Earnings Call Transcript - HP Q4 2021

Operator, Operator

Good day, everyone, and welcome to today's Helmerich & Payne's Fiscal Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. Please note this call may be recorded and I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Dave Wilson, Vice President of Investor Relations.

Dave Wilson, Vice President of Investor Relations

Thank you, Brittany, and welcome, everyone, to Helmerich & Payne's conference call and webcast for the fourth quarter and fiscal year ended 2021. With us today are John Lindsay, President and CEO; Mark Smith, Senior Vice President and CFO; and John Bell, Senior Vice President International and Offshore Operations. John Lindsay and Mark will be sharing some comments with us, after which we'll open the call for questions. Before we begin our prepared remarks, I'll 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 actual 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 any undue reliance on forward-looking statements, and we undertake no obligation to publicly update these forward-looking statements. We will also be making reference to certain non-GAAP financial measures such as segment operating income and operating statistics. You'll find the GAAP reconciliation comments and calculations in yesterday's press release. With that said, I'll turn the call over to John Lindsay.

John Lindsay, President and CEO

Thank you, Dave, and good morning, everyone. And thank you for joining us today. I'm excited to be in Abu Dhabi this week, having just participated in the ADIPEC conference which has provided a unique occasion to meet face-to-face with colleagues, customers, and of course, our strong partner ADNOC Drilling. Also joining Mark and me today in Abu Dhabi is John Bell, Senior Vice President, International and Offshore Operations. And he'll be available for International and ADNOC specific questions. Before getting into our traditional discussion topics, I wanted to first mention that ADIPEC, which is a Global Energy Conference in Abu Dhabi, had over 150,000 attendees, 33 energy ministers, and representatives from over 50 energy companies. I've been impressed with the focus on ESG and especially the discussions of the impacts on energy security globally. Industry leaders shared their focus on sustainability and ESG, and leaders from countries around the globe provided their perspectives on the energy transition and the need for ongoing investments to ensure a smooth transition. Dr. Sultan Al Jaber, the ADNOC Group CEO and UAE Minister of Industry and Advanced Technology gave a compelling speech at the ADIPEC opening ceremony. He reminded us that energy transitions take multiple decades and emphasized that rewiring the energy system is a multi-trillion dollar business opportunity that is beneficial for humanity and good for economic growth. Let us together drive that progress. Our industry must play a pivotal role in the energy transition. We have the knowledge, the skills, and the people to make a difference. Working with our customers to reduce emissions and our collective environmental footprint is a major area of focus for us here at Helmerich & Payne. The strategic alliances we've signed with ADNOC present a great opportunity to deliver rig technology through the sale of eight high-spec Helmerich & Payne FlexRigs, as well as to make a significant $100 million investment in their initial public offering. ADNOC has a 2030 oil production target of 5 million barrels per day and a goal to achieve natural gas independence. We believe Helmerich & Payne can significantly contribute towards helping ADNOC achieve those goals through this new partnership while also providing additional opportunities for us to expand in this pivotal and growing energy region. We're delighted with the reception Helmerich & Payne has received this week, and we want to thank the ADNOC team for their hospitality. Looking at the rest of our international activity, historically, we've experienced a lag compared to the U.S., so we anticipate improvement in these markets in the coming quarters. A recent example is a couple of new agreements with YPF, as we will put four rigs back to work under term contracts in Argentina during fiscal 2022. We continue to pursue other international opportunities and look forward to improving activity. Shifting to North America solutions, it is hard to believe that a year ago Helmerich & Payne had only 80 active rigs. Today, we have 141 active flex rigs. The response from our people and their leadership through the pandemic has been nothing short of amazing. Particularly impressive is their service attitude in responding to customers as rig demand has been recovering. Our folks are resilient and deliver on safety, efficiency, and reliability for our customers every day. We expected that the rig activity increases would be more measured during our fourth fiscal quarter as we realized more rapid rig churn among customers who are sticking to their disciplined spending plans. We were pleased with the 5% incremental rig count increase experienced during the quarter and are more optimistic as we look ahead to the fourth calendar quarter, where we expect to see our rig count increase sequentially and at a higher pace, as E&Ps reset their annual capital budgets. We believe our customers will remain disciplined and similar to 2021; the budgets for 2022 will be adhered to, leading to new budgets being reset at higher levels based on a higher commodity price environment, which will mean more active rigs in 2022. As evidenced by our rig count growth to date, we expect significant increases in the rig count during calendar Q4 of '21 and Q1 of 2022. As mentioned, our U.S. land rig count stands at 141 rigs today, up from 127 at September 30, our fiscal year end, and we expect to add roughly another 10 to 15 rigs by year-end of calendar 2021. To summarize North America solutions, during calendar fourth quarter, we expect to add 25 to 30 rigs, approximately the same number of rigs we added in the preceding nine months. Furthermore, we are addressing several more rigs during the first fiscal quarter, which we expect to commence work in the first half of January. This increase in activity is exciting as our customers are investing in their calendar 2022 budgets; however, it does cause near-term margin compression due to the one-time expenses incurred to reactivation. Mark will discuss the details more in a moment. I add that we are pleased with the future cash generation these rigs will have post-reactivation as we return to greater scale operations, driving pricing higher and leveraging our fixed costs. Given the well-publicized challenges and what we hope is finally a post-pandemic environment, it's not surprising to see rig reactivation and field labor costs increasing. All of the super-spec rigs that are available to work today have been idle for well over a year, leading to higher startup costs. Competition for quality people is also escalating, and we will be increasing field labor wages accordingly, and these cost increases will be passed through to the customer. The tightening supply of readily available rigs, coupled with these cost increases, have already begun to elevate contract pricing in the market. Based on what we are experiencing today, we expect price increases to become even more pronounced in the coming months as rig demand picks up heading into 2022. Mark will talk about our strong balance sheet in his remarks, but I wanted to mention one of our goals is to generate free cash flow, and we are encouraged that we believe that is achievable in the back half of 2022, with the rig count and revenue expectations we have. These market conditions demonstrate further potential for Helmerich & Payne’s new commercial models and digital technology solutions. Our digital technology solutions deliver value through improved efficiencies, reliability, lower cost, and better overall outcomes. Approximately 35% of our FlexRigs are on performance contracts, and several customers are experiencing the powerful synergies a combination of performance contracts and digital technology can deliver. Adoption continues to improve and is driving economic returns higher for our customers and ourselves. In closing, we are encouraged heading into 2022 and fully expect that the demand for Helmerich & Payne's drilling solutions will continue. E&P capital discipline, rising commodity prices, and a collective vision to play our crucial role in a smooth energy transition will strengthen the industry. There are still many challenges, but I'm confident that our people and solutions have the company well-positioned to deliver value for customers and shareholders in this improving environment. Now I'll turn the call over to Mark.

Mark Smith, Senior Vice President and CFO

Thanks, John. Today, I will review our fiscal fourth quarter and full year 2021 operating results, provide guidance for the first quarter and full fiscal year 2022 as appropriate, and comment on our financial position. Let me start with highlights for the recently completed fourth quarter and fiscal year ended September 30, 2021. The company generated quarterly revenues of $344 million versus $332 million in the previous quarter. The increase in revenue corresponds to a modest increase in rig count during the quarter. Correspondingly, total direct operating costs incurred were $269 million for the fourth quarter versus $257 million for the previous quarter. During the fourth quarter, we closed on two transactions with ADNOC drilling; first, H&P sold eight flex rig land rigs including two already in Abu Dhabi and six from the United States for delivery during 2022. Consideration received for this sale was $86.5 million, and any gains above book values together with required investments to prepare and deliver the rigs will be recognized as each rig is delivered. Second, H&P made a $100 million investment in ADNOC drilling in conjunction with its initial public offering in early October. General and administrative expenses totaled $52 million for the fourth quarter, higher than our previous guidance, primarily due to professional services fees associated with the ADNOC transactions and ongoing cost management efforts, as well as increases to the short-term incentive bonus plan accrual to reflect full fiscal year operating results. On September 27, we issued $550 million in unsecured senior note bonds to refinance our $487 million outstanding bonds that were due in May 2025. Our new issuance came at a coupon of 2.9% and a 10-year tenure maturing in September 2031. The additional debt of approximately $63 million funded the Mako provision and accrued interest for the call of the existing bonds as well as associated transaction costs. This made the transaction and subsequent debt extinguishment in October liquidity neutral. Also note that the Mako premium and accrued interest will be recognized in the first fiscal quarter of 2022 concurrently with the October 27 redemption. Our key effective tax rate was approximately 24%, in line with our previous guidance. To summarize the fourth quarter's results, H&P incurred a loss of $0.74 per diluted share, versus a loss of $0.52 in the previous quarter. Earnings per share were negatively impacted by a net $0.12 per share loss of select items, primarily made up of non-cash impairments for fair market value adjustments to equipment that is held for sale, as highlighted in our press release. Absent these select items, the adjusted diluted loss per share was $0.62 in the fourth fiscal quarter compared with an adjusted $0.57 loss during the third fiscal quarter. For fiscal 2021 as a whole, we incurred a loss of $3.04 per diluted share. This was driven largely by the non-cash impairments to fair value for decommissioned rig and equipment, the majority of which were previously impaired and are held for sale. Collectively, these select items constituted a loss of $0.44 per diluted share; absent these items, fiscal 2021 adjusted losses were $2.60 per diluted share. Capital expenditures for fiscal 2021 totaled $82 million, below our previous guidance due to the timing of supply chain spending that crossed into fiscal 2022. Relative to our original guidance range of $85 million to $105 million, the variance was primarily driven by a delay in the start of planned IT infrastructure spending that we have previously discussed. Most of that planned IT spend will now be incurred in fiscal '22. H&P generated $136 million in operating cash flow during fiscal 2021. Considering the pro forma impact of our recent debt refinancing, the collective cash and short-term investments balances decreased minimally by $7 million year-over-year, due in part to working capital improvements achieved during fiscal 2021 as well as asset sales. I will discuss in more detail later in my prepared remarks. Turning to our three segments, beginning with the North America solution segment, we averaged 124 contracted rigs during the fourth quarter, up from an average of 119 rigs in fiscal Q3. We exited the fourth fiscal quarter with 127 contracted rigs. Revenues were sequentially higher by $12 million due to the aforementioned activity increase. North America's solutions operating expenses increased by $18 million sequentially in the fourth quarter, primarily due to the addition of six rigs as well as a higher material and supplies expense. Throughout fiscal 2021, we prudently managed our expenses and inventory levels using previously expensed consumable inventory harvested during the stacking activities in calendar 2020 rather than utilizing fully costed inventory or purchasing new inventory. As rig activity increased, our level of previously expensed inventory, which we referred to internally as 'penny stock,' has been exhausted, resulting in the issuance of a higher cost inventory and the purchasing of additional inventory to replenish stock levels. Replenishments go on the balance sheet. Through fiscal 2021, we did not experience inflation in our costs; however, we are anticipating inflationary pressures moving forward, which I will touch on in a moment. Additionally, as I will expand on later, we put six rigs to work in the first half of October, in the first fiscal quarter of 2022. The one-time reactivation expenses associated with all of those rigs was $6.6 million in fiscal Q4. Now looking ahead to the first quarter of fiscal 2022 for North America solutions. As expected, rig count growth was moderate during the fourth fiscal quarter. Publicly traded customers continue to operate within their calendar year budget plans, which are currently being reset for calendar 2022, in an oil and gas commodity environment that is significantly more robust than this time last year. Accordingly, we expect to see sizable spending increases, especially from our public company customers during the first fiscal quarter of 2022. As of today's call, we have 141 rigs contracted, and we expect to end our first fiscal quarter with between 152 and 157 working rigs, with current line of sight for a few additional rigs coming online in early January. In the North America solutions segment, we expect gross margins to range between $75 million to $85 million, inclusive of the effect of about $15 million in reactivation costs. As I mentioned last quarter, there's a positive correlation between the length of time a rig has been idle and the costs required to reactivate it. Most of the rigs we are reactivating in the first quarter have been idle for over 18 months. Reactivation costs are mostly incurred in the quarter of startups, so the absence of such costs in future quarters will be margin accretive. As John mentioned, we are expecting to achieve higher pricing in light of higher demand and tight ready-to-work super spec supply. I will now pause to comment on inflationary considerations ahead for fiscal 2022. We have seen increases in commodity prices such as steel. Products reflecting upward pricing due to this pressure include capital items such as drill pipe. Note that our upcoming capital expenditure guidance is inclusive of such pricing increases. For margin-related expenditures, I will touch on two items. First, maintenance and supplies pricing is increasing across some categories, such as oil-based products and steel-based products. Second, as John discussed, we are increasing field labor rates to respond to market conditions and assist in talent retention and attraction. Further, our contracts are structured to pass through labor price increases over a 5% threshold. Therefore, significant labor increases are margin-neutral due to contractual protections. Fair margin guidance is inclusive of our expectations for inflation in the first fiscal quarter. As it relates to supply chain access to parts and materials to run our business, we are in constant communication with our suppliers, and they’ve placed advanced orders for certain higher risk categories. Our proactive approach to inventory planning, coupled with our scale and healthy vendor partner relationships, provides reasonable assurance that supply chain issues will not materially impact our business. We will continue to engage our suppliers and partners to stay ready to adjust as developments unfold. Subsequent to September 30, 2021, we sold two peripheral service lines that provided rig move trucking and casing running services to a portion of our North America segment customers. These business lines were largely margin-neutral to Helmerich & Payne, having collective revenues in the fourth quarter and full fiscal year of 2021 of $10 million and $34 million respectively. To conclude my comments on the North America segment, our current revenue backlog from our North America solutions fleet is roughly $430 million. Regarding our international solutions segment, international business activity increased by one rig in Argentina to six active rigs during the fourth fiscal quarter. As we look to the first fiscal quarter of 2022, international activity in Bahrain is holding steady with three rigs working, and we expect to go from three to four rigs working in Argentina, as well as get the contract for a Colombia rig up and running. Note that three of the YPF rigs John mentioned earlier will commence work in subsequent fiscal '22 quarters in Argentina. Turning to our offshore Gulf of Mexico segment, we continue to have four of our seven offshore platform rigs contracted, with offshore generating a gross margin of $8 million during this quarter, which is within our guided range. As we look to the first quarter of fiscal 2022 for offshore, we expect that the segment will generate between $6 million to $8 million of operating gross margin. Now, let me look forward to the first fiscal quarter and full fiscal year 2022 for certain consolidated and corporate items. As we increased our rig count, capital expenditures for the full fiscal 2022 year are expected to range between $250 million to $270 million. This capital outlay is composed of three categories, similar to fiscal 2021. First, maintenance CapEx to support our active rig fleet will be approximately 50% of the total FY '22 CapEx. In fiscal 2019, we had bulk purchases in CapEx to scale up rotating componentry for 200+ working super spec flex rig count. In addition, we harvested components from previously impaired and decommissioned rigs to conserve capital. We were able to utilize resources on hand and preserve capital in 2021, but now we have reached the end of those inventories and need to recommence a regular cadence of component equipment overhauls and drill pipe purchases. This, coupled with the sharp activity increase we are experiencing, is driving our fiscal 2022 maintenance CapEx back into our historical range of between $750,000 to $1 million per active rig per annum in the North America solution segment. Second, skidding-to-walking capability conversions will approximate 35% of the fiscal 2022 CapEx. Although our peers have walking rigs available in the market, select customers prefer certain rig design elements and commit to a conversion. For customers needing walking rigs, we will invest to convert certain rigs from skidding to walking pad capability in exchange for a term contract that will enable the new investment which we currently estimate to be between $6.5 million to $7.5 million per conversion. Third, corporate capital investments will account for about 15% of fiscal 2022 CapEx. Over half of this bucket is comprised of modernization for data center, data analytics platforms, and enterprise IT systems, most of which has moved from fiscal 2021 to fiscal 2022 and will improve our infrastructure and cybersecurity posture. Portions of the balance in this corporate capital investment are for power solutions capital associated with ESG research and development efforts and real estate matters. As part of the ADNOC sale transaction mentioned earlier, we will deliver the eight rigs to ADNOC throughout the year 2022. Sale proceeds of $86.5 million were received in September 2021 and are included in accrued liabilities on our balance sheet. In addition to the capital expenditures described above, we will spend approximately $25 million in cash to prepare and deliver the rigs to ADNOC. When we incur these expenses, they, together with the net book values of the rigs, which among other assets are classified in assets held-for-sale, will collectively represent the accounting basis in the rigs for the purpose of determining gains to be recognized in the upcoming quarters upon each delivery. Depreciation for fiscal 2022 is expected to be approximately $405 million. Our general and administrative expenses for the full 2022 year are expected to be approximately $170 million, which is roughly consistent with the year just completed. Fiscal 2022 SG&A will be partly front-loaded in the first fiscal quarter due to short-term incentive compensation payments for fiscal year 2021 results and the timing of certain professional services fees. Specifically, we expect $45 million to $85 million in Q1, with the remainder spread proportionately over the final three quarters. Our investment in research and development is largely focused on autonomous drilling, wellbore quality, and ESG initiatives, and we anticipate these innovation efforts to yield further enhancements and solutions offerings on our technology roadmap. We anticipate R&D expenditures to be approximately $25 million in fiscal '22. We expect an effective income tax rate range of 18% to 24% for fiscal 2022. In addition to the U.S. statutory rate of 21%, incremental state and foreign income taxes also impact our provision. Based upon estimated fiscal 2022 operating results and CapEx, we are forecasting another decrease in deferred tax liability. Additionally, we are expecting cash tax in the range of $5 million to $20 million. Now looking at our financial position, Helmerich & Payne had cash and short-term investments of approximately $1.1 billion on September 30, 2021. When considering the aforementioned 2025 bond repayment and Mako premium that occurred in October, the pro forma cash and short-term equivalents of September 30, 2021 were $570 million, reflecting a sequential increase from $558 million at June 30, 2021, including availability under our revolving credit facility but excluding the $546 million 2025 bond extinguishment amount. Our liquidity was approximately $1.3 billion, consistent with the prior quarter. Our debt to capital at quarter end was temporarily at 26% given the debt overlap at the September 30 balance sheet date, accounting for the repayment of the 2025 bonds; however, pro forma debt to capital is just down to 16%. Our working capital stewardship since the March 2020 downturn resulted in cash accretion. As we look towards the end of fiscal '22, we do expect to consume a modest amount of cash given the one-time recommissioning expenses and net working capital increase as our rig activity climbs. Fiscal Q1 will experience lower cash flow from operations compared to the following quarters due to the rig ramp-up and seasonal cash expenditures for incentive compensation, property taxes, etc. We do expect to end the fiscal year with between $475 million to $525 million of cash on hand, and $25 million to $75 million of net debt. In summary, we expect to generate free cash flow that when combined with a modest use of cash on hand early in the fiscal year will cover our capital expenditure plan, debt service costs, and dividends in fiscal '22. The growth in rig count early in the fiscal year provides a platform for cash generation in the second half of the year that, combined with our cash uses including a dividend, sets the stage for further cash accretion. Our balance sheet strength, liquidity level, and term contract backlog provide Helmerich & Payne the flexibility to adapt to market conditions, take advantage of attractive opportunities, and maintain our long practice of returning capital to shareholders. That concludes our prepared comments for the fourth fiscal quarter. Let me now turn the call back over to Brittany for questions.

Operator, Operator

And we will take our first question from Arun Jayaram with JPMorgan Chase.

Arun Jayaram, Analyst

Yes, good morning. I wanted to get a little bit more color around the fiscal year '22 CapEx program. It looks like you're spending around $90 million or so on the walking system upgrades. Can you give us a sense, firstly, of the 95 idle rigs at Helmerich & Payne, how many of those have walking systems on them? And for the next batch of reactivations that you expect to do, how many more upgrades do you anticipate? And secondly, can you comment on the amount of reimbursements of and above your day-work margin? What kind of reimbursement are you getting for those investments in the walking systems?

John Lindsay, President and CEO

Arun, on the investments, I think we've got one a month. Is that right, Dave?

Dave Wilson, Vice President of Investor Relations

That's correct.

Mark Smith, Senior Vice President and CFO

Yes, that is right. We're planning about one a month currently based on line of sight with customers. And that will adjust up or down based on customer demand. To get back to the pricing and term we're getting, I just let John maybe start us off with a little bit of commentary on why customers are asking us to convert.

John Lindsay, President and CEO

Yes, I mean, it's interesting Arun because there are about 214 idle super spec rigs in the U.S., and 124 of those are walking rigs. And so, we've got significant demand, and all of our walking rigs are active. It’s clear there's more demand than just for walking. There's demand for what Helmerich & Payne provides in terms of overall performance. So that’s a key element. We are getting, I think the last contract, we probably had an 18-month term contract.

Mark Smith, Senior Vice President and CFO

Specifically to your point Arun, we're getting term contracts. We're shooting for two. The typical payback on these is three years and we are commanding a premium price for doing so.

Arun Jayaram, Analyst

Great.

Mark Smith, Senior Vice President and CFO

I wanted to clarify something though Arun. I thought I heard you, and maybe I misheard, you said $190 million on the walking rig upgrades.

Arun Jayaram, Analyst

No, I said $90 million.

Mark Smith, Senior Vice President and CFO

I thought it was $84 million to $90 million, but I thought you said $190. I misheard.

Arun Jayaram, Analyst

Okay, yes, it was $90 million. And just my follow-up would be on the ADNOC rig, Mark. $86.5 million of proceeds from that. Obviously, you also get the $100 million investment. But can you comment on the CapEx required in fiscal year '22, to get those rigs in a condition to be sold?

Mark Smith, Senior Vice President and CFO

Well, as I mentioned, it's about $24 million to $25 million, I think, in the prepared remarks. It covers some specific technical components that our partner wanted, and we will be recertifying everything so that, for example, the BOP leaves with a five-year certification and the top drive leaves with seven years, etc. Also, the transit costs, including the shipping or mobilization cost to get those rigs across the water.

Operator, Operator

And we will take our next question from Derek Podhaizer with Barclays. Your line is now open.

Derek Podhaizer, Analyst

Good morning, guys. Wanted to talk more about the ADNOC deal. The news just came out. They announced a significant tender to support the growth of 5 million barrels per day. You talked about expanding into the region. Can you just maybe expand on how you see yourself growing with ADNOC in this new partnership?

John Lindsay, President and CEO

Yes, Derek. This is John. I'll start and then hand it over to John Bell to give additional color. The strategic partnership with ADNOC is important for us. We hope we can continue to expand internationally with ADNOC drilling. There are areas that make sense for Helmerich & Payne to operate in. But go ahead, John.

John Bell, Senior Vice President International and Offshore Operations

Yes, John, as you said, we are focused on getting the rigs ready and getting people on board to start them up, but also supporting that we’re fine-tuning a framework agreement to provide support in areas like maintenance, supply chain, operational efficiencies, and so forth. That’s really what we're focused on. We've had discussions with them about different ways we might approach certain countries and customers in the region, and we're open to looking at that, but there's nothing firmed up at this point.

John Lindsay, President and CEO

There's a real opportunity on this partnership. This week has been a great example; we’ve had excellent meetings with ADNOC Drilling, and they’re excited about the future. There are some service contracts and technology opportunities we have to explore. The announcement of 5 million barrels and the goal of natural gas independence involves unconventional work, which is a sweet spot for Helmerich & Payne. Our hope is to work closely with ADNOC to help them achieve these goals. It’s an exciting opportunity.

Derek Podhaizer, Analyst

That’s great. Switching over to North America, the contract coverage has stepped up significantly quarter-over-quarter. Can you talk about your confidence from your side and your customers' willingness to begin locking in pricing and term instead of keeping contracts on short term?

John Lindsay, President and CEO

Several factors play into this. With reactivation, we want to ensure that when we reactivate a rig, which can cost between $300,000 to $500,000, we get some lump sum or term coverage to cover those costs. Customers are willing to lock in primarily because of the efficiencies and startups that our teams provide; they’re able to start quickly, often achieving record wells right out of the gate. Customers see the value in this, leading to term contracts.

Operator, Operator

And we will take our next question from Ian Macpherson with Piper Sandler. Your line is now open.

Ian Macpherson, Analyst

I wanted to ask if we could look a little bit past fiscal Q1 toward your margins in the U.S. It appears that the more expensive reactivations could lead to higher average reactivation costs having a more pronounced impact, but that should improve with time with better absorption and a deceleration of those costs. So I’d like to know if you see that happening in fiscal Q2 or if you anticipate cost pressures pushing that out to a later point in the year.

John Lindsay, President and CEO

Ian, I appreciate the question. I believe consensus estimates had us adding 10 rigs in this quarter, but we are projected to add three times that. There’s a directional factor with the sheer volume of reactivation expenses and the increase in activity. Coupled with this, we’re getting several rigs ready this quarter to start work right after the turn of the calendar year. Our expectation is that on a per rig basis, we will see consistency in performance. Looking ahead, I do expect the absence of the necessary creative adjustments; however, it just depends on the figures but you could see anywhere from $500 to $1,000 per day increase in cash flows. We expect that our customers, particularly public ones, will maintain their new budgets from April through September of next year.

Operator, Operator

And we will take our next question from Neil Mehta with Goldman Sachs. Your line is now open.

Neil Mehta, Analyst

I appreciate the visibility on the 22 capital spending. I know 2023 is a while away, but how should we think about the CapEx budget, which is slightly higher than consensus? How much of that is one-time-ish in nature? Moving ahead to '23, would you expect to be on more of a maintenance program?

Mark Smith, Senior Vice President and CFO

There are several factors to consider. I hope we might return to a historical range, around $750,000 to a million per active rig in the future. We are experiencing some inflation, primarily in steel costs included in our guidance. We also had to get back into the business of recertifying machineries that had been idle last year, and this might normalize over time. The big question mark remains how our customers will react toward walking rigs. We’re seeing good demand for them.

Neil Mehta, Analyst

That’s good clarity on the CapEx side. On the positive side, regarding market share, I believe it’s up to 26% now, which is above historical levels. Can you share your perspective on your ability to continue maintaining that market share and any competitive threats?

John Lindsay, President and CEO

We’ve had a good track record during downturns, capturing market share, and we fully expect to do that again. Over the last year, there were 235 net adds to the market, with a majority coming from private companies. We hold the largest market share in that segment. We anticipate that moving forward, approximately 60% of our commitments will be from public companies and we expect to continue gaining market share. The opportunity lies in our ability to start up efficiently, safely, and the customers' interest in our performance contracts.

Scott Gruber, Analyst

Good morning. Quick follow-up on ADNOC—really doing well. On the vintage of the rigs sold and recertification costs, can you elaborate on your plans to sell more rigs in the future?

Mark Smith, Senior Vice President and CFO

The vintage varies across the eight rigs. The most significant expenses involve getting them ready for international transport, shipping, and recertification. I’ll mention that we do not have current plans to sell more rigs, as we want to put them to work in various ways.

John Lindsay, President and CEO

Yes, two of the eight rigs are super specs, while others are not. We’ll be ensuring they receive necessary maintenance.

Scott Gruber, Analyst

Understood. Can you comment on potential incremental demand in Argentina and Colombia beyond what's contracted. Do you foresee any additional rig adds?

Mark Smith, Senior Vice President and CFO

John can provide more details on our customer discussions. But we’re actively participating in bidding activity in both Colombia and Argentina, with potential for further work there.

John Lindsay, President and CEO

Yes, we’re seeing interest picking up. The additional rigs in our Argentina operations, particularly with the recent gas plant installation, suggest more rigs are needed.

Operator, Operator

And we will take our next question from Taylor Zurcher with Tudor Pickering. Your line is open.

Taylor Zurcher, Analyst

Hi, John and Mark, thanks for taking my questions. I wanted to ask about costs in the Lower 48. There is some element of cost increases that are transitory with reactivation costs, but some will stick due to inflation. What would be normalized costs per rig in the back half of the year?

Mark Smith, Senior Vice President and CFO

There are many factors to consider. Besides reactivation costs, labor cost increases have been factored in, which typically remain margin-neutral due to our customer protection clauses in contracts. Anticipating maintenance costs to go up a little, but labor remains the largest component of OpEx. I would estimate normalized costs could be closer to $14,000 per rig per day after accounting for all moving parts.

Taylor Zurcher, Analyst

Thanks for that. A quick follow-up on the smaller divestments you made in the U.S., including the partnership with Parker around TRS. Can you talk about the benefits of exiting those businesses?

Mark Smith, Senior Vice President and CFO

As we looked at these, we had proceeds of approximately $6 million to $7 million, and potential for revenue sharing over time. Both were margin-neutral to Helmerich & Payne, contributing little to our margins, and they are capital-intensive businesses. Focusing on our capital spend through time was a consideration, along with simplifying our operations.

John Lindsay, President and CEO

Yes, we've had those services for a long time. However, scaling them to a significant level proved challenging in a complex, competitive landscape. While they were best-in-class, they complicated operations and didn't fit our streamlined model as effectively.

Operator, Operator

And we will take our next question from Waqar Syed with ATB Capital Markets. Your line is open.

Waqar Syed, Analyst

Thank you for taking my question. In terms of the contracted day rates comparing this quarter Q3 calendar to Q2, have the contracted day rates gone up as you've added new rig contracts? How do they stack against the spot day rate right now?

John Lindsay, President and CEO

We’re working to move away from a day rate model. Looking at contracts rolled over from higher previous rates, yes, quarter-over-quarter, the day rate is increasing, but we see variability. For some regions, day rates don't present a significant gap between spot and term, but elsewhere, like in the West, we estimate a couple of thousand per day disparity.

Waqar Syed, Analyst

Just one last question, if I may, on the market sharing levels, it seems to be up to 26%. What are your thoughts on sustaining market share and competitive threats?

John Lindsay, President and CEO

We are confident in maintaining market share. Our track record from previous downturns shows we typically capture market share. Addressing threats, while there are many talented competitors, our focus on performance and our contracts with clients speak to our commitment to excellence and efficiency. We believe this will enhance our competitive position.

Operator, Operator

That was our last question for today. I will turn the program back over to John Lindsay for any additional or closing remarks.

John Lindsay, President and CEO

Thank you, Brittany. I appreciate everyone joining us today. We're optimistic about the future, with our H&P FlexRigs, digital solutions, and our best-in-class people. We look forward to the future and our next quarterly call. Thank you.

Operator, Operator

This concludes today's program. Thank you for your participation. You may disconnect at any time and have a great day.