Independence Contract Drilling Inc (ICD) 2014 Q2 法說會逐字稿

Good morning and welcome to Independence Contract Drilling 2014 second-quarter conference call. (Operator Instructions). At this time for opening remarks and introductions, I would like to turn the call over to Phil Choyce, Senior Vice President and Chief Financial Officer of Independence Contract Drilling. Thank you, sir, please go ahead.

Good morning, everyone, and thank you for joining us today to discuss ICD's second-quarter 2014 results. With me today is Byron Dunn, Chief Executive Officer of Independence Contract Drilling, and Ed Jacob, President and Chief Operating Officer.

Before we begin, I would like to remind all participants that our comments today will include forward-looking statements which are subject to certain risks and uncertainties. A number of factors and uncertainties could cause actual results in future periods to differ materially from what we talk about today. For a complete discussion of these risks we encourage you to read the Company's earnings release and our documents on file with the SEC.

Additionally we refer to the non-GAAP measures during the call, please refer to the earnings release of our public filings for a full reconciliation of EBITDA and for definitions of our non-GAAP measures.

With that I will turn it over to Byron for opening remarks.

Thanks, Phil. Good morning, everyone. We will follow a common format on our conference call. First, I will review the quarterly highlights and update you on our outlook going forward. Phil will then review the financial highlights for the quarter and our updated financial guidance. We will then take questions from call participants.

As this is our first call since our IPO in August, we thought it would be helpful to welcome our shareholders with a recap of who we are, how our business model works and our vision for the future. Also as a quick note, the timing of today's second-quarter conference call was dictated by the close of our IPO and in future quarters, our reporting will conform to typical quarterly timing.

Independence Contract Drilling is a fast-growing pure play pad optimal land-based contract drilling services provider for oil and gas producers in the Permian Basin. We have no legacy rigs in our fleet. ICD designs, assembles, and operates our fleet of fast-moving AC ShaleDriller rigs which are specifically engineered to be pad optimal. Pad optimal means ShaleDrillers are designed to be very fast-moving and maximize the number of wells our clients can drill per rig year and are ideal for the rapidly increasing use of horizontal drilling technologies.

Since 2009, the percentage of US rigs drilling horizontally has increased from approximately 30% to almost 70% today. Not only have more horizontal wells been drilled but the horizontal sections are getting longer. In fact, ICD has recently drilled the record lateral in the Permian Basin with an almost 14,000 foot horizontal section.

The E&P industry is moving toward pad development of rigs drilling horizontal wells and pad size is growing larger. Pad deployment of fast-moving AC rigs provides an opportunity for producers to maximize their production profiles and cash flows by drilling more longer lateral wells per rig per year but in order to do that they have to be able to source pad optimal rigs from drilling contractors.

That is where we come in. ICD ShaleDriller pad optimal rigs are designed specifically for the vast majority of the US unconventional marketplace and feature 1500 horsepower computer-controlled AC VFD drives, omni-directional walking systems capable of walking over raised well heads, biofuel capability and reduced cycle times in site to site moves through minimized truckload requirements. In other words they are exactly what E&P operators have been asking for and exactly what they need to compete effectively in today's environment.

Our pad optimal rigs and skilled crews offer customers a compelling value proposition allowing them to drill more wells per rig year and accelerate production and cash flow from their most financially impactful and technically challenging assets. On a pad, ICD rigs go from release from a drilled well to spud of the next well in the series in a matter of hours.

Our AC VFD drive rigs provide longer bit life, fewer bit trips and allow customers to drill faster and minimize open hole time compared to legacy SCR and mechanical rigs. ICD rigs walk omni-directionally over raised well heads and are self-leveling. They accommodate uneven drilling locations and misaligned wellbores. Also with our rigs, operators can change between diesel or a natural gas diesel blend. This dual fuel technology not only lowers ICD's client's fuel cost by as much as an estimated $400,000 on an annual basis but result in a greener location with lower carbon emissions. Currently four of our rigs are scheduled to operate on a dual fuel basis.

There is currently an industrywide shortage of AC driven and pad optimal rigs. Although the percentage of the US land drilling fleet employing AC drives has increased from 9% in 2008 to about 37% by early 2014, the majority of the US fleet remains comprised of legacy equipment, 60% of the fleet with mechanical or AC drives and almost 50% of the fleet operating at 1000 horsepower or less.

Of the approximate 1200 rigs drilling horizontally in the US, only 49% are being drilled by AC VFD units meaning that over 600 sub-optimal non-AC rigs are being pressed into service drilling horizontal wells. This demand for AC and pad optimal rigs is driving a US land brick replacement cycle and we believe a sustained period of supply/demand imbalance for the kind of rigs that ICD offers.

Against that backdrop, it is easy to see why all 11 of our rigs are contracted into the future and why since the close of our IPO on August 7 we have signed a new contract for a 7500 psi mud pump rated ShaleDriller to be delivered in the first quarter of 2015. This contract has a three-year term with a day rate in the high $20,000 range consistent with an environment of improving contracting terms. We are in multiple conversations with other operators for rigs to the delivered in 2015 at similar terms.

In addition, we signed a 20-month contract extension with an existing customer since completion of our IPO with a step function day rate also reaching the high $20,000 range. Although all of our rigs are currently working or dedicated to long-term contracts in the Permian Basin, our target market includes Texas and contiguous states, New Mexico, Oklahoma, Arkansas, Louisiana. We have inquiries and are in discussion with operators in several basins in this target market area. Historically we have worked in the Eagle Ford and Mid-Continent and as the Company grows, you should expect to see ICD rigs throughout this target market.

Our rigs are in high demand and we are in a strong position to move forward. With the capital we raised in our IPO, we will build seven new 200 Series ShaleDriller rigs in 2015 and nine new builds in 2016 and we are looking at opportunities to accelerate those build plans. In other words, we will almost double our fleet next year and compound this rate again in 2016.

We are in continuing conversation with well-capitalized operators with the largest drilling budgets in our target market for the remainder of our rig build scheduled in 2015 with demand for rigs well in excess of our build capacity. In addition, all of our future ICD pad optimal ShaleDriller rigs will be equipped with 7500 psi mud pumps and systems which will accommodate our customers' plans to drill extreme lateral sections.

We are also in a solid position from a safety perspective which is something both we and our customers care deeply about. I am especially proud that our operating statistics continue to be at industry excellent levels with our rolling TR IR below 1 and fleet utilization above 97%, a testament to the quality and training of our rig crews. ICD delivers best-in-class safety and safety management systems and is one of the only land contractors who is SEMS II compliant.

We are excited and ready to deliver on our goals for growth. We were very impressed with the interest expressed from many of you during our IPO roadshow in August and we are thrilled to welcome you as new shareholders of Independence Contract Drilling. We look forward to seeing you again at a conference later this year.

With that I will turn the call over to Phil to discuss second-quarter financial results as well as our forward-looking guidance.

Thank you, Byron, and thanks for everyone for joining us today. I hope you all have had a chance to see the press release we issued this morning.

First and foremost as Byron mentioned, we are very pleased with the results of our successful initial public offering in August. We issued a total of 11.5 million shares of common stock for net proceeds of approximately [$117 million] which is that of underwriting discounts as well as other estimated fees and expenses of $2.1 million. We plan on using these proceeds to build more ShaleDriller rigs during the remainder of 2014 and 2015.

Looking at the second quarter, we reported net income of $1.6 million or $0.13 per share. Included in net income and earnings per share during the quarter the following items not derived from normal operating activities. First, we recognized income of $1.4 million or $0.11 per share related to a non-cash gain associated with a decrease in estimated fair value of a warrant that was originally put in place in March of 2012. This warrant is recorded as a liability on our balance sheet due to its dilution protection features and we recognize a non-cash gain or loss each quarter based on the increase or decrease and its estimated value until such time as the warrant is exercised or expired. The warrant expires on March 2, 2015.

Second, we recognized income of $2 million or $0.11 per share net of tax related to the receipt of insurance proceeds during the second quarter associated with the previously recognized asset impairment. We expect to recognize future gains in subsequent quarters as additional insurance recoveries are received.

Excluding these two items, we recognized a net loss during the second quarter of $1.1 million or $0.09 per share and recognized adjusted EBITDA of $3.9 million.

Moving on to our revenues. During the second quarter we ran eight rigs including a newbuild that entered our fleet during the quarter and had a total of 636 rig operating days which equated to 100% utilization rate compared to 420 operating days and a 97% utilization rate during the same period a year ago. On a sequential basis, our rig operating days increased by 4.8% compared to rig operating days in the first quarter of 2014 of 607 days.

Looking forward at the third quarter, our rig operating days will increase as a result of the newbuild that entered our fleet during the second quarter as well as our newbuilds that commenced drilling operations in August. We estimate our rig operating days during the third quarter will range between 770 and 780 days.

Our contract drilling revenues include past-due revenues associated with costs rebilled to customers including mobilization costs. Excluding these passthrough revenues on an revenue per operating day basis, our revenues increased to $22,026 per day in the second quarter of 2014 compared to $20,490 per day during the second quarter of 2013 and are improved 5.3% sequentially from the first quarter 2014 revenue per operating day of $20,918.

Looking forward into the third-quarter, we expect to see continued improvement sequentially in our revenue per operating day.

On the cost side, our costs have remained relatively flat on a cost per operating days basis. During the second quarter of 2014, the costs were $12,740 per day compared to $12,768 per day during the second quarter of 2013 and $12,697 per day during the first quarter of 2014.

These costs per day include all of our operating costs including all ad valorem taxes but exclude costs associated with rebuilds and mobilizations that have passed through to our customers. Looking forward at the third quarter, we expect our operating costs per day to be generally in line with prior quarters but there can be some variability given the size of our current fleet and the nature of drilling operations.

On a margin per day basis, we saw improvement compared to both the second quarter of 2013 as well as sequentially. During the second quarter of 2014, our margin per operating day was $9,286 per day compared to $7,722 per day in the second quarter of 2013. Sequentially our margin per day in the second quarter improved 13% compared to the first quarter 2014 margin per day of $8,221.

I want to point out our costs and margins include allocated costs and at the rig level, our cash margins per day during the second quarter were north of $10,500 per day. Looking forward to the third quarter we expect to see continued sequential improvement in margin per day in the range of $500 per day with variation based upon ultimate day rate utilizations and realizations and our operating cost per day and depth.

As we highlighted on our roadshow, we utilize our rig crews to assemble our new ShaleDriller rigs and these crew costs are capitalized as part of the new rigs cost. To meet our aggressive rig fleet growth we typically retain these key rig personnel for our new rigs prior to the construction process beginning. We exclude these preconstruction personnel expenses from our operating cost per day metrics.

During the second quarter, these preconstruction expenses associated with these additional personnel was $500,000 which compared to $300,000 in the second quarter of 2013 and $300,000 during the first quarter of 2014.

During the second quarter of 2014, our SG&A expenses were $2.1 million including $600,000 related to non-cash stock-based compensation. This compares to $2 million of SG&A costs during the second quarter of 2013 which included $500,000 of non-cash compensation expense.

On a sequential basis, our SG&A costs were flat compared to total SG&A during the first quarter of 2014. Looking forward at the third quarter, we do expect to incur some one-time SG&A costs directly related to the IPO as follows. First, expenses directly associated with the IPO that are not capitalized as operating cost of up to $500,000 and additional non-cash stock-based compensation expense of approximately $200,000 associated with the vesting of certain awards at the IPO.

Of course, now that we are a public Company, we are incurring additional SG&A costs. With respect to cash SG&A, our expectations are that we will ramp up to a run rate of approximately $11 million per year and during the third quarter, these cash costs will be in the $2.1 million range.

In addition, we will have additional non-cash stock-based compensation associated with equity awards granted in connection with the IPO that vest over a three-year period. We expect these new awards will increase our non-cash stock-based expense included in SG&A by approximately $720,000 per quarter with some variability based upon the performance nature of certain of the awards.

For the third quarter which will not include a full quarter of expense for these new awards, our total non-cash stock-based compensation should be in the range of $800,000 plus the $200,000 one-time expense I previously mentioned relating to the acceleration of certain awards at the ICF.

With respect to our depreciation and amortization, our expense was $3.9 million during the second quarter of which $3.1 million was related to our contract drilling operations and $800,000 was related to amortization of intangibles and other corporate assets.

With respect to interest expense, we recognized approximately $600,000 during the second quarter associated with our borrowings under our revolving credit facility. As a result of the IPO, we repaid all of our outstanding debt under our credit facility in August and incurred interest expense during the third quarter up to that time. Following the repayment, we continue to incur a non-cash deferred financing cost as well as unused line fees. As a result, I would expect our interest expense for the third quarter including the deferred financing cost and unused line fees to be in a range of $500,000. I do not expect we will earn meaningful interest income on our cash balances given we plan to rapidly reinvest our cash back into our business throughout the remainder of the year.

Moving on to taxes, because of our large NOL position and our rig construction plans, we are not a cash tax payer today with respect to Federal income taxes and won't be one for some time. However, we will record income tax expense and benefits for book purposes. During the quarter, we recorded $667,000 of income tax expense. Excluding taxes related to the insurance recovery I previously mentioned, the tax expense or benefit we would have recognized would have been negligible.

Moving on to our balance sheet and liquidity. At June 30, 2014, we had cash on hand of $2.9 million, $64.2 million drawn on our $125 million revolving credit facility, the construction of two rigs underway and one rig being outfitted with a multidirectional walking system. On a pro forma basis assuming our IPO had been completed and net proceeds received on June 30, we would have had no debt and cash on hand of approximately $56 million.

During the second quarter, cash outlays for capital expenditures were $36.3 million which were principally associated with our rig construction activities. At the end of the second quarter, we estimate there were approximately $26 million of cash outlays for capital expenditures net of vendor deposits already incurred required to complete our rig construction activities and process at the end of the quarter.

Subsequent to the end of the second quarter, we completed our 10th ShaleDriller rig which commenced drilling operations in August. We expect our rig that is being upgraded to recommence drilling operations in mid to late October and our 11th ShaleDriller rig under construction will be completed and commence operations in mid to late December.

We have also accelerated our ordering for rigs to be delivered in 2015 and have made deposits on long lead time items for our next five drilling rigs. As we continue to firm up our rig delivery plans for 2015, I expect that we will accelerate ordering for additional rigs during 2014.

With that I will hand the call back to Byron for closing remarks.

Thanks, Philip. I actually don't have any closing remarks so operator, at this time would you please open the line for questions?

(Operator Instructions). Jeff Tillery, Tudor, Pickering, Holt.

I guess a couple of questions I had. Byron, you gave details on the two contracts that were signed since the IPO. I guess if you could just give us color around the discussions you are having and I guess what I'm curious in terms of duration, one of the contracts I guess is 20 months, one three years. Is that typical for the duration that you guys are talking with customers about? As well as if you could just give us kind of outliers, what would be the shortest duration and maybe the longest duration that you have had conversations about?

Sure. Let me give you the color I can on the contracts we have signed and Ed Jacob is here with us and I would like to ask Ed to address the broader conversations that we are involved with right now.

So these contracts -- the contract we signed was something we were in discussions with during the IPO. Once the IPO completed and we could give good delivery dates for the rigs we were able to sign that contract. It has a three-year term and it is in the high $20,000 a day range and in general, we are getting the longest terms and the highest day rates available in the market today.

The contract extension was a negotiation with a large E&P company who has been with us for quite some time. They had some particular needs and that contract has got a step day rate. It will get the mid-20s until the end of the year and then it will toggle up to the high 20s for the remainder of the term of the contract all together a 20-month extension and that was a structure that was associated with the particular drilling requirements of that customer.

So those are the two that we have inked since the deal and let me turn it over to Ed now and Ed can give you some further color about the conversations we are having, tone of the market, so on.

Jeff, we are going to do everything in our power to get whatever the market will provide us. It is very important for us get term. Having been in this business for a long time, term is very important and when the market will bear it, you need to take advantage of it. Right now the market is in a position where we are able to get multi-year contracts for our equipment going forward and maximize that by the highest day rates that the market will bear.

The market sets both term and day rate. If the market didn't, if the contractors were able to set it we would never let day rates fall below 10,000 a day and terms below five years. So it is really what the market is going to allow and right now the market is allowing a multi-year term and high 20 day rates.

So, Jeff, it feels very firm and we will continue, we are in multiple discussions with other large E&P companies for additional contracts with those terms and conditions.

I guess my second question is for Philip. As I look at both the new crew training costs and the reimbursable costs, I guess how variable in terms of total dollar amount quarter to quarter do you think about new training costs? Is that going to be kind of a fixed dollar amount as we step forward and on a per day basis if I think about it that way, it goes down just as we spread over more rigs operating days?

Sure, it will be fixed, it may go up just a little bit as we aggressively kind of add rigs this next year so it could go up a little bit naturally but not much, maybe $100,000, something like that. So on a per day basis, if you wanted to look at it that way, you could take our rig operating days for the quarter and calculate it, if you wanted to do that. As far as mobilization revenues, things like that, the rebuilds are a little harder to predict but mobilization -- there is going to be a couple of hundred thousand dollars a quarter type of thing on average. It will grow a little bit as we add fleet -- add rigs to our fleet and then rebuilds on top of that, we might be another $100,000 on average.

And then my last question, just around the supply chain and leadtimes, you mentioned you put deposits down for the next five. Anything out kind of beyond your expectations or any changes going on in supply chain that we should be paying attention to?

No, our supply chain people have done a very good job of keeping their finger on the pulse so we have not been surprised with any of the key components of our rigs and we have planned for the supply chain deliveries that we have suspected that go back to the last six months so we feel very confident that our supply chain is in place and the performance what our supply chain has provided us over the past six months gives us great confidence in our ability to meet our deliveries going forward.

Great. Thank you all.

Kurt Hallead, RBC Capital Markets.

Congrats on the successful IPO. From my standpoint we are getting a lot of sentiment shift here on US land drillers over the last couple of months from investors and a lot of investors are expressing their concern that there is a chance the market could become oversaturated for rigs in 2015. And varying estimates out there would peg the incremental rig count, new rigs coming into the market around 200. Just curious when you are going through your process and having your discussions with your customer base, is there anything changing at the margin from a contractual standpoint that would maybe be a lead indicator of E&Ps thinking the markets going to be saturated with rigs in terms of duration or contractual terms or anything else that you might be picking up on?

Kurt, not so far. The type of equipment we produce and the submarket we compete in I think are a little insulated from some of the factors that may be impacting folk with older or less capable equipment. I think there is still a shortage of the type of equipment that we are offering. If there is a broad market downturn, it is going to take everybody down but I think we will relatively outperform in a down market. And right now everything that I am seeing from a contracting perspective doesn't indicate any issues related to us or our equipment.

Okay. Then in terms of are you actually seeing maybe other indicators that would suggest the market is heating up and whether again are you are seeing contract durations being -- for new rigs moving up from whatever they were to something longer? And you mentioned day rates were moving higher so just wondering on the duration front whether or not E&Ps are getting more interested in locking in for a longer term?

Let me give you a little bit of color and then I will ask Ed to step in and flush it out further. I don't know that it is heating up but the market seems robust and solid at least for our type of equipment. Ed, were you seeing any kind of leading indicators that would give you any pause?

No, I think the most recent rigs that we have recontracted have seen anywhere from 15% to 20% increases in day rates on the lower end which is an indication the market is still strong. I think the marked indicator for me, Kurt, is the additional contract length that the operators are willing to commit to. That to me is a positive sign that the market is still robust. It also gives you an indication of what the customers CapEx is planning to be going forward over that contractual period of time.

So we are seeing the market as being very strong right now. And the one thing that I am always looking for after all of these years has been the length of term that is available and when we start seeing pushback on that term is when we will have a pretty good idea that the market is going to start correcting.

Got it. Thanks for that. The other question I had was specific given that you are operating only in the Permian. I was wondering if you could give us some updates on what you are seeing in terms of the number of wells per rig that are being drilled and what the efficiency dynamics are and context of how quickly you are able to drill those wells in terms of days?

We are in multiple geographical areas within the Permian. What we are seeing in southeastern New Mexico is more of the large multi-well pads in New Mexico from anywhere from 20 wells to 36 wells to 48 wells. We will have four rigs operating in that market currently. But we have seen some of the other activity that was originally just one or two wells now moving three and four and six wells so we are seeing the number of wells double per location from what we have experienced last year which is another indication that we are going to see a lot more.

We may not need the rig count that we are used to for the past 10 years but the industry is going to drill more wells thus the efficiency that operators are realizing is going directly to their bottom line.

I am sorry, the other part of that question you asked?

The other one was in the number of days it is taking to drill these wells. Is that plateauing or is it still coming down?

No, it is still coming down. I think the challenge is not the drilling piece, the challenge and the bottleneck for our customers is really the completion and fracking and the challenge what we are hearing from all of our customers across the board are the supply chain's challenges that they are facing. They are moving into a manufacturing mode so they are spending a lot of money. In fact, they are consulting with leading manufacturers about how a manufacturer of product, iron, equipment, well pads, how do they view the supply chain for a manufacturing industry and how those lessons can be applied to the drilling of wellbores.

But we have seen, Eagle Ford when we were first out there, we were drilling those wells in 35, 40 days. We got it down to 20, 22 and then West Texas on some of the wells we are drilling out there originally took two weeks. Now we are down to 10 days in some cases. So we are still seeing a reduction in the days as our customers begin to utilize new technology.

If I may just one more, just in the context -- thanks, all great color. As you look out at your expansion plan for rigs over the next couple of years the fact that you currently have no debt on the balance sheet right now, when you build out those rigs I will assume that you are going to take on some debt. Is it part of your game plan to take out one tranche of debt to then pay for those rigs over time or are you going to piecemeal -- even if you are going to use that -- are you going to piecemeal that over time?

Once we use the cash rate and the IPO, we will continue to build and Philip has put an ABL in place that he can give you the details on off-line if you would like but we will use debt finance to build the fleet and I suspect that we will run over 30%, 35% debt to total cap for some time depending on market conditions as we grow the fleet.

All right, guys. Thank you so much for the info. Appreciate it.

Thomas Curran, FBR.

Good morning, guys. Phil or Ed, please refresh me, how would you bracket high 20s? In other words, what floor and ceiling does that assume?

I would say that the middle 20s is 25, high 20s would be $29,999. I'm not trying to be cute, Tom, but having been on conference calls for a couple of decades and having been on the other side, this is an excellent way for my competition to understand what the business drivers are and so I am very reluctant to be specific on that because I have been on your side of the phone and listening to my competition. So I hope that answers your question.

It is helpful. So fair to say then that the high 20s starts with $26,000 then?

Look, we talk about mid-20s, high 20s. Right now if your question is where are leading-edge day rates, they are 26 to 28.

Okay, that is helpful. Thank you for that. Then with the initial 2015 newbuild award, is the operator a new client or an existing one and if it is existing, is it also a repeat clients?

It is an existing customer and it is repeat.

Great. Ed, with the longest lead time systems right now, BOPs and the variable frequency drives, given how long those leadtimes have gotten, have you already placed the orders for seven BOPs and seven variable frequency drives for 2015?

We have already placed the orders for all of our lead-time items, long lead items. The VFD is definitely one, pressure control, it is more than just BOPs, it is BOPs, choke manifold but again we have relationships, we don't have vendors, we have partners. And we try to leverage our spend and so we can't be everything to everyone so we select our partners very diligently and give them every vision of what we are planning to do going forward. So we haven't seen those challenges in long lead items as maybe some of our competitors have.

Okay. Byron, when we get to the end of 2015 assuming you have inked contracts across all seven of the new builds as current indications suggest is most likely, where all would you expect to be working at that point including the contracts you would have signed across the seven incremental 2015 deliveries?

Well, Thomas, we will work wherever we get the best contract so I don't know where that will be. It will certainly be within Texas and the contiguous states which we have defined as our target market and we are getting inquiry from all of those areas. So I don't have an answer to the question but as soon as these things are inked and occur, we will let the Street know.

All right. Thanks for the color, guys. I appreciate it.

(Operator Instructions). Marc Bianchi, Cowen.

Good morning, guys. Curious on the two remaining upgrade opportunities. Could you talk to maybe the timeline of discussions there, the likelihood and then just remind us if you could, how long those would take and (multiple speakers) associated?

Sure. They aren't really upgrades, Marc. The opportunity we would have with regard to the two remaining 100 series rigs is to populate a 200 series substructure with the only equipment on those rigs. So it is not an upgrade, it is a swap out of the substructure. It is not clear to me you can take non-walking rigs and upgrade them to be efficient walkers. So I think there is a distinction there.

In terms of opportunity, those rigs are in long-term contracts with a client who is using them and has for quite some time and as long as they are on contract, there really is not an opportunity to bring them in and sustain scheduled downtime and upgrade them. In terms of cost and time, let me turn that over to Ed.

Time, if we had sufficient time in the supply chain to get the parts ordered, it would probably take a month to make the transition or the change out of the substructure and cost wise, it will be roughly in the $2 million range.

Per rig?

Per rig, yes.

Okay, great. Okay. Those contracts are up at the end of the first quarter 2015, correct?

Those contracts being the -- those contracts for the (inaudible), yes.

End of the first quarter, beginning of the second quarter.

Got it. Okay. And among the long lead items that you have pulled forward on the next five rigs, how much more quickly are you able to get those rigs into service now with that effort?

Well, we are right now planning for one in the first quarter, three in the second, two in the third and one in the fourth. That is our plan at this time. There is a little bit -- a lot of what drives that is going to be what is the market dictating? What is the amount of term available and what is the day rates and also it is a little bit of brinksmanship between us and our customer. If you want to push too hard then they will delay and vice versa.

So it really is the game that you play when you are negotiating with your customer. Remember our customers and the people, the decision-makers, they are driven by reducing cost while at the same time we are driven by increasing term and increasing our day rates. So that is the challenge is to make sure we are aligned when we enter into a contract. We are not necessarily aligned in our business drivers if that makes sense. Do you follow me?

I do. Okay, guys. That is helpful. I will turn it back.

Thank you. It seems that we have no further questions at this time. I would like to turn the floor back to management for closing remarks.

Great. Thanks again everyone for joining us on the call today. I hope you can tell how excited and enthusiastic we are about the future for Independence Contract Drilling. We will start meeting you all at conferences during the remainder of this year and into next year and I look forward to seeing all of you soon. So thanks again for your interest and support and for joining us today.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.