Helmerich and Payne Inc (HP) 2008 Q1 法說會逐字稿

Good morning, everyone. Welcome to Helmerich & Payne's conference call and webcast to discuss the company's first quarter earnings. With us today are Hans Helmerich, President and CEO, Executive Vice Presidents John Lindsay, and Alan Orr, and Director for Investor Relations, Juan Pablo Tardio. As usual, I want to remind you that much of the information provided today involves risk and uncertainties that could significantly impact expected results and that are discussed in our most recent 10-K. We will also be making reference to certain non-GAAP financial measures such as segment operating income and operating statistics. You may find the GAAP reconciliation comments on page 9 of today's press release.

This morning, Helmerich & Payne reported net income of $107 million or $1.02 per diluted share for the quarter ended December 31, 2007, compared with net income of $110.8 million or $1.06 per diluted share during last year's first fiscal quarter. Included in this year's first quarter net income are after-tax gains from insurance proceeds and the sale of drilling equipment of $0.03 per diluted share. Last year's first quarter net income included $0.16 per diluted share of gains from the sale of portfolio securities and drilling equipment. The company's U.S. land operations were over 80% of our rigs reside continue to record sequential increases in segment operating income, rig activity and profitability. Rig activity is measured by total revenue days per U.S. land rigs increased due to more new builds being deployed. Revenue per rig day also increased sequentially and more importantly, average daily rig margins increased over the previous quarter. Hans and John will provide more detail in just a moment about these statistics and the current status of all of our drilling operations. Here are a few more financial details.

At December 31, the company's stock portfolio had a market value of approximately $550 million. Currently, the market value of our portfolio is approximately $430 million, or after-tax value of approximately [$202.60] per Helmerich & Payne share. Capital expenditures for the first quarter totaled approximately $150 million. Estimate for this fiscal year's total capital spending has been revised to $620 million. Total long-term debt at the end of the quarter was $485 million making our debt to total capitalization ratio 20%. Our effective tax rate of 36.6% for the first quarter is in line with our estimate for the entire year, which is 36.4 to 37%. General and administrative expenses increase during the first quarter, mostly attributable to compensation related expenses. We expect G&A for the remainder of the fiscal year to be in the $13.4 million per quarter range.

I would now like to turn the call over to Hans Helmerich, President and CEO, and after Hans and John have made their comments,we will open the call to questions. Hans.

Thanks, Doug. Good morning, everyone. We're pleased with the company's first quarter results including record operating accounts, particularly in the midst of a softer land drilling market. John and I will make additional comments on the current market conditions in a moment, but first let me mention several features of the additional new build orders we announced today of 11 FlexRigs which should be encouraging news for shareholders. First, this new order brings the number of new builds to 94, all of which will be under long-term contracts. In fact, five of these latest rigs anticipate five-year terms. It also extends to 30% the portion of the order book secured after the U.S. land cycle peaked in the fall of 2006 including the 17 new builds announced so far in our 2008 fiscal year. In terms of market mix, seven of the 11 rigs are scheduled to be deployed in international markets, allowing us to build on the FlexRigs attractiveness outside the U.S.

In terms of customer mix, the remaining four are split between two independents: Quick Silver resources and Carizo oil and gas. The FlexRigs is becoming the tool of choice among independents, super independents and majors. Taken together with the six new builds we announced on our last call, this most recent order allows us to continue our manufacturing efforts through the 2008 calendar year. We spoke on our last call to the value of the continuity of this effort. What do we expect for additional orders in 2008? Well, looking back on how orders have come in, it's been difficult to predict. More over, it's hard to foresee the level of demand in new orders that we've experienced so far this year continuing at this pace. Our revised CapEx estimate that Doug mentioned of $620 million for this year captures the capital required to complete 22 FlexRigs during fiscal year 2008 and three during fiscal 2009. Of the 22 rigs mentioned, one represents the replacement of a FlexRig 2 damaged last year.

The new CapEx estimate also includes maintenance capital, tubulars, offshore projects, capital spares for a growing fleet and some forward purchasing for long lead time items in anticipation of additional new build orders. We believe the potential for further new builds will continue in both domestic and international markets. The international markets only have a handful of new builds, but consider even after the domestic industry's sizable capacity add during the past two years, new builds constitute only 20% of the U.S. rig fleet. Further, only 10% are AC-powered. These higher performing rigs have sidelined hundreds of older less capable rigs. The discredited argument that these conventional rigs were the equal to high efficiency rigs is now being taken up by the proposition that newer rigs may be fine but they're most suitable for more difficult drilling and supposedly represent overkill for the majority of vertical well requirements. Well, this thinking, too, will fall on the wrong side of history and be overcome by powerful trends of performance and efficiency. It said facts are stubborn things but all of this will take time to play out. And that's good news and can be seen in the much reduced new build pace for the industry in 2008 where we expect to see only a third of last year's industry supply response. That said, we harbor no illusions about the competitive nature of this business.

Some downward price pressure still exists across all the segments. We saw average rig revenue per day for the quarter fall sequentially about 2% for rigs in the U.S. land spot market. We'd like to believe that this will continue to flatten. But we also know that commodity prices represent perhaps the most important bellwether for improving conditions. Heightened concerns for the potential impact of an economic slowdown adds to the uncertainty. Still, we're well positioned to cope with future choppiness in our markets, as well as pursue additional retooling opportunities reflected in our most recent additional new rig order. Today's results encourage us to stay the course. To continue to extend our brand leadership through a combination of strong field execution, innovative design and manufacturing capabilities, to pursue opportunities both in domestic and international markets, and to partner with the customer to reduce his well costs through safety and efficiency. With that, I will turn the call over to John Lindsay.

Good morning. We are pleased with the operational and safety performance the company has been able to achieve during the quarter. Drilling performance and rig up time have been catalysts for many achievements. The offshore and international segments are under some transition during the second fiscal quarter with the mobilizations of three offshore rigs and four existing international land rigs. This should act as a springboard for strong third quarter in each segment. The U.S. land segment should continue to demonstrate strong results and contribute over 80% of total segment operating income in the second quarter as in the first quarter. The uncertainty in the market continues to be natural gas prices, the direction of rig activity, and the magnitude of downward pricing pressure on day rates. I will give you some details of the activity and trends as we discuss our three operating segments, and first of all we'll have an overview of U.S. land.

Today we have 93% activity with 156 out of 167 rigs working, up five working rigs since the last webcast. Our active rig count is up 32 rigs or 26% since the webcast a year ago. All 128 existing FlexRigs are contracted today. With the latest announcement of four more new build FlexRigs, we now have seven FlexRigs remaining in our current new build order book for U.S. land that will be completed by the end of the third fiscal quarter of 2008. The 11 idle rigs are primarily designed for deeper well depth. They are 2000 and 3,000 horsepower conventional rigs and the market that these rigs target has remained soft and therefore, we don't expect these rigs to contribute in the second fiscal quarter. Of our currently active fleet of 156 rigs, 60 are in the spot market and the remaining 96 active rigs, including 79 new builds, are under term contracts. About 55% of our potential revenue days for fiscal 2008 and just under 50% for 2009 are under term contracts. Average rig revenue per day in H&P's entire U.S. land segment increased sequentially $340 per day $24,006.

We expect average rig revenues per day to continue to increase for rigs under termed contracts while continuing to decrease for rigs in the spot market. This should result in relatively flat average rig revenues per day during the next few quarters. Average expense per day decreased by $550 from quarter to quarter as a result of training cost reduction, maintenance and supplies, and other expenses. As a result of the revenue increase, and expense per day decrease, average margin per day increased by $890 as compared to previous quarter. FlexRigs continue to deliver outstanding field performance, resulting in better safety results and drilling times, which provide best value for our customers. The marketing effort is an important part of our strategy as discussions with new and existing customers regarding the value proposition of FlexRigs continue to generate interest. The four additional new builds announced today are the flex 4 S design. Carizo oil ang gas and Quick Silver resources will be utilizing these rigs in the Barnett Shale to our horizontal an directional wells. A powerful trend continues in the Barnett Shale and other unconventional plays to utilize directional and horizontal drilling.

One of the key advantages of the FlexRig 4 S in addition to the AC drive technology is the ability to drill multiple wells from a single pad and move from well to well in a matter of hours. Resulting in more wells and less surface disturbance, fewer environmental issues, noise reduction, friendly use and urban areas, and less impact to surrounding communities. Next we'll have an overview of the offshore operations and as expected for the quarter, average activity in our offshore segment decreased sequentially 5.3 to 5 active rigs out of a total of 9 available rigs. As we reported in the last call, in addition to the five active platform rigs, one rig is being mobilized to Trinidad. This rig is now not expected to contribute to the second fiscal quarter but should contribute in the third quarter. We were also successful in contracting the remaining two idle platform rigs, and they are currently waiting to mobilize and should be active toward the end of the second fiscal quarter. The 9th rig is contracted and expected to commence operations in the Gulf of Mexico in early to mid calendar 2009 and is currently n the shipyard undergoing upgrades.

In summary, we expect to have eight of nine rigs active in the offshore segment during the third fiscal quarter. We expect margins per day to be slightly improved for the second fiscal quarter and up 40 to 60% for the third quarter. The highlight of the international segment is the announcement of seven letters of intent for new FlexRigs. We continue to view the international market as being very robust even with the slight softening and near term activity caused by the slowdown in Ecuador. Today, 19 of 27 rigs are active in international operations. Activity should improve with the mobilization of two existing rigs to Argentina and two rigs to Columbia. All four rigs are expected to begin operations during the next few months but will probably not contribute to the second fiscal quarter earnings. As discussed in the last call, Ecuador has experienced a slowing in activity. Two rigs are active today, two rigs are moving to Columbia, and the remaining four rigs in Ecuador remain idle. Two of the idle rigs have prospects but we don't expect these to contribute to earnings in the second fiscal quarter. We anticipate an average of approximately 20 working rigs during the current quarter with margins and expenses similar to the first fiscal quarter. We estimate the third fiscal quarter should average approximately 23 rigs working with similar margins and expenses as the first and second quarter.

In closing, the announcement of 17 new builds during the last two earnings calls best illustrates the continued customer support for FlexRigs both in the U.S. and international market. We have much to be thankful for regarding the current and potential future demand for FlexRigs. H & P's focus will remain on enhancing the value proposition to our customers. Our rigs are supported way the best personnel, best safety record, and over 300 rig years of FlexRig experience. I'll turn the call back to Doug.

Thanks, John. We'd now like to open the call to questions, please.

To ask your question, please press the star 1 on your touch-tone phone. To remove your question please press the pound key. Once again to ask a question please press star 1. And we'll go to the site of Ian McPherson.

Good morning, gentlemen and congratulations. Hans, I think I captured that you were budgeting now for about 25 more new builds this year and going into early next year, and you have 14 remaining contractually supported new builds. Have the other rigs that you're sort of building ahead of contract, do you envision that being more towards the international side of the business, or domestic, or how do you see that split going forward?

Well, I don't think the math is quite that simple when we talk about some of the uses for the $620 million of revised CapEx, so we really are not trying to get in front of the scheduled rigs that we mentioned. But just, as we look forward into what the opportunities might provide us, we'd like to see some mix, like we did on this last order of international and domestic, but we don't have specific predictions for that.

Okay.

Ian, this is Juan Pablo. Of the 25 that you mentioned do include ten FlexRigs that have already been delivered through today in fiscal '08.

Got it. Thanks for clarifying that. Okay. I guess my follow-up would be, for John, I don't know if I missed this, if you mentioned you expect your domestic revenues per day to stay pretty flat throughout the balance of the year. Did you indicate anything on the cost side and what you expect cash margins to do as well?

Are you addressing the U.S. land portion?

Yes.

Yes, we expect our margins to maintain relatively flat, at least revenues to maintain relatively flat. I think there's going to continue to be cost pressures. We had a good quarter on costs, but, you know, there's a chance that it's still up slightly by a couple hundred bucks. But again, we've got a great focus on the cost effort. We're going to try to achieve the same margin production that we've done the last couple of quarters.

Okay. Well, thanks, and nice quarter.

Thanks, Ian.

We'll no go on to the site of Arun Jayaram.

John, wondering if could you maybe elaborate on some of the technical specs on some of the international rigs that you -- new builds you plan to deploy, and just maybe comment, maybe give us a range if you include spare parts, cams, completion tools, how much you plan to spend on a per-rig basis.

Arun, we really aren't in a position to give any details on the technical specs other than to say that they're FlexRigs, and with that meaning they're AC drive, but we really can't share anything in addition to that. On the cost side, we're looking at a cost that's similar to what we've had here in the U.S. in the announcements that we've made previously.

But are they going to include camps and such or just the costs similar to what you're seeing in the U.S.?

There's no camps included.

Okay, fair enough. In the current quarter, you guys cited rising labor costs in Venezuela, costs for lower margins, and I guess you guided to flat margins. Are those costs going to continue?

Well, our expectation, we're hopeful that we're going to be able to maintain the current cost structure that we just reported. Again, when you take into account the number of rigs that are mobilizing in this current quarter, it's kind of hard to nail down the cost side, as you can imagine. And, you know, again, we're hoping, we're thinking that it's going to be similar to the quarter that we're reporting now.

Okay. Last question for Hans, obviously a very nice success with these LOIs in Latin America. I think you guys did participate also in the TNK-BP [tender] and weren't successful. I am just wondering if you could maybe give us some comment about that. I think Nabors and Weatherford were successful there. Maybe frame the bidding activity in your international opportunity set.

Sure. You're correct in the outcome of that Russian bid, and that's not the first one we've participated in. I think on the technical side, our offering is still very attractive to the customer. It really got down to matter of price and they, I believe, took a price level that for us was clearly not attractive, and when we look at international work, we're going to be motivated by attractive returns. We don't really at this point consider loss leaders just to establish beach head particularly in an environment of $90 plus oil. So, that's what caught us in that particular bid. Having said that, Russia is still a large market. I think it's going to be an attractive market over a long period of time that we would hope to participate in. We're also looking, as we've talk before, about North Africa, Indonesia, and there are other places in the Middle East that we're also interested in. So, I think we have a nice swatch of international opportunities that we're continuing to look at, and hopefully that will lead to additional opportunities.

Okay. And the final question, can you comment on which country these seven rigs are going to?

We are sworn to secrecy on that, so we can't give you any more details. We'd like to but we've been requested, understandably, by the customer, not to share additional details.

All right, thanks a lot, guys. I'll turn it over.

Thank you.

We'll now go on to Alan Laws.

Good morning, guys. I'd like to say congratulations on the new orders, too. Pretty impressive, actually. First question is on international and you just sort of covered at bit there on what the bid flow might look like for international, and then for the rigs that you've just inked, or got the LOI on, how long have you been working on this?

Well, we've said before, Alan, how -- and, of course, you know the pace of international projects unfold more slowly. And so, this has been a several-month effort. We have other bids outstanding that represent months of work, as well. So that's just a feature of international work. In terms of bid flow, we continue to see international interest. I wouldn't say that it's overwhelming or so robust. I would say that it just is steady ahead, and we're encouraged by that. I'm trying to think if there was another part of your question.

No, I think that pretty much covers it. Go back to the domestic market, and your North American market share gains have been pretty impressive. Wondering if you could talk about your experience to date on penetrating the market service, primarily by the conventional rigs in the vertical drilling market. You alluded to in this your comments, suggesting that maybe you've already seen some gains here. I wondered if it's as impressive as the unconventional plays.

Well, I did refer to that, and the point is that I think that the FlexRig continues to perform better and better, and when we see situations where we're competing in just vertical well type situations, the FlexRig again performs very well, and is gaining ground. I think the customer sees that at some point, the conventional rig, even with a good crew, even with everything they can kind of throw at the effort, there's a technical limit of what they can achieve. When they watch the FlexRig, they're seeing incremental gains that are continuing, and they're very encouraged by that and encouraged by the collaboration between H&P and the customer to push that performance further and further. And so really it just addresses the notion that while the non conventional gas, more challenging gas drilling is very well suited for the FlexRig, we're not pigeon holed or limited just to that area of work. I think the entire spectrum of work is available to us, and I'll let John add to that if there's something he wants to mention.

Alan, you've probably seen our presentations and where we talk about the best value proposition where we compare a conventional rig versus a FlexRig, and this happens to be in east Texas. That's all vertical work. That goes back to 2002. If you look at, you know, again, it's not just in East Texas, but there's several areas where we're drilling vertical holes with FlexRigs, and we're outperforming. To use that example, when we started there, the wells were being drilled in 21 days. That was the average of the 20 best wells. And today we're drilling those wells in an average of seven, eight, or nine days. And again, those are straight holes. Interestingly enough, even in that field they're occasionally now beginning to do directional work and looking at horizontal work even in these much harder formations. You just can't get that done with a conventional rig. And that's really what people are seeing. So I agree with Hans, it's not just limited to directional. It just a lot of times becomes much more evident as you try to task these older conventional rigs with some of the more directional harder, more torque-related problems.

And more importantly, your customer is acknowledging that. Is that fair?

Yes, that's right. And I think what we're encouraged by, it's a current customer base as well as new customers, and so again we're going to continue that effort, and I think every quarter, every year, it seems there's more people that kind of get the message.

All right. I think I'll leave it at that and requeue up and let others ask some other questions. Thanks.

We'll now go on to Doug Becker. Please go ahead.

Thanks. Just wanted to clarify, the increase in CapEx, is that solely related to the 11 new rigs that were announced, or are there some other things included?

No, Doug, there are some other things included, and my comments, we talked a little bit about capital spares, we've got some international projects ongoing, tubulars, so, yes, it's a mix of things.

Okay. So, what's the rough average cost of the new rigs. I know for the flex 3 and flex 4, I think last time, you were talking about something on average around 15 million. Is that still an accurate number?

That still is an accurate number.

Okay. And just -- I know you were talking about the new rigs coming in, seven by the end, over the next two quarters. Can we get a little more granularity on the upcoming quarter, the current quarter just the delivery schedule?

I might let Juan Pablo handle the granularity.

We expect to deliver a total of seven new FlexRigs during the second fiscal quarter.

And should we be assuming that's evenly spaced? It just seems like you have a little bit more available rigs than we were thinking.

Part of that is driven by rig type and how we schedule and kind of batch those together. And so there's a little more complexity to that than what you suggest. Just to give you a little more detail there, Doug, for fiscal year '08, the expectation for the 22 rigs that were mentioned is seven completed in the first fiscal quarter, seven in the second, five in the third, and three in the fourth.

Okay. And then maybe a question for John. Are you seeing a lot of rigs from Canada come down? I know there's been a handful, but is that increasing or decreasing, and what are your expectations there?

You know, personally, I haven't seen them, but I have heard that there's rigs coming down. At least, right now I wouldn't classify it as a lot of rigs, but I do know that there's a few in the Barnett, there's a few, of course, in the Rockies, and that just seems to make sense. And, you know, it not that we haven't assigned a lot of time to it. We recognized they are coming in. We recognize the situation after going through in Canada and looking for opportunities. So, I think it's just going to be part of the competitive landscape as we go forward, and the best rigs are going to work.

You're well positioned there. Thank you very much.

Thank you.

We'll now go on to Mike Drickamer. Please go ahead. Good morning, guys. I may be stating the obvious here but your comments about the new FlexRig commitments today discussed that you see similar returns to what you've announced previously. Can I take that to mean that even though the industry has seen derricks falling you haven't seen derricks falling on these new FlexRigs to bring it to service?

No. I think you're looking at it correctly, that we're able to continue with the economic model that you've become used to in terms of trends of financial returns and the same goes with the level of termed contracts and so, yes, I think we're able just to forward that same model.

Okay. And then you talk about comparable returns. Are the returns internationally materially different than the returns domestically?

No, not really.

Okay. And then last one, the international rigs, some of them could be on five-year contracts. What's the thinking behind the five-year contract? Is that something you guys wanted moving into that market? Is that something the client wanted? What's going on there?

Well, I think the client was interested in that, and they're mobilizing that effort, and so they see the visibility of lots of work, so they were interested, and, Mike, we were happy to accommodate.

Okay. Great, guys, that's it for me.

Thank you.

And, once again, to ask a question please press the star 1. We'll now go on to Waqar Syed. Please go ahead.

Congratulations on a great quarter and on these new contracts. Doug, I have a question on modeling side. You mentioned that international rigs are going to be mobilized in the fourth fiscal quarter. When do you expect them to be on the payroll, and how would the mobilization costs be treated and the expenses -- expensing and all, how is that treated?

Our mobilization policy on long-term contracts like that call for amortizing the profit or loss on mobilization over the life of the contract. So, we'll see whatever financial gain we have there in mobilization amortized over the life of those contracts. So, I think in terms of the timing of the -- we'll see that really just begin in the fourth quarter, as I recall, for those new rigs internationally, and as you might recall, the international accounting is actually a month ahead. In other words, our fiscal year ends end of August internationally. We'll see some effect in the fourth quarter, is that right, Juan Pablo? Just very little, and then see a good chunk of start in the first quarter of '09.

Okay, great. And then, John, could you share with us the experience of FlexRig 4 in the Sonora Field in West Texas? I understand that you have the FlexRig 4 competing against the standard and old mechanical rigs in a basin that you've not worked before. Now you have some experience working there. What is the experience so far going against standard rigs in kind of simple straightforward wells?

Well, as you said, it's the new area for us. We've put our first rig in the field in January of '07, and I think we had our fifth one there by mid-year or so. So, there's been a pretty steep learning curve, and, you know, the first rig that was delivered will make -- I don't know the exact number, but it's close to 400,000 feet of hole in the first year. If you take the average - if the rig would average what it averaged in the second half of the year, it would be well over 400,000 feet of hole. So I think the rigs are competing well, and, you know, I think there's evidence of some of the older rigs not working in the field, so again, we're the new kid on the block, and we're learning a lot of things, but I think overall the performance is going along pretty well. Does that answer your question?

Yeah, it does. I think that's all I have. Thank you very much.

Okay.

We'll now go on to [Mark Close]. Please go ahead.

Good morning, gentlemen. Again, congratulations. The additional CapEx, would you expect to -- it would seem to me that you are going to need to have additional funding of somewhere between $150 million and $179. Would you expect that to come from new debt or asset sales?

This is Doug. If, in fact, we have more need, we would have debt facility available, and of course, portfolio sales to help supplement that.

So, you haven't made a decision on which it would be yet?

No, not yet, but more likely we'll just make room in our line of credit, and then sell portfolios, we have in the past, just opportunistically.

Thank you.

We'll now go on to Mike Breard.

Excellent quarter. You mentioned in Russia you lost some jobs because of price on the new rigs. On the U.S. contracts that you've won, are you finding that you're able to win contracts even offering a higher price because your rigs are just flat out better than the other people, or is price a major sticking point with the operators?

Well, I think, swinging back to Russia for just a minute ,what we had hoped is that that would be all new equipment, and it ended up being kind of a mixed bag. And, yes, it was, in our thinking, driven by price. In this country, price is certainly something that everybody is focused on, but what we're trying to do, as you know, is to promote the notion that value trumps price, and value is measured by the lowering of the well cost, a lower AFE, and so I think the customer has bought in and supports that thinking and what they see is the efficiency and the performance of the rig drives a lower overall well cost. And so the day rate price, we don't want to suggest's not important, but it is viewed in that larger context.

Okay. And then one quick question on overseas. Halliburton has just gotten a large order from Pemex that covers something like 58 wells. Are you finding that the Halliburtons [inaudible] world are potentially good customers for your foreign rigs or are you still talking to the traditional customer?

We want them to share more money with us, and I think that's been, as those projects have come out of the gate, that's been the difficulty - is how do you share in the value creation. So, I think some of the earlier projects, the contractor, and we haven't participated in those, the contractor has felt like they've gotten less of a value.

Okay. Thank you.

We'll now go on to Byron Pope. Please go ahead.

Wanted to ask a question about how you think about returns on capital employed for the tax rate that goes into the U.S. market versus the ones you have the LOI for that are working in Latin America. Is there a slight trade-off there given that you've got five-year terms? How do you think about the trade-off there for future opportunities, U.S. versus Latin America?

Well, aim going to avoid, you know, talking about the specifics of that deal just because we've assured the operator that we will not. But in terms of how we look at return on capital for international work, one of the aspect of it is how it compares to the opportunity set that we have here in the U.S. And our sense is that we need to gravitate to where the returns on capital, or -- are the highest for our investors is and at the same time we believe that won't exclude international work. So, it seems as an overall opportunity set and we're trying to find those deals. The other aspects that come into play are difficulty of operations, costs, geopolitical risk, contractual elements of the projects. So, there are a host of things that we pay attention to.

Okay, that's fair enough. And then, with regards to since you started the new build program for the FlexRigs that have gone to work in the U.S. market, to the extent that any of those rigs have rolled off their original contracts, are you able to hold the pricing of those rigs flat as they roll off the initial terms? I'm not sure if there are any instances where that's been the case since you generally had three-year term contracts. Just curious as to day rates for re-signings on FlexRigs relative to the original planning.

Is Byron this is John. We've not had any of those rigs roll off of contract yet. So, we haven't gone through that exercise yet.

Okay. And then just last question relates to kind of your handful of the larger rigs that serve the deeper market where there still seems to be some softness. What's your bidding strategy with regard to those rigs? I mean, did you just keep them on the said lines, or is there kind of a day rate that you maintain where you'd like to put those rigs to work?

Well, what's interesting about that is there's really not much to bid on, and so when you do have a bid on one of those projects, as you can imagine, it's highly competitive, and there's a lot of contractors bidding on it. I will say that of the large rigs that we have stacked, several of those, I mean, they're rigs that are favorites of some of our customers that drill in the areas that we've drilled for in the past. So, I think when the work comes back around those rigs, those rigs will go back to work at a fair market day rate. Right now we're just not seeing a lot of opportunities to even bid on that deep of work.

Thanks, guys.

Again to ask a question please press star 1. We'll now go on to Alan Laws.

Hi, guys. I need to follow-up. Sorry. Can you talk a little bit about costs? It seems to us that the domestic costs are kind of moderating. Are you seeing kind of a roll-off of the start-up costs of a number of the rigs, or are you actually using labor costs? What's going on there on the cost side?

In the U.S. land piece, yes, part of our cost reduction is a factor of the -- putting fewer rigs out and the training cost piece, so that has an effect. We do not, at least we haven't seen any reductions in labor costs. We haven't seen any labor increases, either, but I don't expect that we will see a labor reduction, a labor cost reduction. It's still a very highly competitive environment for the best people, and, you know, so I wouldn't expect it to go down, if anything, I would expect to the go up. But we're not forecasting that. We have had some success in lowering our maintenance and supply costs, and that's been the other piece of the reduction.

Okay, great, thanks. Appreciate it.

And we currently have no questions.

Okay. Well, we'd like to thank everybody for joining us today. Have a good day, and good-bye.