Helmerich and Payne Inc (HP) 2003 Q1 法說會逐字稿

Good day. At this time I would now like to turn the call over to Doug Fears, Vice President of Finance and CFO of Helmerich & Payne, Incorporated. Please go ahead, sir.

Thank you, Suzanne and good afternoon, everyone. Welcome to H&P's first conference call and webcast. Earlier today we released our first quarter earnings results and it is now available on our website at hpinc.com. Our primary speakers on the conference call today are Hans Helmerich, President and CEO Helmerich & Payne, Inc., George Dotson of the company's wholly owned subsidiary, Helmerich & Payne International Drilling Company and I'm Doug Fears, Vice President and Chief Financial Officer. Each of the conference call participants will provide statements regarding their respective areas and following those remarks, we will open the conference call to questions. I want to remind you that there will be forward-looking statements and estimates made today and while we've made every attempt to be as accurate as possible in the information that we convey to you, the information involves risks and uncertainties that could significantly impact expected results. You may see a further discussion of these risks and uncertainties in the most recently filed 10K with the SEC on December 23rd, 2002. We'll also be rounding numbers in estimates in hopes of adding clarity to our comments.

As announced today, Helmerich & Payne's net income for the first quarter of 2003 was $607,000 or 1 cent per share this compares with $18,127,000, or 36 cents per share from continuing operations for last year's first quarter, and $4,899,000, or 10 cents per share from continuing operations in the fourth quarter of last year. As most of you know, Helmerich & Payne's exploration and production division was spun off on September 30 of 2002 as Cimarex Energy Company and is now being reported as a discontinued operation. For previous years. During last year's first quarter, there was a 5 cent per share loss from that discontinued operation. Before I turn this over to Hans, I would like to make a couple of comments regarding other financial items that are normally of interest. Our cash balance at December 31, 2002 was $1.01.2 million. The company's capital expenditures for the first quarter totaled $69.3 million. There were no sales of securities from the company's portfolio, in either quarter. As mentioned in the press release, the company's general and administrative costs are being affected by higher pension and hospitalization expenses this year. And as is the case with many companies with defined benefit pension plans, the value of our pension portfolio declined last year and has raised the noncash accrual expense. The annual expense for 2003 is estimated to be a total of $8.4 million, or $2.1 million per quarter, which is an increase of $1.4 million per quarter over last year. We're also estimating that the company's portion of the employee health insurance program will increase by $300,000 per quarter over last year. I now would like to turn the call over to Hans Helmerich and after he and George have made their comments, I'll cock back and make a few comments regarding our come back and make a few comments regarding guidance and we'll open up the conference.

During our last conference call on November 13th, 2002, we commented on the general slowness in the much-anticipated energy cycle upswing. By this time we expected to be able to show at least some traction on improving oil field activity during the quarter just ended. Clearly that is not the case. We're disappointed with our results for the first quarter and we'll discuss some of the contributing factors on this call, as well as how we are positioned going forward into 2003. The largest uncertainty early in 2003 centers on the possibility of war with Iraq. Not far behind is the ongoing general strike in Venezuela. Undoubtedly the unpredictability surrounding both of these critical situations adds to a go-slow, wait-and-see approach for new spin in the oil patch but only time will tell how these unfolding events will impact oil prices longer term. Natural gas prices are presently responding to robust storage drawdowns and falling natural gas production numbers. Again, we are less convinced that an upturn in the drilling activity lies ahead, notwithstanding the frustrating delay we are now experiencing.

In the company's operations, these dynamics are felt most directly in our international and offshore platform areas, where we saw declining activity levels during the quarter. We're watching Venezuela closely and will comment further on that situation later in this call. Our FlexRig 3 construction effort continues to go well. We remain pleased with their distinctive performance and the potential payoff they provide for our shareholders. We've completed 14 of the 25 rigs and remain on schedule to complete the program in July of this year. We will discuss in more detail some training and transitional costs. We referenced in our release. We know that controlling costs are an integral part of the value proposition. And we will continue to bring the necessary energy and discipline to this area. The sense of disappointment that I mentioned earlier concerning where we sit today is compounded by the constrained visibility surrounding Iraq and Venezuela. All of this makes providing guidance very challenging. While a strong case remains for an up cycle in the energy business, the timing has become disconnected from more conventional fundamental factors. That is to say in terms of our guidance we've chosen not to build in a standard ramp-up in our numbers for the remainder of the year. We are providing a baseline that holds flat utilization and day rates, and we are not predicting the timing or the magnitude of an upturn. While Doug will address later in his comments more billion guidance, let me conclude by saying the company remains committed to fully execute on our go-forward strategy. Our excitement is not diminished for the long-term opportunities to capture superior returns for our shareholders. At this point let me ask George to make his comments.

Thank you, Hans. Doug has described the overall financial performance of our drilling operation for the first quarter. I would like to comment in greater detail on our activity, margins, prospects, FlexRig 3 performance and the status of the FlexRig project. First quarter operating earnings for H&P's U.S. land operations declined 64% to $2.3 million from $6.3 million in the fourth quarter of fiscal '02. Average revenue per day declined 2% to $11,316 frrx $11,602 in the fourth quarter. Average expenses per day declined 1% to $8,481 versus $8,549 in the fourth quarter. Accordingly, average daily margins declined 7% to $2,835 versus $3,053 in the fourth quarter. Although we anticipate some level of operational delays due to weather and other factors, we experienced a large number of unpaid delay days in the last quarter. Weather and other delays cost 117 days downtime in the first quarter compared to only 7 days delay in the same period a year ago. While we received no revenue for the 117 days delay, we paid the expense of maintaining crews during that time. This lost margin plus the expense of maintaining crews contributed to lower earnings during the first quarter.

Our U.S. land rig activity was strong with an average of 54 1/2 rigs working during the quarter compared to 52 1/2 rigs in the fourth quarter. U.S. land rig activity during the quarter was 79% compared to 85% in the previous quarter. Existing mobile rigs and FlexRigs achieved 93% activity well an average 36.9 rigs working compared to 94% activity in the previous quarter when an average 32.2 rigs worked. Conventional U.S. land rig activity declined to 60%, and an average 17.6 rigs worked during the quarter compared to 73% activity and an average of 20.4% land rigs working in the previous quarter. Today on the 22nd of January, H&P has 84% activity for a total of 73 land rigs available in the U.S. with 61 rigs working and 12 rigs stacked. Our average day rate for all U.S. land rigs today is $10,520, compared to $10,460 on the 13th of November, the date of our last webcast. You will note this average day rate is different than the average revenue per day mentioned earlier. As the revenue per day includes mobilization revenue. First quarter operating earnings from offshore operations decreased 11% to $5.2 million, from $5.8 million in the fourth quarter. Six of our 12 platform rigs are contracted, and six rigs are stacked without follow-on contracts. Five of the six idle platform rigs are available for contracts, and the sixth rig will require shipyard maintenance. First quarter international operations reported an operating loss of $600,000, compared to earnings manufacture $1.3 million in the fourth quarter. An average of 10.8 international rigs worked during the quarter out of 33 available. The average daily revenue was $18,666. The civil unrest in Venezuela has been widely reported. Despite the uncertainty and countrywide strikes beginning early December, we operated two deep rigs throughout the quarter and three additional deep rigs resumed work in December. Two additional deep rigs were contracted and scheduled to resume work by the end of the first quarter. However, Cuty Vesa, the national oil company, has delayed the start of work for these two rigs. Notwithstanding the current situation, we continued to believe that our organization, personnel, equipment, and long-standing reputation for performance will enable H&P to contract additional rigs at the earliest opportunities.

Our eight rigs in Ecuador were contracted at 98% activity for the quarter. One rig completed its contract without an immediate follow-on contract, and we expect this rig to be recontracted shortly. None of our three rigs in Colombia worked during the first quarter, although one deep rig is presently contracted and mobilizing to a deep exploratory well. We believe there is potential for adding further to our activity in Colombia during fiscal 2003. Only one rig of six is presently working in Bolivia and two rigs are idle in Argentina. The outlook for drilling in Argentina and Bolivia is weak. Delivery of new FlexRig 3's continues on schedule. We delivered six new rigs during the last quarter, and we are producing two new rigs per month. We will deliver the remaining 11 new FlexRig 3's by July 2003. 15 new rigs are currently operating, and the field results have exceeded expectations.

Crew training has been a major contributor to our success. Selecting, assembling, and training approximately 400 employees to operate the new rigs and technology have produced, one: Start-ups and initial operation was recordable injuries two thirds less than the industry average; two, a crew turnover rate two thirds less than H&P's current turnover rate in the fleet; and three, outstanding field performance for our customers. Of 30 complete wells drilled to date, FlexRig 3's have drilled ahead of the customers' estimates and four wells on the customer's estimate. Over 80% of the wells drilled with new FlexRig 3's, new technology, and new crews have exceeded customers' expectations of performance. The FlexRig concepts are sound. Our innovations and new technology are adding value and field performance of the 15 new FlexRig 3's has been distinctively good. Our customers have rewarded us with a contract awaiting each new rig, 100% activity for the 15 new FlexRig 3's, and premium day rates. Just as we have met the challenges confronting us and making a step change improvement in performance, we are confidence the FlexRig 3's will meet our expectations of financial performance. I would like to turn the program back to Doug.

Thank you, George. Many of us who follow the U.S. land rig drilling rigs are very surprised that things have not improved yet as it relates to rig activity in the U.S., particularly given the level of the price of natural gas. As we mentioned in the announcement, we'll be glad when that increase comes but feel that any kind of prediction about the accident and the timing is a difficult one right now. So as you saw on the announcement, what we're attempting to do is just provide guidance on the flat scenario with potential improvements of the add-ons of the new FlexRigs. And what we believe we know today in our international operations and with the baseline of December utilizations, day rates and margins, along with the schedules you'd additions of FlexRigs, we made our estimates of earnings. As mentioned in the release, we are also assuming that one rig works for the remainder of the year in Colombia and that the two contracted but currently idle rigs in Venezuela go back to work in the third quarter. We have no upside in the 5 cent number for the second quarter other than the additional rigs, nor do we have upside in the other numbers that we provided. What is not in our numbers or any of what could be negative financial impact from any disruptions in our operations in Venezuela.

Also what's not in our numbers is any potential noncash impairment charge relating to our transocean stock. As we pointed out, that stock was received as a dividend from slumber Jay when they spun off their offshore drilling company and merged it with transocean back in 1991. At that time we were required to book it as income and place it on our balance sheet at the value of the stock at that time, which was a little over $33 per share. That stock is worth roughly $21 per share now and unless the stock improves to 33, we will likely be required to take a writedown prior to year end. And as I mentioned, that potentiality is not in our numbers. Now what we would like to do is just open up the call for questions.

Thank you. At this time if you do have a question, please press, star, 1, and pound to withdraw your question. Once again, if you do have a question, please press star, 1 on your touch-tone phone and press "Pound" to withdraw your question. We'll take our first question from Andy Veeter from Stifel Nicolaus. Please go ahead.

Good afternoon, guys.

Hey, Andy.

On the extra operating cost associated with the FlexRig 3 training program, et cetera, is that captured in the daily operating cost number for U.S. land, or is that in the other cost line that you presented in your financial statements?

Andy, that's in the other. It is not in our daily operating cost. And I might also add that it's -- those were costs associated with the training program but not directly attributable to the training program itself. They were for the cost of retaining crews before and after the training and making sure that we hung onto the people we had trained. So not so much about the training program but before and after.

Okay.

Andy, this is Doug. Just to clarify, when you say "Other," I mean the costs are listed in operating costs on the balance sheet.

Yes.

And are included in our operating profit for domestic. I'm not sure, when you said, "Other," I wasn't sure what you meant.

Oh, I was thinking. When you break out your segment results. Okay. It's imbedded in the operating profit for domestic drilling.

Yes, it is. It's not in that daily operating cost that I --

okay. And, Doug, what -- in terms of the operating cost lines in the "Other" segment, the $8.9 million, what's making up that number?

That is mostly the expense side of that is going to be your corporate general and administrative expenses, your interest expense, netted against interest income, dividend income, and any stock sales that there might be. There's some miscellaneous kind of corporate-related expenses that are mixeded in there as well.

Okay. Okay.

But no expenses relating to any of the direct operations.

Got it. Now, with regard to the potential writedown for your transocean stock, why would you not have taken that in your fiscal '02 year? Why is that occurring now? Why didn't it occur earlier?

Well, that's an excellent yes, and I can't cite you the exact rules but I'll give you what I think is the flavor of the rule. Kind of at the end of the day I think the SEC wants you to determine if there is a "Permanent impairment." And once you say that, then comes the loaded questions that are not always as definitive as one would like. I guess being in the drilling business, we don't view that kind of decline as a permanent impairment and yet at the same time the rules are going to require you to do something within a certain time frame with some flexibility, not great flexibility, and we know that we're going to be into that more of the inflexible time during the fiscal year. We're not sure exactly when that might be. We're hoping the transocean stock will come back and we won't have to take the impairment charge, but if it doesn't during the year, sometime during the year, we'll be forced to do it just by virtue of the rules.

Okay. Lastly, have you guys seen a pick-up in inquiries? What's sort of your general feel for the U.S. domestic land business? You know, if there is going to be a ramp-up in response to what looks like very high natural gas prices, how would you, you know, guess the timing might unfold based on what you are hearing from your customers today? And I know that's not embedded in your forecast.

Andy, we have heard a number of things as the last three or four months have developed. In the beginning of the last quarter, people said, well, it will be later in December when we really get started, and then the next thing we heard was, well, we're going to stick with our budgets and they say we won't chart until January. So we did not see the opportunity we expected in November and December. We are seeing some upturn now. It's not dramatic in terms of percentage it is. We're getting probably one third more inquiries per week than we were on average during the last quarter. Again, that's a significant number but at the same time it's not as dramatic as we had hoped.

Okay. Fair enough. Thank you guys.

Thank you, Andy.

Thank you. We'll take our next question from Wikar Sayad from Petry Partners. Please go ahead.

Hi. Was there any capitalized interest during the quarters?

just a minute, Wikar. We'll have to look that one up. Have you got another question while we're looking that up?

Yeah. And also, was there any devaluation of Bolivar during the quarter or revaluation or anything?

There was a slight upward revaluation but only slight. I think within the neighborhood of $300,000.

$300,000? Okay. And also, if I look at your operating costs for last quarter and add the taxes other than income, it comes to about $83.8 million, and for this quarter, the total number is about $79.8 million. So there is a reduction of about 5%. Could you explain that and can you tell me whether this drop is one-time event or is that because of slightly lower start-up costs or something or what number should we use going forward?

Well, I think I can tell you that probably the drop was a function of just a lower number of rig days worked in total, if you are comparing those two quarters.

Okay.

I would have to get into more detail. Maybe we need to do that off-line to, you know, kind of dissect that a little more. And by the way, the capitalized interest for the quarter was $729,000.

Okay. Is that the number that we should use for the next quarter?

That's probably pretty close.

Okay.

We'll be at the same level of construction activity.

Right.

And pretty much the same -- we were at a full-blown quarter of interest for $200 million except for 15 days.

Okay.

So that should be pretty close.

Now, I believe you mentioned that -- or George mentioned that the current rate ulyization in domestic land is about 84%?

That's correct.

That's correct? Now for your forecast, the baseline forecast that you mentioned, are you using this 84% utilization or the 79% that you reported in the first quarter?

We use the 79%.

Okay. So your utilization is railroad above that 79% number?

That's correct. Yes, that's correct.

Okay. Thank you very much.

Uh-huh.

Thank you. We'll take our next question from Robert Ford from Sanders, Morris and Harris. Please state your question.

Thanks. Afternoon, guys.

Hey, Robert.

I'm going to come at this a couple of different ways. I'm just sitting here doing the math for the U.S. land rigs and it's looking to me like with the start-up costs and training costs, ran somewhere around a million to a million eight.

You are pretty good at your math.

Is that -- so is that carried forward, I guess through July at least?

George, you might address the training on the FlexRig.

Robert, we will hire, hire training budget very close to what you said. It will continue on through the end of June, and the pretraining cost and the post-training cost that I mentioned were a little troublesome for us. I expect that to be reduced going forward.

Okay. So I guess what, we jumped one point, what's called in the middle $1.5 million sequentially and you think that disappears in the current quarter and thereafter? Is that fair?

Just a second. No, training operations begin will continue on, if I've understood the question correctly. It will continue on through June.

Okay. Yeah, right, but you said it was troublesome in the quarter. So it sounds to me like the costs jumped in the quarter?

No, what I said was that the cost to inventory people prior to training and inventory people after training to meet the delivery schedule, that was what was troublesome.

Okay.

And I think that will be less of a problem going forward.

So it's safe to say the training costs have been about a million five a quarter all along?

That's correct, the training costs themselves.

Okay. I'm going to come at it from another angle here. A couple of quarters ago we were looking at a baseline EPS for FY '03 of about 60 cents. Now we're at 22, you know. Pretax, that's over $30 million. Can you kind of break that down for me, the difference between now and two quarters ago?

Well, Robert, I'm not going to do that on this call, but let me just generally back up and give you a general review. First of all, back to the time that we gave that guidance, utilizations and day rates were better than they are today, particularly in the international -- well, both in international and U.S. land. We did have a pretty good beat on the U.S. platform rig business, but we had -- but we're worse off today. That's the first major issue there. Then in the first quarter as George has discussed, those kinds of costs and delays were greater than anticipated. So we start off with a baseline much more declined than back when we gave that guidance. And then secondly, the assumptions used in our 60 cents guidance going forward are a little different than today, again because you are starting off with a lower baseline. I mean, I think it's safe to say that because of what's happened in the oil patch, we just took a much more Draconian approach to giving out this guidance. That's why we have been careful to make these statements about our guidance is that we're just -- you can't win for losing hardly because if you give low guidance, people say, wshltion don't you believe your perform -- well, don't you believe your performance is going to be better given the fundamentals? Well, yeah, we do. But if you give higher guidance, you are out there speculating and it becomes very, very difficult to make these calls. We didn't, at the time, believe that we would encounter 117 days of rain delay which, you know, triggered some other things. We didn't know that the workers were going to strike in Venezuela. So there's so many moving parts, it's so difficult to predict. I can understand why Coca-Cola has quit doing it. It's just a difficult task to do. So maybe we can visit more off-line but that's generally -- I mean, as I have backed up and looked at this and asked myself the same question, that's generally where you go with this.

Okay. That's all I had. Thanks a lot.

Thank you.

Thank you. We'll take our next question from Ken Still from CSFB. Please state your question.

Good afternoon, guys. I seem to remember a point in the past with where you kind of gave a little bit wider range of guidance saying, you know, this is what we see in a flat market and this is what we would expect if we saw, you know, this kind of changing conditions. Gives you something wide enough to drive a truck through in the future anyway. But my questions, a couple of questions. First you know there was a little bit of price erosion in the quarter, you know, $300 a day, utilization's gone up. Are you seeing further price deterioration, or is that stabilized in the U.S. land business?

Ken, at the FlexRig level, we're not seeing any price erosion. We've been able to maintain the introductory price for flex 3 that we started with last May and June. We had hoped that we would see some strengthening but we have been unable to maintain it. We continue to see very soft pricing for conventional rigs in the more competitive ranges. For us that would be in the 10,000 to 14,000 foot depth. We continued to get a premium for our equipment just based on operations performance in the field, but we are -- we have a very competitive pricing situation for those conventional rigs in the heart of the market.

And have you seen any change in the backlog on a rig basis, or is it a little bit better, the same?

I would say it's the same. We've had a couple of people ask us about term contracts, and we have actually entered into two term contracts. I think one is six months and one for one year on new FlexRigs, and they were at slightly higher prices as we did get a better price for the longer term. But as far as any backlogs beyond that, we're getting two and three well contracts that are equivalent to maybe six months or eight months work for some of the new FlexRigs but in terms of backlog, we're not getting any commitments. We are working rigs for the same operator, just wall to wall to wall, but we can't tell you that that's a backlog.

Okay. And then just, you know, to beat on the training costs one more time from a different perspective, you know, you guys have been rolling out the FlexRigs for quite some time and yet, this increase in cost associated with the FlexRig 3 program specifically, you know, what exactly is the change in training that's gone on as you move to the third generation of these rigs and, you know, what percentage of your workforce is going to have been put through this process by the time you're done?

The training program for the FlexRig 1 and 2 programs was OJT. We trained people on the job. We took a blend of H&P people, people we hired from other contractors, and people new to the business and we made it work. With the new rigs, with the new technology, which is -- rather than go through all the details of it, every rig comes out with a top drive. There is the ACVFD power. We have new VOP handling equipment, we have new floor-mounted Meck anyization. All those things required some organized training, and that training runs from four days to 12 days for different members of the crew. And we have seen big results from that, as I mentioned in my comments. We've been able to attract people to the company from other contractors that have said, I want to work on a new rig, I want to work on a rig that's going to give me access to labor-saving devices, and in order to screen those people and to train them in the operations as required in this training and the outcome, the favorable outcome has been lower turnover by two thirds, compared to the rest of our fleet, better safety, but more important in the field, we've been able to deliver some outstanding results. On the first wells with brand-new rigs, brand-new crews working together the first time, and we attribute a good part of that to the training program. So yes, it's a completely different approach to training. I think it's been required for the system that we've delivered to the field, and I believe that the results are showing that, yes, it was the thing to do. Now, going forward, we want to continue with the training program but what we want to do is make sure that we fine-tune this -- the amount of money that we spend on attracting and retaining the people once they have been trained and prior to going out to the field on the first job.

Okay. Thanks.

Thank you. We'll take our next question from Paul McCurry from Wellington Management. Please go ahead.

Good afternoon.

Hey, Paul.

A couple of things. First just a simple question on the transocean, the securities thing on how you feel about that company as an investment. I suppose if you sold it and offset it by a capital gain else wrrx you wouldn't have to face the accounting adjustment and some people wondering whether that should be taken from earnings; is that correct?

That's correct.

So that's certainly an option you would consider?

The only -- you would consider it, but here's the only thing. You end up -- you know, the transocean is a noncash event, where the other one you are deciding to sell a security and got to pay tax and all that.

Yes. But you are considering writing down -- I mean, you are considering making equity sales and way. So this, you could use transocean as one of those sales.

We could.

Yeah. Secondly, on an operating side, George, talking to some drillers, they are starting to see a great interest there early in the old traditional deeper drilling for gas, often in western Oklahoma. Now you have sort of moved away from that business which was once your niche. Are you seeing some increased interest in going deeper these days?

Paul, we are not. And we are putting additional rigs to work in the Antarctica basin but they are FlexRig 3's, and I believe we will see people using those toward the upper end of their range, depth capacity range, and that's 18,000 feet. But the slowest part of our business continues to be the large rigs, the 2000 horsepower and the 3,000 horsepower rigs. So we are not seeing that. We still believe that while we have invested in the 8,000 to 18,000 foot range rig, we still believe that when it comes to deep drilling that we are a leader in that niche. We just have not seen the activity turn up.

Intellectually why is that? One would think that while a lot of operators probably don't think $5 Israel stick, maybe earnings isn't sure that four or four fifty is realistic. With the improved drill bits, improved drilling fluids, top drives, better seismic, why wouldn't those larger targets be more attractive than they appear to be?

I think that's a question that's best answered by the majors, by the NP companies. As we ask them, their answers to us are, if whatever the gas price it, it's the same discovered at 8,000 feet as it is for 22,000 feet.

Right.

And the results for us, for our company have been most effective in spending and recovering reserves in efforts to drill at less than the deep wells. And again, that's the story that we hear repeatedly. At the same time, we do hear people talk about that, but that could change and we could be more interested in deep drilling, but we've lated a long time for increases in deep drilling and we still have not seen anything that is compelling in our business.

Thank you.

Thank you. We'll take our next question from DAX Blasier from Gates Capital Management. Please go ahead.

I had a couple of questions. The first question was, can you review with us your regional market shares in the domestic market, both for on shore and offshore?

I'm sorry. I can't. I believe that I can give you only one figure. I believe in South Texas we drilled probably 25% of the total footage drilled in South Texas, but that is the only one I can tell you offhand.

Okay. And can you give us a general sense of what's going on with your major customers, BP, Exxon/Mobil and shell? I know you won't want to discuss individually what they are saying, but can you just give you a general sense of what's going on with them?

Our overall impression is that they are going slowly. I think one of the encouraging comments we've had is that one of the super majors has said that that they would spend more money in the onshore U.S., and we were pleased to hear that, but by and large people are saying,well we think we'll spend as much as we did last year but we will probably spend it slightly differently, but until there is some greater visibility for the remainder of 2003, we're going to go slowly. I think that's the sentiment that we're running into.

Okay. And then can you discuss your own capital budgets, given the current environment that's changed? I mean, I see from your comments, I guess you spent, oh, in the $69 million in the first quarter. Can you review with us your full year estimate now, if it's changed at all and where it's changed?

Our capital expenditure estimate remains at about $195 million for the year. And about $100 million of that is a completion of our FlexRig 3 construction and then we have money in there for additional top drives, for platform rig upgrades, and other refurbishment and tubulars.

Okay. And given how you haven't changed that at all, how much does that change your estimate of how much cash you'll have at the end? I believe you were saying that it was going to be about $100 million of cash on your balance sheet at the end of the year, and I was wondering if that's changed at all and if that contemplates any asset sales.

Well, let's back up for a second. The $101 million was the cash balance at December 31, '02, and -- right.

But didn't you give guidance that it was going to be $100 million on your road shows at the end of the fiscal year?

I would have to review that. I don't recall that.

Okay.

I would be surprised, but clear if you do the math, we're going to be using a fair amount of the $100 million of cash on hand. As alluded to earlier, we have portfolio stocks that we could sell to generate more cash. We have an unused line of credit pf $125 million that -- pf Super Doppler25 million that has got a small amount of that used in credit, securing layers of credit. We've got plenty of liquidity.

Sure.

In the face of, if these kinds of quarters continue, which we don't expect it to, but if they do, we're in good shape.

Right, right. Okay. And I believe you had -- if I look here, I think you had about $10 million available in your restricted payments basket per your revolver. Have you discussed a share repurchases and if so would you contemplate getting that increased, or is that the right amount available under your current revolver?

If you are just addressing the issue of share repurchase, we don't have any announcement or plans. We look at that on a ongoing basis, mixed with the new bill program we're engaged in and a host of other things. So it's just something that we'll continue to study and look at.

Okay. Thanks a lot.

Thanks.

Thank you. We'll take your next question from Nick Teller from S AC Capital. Please go ahead.

My question was answered. Thank you.

Thank you. We'll take our next question from Matt Conlynn from Weeden and Company. Please go ahead.

Good afternoon, guys. I just want to make sure that I have something straight here. The stored-up costs for the flex 3 program of, you know, roughly $1.5 million, those are excluded from the per-day profitability numbers of twenty-eight thirty-five?

Yes. Yes, that's correct.

Okay. So those costs are on top of the operating costs? That are quoted there? Okay. And then my next question is concerning the guidance that was offered during the in the press release. You know, obviously well below last quarter's guidance and I understand the concept of baseline guidance here, but what I'm not sure of is whether this is, you know, management's true belief of what is going to happen or whether it's just kind of a safety gas as, you know, trying to take one of the worst situations possible -- safety guess as, you know, trying to take one of the worst situations possible and having upside from that.

I was just going to say I don't think it's -- I won't put it in that context. I think we've talked about talked about that in visibility with some of the big issues that we mentioned and so it's really what we said it is, Matt, is a baseline approach knowing that you guys all watch this industry, you see the same dynamics as we do and so what we're trying to do is provide you enough that you can go make a timing call and play with different ranges. So it's really what we stated it to be.

Okay. It just, it seems like some numbers that implied, you know, greater knowledge than the uncertainty allows, and it's coming from a very powerful pulpit of company management, and I think the Draconianness of it and the baseline, you know, characteristics of it are being misconstrued as, you know, this is what's going to happen throughout the course of 2003.

No, it's just what we stated. A baseline guidance number.

Okay. Thanks. That's it.

Uh-huh. Thank you.

Thank you. We'll take our next question from Brad Evans from High Rock Capital. Please state your question.

Good afternoon, everybody.

Good afternoon.

A few questions concerning Venezuela. Can you just talk about the AR exposure from Petavesa at this point?

We have, of course, been talking with them on a constant basis about that. Petavesa has reported to us that there has been some disruption of their normal automated processing and that they will move forward for the short foreseeable future on an annual basis. I believe we've resubmitted our invoices and they are being processed manually. So I can't comment further. We're expecting to get some payment on those here in the very short-term but that's kind of where that is at this point. Again, we're always concerned about it, but that's the status today.

George, can you just give us the number -- the absolute number of the receivables exposure to Petavesa at the end of the quarter?

Just a moment.

And I guess while you are looking at that, can you recall or have an idea of what the net book value at the rigs down in Venezuela is right now, or today?

Go ahead, George.

Our outstanding is $9 million of total accounts receivable wp Petavesa, $10 million.

Okay.

I just looked at the net book value question a while ago, and I may be off a little bit. It was in the neighborhood of $72 million.

Okay. And can you just refresh our memory as to insurance coverage on the rigs in the event of a nationalization down there? Is there insurance in place, or would that be a total loss?

Hang on just a minute. Brad, candidly we're just, we don't recall exactly the terms of any such coverage right now. I would be glad to answer that offline.

I guess, you know, in the event of, you know, if something does -- if we don't have a nationalization down in Venezuela, are you fairly confident that all those rigs would get up in a hurry and start to work? Is that a fair characterization do you think?

Brad, we don't know precisely, of course, what lies ahead. It's our belief, though, that the rigs that we have in Venezuela are the best equipped rigs in the country. We have an outstanding reputation and a long-standing reputation, relationship with Petavesa, and we would expect to be the first contractor to go back to work with appreciable number of rigs, and we would be the first to be fully employed. That's our belief. I think the only confirmation I can give for that is that there was a bid last fall for four rigs. We pursued it aggressively. They were good returns, good prices. We won that. Two rigs went to work. The other two were committed, and they did not make it to work before we had material shortages, but I think that that's an indication that our strategy is on track if there's work to be done, we're going to share in a it in a disproportionately high fashion and we're going to do it earlier than our competitors. That's our belief.

Great. And the last question pertaining to Venezuela would be, taking into consideration you've got about ten rigs that are idle right now in Colombia, Argentina and Bolivia, would you-all consider moving additional rigs into Venezuela if the opportunity presented itself?

Well, those rigs were moved. We've moved rigs around over the last couple of years. So we know that there's free entrance and exits for those rigs, and, yes, we could move them. I think at this point, knowing what we know about activity in South America and the situation at present in Venezuela, we would be a little reluctant to move more rigs in, but who can say? If things proceed in some orderly fashion, there could be a strong demand for the kind of rigs that we have in South America.

Very good. Thank you.

Thank you. We'll take our last question from Scott Gill from Simmons and Company. Please go ahead.

Yes. Thank you. George, just a couple of questions on the operations. If you could help us understand the flex 3 rigs, if we kind of look quarter to quarter, the total rigs working in the U.S. for Helmerich & Payne have been roughly flat R. these new flex 3 rigs can balancizing the existing fleet or are, you know, kind of the older assets, are they being, you know, shut down for other reasons other than just cannibalization here?

Okay, Scott. Well, first point, the rig count has not been flat for H&P. Going back -- and I won't -- I can't recite from memory all the numbers, but some numbers that stand out, in July of 2001 at the previous high in the market, we had 46 rigs working, and today in the last quarter we average 54.5. So I believe in every quarter since that high, we've had a steady unbroken record of having more rigs working, and I think we're the only contractor that can say that. And we look all the time to try and determine whether we are can balance I've gone our own conventional rig operations, and our conclusion is that we are not. The rigs that we have stacked today, we have 10 conventional rigs stacked out of 29. Five of those rigs are large 3,000 horsepower rigs that were brought back from South America and really imposed on the domestic rig count. So as the domestic operations say, look, those really aren't our rigs. We have five -- really 24 rigs and we are down to 19. Those five other rigs that are there, they are all large rigs, going back to Paul McCarty's question. People hear that there's going to be more deep work. We're not seeing it. The rigs that we have that are idle are principally 3,000 horsepower rigs and a couple of 2,000 horsepower rigs. So the rigs that the flex 3's would compete with, and all of our FlexRigs would compete with remain at the sament activity level. We have essentially 19 of those rigs still working. So I would tell you that, no, we have not can balized our own conventional rigs that are competitive with the flex 3 rigs. I hope that addresses your question.

It does and I was actually not referring back to July of '01. I was actually kind of looking just sequentially here, but -- that actually does, I think that addresses it. George, with respect to these 117 days of weather-related downtime, can you give us a little more specifics as to -- that seems like an unusually large number. You know, what is going on operationally that would cause such a large downtime number?

Okay. Just a few more pieces to that. There were actually about 190 days, and we received some compensation for 70 days. We did not receive a margin. I'm sure we didn't receive a margin, but we received some reimbursement of costs. For the remainder, it was not all weather. We did have about 120 days of weather downtime, and if you recall in the last quarter we had some storms that moved into the Gulf Coast, and a lot of heavy rains that disrupted location-building and rig moves. So that was one of the sources. We also said other delays, and part of the other delays -- and this had an impact on the training cost also -- when operators said, we'll take a rig, they ultimately did, but they might have delayed taking that rig for three days, five days, seven days, and having invested money in assembling crews and training crews, we kept those crews, but because of the weak condition of the overall market, we were not able to get reimbursement for holding those crews together. So really our 117 days was largely weather but not altogether weather. There was some location delays because of operator issues.

Is this something that will be repeated here in the March quarter, these other delays?

Well, I think that we'll be challenged on it but I think that we're going to perhaps be more aggressive in making sure that H&P comes out a little better on that transaction.

Okay. Thank you.

You're welcome.

Thank you. At this time there are no further questions.

And if there are no other questions, we would like to thank everyone for joining us today and wish you to have a nice evening. [ END OF REALTIME CAPTIONING ].