Nabors Industries Ltd. (NBR) Q1 2008 Earnings Report, Transcript and Summary

Marshall Adkins - Raymond James Kevin Simpson - Miller Tabak Kevin Pollard - JP Morgan Rob McKinsey - FBR Capital Markets Jim Crandell - Lehman Brothers Roger Read - Natixis Bleichroeder Michael Urban - Deutsche Banc Alan Laws - Merrill Lynch Byron Pope - Tudor Pickering & Holt

Welcome to the Nabors Industries First Quarter 2008 Conference Call. During today's presentation all parties will be on a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions). This conference is being recorded today on Tuesday the 22nd of April 2008. I would now like to turn the conference over to Mr. Dennis Smith, Director of Corporate Development. Please go ahead sir. Denny Smith – Director of Corporate Development: Good morning, everyone. Thank for joining us today on our first quarter 2008 earnings conference call. We will follow the customary format as we always do, Gene will give 20 or 30 y minutes of remarks about the results of the quarter and our view on the forward-looking business outlook, and we will take questions and answers after that to a limit of about one hour conference call. In addition to Gene and myself this morning Tony Petrello, our President and Chief Operating Officer, Bruce Koch, our Chief Financial Officer, Bruce Taten, our General Counsel and representatives and the heads of all of our various business units are herewith us today. There are again slides posted on our website www.nabors.com under the investor relations sections and under that pull down menu there you will find the thing called events calendar and that’s were the slides are located. I want to remind everybody that as we will be discussing outlook it's all a matter of how we see the world at this point in time and as such as forward-looking statements protected under the Safe Harbor Act. And with that I will turn it over to Gene. Mr. Eugene Isenberg – Chairman and Chief Executive Officer: Thanks. Again welcome to the Nabors conference call for the first quarter. As usual as Denny pointed out we have posted to the Nabors website a series of slides that contained details about the performance of the various segments of the company, and you’re welcome to refer to these as we proceed. Let me begin by saying that I think this quarter demonstrated the developments we hoped it would. In our lower 48 land drilling unit, our operating income was appreciably better than we had projected in that, many of you have projected as roll-over prices on existing contracts for legacy rigs i.e. other than new builds, we are much better than expected. We are also really pleased with the performance of new build rigs, our build to purpose rigs. Our cost and down time are dramatically improving, delivering not only improved margins on these rigs, but also greater customer appreciation, the potential these rigs hold to drill efficiently and economically. These brings a drilling record wells in every important market and frankly compared very favorably with rigs from our most technologically advanced competitor. Internationally, although earnings reflect some delays in Illinois, where basically where we hope to be. For example, rig 60 is or will be in the next couple of days on the payroll with a 4 year no cut contract (Ramco). The day rate is approximately a $180,000 today to deliver after tax or cash flow of approximately 50 million annually. I think the awarding of this rig the price to term our aspects were measure of the highest team that are international folks with Ramco and most of the other customers worldwide. We are receiving an extraordinary high number of increase from all over the world North America, Middle East, Russia, South America, Eastern Europe, Soviet Union and we are continuing to have a good deal of success and converting these increase into contracts. Our other units that are smaller have mostly performed in a satisfactory manner. Although we have experienced a delays and in our Nabors offshore and in the US Gulf of Mexico and we have problems with our well servicing business. Our smaller manufacturing technologically oriented business have been in every case although small better than expected. Now let’s review some of the overall financial highlights. In the first quarter we posted a result of $0.81 per share on operating income of 287, I won’t deliver this, but this number would have been 18 million higher except for certain charges in our oil and gas operations, and I think the important point is we will endeavor and probably succeed in eliminating this kind of adjustment in the future as we move to hedge accounting and public company accounting compare to the way private companies normally do handle this matters. We also had a tax benefit which I will discuss later of probably $10ish million which we don’t think is really, but we now it is not continuing at this period and you probably – if you have all those things, we are still at about $0.81. Looking at other fronts during the quarter we recognized and capitalized what we thought and we still think is an attractive opportunity to place 575 million of 10 year senior unsecured notes with a coupon of 6.15. We anticipate, although we are not sure that the proceeds from this note will be used to redeem up to 700 million in zero coupon, zero yield convertible debt that becomes eligible for call and put around the middle of the year, actually June 15. The investment income posted some good results for a change compared to losses we have recently experienced in parts of our portfolio. Our investment income statements reflects our plan to reduce our equity holdings in HH Hung Hua, the Chinese manufacturing company with whom we have sourced a significant portion of our rig purchases or component purchases. We know have 13.5% of that company's shares and plan to reduce our holdings to 9.9%. Once we are below 10%, we are at that point unaffiliated with the company's management and are free to deal with the company without having to check numerous potential transactions with the Honk Kong Stock Exchange in conformance with their kind of rigorous regulations. Anyway, the accounting for this is that we put this in a trading account or fore sale account than we book $30 million of income in this quarter, and ultimately, frankly the gain on this will be probably more than offset all of the unfortunate losses we've had to record in the last four quarters in our investment account. We remain confident about the overall business. I think the first call consensus is around 310 and while I am much more comfortable with the intermediate and long term and not really concur on projecting timings. And I think we're comfortable with that. And now I'll turn to our other unit's, individual units. Results in the lower land business were approximately operating income were approximately 25% lower than the first quarter of 2007, but only down modestly. When compared to the prior quarter rig years averaged 226 and the pleasant surprise here was that our margin were at $8900 a day, which represents a drop of around $300, a bulk of which is explained by first quarter extraordinary charges for worker's comp and things like that. So this was a much better renewal of roll over rigs legacy rigs at rates much lower than the original, but much higher than we had expected. And overall as part of this we see a definite sign of bottoming the US lower 48 pricing and bottoming in activity, and that’s reasonably that both will tilt up within the latter part of this year and thereafter. We are currently seeing signs of these factors even as we speak, for example, our rig count rate now is 238 which is essentially 12 rigs higher than our first quarter average. And importantly our down time and costs have dramatically improved on our new rigs and frankly there is still room for improvement there. So that margins substantially improved over the prior quarter, a factor that mitigated the drop in the pricing of our older rigs, legacy rigs. Anyway, our overall gross margin was less then -- down less than 300 for the quarter for the entire fleet. And overall, we expect an increase in rig count versus last year in this year, and we expect there will be a tug-of-war between them more, new build rigs build for purpose rigs better margins on the new built purpose rigs, and probably a continued drop in the price of the legacy rigs. Net-net I think the overall corporate margins domestically will not suffer dramatically from where we are at now, I think albeit all. International operating in this income in this unit was essentially flat for the quarter versus the prior quarter, but was up 37% versus the first quarter of 2007. Results were still short of expectations due to unfortunate and apparently recurring start up delays and downtime particularly in Mexico which was a lingering effect of the fourth quarter and other factors. It is worth noting that Jack-Up 657, which is one of the reasons that Q1 was not much better than Q4 was out of service for the full quarter and will be out of the service in fact for the next quarter, but if it is getting ready to a three-year deal with Saudi Aram Co, which will be priced at a margin of at least $70,000 today higher than its prior contract. As I mentioned earlier our new Jack-Up rig 660 is now in acceptance stage and I am assured that it will be on the payroll by the end of this week, before the holiday in the middle east in fact. Many other incremental rigs and rig contracts reveals a higher rate will contribute this unit result through the balance of the year. As a result, the full year is still in spite of the hiccups at the beginning will still approximate in spite to be under a 50% increase in operating income over the prior year. Bidding activity remains almost unbelievably high and we are able to convert a significant percentage of those increase to contracts. Nabors Canada, our Canadian operation remains, I have noted dismal, but pretty bad whether dismal or pretty bad I cannot tell you which, and while logically we would expect and we do expect some correcting factors to kick in. There is little concrete evidence of that yet, although the results for the first quarter declined by only 20%. We don’t think rather that would yet, and we are still anticipating that the overall the year might show reduction in the order of may be a little bit more than 40%. We have discussed this in the past and the only thing what I can add to what I have said in the past that there are very, very important Shale place in this market which we can expect to participate in and which could drive activity up in the near term and even more sharply in the longer term. Nabors Canada continues to contribute to overall company by supplying quality rigs at low cost essentially to US operation Alaska and International even more recently. Nabors Oil Servicing: Nabors Oil Servicing reported $30 million operating income in the first quarter which was flat to the prior quarter, but frankly, significantly low than the first quarter of last year. This year-to-year decrease is attributable to fuel rig hour, as the market did not go as anticipated in spite of the high oil prices. We are also subjected to intense competition because of the additional capacity in the market place, and also our new build rigs with which frankly we had teething problems are now really reaching their potential for the first time, and we’re projecting frankly some recovery all total in this unit for the remainder of the year, but I think still which probably do above as well this year as we did last year, so a bit of recovery in the latter remainder of the year. Nabors Alaska, the big problem at Nabors Alaska is that its size is not multiple of what it in fact is. The unit reported operating income of $18 million. This is drilling significantly over the prior quarter and slightly over the same quarter last year. The outlook for the entire year is essentially an increase in operating income as several rigs just stopped towards the end of the year to appreciably. At market ways more important full year contribution is being realize from each of the two new built heli-transportable rigs which were deployed very late last year. There is interest in additional heli-transportable rigs in Alaska and in fact internationally. And as I mentioned last time we had a contract for 15,000 code optic service coiled tubing and scam drilling unit, AC unit which should stop probably, early to ’09, but considerably at the end of Q'08. A last it was appreciably better as operators and in fact new comers are using a price rag that was way, that is way, I am not sure what it is now, but for year in the phase of the market price twice they were using something under $30 a barrel, at last I heard it was $60 a barrel that could easily be higher. Operating segments, this is small but important, and it’s doing much better. This is Canrig and EPOCH, they continue to develop new production and this measures the operating and measures really the operating income for sales that would prioritize but the value is unit, just the function of increasing technological limits, increasing the value and market ability of our rigs. Oil and gas unit is doing extremely well, I will talk a bit about accounting issues which we hope would be eliminated in the future. Net-net we have a joint venture with first reserve; we have approximately $300 million invested in that. And if I had to guess the market, that’s tough, we’re pretty close to twice what we have invested in it. We also have a couple of hundred million dollars in our own investments ramps on, and that too has value above it carrying investment cost and if so – with both of them we have marketers, we have capital cost of about half a billion, 500 million, and if we have to sell it and I guess as we would realize 900 million to a billion dollars. Let met quickly turn to the summary. I emphasize at this point I believe the overall environment in which we operate, both worldwide or driven demand internationally, and North American gas, primarily gas driven demand, the environment and our performance confirms my long held, long-term optimism. I think its obvious to everybody and I wont go into the details, but if you look at my last couple of three conference calls, I did go into to the details, I think gas is likely to stay pretty healthy, and as you know we are relatively typing to increase drilling on the part of customers and increase rig utilization prices and orders for both the purpose rigs. As I try to emphasize our Pace rig performance is impressive not only to us but our existing customers. My strength in the overall market and any of our rig margins remain relatively robust compared to expectations. International operations are doing what we frankly had hoped with the obvious exception that I wished internationally everything had come with us a month earlier rather than a month later, but life will go on in spite of that. We expect to see international additional growth, internationally, particularly by the price of oil, domestically not mark by gas. Our top position most of the worlds important markets including North America make us in a high position to drive high success and virtually all growing in emerging markets and I think the succeeding quarters will demonstrates that in our reports. That concludes my comments and we will take question.

Michael we are ready for question answer please.

(Operator Instructions). This one is from Marshall Adkins with Raymond James. Please go ahead.

Good morning Gene, could you expand upon the US margins you mentioned obviously better than I thought, that most everyone thought, and you said really from here you don’t expect them to suffer dramatically, expand upon that and also bring into play, I would like to get your thoughts on the Shale place in the US and how that will impact you, not so much near term but over the next 2-3 years?

Good. I think the distinction we have to make is, we have a bunch of new build rigs, one of our competitors has a bigger percentage of new build rigs book. But the new build rigs, we were gradually and pretty significantly improving our performance on them so that we had for example over the year operating margin on our new rigs went from 9400 to roughly 10,000 a day, and frankly that margin probably should go up to 12, 12.5,000 over the next year, and that’s ironing out the wrinkles and not having to step up -- and whole bunch of things that you do when you have the whole bunch ADR new technology rigs in a relatively short period of time, so that’s a plus factor. The link – and that – in the first quarter they represented probably under 70 rigs, 66, 7 rigs. The older, the legacy rigs, and we have in the past described the different categories of legacy rigs. They represented maybe 2.5, 3 times as many rigs, and the margin there went from say 9,300 in the fourth quarter to 8,800 $500 day drug, and that’s the tug of war we see in the future. For the year, I think the new builds will go up in number and go up in average margin. And I think the leading edge on the legacy rigs i. e other than new builds. Leading edge probably will short output but still will have some drops versus the highest margin on existing term contracts. So the net results with that remains to be same, plus also that inside I hope will have incremental new builds, probably not too many for this calendar but I expect to have – I hope to have sign contracts may be late this year or next year. So overall that’s the question of all, that the legacy rigs going down somewhat how much we don’t know, but less than we thought, and the new build is going up, not only we are getting better margins on the rigs we already signed, but the newly signed rigs are more decent prices than higher margins when we get go.

Okay. Second question, you at least spoke to the memo, you actually not to cover up the ball in Canada, but a kind of since a little sense to little hesitant seen in your voice on assembly, can it does meaningfully better for the full year. So I don’t know -- give me a little more inside and what’s your thought are there, because It does seem like Candid a whole lot better than we are thinking of few months ago?

So far it doesn’t make a year unfortunately, and maybe we’re a little pessimistic and we’re frankly reflecting, Nabors Canada, their views and those guy has been added for long time, and they are having a number of issues one of which is even crewing and other words we could actually have more rig years, if we got the crews the operators think that it used to be, that if you want rigs to run for 3 months, 4 months, 5 months to crews and pop and back and these guys have obligation and better opportunities. So there are all kinds of issues here. The longer term however is that, #1, there are a bunch of attractive share price there of which we are participating in the small way with our E&P joint ventures, so we have two views of those, and those could be pretty sizable, required a lot of rigs and a lot of hit to purpose rigs including platform rigs that you know like our rigs that are Tad rigs. And so, I think it will be good even this year a little bit, but next year and year after better, I think the logic for gas prices being very high, and they are high they were extraordinarily high now. In spite of that, they upward a gas tax, they probably have a lower tax and $5 gas price compared to 10+ and that’s modestly higher tax, its not super impressive to me and none of our Canadian customer listening I hope. Anyway that’s the story there. it could easily better, our guys see it in hand yet or visible yet, like a little bit they do in the states.

Okay great. Thanks Gene.

We take our next question from the line of Kevin Simpson with Miller Tabak. Please go ahead.

Thank you. A couple of questions, one, it was great job in the US in terms, I guess, of cost cutting as well as getting the equipment up to speed. I was a little surprised that the improvement in the rig count. Is that just an anomaly or do you think that, I don't know if Joe is there…

Yes.

Joe, is that an anomaly or is that a level that is maybe a new base off of which you maybe able to grow in the second half, the 238?

I don't know I think it is new base that we can (Multiple Speakers) that we can grow from, plus Gene indicated he wanted the rig count up, so that was our mission from god. But no Kevin, it’s the market in the last, especially the last 30 days began to move and it has allowed us to begin to move some of the legacy equipment out. So, we think it's, like you say, the leverage point will come from this stage of the game anyway.

Actually I think that our current count is above where you projected the other day. So, it is looking better with our fingers crossed.

And Joe, the incremental customer, is that basically the larger EMPs who you already have good share with just adding equipment or is it some of the smaller guys, you know who?

I think it is across the board.

Kevin it is the large independents but also some small operators that some we haven't worked for before. So there is a lot of different clients stepping into this arena right now that have chosen to do so especially in the last 30 to 45 days.

And geographically also across the board was there any area specifically that is particularly…

It is pretty much across the board. For us, North Dakota, some of the stuff we are seeing improvements in South Texas. Just again, it is across the breadth of the organization, so.

And two other US questions. I am kind of gathering, Gene said to put rigs back to workers a little tongue in cheek. But did you have to, the prices at which those incremental rigs coming back to work comparable to roll overs you were having elsewhere or did you have to take prices down to get rigs back to work?

Pretty much comparable. We had a couple of areas that we have put rigs up, specifically in west Texas in that we had to put the rigs up at little lower than the roll over rate structure but other than that Kevin, we’re pretty much coming out with the rigs at least the renewal rate of the term contracts that are rolling off at this point.

Okay that's great and if the demand was there, could you put 30 rigs back to work over the next six months?

Yes.

How about 50?

Yes. Depending on what the demand was.

.:

You don't have the same personnel issues that Canada might have?

No.

Okay, then quickly sorry for lots of questions here. International mix again. The incremental costs in Mexico that probably was one of the reasons for the mix, were they behind the company or is it basically something that is going to be the costs are running higher than you thought when you bid and so looking at a lower rate for that area consistently going forward?

Kevin what happened, we moved the rigs down there very quickly and that cost some operational deficiencies which we identified in Q4, obviously, Q1 we used to get those corrected. I am looking forward that we'll be back on track here from the second quarter.

Does that mean that 2Q you would get that increment that you, whatever the hit, that was in both for 4Q and 1Q back into the P&L positively?

Yes.

Okay. Terrific that is it from me thanks. Operator Thank you. And our next question is coming from line of Kevin Pollard with JP Morgan. Please go ahead.

Thanks good morning. I just wanted to you know explore in the role that you pays rigs and additional new builds going forward. This in your regime, is the incremental demand likely be greater for your idle capacity you have in you yards now or if the state and balance of this year and having you built additional PACE rigs?

I think the short-term demand will be obviously the existing rigs, but I think longer-term, frankly when you listen to what our customers are talking about, they are really talking about EOG here and others. They are talking about the economics of the built for purpose rigs was specific place, so if they can for example in the back end of the encourages they can do 20%, 30%, or 40% more rigs per year with a bill for purpose rig and that is what they are going to do. In the meantime, those rigs, they can take a while to commit the those things compared to the Russia big deals we have up to now, and I think what’s is happening now is the good rates are going up the ideal build for purpose rates are going to be used and that will be used in place other than these, and sometimes that be used initially in these place, and then, when they know exactly what they want to do and spacing its, try to acknowledge that they go for the build purpose itself. So, for us its clearly going to be, we got a 8 new rigs to deploy. We have not got, but we hope to guess new contracts for new builds and we have 30 existing rigs that we hope to deploy, so for us its almost automatically going to be legacy rigs first and then longer term hopefully the new builds.

If I wanted to get a new rig or you know some one gave you a commitment for a new Pace rig what’s the timing in terms of delivery at this point?

For you, no. I think the normal week time is probably 9 to 12 months, but we do have rigs at our place – kind of how to say this – we have rigs at our place that we could divert to a better customers, to a better customer, to limit built. Generally, it is 9-12 months, but we could do 3, 4, or 5 rigs quicker for the right circumstances.

And what would be kind of the annual capacity that you could handle in terms of if you saw a substantial pick up and new build up orders.

Well, I think we are technologically better equipped to cope with this than we did in the past, and we did 16 year, it is domestically alone.

I mean there had some start-up like in…

Not a problem to confront.

Okay. If I could just real quick.

I think we have gone through a bunch of the issues that cause us hassle incremental costs, delays in our (inaudible), so that we could do it much more effectively and probably other things we think we could do more. I don’t think that’s an immediate address, I hope to rule it.

Okay, I would like to switch gears quick over to international segment. I know a lot of the nearly 50% operating income you are projecting is driven by you know contract rollovers. Can you give us a feel for when the timings of how those rollovers progresses fairly evenly over the balance of this year or even we see obviously the two Jack-Ups starting up in Saudi Arabia will have noticeable impact on margins. If there are any other batches of contracts rolling that we should be watching out for in Q3 or Q4, though the causes of progression to be somewhat uneven?

I think, the contract rollover is they’re pretty much spread out all over the year, so there is no speak despite over the year.

Okay, that’s all I have, thanks guys.

Thanks. Operator: Thank you, our next question coming from the line of Rob McKinsey with FBR Capital Markets. Please go ahead.

Good morning guys.

Hi, Rob.

Gene, you gave a lot of guidance, both domestic and international and some of the other segments what happened to dealt down into as your earlier comments on being comfortable with where the current consensus is? What specifically I am hoping to get out of this is, if there is upside to that one or two segments might provide it and why, and same thing on the downside?

Well I tell you frankly, more confident and I think have a firmer opinion on what happens in '09 or '010. That’s specifically quarter by quarter this year, although. I think the first call consensus is 310 at the moment and I think we are comfortable with that. Necessarily, wanted to see the whole bunch hired, because, I think it must much higher in '09 and 2010. I think the upside is virtually ever place but by definition it has to come where we have the bulk of the earnings. In other words a 10% improvement in international or 10% improvement in domestic is a ton more money than doubling what happens in Alaska or offshore. So I think everybody, If there's upside every place and you can judge, your Jeff guess probably as good as ours or not quite good as our' with respect to contracts and in internationally, but I think both those units will do pretty well. I think domestically actually we will still be down for this year versus last year. But hopefully bring less than we had originally – what you guys had originally projected. Internationally would up and because of these hiccups and delays it may be just under 50% instead of 50% and I think while the percentage growth won't continue internationally. The absolute dollar growth will continue pretty good and the other big element frankly is work over and I think we are seeing a bunch of those issues, its very competitive, and surprising for oil based work and that’s always is not growing, but I think our equipment is better and I think frankly I'm looking to do what we did last year there, which I think will be an improvement over the start, and I think longer term we will do real well. If you believe words feel that the future is bright there.

Sure. And then going looking out to '09, 2010 and clearly what looks like one of the drivers in the US is going to be these emerging shale gas plays. Can you comment on any differential rig requirements particularly for the extent rich multi lateral wells? Is that a much more limited subset of rigs? And how do you guys feel your position to capture your share of more of that market going forward?

I mean we always have a bigger position in directional stuff than conventional vertical footage. I think we were the first guys by a mile to have the only capabilities other words so, lift and roll our moving systems on a path which we've started doing a different way in Alaska. And frankly it’s not only the lower 48 Canada could be pretty big as well. And I think there are all potentially sizable and I think we're very, very well positioned if not. Certainly better positioned than our, what is 15, 16% market position in Oil 48. These things much better, you should do twice as well not introducing from itself.

Great and then on the internationals same kind of '09, 10 timeframe. Is much of that growth going to be new rigs?

We have an internal projection which we've incorporated in some of these slides that we add to it which reflects no new rigs contracts for now on. But I think we will get a bunch. I mean at $80 we where getting a whole bunch at above 17 and the virtual consensus of no increase and surprising me what seems to be an increase in demand in spite of what economics slow now. And I think if we are going to be looking I think the national oil company is going to have the biggest gun on these things because they control most of the reserves. But I think we're positioned pretty well with all those guys or almost all those guys and I think we're positioned well. Because there is a ton of stuff going on in the former Soviet Union, Kazakhstan and Middle East and North Africa all over the place and If you say It is safe why is it going on, all you have to do is look at the headlines of the New York Times under Wall Street Journal or look at the prices, and that’s where it is, and I think its better reputation as we have everywhere I think for example, Saudi Aram Co is probably our biggest single customers Worldwide and they probably highest on the list so I think where it block this. That goes a just example.

Yeah, okay thanks I will turn it back.

Okay thank you your next questions from the line of Jim Crandell with Lehman Brothers. Please go ahead.

Good Morning. Gene or Joe, what is the average contract link in the US land rig business, and does that differ a lot with legacy rigs and new wigs?

That could be an easy answer, the second one is yes.

So the term and contract on the new builds.

(Multiple Speakers) give me other

Okay. The new build contracts were typically a three year bases. The convectional rig, the legacy rigs where we are today is we are looking at a maximum six month terms. So that’s pretty much where we are at.

And that’s maximum because Joe is more optimistic than some of the rest of the customer’s prices and volumes going to do because six months hence.

Joe how much from the peak to the trough that cycle did on a spot basis, did rates come down, and if you see fairly vigorous upturn here over the course of the year how much do you think you will get back in terms five places by which is the calendar year end?

The – I guess about 25% was your largest decline on the -- most of those are big rigs. I think we have potential on the upside. I think as we into the third and fourth quarter, as we mentioned that’s pretty much you know 1050 horsepower rigs, rigs type. I think we got a great opportunity to move the rates very significantly, I don’t think you can get all of that back in the third and fourth quarter, but I think we can get a pretty good percentage.

I felt we don’t need all that and maybe it is even optimal to get all that.

Okay. And Joe could you summarize what’s your drill pipe situation is now and your needs over the year remainder of this year?

We’re in very good shape on drill pipe and we are actually having discussion with our material groups and we are well positioned 14 months in advance right now in terms of drill part.

And I think we have had a real good relationship with (inaudible). I think we have even better relationship with national oil well and groups are working together in. Probably hope more demand might be from international was next 14 months.

Yeah I know they love you to. And a question in the well service rig business, 40% of the business is from California, there has been some recent consolidation in the market with key as finding another one of its competitors, has the markets change in pricing because of that and is that likely the impact change going forward?

No right now this Jim Denny. Right now we have seen no change in the market pricing or any of our rights in California.

Do you think that illuminating a even though it’s an albeit smaller competitions, we look back saying somewhat with otherwise that’s been the case?

By now we don’t say any things.

Okay thank you that’s it for me. Operator Thank you and your questions from the line of Roger Read with Natixis Bleichroeder. Please go ahead.

Hey good morning gentlemen. Quick question on the international side also wondering if you could may can give us idea what the impact from a dollar values standpoint was or may be what the run rate of international would have been from a profitability standpoint, as you not had the issues in Mexico. And then Gene if you can give us idea on maybe year end '08, maybe mid '09 where you think the rig count could be in the international segment based on what’s already saw and then based on the busy outstanding that was highlighted in the presentation here.

I will let (inaudible) make a start of that.

Sorry, can you repeat one more time quick and then we understand the first question.

Sure the first part of the question was could you give us an idea quantified kind of the impact in Mexico in Q1 what would have the results have been, had not happened? So in another words what was a run rate for Q1 if you head into Q2? And then where you think we count to be in an international segment middle in next year based on what you’ve already signed and the bids outstanding out there highlighted in the presentation?

It would have been approx 4, 5 million better in the Q1 and we improved that by another 8,9,10 million in the second quarter. That’s what we’re looking at right now for the international session.

Okay. And then where you think the recount could go overtime, your own active recount?

I think the recount could probably go up another 5- 10 rigs for the 2008 overall.

And then as you think about ’09 with the busy outstanding and your ability to put rigs increased gather, maybe just give a range, is it another 10 rigs, could it be as highest 30 or 40?

I think, as Gene said earlier, I think the international market the way we see the activity in the project that have been developed at the moment I think that we good for 15-20 rigs a year to increase our recount. That’s what we’ve done in the past now I see the same for 2009 and 2010.

Okay, thank you.

Okay and your next question going from Michael Urban with Deutsche Banc. Please go ahead.

Thanks Good morning. Feel like questioned that was left on manufacturing business you have been increasing the third party sales there pretty nicely, I was wondering if you felt that you could continue to do that if there is an opportunity to either scale up that business internally or maybe looking to something externally combined that with someone else?

The answer is both, I think we are looking to increase it, we have a whole Mexican products and we’ve recently used the manufacturing entity to international, so we frankly disassociated from the scripts USA and Nabors and having pretty good success I would say getting hesitant information the way I think for example, not bad, but in China they are doing really good compared to Nabors. And some of the new products are really doing well, and that was a backdrop obviously.

Great. And my other questions were already answered. Thank you.

Alan Laws with Merrill Lynch. Please go ahead.

Good morning. Yeah your now rigs clearly they are hitting new strides, operators can talk in the month, but we are starting to cycle from a different level. Do you think that the rigs that are on the fence are stacked right now, need to come out the fence before you’re going to get orders to new rigs?

I think again it wasn’t the operators, its more -- I think its more, based on more information then what we are going to tell you. But if you look at some of the analysis that we’ve done and is presented in the past, if we have a build for purpose rig that’s working same at Barnett Shale and have some mechanical rig, even a sizable mechanical rig. The difference in the number of wells for year and the intended overall economics of such, and in some instances the rig could work nothing and still not be competitive you know the over rig. So on the delta purpose one thing is down tag what they want to do and how they want to do the laterals and in fact they want to do thing, now exactly what they want to do or even have a pretty close approximation, I think the delta purpose are just economical, and even if they think its close now, they think they will improve the way they do so over the next year or two or three. So they want to have the capability of technological coping what they look their advancements. So I think its, we have a bunch of small mechanical rigs, so this is against our economic interest, but the fact are what they are and I think these news rigs, I mean, the SCR will do all the work, I think a lot of the good mechanical rigs will go up, not all of the, but I think the future frankly is in the technology and particularly as you think of it and more – a bigger percentage of the drilling is in the sales, a bigger percentage of the drilling is directional, a bigger percentage with a whole bunch of laterals requires different hydraulic power, and when you put all this together its, these going are going to move they control level in 10 days, 12 days, 15 days so they have even beyond hands on moving hours or move from in a couple three days. The old rigs dishabilles I mean, there always been the case where there an area where there has been a rig that’s familiar and accrue even more than plugged in the rig, that’s been familiar with an area and the company is familiar and they will be the real well and they will be employee, but you are talking this new Shale in and canon dry guarantee what they’re going to be.

If you have to guess of how many new rig orders that you would receive this year assuming what Jim said some like a 200 rig increased by year end? How many do you think you guys would have in hand?

You are talking domestically only?

Yeah. Just domestic.

I don’t know. We have 4200 new rigs and 200 incremental rigs going to work.

Two hundred incremental rigs going to work.

Well I would that we have 15 acquisition overall, and I would guess we will do better than that.

And then I will rate it down into two things frankly, the short term P&L is better by putting stock rates toward, but the indication of how well we are doing in the future or somebody of these new builds, build for purpose rates because that means somebody is committing to us in competition for the number of other people and they are committing for three years or more, really that many for four years because they commit now, they’re going to wait at least around the year to get the rig. So I have to project the question to be in surds, its both and we should do better than our market position in both and I think the more important one is to build their works.

Okay. And then you talked about the 1000 and 1500 horsepower category type and you noted in the release that you had some stack in that category, how much of the sort of the stack capacity in that range do you guys control, are you had a better position in say Patterson could gray often that?

Oh no, I think between Patterson and ourselves we had broken this, but I am not sure.

Okay. Last question is on Canada the has question have a resist-on Canada the tax credit for deep drilling seem to have fallen short a lot of people were looking for, but as far as your position one of the larges deep fleet up there, do you see that differentially setting your part up there, is that factored into what Dennis thinking up there?

Hopefully it is, but I mean, basically what they try to do is litigate the tax increase by making concession on deep, and that really deep, I think its 6,000 deep while – and to the extent they do that and to the extent it doesn’t and they keep doing it we will benefit.

Okay. Thanks for the answer, I will turn it back.

Operator, we’re bumping up against our time constraints, one of we just take one more question.

Okay. That will be coming from the line of Byron Pope with Tudor Pickering, Holt. Please go ahead.

Good morning guys, just given the song there for you think on the international side and I was North America's looking constructive now. What are you guys thinking in terms of `08 CapEx and I didn’t catch this, the Q1 CapEx number?

Yeah. I think we’re and this is a function in part of opportunity, but I think we are looking a little over billion dollar this year.

Billion one.

That’s billion one, and I think one bigger able is how much invest, there is our 50% share our ENP company, joint venture with first reserve and another variable is what new growth began. Incremental new builds basically, over the bubble we are not budgeting, obviously we are going to be increase budgets. So I would like it to the radius of, based on what the backs are, but I would be happy to spend another 3, $4, $5 million based incremental three year payout rigs.

And then just a related question, if you would be ordering a 1500 horse power PACE rig today as opposed to a couple of years ago, what would you be looking at all in including drill pipe. I'm just trying to get a sense for cost sensation on a new built site.

I don't know if he is pricing us, but I would guess 1500 horse power domestic.

Okay, thanks guys.

I think you got a confirmation. You're welcome.

Ladies an gentleman, I want to thank you for joining us again today and if we didn't get any questions you might have, feel free to call us. Thank you very much.

Thank you ladies and gentlemen. This does conclude the Nabors Industries first quarter 2008 earnings conference call. This conference will be available for replay after 12 noon Central Daylight Time today through April 29, 2008, at midnight Central Daylight Time. You may access the replay system at any time by dialing 1-800-406-7325, enter the pass code 3862621. International dialers may dial 303-590-3030. Those numbers once again 800-406-7325 and 303-590-3030 and put the access code on either number as 3862621. We thank you very much for your participation and you may now disconnect. Have a very pleasant rest of your day.