Oil and gas drilling services contractor Helmerich & Payne Inc. (HP -2.74%) was crushed after oil prices tumbled in mid-2014. And for good reason, with its active U.S. land rig count falling a massive 70% in just six quarters. However, after hitting a bottom, things have started to turn around. Better yet, there appears to be another upgrade cycle taking shape that Helmerich & Payne is set to take advantage of, and that could make this drilling services company a buy -- but don't expect huge price gains from here.

Pain at the pump

Helmerich & Payne's stock price fell more than 60% following the top in oil prices. That makes sense, as oil companies pulled back hard on drilling in the U.S. land segment of the market as prices tumbled. Roughly 90% of the company's nearly 400 rigs operate in the U.S. onshore market.   

Two men standing in front of an oil well

Image source: Getty Images.

At the worst, Helmerich had only 86 U.S. rigs working. Today, however, that number is over 200 -- which helps explain the stock price recovery. Although still down around 40% from its mid-2014 peak, the stock price is up around 40% from its recent lows. Despite all that volatility, Helmerich remains a well-financed company with debt making up just 10% of its capital structure (among the lowest figures in the industry) with industry-leading market share. In fact, it has gained roughly five percentage points of market share since oil peaked.   

Leading the way

There are a couple of reasons to be excited about Helmerich's future. For starters, large oil companies like ExxonMobil Corporation have made material commitments to U.S. onshore drilling. So, there's likely to be plenty of demand for the onshore oil drilling services that Helmerich provides.   

A bar chart showing that Helmerich & Payne is the leading provider on U.S. onshore drilling rigs

Helmerich is the biggest player in the U.S. onshore market. Image source: Helmerich & Payne Inc.

However, there's also a subtle change taking place. In recent years, the big shift involved oil companies looking to move from mechanical rigs to alternating current (AC) rigs. That upgrade cycle was a huge boon to Helmerich because it had been focusing on building AC rigs, which are more flexible and efficient than older rigs. AC rigs commanded higher rates from customers. That change has largely played out.   

Now, the company is upgrading its rig fleet to even higher standards. So-called "super spec" rigs are gaining material market share as relatively low oil prices are forcing oil companies to increase efficiency even more than they already have. Helmerich has roughly half its U.S. rigs upgraded, and believes it can bring that number up to at least 80%. In fact, it recently upped its capital spending plans by roughly 25% so it can move more quickly here. 

A line chart showing the increasing market share of "super spec" rigs

Super-spec rigs are in high demand, creating another upgrade cycle opportunity for Helmerich. Image source: Helmerich & Payne Inc.

That bodes well for the company's top and bottom lines, even though the extra spending means higher costs and reduced free cash flow over the short term, since super-spec rigs command higher day rates. The overall improvement in the company's business is notable, with revenue from the U.S. onshore segment increasing 75% year over year in the most recent quarter. However, after a notable stock price advance, investors seeking big stock price gains should probably look elsewhere. That said, income investors attracted by Helmerich & Payne's hefty 3.8% yield should take comfort in the oil services provider's prospects, since it means the dividend is likely to hold. 

It depends on your goal

Looking at the big picture, Helmerich & Payne has had a nice stock run, and while its prospects look strong, the big price recovery suggests that stock gains will be more modest from here. The company's price to book value and price to tangible book value both currently sits above their trailing 3-, 5-, and 7-year averages.  However, the improving business landscape should interest income investors who are attracted to the company's hefty dividend yield. While there were concerns about its ability to pay at one point, the industry upturn, improving performance, a new upgrade cycle, and Helmerich's strong industry position and balance sheet all suggest that the dividend is safe. If you are a dividend investor, Helmerich & Payne looks like it's worth a deep dive.