Helmerich and Payne Inc (HP) 2004 Q4 法說會逐字稿

Good day. All sites are now on the conference line in a listen only mode. If you're experiencing technical difficulties with audio portion of this conference at any time, please press the star and zero on your touchtone telephone and an operator will be standing by to assist you. At this time, I would like to turn the program over to your host, Mr. Doug Fears. Go ahead, please.

Thanks, Kevin, and good morning, everyone. Welcome to Helmerich & Payne's conference call and webcast to discuss the Company's fourth quarter and fiscal year end earnings. With us today to provide statements and answer some questions are Hans Helmerich, President and CEO; George Dotson, President of the Company's wholly owned subsidiary, Helmerich & Payne International Drilling Company; and I'm Doug Fears, Vice President and Chief Financial Officer. As always, there will be forward-looking statements made today and estimates made today. Additionally, we'll be rounding some numbers up in hopes of adding some clarity and brevity to our comments. We attempt to be as accurate as possible with our comments and the information we provide, but it's important for you to know that much of the information that we provide involves risks and uncertainties that could significantly impact expected results. There is a further discussion about these risks and uncertainties in our public filings, the most recent of which is a 10-Q filed August 13, 2004. You may obtain this filing along with a copy of today's press release on our website.

Today the Company announced net income of 4.359 million or 9 cents per diluted share from revenues of almost 621 million for the fiscal year ended September 30. This compares with net income 17.873 million, or 35 cents per diluted share from revenues of just over 515 million for the previous year. Net income for this year includes gains from the sale of portfolio of 31 cents per a share, and 7 cents per share for 2003. As previously announced on October 19th of 2004, net income for this year includes a noncash charge of 51.516 million or 63 cents per diluted share for impairment of a portion of the Company's Gulf of Mexico offshore platform rigs. Due to the impairment charge, the Company recorded a loss in its fourth fiscal quarter of 12.624 million, or 25 cents per diluted from from revenues of over 181 million. This compares with net income of 6.53 million or 13 cents per diluted share from revenues of almost 139 million for last year's fourth quarter. Included in fourth quarter results were gains from the sale of portfolio securities of 16 cents per share for 2004's fourth quarter, and 6 center per share for the fourth quarter of 2003.

As announced last month, Helmerich & Payne sold 1 million shares of its holdings in Atwood Oceanics in a public offering that closed after our fiscal year ended. That sale generated 32 cents per share of net income that will be included this in our first quarter results. Hans will discuss this in more detail later. On the balance sheet, you will notice from the announcement that cash balances totaled 65.3 million at September 30, 2004. The previously announced sale of 250,000 shares of Schlumberger took place at the end of the fiscal year, and so it was recorded in the P&L, but cash balances do not include the 16.8 million in proceeds from that transaction. The market value of our portfolio was approximately 240 million at September 30, and currently it's approximately 185 million. Capital expenditures for 2004 totaled approximately 89 million, and our current capital expenditure estimate for 2005 is approximately 55 million. I will now turn the call over to Hans Helmerich, President and CEO. After he and George have made their comments, we will open the call for questions. Hans?

Thanks, Doug. First let me acknowledge a couple of important items to discuss and sort through as we close up our 2004 fiscal year. On today's call, and just as important, as we move into our 2005 fiscal year, we also want to convey the underlying improvement we see in both our U.S. and international land rig segments, in terms of increasing activity and margins. The large item at the end of 2004 was the $51.516 million noncash impairment charge we announced on October 19th, 2004, on the carrying value of our Gulf of Mexico platform rigs. After 20 years of steady performance, we have suffered through an industrywide downturn and activity levels for conventional water depths, in which in the majority of our platforms operate. Today, we believe this segment of our business has been stabilized and right sized, with the retirement of rig 108, the remaining 11 rigs are best in class, three of the five active rigs are on full-day rate, and six are currently idle and available for work. As we've said before, our outlook is for flat to slow recovery over the next 12 months.

The other items involve portfolio sales, as Doug mentioned, in Atwood and Schlumberger . We believe this was an opportune time to harvest a portion of each of our two major holdings. This is also consistent with our position to use the portfolio as a source of funds for our future growth. During the fourth quarter, we sold 250,000 shares of Schlumberger at $67.42 per share, which generated 16 cents per share of net income for the Company, and gross proceeds of 16.8 million. In July of 2004, Atwood filed a registration statement covering all 3 million shares of Atwood stock owned by H&P, and on October 19, 2004, Atwood and H&P closed a public offering in which H&P sold a million Atwood shares and received proceeds of $45,832,500. Atwood sold 1,175,000 shares. Now H&P open owns 2 million shares, or approximately 13.3 percent of the outstanding shares of Atwood. We agreed not to sell any Atwood shares for a period of 180 days from October 19, 2004. While we have no present plans to sell Atwood stock after the expiration of the 180-day lock up period, H&P will have the right to sell Atwood share pursuant to the registration statement until approximately July 21, 2006.

In terms of the future use of proceeds, first let me make a few background comments. I mentioned in our last call, we are in a strong position, both financially and organizationally, to take advantage of opportunities that we expect to unfold during this up cycle. Predictably, the most promising opportunities would allow us to leverage off the proven field performance of our FlexRigs. The counter cyclical investment we made in FlexRig has strategically positioned us by doubling our U.S. land rig fleet capacity over the last four years, and demonstrated a clear performance differential to our customer. Now we are in a different and improving part of the cycle. Rig counts continue to move up, and day rate pricing is finally reflecting tightening supply. We are the price leader, and will continue to work towards capturing more of the added value we deliver to the operator. We are beginning to see this effort reflected in the significant improvement of our U.S. land rig revenue and cash margins per day. We are also encouraged by similar improvement in the Company's international land drilling markets. In just a minute, George will provide more detail on improving conditions that we expect to continue well throughout 2005 and beyond.

Because of this positive market backdrop, we would fully expect future opportunities for additional construction to be accompanied by some combination of term contracts and day rates that provide improved financial returns, and better reflect what we strongly believe to be the best in class drilling efficiencies and service. While we have no immediate plans or announcements today regarding new bills, we do have customers expressing interest in both domestic and international projects. So as we close 2004 with its share of frustration and disappoint, we're encouraged by the momentum we see developing for 2005, with very strong fundamentals for energy demand, and tightening land rig supplies. With those comments, let me turn the call over to George Dotson.

Thank you, Hans. The fourth quarter produced good increases in operating income for U.S. land and international operations. Our fourth quarter operating profit for U.S. land operations increased 50 percent to $14.4 million from 9.6 million the third quarter of this year. Our U.S. land rigs worked 7,363 days during the quarter, an increase of 4 percent over the third quarter, and average revenue per day increased 8 percent to $12,517 from $11,550 in the third quarter. Average daily operating cost increased 4 percent to $8,214 versus $7,893 in the third quarter. Labor increases accounted for $126 of the $321 increase in daily operating costs, and the remaining $195 per day are adjustments that should not be present in future daily costs. Accordingly, average daily margins for U.S. land rigs increased $646 per day, or 18 percent, to $4,303, from $3,657 in the third quarter.

U.S. land rigs working increased to an average of 80 rigs in the quarter, compared to 77.7 rigs in the third quarter. U.S. land rig activity during the quarter was 92 percent compared to 89 percent in the previous quarter. Existing mobile rigs and FlexRigs achieved 100 percent activity, with an average of 59 rigs working, while conventional U.S. land rig activity increased to 74 percent. An average of 21 rigs worked during the quarter.

During the quarter, we decided to return 4 idle land rigs from South America to the U.S. One rig arrived during the quarter, and will begin a one-year contract in November. The second rig has arrived in Houston, and the two remaining rigs are due late November in Houston. Today, the 10th of November, 2004, H&P has 94 percent activity for 89 land rigs available in the U.S., with 84 rigs committed, and five rigs available for work. Our average day rate for all U.S. land rigs today, on November the 10th, is $12,973, an increase of $1,178 when compared to to $11,795 on July the 22nd, the date of our last webcast. Of our 17 deep land rigs in the U.S., 12 rigs are working, and 5 are stacked. We believe only 2 deep rigs will be idle at the end of the first quarter, and there are possibilities for these remaining two rigs.

Fourth quarter operating profit before impairment charges from U.S. offshore operations increased slightly to $4.3 million from $3.8 million in the third quarter of '04. Six platform rigs were contracted during the quarter. One of the rigs recently completed its contract and is demobilizing. We retired another platform rigs as part of the impairment. There is no change in our outlook for a slow recovery in Gulf of Mexico platform rig activity.

Fourth quarter international operations reported an increase in operating profit to $6.9 million, compared to $1.8 million in the third quarter. A financial gain on an insurance payment of $1.7 million, and other positives combined to improve operating margins during the quarter. Going forward, we estimate an average daily margin over $5,000 per day in the next quarter. An average of 18.4 international rigs worked during the quarter. Average daily revenue was $19,781. Activity in Venezuela increased to 9 deep rigs in the fourth quarter, compared to 8 deep rigs in the previous quarter. Today, 9 deep rigs are operating, and we have received a letter of intent for the 10th deep rig to start operations in January. An average of 6.3 rigs worked in Ecuador during the quarter. We are currently operating 7 rigs and our 8th rig received a letter of intent to start in December. One deep rig returned to work in Colombia, and we received a letter of intent for the second rig to return to work in December. One of three rigs in Bolivia is working, and one rig in Argentina is presently working. The FlexRig in Hungary should work through the first quarter of fiscal 2005. The FlexRig previously in Chad has returned to the U.S., and is working in South Central Florida. Our international operations in South America have strengthened measurably. With the return of the four rigs to the U.S. and new contracts in Venezuela, Ecuador, and Colombia, we will have 23 of 27 international rigs active by the end of December or early January. 49 of our 50 FlexRigs are located in the U.S., and will give H&P maximum potential earnings leverage in this up cycle. Further, the FlexRig3s are setting the industry pace in pricing with 16 of 32 FlexRig3s contracted at $14,000 per day or higher. The FlexRig3s have drilled almost 500 wells, with 73 percent of the wells drilled under or on the customer's planned drilling time. In further recognition of the FlexRig3's superior value, customers are using 50 percent of the FlexRig3s to drill directional, more technically difficult wells compared to 26 percent of the industry fleet that is drilling directional wells. And with that, I'll turn the program back to Doug.

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

[Operator Instructions]. Aaron Jaram [ph], Credit Suisse First Boston.

Good morning, gentlemen. Nice quarter. George, I was wondering if you could comment about the impact of rising steel prices and things like drilling packages on the cost of the FlexRigs. I think at the end of the program, you're building them for about $10.5 million, and I was wondering if you could maybe quantify if you anticipate any increases given those increases in costs?

Aaron, there are going to be increases, and it's changing from day to day. For instance, this morning, I just looked at a quote for new engines, generators, complete with radiator and skid, and we're looking at a 14 percent increase from the prices that we had for FlexRig3, and this would be for engines delivered in the first quarter of next year. So there's no question that there is an increase in many areas of the new rig construction, but I can't tell you today what that really brings to the total -- total package that we might have on a FlexRig 3. We look at that periodically. We probably haven't looked at it in two months, and so I'm not prepared to give you that, but it is moving up.

Okay. Fair enough. Second question, Doug, can you comment on the impact on depreciation from the write down. I think offshore you're running today about 3.3 million in quarterly depreciation?

Right. Our depreciation ought to drop about 500,000 per quarter. When we did the impairment, we did make some changes in accounting lives on some of the older equipment, and so that drop might not be as much as you might expect if you just kept everything else in the same -- with the same approach, but we did -- we did make some slight alterations, so the net effect should be about a half a million dollar reduction in depreciation per quarter.

And a final question, George, very strong kind of increase in day rates, over $1,000. If you were going to estimate kind of an increase in lower 48, you know, land margins for your first quarter, can you give what you're thinking about that?

Aaron, I don't think that we can expect to see the same kind of increase in the first quarter that we did in our fourth quarter.

So not 640 or 650 or so, but maybe --

Well, that was margin. That was margin. Our day rates were on the order of $1,000 a day or more, and I think we're going to see something less than that, maybe it's going to be 600, $700 a day in the quarter.

Okay. Thanks a lot.

Thanks, Aaron.

Pierre Conner, Hibernia Southcoast.

Let's see. Just some clarifications first. George, I wanted to verify. In domestically, you said with the margins -- or rather, I'm sorry, on the cost side, there was a $195 a day per rig adjustment, so I'm assuming that flat everything else we would see a $195 a day increase in margin sequentially with no other changes? Is that -- did I understand that right?

That's what we're telling you this morning.

Okay. I appreciate it. And then, also, on margins, but on the international side, you mentioned -- does the 5,000 a day that you're expecting, that compares to the 6,000 a day that you experienced in the quarter, and is there anything going on there with mix that's having -- adjusting what your expectations are?

No. The mix was going to be steady. I think what we saw in the third quarter were some unusually higher operating expenses. We saw lower operating expenses in the fourth quarter, which led to larger margins. It really was a balancing of the third and fourth quarters, and if you go back in and look at those numbers, I think you'll see that 5,000 more -- low 5,000s is probably where the numbers should have been, and where they'll be going forward for the next quarter.

Okay. Okay. That's fair. On other international, can you -- you mentioned you're looking at other international opportunities for FlexRigs. Is that something that's a 1Q,2Q, or is this something that's quite some time out that would be for new construction potentially?

I think it's for potential new construction, and I think that it is probably -- we hope to achieve some commitments during fiscal 2005. I think it will be 2006 before any of those would ever go to work. So that's -- that's the horizon that we're looking at at the moment.

Okay. That's helpful. Yeah, thanks. And then -- so now -- and then back domestically, sort of on the -- your characterization of the outlook, two perspectives on domestic. Could you tell us, is there any kind of quantification? If not, just some perspective on the backlog you're seeing for maybe all of your rigs, FlexRigs in particular, and did you, during the quarter, or over the last two quarters see a change in mix of customers that's of note?

Let me answer the first one -- the last one first. We are seeing the same mix of customers. I reviewed it again in the last couple of days. 40 percent of all of our work, whether it's for all rigs or FlexRigs is for the super majors, majors, and 30 percent is for the large independents, and 30 percent is for the smaller independents. And that has not changed over the last three or four years. Going back maybe 8 to 10 years, we used to have -- pardon me -- 60 percent for the majors and super majors, and 20 percent for each of the groups of independents. So that's been the change over a 10-year period, but not over the last three or four.

Okay.

And then in terms of a backlog, we don't have a backlog, as such, but people are calling constantly about rigs. They prefer FlexRigs, in some cases they -- they will ask if they can be put on a list for the next FlexRig that comes up, but we -- we find that the strongest areas continue to be the Rocky Mountains, and also East Texas. But I again, we continue to push pricing aggressively, and we are still able to maintain a group of people that will take any rig that comes free, so that's kind of the overview of the market.

Very interesting. Yeah, and that fits in with your comments, yours and Hans' comments about the perspective of '05 and beyond relative to the domestic markets. Very good. I think that's all I had. Thank you, guys.

Thank you, Pierre.

Robert Ford, Sanders Morris & Harris.

Thanks. Good morning, guys. Hans or George, what's the minimum number of rigs you would want to start up a new build program -- the next new build program?

Well, you get some economies of scale, Robert, if you can get three or four, but we really don't have a set minimum. I think I mentioned before, we -- will not likely, first of all, to do a spec new build, and then second of all do kind of a big bash, but I think we're -- we're seeing interest. And so it's going to be dependent upon what kind of terms we can drive from that, but I think back to your question, probably three would be a number that would be doable.

Okay. Okay. George, the platform rig cost per day over the last four quarters kind of -- it's jumped around quite a bit. What should we be looking for going forward? Something more like we saw in the fourth fiscal quarter, or a little higher, a little lower?

Well, I think the fourth quarter was probably a little higher than usual. I think what is driving the cost, to a great degree, Robert, is the number of jobs that we're -- moves we're having to make to keep the conventional rigs busy. We are able to keep the large TLP rigs obviously on long-term relationships, and some of the self-moving rigs fit into that category, but our bigger conventional rigs no longer have the long-term contracts, and they're moving more to six months to eight month opportunities, and so that means more moves and moves are very expensive for those kinds of rigs and it drives up the operating cost. So that's the change that you see in the cost profile for those rigs. And I again, I think that's the reason that the Company decided that the business didn't have the prospects that it did five years ago, four years ago, and that led to the impairment, but that's what you're seeing in our daily costs.

Okay. As far as the returning rigs from the international markets back to the U.S., how are you going to account for the mobilization on that? Is that already covered via the contracts that you did have, or are we amortizing that, or expensing it?

Robert, this is Doug. The lion's share of that will be capitalized, so you won't see much of an impact in this quarter.

And then the last question, Doug, is on the tax rate. You're still 42 percent effective, right?

Well, it's a good question. This was kind of an interesting quarter and a real math exercise, because basically the -- things didn't change from just what happens every quarter. It was the math of having your domestic financial income negative because of the impairment charge, so -- and then there is -- again, there is some complex math that I'm happy to go over with you offline, but because you -- because your international financial income was the only one left, it exacerbated what normally is a higher rate for them anyway, so that's why you had the jump up in the tax rate on a real small piece of income.

Okay. Okay. I'll give you a call and work through it a little more later. Okay. Thanks, gentlemen.

Thank you.

Andy Vietor, Stifel Nicolaus.

Hi, good morning, everyone.

Good morning.

George, there in has been a lot of ink spilled on these new MD Cowen [ph] I'll call it sub-10,000-foot, $5 million drilling units, in that no one in the industry is going want to buy, say, a FlexRig or the National Oilwell Ideal Rig, and I was just curious what if any insights you could offer with regard to that.

Andy, I didn't understand about what you said about a $5 million -- and the I lost the word you --

Oh,well. MD Cowen, I guess, a small companies says it can build rigs for $5 million or less, and, you know, target market, say, less than 10,000 feet, and there's been a lot of ink spilled say saying that's the way the industry is going to go with regard to new builds, and there will be little or no appetite for new FlexRigs, or say the National Oilwell Ideal Rig which has been proposed, and I was just curious what response if anything you are have to that and what you see in terms of future demand for FlexRigs.

Well, I think first on the shallower than 10,000 feet, we -- we see that as a potential market of considerable size, and we have been asked by several operators to look at it. We have. We have developed some ideas for that market, and I -- I believe that we'll be successful in building new rigs for that that will incorporate FlexRig3 technology. And I think that we're looking at more of a factory floor setting, bringing different practices and techniques that are going to make that an operation that will deliver lower cost wells, that will help to exploit that potential reserve. In terms of larger rigs, FlexRig3s, I -- I think it's premature to say that there won't be any rigs built of that size. We're certainly thinking about it, and trying to make sure that we find ways to hold the price, or even lower the price through different tactics, even though some components may be increasing, but I think what we see is that these new rigs are -- are more effective in the field, and they lower the total drilling cost. What we, as a contractor, and I believe what the industry has to figure out is how do we get paid for the -- more for the value that we are delivering to our customers, and I think that's what's going to make the case -- a better case for adding new equipment. As to the new firm that looks at building them more cheaply, I've seen some articles about rigs that can be built more cheaply, less expensively. We want to see it. We want to see people invest in this business. I think it's good for the business. We think it will help increase day rates, as they increase the value they deliver to customers, so our attitude is, we would like to see better rigs, we would like to see more people invest. If there's a better tool out there, let's see it, and let's build it. In the meantime, we're going to continue to look for ways to improve FlexRig3 performance and look for ways to add rigs to the fleet, in a way that is economically attractive.

That's helpful.

And Andy, this is Hans. I would just add, you know, we're the only ones kind of off the blackboard with rigs that are -- that are programmed to a scale, that are out in the field, that are being proved, that we put public information out on, and performance information out on, so I think it is just yet to be seen where the competitive factor comes from, and what the real costs are, and how much of it is really new equipment, and what's included, what's not included. But like George says, it's an vindication of our approach if we think that in the next 5 years, 10 years, you're going to have to have newer, better equipment, and we think we have a running start on that, so we hope that the industry follows.

Okay. Thanks. I have a follow-up question for George. The last two or three conference calls, you provided some operating statistics in terms of number of units operating at day rates, say, greater than $13,000 a day, and I was just curious if you could provide us an update either using that or possibly a higher day rate bogey and give us a sense of where your fleet is in terms of overall pricing towards the high end.

Yes, Andy, I gave one fact in the presentation there, and I did look at some other things, so let me just give you some numbers that follow in that vein. Today, in our FlexRig3 fleet, we have 11 rigs that are over 14,000. We have an additional 5 rigs that are over 15,000. And when I mentioned we had 50 percent of the 32-rig fleet 14 or over, that's how I got there, that 16 rigs. The the total 84-rig operating fleet, we have 25 rigs that are over 14,000 a day. We have some commitments, contracts in place that will improve that by the first of December, and where today we had 16 -- I'm sorry, 25 total rigs, that will move to 36 total rigs over 14,000 by the first of December. So, again, you can see that there is pretty steady movement by the rest of the fleet. We still have a couple of rigs on the low end that are the principal targets for price adjustments, and those are as the result of one-year contracts entered into last December. So those, in addition to what I've just told you, we'll see increases for those rigs. So that will do -- do a lot for the averages.

Okay. Great. And last question, what -- I was hoping you could provide some more color as to the $195 adjustment that's going to go away. You know, what was that, or what is it?

I think just very briefly we can talk to you about this offline, but the way that we looked at some vacations was part of it, and another part I'm --

In the quarter, Andy, I think we had a little higher charge for some workers' comp insurance that -- that may or may not, that's kind of a quarterly thing that may or may not happen next quarter. Just some other issues that pop up that aren't -- that, again, it's hard to call from quarter to quarter on a lot of this stuff.

Okay. That's all very helpful, gentlemen. Thank you.

Pierre Conner, Hibernia Southcoast.

Yeah, thanks. A follow-up kind of on Robert's question on -- about -- you mentioned a number of opportunities it would take to get you started against on a construction, and you mentioned being accretive to your financial performance. I wanted to see how you felt about the fact that you have some of these rigs over 15,000. Is that the kind of rate in combination with an extended term that would get you comfortable, or is this something where we need to get still incremental rate from here?

The answer might sound like I'm not trying to answer your question, Pierre --

I understand, though.

-- but we're -- one of the things that we've talked about is trying to capture a demonstrable valued added in terms of reducing well costs, and we're seeing that some in day rates. There are other ways, potentially, to capture that, and then I also mentioned wanting some term. And I think we're all seeing, and you guys are watching, just this business has changed a lot in 60 days. And as we go into '05, and see how some of those CapEx budgets come out, and just how much more tightening happens, I think it's a very fluid -- fluid thing right now. What I don't want to do on the call is create a frame work for what would make sense to us, except just to say to investors that it's going to be a return on capital that's attractive and accretive, and we do have customers that are very interested having seen the performance of the FlexRigs, is to capture that going forward. We've talked before, Pierre, about -- as day rates go up, those numbers get more expensive for older equipment, and it makes a customer, I think, more keen on what value are they really receiving. That favors the FlexRig, so I think all of that is positive momentum for us, but on a competitive basis, I don't really want to outline much detail.

I understand. Just to get a perspective, so. Okay. That's great. Thanks.

Thank you.

Sandy Goldman, Hartline Investment Corporation.

George, your comment about day rates going up at a lesser rate than they have in this last quarter in the next quarter is that a judgment about just the quarter, or is it a judgment about the way you see things going out three, four, five, six quarters? Hello?

Yes. No, Sandy, I think we just came off a quarter where we saw very good price increases, and I think there's always a natural tendency not to get ahead of yourself in talking about where prices could go. I think one of -- the other comment I would make to you is that we -- we're the price leaders in this business. I would love to have more support than we do have. I think we're probably going to get more, but it is -- it is hard work for our people out there every day pointing to value and trying to get the price for it. I think that just makes me a little reluctant to tell you that what we saw in our fourth quarter is something that we can stay on track and deliver for the next four quarters. It just -- just feel a little uncomfortable in doing that.

George, are there many available rigs, though, out -- going out a few quarters, or are you just being conservative, or do you see an increased availability in rigs that would moderate price improvement?

I think that as I listen to our competitors speak, and you have as good or better feel than I do for this, I think there's going to be some addition to the fleet as they continue to renovate, perhaps at a lower rate, but as they renovate rigs. So I do think that there's some addition to the fleet that's going to -- to probably take a little bit off of the pricing moves, but at this point, over the last 60, 90 days, we have sensed that the prices at which we're losing jobs to other people are -- they're higher prices than they have been in the past, and we can see some -- some tangible movement in pricing by others. So it says to me that there's probably a demand that cannot be fully met by the rate of adding rigs to the fleet.

In this -- just one last question. In this last quarter, was the spread between your rate for your newest equipment and competitors, did it widen? Did it narrow?

I don't -- I don't have a finger -- a figure at my fingertips that tells me that. My -- my sense is that it was pretty -- pretty spotty. I saw some prices where we -- we lost jobs that we may have been -- we may have lost at $10,500 for, and yet we turned right around and put the rig to work for 14.5 or 15. I think that probably was the exception. I I think that probably we're still on the order, on average, $2,500 a day over what competitive bid is, for similar equipment, similar top drives, capacity, that sort of thing.

So the spread is still there?

The spread is still there at this point.

Right. Thank you very much.

Jerry Heffernan, Lord Abbett.

Good morning, gentlemen. Could you address the decision-making process of bringing the international rigs back to the U.S.? And I ask that in the framework of the most recent results here that show that the international operations seem to be hitting the inflection point that perhaps the U.S. land operations hit three months ago, where we've had a dramatic jump up in utilization, and you are talking about an area of the world where the cash margins are -- have been inherently larger by a significant degree.

Jerry, we were -- we moved back four rigs. One from Venezuela, and three from Bolivia, and those four rigs have not participated in the improvement in activity, and we could not see that they were going to improve. For instance, the rig in Venezuela is probably a 6 to 8,000-foot capacity, and we have just not had any requirements for that work. We are able to maintain full employment and get better prices -- steadily improving prices on our 3000 horsepower rigs, but not on that shallow rig. So we moved it back and we were able to get a one-year contract at a very attractive rate immediately upon returning to the U.S. In Bolivia, those rigs have been idle for five years, and they just did not fit what -- what the activity is in the southern cone. The prices that they could go to work were -- were very, very low. The margins were almost nonexistent, and rather than be in that business, we brought them back to this country. We know that they have a value in our operation, and we are trying to determine where is the best place to realize that value.

The Bolivian rigs -- of the rigs that were in Bolivia, what is the -- the working specs on that? Are they very shallow rigs like this one in Venezuela?

No, they're more medium depth. They're probably 12 to 14,000 feet.

And they would not have done well elsewhere in South America?

No, we bid them on three or four jobs every year for the last four or five years, and our margins have -- our bidding margin has always been much greater than what the market permitted, and --

Okay. What rigs are working down there, you just so I understand what the difference is.

The H&P rigs that are working are large 2,000 and 3,000 horsepower rigs, and at this time, we now have four of those rigs in that area. When we talk about Bolivia and Argentina, they're really concentrated in an area that straddles the common border between those countries. But in Bolivia, there is -- there is a very small market for 8 to 12,000 feet, but more rigs than the market can bear, so prices are very low. And in Argentina, that has always been a low margin business. There is high -- there is a lot of activity, high activity, but margins have been low, and it has been more of a volume business. And it did not make sense for us to -- to incur large mobilization fees for short-term projects with low margins. It just was an economic nonstarter.

The three rigs in Bolivia, what was the horsepower rating of those?

Two are 1,000 horsepower rigs, and one is a 2,000 horsepower rig.

Okay.

And that 2,000 horsepower rig is not technically equal to the others --

-- To the other ones. Okay. So basically the assets were misfits in those countries.

That's right, economic misfits.

Ask the one rig, the shallow one, you said you're bringing it back with a one-year contract awaiting it?

Yes, that was the Venezuela rig.

Yeah. Okay. Very good. Thank you.

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

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