Nabors Industries Ltd (NBR) 2005 Q4 法說會逐字稿

Good day ladies and gentlemen. Thank you for your patience and welcome to the fourth quarter 2005 Superior Well Services Incorporated earnings conference call. My name is Bill and I'll be your conference coordinator for today.

[OPERATOR INSTRUCTIONS]

I would now like to turn the conference over to your host for today's presentation Mr. Dave Wallace, Chief Executive Officer. Please proceed sir.

Thanks Bill. I'd like to welcome everyone today to our Superior Well Services fourth quarter conference call. This call originates from our Corporate Office in Indiana, Pennsylvania. This marks our third call since Superior's IPO in July of 2005.

We would first like to thank all those who hold ownership in our company, have been in part of the transition from a two-limited partners to a public company.

Joining me today is Tom Stoelk, our Chief Financial Officer. Our agenda is as follows, first Tom will review our financials for the fourth quarter and year-end 2005. Secondly, I'll give an overview of operations of each region. Finally, we'll entertain questions-and-answers.

Tom?

Thanks Dave. I'd like to remind all of those participating on the call today that a replay of our conference call will be available to listen through March 14 by dialing (888) 286-8010 and referencing a conference ID number of 47044064. The web cast will also be archived for replay on the company's website for 15 days.

Additionally I would like to mention that our Form 10-K was filed this morning shortly after the earnings release. A copy of the 10-K is now posted and available on the company's web site.

Before I begin comments on the 2005 operating performance I'd like to make the following disclaimer regarding our call today. Except for historical information, statements made in this presentation including those relating to acquisition or expansion opportunities, future earnings, cash flow and capital expenditures are all forward-looking statements within the meaning of Section 27(A) of the Securities Act of 1933, and Section 21(E) of the Securities Act of 1934.

All statements other than statements of historical facts included in this presentation that address activities, events or developments that Superior expects, believes or anticipates will occur in the future, are forward-looking statements.

These statements are based on certain assumptions made by Superior based on management's experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties many of which are beyond Superior's control, which may cause Superior's actual results to differ materially from those implied or expressed by these forward-looking statements.

These risks are detailed in Superior's Securities & Exchange Committee filings which are included in Superior's final IPO perspectives filed on July 28, 2004 -- 2005, Form 10-Qs filed on September 01, 2005 and November 08, 2005 and the Form 10-K that was filed today.

The company undertakes no obligation to publicly update or revise any forward-looking statements.

What I would like to do is get started discussing our financial results and first I'm going to talk about our results for the calendar year-end December 31, 2005 compared to 2004. I'm going to follow that with a discussion of our fourth quarter results.

Revenue, operating income and EBITDA for 2005 all reached record levels. Revenues totaled $131.7 million which was a 73% increase over the prior year. Our operating income increased to 131% which was -- and reached $23.7 million. EBITDA which is a non-GAAP measure, increased 115% over the prior year to $32.6 million and net income totaled $9.5 million while diluted earnings per share increased to $0.49.

The company's 2005 operating results were impacted by a $8.6 million non-cash adjustment to establish deferred income taxes. This charge for deferred taxes was due to the impact of the company's 2000 IPO and the reorganization that resulted from our change in legal structure in connection with the IPO to a C-corporation. Prior to this reorganization the company operated as two-limited partnerships that weren't subject to federal and state income taxes.

The $8.6 million non-cash adjustment is included in the deferred income tax provision for the year ended December 31, 2005. Revenues for the year totaled $131 million which compared to $76 million for the 12-months ended December 31, 2004 and that's an increase of 73%. Really it was increased activity levels from our new and existing service centers coupled with pricing improvements that we saw in the markets during 2005.

Revenues by operating region are $71.7 million for Appalachia, that accounted for about 54.4% of our total revenues, 34.3% for southeast, approximately 26% of our revenues, Rocky Mountains accounted for 3.6% of our revenues or about $4.7 million and the mid-continent region was 16% of our revenues or approximately $21 million.

Revenues by operating region increased in 2005 in Appalachia by $23.3 million over the prior year, $13.2 million southeast region, $14.6 million increase in the mid-continent region and $4.6 in the Rocky Mountain operating region respectively. Approximately $28.7 million of these increases or a little over half of this revenue increase was attributable to the new service centers.

Revenue from our company's technical pumping services increased approximately 75% in 2005 to $119.2 million. The breakdown of our technical pumping revenues is that stimulation accounted for about 55.3%, 13.4% nitrogen and 21.8% cementing service revenues.

Revenues from the company's down-hole surveying increased approximately 59% to $12.5 million for the year ended December 31, 2005 that compares to $7.9 million in 2004. Approximately $1.6 million of this increase was attributable to the new service centers. Cost of revenue has increased 66% to $90.3 million for the year ended December 31, 2005 that compares to $54.4 million in the year ended 2004. Increased activity levels led to the increases in 2005.

Approximately $20.3 million of this increase of 56% of the increase was attributable to the new service centers. As a percentage of revenue the cost of revenue decreased to 69% in 2005. That compares to 72% in 2004. The 3% drop is really attributable to the decrease in labor expenses as a percentage of revenues in 2005 versus 2004. Labor as a percentage of revenues was 20% in 2004 that compares to about 17% in 2005. Aggregate labor expenses did increase by about $7.2 million between the periods to approximately $22.7 million in 2005. That's just due to an increased work force necessitated by the expansion of the company's operations.

SG&A expenses were $17.8 million for the year ended December 31, 2005 that compares to $11.3 million in the comparable period of 2004. That's an increase of 57%. The company hired additional personnel just to manage the increased growth in its operations as a result of this growth and additional personnel labor increased to approximately $3.5 million. Office expenses approximately $500,000, transportation about $300,000, rent about $300,000, depreciation about $400,000.

Additionally, our legal and franchise taxes increased about $600,000 on the legal and professional side and a couple hundred thousand on the franchise-tax side.

Prior to the company's change in legal structure that happened at the IPO at the end of July, we were a limited partnership so we became a franchise-tax payer beginning in August. As a percentage of revenues the portion of labor included in SG&A declined from about 10% in 2004 to approximately 8% in 2005.

Operating income was $23.7 million for the year ended December 31, 2005. That compares to about $10.3 million for the comparable period in 2004 and that's an increase of approximately 131%. The primary reasons for the increase are just the increased drilling activity by our company's customers in our existing locations coupled with the establishment and expansion of the company's operations in new service centers.

The increases were partially offset by increased cost of revenue, SG&A that I just went over. New service center operating income by operating region increased $1.2 million for mid-continent, $1 million -- I'm sorry, $1.2 million for southeast, $1 million for mid-continent, $0.7 million for Rocky Mountain and we had a decrease of $0.7 million for Appalachia that was the establishment of our Michigan Service Center in the second quarter of 2005.

We'd mentioned it before but it's historically been the company's experience that when we establish a new service center it takes approximately 12 to 24 months before it has a positive impact on the operating income and generates more of a corporate average for us by operating region.

I'm going to talk a little bit about the fourth quarter. In the fourth quarter of 2005 the company's revenues increased to $41.2 million and that was up 81% compared to 2004 amounts. And it was up approximately 18% when you compare it to the third quarter of 2005's revenues.

Revenue by operating region was $20.9 million, for Appalachia it accounted for approximately 51% of our revenues for the quarter, southeast was approximately $9.9 million or approximately 24% of our revenues. Rocky mountain reached $3.1 million, about 7.5% and the mid-continent account for approximately $7.2 million or 17.5% of the company's revenues.

Revenues increased from the prior quarter by approximately $6.3 million or 17.9% comparing the fourth-quarter revenues by region to the third-quarter revenues Appalachia increased approximately 8.5%, southeast region increased approximately 11%, the Rocky Mountain region increased 150.2% and the mid-continent region increased 32.7%.

Dave's going to have some comments with respect to the operations so I'm going to defer to him with respect to that.

Revenue from the company's technical pumping services increased approximately 82.3% to $37.4 million compared to the 12-month ended period in 2004. It was up 18.4% when you compare it to the third-quarter 2005 number.

The breakdown of our technical pumping for the fourth quarter, stimulation accounted for 56.7% of the company's revenues, nitrogen 13.3% and cementing was 20.7%. Revenue from the company's down-hole surveying increased approximately 68.8% to $3.8 million from the comparable quarter and it was up 12. -- I'm sorry, for the comparable quarter in 2004 it was up approximately 12.6% when you compare it to the previous quarter.

SG&A expenses were $6.2 million for the fourth quarter of 2005 compared to $3.6 million in the prior year's fourth quarter, an increase of 71%. And they were up 31% compared to the $4.7 million SG&A reported in the prior quarter.

The company hired additional personnel during 2005 to manage the growth of the operations SG&A increased $1.5 million between the third and fourth quarters of 2005. Approximately $300,000 was the increase between the third and fourth quarters of '05 related to the expansion of our new service centers in Louisiana and Arkansas.

Labor expenses accounted for approximately $1.1 million of the increase between the third and fourth quarters. This was principally due to increases in higher compensation -- incentive compensation awards driven by higher service revenues and increases in the discretionary contributions made to the company's 401K plan for approximately $300,000.

Additionally franchise taxes were up about $100,000 when you compare it on higher revenues. As a percentage of revenues SG&A expenses represented 51.1% in the fourth-quarter of 2005 compared to 16% in the fourth-quarter of 2004.

Operating income for the fourth quarter was $7.6 million. It was up 192% compared to $2.6 million in the prior-year's fourth quarter and up 23% when you compare it to the $6.1 million in the previous third-quarter of 2005.

Net income for the fourth quarter of 2005 was $4.5 million and diluted earnings per share increased to $0.23.

EBITDA reached $10 million for the quarter which is an increase of $5.9 million or 142% over the same period last year. EBITDA increased $1.6 million or 19.2% between the third and fourth quarters of 2005.

I'd like to make just a couple of comments about liquidity and capital resources. As many of you know Superior completed an IPO in late July. We used that IPO basically to fund -- repay existing indebtedness and to fund capital expenditures. At year end the company has approximately $1.5 million in mortgages and has $20 million of availability under its existing credit facility.

We spent approximately $40.8 million in capital expenditures during 2005. That compares to $19.4 million in 2004 and we spent approximately $13.5 of that during the fourth-quarter of 2005. During the fourth quarter we continued to order 2006 capital items and make deposits on certain of our 2006 capital expenditures. We currently estimate our 2006 capital expenditure budget to be approximately $53 million.

At this point I'm going to turn the call over to Dave to kind of highlight some of the operational results.

Thanks Tom. As Tom mentioned we had an excellent quarter. We reached a new quarterly record for revenue, EBITDA and operating income. This quarter compared to 2004 revenue was up 81%, operating income up 192%, EBITDAs up 142%. All of our regions and services showed significant improvement quarter-to-quarter over last year.

Our sector continues to look strong and we see improved results with the continued addition of new equipment. Our established service centers proved to be strong performers for us and exhibited double-digit increases in revenue and operating income.

We're very pleased with the performance of our new service centers. Taking advantage of extremely busy activity during the fourth quarter helped them increase revenues and contribute positive operating income.

In 2005 our goal was to receive most of our equipment in the first two quarters of the year, take advantage of the peak season during the third and fourth quarter. We received most of this equipment however delays in a few key items didn't arrive until the fourth quarter and reduced some of our revenue generation.

To maximized utilization and revenue we continued to mobilize equipment between locations and regions. Currently we see strong signs that our industry will maintain it's strength and that our customers will continue to invest in new E&P programs.

Turning to the Appalachian region our oldest and largest area witnessed ongoing growth, this region accounted for 51% of our revenue for the quarter. Close to full utilization for both technical pumping and down-hole surveying services, we saw a good performance throughout the quarter.

Our newest location in Gaylord, Michigan continued to improve as revenues were up 62% over third quarter. And Gaylord continues to make a positive contribution in operating income.

We are in the process of opening two additional locations in Appalachia during the first and second-quarter's of 2006. Both in a location in Buchanan, West Virginia which is in Northern West Virginia, during the first quarter of 2006 this location will have our down-hole surveying services of both open-hole logging, case hold perforating.

We were covering these services prior to this, from Black Lick, Pennsylvania and Kimball, West Virginia. Our activity in Northern West Virginia has grown to the point that we saw the need for additional equipment in the area to handle the workload. Staffing and equipment are mainly in place.

We're also opening a new location in Norton, Virginia in second-quarter 2006. We will have technical pumping services consisting of cementing, stimulation and nitrogen services.

We've leased the facility and we're starting to add equipment and personnel. We can continue to add additional and personnel to our service centers with high demand and utilization which gives us increased incremental revenue and margins in this region.

Both of these new locations will give us extra equipment in the area and position us to service a larger part of the West Virginia, Virginia, Tennessee and Kentucky markets.

The activity in this part of Appalachia continues to grow. We see additional drilling rigs being added through this part of the region which indicates ongoing drilling company confidence. And we also see a shortage of technical pumping and down-hole surveying services. We're positioning ourselves to take advantage of this shortage.

Turning to the southeast region which contributed 24.1% of our revenue for the quarter, we witnessed strong performance. Revenue was up 11% over third quarter as the locations rebounded from the hurricane. Exposure continues to offer impressive results and is one of our quicker start-ups to start meeting company expectations. We've added additional sand handling and stimulation horsepower to this location which has enabled us to catch larger stimulation jobs.

We're in the process of adding down-hole surveying services with open hole logging and case hold surveying to our Cottondale, Alabama locations to meet the demand. Customers in Alabama have requested us to add these services. This will give us packaging opportunities as we will be the only service company in Alabama to have both technical pumping and all the down-hole surveying services available.

We did see some holiday slow down in this region that lowered our utilization numbers for the quarter. Activity in the mid-continent region showed improvement in both revenue and margins. This is a region that accounted for 17.6% of our revenues for the quarter. Revenue was up 198% over the same quarter in 2004. Our margins improved for the quarter as we were able to improve on our higher cost areas of the third quarter and able to pass along pricing improvements.

Our newest location in Van Buren, Arkansas is finalizing personnel staffing and adding equipment. We're currently operating two cement crews and received the cement equipment for Van Buren in early January 2006 to start catching stimulation jobs. We're currently catching most of our work in the Arkoma Basin and had started catching some cementing work in the Fayetteville shale area in Arkansas. Van Buren is on track with our expectations as revenues were up 28% over third quarters and margins continued to increase.

In the Rocky Mountain region Vernal, Utah had an excellent quarter. Vernal contributed 7.5% of our revenues for the quarter and revenues increased 150% over third-quarter 2005. We took advantage of a high utilization rate as we picked up some year-end activity before the seasonal closures in some of our work areas. Part of this increased activity was turndown from the Big Three. We continue to add additional horsepower and sand handling equipment to this location to increase our capabilities. Vernal continues to add new customers and increase their utilization.

[Yenta] and [Peonce] Basins continue to see additional drilling rigs added to this region. Operating income margins for the fourth-quarter 2005 improved significantly over third quarter. We're currently adding cement services to our Vernal operation. Packaging of cementing services with stimulation services is a tool that the Big Three have started using to leverage E&P companies for their stimulation work.

This opens the door for us to add cementing services to maintain our position with the current customers and add additional customers. We plan to have cementing services in operation in second-quarter 2006 we're currently adding personnel and equipment.

We're also in the process of adding an additional location in the Rockies and Farmington, New Mexico. We plan for this to open in second-quarter 2006 with stimulation and nitrogen services. This location will cover the San Juan Basin near Farmington and the Raton Basin near Trinidad, Colorado.

Many customers that we work for in other locations in regions such as El Paso, XTO, CDX and Energen and some of the other regional independents are working in this area. We will add nitrogen pumping services to Farmington which will be our first in the Rockies region. Currently our nitrogen services has supported the Rockies from our mid-continent region and other regions farther away.

We're currently working on getting our infrastructure, personnel and equipment in place for this location. We continue to see the Rockies as an exciting region for us.

We're continuing to develop our first location in the southwest region to service the Barnett shale plain near Fort Worth, Texas. We've leased a facility in Alvarado, Texas which is in Johnson County, Texas which is just south of Fort Worth and close to I35. This is the most active county in the play with about 40 drilling rigs working at this time. We've started adding management, sales and technical personnel to the area and we're starting to get our infrastructure in place.

Customer acceptance continues to look very good as the activity in the region continues to increase. We're initially planning to having stimulation and cementing in operation in Alvarado. We have been asked by several customers to add case hole perforating to this region, which we're currently evaluating. Our equipment is still planed to arrive in third-quarter 2006 and we do not anticipate any delays at this time.

At year-end we had 375 units, up from 288 units that we reported in our first-quarter release of 2005, when we went public. We continue to add equipment on a weekly basis. As Tom mentioned, we spent our 2005 CapEx, we've been aggressively spending our approved 2006 budget to try to get equipment in place as early in 2006 as possible.

Initially Superior had $25 million approved for 2006 CapEx, but we increase this to $43 million in a conference call in November, to meet the additional needs for the Barnett shale location. We have again increased our budget for 2006 an additional $10 million to $53 million to add additional equipment to handle our increasing market and activity.

The budget additions will be used for adding cementing services in Vernal and adding additional service equipment and crews to all product lines in other locations to meet increasing demand over what we had originally forecasted.

Our equipment is versatile and mobile and can be easily located to high-activity areas. At this time Superior will use our 2006 Cap budget to invest in all our service lines with the majority going to stimulation services. We are trying to anticipate additional delays in getting new equipment. Lead-time for deliveries are starting to stretch in the direction of 12 months for some of the key components such as high-pressure pumps and sand transporting units. Long-lead items on our original 2006 budget were ordered to minimize delays to our plans for 2006.

We are currently looking at what we may need for 2007 and trying to order some long-lead time items to meet our plans to place equipment in the first half of 2007.

We continue to monitor equipment utilizations and margins and will shift underutilized equipment and crews to other areas to improve returns.

We've also reached an agreement with Robertson Geologging Limited out of England to design and build our next generation of open-hole logging, down-hole tools. We've been looking for the last several years for the right company to upgrade our open-hole logging capabilities. Robertson has been involved in designing and building slim-hole logging tools for many years and currently services many other countries. Many of the engineers and personnel are former [Slumber jay] and Reeves Wireline personnel.

The first equipment is expected by year-end 2006. This equipment is expected to have digital higher tech capabilities that will offer additional services. There will also be two and three-quarter inch slim-hole tools which are lighter weight and require less personnel on job site than what we are currently using. This will be a very good market shift for us with the combination of higher technology and lower operating costs.

For personnel we continue to hire, train and retain personnel. Our personnel total reached 646 employees at the year-end 2005 compared to 465 employees at year-end 2004. Staffing for our new locations in 2005 is in place with Van Buren finalizing its needs in early 2006. We continue to add additional personnel at our existing locations and prepare for additional equipment and crews being added to existing locations.

We're in the early stages of staffing at most of our new locations for 2006. We will see personnel shortages, but continue to meet our staffing needs. We started using Job Fairs in some of the certain-type personnel markets to increase our employee counts.

We train personnel at each of our locations to create advancement opportunities for employees in 2006. Our new locations in 2006 will be staffed by hiring locally, experienced and inexperienced personnel and by transferring experienced personnel from our existing locations.

We initiated price increase effective August 01, 2005 of about 5% to the bottom line. This was in full effect for the fourth quarter at established locations and we made gains at our newer locations. In the fourth quarter most of our competitors were r raising prices and already having high job turn-down rates. Therefore high turn-down rates for the Big Three helped us increase prices.

At times we were able to catch work without being the low price due to availability of crews. We initiated a price increase on January 01, 2006 of approximately 10 to 12% book price increase. This was in line with inflationary pressure for labor, fuel and materials. Pricing is in line with expectations. We see additional pricing opportunities while assets and personnel remain increasingly tight. And we are keeping pricing flexibility in new contracts.

We are seeing some regional material shortages that may cause increased transportation costs to move the material from one region to another, but overall, the recovery from hurricane-related material shortages and price spikes have been reduced.

We're seeing increasing [fraxium] capacity becoming available that has us positioned to meet our needs in 2006. We currently have about 50 rail cars in our system for transporting [fracsand] that has helped to reduce third-party trucking costs.

We promoted a regional materials manager to a US materials manager to better monitor our material costs, for reducing costs, monitoring best pricing between regions, finding new material suppliers and for better timing of price book changes with material cost increases.

As far as our customers we do not see any drop offs by our E&P customers in drilling plans. Most have decided at this point that they will continue to drill through the drop in gas and oil prices as they don't see it as significant or they think it is short-term.

We still see the development work areas continuing to grow and this is where we are positioned. The development areas fit our strategy as customers are trying to optimize their well costs. Our strategy of clean technology at lower costs fits with the customer's strategy of lowering their E&P costs for Mcf.

At this time many customers think that if they give up their drilling rigs or spots with the service companies, someone else will pick up the equipment, they may not get their rigs back and be able to meet their 2006 goals. We think this may change their drilling plans during the normal seasonal slow downs which may benefit our activity.

We see the drilling rig count is up double-digits for the year and we're still hearing of additional rigs coming to each region. Our competitors are still bullish on the market and have increased their CapEx budgets over 2005.

We progressively continue to grow our customer base with each of our expansions into new regions and service centers. Superior's recognition in the public market has assisted in rising acquisition opportunities. As indicated by our record CapEx budget plans for 2006, most of our growth will be organic by adding new service centers and additional crews within established service centers. We view acquisitions as strategic opportunities and consequentially forecast to see if they might [cent].

Our growth plan to pursue the organic growth area is mainly in MidCon, Texas and the Rockies with additions in current areas where we can generate good returns and avoid negatively impacting our pricing or margins.

In this market we see most acquisitions as pricy and we can have better returns with our organic growth or additions to existing service center plans.

We look to make acquisitions only if it's accretive and a good fit to our growth strategy, we won't buy foolishly.

At this time I would like to offer a special thanks to our employees who work very hard every day to make our company successful, our vendors who assist us in providing services to our customers and our customers whom we value and recognize as our motivation to remain superior.

Bill, I'll now turn it back over to you.

Thank you very much sir.

[OPERATOR INSTRUCTIONS]

The first question comes from the line of Kim Pacanovsky of KeyBanc Capital Markets. Please proceed.

Good afternoon guys.

Hello Kim.

Hello, could you break up your CapEx spending for the fourth quarter and also how much of 2006 CapEx increases are due to equipment pricing increases as opposed to just additional equipment?

As a percentage, the majority of the equipment is going to our technical pumping, as we mentioned earlier. It's probably 90 to 95% and the majority of that is going to stimulation.

We saw some price increases especially on the high-pressure pumps, but a lot of that was due to deposits on equipment for 2006 and expediting some of our 2006 budget.

Okay, well what percent -- if you just look at year-over-year how much higher are you seeing prices in pumping equipment?

The high-pressure pumps are probably up 50 to 60% for that part of it as an overall unit, probably 10 to 15% for those units.

Okay, got it. Okay. And still, huge delays on those pumps?

Yes, they're still long lead-times on those pumps.

Okay. Where there any surprises that you had in the quarter on the performance of any geographic region?

Utah had a really strong up tick and mainly because we got a real large surge of activity prior to some of the closures. MidCon rebounded nicely, but we saw pretty strong utilization for most of our regions.

Okay, and can you --?

Some for the end of the year holiday slow down.

Which I would assume happens every year?

That's correct.

Yes, and could you comment on what sort of level of activity you have with Chesapeake and Appalachia right now?

Chesapeake at this time is still kind of getting established. They're currently using their 2004 early 2005 C&R contracts which were with some of the other competitors in the area.

We've picked up a little secondary work, but not a large concentration at this time.

Okay, and just a general question on the competitive landscape. Obviously your competitors all have good things to say about the business and you're benefiting from their turndowns. But from some of the smaller competitors can you talk about any new equipment that has come on the scene?

We're seeing equipment additions especially in -- for horsepower like in the Barnett shale. Everybody's got that area targeted. We're seeing the Big Three adding some equipment in different areas in the US. They're focused a lot on international. Some of the other smaller guys just -- Western Oklahoma, Arkoma Basin, we're seeing some equipment adds in those areas.

Okay. And could you repeat the number of units that you said you grew to in '05?

Yes, at the end of '05 it was 386 units.

What was the average for the quarter, do you have that number?

I don't have that number Kim, I don't have the number.

No, we don't have that number.

Okay, all right. That's all I had for now, I'll talk to you guys later. Nice quarter.

Thanks.

Thank you very much Ma'am. Ladies and gentlemen your next question comes from the line of [Beau Fratz] of AG Edwards. Please proceed.

Yes, I'll add my congratulations. Hello Dave.

Thanks Beau.

Where do you think you'll be at the end of this year as far as number of units if you compare that 386, do you think you're going to grow another 100 this year?

In rough, in [inaudible] that might be a little bit high. A lot of the units that we're doing in '06 are pointed more towards the Rocky Mountains and the southwest and they have higher price tags with respect to it. I don't know if you have a feel for actual unit counts.

It's probably a little bit under that. I don't think we've --.

Maybe half of that?

Probably a little more than that.

Okay. And as far as your -- Stewart & Stevenson, I understand is one of your major suppliers, do you have any concern about what's going on there?

We think they sold off a part that was non-oilfield related, it was more military related.

Okay.

We asked about that and they said it didn't affect the oilfield part, at this time.

Okay. And then as far as your looking into the second half of the year would you be surprised if you don't implement another price increase?

Our past history has been that we've had one in January and then third quarter, for the last two years. So we will continue to watch the market and look at our associated costs for labor, materials and things like that. But the last two years we've had one in August also.

Yes, and then the 10 to 12 is net, as I heard you?

No, that was actually book.

Oh, is that book, sorry.

Roughly 6%, 5, 6% after discount.

Each increase, Beau.

Yes, of each increase.

Okay, and then as far as your cost structure. You talked about labor a little bit, would you expect any of your G&A and legal to go up in 2006?

Well I think our legal and professional expenses in 2006 will increase. One of the reasons it will increase is implementation of some of the Sarbanes-Oxley certification procedures and things like that.

Additionally, we're doing a lot of things as a public company for the first time, when we're utilizing outside professionals to assist us in that. Or outsourcing might be a better word. I think it will increase, somewhat. I don't want to really give you a number on Sarbanes-Oxley because a lot of my friends will say whatever your number is triple it, because that's really what the number is going to be. But we certainly expect that that number is probably going to be 5 to 600 at a minimum and then its going to depend on exactly the level of outsourcing we're going to be required to do.

Okay. And then when you look at your capital spending Tom, you're at $53 million right now. What I heard was new relative to your plans before was the cementing in Vernal, is there anything else that would account for that increase other than just potentially your -- just growth in your other service centers?

Mainly additional crews and equipment at our current service centers.

How much would they -- just adding cementing into Vernal how much -- what's a rough number for that?

Roughly $3 million.

Yes, 3.5

3.5, okay, and then just a couple of nitpicky ones. It looked like Tom your tax rate was lower in the fourth quarter?

It dropped in the fourth quarter to -- what are we about a combined 39 or something --.

About the 40's?

Yes.

About 40.

We're between 39 and 40. We've got our state rates, composite state rate is going to move it around a little bit on us. That affected that percentage estimate.

Is 42 or 41 still -- where --?

If I were to [if shoot] you a number on it I think you're probably closer to 40 as opposed to --. We're looking in the first quarter of about a 39.7 rate. It's going to depend on where our expansions are and how fast our revenue growth occurs in some different states with some different tax rates and things like that. But 40 to 41 would probably be a pretty good place to be.

Okay, great. Thanks for your time.

You bet.

Thank you very much sir.

[OPERATOR INSTRUCTIONS]

Next question comes from the line of Thiru Ramakrishna from Simmons.

It's Thiru Ramakrishna from Simmons & Company.

Good afternoon.

Dave, wanted to get your sense in terms of your competitors, have -- given the recent correction in nat gas, have you seen any plateauing in their job turn-down rates?

I think at this time we can't say that we're not picking up some extra jobs off what they're turning down. The areas that we're in we're seeing a little seasonal sluggishness, but the busy areas overall utilization is still high. And part of that is due to just our workload versus picking up new work off of them.

Right, that's what I'm trying to get to, are you getting incremental jobs do you think, based on having the capacity or based on price?

Part of it is having capacity. We're still seeing capacity areas where us having the capacity available and it's not every area. But mid-con would probably be an area that sticks out that we're probably picking up extra capacity. [Bozier] has been a strong performer.

On an aggregate level how much would you say you were behind your competitors in terms of pricing, roughly 5 to 10%?

Again, the new service centers probably a little more than that. The established service centers we're not that far off, probably 5%.

Great, last question. Looking through your Form 10-K I'm kind of surprised not to see a range on there in terms of the top-five customers given their Appalachian activity.

They just missed it.

Yes, it's just we've had some new players that showed up this year that have been very strong performers for some of the other regions.

In terms of the [Uwinta] how does [gas fit] in there?

We haven't worked for them at this time.

Great, that's all I have for now.

Thanks.

Thank you very much sir.

[OPERATOR INSTRUCTIONS]

At this time we have nobody else in the question queue. I would like to give it back to Dave for any final comments he may have.

We would like to just thank you for being on the call today, again had an excellent quarter and an excellent year. So we look forward to talking to you next quarter. Thanks.

Thank you very much sir and thank you ladies and gentlemen for your participation in today's conference call. This concludes your presentation and you may now disconnect. Have a good day.