Investors looking at Helmerich & Payne, Inc. (HP 0.41%) have to understand that the oil and gas drilling services industry is deeply cyclical. But once you get past that fact, a little analysis will show that this drilling company happens to be one of the least risky around. That doesn't mean it's a low-risk investment, but its performance through this downturn shows why, on a relative basis, it's easily a top pick in its industry.

A photo of a Helmerich and Payne employee.

A Helmerich & Payne employee.  Image source: Helmerich & Payne    

Painfully cyclical

The oil and gas industry is subject to often extreme and violent price swings. Look no further than the oil price plunge that began in mid-2014 if you want to see how bad it can get. That price decline led to bankruptcies and even pushed the bottom line of industry giants such as Chevron (CVX -0.87%) deep into the red.

This global energy giant posted red ink for three consecutive quarters at one point during the downturn. Although it's gotten back into the black, there are still questions about the sustainability of its dividend which was only raised a token penny a share in the fourth quarter after 10 quarters stuck at $1.07.  

And that's a widely diversified industry giant. Helmerich & Payne is focused on providing drilling services. When oil and gas prices fall, drilling stops. When drilling stops, generally speaking, Helmerich & Payne and its peers don't get paid. Chevron's capital and exploration budget fell by roughly a third through the first nine months of 2016, other companies were cutting budgets, too. The tap on effect for Helmerich & Payne is that at the end fiscal 2016 75% of its drilling rigs were idle.  

A graph showing a significant decline in the U.S. oil and gas active rig count.

The rig count has been painfully bad in oil and gas.  Image source: Helmerich & Payne, Inc.   

An industry standout

With that backdrop, it's easy to see why Helmerich & Payne has been posting losses lately. But if you dig a little further, you'll see that the company stands out as one of the best positioned names in the industry. Here are some key factors to consider.

Helmerich & Payne's balance sheet is in better shape than its peers. Its long-term debt stands at about 10% of its capital structure. Its next closest peer is Patterson-UTI Energy, Inc. (PTEN 0.90%), with leverage at more than twice that level. Debt makes up around 50% of the capital structure at Precision Drilling Corp. (PDS -1.38%) and Nabors Industries Ltd. (NBR 0.69%). Low debt levels are a key distinction of Helmerich & Payne's comparatively low-risk business model.

Then there's the company's dividend, which has been increased for 44 consecutive years. None of its major peers can even hint at shareholder commitment like that. That said, like Chevron, Helmerich & Payne hit the pause button, halting dividend increases for eight quarters starting in late 2014. But because it tends to increase dividends in the middle of the calendar year, its annual streak remains intact after a token increase in August last year. It managed to protect the dividend because during the downturn it focused on cash flow, the lifeblood of every company.  

And then there's the drill portfolio. One of Helmerich & Payne's priorities is to build industry leading rigs. Today it has more AC rigs than any of its competitors. These rigs are prized for their speed and efficiency and should be among the first to get back to work when drilling picks up again. In other words, Helmerich & Payne is better positioned for the next upturn than its peers.

A bar chart showing Helmerich and Payne's material lead in the AC rig category.

Helmerich & Payne leads the industry when it comes to the most desirable rigs.

Lower risk in a risky industry

There's no way to get around the deep troughs that drilling companies like Helmerich & Payne are subject to. The fact that just 25% of its drill fleet was working at the end of fiscal 2016 is clear evidence. But when you compare Helmerich to its peers, it stands out for its conservative balance sheet, commitment to shareholders, and the strength of its drill rig portfolio. If you are considering a driller, Helmerich & Payne should be on your list.