However, as Mark mentioned, we expect to have more clarity in the upcoming quarter.

I appreciate the context you’ve provided. While related, I’d like to discuss a different topic. Leveraging the HPT suite alongside your super-spec rigs certainly seems like a way to generate value for customers. This could become a priority in upcoming quarters as exploration and production companies try to maximize their capital expenditures. Additionally, the shift towards remote work for you and your clients may be altering perceptions about what can be handled remotely. Do you think this trend might lead to increased interest in MOTIVE, especially given that remote operations may become more essential for customers? I'm interested in your thoughts on how the transition to remote work might help illustrate the value of MOTIVE, particularly in the current environment where many are focused on reducing activity.

Yeah, Sean. I think we've seen that over the past several weeks. The value proposition as we've described, and we've had customers describe to us on wellbore quality and wellbore placement is there. We have this ability to de-man. We have this ability to automate directional drilling. And again, as you start thinking about having exposures, health exposures to the virus, there's another level of desire to de-man for those reasons. And so yes, we are seeing a pickup in interest. We continue to have very good meetings with customers, both large and small, and I think that's encouraging. But as you think about it, on the one hand, it's a no-brainer in that you can do this in an automated fashion. You can do it at the same efficiency or even higher levels of efficiency in terms of time, but then there's the added value proposition of a higher-quality wellbore, so you're leaving behind a higher-quality wellbore in working with your customer. So, as you start thinking about combining kind of holistically with the overall offering, with the rig offering and the technology offering, and then you're structuring that offering specifically to a customer's needs and desires, there are a lot of advantages to that. So, to answer your question, yes, we’re seeing some additional interest and the challenges that we've faced with COVID-19 has got people talking about it in addition to the level of interest we already had.

Makes sense to me. Thanks, John.

Thank you.

We'll go next to Tommy Moll with Stephens. Please go ahead.

Good morning. And thanks for taking my questions.

Good morning, Tommy.

John, I wanted to start on customer conversations. My assumption is most rigs have been dropped recently, primarily because the customer was just making a decision to stop drilling and not because negotiating on price would have made much difference. If that's correct how far down the road do you have to look before we get to a meaningful discussion around price? And if we look back to the last downturn, I think mid-teens $1,000 per day is probably where we ended up near the bottom. And I wonder if that's a fair bogey to think about this time around, or if the market dynamic may have changed and may be different somewhat in some way?

With the release of rigs, we've noted that it seems quite indiscriminate, as the price of the rig is not a significant factor. Many exploration and production companies are slashing their rig counts by substantial percentages, with some reducing them to zero. In such scenarios, the rig's price becomes irrelevant. However, as we consider the concept of day rate, we are advocating for the retirement of the day rate model, as we believe it is outdated. We see great value in what we can offer at H&P, which is reflected in our discussions with customers. Even in the current environment, we are securing contracts that are beneficial for both parties. We are committed to aligning with our customers' goals to improve their economic returns. Customers seek not only lower costs but also a wellbore of higher quality. Therefore, we are diligently working towards a partnership approach, with the goal of moving away from day rates due to the obsolescence of this model, and we will continue to explore various models tailored to each customer. Each customer is unique, so we do not anticipate a one-size-fits-all solution. Our organization is capable of adapting to these needs, which will be evident as we continue to restructure and refine our offerings.

Following on that theme, John, do you have any sense that when we do bottom and then start to recover, that the expectation may not be for what's currently perceived at the super spec rig in terms of the capabilities or might be added default assumptions about the kinds of technologies or capabilities you need to bring to the market. And in order to be competitive, any light you could shed on where we might be headed just in terms of what the market standard or the leading edge offering might look like?

Sure. Well, we have our definition of super spec. I'm sure every company does. There's a pretty wide range of capabilities even within the super spec space. So, I think once the market shakes out, as in previous cycles, the best rigs, the best performing rigs, and the best performing crews, those are rigs that will go back to work first. I do think that we will see a shift towards talking more about, again, the quality of the wellbore. The power of predictability that software brings that humans can't. I mean it, we see it every day in life, and it exists in the oilfield as well. And so there's this great opportunity. And so I do think that the requirements will change in the future. Obviously, we're working very hard to position ourselves in that place. As I talked about, we all hate downturns. We've weathered a lot of them. But what we can say about downturns is that it is a driver for change, and it's a great opportunity for us to take advantage and really double down on the performance type contracts and the technology offerings. We are planning to continue to invest heavily there because we think that's a differentiator. So, it's a long way of saying answering your question. I think it does. I think there are some changes. And like I said earlier, every customer is a little bit different. But that's fine. We've got various offerings that we can provide for a lot of different customers.

Thank you, John. I'll turn it back.

Thank you.

We'll take our next question from Kurt Hallead with RBC. Please go ahead.

Good morning. I hope everybody, all your families are doing well and healthy.

Same to you, doing well, Kurt. Thanks. Same to you.

Thank you. Appreciate that. So, yes, I guess what I just want to ask first here is when you take a look at the dynamics in the US market and the guidance that you provided, as you go out into the next quarter, just want to make sure I heard Mark correctly say that there's another $5 billion early termination payments that are expected to occur during the quarter. And if so, is that going to be the absolute minimum or is there a possibility for additional early termination payments that customers haven't quite alerted you to yet?

The five number is correct Kurt. And on one hand, when we look, we think we see a line of sight to what could be a June 1 and then also a June 30 level of activity, but on the other hand we have no clear visibility. If you'd have asked me the question three weeks ago, we would have had a completely different answer. So, the activity level is uncertain in some regard and therefore the early term that is associated with that would be as well.

Perfect, appreciate that. And John, just maybe a follow-up for you as you have basically two-way with the day rate model and you continue to push forward with a more win-win performance-based dynamic. If you were to just think of that with us on the call now and so on, as you looking into the next cycle of evolution, how much incremental, I don’t know, EBITDA, how much incremental value you think that this performance-based model throughout can result in for H&P? If you look at your last peak cycle EBITDA when it was a day rate driven model, you look at the next one, which would be more performance-based. What kind of incremental value do you think can be derived?

Well, Kurt that’s a great question. I’ll start with, first of all, I don’t know what the number is. What I do know is that this will take some time. There's going to be a transitionary period. We'll continue to have rigs that are working on a day rate basis and customers that want to do that. But again, we're seeing evidence of it. It's very attractive to customers. This whole notion of having skin in the game and delivering higher quality wellbore. So I don't have a clear answer to that. I may turn over to Mark, see if Mark has some additional color to add to that. But what I do believe is that we will be in a much better position going down the path that we're going with creating these new commercial models, then continuing to do things the way we've always done them with an obsolete model like the day rate model.

Nothing to add. But Kurt, I do want to just clarify with the five to make sure that for others that are listening as well. We still expect to receive approximately $50 million of cash payment in the third quarter, $45 million of that would be recognized and then another $5 million deferred and recognized after the third quarter.

That's great. Thank you for that clarification. And John, I know you don't have the specific answers on that value attribution, can be interesting to see how it evolves for sure. So I appreciate your stand at it.

Yeah, thanks for the question. We'll keep working hard.

Our next question is from Taylor Zurcher with Tudor Pickering & Holt. Please go ahead.

Hey, good morning. Thank you. Wanted to follow-up on some of these questions on the performance-based model. If I remember correctly on the last call, you talked about the ideal rigs or incremental rigs that to enter into these sorts of models to be in the spot market. And as you push forward with this sort of approach moving forward, how do you protect yourself from a term contract coverage perspective as you enter into more of these contracts moving forward? And then secondarily, I tend to think these contracts having a lower base day rate than the leading edge sort of rate and you make it up with performance incentives. So are you protected, apples to apples basis from an early termination perspective as you enter into these contracts?

On the early term part. I'll take that and then turn it over to John. We enter into term contracts on performance and have rigs both undetermined and exposed to the spot market equally like we do any other traditional model. But the one thing to recognize is that this last many months last couple of quarters as we were putting more performance contracts in place, you had an already soft market. So you're having more of the overall fleet exposed to the spot market in any case. So said differently, when we see a return of utilization whenever that point in time comes for this market to improve, I would expect performance contracts, yes, to have term coverage on the way up in utilization.

Okay. I'll wobble on international guidance for the next quarter is fairly meaningful negative EBITDA and it sounds like the COVID-19 issues are a big part of that. Could you frame for us how many rigs you have working today? And the only reason I asked that is because the contract coverage in that segment so well. And so how many rigs are working today? And how many do you have visibility to a certain level of rig count over the next, I don't know, two or three quarters?

Next quarters international segment across all countries, and we expect to have approximately 10 working.

Okay. And is that going to be higher or lower beyond that, or is it too early to say?

It's simply too early to say.

Okay, great. Thanks, guys.

Thank you.

The next question is from Ian Macpherson with Simmons. Please go ahead.

Thank you for the insights during this challenging time to forecast. John, considering the global changes looking ahead beyond the next couple of quarters, do you believe these new realities might increase your interest in international exposure for the company in the long term, or perhaps lead to a desire to optimize and consolidate your domestic operations? Alternatively, do you plan to maintain your current diversified approach with a focus on the U.S.?

We have been discussing our progress in the Middle East for some time and have seen significant traction in various areas. However, the pandemic and economic shutdown have delayed our plans, and I can't determine if the timeline has shifted by six, nine, or twelve months. As I mentioned earlier, the quality and values that H&P offers have contributed to our success in the U.S., and I believe they will also be advantageous internationally. We remain committed to pursuing international opportunities, particularly in the Middle East and Argentina, where, unfortunately, activities are currently limited due to shutdowns. This will take time, but we are dedicated to enhancing our capabilities in this regard. We are excited about the investment opportunities we've identified and confident in the strength of our team. We will continue to find ways to improve our effectiveness moving forward and will invest in both international and domestic capabilities.

Got it. And then I had a follow up for you, Mark. Your CapEx guidance for this year. Please correct me if you disagree in striking me that, while you're cutting and playing aggressively, it's still lagging. How steep the rate of decline is in active breakdown by the end of the second half of this year. Could you give us some framework to think about maintenance CapEx for the company, when realistically lower rig count. I don't think it's close to 200, but if you could offer anything in terms of a rule of thumb there? That would be helpful.

Yes Ian. Thanks for the question. The CapEx reductions will certainly be a little more evident, I think as we move through the remaining two quarters of the fiscal year. And get to the point of your question, which should be back to our previously stated range of $750,000 to $1 million per active rig. So, we're working very quickly to wind down and rightsize the operations. For example, our FlexRig machinery center here in Tulsa, which services complimentary for the entire fleet. As I said in my prepared remarks, we plan to also through time utilize complimentary through the decommissioned rigs. So I don't know where within the $750,000 to $1 million range will be. Hopefully the lower part of that range for the US portion of the company. Remember that also includes, that range includes our international and offshore rigs as well. But yes, maintenance CapEx will be the primary and mostly, nearly all of CapEx.

Perfect. Thank you both.

Thank you.

We'll take our next question from Jacob Lundberg of Credit Suisse. Please go ahead.

Hey, good morning, guys. I guess sticking on the performance-based contract discussion. I'm curious if you could describe any changes you've seen in the KPIs that are going into those contracts either actually being realized or just from the discussions with your customers?

I think it's a great question. It's important to note that the discussion goes beyond just speed and cost; it also involves wellbore quality and placement. There are metrics tied to these factors, including wellbore torture velocity, which has not always been measured and can be difficult to quantify. There isn't a standard benchmark for it. However, there's clear evidence that a smoother wellbore offers significant advantages during drilling and contributes to the long-term value of the well. These are the types of key performance indicators that are being utilized now, which contrasts with the lack of discussion or interest in them six or nine months ago.

That's helpful. And I guess my follow-up would be we've touched on it earlier in the discussion, but I'm just curious, given the strong balance sheet given your liquidity position, just thinking about the opportunity set that you guys can kind of take advantage of or execute on during the downturn. You've touched on doubling down on performance-based contracts, as well as the technology offerings, but I wonder if there's anything beyond that scope that you guys are thinking about in terms of being in a good position of being able to play offense during this downtime?

Well, there's further improvement. Again, as you start thinking about utilizing technology, there's also the ability to rightsize the organization, structure the organization to be more effective, to be lower cost, more just an overall more effective organization. I think there's still some opportunities as a company for us to continue to modernize. I'm very proud of our people and how hard they've worked to get where we are today, but we still have a lot of opportunities ahead, I think I know that. I'm not being real specific. But what I do know is going back to what you said, which is we've got strong balance sheet. We've always got our eyes open. We're always looking for the next opportunity. And we made some great acquisitions in 2017 and 2019. And again, we're looking for that edge. And we've got the balance sheet and the capacity to do that. So we're going to keep our eyes open and continue to try to figure out ways to change the industry and improve our value offering to our customers.

Thank you very much. Appreciate the thoughts.

Thank you.

We'll take today's final question from Waqar Syed with Altera Capital. Please go ahead.

Thank you for taking my question. First of all, the issues that you're seeing with COVID-19. Are you seeing the same in Colombia as well? And could you maybe break down the 10 rigs that you get working on a country by country basis? Like how many in each country?

We have an equal split Waqar of five in South America and five in the Middle East as of today.

Okay. And of the five in South America, one is in Colombia, is that right?

That's correct.

Okay. And have you seen any interruptions, work interruption in Colombia as well or no?

The rig in Colombia has just started operations. In Argentina, as mentioned in the prepared remarks, we definitely observed an impact there.

And Waqar as you know, each country has its own challenges and their own protocols and how they're approaching. And we've got our internal H&P playbook, but we have to modify that playbook to fit within each country. We are working remotely in all of the countries in the offices. And again, where we can for the rigs that are running, we're doing what we can remotely. Obviously, there are challenges associated with the crews getting to and having to have a certain amount of quarantine time. There's all sorts of different challenges in each country.

So in Argentina, I believe on March 20th, they put the whole country in lockdown and a Baker Hughes rig count today shows that there was zero rigs active in Argentina. So are you getting paid for those if there's no rig working through April? Are you still getting paid there? Number one. And number two, do you have any expectations on when activity may come back in Argentina?

Well, those rigs were the ones I mentioned in the prepared comments that have a force majeure provision Waqar.

Okay.

And to the second part of your question, as we've said about all aspects of the market, it's too soon to tell when activity will return. There's not only the COVID-19 and issue in global oversupply, but there were issues, macroeconomic issues within the country of Argentina separately before that.

Sure. Okay, great. Thank you very much. My questions have been answered. Appreciate it.

Thanks Waqar.

Thank you, Waqar. Keith, I believe we've reached the end of our time. Before we conclude, I want to acknowledge two members of my team who have recently announced their retirement. Rob Stouter has been with H&P for over 35 years as our senior VP and Chief Engineer. Wade Clark has been here for more than 33 years and served as one of our VPs of U.S. Land. I have been fortunate to work closely with both of them. They have made significant contributions to H&P over the years, but what I appreciate most are their leadership, integrity, and commitment to doing the right thing; they are great team players. We will miss you both, and I wish you the best in the future. Thank you again for joining our call and for your questions. If you have any further inquiries, please reach out to Dave Wilson. Thank you, and have a great day.

This does conclude today's program. Thank you for your participation. You may now disconnect.