Helmerich and Payne Inc (HP) 2003 Q2 法說會逐字稿

Good day. All sites are now online in a listen-only mode. I would like to now turn the call over to your speaker today, Mr. Doug Fears. Please go ahead, sir.

Thank you, and good afternoon. Welcome to Helmerich & Payne's second quarter conference call and web cast. Earlier today we released our second 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 of Helmerich & Payne, Inc.; George Dotson, President of the company's wholly-owned subsidiary Helmerich & Payne International Drilling Company. And I'm Doug Fears, vice president and CFO.

Each of the conference call participants will provide statements regarding their respective areas. And following those remarks, we will open the call to questions.

I want to remind you that there will be forward-looking statements and estimates made today. And while we have made every attempt to be as accurate as possible in the information we convey to you, the information involves risks and uncertainties that could significantly impact expected results. You may see further discussion of these risks and uncertainties in the most recently filed 10-Q with the SEC on February the 14th, 2003. Additionally, we'll be rounding numbers and estimates in hopes of adding clarity to our comments.

As announced earlier today, Helmerich & Payne's net income for second fiscal quarter ending March 31, was $2,574,000, or 5 cents per diluted share. This compares with $8,129,000, or 16 cents per diluted share from continuing operations for the second quarter last year. In addition to the 16 cents-per-share from continuing operations in last year's second quarter, 6 cents, an additional 6 cents was from income from the discontinued operations of our former exploration production company, Cimarex, which was spun off on September 30, 2002.

I would like to review just a few financial items before Hans and George making their comments.

First of all, the value of the company's investment portfolio as of yesterday closed was just short of $180 million, or about $3.60 per share on an untaxed basis, and $2.60 per share assuming full liquidation and taxation. There were no significant gains or losses in the portfolio during the second quarters of either 2003 or 2002. There was a very immaterial write-down that showed up under other revenues in line of business section of the announcement.

You've probably noticed couple of new things in the financial section of the announcement. One is footnote relating to what we refer to as reimbursables. Revenues and operating expenses now include amounts for items that we pass through to our - pass through cost to our customers. Prior to this year, those amounts were netted with no impact on revenues or expense.

As noted in the footnote, those amounts now are included in revenues and operating expenses. And they were $11.4 million for the third quarter and $20.3 million for the six months ending March 31 of 2002. And for this year, those reimbursables totaled $9.5 million for the current quarter -- for the second quarter of this year, and $15.5 million for the six months ended March 31, 2003.

You also perhaps noticed the operating statistics table that summarized items that we normally discuss in the body of the announcement text. You will also note on the bottom of the operating statistics that our capital expenditures for the year now total $137.8 million. Our budget for the entire year is approximately $210 million.

As mentioned in the announcement, we will stick with the guidance numbers that we provided during the last quarter, after the first quarter's - or during the first quarter's announcement. Many of you will notice that I call it guidance this time instead of base line. Three additional months have gone by, and what we thought would be base line then has now become guidance with the visibility we have today.

Please recall that guidance given in the first quarter earnings announcement assumed that the two additional rigs would be working in Venezuela by mid-third quarter, and assumed no other financial impact from Venezuela in operations.

I might note that our tentative plans for our conference call following our third quarter earnings announcement release is scheduled for July 24th.

I'll now turn the call over to Hans Helmerich, president and CEO. And after he and George have made their comments, we'll open the call for questions.

Hans?

Thanks, Doug.

Our results for the second quarter reflect the slow conditions that have prevailed since the start of the company's fiscal year that we have discussed in earlier calls. Only recently are we seeing some improvement.

Three areas affecting our marketplace have changed considerably since our last call on January 22nd of this year and deserve mentioning. Thankfully the war in Iraq was a great success, dodging the doomsday scenarios that assumed a longer struggle and perhaps a lesser victory. The implications for oil prices are positive. It appears prices will hold somewhere in the mid-20s, something we'll have a better sense after today's OPEC meeting.

Secondly, the strike has ended in Venezuela and the country is attempting to restore production levels and move forward, notwithstanding the many challenges ahead.

And thirdly, in just the last few weeks, rig counts have improved in the face of the most bullish gas fundamentals the industry has seen in years. For our business, we are impacted by the customer psychology and spending plans, particularly for how they impact the pace and vigor of this long-awaited up-cycle. Our sense is that the up-cycle has indeed arrived, but will unfold more slowly, but at the same time be longer in duration than historic norms.

We are on schedule to complete our 25 FlexRigs new built program at the end of our third quarter. Those rigs continue to deliver a value proposition to the customer that is very encouraging. George will provide more detail on their performance in a moment. We expect to see the customer's improvement in productivity being demonstrated more and more in our daily operating margins through a combination of high utilization, day rate improvement, sand cost management.

We announced a new contract for rig in Hungary, returned the platform rig to service. We have discussed on calls before our desire not only to expand our international footprint, but also to have the opportunity to introduce our FlexRigs into international markets. While our international operations are showing more potential, the improvement will be less visible than the domestic land business. Similarly the platform business will be slower to show a turnaround. We remain in a strong financial position and believe our emphasis on increasing the customer's productivity will garner some unique opportunities for the company and our shareholders in the months ahead.

Now I'll ask George Dotson to give his comments.

Thank you, Hans.

I would like to comment in greater detail on our activity margins, operations, information, FlexRig performance and the status of the FlexRig 3 project. Our second quarter operating earnings for U.S. land operations increased to $4.7 million dollars from $2.3 million in the first quarter. Average revenue per day increased 1 percent to $11,433 per day, from $11,316 in the first quarter. Average expenses per day declined 2 percent to $8,271, versus $8,481 in the first quarter. Accordingly, average daily margins increased 11 percent to $3,162 versus $2,835 in the first quarter.

The average revenue per day I just quoted is higher than the average day rate I will cite later in the comments. The difference is the addition and treatment of move revenues and average revenue per day.

In our last web cast, we reported an unusually large number of unpaid delay days due to weather and other factors. During the second quarter, we experienced no unpaid delay days. Weather was generally good, and we were successful in obtaining reimbursement for all crew costs.

Our U.S. land rig activity was strong with average of 59.6 rigs working during the quarter, compared to 54.5 rigs in the first quarter. U.S. land rig activity during the quarter was 80 percent, compared to 79 percent in the previous quarter. Existing mobile rigs and FlexRigs achieved 94 percent activity with an average of 42.6 rigs working compared to 93 percent activity in the previous quarter when an average 36.9 rigs worked. Conventional U.S. land rig activity declined to 59 percent, and an average 17 rigs worked during the quarter compared to 61 percent activity, and an average of 17.6 land rigs working in the previous quarter.

Today, 24th of April, H&P has 83 percent activity for a total of 78 land rigs available in the U.S. with 65 rigs committed and 13 rigs available for work. Our average day rate for all U.S. land rigs is $10,700 dollars, versus $10,520 on the 22nd of January, the date of our last web cast. Demand and activity continues to be weakest for deep rigs. Of our 13 uncommitted rigs in the U.S., 5 are 3,000 horsepower very deep rigs and 3 2,000 horsepower decrease.

Our second quarter operating earnings from U.S. offshore operations, including management contracts, increased 19 percent to $7.6 million from $6.4 million in the first quarter. Seven of our 12 platform rigs are contracted and five rigs are idle without follow-on contracts. Four of the five idol platform rigs are available for contracts, and the fifth rig will require shipyard maintenance.

Second quarter international operations reported operating earnings of $1.2 million, compared to a loss of $600,000 in the first quarter. Average of 13.4 international rigs worked during the quarter out of 33 available. The average daily revenue was $19,300 per day. Our operations in Venezuela were steady throughout the quarter, with five rigs operating for PDVSA. Two additional deep rigs were committed and scheduled to begin work during the quarter. However, PDVSA, the national oil company, has delayed the start of work for these two rigs.

The PDVSA accounts receivable grew during the quarter to approximately $15 million. But PDVSA is now paying us at a rate equal to our current billings. We are optimistic PDVSA will reduce the outstanding balance during the remainder of the fiscal year. Seven of our eight rigs in Ecuador were contracted at 88 percent activity for the quarter. One rig was idle during the entire quarter. There are good prospects for re-contracting this rig.

One of our three deep rigs in Columbia resumed work during the second quarter. It worked 49 days during the quarter and is drilling a deep exploratory well. There is potential for adding further to our activity in Columbia by the end of fiscal 2003. Only one rig of six is presently working in Bolivia, and two rigs are idle in Argentina. Although demand for drilling in Argentina is in recovery phase, we believe there is potential for adding H&P rigs by end of the fiscal year.

One of our FlexRig customers in the U.S. requested a FlexRig Hungary. We will send one FlexRig from U.S. operations on a short-term contract. We expect the first to go out in late July.

Delivery of new FlexRig 3's continues on schedule. We delivered six new rigs during the second quarter and we are producing two new rigs per month. We have delivered one rig this quarter and we will deliver the remaining four new FlexRig 3's by the end of June, 2003. These four rigs are committed to customers. Twenty one new FlexRig 3's are currently operating, and the field results continue to exceed expectations.

Crew training has been a major contributor to our successes. We have selected, assembled and trained over 600 employees to operate the new rigs and technology.

Our FlexRig 3 operations have produced some noteworthy accomplishments. First, start-up and initial operations have recordable injury rates two-thirds less than the industry average. The annualized FlexRig 3 crew turnover rate is two-thirds less than the turnover rate of our conventional rigs. And third, outstanding field performance for our customers of 71 complete wells drilled to date, FlexRig 3's have drilled 50 of those wells, or 70 percent ahead of the customer's estimated drilling time. And seven wells, or 10 percent, on the customer's estimated drilling time.

Eighty percent of the 71 wells drilled to date with new FlexRig 3's and their new technology and their new crews have met or exceeded the customer's expectations of performance.

The 21 new FlexRig 3's working today are contracted equally among major, large independent and small independent operators. The 21 rigs are presently working for 18 different operators, and 13 of those operators originally contracted and continue to use FlexRig 3.

There is recognition among our customers and their non-operating partners that the FlexRigs are reducing well cost and well cycle times. These customers have rewarded us with a contract awaiting each new rig 100 percent activity for the 21 new FlexRig 3's, premium day rates, and they are choosing to retain the rigs.

Just as we have met the challenges confronting H&P in making this step changed improvement in field performance, we are confident the FlexRig 3's will meet our expectations of financial performance.

Now I would like to turn the program back to Doug.

Thank you, George. We would now like to open the call to questions.

At this time, if you would like to ask a question, press the star, 1 on your touch tone phone now. To withdraw a question that has already been answered, press the pound sign. Once again, to ask a question, please press the star, 1 on your touch tone phone now.

We will take our first question from the site of Aaron Jayram (ph) with Credit Suisse First Boston.

Please go ahead.

Good afternoon, guys. How are you doing?

Okay.

Fine, how are you?

First question is your U.S. land operating costs declined by 2 percent sequentially. I was wondering if you could talk about if you see that trend going forward, and perhaps just compare the daily op costs you're seeing for the FlexRigs compared to your conventional units?

Yes, we were pleased when we got the improved results. There has been total company effort on reducing cost in all areas. And we expect that to continue on for additional decreases.

At this point, our FlexRig costs are pretty much in line with our conventional rig operating cost. We always believe that they would be. And it looks like it is going to be the case. We are pleased about that, also.

Second question is: looking at your rig revenues per day, we have seen a little bit of uplift in day rates. And could you talk about, you know, the trends going forward? Do you expect maybe a 2 to 3 percent increase from there?

We hear about increases in the business and we are seeing some, also. Our FlexRig rates, as you will remember, we started off at $10,500 per day. And those are at 11, and we are moving beyond that. So, we are seeing the same kinds of increases right now.

Okay, final question. I know that Pogo is beginning a program in Hungary. How big a market could that be for you guys? Is there going to be additional costs associated with the rig mob (ph)?

Well, we will be reimbursed for our mobe (ph) and demobe (ph). As far as additional cost, yes, there always are additional costs to operating in a place like that. But, that's covered in the day rate.

And as far as additional work, we hope so, but really we have nothing definite. What we want to do is go over and make sure that we meet or exceed our customer's expectations on this first job. So that's really our focus at this point.

Okay, thanks.

Our next question comes from the site of Pierre Conner with Hibernia South coast.

Please go ahead.

Hi, everybody. A couple of quick questions. On the rate -- day rate, the average was up and maybe this is a follow on that earlier question. How much of that rate increase in that average was because of mix, bringing in FlexRigs, and maybe the weighted interest is, you know, what's the, sort of the rollover as we see it right now on new rig rates?

The rollovers are slightly higher. Each new rig being rolled over or new rig contracted is little bit higher. But, back to your other question about the mix, for the quarter just ended, we have an unusual circumstance. All of our components, whether they are conventional rigs or the different groups of mobile rigs, FlexRigs, they were all about the same in terms of their day rates. So, really the average was pretty much what each one of the four or five groups contributed to it.

Okay, (inaudible) I understand. Then, tell me on the -- George, on your -- the new FlexRigs that you expect delivery that are committed, can you give us a feel for what of that is going to be replacement of other competitors' equipment? And is some of that replacement of your equipment that you then find a different home for?

We don't believe that we are seeing any cannibalization of our own demand. Our rigs that are working are essentially on class average as far as activity. Of the 13 rigs that we presently have down, as I mentioned, eight of those are deep rigs 2,000 and 3,000 horsepower. And that continues to be the weakest part of the demand. So we really only have five rigs perhaps that would compete with these - with the FlexRigs. And again, I think that there is just no evidence yet that we are cannibalizing our own demand. I think that when we put these new rigs out, they are probably taking the job, the incremental work from other competitors.

Okay. Also, then, going back to offshore, if you could expand a bit upon the other platform rig that went to work, when and can you tell us terms on that?

I can't really tell you rates, but it is rigging up now and it's one of our self-moving rigs and went out for about a minimum six months work, and we think it will go on beyond that. So, we're encouraged that it's with a major, so we are encouraged about that, also.

Okay, good. I think that covers everything I've got. So, I appreciate the input, and I will turn it back.

Thank you.

Our next question comes from the site of Bucky Voolon Miller (ph) with Boning and Scatter.

Please go ahead.

Thanks. It is Bening and Scattergood (ph). I am just curious, George or, you know, this is a jump ball, so, I am curious to know your thinking in the rationale behind your thoughts that the offshore market will develop more slowly than the land? Just, you know, any thoughts you have would be appreciated.

Well, there are a couple of components to that. We have had some of our major customers who work both offshore, in the Gulf of Mexico, in the shelf and on land, tell us that based on results that they expect to see perhaps a greater portion of their expiration and drilling funds go into onshore prospects. So, that's a piece of it.

I think also, the platform rig business is a niche business out to 300, 350 feet, water depth jack-ups are probably the preferred drilling equipment. And we -- there are no major -- or very few major new platforms being built. And so, it's -- once you get out beyond where the platform limit is or where the practical limit is, maybe a thousand feet, you are going to be into floaters.

And so, we're really confined to going back onto existing platforms redevelopment, new expiration ideas, but from existing platforms. And that's just made the recovery outlook a little bit slower. So I think those two things together, they've probably led us to where we've given that kind of guidance.

Good. Thank you very much.

Our next question comes from the site of John Woodberry (ph) with Coblac (ph) Capital.

Please go ahead.

Well, thank you. My question has been asked.

We have a question from the site of Neil Jacobs with Bodui (ph) Capital Management.

Please go ahead.

Good afternoon. I guess -- wondering if you could elaborate a little bit on the guidance that you basically expect, a little on improvement, given the rollover rates are higher, and you mentioned 11,000 dollar a day rate. I am just curious as to why you don't see much improvement in the bottom line over the next couple of quarters?

Well, just to recall -- this is Doug. Back in the first quarter, we gave some guidance of, I think, for third quarter in the 7 cent range, and in the fourth quarter, a 9 cent range. And really, like we mentioned, the platform business has been down for us. And looks pretty flat. And the international business is something that really hasn't heated up. We've had some improvement in Venezuela, as we have said, and in Columbia. But, those numbers take that into effect.

So, what we're not doing -- at the time we gave that, we thought it would be sort of a base line number that folks could use to make their own comparison. And there was a lot of misunderstanding, which I will take responsibility for. But, as I mentioned in the comments earlier, we see this as perhaps, you know, with the visibility that we have, we are not anticipating significant increases in day rates. We did see some improvement, but we're not going to get way out ahead of this (inaudible) how to predict exactly what that would be. So, we're just - we're saying just generally things could improve slightly, but there is lots of moving parts. It appears that our equity affiliate Atwood, is not going to perform as well as we had anticipated. That has an impact on it, as well. So, there are a number of moving parts. It is very difficult to slice it that thin, particularly when the numbers are pretty small. So, we felt comfortable just sticking with that.

Thank you very much.

We will take our next question from the site of Wiqar Sayad (ph) with Petri Barkman (ph).

Please go ahead.

Yes, hi, a couple of questions. First of all, what's your guidance for G&A costs going forward?

Wiqar (ph), we're just - we're guessing that G&A will probably be in the $6 million range for the remaining two quarters. It was a little higher this quarter because of some timing issues regarding benefits. It probably got slugged a little bit harder than - just on some timing issues. And we did pay some bonuses during this quarter in January. So, we should see - our hope is that we'll see G&A pop down some.

Okay. And in terms of DD&A (ph), should we expect the same kind of jump quarter-to-quarter as we saw the last quarter?

We should see DD&A (ph) probably move upward slightly to maybe $20.5 in the third and roughly $21 million in the fourth.

And then should it - this stay $21 going forward up to that, or...

I'm sorry, Wiqar (ph), would you repeat that, please?

After that, should we assume it will remain stable at around $21 per quarter?

That would probably be a pretty good assumption.

Okay, and in terms of Venezuela, when do you expect those two rigs to go start work, any additional comments on that?

I think it's most likely that it would be before the end of our fiscal year, but again, we're -- we just have not gotten that far in the discussions. We still have commitments, but they have not released the locations. I think that our fiscal year ends in that operation in August, so I hope by that time those rigs will be operating.

Okay, and the, you know, conventional rigs that are down right now in the domestic land market. How many could be picked up without additional capital investments?

I don't think that we have any appreciable capital investment. Of those 13 rigs, 12 could go back to work immediately. The 13th rig might take 10 days just to assemble some things. But, no appreciable monies at all to go into that.

How about the employees? Do you have employees for all of them?

No, we don't have the employees, but our records so far for attracting and retaining people has been very, very good, and I would expect that that would not be a problem. If we get the work, we will have the crews for it.

Okay, now, for this -- your guidance of 7 cents for the third quarter. What utilization are you assuming for the domestic land market?

In those assumptions for U.S. land, we used, I believe, about 80 percent. And we had roughly 50 percent assumptions for both offshore and international.

Fifty percent, okay. But your offshore is slightly above now utilization and international, it is below that?

Well, offshore is maybe just a little north of that and international is south of that.

Okay, and in terms of day rates, what were your assumptions?

They were flat with what you see there in the listed in the announcement for first quarter of '03.

Okay, and then for the fourth quarter, what assumption was there?

I believe the same. Let me just double-check here. Flat for all of that for the fourth quarter, as well.

80 percent utilization and 50 percent utilization there. And no change in day rates?

No, sir.

Okay, great, thank you very much.

Yes, thank you.

We will take our next question from the site of Andreas Vietor with Stifel Nicolaus.

Please go ahead.

Good afternoon, everyone.

George, with the deep rigs that you have idle, what will it take, do you think, in the marketplace to get the deep rigs back to work? And how do you square that with your -- I think you made a comment that you think onshore capital spending will be higher than offshore capital spending?

I don't know Andy, that offshore and onshore - I don't know how those relate. All I can tell you is that some of our major customers said we are going to be moving some of our funds from offshore to onshore. With the kind of rates that it would take to get our deeper rigs back to work, we have bid those on jobs and we've just continued to be high at where we are bidding. And we have been bidding in the $10 to $11,000 dollar a day range, which we would love for them to be higher, but we were willing to put them back to work. One, there's just not enough deep work out there. And number two, what deep work there is, is being bid at lower rates by the market.

Okay, and I think you also made the comment in your press release that you expect your operating cost in U.S. land business to trend down. How much lower do you think you can get your operating costs?

I don't know the answer to that. I think that our goal is to get to the next $500 savings. But, every hundred dollars gets more difficult. So, I can't really answer that.

Well, what will it take to generate that? What do you have to do?

Well, we -- a lot of it is continued awareness among our field operations and reminding them of the need to spend every dollar wisely and to get the total value out of it. We have a good and improving maintenance system that is able to extend the times between overhauls. Another piece of it is procurement. And we are embarked on a company-wide supply chain management program that is just now beginning to show some results. And we expect to see more results over the next - well, this is going to be a two-year-long project. So it will be incremental, but that is how we are going to either reduce the average operating cost or slow the growth in operating cost one expects from time and inflation.

Okay. And lastly, on the contract for the rig going to Hungary. When does that start and can you share with us the terms of the contract?

I can't tell you much about it. We should spud at the end of July. We'll ship within the next 30 days. And it's a multi-well contract, probably on the order of six months, and after that it will be results-driven.

And would you have margins better than what you would typically receive in your international operations, or will they be about in line?

They are going to be in line. And Andy, at this point, it was about a fair rate and the opportunity to put a FlexRig into another area and really just what our customer asked us to do. This customer had been using the FlexRig. He knew what it could do. He had been using it for the past year and-a-half. And he wanted one just like it to go to this new exploration and development operation. So, really it was about customer satisfaction, as much as anything.

And do you have any other international markets that you are currently looking at that you might move additional rigs into?

We continue to look at some, but they are only in the exploratory stage. And we hope that in the following web cast we will be able to tell you we've had some success. But we're only looking at those at this point.

Okay. Thank you very much.

Our next question comes from the site of Robert Ford with Sanders, Morris and Harris.

Please go ahead, sir.

Thanks.

Hans or George, what are your thoughts of entering the Russian market?

Well, I think some day we will be there. We have looked at it for a long time. It is getting to a point where you could feel better about it in terms of just contract (inaudible) issues today. And it will most likely be led similar to this Hungary opportunity by a customer that is determined to have us over there. So, I think we would be open to it, Robert.

Okay, so again jut to clarify, you will follow a customer with existing assets as opposed to getting into the market via acquisition?

That would be the most likely approach, yes.

Okay. I just have a couple of (inaudible) ones here, Doug, what was capitalized interest in the quarter? And what should it be next quarter?

Capitalized interest this quarter was $528,000. And I would suspect it to be probably about half million next quarter.

And last question is - hopefully I am wrong, but looking at my cash flow number here, we're going to draw cash down pretty low over the next quarter or two. Do you hit the bank line or do you sell some of your portfolio if you need to raise some cash here in the near term?

Well, I think it is probably going to be bank line. We will sell portfolio opportunistically. And, I mean, we may have small, isolated sales, but probably bank line. And our prediction would be, that probably happens close to end of the fiscal year.

Okay, that's all the questions I had. Thanks for the additional detail in the press release, very helpful.

And George, if in fact, you know, the margins in the first fiscal quarter of $2,835 dollars end up being the cyclical (ph) trough, congratulations. That is almost unbelievable to me that at the bottom of the cycle you guys can pull almost $3,000 in margins. So congratulations.

Thank you.

Once again, if you would like to ask a question, please press the star 1 on your touch tone phone now.

We will take our next question from the site of Ken Steele (ph) with Credit Suisse First Boston.

Please go ahead.

Yes, good afternoon, gentlemen. One or two questions following up on some of the other ones. On the rigs that you are bidding that have been stacked, it sounds like you are bidding those pretty much at the rate you're getting for the rigs that are already working. Is that correct?

That's right. Sometimes we've gone a little bit lower in order to get one back into business. And rigs are more competitive when they are top rigs.

Yes, I mean, I have been hearing that one of your competitors has been offering about $1,000 up current spot to put idle rigs to work. And then on the FlexRigs, do you guys have an idea, just ballpark what the return on your investment is at $11,000 a day in one of these FlexRigs?

A couple of returns. Again, I think over the long term, internal rates have returned. If it never gets any better than $11,000 a day, I think that we are probably looking at after 10 years and reasonable salvage we're going to be looking at seven, nine, 10 percent internal rate of return after tax.

I think in the short-term, if you ask me today what the brand new FlexRigs are doing at $11,000 dollars a day, it's probably 4 to 5 percent return on investment. That's today's after tax margins divided by the full price of the new rig.

Okay. Without salvage or anything?

Well, there's no salvage, just the straight financial calculation.

And I think before you guys have said because you've got your own construction program going on, you're saving roughly a million, a million and a half a copy, I think?

I would think it's more than that. I think if you went out to buy a rig that could do what this could from a manufacturer where we now are - current rigs coming off the line are probably at $10.5, $10.6 million apiece. I wouldn't know how to place it. First, I don't know that anyone can get the economies of manufacturing that we have. And then you think about that and then you put a margin on top of that, I wouldn't be surprised if you aren't in the $14 to $15 million range.

Okay, and then any plans to keep that line open after the first 25, or is that going to depend on the market or are you going to shut it off after that?

You know, we, Ken, haven't come to a conclusion on that. I mean, one of the things that we like about our position now is that we've got the flexibility to watch the market and get a sense of the up-cycle. So one of the things we like is some of the economies that George had mentioned and just the learning’s (ph) that we have from that process, but we haven't made a decision on that. What we know is it won't be something in large packages. You won't see a 25-rig package. We'll look at it more incrementally from here.

Okay, and just one final question for Doug, following up on one of Robert's. You know, the 7 cent guidance for the current quarter assumes land utilization a little bit below where we are today, a little bit better international and a little bit down domestics. So if things continue to improve, the odds are you'll be beating that kind of 7 to 9 cent run rate going forward. Is that fair?

Hard to tell, Ken. There's so many moving parts. And again, when numbers are this small, it is a tough call And it changes. So I would be hesitant to come off the guidance as it stands.

Okay, thank you.

Thank you.

We have a question from the site of Brad Evans with High Rock Capital (ph).

My question has been answered. Thank you.

Once again, if you would like to ask a question, press the star 1 on your touch tone phone now.

And it appears we have no further questions at this time.

All right, very good. We appreciate everybody joining us today. And if there are no further questions, we would like to wish you a good evening. Good bye.

This concludes today's conference call. Thank you for joining. You may disconnect at any time.