Good day, everyone, and welcome to today's Helmerich & Payne's fiscal Q1 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. You may register to ask a question at any time by pressing the star and one on your touchtone phone. Please note this call may be recorded. It is now my pleasure to turn today's program over to Dave Wilson, Vice President of Investor Relations. Please go ahead.
Thank you, Gretchen, and welcome everyone to Helmerich & Payne's conference call and webcast for the Q1 of fiscal year 2022. With us today are John Lindsay, President and CEO, Mark Smith, Senior Vice President and CFO. Both John 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 upon current information and management 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 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 and comments in calculations in yesterday's press release. With that said, I'll turn the call over to John Lindsay.
Thank you, Dave. Good morning, everyone. We appreciate you joining us today for our first fiscal quarter earnings call. 2022 is off to a strong start. I continue to be encouraged by the progress the industry has made on its path to recovery from the pandemic-induced market collapse in 2020. Rig activity continues to increase with much stronger oil and gas prices resulting in our customers' 2022 budgets being reset at higher levels than last year. We believe customers will maintain capital discipline with their budgets as they did in 2021. The primary theme for my remarks today will be rig pricing in the U.S. Over the past seven years, the oil and gas industry has experienced two of the worst downturns in history, and like all downturns, rig rates plunged overnight to very low levels in concert with commodity prices and customer budgets.
Fortunately, we've seen oil and gas prices make a rapid comeback since going negative. Conversely, pricing in the oilfield services space has improved only marginally. As we sit here today, with commodity pricing hovering near eight-year highs, we're seeing an improving and tightening rig market. We're also delivering record drilling performance and have responded with substantial investments, over $60 million in OpEx alone, that were required to recommission over 110 rigs since our rig count bottomed in August of 2020. Against this background, average rig pricing has improved only nominally up to this point. Our customers have benefited from higher commodity prices, but from an oilfield service provider perspective, and particularly as a driller, we need substantially higher pricing in order to generate the returns required to attract and retain investors.
Oilfield services revenues must increase substantially if the upstream oil and gas industry is to remain vibrant, technology-driven, and sustainable in the future. During the Q1 , demand for super-spec rigs in our North America Solutions segment continued to grow by 27 recommissioned Flex Rigs. We're currently experiencing a very tight market, especially for rigs that were active just prior to the pandemic hitting, the U.S. in March of 2020. While the second fiscal quarter is expected to be more moderate in terms of rig adds, we expect to add a total of 11-21 Flex Rigs during the quarter, which is still a healthy increase. The company is well-positioned for this opportunity, given our ability to provide superior rigs, people, and technologies that culminate in a compelling value proposition for our customer, particularly in this improved commodity price environment.
Our market share has recovered from below 20% at the height of the pandemic to the highest levels we've ever achieved in the horizontal market, and our teams have worked hard to position us as the leading drilling solutions provider. Leading-edge pricing and margins are growing as a result of super-spec rig demand and the need to offset the operating costs associated with reactivating idle rigs as well as other general operating cost inflation. Assuming oil prices remain strong, we plan to continue to push pricing in the coming quarters as the scarcity of readily available super-spec rigs becomes more prevalent. We believe this upward rig pricing momentum should be commensurate with the value H&P delivers to the customer. Achieving a fair return on investment is essential to sustaining capacity and innovation in any business.
However, at present, we see current pricing environment as an impediment to the capital investment required to relieve the tight supply of capable rigs. H&P remains the market leader within the industry, with the largest fleet of active rigs as well as the most super-spec rigs available to be deployed to satisfy future demand. Our strategy for new capital investment going forward will be tightly aligned with that of our customers and will continue to be disciplined and return focused. As we've discussed on previous calls, the industry pricing model needs to evolve from a pure day rate to a commercial model that rewards performance, well bore quality, and value creation for the customer. We've grown our performance-based contract model to approximately 40% of our active fleet, and our teams continue to partner with our customers to drive better outcomes.
We've taken a portfolio approach using different iterations of performance contracts to determine which types make sense for us and the customer under a variety of scenarios. Our rig pricing strategy is also dynamic, encompassing inputs derived from customer demand, pricing algorithms, reinvestment metrics, and industry sentiment. As we look ahead to pricing in this strengthening and tight rig market, we see revenue per day needing to approach $30,000 for H&P to start generating margins that support cost of capital returns. Fortunately, several of our leading-edge rigs are beginning to approach this level of revenue today. Our new commercial models are specially designed to include our automated software solutions that enable value creation through speed of execution and drilling times, and even more importantly, by enhancing overall well bore quality.
The uptake by customers of our digital solution offerings is increasing, and with more rigs working, there are a growing number of new customers who have yet to be introduced to these technologies. We are encouraged by our progress, but we also know from past experience that introducing innovation in our industry requires patience, and that adoption will not happen in a linear fashion. This is particularly relevant when a portion of the benefits from well bore quality accrues over time and will manifest value after a well has been drilled. Now shifting to our International segment, we're excited about our strategic alliance with ADNOC Drilling and the investment we made, and we look forward to further expanding that relationship as well as developing additional opportunities in the Middle East region.
Our activity in South America is improving slowly, and we remain encouraged by the prospects for additional growth in the coming quarters and beyond. While our long-term outlook is positive for both the Middle East and South America, in the near term, our rig count in the Middle East is expected to decline due to two unexpected rig releases in Bahrain. We published our inaugural sustainability report in December, and hopefully many of you have had the opportunity to read it and appreciate the additional transparency into how we operate as a company. The report highlights how our improving drilling efficiency not only provides economic benefits to our customers, but also the improvement in the collective environmental emissions profile of H&P and our customers.
As an industry, we continue to lower environmental impacts by creating new solutions to reduce those impacts, as well as developing pathways to a smooth energy transition. In this challenging transition period, we're actively working with our customers to provide synergistic solutions that can achieve both their economic and environmental objectives. Despite the industry challenges faced during the past couple of years, we remain focused on long-term opportunities and a strong, disciplined approach to capital allocation. In this way, we will continue to strengthen the company to build a return profile for the long-term benefit of our shareholders. We've maintained a very strong balance sheet, and Mark will go into more detail regarding our capital allocation strategy and our ability to generate free cash flow in the second half of fiscal 2022.
This would not be possible without the hard work and dedication of H&P employees, both past and present, who continually set the standard in the industry. Over 100 years of drilling experience combined with our uniform FlexRig fleet and industry-leading automation solutions places us in a great position as we move forward. Our rigs, automation solutions, and our digital portfolio provide compelling value propositions for both North America and international markets. The momentum we built during fiscal 2021 carries into fiscal 2022 with a fresh sense of optimism. We look forward to strengthening our partnerships with new and existing customers and developing drilling solutions that contribute to our mutual long-term successes. Now I'll turn the call over to Mark.
Thanks, John. Today, I will review our fiscal Q1 2022 operating results, provide guidance for the Q2 , update full fiscal year 2022 guidance as appropriate, and comment on our financial position. Let me start with highlights for the recently completed Q1 ended December 31, 2021. The company generated quarterly revenues of $410 million versus $344 million in the previous quarter. As expected, the quarterly increase in revenue was due to higher rig count activity in North America Solutions as operators committed to calendar 2022 drilling activity. Total direct operating costs incurred were $301 million for the Q1 versus $269 million for the previous quarter. The sequential increase is attributable to the aforementioned additional rig count and the related recommissioning expenses in the North America Solutions segment.
General and administrative expenses totaled approximately $44 million for the Q1 , lower than our previous quarter and slightly lower than our previous Q1 guidance. I will comment on SG&A guidance later in these remarks. During the Q1 , we realized a gain of approximately $48 million related to the fair market value of our ADNOC Drilling investment, which is reported as a part of gain on investment securities in our consolidated statement of operations. As discussed on last quarter's call, we called our legacy 2025 maturity bonds using the proceeds from our September refinancing and recognized the make-whole premium together with the unamortized discount and debt issued costs of approximately $60 million during the Q1 .
Our effective Q1 tax rate was approximately 13%, which is outside of our previously guided range as we recorded discrete tax expense and are projecting additional foreign tax for fiscal year 2022. To summarize this quarter's results, H&P incurred a loss of $0.48 per diluted share versus a loss of $0.74 in the previous quarter. Q1 earnings per share were negatively impacted by a net $0.03 loss per share of select items as highlighted in our press release, including the aforementioned gain on investment securities and debt extinguishment costs. Absent these select items, adjusted diluted loss per share was $0.45 in the first fiscal quarter versus an adjusted $0.62 loss during the fourth fiscal quarter. Capital expenditures for the Q1 of fiscal 2022 were $44 million below our previous implied guidance.
This is primarily due to the timing of spending, which has shifted to the remaining quarters. H&P consumed approximately $4 million in operating cash flow during the Q1 of 2022, generally in line with our expectations. I will have additional comments about our cash and working capital later in these prepared remarks. Turning to our three segments, beginning with the North America Solutions segment. We averaged 141 contracted rigs during the Q1 , up from an average of 124 rigs in fiscal Q4. We exited the first fiscal quarter with 154 contracted rigs, which was in line with our guidance expectations. As John touched on earlier, demand for rigs continued to expand heading into calendar 2022 producer budgets.
From October 1 through December 31, we added 27 rigs to our active rig count, including two walking FlexRig drilling rig conversions that were completed in fiscal Q1 and over 20 skidding rigs. Of note, for rigs added in the U.S. market in calendar Q4 across the industry, H&P skidding super-spec rigs made up roughly 30% of all industry rig count additions, according to the Enverus rig count. Our U.S. onshore market share increased in the Q1 and was approximately 26% at calendar year-end 2021 for total horizontal active rig count and 35% for super-spec active rigs. As I will discuss in the capital expenditures remarks later, we will focus on putting our idle capacity to work for margin-accretive returns, notwithstanding any market share dynamics. Revenues were sequentially higher by $48 million due to the previously mentioned activity increase.
Segment gross margin was $84 million at the top end of our November guidance and sequentially higher than Q4 fiscal 2021's $69 million. Overall, OpEx for the North America Solutions segment increased on a sequential basis due to the aforementioned 21% increase in our rig count quarter-over-quarter and the associated reactivation costs. The reactivation costs were $20.5 million during the quarter compared to $6.6 million in the prior quarter.
Excluding the impacts of reactivation cost in the quarter, per-day expenses fell by more than $1,000 per day to just below $15,000 a day as we began to benefit from increased scale coupled with cost management efforts undertaken since the pandemic, including the Q1 sale of two margin neutral service lines, rig move trucking, and casing running tool services. A couple of comments are in order regarding reactivation costs. As we have seen in previous cycles and have stated on recent calls, there is a positive correlation between reactivation cost per rig and the length of time the rig has been idle. This factor, combined with inflation, is putting upward pressure on the reactivation cost per rig, but we are working hard to minimize those costs.
As a reminder, most of our rigs were stacked back in April and May of 2020. Most of our 27 first fiscal quarter 2022 reactivations had been idle an average of 540 days or over 18 months. H&P currently has 42 rigs remaining that worked within the past 21-24 months, rigs that were active as the U.S. was heading into the pandemic. This is the largest portion of swing supply in the U.S. To remind, as we have discussed on prior calls, reactivation costs are mostly incurred in the quarter the rig starts to turn to the right. The absence of such cost in subsequent operating quarters is margin accretive to the company. Looking ahead to the Q2 of fiscal 2022 for North America Solutions, as I mentioned earlier, we ended Q1 near the midpoint of our exit guidance range.
The activity level is continuing to grow, albeit at a more moderate pace than the Q1 , driven in part by public company operators who are working to fulfill their calendar 2022 budget levels. As of today's call, we have 164 rigs contracted, and we expect to end the second fiscal quarter of 2022 with between 165 and 175 contracted rigs. As noted in John's comments, performance contracts now make up about 40% of contracted North America Solutions rigs. As discussed on previous calls, contract bonus potential is not included in backlogs since it is contingent upon achieving specific contractual criteria, which is typically measured at the end of a well.
While completed wells within the quarter with performance bonuses are both billed and recognized within the quarter, the amount of potential bonus for wells in progress as of December 31 that could not be recognized until well completion was approximately $2.7 million. As such, when in-progress wells are completed in the Q2 , the actual bonus earned will be recognized. This bonus potential at quarter end has been steadily growing quarter upon quarter as the proportion of performance contracts across our fleet increases. Our current revenue backlog from our North America Solutions fleet is roughly $493 million for rigs under term contract. As I noted, this figure does not include additional margin above base day rate that H&P can earn if performance KPIs are met once wells are completed.
In the North America Solutions segment, we expect gross margins to range between $100 million and $115 million, inclusive of the effect of $11 million of reactivation costs. I will now turn our attention to inflationary and supply chain considerations. As a reminder from our November call, we increased labor rates in early December, which, although a margin neutral pass-through, will be accretive to full Q2 costs. We are still seeing some inflationary pressures on materials and supplies, as mentioned last quarter. Although some pricing pressures appear to be beginning to stabilize, we do expect recurring per-day expenses to increase above 15,000 per day in fiscal Q2.
As it relates to supply chain access to parts and materials, we continue to utilize our proactive approach to alleviate supply chain challenges in order to avoid a material impact to our ongoing operations. That approach includes remaining vigilant about inventory and actively engaging with our suppliers and partners in order to be ready to adjust quickly as developments unfold. Regarding our International Solutions segment, International Solutions business activity increased by two rigs to eight active rigs at the end of the first fiscal quarter. We added a rig in Argentina and had a rig commence work in Colombia that had previously been delayed. International results were below guidance due to startup of these rigs and other transitory costs.
As we look toward the Q2 of fiscal 2022 for international, our activity in Bahrain will decrease from three rigs to one active rig due to notification in January regarding changes in the customer's drilling schedule. Conversely, we expect to add another rig in Argentina as activity there gets to five working rigs, plus a second rig in Colombia during fiscal Q2. In the Q2 , we expect to have between a $2 million loss and break-even results aside from any foreign exchange impacts. Turning to our offshore Gulf of Mexico segment, we still have four of our seven offshore platform rigs contracted, and we have active management contracts on three customer-owned rigs, two of which are on active rate. Offshore generated a gross margin of approximately $8.6 million during the quarter, which was above the high end of our estimate.
As we look to the Q2 of fiscal 2022 for the offshore segment, we expect that offshore will generate between $6 million-$8 million of operating gross margins. Now let me look forward to the second fiscal quarter and update full fiscal year 2022 guidance as appropriate. Capital expenditures for the full fiscal year 2022 are still expected to range between $250 million-$270 million, with remaining spend distributed fairly evenly over our last three fiscal quarters. As John emphasized earlier, we are closely assessing rig reactivations for appropriate contract terms and economics in light of increasing OpEx reactivation costs, maintenance CapEx accretion, and required return on investment. I'll mention again that H&P has 42 super-spec FlexRigs that have been idle just under two years.
Further, we have another 26 super-spec FlexRigs that have been idle longer than two years. This significant U.S. swing capacity can be deployed for the right economics of price and term duration. Our guideposts in this process are hurdle rates at or above the OFS industry cost of capital. A few observations on HP's U.S. FlexRig fleet and U.S. supply. Given the available idle rigs that can be deployed through time, we see no need for new build capacity on our mid- to long-term planning horizon. HP's fleet is approximately nine years old on average and has a composite weighted average accounting life of 15 years.
However, the economic life of the rig structure is 30+ years with major rig components, including blowout preventers, top drives, and engines, regularly refurbished via our maintenance CapEx, thereby extending their economic lives for complete rig assembly to have a long horizon of economic return generation. We regularly conduct R&D efforts for rig improvements, but currently see no breakthroughs that would supplant today's uniform FlexRig fleet. Our expectations for general administrative expenses for the full fiscal 2022 year have not changed and remain at approximately $170 million. However, we expect Q2 SG&A to be higher than the final two quarters of the year as some expected Q1 expenses were delayed into Q2.
We are now estimating our annual effective tax rate to be in the range of 10%-16% with no change to the previously guided range of anticipated cash tax of $5 million-$20 million. The difference in effective rate versus statutory rate is related to permanent book-to-tax differences as well as state and foreign income taxes. You will notice that our income statement has a new line, gain on reimbursement of drilling equipment, which has historically been included in the line item, gain or loss on sale of assets. We broke this out to provide more transparency around income that is derived from our normal recurring operations and is used to offset a portion of gross maintenance CapEx. These amounts are primarily derived from reimbursements we receive from customers for tubular goods that are lost in whole or damaged beyond repair. Now looking at our financial position.
Helmerich & Payne had cash and short-term investments of approximately $441 million at December 31, 2021 versus an equivalent $570 million at September 30, 2021 after backing out the 2025 bond extinguishment. This sequential decrease is largely attributable to our recent share repurchases, seasonal cash outlays, and working capital lockup. During the latter half of the first fiscal quarter, we saw a combination of excess liquidity and an attractive opportunity to repurchase some of our shares at prices that we believe to be value accretive. Through January 28, we have repurchased approximately 3.1 million shares total for roughly $76 million. Approximately 2.5 million shares were repurchased in December under our evergreen annual share repurchase authorization of 4 million shares per calendar year.
To date, in calendar 2022, we have repurchased about 600,000 shares under the calendar 2022 4 million authorization. These recent repurchases augment our long-standing dividend as we allocate excess cash. Including our revolving credit facility, liquidity was approximately $1.2 billion at December 31. Our debt to capital at quarter end was approximately 16%, and our net debt was approximately $101 million. We currently expect our trailing twelve months gross leverage turn to reach our goal of less than 2x outstanding debt during this fiscal year. H&P's debt metrics continue to be a best-in-class measurement amongst our peer group. As a reminder, our sole remaining long-term debt carries a 2.9% interest rate and matures in 2031. Our credit rating remains investment grade.
As mentioned on our last call, working capital is a use of funds as our rig count rises, and that was substantial during the quarter given the addition of 27 rigs. Our accounts receivable at fiscal year-end of $229 million grew by $53 million to approximately $282 million. The preponderance of our AR today continues to be less than 60 days outstanding from billing date, although historically, we have experienced seasonal calendar year-end collection slowdowns as we just did. Consolidated inventory increased slightly for the first time in over a year. Finally, as a reminder, our annual short-term incentive bonus compensation and our ad valorem taxes accrue throughout the year, and we pay all of the compensation and most of those taxes during the first fiscal quarter.
With that as background, as expected, fiscal Q1 saw lower cash flow from operations than we expect from the next few quarters due to the rig ramp up and to seasonal cash expenditures. As of today, we expect to end the fiscal year with between $400 million and $450 million of cash and short-term investments on hand, down from the range of $475 million-$525 million guided on the November call due to the aforementioned share repurchases. As I mentioned on the November call, we expected to use a moderate amount of cash on hand as we worked toward the calendar year-end, the 150+ rig count activity level.
The as-expected growth in rig count early in the fiscal year provides a platform for cash generation in the second half of the year from that point forward fully covers our cash usage, including our dividend, and sets the stage for cash accretion. That concludes our prepared remarks for the first fiscal quarter. Let me now turn the call over to Gretchen for questions.
Our first question comes from Ian Macpherson from Piper Sandler. Your line is open.
Good morning, John and Mark.
Morning, Ian.
Curious on lead times. Obviously, you have very clear contracted visibility into your fiscal Q2 rig adds. We have a higher oil price deck than we had last time we spoke. Clearly, you know, more impetus to drill in the second half of the calendar year. I wanted to hear what your expectations are for bottlenecks to continue to add rigs through calendar Q3 and Q4, and what your delivery lead times look like. If I'm a private E&P with, you know, zero or one rigs running today and I need another one, I'm not just waiting on H&P, I'm waiting on other equipment providers as well. But how easy or difficult will it be to deliver the incremental rigs in the back half of the calendar year?
Sure, Ian. You know, from an equipment perspective, I don't know of any particular bottlenecks that we have, at least for the foreseeable future for the next couple of quarters based on what we see right now. I would say, you know, kind of going back to the theme, probably the biggest bottleneck to growth for us is just being able to get pricing at a level that makes sense to make the investments, you know, that we need to make in order to recommission the rigs. You know, there's obviously some CapEx associated with that, as well. But, you know, most of that are just pure recommissioning costs and just getting the pricing up. You know, I think long...
I'm trying to think past maybe the next several quarters or maybe into 2023. I know, you know, BOPs are a potential bottleneck that are out there. Dave, Mark, anything else that you're aware of?
No. No, John.
Ian, I think we're in pretty good shape with the fleet that we have, the inventory that we have on hand, as well as you know, the internal capabilities that we have to repair and you know, get equipment in working order.
Okay. Thanks, John. If I heard you correctly, and correct me if I misstate this, you said, I think 30% of the industry rig adds last quarter were your skidding rigs. If that's the case, are those customers that are accepting skidding rigs with an expectation to be upgraded to a fully walking rig at a later point in time? Or are those applications where the skidding rig is just what they need? Because I do think that was a point of maybe controversy coming out of last quarter's discussions.
Sure. No, you know, we have customers that have a very high demand for skidding rigs. That's their preference. You know, their preference, it's the rig they've used, you know, for several years now, and that is their preference, whether it's a FlexRig three or a FlexRig five. There are some customers that have a preference for the walking application. It's, you know. When I say preference, it's really driven by, you know, factors related to the, you know, their location and well configuration. But we also have a lot of customers that use both. I mean, they have both FlexRig 3 skid, FlexRig 5s, and they have, you know, the Flex3 walking rig. So it's pretty much across the board.
I thought, you know, Mark made a great point with, you know, the adds that we've seen during the quarter and really during the year. You know, the skidding rigs have picked up pretty substantial amount of market share.
Okay. Great. Thank you, John.
Thank you.
Our next question comes from Scott Gruber from Citigroup. Your line is open.
Yes, good morning.
Morning, Scott.
Mark, can you just give me again the expected cash balance at fiscal year-end? I missed that earlier.
Sure, Scott. It's $400-$450, so it's really just down by the $75 million of share repurchases that we discussed.
Gotcha. I appreciate that. Just, you know, thinking about cash return strategy longer term, you know, your free cash potential is gonna improve here in the second half of the year and into 2023. You know, just thinking about, you know, how, you know, buybacks, you know, how much emphasis you're gonna place on those into the future. You know, is it gonna be an increase in point of emphasis for the company into the upcycle? Longer term, you know, do you believe that, you know, cash flow per share growth should be a strategic priority of the company, you know, into the energy transition?
I'll start off, and then John or Dave chime in. Scott, you know, absolutely growing our cash flow is paramount, and a lot of what the theme that John discussed around pricing is related to. Absolutely. As it relates to these particular buybacks, you know, as I mentioned, we thought there's value dislocation, and we thought it was very opportunistic. Couple that with what we believe to be excess liquidity on hand. Couple that with, as I mentioned, looking ahead in our debt metrics for the trailing twelve months during this fiscal year, getting below two times turn. You know, add all those things up with the 4 million share pre-authorization just seemed like the prudent investment to make.
We will continue to use that as a lever, you know, together with our longstanding 60 years of dividend payments. You know, just one of the really great things about looking ahead is that these are the discussions that we as a management team are having today and with our board about capital allocation and the cash build that we'll be having. These options are ones that are front and center for us, looking at the longstanding dividend, the share buyback potential, and who knows, maybe a special dividend as we move through time. We're still formulating those and still deliberating the exact methods. More to come on that.
Got it. Just another one on, you know, the appetite for performance-based contracts. Have you seen a marked shift in the appetite to enter those performance-based contracts over the last three months? If you provide some more color whether the terms and conditions are starting to become more favorable for you in terms of achieving the bonuses.
Yeah, Scott, you know, it's interesting. As you know, time flies. It's been two years since we first started talking about new commercial models and changing away from the day rate, the day rate model. You know, those first several quarters, it was pretty slow adoption. As we've said, we're, you know, around 40% of our working rigs today. You know, it's really a partnership working with our customers. You know, what's great about it is there's a portfolio of different options that we can provide for the customer working together based on what's, you know, most important to them in terms of the outcomes that they're looking for or the areas that they're challenged with in terms of driving performance.
There's no doubt that, you know, as you look at kind of a base revenue per day, that number has moved up significantly on the performance base, just like our spot pricing. Then as you look at leveraging the technology components and figuring out, you know, again, back to what are the outcomes that we're trying to provide for the customer, there continues to be, you know, an upside for us. Yeah, I think it's a good trend in the industry. Again, we're getting a lot of uptake from new customers. You know, a lot of growth with customers that have been working with us on this all along, but we also have some new customers as well.
Well, I appreciate the color. Thank you.
All right, Scott. Thank you.
Thank you.
Our next question comes from Taylor Zurcher from Tudor, Pickering. Your line is open.
Hey, John and Mark. Thanks for taking my question. I wanted to circle back on some of the pricing comments you made. John, you talked about a few of your, I think several of your rigs approaching $30,000 of revenue per day, which is materially higher than what you reported this quarter, I think somewhere in the neighborhood of $23,000 in revenue per day. Just curious, when it comes to that $30,000 a day number, I imagine that's including, you know, the whole host of solutions, including digital that you provide and might be more on the performance versus traditional day rate side.
Should we be thinking about close to $30,000 a day as you know true leading edge whether you're on the traditional day rate model or the performance-based model? Just more importantly with all these inflationary items impacting cost how should we be thinking about that $30,000 a day translating into margins? Should we be using a $15,000-dollar type cost number there?
Well, Taylor, starting on the cost side, you know, today, you know, $15, but, you know, our goal is to get there. I think what did we guide for a little higher than $15?
We didn't guide on. We just gave the gross margin guidance.
So, um-
As I mentioned though in my prepared remarks, we will get over $15,000 in this quarter, Taylor. You know, somewhere between $15,000 and $15,500.
Yeah. I think you know, the point is that it is you know, this $30,000 revenue per day, it is a very tight market. There you know, we're faced with obviously significant pre-com costs. Everybody has seen that. We've had substantial investments in super-spec capability and performance. You know, you look at oil and gas prices and how they you know, they're really at eight-year highs. You know, you're going back to that period of time when we last saw pricing oil prices at that level, our average day rate on a rig was between $25,000 and $26,000 a day. Our costs are up you know, $3,000-$4,000 compared to that same period of time.
You know, as you start looking at that and you're looking at the inflation, it just, you know, that $30,000 a day revenue per day really makes a lot of sense. Obviously, you don't get there overnight and but that's part of the point, you know, to make, is that in a downturn, rates drop immediately overnight. In an up, you know, and as you start to see the market improve, you know, we're 17 months since the bottom, and we've had, you know, really, we're appreciative of the increases, but they're pretty nominal, when you compare to where we were at the bottom in terms of average pricing. We got to get that average pricing up. Again, we won't get there overnight, but we have evidence that it's possible.
We have it out in the market today, with customers that are, you know, really seeing a lot of value with the performance-based contracts and the technology solutions that we're providing.
Understood. Thanks for that. A follow-up there, just on the contract book. It sounds like based on that response and some of your earlier comments that pricing is becoming a bit of an impediment to reactivate a bunch more rigs. As I look at your contract book, you've had a bunch of new term contracts, but not many with durations of longer than 12 months. Just curious if you could frame for us, you know, what customer appetite is today to lock in terms longer than 12 months, and what your appetite is today to lock in terms longer than 12 months at current pricing.
Yeah. I think it's when you say current pricing, not current averages, but our current leading edge. I mean, we have entered into 18-month and 2-year terms or in the process. I'm not certain that they're signed now. I think some of them are. They're in the 18- to 24-month, and they're at that leading edge pricing that I'm talking about, you know, mid-$20s in terms of a base rate. You have technology solutions and other performance criteria in order to get that pricing up from there.
Just to give you a little color on some specifics within that, of the 27 rigs we added during the Q1 , Taylor, you know, 12 were on term, 15 were on spot. More recently, the 10 we've added this calendar year to date, you know, seven of those are on term and three are on spot.
To answer directly. Yeah, we're definitely looking at term contracts. We have customers that are interested in term contracts. You know, our desire would be to keep doing that. Keep in mind also, we have rigs that are rolling off of term during the quarter. You know, some of those rigs will roll back into term, of course, at much higher pricing would be our expectation than where they are today. I would imagine, you know, some of those rigs would also roll into performance-based contracts as well.
Understood. Thanks for that. Appreciate it.
Thank you.
Our next question comes from John Daniel with Daniel Energy. Your line is open.
Thank you. Gentlemen, good morning. I missed a lot of the Q&As. If I ask the same question one of my colleagues and peers did, I apologize. John, question for you. Since you've been running H&P, how would you characterize your involvement in quoting a price or perhaps, you know, blessing a price quote historically, and then how would you characterize that involvement today?
Well, I'm definitely not involved on a day-to-day basis, but clearly, you know, in terms of setting pricing and expectations, you know, I'm involved with that. You know, the overall leadership team, you know, we're weighing in on that. One of the things, you know, it's interesting, John. It's a great question as I think about that, you know. There's benefits to being in this business a really long time. There's also things that work against you over time because you begin to ask yourself, "So why does," you know, again, in a down cycle, as I already said, rates drop overnight. In an upcycle, as it starts to improve, it moves very, very slowly. Where is it written down that it has to be that way?
As you go back into looking at the actual data, you know, we've had a really tight market now for a couple of quarters. Even though there's available capacity, it's a really tight market for lots of reasons.
Mm-hmm.
We definitely spend a lot of time on pricing strategy. We're using tools today that we haven't used previously that utilize data in a much more effective way. It's not just a gut feel. It's
Right.
Again, we've got a data set that we fully understand that it's not just a maybe, it's a certainty that pricing needs to improve.
No, I would agree with that. I guess a bigger question, and not meant to be rude, but if oil prices and commodities keep bleeding up, do you see yourself getting to the point where you say, "This is the law, and this is how we're gonna run it?" Or is that a little bit too much of a dictatorship on your part? I'm just curious how you'll approach that point.
Well, John, you know, we're in the customer service business, and
Yes.
You know, I've been doing this a long time.
Me too. Yeah.
You know, I'm not in the habit of dictating to customers. You know, obviously, in a tight market-
Right
There's a lot of demand and there's little supply. Again, I think in most cases, John, our customers, I mean, it's a true partnership. We're working together. You know, I mean, let's face it, you know, we're obviously a public company that has to make better returns for our shareholders, and we're trying to do the same thing for our customers. We're really working arm in arm, trying to make this happen.
Fair enough. That wasn't intended to be a gotcha question, just me curious.
Oh, I know. I know, John, you'd never do that.
No, I try not to. The next one for me, and if you got this one asked, I apologize. If a customer called today and said, "Hey, I need a cold stack rig. I want you to bring it back." Realistically, what's the time from today when that thing could hit the field?
What's the what? I'm sorry.
What's the-
Could you repeat that again?
Like, bringing a cold stack rig back. The realistic timeframe to having that out.
I haven't checked on that lately, John, but I think generally speaking, you know, we've got a couple of weeks to pull people together, probably four-five weeks in general to get everything ready. Six months ago, it was probably two weeks, and, you know, a year ago, it was a week.
Okay
... you know, it does take longer. You have to also realize that, you know, just like, you know, last quarter, we put 27 rigs into the market, and, you know, again, hopefully this quarter will be closer to 20.
Okay
... but, uh... So.
Got it. Well, fair enough. The last one for me, and this can be a gut answer 'cause you might not have the data in front of you. Just as you think about the inquiries that exist today that you would call a real inquiry, if you will, sort of bracket what % would be integrated versus just remaining public versus private, if you could. A guess is fine.
I think just the mix between private and public. I think it's 50.
No, we got about 40% that are private in terms of rig count, and then the other 60% are public. John, within that public, you have 10%. A little less than 10% is the majors.
Okay.
What about the inquiries he asked about?
Is that the inquiries or just? Yeah.
That I don't have the data on.
You know, it's yeah. Pretty similar.
That's okay.
We don't have it in front of us, but I think it's pretty similar, John.
Okay. Well, thank you so much for letting me in the queue. I hope you guys look forward to seeing us in a few weeks.
Yeah, looking forward to it. See you, John.
Our next question comes from Derek Podhaizer from Barclays. Your line is open.
Hey, good morning, guys. I just wanna go back to the daily margin conversation. The fiscal 2022 2Q guide implies margins look to stay kind of in a flattish range, excluding reactivation expenses. Can you talk about where you see them going in fiscal second half 2022, the level of expansion driven by both the revenue side and then the cost side as well as rigs are added? Just thinking in the backdrop of, you talked about reaching $30,000 per day and those costs normalizing around that $15-$15.5 range.
Derek, I'll start and then ask John to chime in here. As it relates, you know, that cost range you just mentioned, I think is a start. You know, we will see, as I mentioned, the full effect of the labor increase, you know, hit us this quarter. You know, and thankfully, we're starting to see some stabilization, as I mentioned, from an M&S, you know, perspective. But what I'd say is that, you know, as we add more units, we continue to have assistance from just fixed cost absorption and scale as we really benefited from this quarter that we're talking about here today into 12/31.
We'll continue to see that, and we'll continue to manage costs aggressively as we have been, which has given us this result this last quarter. I think the opportunity set in front of us is really everything about the theme that John has been discussing from the outset of this call today, and that's getting the pricing up where we need it to be to get to the right return or a return that, you know, gets to our cost of capital as a hurdle rate and above it. That's where we have to be as a corporation, and that's where the upside can come from through the year. John, anything to add to that?
Yeah, I don't really have anything to add. I think it's all said.
Do you think you can get to a margin with a nine handle in second half 2022 fiscal?
Well, I think
Excluding reactivation. Sorry. Excluding reactivation.
Yeah. Well, that's part of the opportunity, right? That is if this year follows like 2021, whereas you've got, you know, the rig count ramp at the first, you know, the Q1 of the year, of the calendar year, and then it kind of flattens out slightly up, then obviously the rig recommissioning costs go away and, you know, you're focusing. You know, your costs are down, and so you're focusing on growing the margin through pricing.
Got it. That's helpful. Thank you. Switching over to more kind of the new energy theme. Geothermal, obviously the news flow has been picking up there. I know you guys had a few equity investments, helping out with some pilot programs. Can you just kind of talk to that, how that's developing and progressing? I'm just thinking about what's been put out by the California Public Utilities Commission with a 1,000 MW requirement for geothermal on the grid. Just any updates there on kind of how those pilot projects are developing.
Sure. Well, I'll let Mark talk about some of those developments and some of the investments. I will say that we do have a rig working today drilling a geothermal well in Nevada, and it's drilling a couple of horizontal wells and a vertical well, and I think it's the first horizontal geothermal well in the U.S. that's been drilled. We're excited about that and seeing some opportunities there. Mark, you wanna talk about this?
Sure. You know, Derek, as it relates, we're always looking at and making, you know, financial and operational decisions for the long-term interest of the shareholder. With regards to geothermal, you know, we're looking at several different opportunities across the entire spectrum of geo opportunities instead of focusing just on one particular aspect. You know, different companies have different strategies to get to scale geothermal, and it's early in the development of that here in the U.S. and internationally.
The market's developing, it's taking time. Some of these technologies have to be proved out. The wells that John just described are part of that process. We recently invested in two separate geothermal companies. One is pursuing a closed-loop concept that uses horizontal multilateral wellbores. The other is pursuing the enhanced geothermal system concept using horizontal drilling as just discussed. I mean, you know, the collective investments to date of about $12 million. I'll add to that further in our pipeline, we're in various points of discussion with around 10 companies focusing on geothermal potential scale advancements globally. We definitely are very active in that space. We've participated in some geothermal conferences and look forward to doing some more of that.
We're making prudent and appropriate investments, we think, you know, at the right sort of levels. That includes also in-kind services, as well. More to come.
Great. Exciting stuff. Thank you.
Thank you.
Our next question comes from Waqar Syed from ATB Capital.
Thanks for taking my question. John, first of all, congratulations on a great sustainability report. Really, it sets a new standard for sustainability reporting. My congratulations to you and your team.
Thank you, Waqar. They worked really hard on it. I'm proud of them.
Great. Yeah. Now my question is on the greenhouse gas emissions. You know, we're hearing typically from the service industry is that the greenhouse gas emissions from this equipment and services at the well site go into the inventory of the E&P company or the customer. You've taken a slightly different approach to that. Could you maybe elaborate the approach that you took and why?
Yeah. Waqar, I'll handle that one. You know, for us to come out and say, "Hey, you know, all our emissions are somebody else's, you know, problem." You know, I don't think that from a credibility standpoint, I don't think that would sit well with investors. We're able to determine what our rigs emit as far as emissions. We're just being transparent that this is what we've been able to, you know, track over the past few years and do that. There is a shared accountability there. We wanna be responsible, you know, have a full transparency and create some trust in the market by, hey, we're not shying away from this challenge, and we're gonna meet it head on.
Great. Yeah, you guys screen very well on our ATB ESG framework, so congrats on that. John, just one other question on the outlook for activity. Do you have any visibility into the second half? Do you see that there could still be some growth in the second half? Or do you think most of the activity increase in the U.S. is just first half weighted?
Yeah. Well, Waqar, it's a great question because, you know, we've been thinking about it very similar to 2021. You know, of course, in 2021, you had the Q4 of 2020, and then the Q1 of 2021 is where the ramp up was. We've really seen the same thing in the Q4 of 2021 and the Q1 of 2022. Our belief has been that it would mirror 2021 very closely, even though there was some, you know, slight uptick in activity. Obviously, you know, it's hard to say past here.
I think once we get to a more kind of a standard rig count, wherever that's gonna land, and then you kinda start looking at the budgets that our customers have, we might be able to derive a little bit more out of the public company budgets from there. But it's hard to say, and of course, we don't have really any insight into the private company besides just conversations that we have going on. But hard to say at this point. Our hope is, of course, that we'll see some additional growth along with pricing, you know, pricing improvements at the same time.
Does the industry's ability to move pricing up, you know, how do you see that, like, once the rig activity growth starts to slow down?
Yeah. It's, you know, it's a really tight market, Waqar. There are, you know, just a very small number of rigs that have worked in the industry over the, you know, less than two years period of time. You know, like, in other words, rigs that were working prior to the pandemic. You know, there's a large investment to be had. I just think with the amount of activity that we have, and I'm talking primarily about the super-spec space, you know, I think we're close to 70% utilization. You know, again, the rigs, the rig supply is very tight and, same way with the people side of the equation. I think there's gonna be a lot of pricing power moving forward.
Yeah. Okay. Thank you very much. Appreciate you taking my questions.
Thanks, Waqar.
It appears that's all the time we have for questions. I will now turn the program back over to John Lindsay.
Okay, Gretchen, thank you. Thanks everybody for joining us today. We are very optimistic about the future, and the momentum that we've garnered during the past several years. As we've said, we think we're very well positioned for the future. We've got a strong balance sheet. We've got the largest and most efficient super-spec FlexRig fleet, technology solutions, leading customer satisfaction delivered by the best people in the drilling business. Again, thank you for your time. We appreciate it, and have a great day.
This concludes today's program. Thank you for your participation. You may disconnect at any time.