Helmerich & Payne, Inc. History

Company Perspectives:

Honesty. Commitment. Integrity. Our pledge is to approach the next 75 years with these time-tested values etched clearly in our minds, remaining forever indebted to the thousands of loyal Helmerich & Payne, Inc., co-workers who have gone before us and kept the faith.

Company History:

Helmerich & Payne, Inc. (H&P) is a survivor in the volatile world of oil and gas exploration, contract drilling, and production, and when the company marked its 75th year in 1995, it was believed to be the oldest contract driller in the United States. Part of H&P's success has come from its long-time commitment to diversified operations: the company owns more than 1.6 million square feet of commercial and industrial real estate, including Tulsa, Oklahoma's landmark Utica Square Shopping Center. The company has also long held a strong investment portfolio, which contributed more than $10 million to its pre-tax income in 1995. Until that year, H&P also operated Natural Gas Odorizing, Inc., a world leader in mercaptan-based natural gas odorizing agents; the sale of that subsidiary in 1996 added $24 million to the company's $72.6 million net income for the year ended September 30, 1996.

H&P's core business is in oil and natural gas. The company is engaged in the exploration for and development and acquisition of oil and natural gas reserves in its home state of Oklahoma, as well as in Louisiana, Kansas, and Texas. H&P's 1995 reserves of some 280 billion cubic feet of natural gas and more than six million barrels of oil made it the 52nd-largest oil company in the world. H&P's contract drilling subsidiary, Helmerich & Payne International Drilling Co., owns and operates more than 30 land rigs and 11 offshore drilling platforms in the United States. Internationally, H&P owns and operates another 35 land rigs, chiefly in South America, with a primary focus on Venezuela and Colombia. Utilization rates for the company's rigs hovers around 90 percent both domestically and internationally. H&P is led by president and CEO Hans Helmerich, grandson of company founder Walt Helmerich. In 1996 the company posted revenues of $393.2 million.

Barnstorming the Oil Boom in the 1920s

H&P was founded in 1920 by Walt Helmerich and William Payne. Helmerich was born in 1895 in Chicago. In 1914, bored with academic life at the University of Chicago, Helmerich left school to work in New Orleans and Beaumont, Texas, and eventually at Western Electric Company in Chicago. When the United States entered World War I in 1917, Helmerich enlisted in the Army Signal Corps and became a pioneer member of the country's newly forming air force, where he quickly rose to become a test pilot and flight instructor for the famous Curtis JN-4 "Flying Jenny," and a member one of the military's first "aerobatic" flying teams. After the war, Helmerich took his piloting skills on the road, buying three planes and forming a barnstorming stunt flying team with two friends. Shortly before the troupe's first performance in 1919, both of Helmerich's partners were killed in a test flight. By then, Helmerich was married to Cadijah Colcord, daughter of Oklahoma oil pioneer Charles F. Colcord. Offered a job with brother-in-law Ray Colcord, Helmerich went to work overseeing the drilling of a well in Ossawatomie, Kansas, then helped relocate Colcord's rig to South Bend, Texas.

The pair quickly struck oil with Colcord's rig, pumping 300 barrels a day; Helmerich purchased a share of the rig--and the profits--for $9,000. In 1920 Helmerich raised enough money, in part by selling the scrap metal from his airplanes, to buy his own drilling rig. Helmerich was joined by William Payne, who had worked as an oil scout for Charles Colcord. Payne's background was in bacteriology and chemistry, with an undergraduate degree from Oklahoma A&M, and graduate work in microbiology at Massachusetts A&M and Amherst. Payne gained practical experience working for a pharmaceutical company in Detroit and later as a bacteriologist for that city; during World War I, Payne joined the Army Sanitation Corps and helped isolate the influenza virus that had caused an outbreak in 1918. After the war, Payne went to work for Colcord's North American Oil and Refining, then helped form Helmerich & Payne in 1920.

The partners originally plied the South Bend oil fields and carted their rig as far as New Mexico. In 1923 Helmerich sent his wife and newborn son, Walt Helmerich III, to live with her family in Tulsa, Oklahoma. By then H&P owned three rigs, and in 1926 the partners moved two of their rigs to Oklahoma in order to tap into the oil-rich Osage County field. Their first strike, a 2,350-foot wildcat producing 5,000 barrels per day in Braman, Oklahoma, led the partners to formally incorporate as Helmerich & Payne, Inc. Payne supervised the company's drilling activities, while Helmerich took charge of financing.

The young company soon faced the Depression and an oil glut that saw the price of a barrel of oil fall from $1.43 per barrel to just ten cents per barrel at the depth of the Depression. H&P began selling down its oil leases, while continuing to operate drilling rigs under contract. At the time, locating oil was as much based on luck as on science, with rates of around one producing well for every 50 drilled. Eventually, the company focused its operations on contract drilling. The company nevertheless continued its own exploration and drilling efforts, and in 1936 H&P made a major strike in the Hugoton natural gas fields in southeastern Kansas. Starting with four wells, H&P's Hugoton strike would provide a backbone for the company's growth; sixty years later, the Hugoton field still accounted for two-thirds of H&P's natural gas reserves. The company established another landmark in 1936, constructing a working rig on the lawn in front of Oklahoma's State Capital building. That well would continue producing until it was finally plugged in 1976.

William Payne left H&P in 1936, founding the Big Chief Drilling Company in Oklahoma City, and in 1965 Payne's success in the industry led him to be named Oklahoma's "Oil Man of the Year." Meanwhile, Helmerich struggled to obtain financing for H&P during the Depression. By 1939, H&P owed some $1 million in debt, and the company verged on bankruptcy. Helmerich refused to declare bankruptcy and managed to secure the loans to rescue the company. As part of the financing agreement, the company reorganized as a Delaware Corporation, and Helmerich was forced to relinquish partial control of H&P.

Postwar Growth

Demand for oil and gas had plummeted during the Depression, while overproduction had kept prices low. With the outbreak of World War II, demand again surged. Yet contract drilling rates were low, especially for the highly competitive shallow drilling market, and H&P stepped up its own exploration efforts, turning now to deep drilling projects. Toward the end of the war, the company scored successes with three deep wildcat wells in the Texas Panhandle, and several other 5,000-foot wells were also producing in the range of 300 to 500 barrels a day. In order to make the company more attractive to lenders, H&P reorganized in 1944 as the White Eagle Oil Company, which would be chiefly engaged in exploration and production. H&P was organized as the company's contract drilling subsidiary. The following year, the company made its first acquisition, of Cardinal Oil Company, which had more than 240 producing wells and an average daily production of over 5,000 barrels. By 1949, the company was posting revenues of $6.7 million.

The company prospered in the postwar years. Automobile use was on the rise, sparking a huge demand for oil products. By 1952, the company was operating 17 deep-drilling rigs in six states. At the same time, the rise in demand brought on increased competition, and by the early 1950s the oil industry was entering a new slump. Drilling contracts fell, and H&P saw its profits threatened. By the mid-1950s H&P was ripe for new management, and the company did not have to look far. In 1954 Helmerich's son, Walt Helmerich III, was named executive vice-president. The younger Helmerich, a graduate of Harvard Business School--and one of the company's first college graduates--quickly assembled a new management team and set to work improving the company's operating efficiency. The company also began hiring its first drilling engineers, who introduced new technology to the company's exploration and drilling operations, particularly in secondary recovery techniques that would extend each well's production output. Secondary recovery output reached 80,000 barrels per year in 1954 and rose to 250,000 per year by 1958. Meanwhile the company was expanding its operations, entering the international market with lease-partnerships in Venezuela in 1957. The company soon entered the Philippines, Bolivia, and Cuba. H&P also acquired Engineering Construction Company (ECCO), a pipeline construction company. In 1959 the company reorganized again, dropping the White Eagle name and going public. H&P's revenues by then were $14.2 million. The following year, Walt Helmerich III replaced his father as the company's president.

Diversification in the 1960s

With a fresh slump in the oil industry at the start of the 1960s, H&P began a new program of diversification to enable it better to weather the industry's traditionally cyclical nature. The company acquired Natural Gas Odorizing, Inc., (NGO) of Houston in 1960. NGO manufactured chemicals that added odor and taste to natural gas, which were necessary for detecting the presence of the volatile material. Over the years, NGO would become an industry leader, capturing as much as a 50 percent share of the gas odorant market. In 1962 H&P acquired Horton Company, a specialist in laying cable for the telephone industry. Horton's patented cable-laying plow was soon adapted for ECCO's pipeline work. The acquisition of Houston-based F. H. Maloney Company in 1964 brought H&P into manufacturing, with the production of molded rubber, machined metal, and other products for oil and pipeline companies. That same year saw H&P enter the commercial real estate market with the purchase of the Utica Square shopping center in Tulsa.

Throughout this period of diversification, H&P continued to expand its presence in the oil industry. Land-based drilling continued to decline during the 1960s, forcing the company to look in a new direction. Preparations for entering the burgeoning off-shore drilling market began in 1964, with the construction of the company's own off-shore rig. Launched in 1968, the rig was severely damaged during a storm the following year, and the company's drilling contract was canceled. In response, H&P traded the rig to offshore driller Atwood Oceanics, Inc., in exchange for a 28 percent interest in that company. Next, H&P, with sales passing $27 million by 1965, attempted a new acquisition, this time of a company larger than itself. By 1968, H&P had bought up enough stock to make itself the largest single investor in Sunray DX, an oil and gas company. H&P and Sunray began merger discussions, but before these were completed, Sun Oil stepped in with an offer to purchase Sunray. H&P attempted to block the acquisition, but failed. Nevertheless, H&P retained a significant share of Sun/Sunray stock and realized a handsome profit through the merger. The company retained that investment, which helped increase revenues to $38 million by the end of the decade, while continuing to expand its stock portfolio with investments in other public companies.

With drilling contracts continuing to suffer in the early 1970s, H&P accelerated its exploration activity, but the company had not kept pace with advances in technology made by the larger oil companies and needed to aggressively recruit geologists and other engineers. This effort soon paid off with the opening of three wells in Buffalo Wallow Field in Texas, which combined for a potential output of 75 billion cubic feet of natural gas. By the late 1970s, the company's gas output topped its oil production for the first time. The company--along with the entire oil industry--was given a fresh boost by the oil crisis of 1973. With oil prices rising, and the search intensifying for alternative sources of oil reserves, H&P's international operation grew. By the end of the decade, H&P was operating 12 of its own rigs in Venezuela alone, while drilling under contract for another nine rigs. The company's rigs were also drilling wells in Colombia, Ecuador, Peru, Belize, Guatemala, and Bolivia. H&P's revenues climbed to $77.5 million in 1976 and neared $150 million by 1979. As the decade closed, the total number of H&P-owned rigs topped 50, with utilization rates of 99 percent. Deregulation of the oil industry stimulated a boom in the search for oil. Meanwhile, oil prices were skyrocketing, reaching as high as $50 per barrel. As more and more sources of oil were developed, OPEC, watching its share of the oil market dwindle from 70 to 30 percent, reacted in panic. Quickly, the market was flooded with oil.

Surviving the Bust in the 1980s

By the end of the 1980s, nearly 80 percent of the oil industry had gone bankrupt. For H&P, which saw its 1982 revenues climb to $338 million and net profits soar to $75.6 million, the tide began to turn by 1983. Revenues began to drop, to $208 million in 1984, down to $160.5 million by 1988. The company struggled to retain profits: net income slid to $48 million in 1983 and to $7 million in 1986. But in 1989, with revenues of $171 million, H&P was the only drilling company in the world to post a profit, of $22.7 million.

The company could credit its survival to a conservative fiscal policy set in place during the late 1970s. Where other drilling companies attempted to cash in on the oil boom with rapid expansion, Helmerich focused instead on increasing its production of natural gas. Meanwhile, the company's stock portfolio, its real estate investments, and its NGO and other subsidiaries, helped cushion the company's bottom line and allowed it to continue investing in upgrading and building state-of-the-art drilling rigs, and to step up its presence in off-shore drilling. By 1991, the company had spent some $112 million in upgrading and expanding its equipment, while managing to pay for its new rigs by securing long-term contracts with the major oil companies. By then, the third generation of Helmerichs took over the company's leadership with the appointment of Hans Helmerich as president and CEO. Walt Helmerich III remained as company chairman.

With so much of its competition out of business, H&P could now compete for some of the industry's largest drilling contracts, including a contract with BP Exploration for the vast Cusiana Field discovered in Colombia at the start of the decade. H&P became a leader in international drilling, particularly in South America. During the first half of the 1990s the company continued to expand, raising its total number of operating rigs to more than 75 by 1996. The company's revenues also made a strong return, reaching $239 million in 1992, climbing to $329 million in 1994, and jumping to $393 million by 1996. The sale of its NGO subsidiary helped boost the company's profits to nearly $73 million in that year. Entering the remaining years of the century with no long-term debt, and with new long-term drilling contracts for its cutting-edge technology, H&P was poised to continue its legacy as an industry barnstormer.

Principal Subsidiaries:Helmerich & Payne International Drilling Co.; Helmerich & Payne Properties Inc.

Further Reading:

• Flanigan, James, "Helmerich & Payne versus Parker Drilling," Forbes, October 30, 1978, p. 54.
• Jones, James A., "Helmerich & Payne Hikes Oil Drilling as Gas Prices Rise," Investor's Business Daily, April 29, 1996, p. A35.
• Krauss, Alan, "Helmerich & Payne Scores Even During Oil Industry Slump, Investor's Daily, January 11, 1990, p. 30.
• Percefull, Gary, "Helmerich & Payne Knows It's a Jungle out There," Tulsa World, October 1, 1989, p. G1.
• Roberts, James, and Chris Hernandez, Helmerich & Payne, Inc.: The First 75 Years, Tulsa: Helmerich & Payne, Inc., 1995.
• Rutherford, Dan, "Stock of Tulsa's Helmerich & Payne Skyrocketing," Tulsa World, October 18, 1996, p. E1.
• Schafer, Shaun, "Focused on the Family," Tulsa World, May 20, 1996, p. A9.
• Schein, Chris, "H & P Continues Rig Upgrades," Tulsa World, March 10, 1991, p. G5.
• ------, "Decade of Work Pays off for Driller," Tulsa World, January 26, 1992, p. G1.
• Tuttle, Ray, "Seen Worst, Done Best," Tulsa World, July 29, 1996, p. A7.

Source: International Directory of Company Histories, Vol. 18. St. James Press, 1997.