Why Helmerich & Payne, Inc. Stock Rocketed Over 23% in September

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What happened

The shares of high-yielding oil and gas drilling rig provider Helmerich & Payne, Inc. (NYSE: HP) rose an astounding 23% last month. That was a notable about-face for the shares, which had declined roughly 45% between the start of the year and the end of August.

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That said, Helmerich & Payne wasn't the only oil and natural gas services company to see huge gains in September. Competitors Patterson-UTI Energy, Inc. (NASDAQ: PTEN), Nabors Industries Ltd. (NYSE: NBR), and Precision Drilling Corp (NYSE: PDS) each advanced more than 20% in the month. Patterson-UTI actually led the group with a huge 31% gain. This was much more than just one company shifting into high gear.

So what

The important news is really summed up in a presentation given by Helmerich & Payne at the start of September. Although the company noted that oil prices remain a risk factor in the U.S. onshore drilling market, it continues to see demand for high-end drilling rigs. Helmerich is the leading supplier of these alternating current (AC) rigs, which are more flexible and efficient than older rigs.  

That said, all of the major drilling services firms have been upgrading to high-end AC rigs because of changing industry demand driven by more complex applications, like horizontal drilling. That's not a new trend; this shift has been taking place for years. The energy downturn that started in mid-2014 just helped to accelerate the shift, with AC rigs continuing to work, on average, while older rigs got mothballed. In a sense, older rigs got pushed out of the market.

Looking to the future, Helmerich & Payne went on to explain that U.S. onshore drilling continues to be driven by unconventional oil plays. These are the types of wells that require the newest and most reliable equipment because they are complex, have longer lateral drilling requirements, and are just generally more challenging. As you might expect, Helmerich & Payne believes the replacement cycle that has favored the AC rigs capable of drilling these types of wells to continue.

Better yet, Helmerich & Payne believes that, even in the current oil market, there's room for day rates to move higher. That, of course, only holds true for high-quality AC rigs. But Helmerich & Payne, Patterson-UTI, Nabors, and Precision Drilling all have idle AC rigs that can be brought back into action. So, really, the fundamentals for well-positioned drill rig providers is fairly solid. That said, it would be a clear overstatement to suggest that these are the best of times -- things are just holding up reasonably well despite relatively low oil prices.

And speaking of oil prices, oil has been holding fairly well in the $40 to $50 a barrel range over the past year or so. That's proven to be high enough to keep the U.S. onshore drillers active -- and to support demand for the top-quality AC rigs that Helmerich and its peers provide. But oil prices were on a decided uptrend in September, with West Texas Intermediate rising from $47.31 a barrel at the start of the month to $51.67 by month's end. That was an additional tailwind for drilling service providers, whose shares generally tracked oil prices higher through the month. Higher oil prices usually translates into more drilling, and more demand for drill rigs.  

Now what

Helmerich & Payne, Patterson-UTI, Nabors, and Precision Drilling all had a good month. But don't get too excited. As Helmerich pointed out, oil prices remain a volatile and important wild card. The drilling services industry appears to be holding up pretty well, but falling energy prices could quickly change that.

That said, the industry's outlook isn't nearly as dour as it was a few years back, when oil prices were plunging from over $100 a barrel to the $30 range. If you are looking to jump aboard now that oil prices appear to have stabilized somewhat, I'd start my deep dive with Helmerich & Payne. Of the companies here, it offers the highest yield, has the lowest debt, and the most idle AC rigs ready to get back to work.    

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.