As great as 2017 has been for the shale oil sector, with growing production that put rigs and other drilling equipment back online, and crews back to work, that hasn't necessarily translated to profit growth for equipment and service providers like Helmerich & Payne (NYSE:HP). In its fiscal third quarter, which ended June 30, the company brought in higher revenues from putting more rigs in the field, but those newly operating rigs weren't enough to generate a positive result on the earnings line of the income statement.

Here's a look at the good and bad points from the company's most recent earnings report, and what investors can expect from here. 

Drilling rig at sunset

Image source: Getty Images.

By the numbers

Metric Q3 2017 Q2 2017 Q3 2016
Revenue $498.5 million $405.3 million $366.5 million
Operating income ($28.0 million) ($65.7 million) ($13.2 million)
EPS ($0.21) ($0.45) ($0.20)
Free cash flow ($35.3 million) ($8.1 million) $84.5 million

Source: Helmerich & Payne earnings releases.

As was the case for its prior quarter, Helmerich & Payne's Q3 report offers both bulls and bears something to talk about. On the bullish side of things, revenue continues to grow from its U.S. land operations, and the company is taking market share from its competitors. At the end of Q3, it had 20% of the overall land rig market and 30% of the AC drive land rig market. As more and more producers shift to higher-specification rigs, Helmerich is a clear winner. The company put a total of 22 rigs back to work in the quarter and has put a total of 95 rigs into the field over the past 12 months.

On the bear side, it's pretty clear that demand for rigs in the U.S. is starting to slow down. Despite all the rigs Helmerich & Payne has put to work, its fleet utilization rate in the U.S. is only 52%. That means there is still a lot of spare equipment out there, which keeps rig contract rates low and margins even lower. The average rig margin stands at a tepid $7,700 per day. The hope was that as rig deployments slowed down, operational costs would decline and margins would expand. That has yet to happen, which is discouraging for investors who have long waited for a turnaround in the company's results. 

To add insult to injury, Helmerich & Payne's offshore and international operations are still on the decline, and there are few signs that things will get better on that front in the near future.

Regardless of what side of the argument you may fall on, one thing is clear: Helmerich & Payne is the technology leader in the onshore rig market. It cemented that reputation even further by buying MOTIVE Drilling Technologies for $75 million -- with an additional $25 million is performance earnout payments. MOTIVE has a computing product that can further enhance the directional drilling process. For Helmerich & Payne, that means it can offer its potential customers shorter drill times, which saves producers on a per well basis, but should help boost its per day margins.

What management had to say

CEO John Lindsay commented on some of the things he is seeing in the oil patch, and discussed what Helmerich & Payne can deliver to that market. 

Additional demand for super-spec FlexRigs remains in the market even in a mid-$40's oil price environment and we are responding with upgrades to our existing AC fleet.  H&P is perhaps the only contractor with the right AC rig fleet capacity to grow substantially in a manner that avoids the large investment in new rigs.  Despite the oil price uncertainty and the choppiness that it tends to create in the market, H&P is successfully growing market share and continuing to build its brand...

We believe H&P is well positioned to successfully manage the ongoing U.S. land market and any short term volatility that may exist. We have successfully maintained an industry leading cadence for upgrades which has allowed us to increase our active fleet by 98 rigs during this fiscal year, 86 of which were super-spec upgrades. The efforts undertaken over the past couple of years to enhance organizational effectiveness are paying significant dividends. We have demonstrated the ability to achieve operational scalability, maintain a strong balance sheet, and enhance a healthy team environment throughout the organization.  This is particularly apparent in our ability to respond to demand and add value to the customer. We remain confident about the future for H&P as our competitive advantages remain in our people, performance, technology, reliability and uniform FlexRig fleet.

What a Fool believes

Quarters like this are the ones that test investors' patience. There are enough signals in the oil and gas drilling market to suggest that Helmerich & Payne should be doing better than it is. Its fleet is running at a much higher rate than a year ago, and shale drilling is still going strong. However, there remains a sizable oversupply of capable rigs, which has put pressure on rig margins and prevented Helmreich & Payne from charging the premium prices it has in the past.

Oil prices will largely dictate the amount of activity in the field, and it's impossible to say where they will go from here. There's a chance they could  slip. But that's less likely than a price increase, since there is still a sizable investment shortage in new supplies overseas. If Helmerich & Payne can maintain its current modest rate of fleet growth, then rig supplies should get tighter, and the company should get back to profitability. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.