Feel the Payne

So far this reporting season we've heard from deepwater denizen Noble (NYSE: NE) and shallow water whiz Hercules Offshore (Nasdaq: HERO), but nothing out of the land drilling camp. Well, Helmerich & Payne (NYSE: HP) just threw down the gauntlet, and I don't expect any competitors to pick it up.

I've written about the Helmerich maneuver, in which the company delivers superior value through its high-quality rigs, and captures premium pricing power in the process. Back at $34, I called the company "perplexingly cheap." As investors see results like those of the past quarter, they may finally be recognizing H&P's prowess.

At H&P's core U.S. land operations, rig utilization held tenaciously to last quarter's 95% figure. Dayrates lifted, and per-rig daily expenses dropped as the fleet continued to grow, as evidenced by a higher number of "revenue days." Cash margins clocked in higher, at 52%. These combined factors led to a 16% sequential increase in operating income within the segment, and the year-over-year improvement was even better.

The recent fleet expansion was no fluke. H&P announced even more orders for its fabulous FlexRig, some of which will help Quicksilver Resources (NYSE: KWK) and Carrizo Oil & Gas (Nasdaq: CRZO) continue their Barnett Shale conquest. More interesting, perhaps, is that an even greater amount of newbuilds are headed to Latin America. It's extremely encouraging to see that foreign operators are embracing the FlexRig's technological edge, rather than looking at mere horsepower.

Based on what I know about the international drilling market, that marks a significant change in mind-set. It also marks a potential step change for H&P's international segment, which has a bit of a gap to close in terms of drilling margins.