Helmerich and Payne Inc (HP) 2004 Q1 法說會逐字稿

Good day. All sites are on the conference line in the listen-only mode. We will have an opportunity for Q&A towards the end of the program. It is my pleasure to turn the conference over to your moderator, Mr. Doug Fears.

Good afternoon everyone, and welcome to Helmerich & Payne conference call and webcast wherein we will discuss our first fiscal quarter which ended December 30. We released our first-quarter earnings earlier today. Most of you probably have that but it is available on our website at HPINC.com. As it is customary for us, we have Hans Helmerich, President and CEO; we have George Dotson, who is Vice President of the parent and President of the subsidiary Helmerich & Payne International Drilling Co., and I'm Doug Fears, Vice President and Chief Financial Officer. Each of us will say a few words and after our remarks we'll open the call to questions.

And as always, the numbers that we talk about, particularly the forward-looking statements are going to have risk and uncertainties that will clearly impact results. And you should be aware of that. And if you want to see the particulars on that, it is in our most recently filed 10-K, it was filed with the SEC December 23rd. We will also be rounding numbers and making estimates in hopes of adding clarity to our comments. Incidentally our new annual report is also available on the website.

As announced earlier today, Helmerich & Payne's net income for the first quarter of fiscal 2004 was $5,629,000 or 11 cents per diluted share. This compares with 607,000 or one cent per diluted share for last year's first quarter, and it compares with a $6,530,000 net income or 13 cents per share from the previous quarter or the fourth quarter of fiscal 2003.

As most of you know, we unveiled a new reporting format in our previous announcement in November and have continued that format during this quarter and plan to continue it going forward. We are not providing specific earnings guidance from the company. However, this new format should help you in your modeling of the Company and in making your own forecasts. As mentioned in the last announcement, you may access retrospective information in the same format for periods beginning 2001 and forward at our website under the subheading Investors.

Just a general comment about the recent quarter ended December 31 compared to the September 30 quarter, when you look back there are three items that you might want to adjust. One is the gains from the sale of the portfolio. The other, the equity losses from our equity affiliates Atwood and the after-tax effect of sale of raw land from our real estate division. When you make those adjustments and stand back you see that operating earnings from the core business really only dropped by one cents per share. And as mentioned in the news release, the U.S. land rig business, the operating profit improved from the previous quarter by about 10 percent, 6.4 million to almost 7 million. And the international operating profit experienced a nice increase from roughly 600,000 in September quarter to 3.8 million in the December quarter.

As expected and as we announced, the platform business experienced a drop; the operating profit dropped by about 50 percent from the September quarter from 8.9 million to 4.4 million. And if you tax effect that that is about a 5 cents per share decline sequentially. So at the end of the day that was the big story in terms of the reduction in (indiscernible) core earnings. George will speak more about the outlook for that business in his remarks. Just some other facts before I turn this over to Hans, capital expenditures for HP for the quarter were slightly less than 30 million, including about 17 million in FlexRig construction. Our total capital spending budget for 2004 approximately 100 million. Market value of our investment portfolio right now is slightly above 200 million on a pretax basis, or about 142 million on an after-tax basis.

Now I'd like to turn the call over to Hans Helmerich and after he and George have made their comments, we will open the conference call for questions.

Thanks, Doug. If you go back to the time of our last call on November 12, there were some big picture concerns over commodity prices going into 2004. OPEC was projecting at that time an oversupply of oil to develop by early Spring, and the natural gas fill rates for storage had surprised most everyone with record-breaking numbers. While today's gas storage may have been on the low side, the combination of continuing cold weather and a more robust economy means visibility of continuing strong commodity pricing as we head into 2004 is much improved. We believe this will encourage our customers toward more aggressive E&P spending throughout the year.

We are seeing some early signs of that encouragement unfold at the end of this last quarter and the first of the calendar year. The disconnect we have discussed before between higher rig activity levels and flat day rates should improve as the overall rig count continues to climb and the rig on rig competition abates. In a moment George will comment on additional detail on each of our three business units, but let me just mention some highlights from our release this morning.

As we predicted and as Doug just spoke to, the largest operational challenge occurred in our offshore platform business with the downturn in operating profit reflecting reduced activity levels and offsetting sequential improvements in our U.S. land and international segments. The silver lining is the announcement of our platform rig 100 returning to work at the end of March of this year.

One of the more encouraging signs for the company is the increased activity we are experiencing in Venezuela. As many of you know, we have been in Venezuela for nearly 50 years and have worked to achieve a strong relationship with PDVSA, the government owned oil company there. We really believe our people and equipment in Venezuela give us a strong franchise and over the years made an important contribution to the company's financial performance.

At this time last year the countrywide strike and subsequent turmoil within PDVSA was a serious concern. We hung in there and continued to work and work through the challenges. We are beginning to see the rewards of that effort as we are currently mobilizing our 8th (ph) deep rig onto a location this week bringing our activity in Venezuela to over 70 percent.

In addition, we recently achieved some important financial milestones in Venezuela. First, the government has approved the conversion of our bolivar to our cash balances to U.S. dollars and the remittance of those as dividends back to the U.S. As you saw in the announcement, we successfully remitted $8.8 million last week, significantly reducing our exposure to the possibility of a currency devaluation. Also our Venezuelan accounts receivable have improved steadily during the past four quarters. With that, I would like to turn the call over to George.

Thank you, Hans. First quarter performance for U.S. land operations were flat compared to our last quarter. Our first-quarter operating profit for U.S. land operations increased 9 percent to $7 million from $6.4 million in the fourth quarter. Our rigs worked 6280 days during the quarter compared to 6304 days in the fourth quarter, while average revenue per day increased slightly to $11,340 from $11,236 in the fourth quarter.

Average expenses per day were constant at $7841 versus $7837 for the quarter. Accordingly, average daily margins increased 3 percent to $3499 versus $3399 in the fourth quarter. U.S. land rig working were constant with an average of 68.3 rigs working during the quarter compared to 68.5 rigs in the fourth quarter. U.S. land rig activity during the quarter was 81 percent compared to 83 percent in the previous quarter.

Existing mobile rigs and FlexRigs achieved 92 percent activity with an average of 51.2 rigs working compared to 95 percent activity in the previous quarter when an average 51.1 rigs worked. Conventional U.S. land rig activity decreased slightly to 59 percent and an average of 17 rigs working during the quarter compared to 60 percent activity, and an average of 17.51 rigs working in the previous quarter. Today, the 22nd of January H&P has 80 percent activity for a total of 86 land rigs available in the U.S. with 73 rigs committed and 13 rigs available for work.

Our average day rate for all U.S. land rigs today is $10,660 compared to $10,616 on the 12th of November, the date of our last web cast. Our 30 new FlexRig3s continue to pace our U.S. land operations. All 30 rigs are working and the two rigs under construction are committed. Price competition kept FlexRig3s daily revenue flat at $11,968 in the first quarter versus $11,926 in the last quarter. Daily expenses were constant at $7703 versus $7670, reducing little change in daily FlexRigs3 margins of $4,265 in the first quarter versus $4,256 in the last quarter.

There has been no change in the weak activity in demand for deep land rigs in the U.S. As we forecast in our last web cast, soft rigs or deep rigs fell further in intense price competition. Of our 13 idle rigs in the U.S. today, 5 are 3000 horsepower very deep rigs, and 6 are 2000 horsepower deep rigs.

As we forecast in our last web cast, our first-quarter operating profit from U.S. offshore operations decreased significantly to $4.4 million from $8.9 million in the fourth quarter. Five of our 12 platform rigs are contracted. One additional rig is committed to begin work in late March. And 6 rigs are idle without follow-on contracts. Five of the 6 idle platform rigs are available for contracts, and the sixth rig will require shipyard maintenance.

Going forward, we continue to forecast a slow recovery in our platform rig activity. We are encouraged by the commitment of the rigs scheduled to start in late March and by inquiries for future possibilities.

International operations showed positive developments. First quarter international operations reported an increase in operating profit to $3.8 million compared to $600,000 in the fourth quarter. An average of 16.7 international rigs worked during the quarter out of 32 rigs available. The average daily revenue was $19,208. Activity today is 17 out of 32 rigs working.

Our operations in Venezuela increased to 6.4 deep rigs in the first quarter compared to 4.9 deep rigs in the previous quarter. Today 6 deep rigs are operating for PDVSA, a seventh deep rig is operating for an international operator and our eighth deep rig started mobilization to its first PDVSA location this week. We are bidding on other contracts that offer possibilities for our two 2000 horsepower deep land rigs in Venezuela and for other deep rigs that are idle in Columbia, Bolivia and Argentina.

Our deep rigs are the best equipped and maintained in Venezuela and our margins continue to be very attractive. Seven of our eight rigs in Ecuador were contracted during the quarter. We are currently operating five rigs and rates and margins continue to be attractive in Ecuador. One deep rig in Columbia worked for the entire quarter but has since been stacked. One of our 6 rigs in Bolivia and one of our 2 rigs in Argentina are presently working. Two FlexRigs are working on international contracts. The first FlexRig is contracted to a U.S. FlexRig customer for a contract in Hungary. This FlexRig is presently drilling its fifth well and we expect the work will continue through the fiscal year.

The second FlexRig is now drilling in Chad for an international operator. That contract should also continue through the fiscal year. The FlexRig3s project is now delivered 30 new FlexRig3s. We should complete the last two of the FlexRig3s by March 2004. We will suspend construction activities after the 32nd rig and review future possibilities and plans for the FlexRigs 3 project.

The FlexRigs 3 effort has been a major success for H&P and our customers and I would like to summarize those achievements. We delivered the $350 million project on budget and on schedule. The training program screened, trained and assisted in retaining 78 percent of the 800 new employees that joined H&P to operate the FlexRig3s. The field results have been outstanding. Our field personnel, rig design and new technology have delivered faster drilling, less trouble time and faster moves. The reduced well cycle times have reduced total well costs for our customers, accelerated their production of oil and gas, unlocked possibilities for better returns and stimulated more drilling. FlexRig3s success has been the catalyst for our customers achieving reductions up to 50 percent in well cycle time in the course of the first year's operations.

Our customers recognize the value added by FlexRig3s operations. Every new rig has gone directly to a job, and 18 of 30 rigs have never been released by their original customer. FlexRig3s have achieved 99 percent activity in the first 27 rig year's of operations. And FlexRig3s continue to earn a premium over conventional rigs. FlexRig3s has opened up new markets for H&P. In mid 2002 for instance, we had no rigs in the active East Texas market. Today FlexRigs 3 successes have led to 13 FlexRig3s operating in East Texas. FlexRig3s are currently operating in South Texas, East Texas, Louisiana, Colorado, Oklahoma and, after an absence of 40 years, we have put our first FlexRig3s into West Texas.

We have met the challenges confronting H&P in developing the FlexRigs 3 and making (indiscernible) change improvement in field performance. We are confident the FlexRigs 3 will continue to assist our customers in unlocking their possibilities of greater value. Now I would like to turn the program back to Doug.

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

Good afternoon everybody. A couple quick questions. First, could you give us any depreciation guidance so we could work with given the additional rigs coming in at the end of the quarter?

Hang on just a second, let me come back to you.

The next one is for you, too, and that is just could you help us with, what would be the impact of the financials of the dividend payment from Argentina in the second quarter and how is that handled foreign currency exchange etc.? And then the other is really just for George, interested to know about your thoughts, we haven't seen any movement yet on the deeper drilling yet here in the last quarter we drilled more footage with a flat number of rigs at a record footage. And I suppose the answer would be of course some of that would be FlexRigs moving faster and drilling more, but -- and you mentioned early on you saw some signs of increased spending. Why, and what are the -- have not seen any signs for deeper drilling -- I guess I'm still at a loss.

There are some plans for deeper drilling and in some cases those have gotten under way, and I think the results have probably not been conclusive yet, so that has not stimulated follow-on drilling. I think, Pierre, that it continues to be a question of economics. Today with one gas price no matter what the depths of the well, and people look at spending big money for deep drilling they are not going to do a lot of it. There is no deep development drilling except perhaps in the Tuscaloosa area. I think people are going to continue to focus on shallower wells, more economics that they can get their hands around and not so much on expensive wild catting. (ph)

Lower risk. You mentioned at the onset though, that you were not to paraphrase -- that you were encouraged with some signs that maybe the end of the last quarter and could you expand on what that is -- indications from your field or actual bidding? What kind of things are you seeing?

Did you say signs? I thought you said fines. There have been some signs, and I think they come from several directions. First as the Rockies continue to be very active and I know that we are contemplating moving additional equipment to the Rockies and several other contractors are, too, and I think that better gas prices, better margins in the Rockies, more access. That has certainly stimulated drilling in the Rockies. I think another sign has been the midcontinent. I think I saw where Oklahoma had the highest rig count we had in 13 years. It may have been longer than that. But we are contemplating moving additional rigs to Oklahoma on very favorable terms. And I'm sure that other contractors are doing the same. So those are two signs.

I think the other sign that we see is that we have made steady progress for our customers in reducing the total well counts. (ph) Not in every case. We still have issues with the usual problems in drilling wells, but increasingly we are able to drill wells under the budget and some with what I think are breathtaking results. And the customers have said it is having an impact on the way we look at our future plans. We are because we are able to in their words unlock greater value by drilling more wells and by exploring other areas, we are going to create more opportunities for drilling. And I think that we have certainly been a catalyst with the FlexRig3s but I believe all contractors are seeing the same thing. Our performance is improving and costs are -- if they're not going down, they are certainly more attractive and the operators are responding by drilling more wells. So that is the other sign that I see.

On these potential moves between regions, would it be appropriate to assume that the moves would be for incremental day rates? In other words, if you've got active rig or is this to move currently idle equipment.

The rigs that we would move are currently working, and it is for better rigs and also in the past one of the things that has been a barrier to moving rigs has been lack of payment for the full mobilization costs by the operator (indiscernible) they are paying. More and more of that if not fully funding that.

Thanks, and Doug, did you.

Yes, Pierre. Our estimate for depreciation is roughly 91 million for the year. And then your question about Argentina, all of our contracts -- and I have enough folks here with me to correct me here if I'm wrong internationally - save for Venezuela -- are in U.S. dollar payments. And so we did have a currency issue in Argentina a couple years back when the government refused to allow any dollar payments and dollar transfers for any company no matter whether your contract called for payments of the Argentina currency or the U.S. currency. So we had to deal with that but that is a very unusual -- I can't recall that happening in my eighteen years with Helmerich & Payne. So we shouldn't have an issue a currency issue there in Argentina unless something like that happens again.

So this particular transfer doesn't show up specifically, that is what I was trying to get.

I'm sorry, what are you --

The dividend payment itself wasn't going to show up in any way in foreign currency exchange.

Now did you mean -- when you said Argentina, did you mean Venezuela?

I'm sorry, thank you.

Let's backup then for a minute. No, that is just simply moving money from one bank account to another. It just so happens that if you are -- what we were concerned about is having a large amount of believers in bank accounts in Venezuela with a revaluation devaluation of the currency there.

All right, good. Thanks for the information, guys.

Andreas Vietor with Stifel Nicolaus.

George, how do you anticipate potential ramp up in U.S. land activity unfolding over the next 12 months?

I think we are very conventional in how we see this. I think it's going to be steady, I don't think we are going to see an explosion. I think we are going to see continued movement upward. There may be some weeks when it falls off, but I believe there will be steady progress through the year, more importantly for us I think that we will unlike 2001 where we saw all of our big rigs working. I believe that today there is sufficient choice of rigs out there that the operators will not be forced to use big rigs to drill shallow wells. So there may be some rigs that do not go to work, and they will be the large rigs. But I think that we will look at 100 percent activity of all rigs that can work, there may be four or five very large rigs that don't go to work. I think we will see a steady improvement throughout the year and I believe that we will also see some improvement in day rates. Again I don't think it will be explosive, but it will be steady improvement.

And are you hearing any rumblings at all from the major operators in terms of ramping up any of their U.S. activity? I know they make up a substantial, or have made up a historical substantial portion of your customer base.

Yes, we do. We have a couple of majors that are looking at more activity. Some in the Rockies and others just generally across the spectrum, whether it is along the Gulf Coast into South Texas. We are seeing that our major customers are continuing to represent the same percentage of our total work, probably on the order of 40 percent.

Any sense of magnitude about how much they might increase their activity levels going forward from current levels?

No, I don't. I do sense that in the Rockies there is probably going to be -- it's going to be more noticeable because I think probably they are moving from a lower base. But that is probably the most dramatic. But again, they are moving from a lower base.

Just a couple sort of modeling questions, if you will. Since you will be moving some rigs to the Rockies and the midcontinent, you think you had 73 rigs committed. What kind of impact you think that will have in terms of total available contract days you have for the quarter, and what kind of impact you think that will have on your average rate for the quarter? If any?

Anytime you move a rig you do take it out -- you take it off the payroll for a period of time. I don't think we are going to notice much of a change in our activities. I think of the rigs that are -- the rigs that are operating are probably going to continue to have the same number of days worked every quarter. We have some days that we miss because the operator releases this unexpectedly, or we have a delay in getting to the location. I think that those things are going to shrink and probably the days that we save there will be used up in transferring rates. So what I am telling you is I don't think you will see an appreciable difference, I don't think you will see a noticeable impact on the quarter's results.

Perfect. And any sense for the last question -- see steady progression in terms of rates through the year, do you see it sort of on par with what you did from your fiscal fourth-quarter to your fiscal first-quarter here in '04, or do you see it more substantial increase on a go forward basis?

We didn't see much of an increase from the fourth quarter to the first quarter, and I think as we mentioned at our web cast back in November, we had seen some pretty vigorous price competition that actually reduced rates for a brief period of time. And so the first half of the first quarter was probably suffering from that. Things got a little bit better, and that is how we probably managed to maintain a flat from fourth to first. What we are seeing, though, and this is a very general comment, is from the end of December until today, nearing the end of January, we have begun to see probably on average $500 a day increase in rigs that are being renewed. Some are less, some are more, but if you were going to average it, I would say 500. That is over a brief period of time. I don't think we will -- we will not sustain that going forward, but maybe it's going to be -- if we could average that throughout the year for the quarter per quarter than that would be very attractive to all contractors.

Absolutely, I hope you are too conservative, George. Thanks.

(indiscernible) with Needham & Co.

This is a minutia question but could you explain how depreciation went down quarter to quarter? Was it just older rigs running off depreciation schedules, or was there any type of accounting change?

There was a little of that, the runoff, but really the change took place for a couple of smaller reasons. One, we had the FlexRig that went to Chad caught most of the September quarter and its depreciation versus probably not any in the December quarter. And then in the September quarter the fourth quarter of '03 we booked the abandonment charge for a mast that was damaged that was not covered by insurance. So you had a little bit of artificially high fourth quarter. And so those were the basic reasons.

And so when the rig was relocated to Chad, depreciation was suspended?

It got shifted, I believe over to the international operations. And then of course you always have like you mentioned some runoff of depreciation from older equipment.

The numbers are pretty small differences but I just wanted to understand the philosophy behind them.

That's a good question, particularly when we are in a construction program.

Thank you very much.

Waqar Syed from Petrie Parkman:

A couple of questions. Could you quantify the number of rigs that you are considering moving into the Rockies?

We are at this point we are looking at an additional 2.

And are they going to come out of South Texas?

Yes, its most likely that they would come out of South Texas.

And are these flex or conventional rigs?

They will be mobile rigs, but not the new FlexRig3s.

Into the mid (indiscernible) how many rigs you are considering moving?

A sorry I didn't hear you.

Into the midcontinent how many rigs are you considering moving?

That has been a steady process, and we are talking about one, possibly two additionally.

And again are these (indiscernible) rigs or flex?

We've just completed moving some FlexRig3s and some other rigs; I think the next two will be the existing mobile rigs.

Right now you said you have 73 rigs committed. Are those 73 rigs working right now or (indiscernible)?

Yes, those are working now. We have another couple that are committed, and I didn't mention those today; we have another couple that are committed. We don't have, we have been assured the contract is going to be signed, but we don't have it in our hand, that's why we didn't mention it. So 73 are in fact working.

How soon do you think these other two would be working?

I would say probably by mid-February, they should be on the payroll.

And Doug, on the full year could you describe what stocks you now have left in the portfolio and what is the number?

The stocks that we sold during the quarter were the smaller holdings that we had listed under the general term other. We did not sell any of Atwood, Schlumberger, I believe it is Conoco Phillips, didn't sell any of those. So those three have not changed.

I think that is all I have. Thank you.

Bill Sanchez with Howard Weil.

George, quick question for you. Just to kind of get an apples-to-apples comparison, in the press release in your prepared comments you mentioned the December quarter average revenue per day in the U.S. was 11 340 and yet you quoted I guess a day rate number of 10 660. Can you kind of get that on an even par of what that 10 660 equates to as a revenue per day versus just a day rate per day or vice versa, cutting back that 11 340?

Revenue per day includes all revenue except for reimbursables, and the difference there is in mobilization revenue. Whereas I believe George correct me if I'm wrong, he is referring to the actual day rate and discussions negotiations and contracts that we charge the operator on a daily basis and there is a slight difference there.

I understand that. So do you have what the average day rate would have been for the December quarter? If we strip out the (indiscernible) costs and what have you from the 11 340 just to get a comparison were the average day rate was versus the 10 660 today?

Hand on just a second. Bill, we have a report that shows that and it is not at my fingertips.

I may have mentioned this, and maybe it didn't come through, but the 11 340 was in the first quarter, and it was 11 236 in the fourth quarter.

Right, I have that. That's fine. I will, we can follow-up off-line on that. I guess, George, one of the questions for you the 73 committed that you mentioned, is that rigs that are actually working today, or is that 73 some number you expect to have working in some future point this quarter?

No, those are 73 a day. Now in that there may be four or five rigs that are moving today, but they are under contract. But all those 73 rigs are in fact working today. We have a couple more that are committed, but because they are not moving or actually working I am not counting those.

That doesn't include the two additional FlexRigs that are under construction that you said you had commitments on already?

That does not count those.

Okay. I guess my last question for you with 86 land rigs available how do you stand in terms of crew availability right now if there was to be some sudden surge in utilization here?

Bill, we get asked that question a great deal, and I know that our people in the field worry about that every day. But generally speaking, over many years going back 30 years, we have never had a problem in making sure that our crews that our rigs were fully crewed every day. In the short term it is a concern. It is not a problem like it was several times in the past. I would tell you that today it is a concern on the part of our operating people but it is not a problem. I would think that every day we have a full crew or if we are missing one it is one person, it is not endangering the operation or it is not going to shut it down.

Okay, thank you all.

Arun Jayaram with CSFB.

Doug, the $100 million of CAPEX does that contemplate any more FlexRigs beyond the two that you got fishing (ph) at the end of this quarter?

No, sir, it does not.

Okay and when are you guys going to make that decision in terms of expanding the program?

We mentioned already that we will finish up these two. That's what we've been focused on. We don't have a decision made going forward. We've said before on calls and other conversations like this that we are focused on finishing up the 50, then we will watch the market. And particularly the international market opportunities. Development may be a little slower than we might have expected. But one of the positives is that we very much expect in future to construct more FlexRigs. We control the timing. We have already the benefit of the learnings and know-how, and so it is something that is very flexible. But we don't have a timeframe really to announce or talk about going forward.

In terms of the platform rig 100, could you give us some sense of the contract length and perhaps some terms?

It is not a long term. I think it's probably going to be nine months, possibly a year. And I don't really want to quote the rates on it, but it was an attractive rate and attractive market.

Okay, and the last question, George, you mentioned that you are still generating 40 percent or more of your revenues from Probably, Shell and Exxon. How are you doing in terms of shifting the mix towards the independents who are clearly more active in the lower forty-eight?

We have tracked that very carefully and very closely over the years, and today we have 40 percent with the large super majors, and we have right now 30 percent with the large independents, and 40 percent with the smaller independents.

Is that 40 percent you said remained constant over the last few years?

The 40 percent with the super majors, that has declined over the last ten years from 60 percent to 40 percent. The large independents has also, in our case in fact, all these numbers are for us, the large independents have declined probably from as high as 40 percent down to 30 percent, and the smaller independents have been where we have seen the growth and that has been a very pleasant surprise to us. We always believed that the FlexRigs 3 with its value proposition was going to be the most attractive to the majors and the large independents. What we have found is that the independents said, wait a minute, we understand value as well as anybody else, and they in fact have been very, very active in using FlexRigs and our FlexRig3s usage reflects the total rig usage in the company. There is almost no difference. So 40 percent of our FlexRig3s are being used by small independents.

Thanks a lot, guys.

Andy O'Connor with Strong Capital.

Perhaps for George, I may have missed this but in terms of your activity outlook any distinction to be made between the gas well drillers and the oil well drillers this year?

No, in our case we do very little drilling for oil.

I was just interested in your general observations, George.

I do not see any change in what we've been doing in the past. I think it will be continued to be largely gas driven.

Okay, but in terms of general activity, any distinction to be made between one and the other?

I'm sorry I was listening to another conversation. Would you ask me again please?

In terms of overall activity, including your company and others, any difference between oil and gas activity going ahead?

I don't think so, no, not at all, not in this country and I do not believe internationally either.

And secondly in recognizing that we are only three weeks into the second quarter, but we can we hazard a guess for activity days in the second quarter? You made some comments previously again can we hazard a guess about activity days for the second quarter? Thanks.

We talked about our activity being, let's see 6280 days in the first quarter, and the way things are going I think we are going to see a strengthening. I don't want to hazard a specific days number, but I think it could -- we are not going to be putting in many more additional rigs. We have two more to go, so we will get some small contribution from that. But I think we are going to see a slightly higher activity across the fleet. But that is probably not going to move us much further than we were at 81 percent, we might be as high as 85 percent, 86 percent for the entire quarter. So I think you have to work through on those numbers.

Fair enough. Thanks very much.

(OPERATOR INSTRUCTIONS) John Woodberry from Cobalt Capital.

Nice progress on the cost containment side. Do you see your ability to take any more costs out of your operations?

We certainly hope so. We have another program that has been underway for about a year, and it will be engaged here very shortly. That's our supply chain management. I think that the results we will see them slowly, but that is going to be our next level of effort. And we expect to see some good things from that. I don't think we will see the dramatic changes we have seen in the last year but nevertheless cost continues to be a very key area for focus within the company.

And this question may have been asked before, but please excuse me, are you hearing about anybody else building any additional land rigs (indiscernible)?

No, I am not. There may be one or two -- as a matter fact, I did hear that there were going to be perhaps one or two shallow rigs that work in West Texas that are new, but those are the only ones that I have heard of.

And lastly, what do you think is the best or the most likely catalyst that would enable you to raise your prices a little bit?

Well, the easiest thing is to see our competitors raise prices. That would probably have the most immediate impact. But I think probably the most likely source would be continued numbers of rigs actively working. Either way it is a potential backlog of unemployed rigs. I think that is probably the biggest source of stimulation for price increases.

Terrific. Thanks very much.

It appears we have no further questions. I will turn it back over to you Mr. Fears.

Thank you very much. If there are no other questions, we like to thank everyone of you for joining us today and wish that you have a good evening. Thank you. Goodbye.

Thank you to all the speakers for your time and presentation. This does conclude today's conference call. You may disconnect your lines.