Nabors Industries Ltd. (NBR) Q2 2010 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Nabors Industries Second Quarter 2010 Earnings Conference Call. [Operator Instructions] I'd now like to turn the conference over to Mr. Dennis Smith, Director of Corporate Development. Please go ahead, sir.

Good morning, everyone, and thank you for joining us for our second quarter earnings conference call. The process today will be essentially the same as we always follow. Gene Eisenberg, our Chairman and CEO will give about 20 to 30 minutes of commentary on the results of the quarter and the outlook as we see it today. Then we'll follow with the Q&A session, and we'll try and wrap up right at an hour time limit. With us today, besides Gene, is Tony Petrello, our President and Chief Operating Officer; Clark Wood, our Principal Accounting Officer; and most of the heads of our various business units, and our General Counsel, Laura Doerre, the best looking of the group. I just want to remind everybody that a lot of what we're talking about is the outlook, as we see it today, subject to change and, as such, it's subject to the forward-looking statements of the Securities and Exchange Act of '33. And with that, I'll hand it over to Gene and to get started.

Thanks, again. Again, welcome to our conference call for the second quarter. I want to thank everybody for participating. As usual, we have posted to the Nabors' website a series of slides that contain details about the performance of the various segments of the company. Please refer to these as we proceed. Also, I think, Denny and the business unit has put together a pretty comprehensive earnings release, and I suggest you refer to that too. Overall, operating income for the quarter was $125 million, which is in more or less in line with the consensus. Earnings per share of $0.19 was essentially in-line with the consensus, which $0.19 includes an approximate $0.04 add-back in items which we feel are appropriately excluded to get a more meaningful non-GAAP product, and I'll go into that a little bit later. If I had to summarize my overall feeling for this quarter, I feel that we were involved in what -- pretty close to a perfect storm for our business. A confluence of events that all had significant and negative impacts on our business. And I was frankly pleasantly surprised at the result in the quarter because it was better than I thought it would have been given the external factors. And I think the outlook for the year is better than I would have thought it was, again, given the external factors that constitute the kind of the perfect storm. Let me go through those very briefly. We had a pretty low-priced for natural gas and still it's a little higher, but still pretty low. And this affected our growing activities in Canada and the Lower 48 and even more so, the valuation of company since we're perceived to be a land gas-centric drilling company. And it obviously also affected of the perception of the value of our E&P holdings, which I'll also talk about a little later. Also, the overall worldwide economy is not as robust as it could be, and probably will be, and that influenced the overall demand for hydrocarbons, which didn't affect us, which didn't help us, which hurt us. Also, specifically to our business, which also affected others, there was a confusion in funding for PEMEX in Mexico, which net-net resulted in lack of funding for drilling which funding has to be -- it's internal to Mexico. It's between the government and PEMEX and that sort of thing. But that has to be resolved in the near future, and some say that it's sort of starting to be resolve. But that has had a major negative impact on our operating income obviously from international, and I'll get into that specific later. We also had a pretty meaningful drop-off in our oil-directed drilling in Saudi Arabia, which also had a, probably, almost an equal negative impact last year to this year on international's operations. And we don't see short-term growth in natural gas as they're still cutting back oil drilling and we won't see it increase until they do, and this isn't yet offset by natural gas drilling. And finally, the spill in the Gulf, which surprisingly since we're, "primarily a land drilling operation", has had a negative impact on our offshore operations, which will have a surprising negative impact on our Nabors Offshore operation, which I'll get into when we talk about it. Let me talk briefly, again, about the non-GAAP EPS and talk about the factors that we think are relevant in adjusting from GAAP to non-GAAP. Let me also emphasize that this is just our view and pretty obviously, each and every investor can adjust these numbers and not adjust them as they go across. The things that we included in the adjustment refers to a $5.1 million foreign exchange loss, which we don't think is continuing and not appropriate to our continuing operation reflection. The next item is a loss of $3.6 million. This is sort of hard to understand accounting phenomenon where basically we have debt that's due in 2008, 2011, and we buy the debt back at yields which are no lower than 2% to 2.5% against cash, which we're saving conservatively, holding conservatively at under 0.2% interest. So it's a deal we would do all day long since buying this is just as good as treasuries for us because we're certain we're going to pay it off. Nevertheless, the accounting thing has this value to something well below the 2.5% yield, in other words, we're carrying it on the books at a real low number, which doesn't reflect the market. And then when we buy it at a low-market rate with a higher-than-market yield, it's still below the carrying value and therefore, we have to book a loss, which is not terribly logical. Next, we incurred a $2.3 million loss in prior years, which were not appropriate to this period and we're adjusting for that tax adjustment, and that one's specifically tax. We shouldn't have that problem on an ongoing basis. We should get it right the first time. But it's a $2.3 million are not appropriate for this particular quarter. And finally, we have an elimination of $1.1 million in operating income, rig income derived from working for our oil and gas joint venture, specifically the [indiscernible]. And this number is going to be bigger for the whole year [indiscernible]. If we make $2 million [indiscernible] for NFR, let's say, where the accounting works half of that sale since we own 50% of the NFR is sales to ourselves and has to be eliminated from GAAP profit reporting, and we take it in a reduction and depreciation and depletion over a longer period of time. But for every single practical purpose, we get the income, we get everything except the accounting that we're adjusting for that in this thing. So that's the story there. Let me turn quickly to the business units. I think the NDUSA, write up in the quarterly, in the release that you already have, is pretty comprehensive. I think, just let me briefly summarize. The rig count today is 179. We figured the year we're looking to average around 174. We're projecting next year modest increase over that was 192. And in spite of the fact that we are projecting that we'll end this year with a rig count of around 190, so that's a modest increase this year, and even more modest increase for next year. But hopefully, time will tell, and we may be able to improve that. Overall, as I've said before, our projections for this year have been ratcheting up the internal ones anyway. We started at a pretty low number, maybe a $130 million projection of our operating income for this year. And every time we looked at it but frankly, it's gotten better, so we're now projecting $250 million operating income for this year and a higher number for next year. Where it's conceivable, we will get the number we had in 2009. I think the other important thing to note here is that we're getting new build operations. So I think last time we told you we had four new builds for the Bakken and, I think, since then, we did five new builds. PACE had new builds, we have three functional equivalent of new builds in terms of economics with probably even higher return on those really upgraded SCR rigs. And I'd be surprised if we don't have at least five incremental additional new builds to announce by next quarter. So the rigs are doing really well and the proof of the pudding is in customer acceptance. Obviously, we're really dominant in the shale plays, which is important. And we went from, I don't know, probably up 30%, 40% in our rigs working in the shales, the liquid from shales since last quarter. Let me switch to NDIL [Nabors Drilling International Ltd.]. We previously forecast our international operations rebounded from the drop we experienced last quarter. Operating income of $65 million represents a nice increase over the $52 million or $53 million operating income in the first quarter. Rig count has increased, margins essentially the same. Improving activity with multiple start ups in Colombian, Kazakhstan. To get to the net cutting here, the real drop in income was in Mexico as previously described the financial conditions. I think, operationally, in terms of quality of rigs, kind of rigs that are needed for PEMEX, we're still in good shape. And we're not disproportionately adversely impacted, except that it's an important market for us. So in plain simple terms, we went down probably $40 million, $45 million in operating income last year to this year because of the funding of [indiscernible]. They'll get cleared. To me, it isn't crystal-clear how quickly we'll go back to where we were even when it is funded. But we will definitely go up. Similarly, in Saudi, we almost had a comparable loss, which explains some excuses, but it clearly explains of the drop in international. We also did have probably $40 million or $50 million solid drop in operating income year-to-year. And we probably have 11 stacked rigs there now. We had hope, and are still hoping, that [indiscernible] and make up for it. But that's happened a little slow. So basically that explains why we're down and it's an industry thing. And it hits us, probably a little bit more important, because Saudi and Mexico were more important to us than the average industry. And I think we'll, over a longer period, get back there. But it's not going to be a big recovery. Nabors Well-Servicing, we're doing pretty well there. I think the most significant factor there is just the high crude price is finally manifesting itself in demand for workover services, which is also therefore manifesting itself in pricing. So I think that there have been a number of prices instituted by us and others, and that they're continuing to come into play. A lot of these things require a 30-day notices and a lot of price increases are tentative depending on what other guys are -- basically, there's a strong pricing trend underlying the activity that's attributable to the relatively high crude price. And in some cases, we're leading price increases, in some we're following, but that's the most positive sign. So basically, what that means is, that we're going to have probably a strong second half in 2010 but I think in 2011, the stage is set for even a more robust recovery and workover. Nabors Offshore, in a sense, we'll probably do something -- we did about $8 million this quarter. Even this quarter, however, was impacted $2 million to $3 million by the Gulf spill. And the Gulf spill manifests itself in two ways, really, one -- I mean, one we have the moratorium and the other we have a delay in getting permits to drill. And whether it's a moratorium or otherwise, or there are no permits to drill, they're not going to drill. And we have six rigs on platforms on SPAR's that are adversely impacted. And some of the jack-ups even aren't working as they might have with permits. So basically, if the worse-case scenario, I think, is down $25 million for the year compared to what it would have been without the spill and I think there are hopefully signs that this might be mitigated before the end of the year, but a good in spite the end of the year, we'll do close to $10 million instead of $35 million this year. And next year, I think, we'll do $35 million, plus we still have a bunch of things that we refer to before with one SPAR platform work that will manifest itself in late 2011. And I'll talk a little bit more about that later' Nabors Alaska, I guess, it's a declining field. We have not been successful in new builds there for BP. And BP is also -- BP right at the moment controls vast majority of the drilling. The operator are also drilling. And they're cutting back and Nabors was not super successful with BP. But we do have probably the best tool for the future on the Slope and that's a coil tubing unit. And this is something, in other words, this year is down from last year. Next year, probably will be down as well. Not probably, will be down as well. We still have decent returns on capital employed. But beyond that, I think some time next year, we get one or two of these coil tubing units, which are not only good for what they're doing now, but they're super good for the shallow high-viscosity drilling that's going to be going on forever on the Slope, while crude price stays even below where it's at now but at a good level when they figure out how to optimize the extraction of those. Anyway, I think the outlook is short-term, down, but long-term, I think, considering it's a defining field, we're in relatively good shape. Canada, again, this unit has lousy seasonal quarter, and we have a loss. But the loss was less than the obviously, less than the operating profit in the first quarter, but less -- a smaller loss than we expected. So things are doing better than we expected. We'll do better this year. This is the unit that had made as much as $180 million operating income. And I think we have a shot at that, but we won't have a shot at that until gas prices are six-ish or better. Horn River still remains a super bright spot for us in Canada. Oil and Gas, I think the major interest in Oil and Gas is what our plans are to monetize i.e. convert these assets, which haven't been doing us much good on a stock-price basis in cash. And I guess, to brief [ph], the situation is, we're three months closer than we were last quarter to number one, going public with NFR. I'll repeat that story briefly. NFR is joint venture, 50-50 with us and First Reserve. We have roughly the lower half $500,000 [indiscernible] invested in it. We expect to go public in less than three quarters, some time in the first quarter next year or second quarter next year. Although if the situation permits, we're prepared to pull the trigger on it. We think right now, we have three or four competent investment banks showing us that unless the world goes to hell in a hand basket, we'll have the equity knot of $2 billion, which means $1 billion for us. And I said, we invested about $500 million. The GAAP, SEC dictated fixed impairments to make our holdings around $115 million, $120 million. So that's essentially where it was before, but things are looking a bit -- our well results are really good there, which is going to help the IPO. The second area, which is largely the first area to actually generate cash is Colombia, where we have our own stuff, the kind of Nabors around [ph] on stuff. Now we have E&P, we have 50-50 joint venture with First Reserve. That stuff together is, we're going to market it together, that's about 7,000 barrels a day of oil and a lot pizzazz. There's universal interest in that. And I still expect to sell it before the end of the year. But we now have completed our drilling, which we had completed the dry season drilling last quarter. And we know what we got and what we can sell. In other words, we've increased the reserves, we cut the actual more producibility of our production to sell, and we have more sizzle on discoveries. I think the final area is Canada where essentially, which happened since last time as we interviewed, reviewed a number of bankers and we're close to finalizing a deal with the bank and we obviously want a bank who knows the area really well and has real good connections with, we think, the logical buyer, which is the Far East buyer with the liquefied natural gas interests and connections. I think the other point on this is we are considering now, this is purely accounting, but it would help maybe present it, interpret it as the some of our data, some of our E&P operations can be at this point legitimately considered discontinued operations and therefore, separate it. And the one that is going to be continuing 100%, which is NFR, they're doing really well. It's hidden and secured by our investments in the other one's, which we have -- they're really investments, like seismic is really an investment. We [indiscernible] to write it off. Our other segments are doing really well and I'd say, Canrig, in particular, is doing well with its technology and that's manifesting itself in not only profit for Canrig and sales of top drives in the market and stuff like that, but also in enhancing the overall saleability of Nabors' rigs. In summary, let me talk briefly about -- our financing is in pretty good shape. We have essentially $900 million in cash and equivalent. All of that is not available. Some of it -- a lot of it's tied up. We expect to get some more. But basically, we have enough in the way of cash and earnings over and above relative to CapEx, that we are in pretty decent shape to -- we really wanted to squeeze CapEx. We did come close to paying up the whole $1.4 million remaining in our debt due in May of 2011. Basically, we've taken that debt down from $2.75 million, which it was to $1.4 million. And I think net-net over the last year and a half, we borrowed the $1.25 million in January of '09 to make sure we didn't have a jam. And we paid out net $1.125, plus another approximately $500 million of debt. Let me say, I'm bullish, even -- I was always reasonably bullish long term, but now I'm bullish intermediate term and maybe even shorter. Let me go through just a few of the points that lead me to that. I think we have the best infrastructure internationally than anybody has. I mean if you look at it in terms of leading driller in Saudi and biggest private position in Algeria, biggest driller in Yemen, et cetera. And when we get together where we want to get by introducing and integrating, say our line existing operations into that logging and if we are ultimately successful in broadening our scope, I think, intermediate term, that will be a big plus. USA-based rigs are doing really well. I have two things I look out as one proof of the pudding in the orders and we're doing super well on new build orders. And the rest of it is, what the most discriminating buyers are doing. I mean 100% of Shell, BP, in the last three, four years, we've had essentially 100% of the incremental work and overall, we have probably 80% of their work. We did, on Exxon, we did probably the most sensitive well drilled in the last year, so which is Point Thomson and that -- in Alaska, and that was a monster, I'd say, success. And we're doing the Papua New Guinea, both of them, which they seem really happy about even though we haven't delivered the rig yet or spudded anything, but I think that's important. I think that will manifest itself with a increased utilization in the states where it hadn't been. We, frankly, broke H&P's monopoly on platforms and SPAR rigs with a major consumer, which is, I think, we've talked about the Fil Mosby [ph] where we clearly had the best technology. And I hope not the very best price and we'd have the best technology. So in general I think, if I look at what is fundamental, the important for long term, I'd have a basis for optimism and that covers what I have prepared to say. Thank you.

Allyssa, we're ready to start the question-and-answer please.

[Operator Instructions] Our first question comes from the line of Geoff Kieburtz with Weeden & Company. Geoff Kieburtz - Weeden & Co. Research: Gene, when you lay out the projection of the Lower 48 rig count, if that were to proved to be accurate, how would you expect margins to progress?

Basically, we were down whatever we were, $400 or $500, $600 per day, domestically. I don't like to make excuses, but the absolute factors that that's down included about $1,000 a day of lump-sum payments and payments for rigs that were paid for but not operating in the first quarter. If you adjust for that, we're up a little bit. And frankly, I expect to be up this quarter. So I think we're not going to get back to the $1,300, $1,400 a day margins. But I do see a substantial increase. It's substantial $300, $400 a day, times a bigger number of rigs, adds up to substantial. I see that kind of increase even for next year [indiscernible]. Geoff Kieburtz - Weeden & Co. Research: So $300 to $400 a day higher margins in 2011 than you're averaging in 2010?

Yes. Our expectations are not 100% realized though. Geoff Kieburtz - Weeden & Co. Research: And on the Gulf of Mexico, when you say closer to $10 million than to the original $35 million for the full year, with $15 million in hand, that kind of -- are you looking for a second half loss on the order of...

No, we don't have $15 million in hand. We have $7 million or $8 million to $10 million. Unless there's something different on the sheet. It was $8 million. Geoff Kieburtz - Weeden & Co. Research: But you had $8 million in the second quarter, you had $7 million in the first quarter, right?

Yes. Right. Geoff Kieburtz - Weeden & Co. Research: So are you looking for around a $5 million loss in the second half?

I haven't looked at it that way. Probably. Geoff Kieburtz - Weeden & Co. Research: And then finally on the -- you talked about the monetization of the Oil and Gas assets. I understand the motivation is to try to unlock the value that you don't believe is being reflected in the stock price, but what would your priorities be for use of proceeds? Because it does sound like you're going to be -- you're pretty optimistic about being able to get some substantial deals done within the next 12 months?

I think that's right, and I think my ideal is to make a good acquisition but otherwise, to retire -- we have, what do we have, 250-plus the convert due in the next two or three years. 265. So we have 1.4, plus 265 to pay off in the next couple of years. So that would be a good produce for over $1.5 million, which if nothing better comes up.

Our next question comes from the line of Mike Urban. [Deutsche Bank]

Going to the international outlook that you gave us a good bit of detail about what's happened in Mexico and Saudi, which of course, our industry if you -- is that spilling over at all into other markets as some of the operators there look at the availability of rigs and the differences of that putting downward pressure on pricing or project economics from a driller standpoint as you look at other international opportunity?

I'd say yes. I'd say basically, specifically, everybody and his sister has been wanting to get into Saudi for an awful long time. And I think the only thing that's enabled us to preserve the degree of position we have and the degree of prices we have is performance. But they're now coming to us, and saying, you've got to cross every t and dot every i because your getting a performance premium proven to us. But everybody wants to go there. And Iraq looks so promising longer term, even intermediate term, that everybody and his sister wants to go there too. And as I said last time, and I don't have anything more to say this time, only time will tell. If the advantages we have in rigs, hopefully, these idle rigs in Saudi, which Saudi had been for a long time, a cold standard driller internationally. If we get what we think we get, we're going to get them, some of the major awards over the next little bit, we'll be in a good position longer term. But we're not going to, even there, we're not going to get rich short term because everybody and his sister want and brother wants to drill there. So the answer is yes, that, that business...

And then shifting over to the monetization of the E&Ps and, in particular, NFR, it sounds like you had a pretty good tract to go forward there. How much, I don't know if you can put a number in it, how much would the gas price have to fall from here or the level of economics where you don't think you could get that done, or you might have to be [indiscernible] to below that? Or conversely, is there some assumption that gas prices firm up a little bit between now and the early part of next year and you have to...

No. If there are big-time firms compared to the futures curve. I think basically, by the time we sell this, we're going to be showing it on 2011, 2012 results, which means two fundamental things. We have to have well results that frankly, I think, are and will be demonstrably better than other folks in the same area. And if you just curve at that point, it looks closer to six and then five.

Our next question comes from the line of Jim Crandell with Barclays Capital.

Halliburton is saying they expect to win the Majnoon contract from Shell in Iraq with you as their partner. Do you feel as confident as they are about with winning that one?

One time I figured, I hope they're right.

Do you expect that to be done very soon?

Relatively soon. I don't know what that means. But in any event, nothing will happen till next year, but yes. Getting better informed, I guess.

Gene, how many rigs would you put to work initially at Majnoon?

If we win it, probably three drilling rigs and probably our partner would put two or three. Of drilling rigs and our partner would put it, the right drilling company, I would put in at least one big workover rig.

Would you expect over the balance of this year to be awarded, not actually start drilling, but to be awarded other contracts in Iraq? Perhaps in conjunction with Halliburton or another oil service company?

We probably work with everybody except [indiscernible] (44:48), but Ziggy thinks so and I hope so. Ziggy didn't want to commit himself too strongly though.

And looking out, and just last question on Iraq, is looking out a couple of years, Ziggy or Gene, what do you think a ballpark estimate is in terms of the rigs that Nabors could put to work in Iraq?

Quite a few.

I mean 20 to 30?

Yes, conceivable. I mean everybody is discounting big time. They're going up to 12 million barrels a day, but even if they go up 5 or 6 million, even if they go up 3 or 4 million barrels a day, that's takes an awful lot of rigs and in addition to rigs that we -- unfortunately, from one viewpoint, fortunately is another that you'll have viewpoint have available right nearby next door. There is finally, coming up a real potential serious use for our Millennium workover rigs, which are these PLC rigs that we invested for in the states and never got a nickel premium for. And they might be worth the difference in investments in the Middle East, including Iraq.

That's a good point, Gene, because I think a lot of the contracts that are coming due like the Zubair will require workover, as well as drilling rigs. That might make you very well positioned there.

Yes.

Regards to the U.S., for your new rig construction signings, Gene, how would you say, a, your day rates, and b, the longevity of the contracts compares with that what you were able to obtain last cycle?

Duration is similar, I'd say. More likely three years than five years, although we have a bunch of five years, first four were five years. I would say that day rates are not as robust, particularly margins are not as robust. The investment cost will be in the putting as we do it, but they should be coming down somewhat too. We're frankly shooting -- to see if we can get a 15% reduction in the cost of building kind of an identical rig to what we built before. So overall, whatever else is true, the bottom line is we do these from now or doomsday. At the prices we're getting on the investments, I think it's going to cost.

And how many are intended just thousands of dollars per day or percentages would day rates for new construction be down versus the last cycle?

Well, I think the leading edge rates could be down $2,000, $3,000, $4,000 from what it was before.

And do you know if you can relate to your outlook for U.S. to gas prices, but I think -- not to put weight in your mouth, but you might be surprised over how low gas prices would be versus where you thought they might be. But then given that, be pleasantly surprised over the numbers of rigs you actually had drilling gas-related prospects. Have this sort of environment persisted, let's just say for the next 12 months with gas prices in the futures curve about where it is, would you expect given that scenario, a, your overall number of rigs to continue to rise, and two, your number of rigs drilling gas-related prospects to continue to rise?

I think gas-related has to be modified, but gas surely dry gas or gas with liquid contents in the latter seems to me to be going up pretty good. The former, for example, in the Marcellus, a lot of guys still -- and that's pure of gas. A lot of guys are drilling to secure, maintain, whatever leases, so there's going to be a significant amount of drilling like that. And there'll be some -- and that'll tend to be straight vertical holes to hold leases. Potentially, there'll be a big-time directional drilling with 5,000, 4,500, 5,500 foot horizontal sections with eight to 16 -- the same story seen anywhere else. And they'll be doing some of that to see what they got, relatively low gas prices. So I don't know what the answer is going to be. Obviously, I'll give you a real scoop, we're better off with $6 gas prices and $5.

Our next question comes from the line of Kurt Hallead with RBC Capital Markets.

Gene, curious as to your take here with the natural gas, supply-demand overhang the increase in this liquids and NGL-related drilling. What's your perspective as to when we may hit that cost over a point where the NGL economics no longer makes sense?

In borax, you mean?

No, natural gas, liquids. For example, all the...

I don't know. As long as we have extra cent that $80, which is divided by six, I don't know, $14 of million BTUs versus gas at $4.50, that average -- depending -- you don't need a big, big percentage of liquids to make it juicy. If we're saying $6 equivalent per BOE of gas, you're going to get $6 equivalent more easy with the mix of liquids and gas now. So I haven't thought about it in those terms, but that's clearly what our operators are thinking about.

Then now at Exxon as close as deal with XTO, are you getting any indication as to what the plans are going to be for incremental drilling from that Exxon XTO combine entity?

We're going to be doing more drilling for Exxon. We've done really well on that, most sense on drilling on a project, I think I even said last time the truth namely, they give us credit and the Point Thompson stuff, our work on the project. They seem to be really happy with Papua New Guinea. But I think net-net, and I used to work for that company, if XTO is doing pretty good, they won't screw with it too much.

And I was also wondering, come back to your comment about the Saudi, so you got the potential project and that Jim just talked about. Is that already factored into your outlook for international business going into 2011, or would that be something that is incremental?

That'd be incremental. That was for Iraq.

And then from the Saudi standpoint, your viewpoint that they won't pickup any drilling any time soon, what have you factored in for 2011 out of Saudi?

I think at the modest decline.

Our next question comes from the line of Marshall Adkins with Raymond James. Marshall Adkins - Raymond James & Associates: First to clarify, Gene, you had mentioned on the E&P stuff that some really smart bankers that suggest probably worth over $2 billion, was that just for the NFR or is that -- did it include Colombia, Canada and the other ones?

NFR, $2 billion for 100% of NFR, which we have half. Marshall Adkins - Raymond James & Associates: And then Colombia and Canada would be on top of that, is that right?

Yes, sir. Hopefully, a big heap on top. Marshall Adkins - Raymond James & Associates: Just best guess, given where gas prices have gone, and I know obviously, the market will determine the price you get. But best guess, what do you think that's worth, all in?

Yes. Colombia is 100% oil at the moment. And British Colombia is kind of a strange thing because what's happened in sales so far, and what's been cooking, some of has happened and some of it hasn't happened is the buyer is going to be probably from the Far East, probably -- with not probably, almost certainly, with real long-term views and with really low cost to capital, one way or another. And with interest on the whole supply chain, however you want to put it, of liquefied natural gas, in other words, some electrical consumer, electrical company consumer in Japan or Korea, they now have an interest in owning a chunk of the whole thing, from the resource to the liquefaction to the transportation. And that represents an opportunity for the guys who promote -- for example, the traders, they generally involved in putting this kind of thing together. Unlike the Matsui, Mitsubishi's narrow bendings, putting things like this together and they don't go broke putting it together, like most bankers don't. And it's a kind of demand that we don't have here. And I think most players think that, that's the logical market for a stuff in British Colombia. So it's a little difficult. It isn't like say, what's EOG going to pay for this, compared to what they have now. That isn't the outlook for us. If EOG's investing in the LNG plan already. I don't know if that's the answer though. So the value for that even though it's gas is hard to quantify. It could be really big. So basically, what I'm saying is we have a pretty fix idea of what LNG is going to bring. It's likely that we can sell pretty well, Colombia because it's 100% crude and we know there [indiscernible] (56:14) for British Colombia that may be half of dozen really good buyers that might be 50 or 60 good buyers for the Colombia gas, almost everybody in Canada is interested in. And I think that'll sell pretty well. And the biggest unknown yet first priority in getting something done really is British Colombia. Marshall Adkins - Raymond James & Associates: So combined, those two, worth $1 billion?

I hope so. Marshall Adkins - Raymond James & Associates: Shift gears, a SEC question, well servicing, you mentioned pricing increases getting up to 10% at least you're trying to push that through. Are the prices sticking and what region seem to be doing better than others?

Yes, we've moved -- we had some pricing improvement in California operations and we've had some also improvement in Iraq's. But we continue to look at those areas as opportunities to move prices. Marshall Adkins - Raymond James & Associates: So the 10% of you pushing in those areas is actually sticking, it's gone, it's holding up?

Yes. Marshall Adkins - Raymond James & Associates: On these new builds, Gene, can you give me a sense of the delivery times and the new build costs trend from say two, three years ago?

Yes, the delivery schedules are anywhere from, of course, taking into account the original four which will be delivered this year, in this calendar year. And then we're looking at the three major refurbs will be delivered in this calendar year. And then the rest are basically through the first and second quarters of next year. Marshall Adkins - Raymond James & Associates: So you order one today, nine-month delivery?

It's nine, 12 months max. Marshall Adkins - Raymond James & Associates: And the cost compared to couple of years ago?

We heard Gene in his comment. It's a little percentage reduction in the...

But they're different kinds now. There's...

Yes, different types. Summer [ph] (58:35), the longer 1,500, big moving systems in North Dakota to just around the area in the 48 have different cost components.

But I would say, if you're talking to standard M rig, that should come down 10% or 15% from all and ready to go 16% sort of before.

Our next question comes from the line of Jeff Tillery from Pickering. Jeff Tillery - Tudor, Pickering & Co. Securities, Inc.: Just a quick question on international, with average headcount in the second quarter up about 10 rigs quarter-on-quarter, which countries drove that?

I didn't hear the question.

Where did the 10 increase quarter-over-quarter come from? Which countries?

As rigs starting up and we started rigs in Mexico, we picked up some extra rigs in Saudi and Colombia. That's the biggest part, Colombia.

What about Kazakhstan, yes or no?

Kazakhstan, started up one rig as volume.

Colombia was like half a dozen?

It was six rigs. We started up and that was a big chunk, and we started up the last quarter.

I mean the startups are good and it's better, but it's still big Hickey versus Bossier via Mexico and Saudi. Jeff Tillery - Tudor, Pickering & Co. Securities, Inc.: And then as you look out over the next probably 18 months, you talked about Mexico and [indiscernible] (1:00:09) impacting you guys as well as Saudi, Iraq on a positive side, is coming out looking for -- other than those two or three countries, where are you most optimistic or most cautious?

We were always cautious, but I think these are the countries where I still see some of the upside. In Mexico, we're going to put more rigs to work. Obviously, Iraq is on the horizon. And I think also in Saudi eventually we'll see some -- since some of the -- other than [indiscernible] (1:00:39) also had the [indiscernible] (1:00:42) working and these rigs all came down. We thinking the strategy and I think some of these people would come back too, and be a part in that as well.

It's not all -- for example, we have like three jack-ups in Saudi. The biggest one is in state of -- it was on a three-year contract, four-year contract. Well done, four years. We probably have a year and a half less than that. And if that had to be repriced at today's market probably $50,000 a day less. So you couldn't hear I say for sure. But the market is fairly -- I mean, everybody knows how competitive jack-ups are now. And we're telling you that everybody wants to go into Saudi and Iraq and there seem to be rigs to do that. So the outlook is positive but there are headwinds even in 2011, 2012. I think in Mexico, to put it in perspective, we went from 60-something operating income to this year. We're projecting 16 or something, and it will get better. We're not going to back to 60 something in 2011. If we do it in 2012, I'll be happy. But that also includes the jack-up that isn't going to renew from the $0.60 anything like today's prices. Jeff Tillery - Tudor, Pickering & Co. Securities, Inc.: On the Well Service business, presumably some of the rig refurb costs behind you, pricing improvement in the third quarter, do operating margins get to double-digits percentage in the third quarter, do you think?

I don't know if we look at it that way. But all I can tell you is we're looking at -- the things you mentioned, plus the continued impetus of high-crude prices and the deferred of over spending by these guys. We're looking for an acceleration in bottom line particularly for next year. Jeff Tillery - Tudor, Pickering & Co. Securities, Inc.: My last question is Q2 CapEx, and then what is the full year CapEx at work?

I don't know. We're going over that pretty carefully now and for the board meeting in the next couple of days. Let me put it this way. We're tightening down on CapEx generally, but we always, always have CapEx for good projects. And we have enough borrowing power so that even though there's not one in hand, we could do a fairly good-sized acquisition between the cash we have and the readily available market access we have.

Our last question comes from the line of Arun Jayaram with Crédit Suisse. Arun Jayaram - Crédit Suisse AG: Gene, I wanted to comment or see if you could comment. That term contract exposure in 2010 increased by a lot, by about 25% or so. I was just wondering if you could comment on some of the commercial terms you're seeing today for new builds and upgraded SCRs versus at the peak of the cycle in 2008?

Yes, again, as we mentioned earlier, we're beginning to see some of the high-end numbers, the 25,000, 26,000, we're beginning to see some of that in the most recent new build work. At the very peak of the market, it was anywhere from 26,000 to 28,000. Some of the earlier term contracts we've done, as Gene mentioned, 2,000 to 3,000 less in that. So we're beginning to see the new build market in terms of conditions and contracts, take the pay obligations, approximate new build 2008 conference but that's going to -- you won't see that till next year. I mean we'll see the contracts as we hedged this year, but you won't see the results of that until next year. But we are seeing a pretty heavy activity and legal opportunity. Arun Jayaram - Crédit Suisse AG: Joe, or in the press release, you guys mentioned that day rates rose approximately $1,100 per day with a pretty significant gap, it looks like from the PACE rigs and SCR rigs versus conventional rigs. Can you help us quantify perhaps where that gap is in terms of day rates between those rig classes?

Well, again, to me, the new builds and then the rollover contracts, we had -- I forget the exact number of rollovers we had this past quarter. I think it was fairly significant percentage, we have 14% increase, 15% in the rollover on the term contracts. A portion of which were both new builds or legacy new builds, I guess you would say, plus the legacy rigs. So we're seeing, again, I'm driving where I can. We're increasing the PACE rigs well on the need terms. And then, we're pushing the conventional rigs up, the high and low, especially rigs that are outfitted with new technology equipment we have, i.e. the K-Box from Canrig, the rock exist [ph] (1:06:43), et cetera, allow us to perform in a very high level on a production basis for our clients with those rigs. So I don't see a tremendous amount of difference than rig structure.

I'll terribly put [ph] (1:06:55) what would be the lowest margin you'd take on of your mechanical rigs? The lowest you take anywhere? 5,000 a day probably?

Some on which taxes are low.

4,000, 3,500?

Low is about 3,500.

So the worst case is 3,500. Some of the mechanical rigs in the Bakken are getting quite as close to the 80 new builds. So I would say it's lower, I think the trends are that as we using up the good rig, that's kind of pulling up the prices on PACE rigs. But from the worst rig to the best rig, there's a pretty substantial differential.

Allyssa, I think that will wind up the call now. I just want to say that if anybody had any further questions and didn't get to ask them, just give us a call or send us an e-mail. Thank you.

Ladies and gentlemen, this concludes the Nabors Industries' Second Quarter 2010 Earnings Conference Call. Thanks for your participation. You may now disconnect.