Helmerich and Payne Inc (HP) 2014 Q3 法說會逐字稿

Good day, everyone, and welcome to today's program.

(Operator instructions)

Please note today's call is being recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Mr. Juan Pablo Tardio. Please go ahead, sir.

Thank you, and welcome, everyone to Helmerich & Payne's conference call and webcast corresponding to the third quarter of fiscal 2014. The speakers today will be John Lindsay, President and CEO, and me, Juan Pablo Tardio, Vice President and CFO.

As usual and as defined by the US Private Securities Litigation Reform Act of 1995, all forward-looking statements made during this call are based on current expectations and assumptions that are subject to risks and uncertainties, as discussed in the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The Company's actual results may differ materially from those indicated or implied by such forward-looking statements.

We will also be making reference to certain non-GAAP financial measures, such as segment operating income and operating statistics. You may find that the GAAP reconciliation comments and calculations on the last page of today's press release. I will now turn the call over to John Lindsay.

Thank you, Juan Pablo, and good morning, everyone. 2014 continues to be a strong year for the land drilling industry as the shale revolution marches on. This upbeat earnings season has been notable for new build announcements from all of the major drilling contractors.

For a decade, we believe H&P has been the undisputed leader in the new build replacement cycle, and with today's announcement of 13 new FlexRigs, we have a total of 30 signed new builds since last quarter's earnings release. In fact, for our 2014 fiscal year-to-date, our 74 FlexRig announcements set a new all-time Company record in a 12 month period.

It is an interesting contrast to look at today's very strong market, versus the market we were faced with a year ago. Even though oil prices at this time last year were near $100 a barrel like they are today, we didn't announce any new build contracts, while some of our competitors did. In fact, the market would only bear very low day rates and short-term contracts on new builds at that time, providing very low rates of return.

We decided to be patient, rather than sign contracts for new builds at low rates. Our belief was that the market would improve, allowing those rigs to be contracted at attractive rates of return at a later time. We were fortunate, the market did begin to improve in the fall of 2013.

Today, we are again leading the way in what is shaping up as round three of the new build replacement cycle. We have been successful in supplying AC drive FlexRigs in response to our customer's demand for high-efficiency rigs to drill horizontal wells, with increasing complexity in the unconventional resource plays. Since 2006, customer demand has allowed H&P to increase our new build cadence for the third time to four FlexRigs per month.

While more competition exists for AC drive market share, we believe H&P continues to be best-positioned to benefit from the new build awards with the best customers as we have in the past, because our focus remains on execution. H&P's ability to design and cost-effectively build the FlexRig on a reliable cadence, crew the rig with quality personnel, and deliver the best drilling and safety performance on the largest scale in the industry, are all very strong competitive advantages.

Three notable milestones were accomplished by the Company during the third fiscal quarter. We achieved record revenue, operating income and rig activity after activating 11 new FlexRigs during the quarter. Our US land rig count today leads the industry with 292 active rigs, up 49 rigs since our third quarter call this time last year.

Of the 74 new builds announced this fiscal year, we have already delivered 36 FlexRigs to date. Our new build construction effort delivered two rigs per month for the first half of the fiscal year, and during April we increased our cadence to three FlexRigs per month, and we will continue until September when we transition to four rigs per month.

No industry peer has sustained a three rig per month cadence, much less four rigs in the US land market, although it appears that some of our competitors have now targeted these high levels of rig production. And with these new higher levels of new build plans from our peers, there are more questions today by investors related to the number of AC rigs needed in the industry.

While we won't try to predict the AC drive rig count required to reach a saturation point, the fact is there are still over 1,000 legacy mechanical and SCR rigs running in the US today, and an even larger amount of very old rigs running internationally. Furthermore, of the 1,000 legacy rigs running in the US, approximately 75% are drilling horizontal wells. Since 2006, AC drive rigs have replaced hundreds of mechanical and SCR rigs. So we believe there are still many years of the replacement cycle ahead, prior to approaching the AC rig saturation in the industry.

A review of the macro environment shows oil and gas prices remain stronger than originally expected for 2014. This has resulted in providing many of our customers with the confidence to expand their drilling budgets. The US land industry activity is up approximately 130 rigs in 2014 according to the Baker Hughes rig count, and H&P has been able to grow along with the expansion and capture incremental market share gains.

The increase in activity has primarily been associated with horizontal wells, with longer laterals that FlexRigs are designed to efficiently drill. As a result, we expect our activity and market share to continue to improve.

We are encouraged by customer discussions for additional new builds in 2015. Assuming market conditions remain favorable, our plan would be to continue the four rigs per month cadence through at least the first nine months of the 2015 fiscal year.

With 38 contracted new build FlexRigs still left to deliver, and encouraging conversations with customers for additional new builds, we believe fiscal 2015 is setting up to be very strong. These market conditions should allow us to improve our pricing in the spot market, as well as for term contracts for existing rigs and new builds.

We were also pleased to announce earlier in the third quarter that our Board approved a dividend increase of 10% to $2.75 per share on an annualized basis. You have heard us talk in the past about, an all of the above strategy, meaning our strong financial position and strategic position provides a combination of organic growth opportunities, and at the same time allows us to return cash to shareholders.

Let me conclude my remarks by noting H&P's long-term strategy for growing shareholder value. We will continue to drive innovation at the rig site, and in the systems that support our FlexRig value proposition. We will continue to invest in technology to drive safety improvements for our people, and operational excellence for lowering our customer's drilling costs, and we will continue to invest capital that results in attractive returns for our shareholders.

H&P's continued success is the result of our people and new technology solutions that drive lower well costs for our customers, and I would like to thank all of our employees for their contribution to the effort. And now, I will turn the call back to Juan Pablo.

Thank you, John. The Company reported $952 million in revenues during the third fiscal quarter of 2014, along with $272 million in operating income, which represents an increase of over 6% as compared to the prior quarter. In reviewing some of the drivers that led to these all-time record levels, I will comment on each of our drilling segments, and will then expand on other considerations.

Our US land drilling operations delivered stronger than expected results of $271 million in segment operating income. The number of revenue days increased by about 7.3% from the prior quarter, resulting in an average of over 286 active rigs during the third fiscal quarter. In average, approximately 165 of these rigs were active under term contracts, and approximately 121 rigs were active in the spot market.

The average rig revenue per day slightly increased to $28,126, and the average rig expense per day slightly declined to $13,035, resulting in an average rig margin per day improvement of $134 to $15,091. As of today, the 333 available rigs in the US land segment includes 292 contracted rigs, 35 idle rigs, and 6 inactive rigs that are currently held for transition to the YPF Argentina project. Of the 35 idle rigs, only 3 are AC drive FlexRigs, and the remaining 32 idle rigs are SCR rigs.

The 292 contracted rigs are comprised of 291 AC drive FlexRigs and one 3000-horsepower SCR rig. Included in the 292 contracted rigs are 178 rigs under term contracts, and 114 rigs in the spot market. Spot pricing has continued to slightly increase, and it is still about 4% lower as compared to pricing for rigs currently under term contracts, most of which were originally priced in even stronger markets during the last few quarters.

Looking at the fourth fiscal quarter, we expect revenue days to increase by about 2% to 3% quarter-to-quarter. We also expect improvement in our average rig revenue per day level, primarily as the result of continuing increases in spot pricing in the market, which offset the negative impact of rigs that in average are rolling off from long-term contracts into today's lower pricing environment.

Our best estimate at this point for the fourth fiscal quarter's average rig revenue per day is approximately $28,300. The average rig expense per day level is expected to remain relatively flat, at roughly $13,000, with a potential variance of a few percentage points, given the slightly volatile nature of quarterly expenses.

Regarding our US land term contract backlog, we already have term contracts commitments for an average of 175 rigs for the fourth quarter of fiscal 2014, and an average of 142 rigs for all of fiscal 2015. The average quarterly pricing level for these rigs that are already under term contract is expected to be flat to slightly up during the corresponding five quarters. Should spot pricing improvements continue through fiscal 2015, we would expect our total average rig revenue per day for the segment to also continue to slightly increase, approaching and hopefully eventually exceeding the average pricing of rigs that are already under term contract.

As John mentioned, the 74 contracted new builds announced since the beginning of our fiscal year represent yet another record for H&P. Of the 74 announced rigs, 32 are going to the Permian, 14 to the Oklahoma Woodford, 13 to the Eagle Ford, 4 to the Utica, 4 to the Bakken, 3 to the Tuscaloosa Marine shale, 2 to the Haynesville, and 1 each to the Niobrara and Woodbine. Of these 74 rigs, 48 are FlexRig 3, 25 are FlexRig 5, and 1 is a FlexRig 4. Furthermore, about two-thirds of the 74 rigs have skidding systems suitable for multi-well pad drilling.

Of the 13 newly announced rigs which are included in the 74, 6 are going to the Oklahoma Woodford, 3 to the Permian, 2 to the Tuscaloosa Marine shales, and 1 each to the Eagle Ford and Woodbine. Of these 13 rigs, 5 are FlexRig 3s, and 8 are FlexRig 5s.

Let me now transition to our offshore segment, where segment operating income declined as expected to approximately $17 million. The average rig margin per day declined to $24,303, and utilization remained flat at 89%. Eight platform rigs were active in the quarter, and our ninth platform rig is being prepared to commence operations before the end of this calendar year.

As we look at the fourth fiscal quarter, we expect flat utilization levels, and a decline in the average rig margin per day to approximately $22,000, primarily as a result of pricing adjustments -- of the pricing adjustment during the third fiscal quarter on one of the eight active rigs, as mentioned during our April conference call.

Additionally, management contracts on platform rigs continue to contribute to our offshore segment's operating income. Their contribution during the third fiscal quarter was approximately $4 million, and it is expected to be slightly under that level during the fourth fiscal quarter, and then increase to approximately $5 million or $6 million during each of the following quarters.

I will now transition to the international land segment, where segment's operating income declined to $6.6 million, as we experienced a lower average rig margin per day level as compared to the prior quarter, in addition to a $1.5 million currency exchange loss, which was mostly related to two countries in South America. Revenue days were roughly flat for an average of 22 active rigs. The average rig margin per day was $9,324 during the quarter.

As of today, our international land segment has 23 active rigs, 15 of which are AC drive rigs. Seven of the active rigs are in Argentina, five in Colombia, five in Ecuador, three in Bahrain, two in the UAE, and one in Mozambique. A total of eight rigs are currently idle in the segment, three of which are in Colombia, two in Tunisia, two in Argentina, and one in Ecuador.

For the fourth fiscal quarter, we expect international land revenue base to be up by approximately 2%, as compared to the third fiscal quarter. The corresponding average rig margin per day is expected to be down by approximately 5%, also as compared to the prior quarter. We believe that the margin weakness in this segment is temporary, due to several rigs that are either in transition from country to country, or starting up operations.

Given weak market conditions in Tunisia, we plan to move our two rigs out of that market. Separately, we have two new projects, one in Mozambique and one in Colombia, where two rigs recently commenced operations. The 10 rigs deploying to Argentina from the US are expected to commence operations during the first half of fiscal 2015. We expect to see the full impact of these new projects by the third quarter of fiscal 2015.

Transitioning from drilling segment related information, I will now comment on other items. The Company's total fiscal 2014 capital expenditures will probably be lower than our $1.1 billion estimate, primarily as a result of the timing of procurements related to our ongoing new build efforts. We are still in position to fully fund our fiscal 2014 CapEx program, as well as other scheduled commitments from existing cash and from cash to be provided by operating activity.

We now expect total depreciation expense for fiscal 2014 to be 1% to 2% higher, as compared to our original estimate of $500 million. This increase is attributable primarily to a higher than expected FlexRig construction and deployment cadence during the second half of the fiscal year.

General and administrative expenses were higher than expected during the third fiscal quarter, but are expected to come down during the fourth fiscal quarter. Total general and administrative expenses for the fiscal year are now expected to be 2% to 3% higher, as compared to our original estimate of $130 million.

Our effective income tax rate for continuing operations for fiscal 2014 is expected to be slightly over 35%.

As it relates to our investment portfolio, the Company sold another 250,000 shares of its Schlumberger holdings for a total proceeds of over $25 million that favorably impacted earnings per share by approximately $0.13 in the quarter. Our remaining investment portfolio recently had a pre-tax market value of approximately $250 million, and an after-tax value of approximately $155 million.

And that concludes our prepared comments. Zack, we will now open the call for questions.

(Operator instructions)

Michael LaMotte, Guggenheim.

Thanks, good morning.

Good morning.

Hey, John, the build cadence going from two to three to four, what do you figure is the max rate? Is four a month it, or could you go even higher?

Good morning, Michael. Well, I think there is the potential for us to go higher. We have talked about it a few times in the past. Each time we have increased the cadence, obviously, it's a function of demand pull from customers. We haven't ever been at five. I had mentioned in my prepared remarks, that this will be the third time that we have been at that four month -- four rigs a month cadence.

So it is possible, but it is going to be a function of having the demand there, having the supply chain there, and again, I think we have the capability to do that. Our guys do a great job, and I think they could get to that level, assuming we have got enough strength in the market.

Okay, good. And then, Juan Pablo for you, on the working capital, again running pretty high -- 8% of revenue for the second quarter. I guess it was 6% last quarter. Is that inventory purchases on components, or is that receivables related?

Mostly receivables, Michael, but it does include several other items, of course.

Okay. (Multiple Speakers).

But there's nothing there that we see that is inconsistent with the structure that we have seen in the past in general, or what we might expect going forward.

Okay. So I should think about it more as volatility, not run rates in -- at that kind of level?

I think that's reasonable.

Okay. And then, just out of curiosity, when I look at the cash flow, you all have referred to using the balance sheet in the past for growth. But not being an acquisition-oriented company, and now building at the max rate of four a month or historical max rate of four a month, and still being effectively cash flow neutral from a free cash flow standpoint, I was just wondering about your willingness or appetite for using the balance sheet to repurchase stock?

Well, Michael, we have -- of course, you recall we have repurchased stock in the past. So that obviously, as we talk about this all of the above strategy, that is one of the strategies that we have implemented in the past.

We are -- we continue to have an opportunistic type of view. And we think at this stage, the most effective way to return value to shareholders -- is through cash back to shareholders versus buying back shares at this time. That has just -- that has been our position.

And keeping the balance sheet essentially zero debt?

Well, I am trying to remember, Juan Pablo, in the past we have been as high 20%.

20%.

20%.

Debt to cap.

You know this business well, you have followed it a long time. It is a very cyclical business. And as drilling contractors I think we don't necessarily have a goal of being debt-free, but we would look at it in terms of being opportunistic, and making -- whether it would be an acquisition, you mentioned that. We have talked about that as well, Michael; acquisition of a land contractor would be dilutive, so that isn't something, but there are other opportunities out there.

But we are just going to continue to keep our eyes open, and look for opportunities to grow the Company. And anything else, Juan Pablo, to add?

It is good to be in position to have a very strong balance sheet, to be able to take advantage of any opportunities that may come up.

Okay. Great, thanks. Good job. Thanks.

Thank you, Michael.

Kurt Hallead, RBC.

Hey, good morning.

Good morning, Kurt.

Just your commentary about the pricing progression as you head out into fiscal 2015. If I heard you correctly, you indicated that current spot pricing is about 4% below those rigs that have already been already under contract. But on a go forward basis, you would expect that the pricing improvements will start to lift the average rate rig rate?

Now can you help me connect the dots, does that generally mean that you think over the course of the next few quarters, that the spot pricing dynamic will then be above what your historical -- your historical high had been? Can you just give us some color? So the spot market is 4% below term contract right now, as you look at the exit rate for fiscal 2015, do you think that spot pricing could be above -- 5% above or 4% above? Can you just give us some color on that? Thanks.

Thank you, Kurt. This is Juan Pablo. I think you read exactly what we were trying to communicate, and that is that the spot pricing is still about 4% under where we have seen it over the last few years in stronger markets. And so, hopefully spot pricing continues to improve, as we have seen it over the last few months. And if that is the case, we would not be surprised if we once again reached the prior peak in terms of spot pricing, which would be approximately 4% over where we are today.

The timing of that depends, of course, on market conditions. But over the next several quarters, it would not be surprising to see us get to that point. And as you mentioned, if that were to happen, and everything else being held more or less equal, we would expect the total average rig revenue per day in the segment to be slightly up as well. So we are optimistic about the market, and we hope that that is the case.

Okay. And maybe my follow-up then, just on the international front, you indicated that the Argentina rigs will be at full impact by the third fiscal quarter of 2015. So should we assume a -- when we think about the increase in the number of rigs, so five rigs maybe in the fiscal first quarter? And then, the remaining five in the fiscal second quarter, so that you are at full run rate? Or is it going to be spread out a little bit more than that?

Well, not -- I think that your expectation is reasonable. Of course, the rigs will be deployed at approximately -- roughly speaking one per month or so, so they will be spread out during that six-month period. It is obviously, less than one or month -- or excuse me, one for every 20 days or so. And so, if you go through that, I think that is a reasonable way of modeling it. And by the time we get to the third fiscal quarter of 2015, hopefully all of those rigs will be operating, and generating the types of margins that we expect.

And then, in that context on the margin dynamics, you said the temporary decline in margin, given some rig moves and start ups. So is the rig margin then from the fiscal fourth quarter into the first half of 2015, are we going to start to see improvements at that point? Or is it more like a second half of fiscal 2015, when we start to see some margin improvement internationally?

It's hard to say at this point, Kurt. We are certainly going to be keeping everybody updated on a quarter to quarter basis. It depends on a lot of moving variables and on market conditions for rigs that are in the spot market, et cetera.

But in general, after the decline in margins that we have provided as an expectation for the fourth fiscal quarter, our hope is to start seeing improvements. And then by the second fiscal -- excuse me, by the third fiscal quarter of 2015, we would hope that margins are significantly higher than where they are today, and where we expect them to be in the fourth fiscal quarter.

Okay. That's great. I appreciate the color. Thanks.

Thanks, Kurt.

Walt Chancellor, Macquarie.

Hello, good morning. I guess, staying internationally, in Argentina there have been, obviously some recent labor issues, and then this default. It is clearly a good resource in place. How are you all feeling about the market opportunity there, I guess, now versus when you initially signed those contracts? And then, if you could talk about sort of what your protections are within those contracts to sort of be kept whole on margin?

Well, this is John. I will talk about the opportunity. I don't think anyone is surprised. I mean, this default has been out -- it has been discussed for -- I don't know for how long, but I know it was being talked about prior to the bid. And so, we knew that was out there and a potential. We still don't understand exactly how or if it will impact us.

We looked at Argentina and YPF in general as a long-term opportunity. This is -- these are five-year term contracts, and clearly, the resource is strong, and we think the opportunity is out there to grow the fleet pretty significantly. And it is not just with YPF, it is with other international oil companies as well.

So are we disappointed? Yes, we are disappointed. Does it really change the outlook? I don't really think that it does. Again, it was one of the factors we knew that it was a potential situation. And what was the second half of your question?

Just how you feel about those contracts, is there any change, or sort of protections for these maybe unexpected or expected events over the course of that five years?

Right. Well, we have talked in the past that we felt like these were really good contracts, and we still stand by that. These are good contracts. We said before, they are not risk-free. I mean, working internationally has its own set of risks and challenges as we all know. So we feel good about it, and we feel like we are in a good position, and we are just working on the execution part of the contract right now.

Great. And then to follow up, certainly a company's strength -- we continue to see E&Ps talking up sequential improvements and drilling efficiency, especially in these Q2 results. And just wondering, what you are seeing with your fleet year-to-date? And I know the rate of improvement tapered a bit for you in the last year. Just what you are seeing thus far in calendar 2014?

Well, we do continue to see efficiency improvements. But as you said, it is the year-over-year improvements are less, because of the starting point from the year before. And the -- but the exception would be in the Permian, because the mix shift of verticals to horizontals, I think there is a great opportunity and a great upside -- pardon me -- to continue to improve in the Permian, and that is what we are seeing. So part of the overall fleet, Permian pulled that down just a little bit, if you look at it from a -- just a year-to-year improvement.

I think Permian is setting up for some great opportunities. But a lot of the low-hanging fruit opportunities I think are gone, but there are still a lot of things that we are working on. And I think the reliability -- we continue to talk about reliability. Customers are very interested in that, and just reliably drilling wells and being consistent.

All right. Great. I appreciate the color.

Thank you.

Brad Handler, Jefferies.

Thanks, good morning. Maybe just a little more color please, on the challenges related to ramping cadence? Is it -- and maybe it is -- broadly, we can think about labor challenges perhaps? And then, maybe you could speak to that to some degree. I know you obviously have a great pool to work from in your existing workforce.

But the -- to what extent are you, as you watch your peers also try to ramp up their cadence, to what extent do you think they will -- to what extent do you think the industry can kind of find enough able-bodied people to get the job done, if we are looking out six months and twelve months from now?

Well, I think if -- at least from my perspective, there is a couple of questions in there. I don't feel like our cadence is limited by the labor, by our personnel. We have great people. We have a really strong bench, and a lot of opportunities for people to continue to grow.

Obviously, four rigs a month today at the size of the organization we are, compared to four rigs a month in 2006 and 2007 from a growth perspective is much different, greater challenge for the organization. So I feel really good about our field operation, and us having a good group of guys to continue to draw upon.

I think that, really the challenge is going to tend to be in the supply chain. I think that is what everybody is going to face. In 2012, the best we can tell, I think that the industry delivered around 150 new AC rigs. Last year, I think it was between 60 and 70. This year, we thought it was going to be about 100 to 110. I think it is going to be probably closer to 120 to 130.

And so, obviously 2015 is setting up to have a higher number than that, higher than the 150. So I think that is where the real challenge is. Because if you consider the overall Baker Hughes rig count today, and contrast that with previous cycles, and again I don't think it is a function of a constrain on people so much, as it is on the supply chain and just being able to get the rigs out. And I think the other challenge, of course, is building them, building the rig at a reasonable cost, to be able to get a reasonable rate of return on your investment.

Okay. I appreciate the redirect. That is part of the question, anyway is the prioritization. So that's helpful. I guess, the -- at the risk of sounding like I am not listening, but I am -- I am curious if there are wage pressures in -- that are building in your business now? And as we think about net margin improvement, relative to your pricing commentary whether this a lot -- there is some costs offsets we need to be aware of.

Well, yes, any time -- of course, Brad, when you get this kind of activity, there is the potential for wage increases. We haven't had a wage increase recently, but obviously that is a possibility in the future. Keep in mind, that our contracts have a provision in the contract to cover labor increases. So it is a passthrough, so while it is a cost increase for us, we get a corresponding revenue to offset the cost.

Right. Very good. Okay. Thanks, I will turn it back.

Thank you.

Matthew Marietta, Stephens.

Hey, just one for me. I want to hit on the international business a little bit. When we look at the international prospects, it is obviously good to move rigs and beneficial for you to move rigs, and help with the overall fleet utilization. But what about the new build potential, or any new designs that you may be working on to meet customer demand, as they develop deeper targets or different international type drilling?

Well, Matt, I think your sense is right. I think there are opportunities for us internationally, both FlexRigs and deeper rigs as well, or deeper Horizon type rigs. We continue to believe that the real opportunity, at least for H&P internationally is this move towards unconventional drilling, toward more of a resource development type of move, because of the efficiency and the experience that we have related to FlexRigs and working in the resource plays.

And I think that speaks to the opportunity with YPF and Argentina, and that is what YPF saw. And so, our belief is that is where our international growth opportunity is going to be in the future.

And from a new build perspective, as long as the market is as strong as it is in the US -- I mean, there is no stronger market in the world at least from our perspective, from a risk perspective. And from a return on invested capital perspective, we think this is the best market to be plowing our capital back into for the new builds.

And so, as we have talked about before, we are getting to four. Is there enough demand to reach five? I think at this stage of the game, it would make more sense to direct those new dollars, new rigs, towards the US market as opposed to international, just because, again, of the rates of return and the risk profile.

Thank you. That was helpful.

Thanks.

(Operator instructions)

Walt Chancellor, Macquarie.

Yes, hello. Thanks for taking another question from me. As the new build market sort of tightens up, and your competitors take on incremental orders, are you all seeing the opportunity to maybe push for more term in these new build deals? Or on the other hand, are you seeing customers push for longer terms? And if not, is that a direction you could see things turning on the new build front?

Well, Walt, I mean, that is a great question. As these cycles, again, as a third round, that tends to be the progression, is term contracts have a tendency to get longer. We have over time, we have had a target of three years, but in previous cycles we have had four- and five-year term contracts. And so, I think that's a -- I think that is a possibility to do that.

We are not necessarily pushing on that, but a lot of times, the push ends up coming from the customer. They want to make certain they have got the rig, and they have got it locked up. Which obviously, from a contractor perspective, that is a place to be. You want to hear your customers talking about long-term activity and outlook.

So again, that is a good observation. I think it is possible. We are not pushing hard on that effort right now, but I do think it is possible.

All right, great. I will turn it back, thanks.

Thank you.

Mike Breard, Hodges Capital.

Yes, good quarter. Could you please comment on what the day rate is on a new FlexRig order today, versus what was on one ordered back in October?

Oh, Mike, for competitive reasons I prefer not to go there. Mike, it is -- suffice it is -- the rates have improved, and but I prefer not to give an exact number. But the pricing has continued to improve, and I would expect that it will continue to improve, going forward, as long as commodity prices remain strong.

Okay. Thank you.

Thank you.

(Operator instructions)

[Andrew Shirley].

Hello. Have you guys analyzed the formation of an MLP? And if so, what are your thoughts at this point?

This is Juan Pablo. Andrew, we certainly have looked at what the industry has done, and what those structures look like in general. We don't believe that it is the type of structure that applies to contract drillers, in the land drilling business. So we really are not further investigating that option.

Okay thank you.

(Operator instructions)

Zack, perhaps we can take one more question before we end the call?

(Operator instructions)

It appears we have no further questions at this time.

All right. Well, thank you, Zack, and thank you everyone for joining us. Have a good day.

This does conclude today's conference. You may now disconnect and have a wonderful day.