Nabors Industries Ltd (NBR) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Nabors Industries second quarter 2010 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the call will be open for questions. (Operator Instructions) This conference is being recorded today, Wednesday, July 28, of 2010. I'd now like to turn the conference over to Mr. Denny Smith, Director of Corporate Development. Please go ahead, sir.

Good morning, everyone, and thank you for joining us for our second quarter earnings conference call. The process today will be essentially the same as we always follow, Gene Isenberg, our Chairman and CEO will give about 20 to 30 minutes of commentary on the results of the quarter and the outlook as we see it today. Then, we'll follow with a Q&A session and try and wrap up right at an hour time limit. In the--with us today besides Gene is Tony Petrello our President and Operating Officer, Clark Wood, our Principal Accounting Officer, and most of the heads of our various business units.

How about general counsel?

And our general counsel, Laura, the best looking of the group, by the way. Sorry. I have to forget somebody.

Just want to remind everybody that a lot of what we're talking about is the outlook as we see it today, subject to change. As such, it's subject to the forward-looking statements with the Securities and Exchange Commission act of '33. With that, I'll hand is over to Gene, and to get started

Thanks again.

Again, welcome to our conference call for the second quarter. I want to thank everybody for participating.

As usual, we have posted to the Nabors' website a series of slides that contain details about the performance of the various segments of the Company. Please refer to these as we proceed. Also, I think Denny and the business units put together a pretty comprehensive earnings release, and I suggest you refer to that, too. I'm eliminating my cell phone.

Overall, operating income for the quarter was $125 million, which is more or less in line with consensus. Earnings per share of $0.19 was essentially in line with consensus, which $0.19 includes an approximate $0.04 add-back in items which we feel are appropriately excluded to get a more meaningful non-GAAP product. And I'll go into that a little bit later.

If I have to summarize my overall feeling for this quarter, I feel that we were involved in what's pretty close to a perfect storm for our business. The confluence of events that all had significant and negative impacts on our business. And I was, frankly, pleasantly surprised at the resulting quarter because it was better than I thought it would have been given the external factors. And I think the outlook for the year is better than I would have thought it was, again, given the external factors that constitute the perfect storm. Let me go through those very briefly.

We had a pretty low-price for natural gas, still it's a little higher but still pretty low. And this affected our growing activities in Canada and the lower 48. And even more so, the valuation of the company since we're perceived to be a land gas-centric drilling company. It obviously also affected the perception of the value of our E&P holdings, which I'll also talk about a little later. Also, the overall worldwide economy is not as robust as it could be and probably will be. And that influenced the overall demand for hydrocarbons which didn't effect us--which didn't help us, which hurt us.

Also, specifically to our business, which also affected others, there was a confusion in funding for PEMEX in Mexico, which net-net resulted in lack of funding for drilling, which funding has to be--it's internal to Mexico. It's between the government and PEMEX and that sort of thing. But that has to be resolved in the near future, and some say that it's sort of starting to be resolved. But that has had a major negative impact on our operating income, obviously from international, and I'll get into that specific later.

We've also had a pretty meaningful dropoff in oil-directed drilling in Saudi Arabia, which also had probably almost an equally negative impact last year to this year on international's operation. And we don't see short-term growth in natural gas as they're still cutting back oil drilling, and we won't see it increase until they do. And this isn't yet offset by natural gas drilling.

And finally, the spill in the Gulf. Which surprisingly, since we're "primarily a land-drilling operation," has set a negative impact on our offshore operations which-- Pardon me? Which will have a surprising negative impact on our Nabors offshore operation, which I'll get into when we talk about it.

Let me talk briefly again about the non-GAAP EPS, and talk about the factors that we think are relevant in adjusting from GAAP to non-GAAP. Let me also emphasize that this is just our view, and pretty obviously each and every investor can adjust these numbers or not adjust them as--as they feel appropriate. The things that we included in the adjustment refer us to $5 million--$5.1 million foreign exchange loss, which we don't think is continuing and not appropriate to our continuing operation reflection.

The next item is a loss of $3.6 million. This is sort of a--hard to understand accounting phenomenon where basically we have debt that's due in May 2011, and we buy the debt back at yields which are no lower than 2% to 2.5% against cash which we're saving conservatively, holding conservatively at under 0.2% interest. So, it's a deal we would do all day long since buying this is just as good as treasuries for us because we're certain we're going to pay it off. Nevertheless, the accounting thing has this valued at something well below the 2.5% yield. In other words, carrying it on the books at--at a real low number, which doesn't reflect the market. And then when we buy it at a--a low market rate with a higher than market yield, it's still below the carrying value and, therefore, we have to book for lost which is not terribly logical.

Next we incurred a $2.3 million loss in prior years, which were not appropriate to this period, and we're adjusting for that. That's tax adjustment. That one's the [inaudible] tax--we shouldn't have that problem on an ongoing basis. We should get it right the first time. But it's $2.3 million are not appropriate for this particular quarter. And finally we have an elimination of $1.1 million in operating income, rig income direct from working for our oil and gas joint venture. Specifically--and this number is going to be bigger in this quarter.

If we make $2 million NFR, let's say, the way the accounting works, half of that sale, since we don't--50% of NFR is sales to ourselves and half should be eliminated from profit, GAAP profit reporting, and we take it in a reduction in depreciation depletion over a longer period of time. But for every single practical purpose we get the income. We get everything except the accounting, and we're adjusting for that. So that's--that's the story there.

Let me turn quickly to the business units. I think the NDUSA writeup in the quarterly, in the release that you already have is pretty comprehensive. I think just let me briefly summarize. The rig count today is 179. We figure the year we're looking to average around 174. We're projecting next year a modest increase over that, like 192. And, in spite of the fact that we are projecting, that will end this year with a recount of around 190. So, that's a modest increase this year and even more modest increase for next year. But hopefully time will tell that we may be able to improve that.

Overall, as I've said before, our projections for this year have been ratcheting up the internal ones anyway. We started at a pretty low number. Maybe a $130 million projection of operating income for this year. And every time we looked at it, frankly it's gotten better. So we're now projecting $250 million operating income for this year. And a higher number for next year. Where it's conceivable, we will get the number we had into '09.

I think the other important thing to note here is that we're getting new-build operations. Last time, we told you we had four new builds for the Bakken, and since then we've got five new builds, PACE AC. We have three functional equivalent of new builds in terms of economics, with probably even higher return. And those are really upgraded SCI rigs. And I would be surprised if we don't have at least five incremental additional new builds to announce by next quarter. So, the rigs are doing really well. And the proof in the pudding is in customer acceptance.

Obviously, we're really dominant in the shale plays, which is important. And we went from, I don't know, probably up 30%, 40% in our rigs working in the shales, the liquid-prone shales since last quarter.

Let me switch to NDIL. We previously forecast our international operations rebounded from the drops we experienced last quarter. Income of $65 million, operating income of $65 million, which represents a nice increase over the $52 million or $53 million operating income in the first quarter. Rig count has increased, margins essentially the same. Improving activity with multiple startups in Colombian, Kazakhstan.

To get to the nut-cutting here, the real drop in income was in Mexico, previously described the financial conditions I think operationally, and in terms of the quality of rigs, kind of rigs that are needed for PEMEX we're still in good shape. And we're not disproportionally adversely impacted except that it's an important market for us. So, in plain, simple terms, we went down probably $40 million, $45 million in operating income last year to this year because of the funding. They'll get cleared up. To me, it isn't crystal clear how quickly we'll go back to clear even when it is funded, but we will definitely go up.

Similarly, in Saudi, we almost are at a comparable loss, which explains some excuses, but it clearly explains the drop in international. We also there had probably $40 million or $50 million solid drop in operating income year to year. And, we probably have 11 stacked rigs there now. We had hoped and are still hoping [inaudible] that to make up for it, but that's happened a little slower. So, basically that explains why we're down, and it's--it's an industry thing. It's hits us probably a little bit more important because Saudi and Mexico were more important to us than the average industry. And I think we will over a longer period get back there, but it's not going to be a big recovery.

Nabors Well Servicing, we're doing pretty well there. I think the most significant factor there is the high crude price is finally manifesting itself in demand for work over services, which is also, therefore, manifesting itself in pricing. So, I think that there have been a number of prices instituted by us and others, and of that, they're continuing to come into play. A lot of these things require 30-day notices, and a lot of price increases are tentative depending on what other guys do. But, basically there's a strong pricing trend underlying the activity that's attributable to the relatively high crude price, in some cases we're leading price increases, in other cases we're following. But that's the most positive sign. So, basically what that means is that we're going to have probably a strong second half in 2010, but I think in 2011 the stage is set for an even more robust recovery and work over.

Nabors offshore, in a sense, will probably do something--we did about $8 million this quarter. Even this quarter, however, was operating income, even this quarter was, in fact, $2 million or $3 million impacted by the Gulf spill. And the Gulf spill manifests itself two ways--really one way. One, we have a moratorium, and the other we have a delay in getting permits to drill. And whether it's a moratorium or otherwise, when there are no permits to drill, they're not going to drill. And we have rigs--we have six rigs on platforms with spars that are adversely impacted. And some of the jack-ups even aren't working as they might have with permits.

So, basically that--the worst case scenario I think is down $25 million for the year compared to what it would have been without the spill. And I think there are hopefully signs that this might be mitigated before the end of the year. But by the end of the year, we'll do a course of $10 million instead of $35 million this year. And next year I think we'll do $35 million plus.

We still have a bunch of things that we've referred to before. We won spar platform work. That will manifest itself in late 2011. I'll talk a little bit more about that later.

Nabors Alaska, I guess it's a declining field. We have not been successful in new builds there for BP. And BP is also--BP right at the moment controls the vast majority of drilling that the operator, for most of the drilling. And they're cutting back, and Nabors was not super successful with BP. But we do have probably the best tool for the future on the slope and that's our coil tubing unit. And this is something--in other words, this year is down from last year. Next year probably will be down, as well, not probably--will be down, as well.

We still have decent returns on capital employed. But beyond that, I think sometime next year, we'll get one or two of these coil tubing units, which are not only good for what they're doing now, but they're super good for the shallow high viscosity drilling. It's going to be--go on forever on the slope, longer than the pre-price stage even. Although where it's at now--but at a good level when they figure out how to optimize the extraction of those. Anyway, I think the outlook is short-term now, but long term I think considering it's such a fine field, we're in relatively good shape.

Can't seem to turn this page. Canada, again, this unit has a lousy seasonal quarter, and we had a loss. But the loss was less than the operating--obviously less than the operating platform in the first quarter, but less--a smaller loss than we expected. So, things are doing better than we expected. We'll do better this year but this is a unit that had made as much as $180 million operating income, and I think we have a shot at that. But we won't have a shot of that until gas prices are $6-ish or better. [inaudible] still remains a super bright spot for us in Canada.

Oil and gas, I think the major interest in oil and gas, is what our plans are to monetize, i.e. convert these assets that hasn't been doing much good on a stock price basis. Cash, and I guess the situation is we're three months closer than we were last quarter to, number one, going public with NFR. I'll repeat that story briefly. NFR, a joint venture, 50/50 with us and First Reserve. We have roughly a little over $0.5 million (sic - see below) invested in it. We expect to go public in less than three quarters, sometime in the first or second--late first quarter next year, second quarter next year. Although if the situation permits, we're prepared to pull the trigger earlier. We think right now we have three or four confident investment banks showing us that unless the world goes to hell in a handbasket, we'll have the equity north of $2 billion, which means $1 billion for us, and we invested about $0.5 billion. The GAAP SEC dictated it's impairments make our holdings around $115 million, $120 million. So, that's essentially where it was before, but things are looking better. Our well results are really good there, which is going to help the IPO.

The second area which is likely the first area to actually generate cash is Colombia, where we have our own stuff. The 100% Nabors ram saw and stuff and we have E&P--we have a 50/50 joint venture with First Reserve. We're going to market it together, about 7,000 barrels a day of oil, and a lot of pizzazz--universal interest in that. And I still expect to sell it before the end of the year, but we now have completed our drilling, which we had dry season drilling last quarter. And we knew what we got and what we can sell. In other words, we've increased the reserves. We've got actually more producibility for our production to sell, and we have more sizzle on discoveries.

I think the final area is Canada. We're--essentially what's happened since last time is we've reviewed, interviewed, reviewed a number of bankers, and we're close to finalizing a deal with the bank, and we obviously want a bank that knows the area really well, and has really good connections with, we think, the logical buyer, which is the far east buyer, with the Liquefied natural gas interest and connections. I think the other point on this is we are considering now--this is purely accounting, but it would help present--interpret our stuff. Some of our data, some of our E&P operations can be, at this point, legitimately considered discontinued operations and, therefore, separated. Because we--the one that is going to be continuing 100%, which is NFR. They're doing really well. It's hidden and obscured by our investments in the other ones, which we have--they're really investments. Like Seismic is really an investment--[inaudible - accounting] they have to write it off.

Our other segments are doing really well, and I'd say Canrig in particular is doing well technology. That's manifesting itself in not only profit for Canrig, and sales of top driers and rocket and stuff like that, but also in enhancing the overall severability of Nabors' rigs.

In summary, we talked briefly about our financing. Our financing in pretty good shape. We have essentially $900 million in cash and equivalent. All of that is not available. Some of it--a lot of it's tied up. We expect to get some more, but basically we have enough in the way of cash and earnings over and above relative to CAPEX that we--we're in pretty decent shape to--if we really wanted to squeeze CapEx, we could come close to paying off the whole $1.4 million (sic - see press release)remaining in our debt due in May of 2011. Basically, we've taken that debt down from $2.75 million, which it was, to $1.4 million. And I think net-net over the last year and a half, we've borrowed the $1.5 million--[$1.125] million in January of '09 to make sure we didn't have a jam. And we paid our debt--we've paid off net $1.125 million, plus another approximately $500 million of debt.

Let me say I'm bullish. Even--I was always reasonably bullish long term, but now I'm bullish intermediate term, or maybe even shorter. Let me go through just a few of the points that lead to that. I think we have the best infrastructure internationally than anybody has. You look at it in terms of leading driller in Saudi, and biggest private position in Algeria, biggest driller in Yemen, etc. And when we get together where we want to get by introducing and integrating, say, [inaudible] existing operations into that logging and if we are ultimately successful in broadening our scope, I think intermediate term that will be a big plus.

USA base rigs are doing really well. Two things I look at is; one, proof of the pudding in the orders, and we're doing super well on new build orders; and the rest of it is what the most discriminating buyers are doing; 100% of Shell, BP, the last three or four years, we've had essentially 100% of the incremental work. Overall, we had probably 80% of their work. We did on Exxon, we did probably the most sensitive well drilled in the last year or so, which was Point Thompson, in Alaska. And that was a monster, I would say, success. And we're doing the Papua, New Guinea, well for them, which they seem really happy about it even though we haven't delivered the rig yet or spud or anything. But I think that's important. I think that will manifest itself with increased utilization in the States where it hadn't been. I think we broke H&P's monopoly on platform spar rigs with a major consumer, which is, I think we talked about, [Delmarsby], where we clearly have the best technology. And I hope not the very best price, but we had the best technology. So, in general, I think, if I look at what is fundamental, the important for long term, I have a basis for optimism, and that covers what I had prepared to say. Thank you.

Lisa, we're ready to start the question and answer session.

We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from the line of Geoff Kieburtz with Weeden and Company. Please go ahead.

Gene, when you lay out the projection of the lower 48 rig count, if that were to prove to be accurate, how would you expect margins to progress?

Basically, we were down whatever we were, $400, $500, $600 per day, domestically. I don't like to make excuses. But the absolute fact is that down included about $1,000 a day of lump sum payments, and payments for rigs that were paid for but not operating in the first quarter. If you adjust for that, we were up a little bit. And frankly, I expect to be up this quarter. So, I think we're not going to get back to the $1,200, $1,300, $1,400 a day margins, but I do see a substantial increase. It's substantial $300, $400 a day, times the bigger number of rigs, adds up to substantial. I see that kind of an increase even for next year.

Okay.

Lower 48.

So, a $300 to $400 a day higher margins in 2011 than you're averaging in 2010?

Yes.

Okay.

My expectations are not 100% realized, though.

I understand that. Just wanted to get what those expectations were.

Right.

And on the Gulf of Mexico, when you say closer to $10 million than to the original $35 million for the full year, with $15 million in hand, that--are you looking for a second half loss on the order--

No, we don't have $15 million in hand. We have $7 million or $8 million in hand unless there's something different on the sheet. $8 million, yes. It was $8 million.

Okay. But you had $8 million in the second quarter. You had $7 million in the first quarter, right?

$7 million first quarter, $8 million second quarter, yes.

Yes, right.

So, are you looking for around a $5 million loss in the second half?

I hadn't looked at it that way. Probably.

Okay. All right. And then finally, on the--you talk about the monetization of the oil and gas assets. I understand motivation is to try to unlock the value that's--that you don't believe is being reflected in the stock price. But what would your priorities be for use of proceeds? Because it does sound like you're going to be pretty optimistic about being able to get some substantial deals done within the next 12 months.

Yes. I think that's right. And I think my ideal is to make a good acquisition, but otherwise to retire. We have--what do we have? $250 million plus the converts due in the next two, three years?

$265 million--

$265 million. So, we have $1.4 million plus $265 million to pay off in the next couple of years. So, that would be a good use for over $1.5 billion half if nothing better comes up.

Okay. That's it for me. Thank you.

Thank you.

Our next question comes from the line of Mike Urban. Please go ahead.

Thanks, good morning.

Good morning.

To go into the international outlook a bit,you gave us a good bit of detail about what's happened in Mexico and Saudi, which of course, as you said, are industry issues. Is that spilling over at all into other markets as some of the operators there look at the availability of rigs and, for instance, is that putting downward pressure on pricing or project, economics from the drillers' standpoint, as you look at other international opportunities?

I'd say yes. I'd say basically, specifically everybody and his sister has been wanting to get into Saudi for an awful long time. And I think the only thing that's enabled us to preserve the degree of position we have, and the degree of prices we have, is performance. But they're now coming to us and saying, "you've got to cross every 't' and dot every 'i' because you're getting our performance premiums. Prove it to us." But everybody wants to go there. And then Iraq looks so promising longer term, even intermediate term, that everybody and their sister wants to go there, too. And as I said last time, and I don't have anything more to say this time, time will tell. If the advantages we have in rigs--hopefully these idle rigs in Saudi, which Saudi had been, for a long time, the cold standard driller internationally. If we get what we think we get, we're going to get in some of the major awards over the next little bit, we'll be in a good position longer term. But we're not going to even there, we're not going to get rich short term because, you know, everybody and his sister and brother wants to go there. So, the answer is yes, that is affecting us.

Makes sense. The shifting over to the monetization of the EPS, at some particular NFR. Sounds like you're on a pretty good track to go forward there. How much--I don't know if you can put a number on this. How much would the gas price have to fall from here, or is there a level of economics where you don't think you could get that done or you might have to be--if had that happened to play out. Or conversely is there some assumption that gas prices firm up here between now and the early part of next year when you hope to--

No no. If they're big-time firms compared to the--I think basically by the time we sell this, we're going to be selling it in 2011-2012 results, which means two fundamental things. We-- we have to have well results that, frankly, I think are and will be demonstratively better than other folks in the same area. And our futures curve at that point looks closer to six than five.

Okay. Thanks. That's all from me. Thank you.

Our next question comes from the line of Jim Crandell with Barclays Capital. Go ahead.

Good morning. Haliburton is saying they expect to win the Majnoon contract from Shell in Iraq with you as their partner. Do you feel as confident as they are about winning that one?

One time I figured, I hope they're right.

You expect that to be announced very soon?

Relatively soon. I don't know what that means, but in any event, nothing will happen until next year. But yes.

How many rigs--

Getting better informed then, I guess. Yes, sir, how many rigs --

Gene, how many rigs would you put to work initially at Majnoon?

Probably if we win it, probably three drilling rigs, and probably our partner would put two or three drilling rigs. Our drilling rigs and our partner would put in direct drilling company, would put in at least one big workover rig.

Would you expect over the balance this year to be awarded--not actually start drilling, but to be awarded other contracts in Iraq, perhaps in conjunction with Haliburton or another oil service company?

We could--we'd probably work with everybody except Weatherford. But Siggi thinks so, and I hope so.

Siggi doesn't want to commit himself too strongly, though.

Okay. And looking out and just last question on Iraq. Looking out a couple years, Siggi or Gene, what do you think a ballpark estimate is in terms of the rigs that Nabors could put to work in Iraq?

Quite a few.

20 to 30?

Yes. Conceivable. Everybody's discounting big time their going up to 12 million barrels a day. But even if they go up five or six, three or four million barrels a day, that takes an awful lot rigs. And in addition to rigs that we, unfortunately from one viewpoint fortunately from another viewpoint, have available right nearby next door, there is finally coming up a real potential serious use for our millennium workover rigs, which are these PLC rigs that we invested for in the States and never got a nickel premium for. And they might be worth the difference in investment. Sorry. In the Middle East including Iraq.

So that's a good point, Gene, because I think a lot of the contracts that are coming due, like Zubar, will require workover as well as drilling rigs--

Precisely.

Might make you very well positioned there.

Yes.

Okay. And second question regards to the US. For your new rig construction signings, Gene, how would you say, a) your day rates and, b) the longevity of the contracts compares with that which you were able to obtain last cycle?

Duration is similar, I'd say. More likely three years than five years, although we have a bunch of five years. The first four were five years. I would say the day rates are not as robust, particularly margins are not as robust. The investment cost proof will be in the pudding as we do it. But they should be coming down, too. We're frankly shooting to see if we can't get a 15% reduction in the cost of building an identical rig to what we built before. So, overall, whatever else is true, the bottom line is we do these from now til it's doomsday. The prices we're getting and the investments I think it's going to cost.

And how many related to the just thousands of dollars per day or percentages would day rates for new construction be down versus the life cycle?

Oh, I think the leading edge rates could be down--the leading edge rates could be down $2,000, $3,000, $4,000 from what it was before.

Okay. And Gene, I don't know if you can relate your outlook for the US to gas prices, but I think--not to put words in your mouth, but you might be surprised over how low gas prices would be versus where you thought they might be. But then given that, be pleasantly surprised over the numbers of rigs you actually have drilling gas-related prospects. If this sort of environment persisted, let's just say for the next 12 months with gas prices and the futures curve about where it is, would you expect given that scenario, a) your overall number of rigs to continue to rise, and, two, your number of rigs drilling gas-related prospects to continue to rise?

I think gas related has to be modified. But gas, purely dry gas or gas with liquid contents, in the latter seems to me to be going up pretty good. The former, for example, in the Marcellus, a lot of guys are still--and that's pure gas-- a lot of guys are drilling to secure, maintain, whatever, lease it. So, there's going to be a significant amount of drilling like that. And there will be some--and that will tend to be straight bergal holds, to hold leases. Eventually they'll be big-time correctional drilling with, 5,000, 4,500-foot horizontal sections with eight to 16--the same sort of story you've seen anywhere else. And they'll be doing some of that to see what they got. Relatively low gas prices. So, I don't know what the answer's going to be. Obviously I'll give you a real scoop. We're better off with $6 gas prices than $5.

Okay. Thank you, Gene.

Our next question comes from the line of Kurt Hallead with RBC Capital Markets. Go ahead.

Good morning. Gene, curious as to your take here, you know, with the natural gas supply/demand overhang, the increase in this liquids and NGL-related drilling. What's your perspective as to when we may hit that crossover point where the NGL economics no longer make sense?

Imports you mean?

No, no natural gas liquids , you know, for example,

Okay, not Lng.

Correct.

I don't know. I don't know. As long as we have X% at $80, which is divided by six, I don't know, 14 million BTUs, versus gas at $4.50. You don't need--you don't need a big big percentage of liquids to make it juicy. If we're saying $6 equivalent for boe of gas is good, you're going to get $6 equivalent, infinitely more easier--more easy with the mix of liquids and gas now. So, I've not thought about it in those terms. But that's clearly what our operators are thinking about.

Okay. And then now that Exxon has closed its deal with XTO, are you getting any indications as to what the plans will be for incremental drilling from that Exxon/XTO combined entity?

We're going to be doing more drilling for Exxon. We've done really well on their most sensitive drilling project. I think I even said last time the truth, namely, they gave us credit in the Point Thompson stuff for our work on the project. They seem to be really happy with Papua, New Guinea. I think net-net--and I used to work for that company, if XTO is doing pretty good, they won't screw with it too much.

Okay. And I was also wondering, coming back to your comment about the Saudis. So, you have the potential project that Jim just talked about. Is--is that already factored into your outlook for your international business going into 2011, or would that be something that is incremental?

That would be incremental. That was for Iraq.

Sorry. And then from the Saudi standpoint, your viewpoint that they won't pick up any drilling any time soon, what have you factored in for 2011, out of Saudi?

I think a modest--quite a modest decline.

Okay. Great. Thanks, Gene. Appreciate it.

Our next question comes from the line of Marshall Adkins with Raymond James. Go ahead.

Good morning. A couple quick ones here. Just, first to clarify, Gene, you had mentioned on the E&P stuff that some really smart bankers had suggested it's probably worth over $2 billion. Was that just for the NFR, or is that--did that include Colombia, Canada, and the other ones?

NFR, $2 billion for 100% of NFR, which we have half.

And then Colombia and Canada would be on top of that, is that right?

Yes, sir. Yes, sir.

So--

Hopefully a big heap on top.

So, just best guess given what's--where gas prices have gone, and I know obviously the market will determine the price you get, but best guess, what do you think that's all in?

Yes. Colombia's 100% oil.

Right. But --

And British Columbia is a strange thing because what's happened in sales so far, and what is--what's been cooking, some of it's happened, some of it hasn't happened, is the buyers are going to be probably from the far east, probably with the--not probably, almost certainly, with real long-term views and with really low cost of capital one way or another, and with the interests on the whole supply chain, however you want to put it, of liquefied natural gas. In other words, some electrical consumer, electrical company consumer in Japan or Korea, they now have an interest in owning a chunk of the whole thing, from the resource to the liquefaction to the transportation. And that represents an opportunity for the guys who promote or, for example, the traders who are generally involved in putting this kind of thing together--like the Matsuis, Mitsubishis, Maribetis. Putting things like this together. They don't go broke putting it together like most bankers don't. And it's a kind of demand that we don't have here. I think, and I think most players think, that that's the logical market for stuff in British Columbia. So it's a little difficult--it isn't like, say, what's EOG going to pay for this compared to what they have now. That isn't the outlook for us, or for EOG for that matter because EOG is investing in the LNG plan already. I don't know if that's the answer, though.

Right. So, you know, just to --

So the value for that even though it's gas is--it's hard to quantify. It could be really big. Basically, what I'm saying is we have a pretty fair idea of what LNG is going to bring. We know it's likely that we can sell pretty well Colombia because it's 100% crude, and we know for British Columbia there may be half a dozen really good buyers, there might be 50 or 60 good buyers for the Colombia gas. Almost everybody in Canada is interested in it, and I think that will sell pretty well. And the biggest unknown--first priority in getting something done really is British Columbia.

So, combined, those two worth $1 billion?

Hope so.

Okay. Shift gears a second question--Well Servicing. You mentioned pricing increases getting up to 10%, at least you're trying to push that through. Are the prices sticking, and what regions seem to be doing better than others?

Yes. We've moved that for professional pricing improvement in California operations, and had some also in the Rockies. But we continue to look at those areas as opportunities to move prices.

So, the 10% move you are pushing in those areas is actually sticking. It's holding, though.

Yes.

Okay. Last one from me. On these new builds, Gene, can you give me a sense of the delivery times and the new build cost trends from, say, two, three years ago.

Yes. The delivery schedules are anywhere from, of course, taking into account the original four, which will be delivered this year, in this calendar year. And then the--looking at the three major refurbs will be delivered in this calendar year. And then the rest are basically through the first and second quarter of next year.

So, you order one today, nine-month delivery?

I'd say nine to 12 months max.

And the cost compared to a couple years ago?

You heard Gene's comment. It's going to--a percentage reduction in the --

But they're different -- there are different kinds now.

Some are the 1,500, big moving systems in North Dakota to just around the area of the 48 have different cost components.

I would say if you're talking the standard M rig, that should come down 10% or 15% from all in ready to go of 16 sort of before --

Right. Thank you.

Our next question comes from the line of Jeff Tillery for Pickering, go ahead.

Good morning. Just a quick question on international with average rig count up 10 rigs quarter on quarter. Which countries drove that?

I didn't hear the --

Where did the 10 increase quarter to quarter come from? Which countries?

It started up -- we started in Mexico. We picked up some extra rigs in Saudi. And--

Colombia.

And Colombia. Colombia. That's the biggest part, Colombia.

What about Kazakhstan, yes?

Kazakhstan started up one rig, as well, yes.

And Colombia was like half a dozen --

Six rigs, we started off. And that was a big -- we started off last quarter.

I mean, the startups are good, and it's better. But it's still a big hickey versus last year in Saudi.

And as you look out over the next 12 to 18 months, you talked about Mexico on the negative side, impacting you guys as well as Saudi, Iraq on the positive side. Other than those two or three countries, where are you most optimistic or most cautious?

We were always cautious, but I think these are the countries where I still see some of the upsides. In Mexico, we're going to put more rigs to work. Obviously Iraq is on the horizon. And I think also in Saudi eventually we'll see some--see some of the--see some of the--also have it working, and these rigs all came down. They're already looking at strategy. And some of these people will come back, as well.

But it's not all -- for example, we have like three jack-ups in Saudi. The biggest one is the state-of-the-art, on a three-year contract, four-year contract.

Well done, four years.

We probably have a year and a half left on that. And, if that had to be repriced at today's market, it would probably be $50,000 a day, or less. So, didn't hear them say for sure. But, you know, it's--the market is fairly -- everybody knows how competitive jack-ups are now. And we're telling you that everybody wants to go into Saudi and Iraq, and there seem to be rigs to do that. So, the outlook is--is positive, but there are headwinds even in the 2011-2012. Well, I think in Mexico to put it in perspective, we went from $60 million-something operating income for this year, we're projecting $16 million, or something. And while it will get better, we're not going to go back to $60 million something in 2011. If we do it in 2012, I'll be happy. But that also includes the jackup that isn't going to renew at a--from the $60 million something. Not anything like today's prices.

My second question just on the Well Service business with--presumably some of the rig refurb costs behind you, pricing improvement in the third quarter, do operating margins get to double digit percentage in the third quarter, do you think?

I don't know if we look at it that way, but all I can tell you is looking at--things you mentioned plus the continued impetus of high crude prices and the deferred [inaudible] spending by these guys, we're looking for an acceleration in bottom line, particularly for next year.

Okay. And then my last question, Q2 CapEx, and then what does the full-year CapEx look like?

I don't know. We're going over that pretty carefully now. And for the Board meeting in the next couple of days. We have--let me put it this way--we're tightening down on CapEx generally. But we always, always have CapEx for good projects. And we have--we have enough borrowing power, so that even though there's not one in hand, we could do a fairly good-sized acquisition between the cash we have and the readily available market access we have.

Thank you very much.

Lisa, I think we're getting close to our time limit. Why don't we just take one more question, please.

Yes, sir. Our last question comes from the line of Arun Jayaram with Credit Suisse. Go ahead.

Good morning. Gene, wanted to comment, or see if you could comment, the term contract exposure in 2010 increased by a lot, by about 25% or so. I was just wondering if you could comment on some of the commercial terms you're seeing today for new builds and upgraded SCRs versus at the peak of the cycle in 2008.

Yes. We're, again, as we mentioned earlier, the--we're beginning to see some of the high-end numbers, the 25,000, 26,000. We're beginning to see some of that in the most recent new build wars. At the very peak of the market it was anywhere from 26,000 to 28,000. Some of the earlier contracts we've done have been as Gene mentioned 2,000 to 3,000 less than that. So, we're beginning to see the new build market in terms of conditions of contracts, take pay obligations, approximately new builds in 2008 timeframe. But you won't see that until next year. We'll see the contracts as we execute this year. But you won't see the results of that until next year. But we are seeing a pretty heavy activity in the new build opportunities.

That's good. Joe--or in the press release you guys mentioned that day rates rose approximately $1,100 per day with a pretty significant gap, it looks like, from the PACE rigs and NCR rigs versus conventional rigs. Can you help us quantify perhaps where that gap is in terms of day rates between those rig classes?

Well, again, we--the new builds, and then the rollover contracts, we had--I forget the exact number of rollovers we had this past quarter. I think it was--let me see. It was a fairly significant percentage. We had a 14% increase, 15% in the rollover on the--in the contracts. Those which were legacy new builds, I guess you would say, plus the legacy rigs. So, we're seeing, again--I'm driving where I can. We're increasing the PACE rigs relative to terms, and pushing the conventional rigs up behind those, especially rigs that are outfitted with new technology, equipment we have, i.e. the k-box from Canrig, the locking system, etc. allow us to perform at a very high level on the production basis for our clients with those rigs. So, I don't see a tremendous amount of difference in base structure.

What would be the lowest margin you'd take on your older category rigs? The lowest you would take anyway, 5,000 a day probably?

Some in west Texas are --

4,000, 3,500?

Lower, probably 3,500.

So the worst case is 3,500. Some of the mechanical rigs are getting as close to the new builds.

Absolutely. Absolutely.

So I would say it's lower. I would say the trends are that as we use up the good rigs, that's kind of pulling up the prices on the lousy rigs. But from the worst rig to the best rig, those are pretty substantial differentials.

Okay. That's all I got. Thank you.

Lisa, I think that will wind up the call now. I just wanted to say that if anybody had any further questions, and didn't get to ask them, just give us a call or send us an email.

Ladies and gentlemen, this concludes the Nabors Industries 2010 earnings conference call. Thanks for your participation. You may now disconnect.