Nabors Industries Ltd (NBR) 2010 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for joining us today on the Nabors conference call. As usual, we'll limit the call to about an hour. Gene will give 20, 30 minutes of remarks about the results of the quarter and the outlook as we see it. And then we'll wind up with 30 minutes or so of Q and A.

With us, as usual, besides Gene and myself today is Tony Petrello, our President and Chief Operating Officer; Laura Doerre, our general counsel; Clark Wood, our Chief Accounting Officer; all of our unit presidents, including the most newest one with Dave Wallace, with the exception of Siggi. He's figured it'd be safer in Iraq today than to sit across the table from Gene. I'm only, joking, so --. He is in the Middle East today.

Just want to remind everybody quickly that since we're going to be talking about the outlook that is considered forward-looking statements and is subject to change, but we'll try and give you the best guess we have. And please refer to our risk factors and our various filings for the full download of possible things that can go wrong. And with that, I will pass it over to Gene.

Thanks, Denny. Again, welcome everybody to the third quarter conference -- earnings conference call. Again, I want to thank you 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. I'll try to be -- as I usually try to be -- a little shorter than normal and hit the highlights and leave room for questioning thereafter.

Again, it was a noisy quarter. I think the clear bottom line, however, is that because of our solid operational performances in our North American businesses, we had $164 million of operating income in the quarter overall and $0.29 in earnings per share exclusive of items, and I'll spend a few minutes on the items. These are changes from GAAP results and as usual, you folks are welcome to and usually do make your own adjustments to what we think is on adjustment.

Firstly, our Canadian and Colombian ENT assets are not only on sale but I'll discuss later how that's proceeding. And so we -- DWC and ourselves decided to classify those as discontinued operations, and the impact of that is that they were not discontinued operations of the pro forma -- the adjusted earnings would have been $0.29 -- would have been $0.27, excuse me, instead of the $0.29, so that's a $0.02 impact.

In addition, here are some of the other things pretax. $37 million breakdown of holdings in HH, our Chinese rig manufacturer, even though we have a sizeable unrealized gain in that. We have expensed $7 million pretax costs related to the acquisition of Superior Well Services, Inc.

And finally, we have a number of pretax noncash asset impairments, which added up to $0.33 per share after taxes. The pretax numbers are $54 million in ENT investments which is unlikely to be recovered given the forward [inaudible] $45 million in largely related to the spill and the impact of the spill on near term and certainty of utilization in some of those. Nabors Offshore have been. And another $24 million pretax including North American, drilling, US well-servicing, and Canadian drilling and I'll workover stuff -- a whole bunch of stuff that, because of the low gas price and relatively low impact, [inaudible].

An important development in the quarter as the acquisition of Superior for an enterprise value of approximately $900 million and essentially an all-cash transaction which we were able to close in pretty record time. We funded this transaction through the placement of the $700 million debt offering with about a 5% yield and cash on hand. Superior is a company with excellent equipment and great technical expertise, but they have recently been constrained by a lack of capital per growth, and Nabors is ready, willing, and able to commit the capital required to achieve Superior's potential.

Another notable achievement in the quarter was the securing of 11 new long-term contracts for new builder rigs, in our lower 48 drilling unit. The largest percentage of these will go to [inaudible], where we are the market leaders, two more will go to the Marcellus, where we have some catching up to do but we expect to have a dozen rigs operating there by the end of next year.

Before I turn to the units, I note that we're seeing what has become an industry trend. That being that international operations continued to be weaker than expected, while US results are exceeding expectations. I should also obviously note the obvious, namely, that our domestic results were augmented by relatively strong contributions from well-services fracking operations even though that only reflected 20 days of operations. These 20 days yielded $12 million in operating income, which implied an annual rate of earnings of $220 million, which I think is a reasonable standard to hold us to, even though there are risks. There are risks in the breakdown, there are rigs on coming fracking equipment and, in particular, there are fourth quarter seasonal issues as we have in workover associated with the fracking business.

Let me turn to NDUSA. Our US land drilling operations did surprisingly well in spite of the persistently and almost incredibly low gas prices and pretty poor futures for results of $70-plus million for the quarter, were up from $58 million in the prior quarter. The average rate count actually increased to -- ten rigs to 182, with an average rig margin of $8,628, which was up $840 per day from the prior period. The average margin consists of the bifurcated 1,100 -- 11,000 margin for our 95 PACE rigs that operate during the quarter and roughly 7,100 for the balance of the fleet.

I think the day rate increase reflected a bunch of factors. Increased margins from rigs that had been on standby, so they're making 8,500 going into an operating mode with a margin might be $3,000 or $4,000 higher. I think the more important thing was the leading edge rates for existing rigs, you know, defined pretty dramatically and improved pretty substantially, and the latter was probably the main factor. These increases were offset by operating costs, and we're planning on margins being essentially flat next year. Maybe up a modest amount, but essentially flat.

As I previously mentioned, we secured 11 new build contracts during the quarter, bringing the year total to 20 new build contracts and three major SDR modifications with the same economic effect as a new build contract. The mock acceptance of our new 1500 horsepower v class rig is, I think, a particular bright spot. This rig was developed for deeper pad drilling prospects like those usually found in the Bakken [inaudible].

We think the trends in the market are maintainable, but there's pretty great risk. For example, our AMFIL joint venture decided that they really got an economically hedge right now and economically continue six rigs in AMFIL, so they have -- even though 90% of their assets are there, so eventually, we'll have to drill up there, losing probably up to four rigs of the six that they have [inaudible]. Which is probably what's going on in the industry as a whole.

Anyway, right now, I think, although there's risk to it, if next year sustains the current level of rig activity, which is around 188, that will represent an increase of almost 15 rigs from this year's average. And if that happens -- and as I said it's that great risk -- but if that happens, even at the same margins, that would be a notable increase in income.

Internationals. Results in this unit were lousy, and there were $64 million for the quarter, compared to $65 million -- essentially flat with the prior quarter. But they were substantially below expectations. And I think there were two major factors there.

One is that Mexico and Saudi Arabia were industry hits. Everybody who was involved in those two places got adversely affected. The problem is that it's a bigger portion of our portfolio than anybody else's. So, specifically, for example, last year versus this year we're projecting a pretty sizable drop. And of the roughly $125 million operating income drop we're projecting, roughly $100 million of that is in Mexico and Saudi Arabia. And as I said before, we expected a pickup in in Iraq. The good news is we're getting awards in Iraq, and the bad news is the margins don't make us rich, surely.

Okay. We remain confident, however, that MX will sooner or later -- they have to solve their financial problems, but clearly so far it's been later rather than sooner. And we are seeing an increase in activity in internationals, but it's going to be offset by major hits in our jack-ups in that market, renew at lower current market prices.

I think the bottom line, however, there is that I'm now convinced that we're -- even though things are not great, they're poor, and they won't be great next year either. I'm pretty much convinced we're at the bottom and that longer term, the pressure of a strong oil price and our worldwide infrastructure and the reputation and the quality of the rigs will be pretty significant, and favorable. The important thing is, I think the bottom is here.

Nabors well-servicing posted quarterly results of $9 million, a noticeable improvement over the $3-ish million in the second quarter. The second quarter was largely negatively impacted by gearing up for the growth that we're now seeing with extra labor costs and stuff -- things like that. I think we have -- that operation, I think, is heading substantially in the right direction.

I think the management has been changed, as you know, they're doing pretty well. They have a modest improvement in pricing. We have, actually, a market position increase, and sooner or later the $80-plus crude is going to impact that favorably. Also, this unit will substantially benefit from the Superior acquisition, [inaudible] economies of scale related to real estate consolidations, and we'll probably see more of that as we get into it. And we've also moved Superior's fluid management business into Nabors' well-servicing where we, I think, can effectively -- more effectively drive growth and profitability. So, I look forward to improved sustained results in Nabors' well-servicing.

Canada. Canada was up a little bit, modestly positive [inaudible] and the preceding quarter which was typically seasonally low. Our new management is performing exceptionally well, and the outlook for the year is expected to be more than double what we had originally forecasted. However, double is a relatively small number and doesn't make us rich.

We continue to be encouraged by the improving activity in this market, particularly the [inaudible] directed drilling in the traditional areas of Saskatchewan and Alberta. And also we're -- that also includes the new oil shale [inaudible]. In addition, we're having actually significant activity and profitability in our drilling in support of [inaudible] production, so future drilling in Canada is definitely shifting to heavy doubles in Alberta. And as we've frequently mentioned previously, the higher horsepower rig for pad drilling in the British Columbia shales. And again I'll repeat that while we traditionally less have a 10% overall market solution, we consistently have [inaudible] 40% [inaudible] to the extent that that represents the future of the futures, is pretty good.

Nabors offshore. We reported a loss of $1 million in the third quarter, down from a gain in the prior quarter. We expect similar low, bad results in the fourth quarter. This unit was pretty obviously adversely impacted by the Gulf of Mexico, by the BP issue, and when you get through all the haze, we think that the impact of BP on our operations was probably on the order of [inaudible] million operating expenditure. So even though we'll make, you know, a positive and decent number, I guess we're now projecting $14 million operating income for the year. That probably would have been in the mid $40 millions after tax. And next year we're projecting a comeback, but not up to that level, and it's pretty hard to project.

Alaska. Results for the quarter were $14 million for the quarter, up from the prior quarter, and some of this was, we recognized income that otherwise would have been recognized in the future, but it's pretty good. But the facts are that this level of income is not likely to continue in 2011, primarily because of lack of BP's ability to figure out exactly what they want to do. And obviously, it didn't help when we lost three new builds that BP awarded to competitors a couple years ago.

As a result, we believe that next year's results will be probably 40% of what we delivered this year. With respect to BP, in the last couple of weeks I spoke to [inaudible] probably 45 minutes with the new ENT boss of production, under their new setup. This was at an LSU game. And the guy is quite good, and he's acutely aware of our performance, particularly in the lower 48. And yesterday I spent probably 30-odd minutes with John Minge, who's the CEO of BP Alaska.

[Inaudible] I think our future with BP -- first of all, I think BP is going to make out, they're going to survive and, I think, do reasonably well. I think our position with them is going to be pretty good. Specifically, for example, in Alaska. Everybody is certain that the heavy oil is going to be developed some day, some way. I think even more immediate than that is the -- kind of the low [inaudible] oil of which BP is identified at least a couple of thousand [inaudible] to be drilled. And it's the issue of negotiating with the state, and taxes, and quid pro closing, all that stuff. But eventually, I think, [inaudible] will come back.

And you know, I think -- frankly, I still think we have the best two tools in Alaska ranked -- rig 19 and CDR2. And I think we're going to get more profit from those, and I think sooner or later they'll be emulated.

Pool Well Services. We completed this in December -- excuse me, September 10 -- and again, I'll repeat the $12 million we booked in this quarter was a pleasant surprise and represented the last 20 days of the quarter.

Let me emphasize that in the short time we've been associated with Superior, we've been very much impressed of the quality of the equipment, the technical expertise of field people, and the whole organization, the capability of management, and perhaps even more important, the super favorable comments we're getting from pretty important and knowledgeable customers. Don't let that go to your head, Dave.

The synergies we expected when we made this acquisition -- kind of relatively low-hanging fruit now, and most immediate, these are related to our well-servicing business which has a lot of locations throughout the country, as does Superior. We've already, I mean, the first year we did try consolidating a location in the [inaudible]. Superior is going to stay on a lease for seven years. We own the thing. So, you know, there's a difference in cost of capital and the available capital is making a difference.

And I think I do want to emphasize, though, while I'm prepared to have the $20 million -- $12 million in 20 days to be a standard and to be held accountable for it, there are risks in this business. There are rig risks, there are rig count risks, there are cracked equipment risks, there seasonal risks -- particularly in the fourth quarter, we're going to have seasonal impact that we're not used to.

And we move to Nabors and oil and gas. As I mentioned last quarter, we have retained good investment bankers to proceed with the sale of our Canadian and Columbian ENT assets. And consequently, because we're pretty much on the way there, we and PWC have classified these -- reclassified them as discontinued operations. The mocking process has been going on for several weeks, and I'd say we're on schedule to date. So, we have more and more expect -- expressions of interest than we had anticipated, and I'm -- I think it's virtually certain or, let me put it, highly probable that by the next report we'll have something really firm on at least one of these [inaudible] things.

And our expectations for pricing haven't changed. So, I think -- in fact, they've been reinforced. But that we won't know until we get the checks.

Let me talk briefly about NFR. They're showing a profit, but also part of the profit is because we have -- most of the profit is because we have a good decent hedging program there. We continue to contemplate and prepare an IPO although, got to be perfectly blunt, that at these prices that yesterday's closed an IPO won't be feasible. And it won't be feasible until the gas price gets some better, I don't know how much better. But clearly has to be some better.

And a lot of that will depend on how well we do in the oily ecosystem stuff that we're now working on. The results and other operating segments were very good, and that's third party sales which from Canrig, they're very good, and good contributions from our Alaskan joint venture [inaudible]. The technology developed at Canrig continues to be a significant plus for Nabors, whether we make money by deploying the technology to third parties or enhance the marketability and value of Nabor's rigs.

Our financial position is strong. We have little over $800 million in cash and investments at the end of the quarter. This balance reflects, as I mentioned before, essentially the all-cash acquisition of Superior, as well as the proceeds for $700 million in senior unsecured notes. In mid-September, we also established for the first time in probably a decade a $700 million revolving credit facility, which allows us to borrow that -- what I find almost unbelievable -- [inaudible]LIBOR plus 1.50%. We can access this market at less than 2%. And, you know, I don't see live work changing very much for a bit. So the question will be, can we find good use for the money?

In May 2011 we'll redeem our $1.4 billion remaining base. I don't know what the accounting number is, but we actually owe $1.4 billion -- $1.4 million, and we'll do that relatively easy. I mean, the sources of funds are our cash flow and even without -- even with a substantial investments program, a combination of cash flow, cash on hand, and the proceeds from the sale -- even if we sell half of the real estate or the ENT assets by the end of 2011, we won't need to borrow money. We might have to occasionally, seasonally, temporarily use the revolver, and we certainly won't have to issue equity.

Commenting further, GAAP tax rate -- the non-GAAP tax rate for this quarter was 13.5%, and we expect that the fourth quarter will be about the same, but we expect the tax rate in 2011 to be 20%. And that's based on the increased income we're expecting from Superior, US income, and I think the that our position basically is with the investment we're making in the NOL is certainly not a cash back we probably won't be next year, either.

The bottom line is that I'm very bullish longer term, maybe even for medium term. I'm now convinced, which I wasn't a couple months ago, that we've reached the bottom in NDIL, and although it's going to be pretty poor this year and pretty poor next year, sooner or later -- in this case I expect a little sooner, maybe beginning at the end of 2011 -- the high crude price will drive recovery in the international markets and the quality of our rigs, infrastructure, and personnel will enable us to fully participate.

I think the other thing that boosted my confidence is what's going on in the US. I think the 23 rigs, new builds -- 20 were new builds and 20 were major FCR upgrades which have the economic equivalency of a new build. That demonstrates to me that our customers are pretty confident that they're going to be drilling [inaudible] and it even more pleases me that we're getting more than our overall market share in this market. So that's not only good. So those two things, namely, that we won't go lower internationally and elected to go stronger with [inaudible] with Superior domestically makes the outlook look pretty decent.

And just a final comment -- I think the unrecognized value of some of the things that I've mentioned over -- hopefully over the next few quarters will demonstrate or convert those into bottom line results. And I think when it happens, and I think it will, we'll be happier and our investors will be happy as well. Anyway, that concludes my comments.

Camille, I think we're ready to begin question/answer session, please.

Thank you, sir. (Operator Instructions) First question is from the line of Dan Wood with Goldman Sachs. Please go ahead.

Good morning, guys.

Good morning, Dan.

North America pretty much speaks for itself this quarter but as you mentioned internationals has been a drag in the past few quarters. So when we look out to 2011 and we look at the guidance that you're giving basically $340 million in EBIT, how should we think about the upside risk, downside risk to that? How much of it is already contracted? How much of the fleet rolls over in 2011 and maybe talk about your expectations for what gets recontracted?

I think, basically, I think Denny can offline give you the specific assumption. But we're assuming that the rigs -- the jack-up difference (inaudible)but essentially the margin comes close to disappearing and I think we've been awarded contracts. As I said the good news in Iraq we will be making a little bit of money short term and hopefully better money long term. Also, Saudi is getting a little better than we thought initially on land with our rigs being converted to gas drilling. It's hard to say but whereas -- also Mexico is not going to get worse, it's not going to get worse. When you consider everything that's relevant including we haven't started the Papua New Guinea project yet, a whole bunch of things that are signed still but not yet bottom line. You can't be certain. I'm way more certain that I have recently that we're at the bottom internationally.

Okay. Thanks, on North America you made a couple comments on margins. On one hand it sounds like you're seeing leading edge margins moving up, I'd expect continue to roll for the results as rigs that were maybe repriced in 2009 can roll to higher rates. Yet your comments were -- it seems like you're a bit maybe just being, not wanting to be conservative on the guidance outlook because you're talking about flat margins from here. Why --

I guess I would say that if you pushed us, we'd say we expect modest increase. But more like $100, $150 a day, $125 a day or anything like that. The whole thing -- I don't know what the gas price is today. But it was like $3.30 or something yesterday. We just talked with our NFR affiliates and they're not able to drill them.

They'll drill in connection with the hedges they have in place. But that's going to impact, we're our own operation for the whole industry and I think you've got to say with these gas prices the rig count is at risk and it's not -- it's not sandbagging, it's a real risk. I hope it doesn't come fast. I did point out that if we're lucky enough to keep the current rig count, we'll end up with higher profit. That's the hope. But the risk is real. It's not sandbagging.

Absolutely. Just one last question and then I'll let others come in. On can rigs, fet really nice -- or it's the other segment which includes can rig so a nice jump off this quarter. You mentioned in the price release that you think that's sustainable. Can you talk about what the outlook is there, what you're seeing in your backlog, maybe how that's progressing?

It's pretty good. I mean, we've had to increase the production level in top drive so we're trying to develop a bigger top drive and we're looking at developing smaller top drives and things like that. I think they have really good -- we're even looking at the maybe, I don't know, couple three acquisitions that would fit in there. So I think the people are really good technically. I think I think the two ways they help us is they make money on their own and even better, is that they help us market rigs. $12,000 to $14,000 a day margins. It's hard to get into the details but if you want to call Chris and go over it with him, be my guest.

Will do. Thanks.

Next question is from the line of Marshall Adkins with Raymond James. Please go ahead.

Good morning Gene, why am I having a hard time visualizing you at an LSU football game? You don't have to answer that. It's okay.

I'll tell you. The President of LSU is Dr. John Lombardi, he's one of our Directors who is a long-time friend of mine and I was at the Tennessee game because I couldn't make the Alabama game.

Good enough. I only have one question, but there's numerous parts to it and Denny you may have to jump in here. Just trying to fill in some of the gaps on this (inaudible) you intimated, Gene, that the $60 million revenue and $12 million of earnings contributions, the 20 days may be a little aggressive on a run rate. Can you help us with a run rate there for a full quarter? Also help us with a SG&A bump up and more specifically, you mentioned the tech that you're going to free them up to spend more money. What is your CapEx for that subdivision?

Let me put it this way. I think we're prepared -- we have capitals and access to capital that's pretty decent rates. And they were stars of capital basically. So I don't want to get in to specifics but doesn't help me competitively. But basically they have a whole bunch of decent return items which include a number of things including protubing and other stuff that they're not really in yet. And obviously some are crude so long as we can -- quasi like we do for rigs, it's not exactly the same.

If we have pretty good assurance that we use the investment properly, we'll make the investment. How much it'll be is the function of how many opportunities that we have and what evolves in the market. And also, we're not leaders in this. Every one of the competitors has been spending money, ordering, doing turn tie-ups and all that stuff for a while. So we have a way to go. I think it's the function of the opportunities and right now they look pretty decent.

Is it fair to say a meaningful bump up in what they were spending and that you are going to be increasing horsepower, is that a fair conclusion?

Yes. Marshall, the one thing you have to take into account when you talk quarterly. The fourth quarter is always a really tough seasonal quarter because they operate a lot of the northeast in the Bakken. Talking to Dave earlier, it's snowing in the Bakken. They've already got roads shutdown. Can't move today. Six of 14 crews are in those areas so fourth quarter will be less. What we invested is not going to be available for the fourth quarter any way.

Right. SG&A bump up, can you give us some help there?

I think it's mostly the addition of --

It seemed like a big number, $30 million a quarter maybe?

No.

Is that too much?

No, that's not it. $15 million a quarter I think what Clark's saying. We also had the restoration of some large pay cuts that management took.

Okay. Well, yes, that's what I wanted to try to hash out. Thanks, guys.

Thank you. We appreciate your coverage, actually.

Thank you, and our next question is from the line of Ole Slorer with Morgan Stanley. Please go ahead.

Thank you very much.

We like your intelligent review last night.

Really? Well, in that case, are you sure you're not too optimistic on the pressure pumping side?

I tell you what I wish you would lower the barrier for us. You were saying this before we acquired them and we -- now they have the capital to get there. I'm not certain they will, there are risks. All that stuff, all the conditions but I don't think it's crazy.

Now that you've had the business in-house for months,you must have had several meetings with the management and international people. Where is the biggest opportunity to expand the business?

I think short-term, it's domestically. The medium term, it should be Canada where we control on the drilling opportunities. And originally, our stuff was that it would be international to fill out our suite of integrated services offering. But that's --domestic is two things. One, on their own and two the synergies with our entities. Likely, next we'll look at Canada and we're continuing to look at international, but if we get a deal in Sweezey or something like that, we could use it. But actually -- anyway, that's the answer.

And I would imagine Canada and Mexico be the easiest places to expand, but the timing in Canada, you mentioned Canadian oils in your press release. Can you expand a little bit on what you see the Canadian opportunity to be like and how it differs from the US?

Yes. I would say the oil shales so far in the gas shales, we haven't gotten some oil in Canada which we do in the States. And they have the improvement in the Bakken in one or two places. And I think the big difference overall is the geology in the British Columbia shale is really exciting and sexy. They really remove from market and the development factor is incredibly enormous. So maybe somebody like Quicksilver can look to do it or DOG or [Apache]. But we can't look to do it. I'd say those are some of the differences.

How about some of the mature oils in Canada and doing a more unconventional applications. Is that an opportunity for you larger rigs and is also an opportunity for stimulation pressure pumping or is it too far off?

Not to my knowledge yet. We haven't had a real extensive, knowledgeable look at frac-ing opportunities up there. We're looking at other stuff up there but -- I think I told you, we know that the we enforced 45,000 super prime acres right in the heart of the best in Canada. We're trying to sell that and retain our ability to provide services.

Gene, can you explain the tremendous difference in profitability right now in pressure pumping stimulations relative to the rather lackluster, although improving performance in well servicing? We'd imagine that with the direction going more towards oil that we'd see a momentum. Would you imagine that with the direction going more towards oil you will see --

I agree with you. I agree with you. I think that the frac-ing supply demand is uniquely tight now as far as I can tell. And that's because of the shale, the evolution of frac-ing in shales is new and unique and the whole thing is what, three years old or something. And now you hear about 35 fracs per well, 40 fracs. 20 fracs. They're getting to be more intensive. And as a backlog now. So while there are risks for supply demand for that is uniquely tight. And obviously, you get payouts that are proportionate and consistent with supertight by demand compared to what it was a year ago. And that is in the case in well servicing, but I think that your point is right that persistent $80-plus crude price is -- and good relations and good performances is going to do way better. I mean, next year, we're projecting like a hockey stick. And I think they can do it, but we'll see. But right now, there's no tightness really, super tightness in well-servicing rigs.

It seems like an illogical disconnect.

No, it is. And we've had $80 oil for a while.

Just finally, Gene, you gave your guidance on 2012 -- sorry 2011 y international relative to this year but in 2012 have the last really high-performing jack-up rollover early on, and if you assume that it rolls down to something more in line with the age and the profile of that units, you're probably looking at the $40 million headwind early on in --

Yes, I think it's the same thing from the jack-ups.

But if 2012 is related to 2011, do you feel that domestically --

(inaudible) It's probably 185 now or something and it's probably go 120 or something.

Assuming that if it even goes somewhat lower than that, do you think you could, is it enough momentum in the rest of the business to have 2012 be at least decent growth here?

Yes, I think so. Well, let me put it this way. Sooner or later, if you look at the future's growth for crude and that's a pretty deep market, and of course, the big guys don't play it. But it's pretty indicative of what the market says the price is going to be and they're going to be pretty strong. And I think I don't want to go into the peak discussion. But I think it's clear to me that it's going to be harder and more expensive incrementally to get more oil and the pricing is going to be better and going to be more rig intensive. And as I said in the presentation, things like Papua New Guinea are going to be in the picture. I don't even know when will that hit the P&L, do you think?

Algeria, the eight rigs there, seven of them are locked up through 2012, so --

With new prospects there.

Additional prospects and additional interest in other things that Gene referred to in terms of --

Specifically, we have a little bit of an edge and availability of 3,000 hostile rigs just Middle East and not Africa, including Iraq. In fact, even in Iraq, what the deal is we're having to invest money there and if you depreciate the money over ten years or 15 years, it's okay. But you're really working for three years just to get the incremental investment back, which is unfortunately the situation in Saudi now. But even in Iraq, we have a high prospect of the jack-ups that's decent margins, not the typical, $1,000 or $1,500 on a [license].

Gene, finally sorry, I said that twice now, what's the probability are you closing on these big divestitures this quarter?

I think I'll be disappointed. Let me put it this way. My own probability assessment is in 90% that we have one of them, and all probability, Colombia with deals firm, if not closed, by the end of the year.

Perfect. Thank you very much.

Thank you and our next question is from the line of Arun Jayaram with Credit Suisse. Please go ahead.

Good morning gentlemen. Gene, I want to talk to you a little bit about obviously what you can tell us on the sequential improvement in Sweezey? It looks like on a revenue basis, on an implied basis, the revenues were up by a mid-40% percentage a quarter-on-quarter. So I just want to understand how you generated that type of sequential growth? And on an implication basis, you're generating about $3 million per day in revenue, if you look at the last 20 days. So that implies that in 2011, you may be able to do $1.1 billion in revenue. So I just want to make sure I understand those components a little bit as we think about the earnings power of Sweezey in 2011.

I only looked at the whole year. Next year, I'm worried about what we do quarter by quarter. I'd say, they went from probably breaking even in the same calendar year, so maybe $280 to $300 approximates which has on it by itself has a margin probably 40% or something. So that market pricing has improved pretty dramatically and what -- I guarantee the pace of improvement won't continue and there's a risk of the whole thing. I mean if we can stay where we are at now and get some of it locked in more than a well frac-to-frac contract, that's what they're trying to do, and I think the only comment with what's the potential is -- are not crazy.

So a potential of a little over $1 billion seems achievable if we can't continue at the same run rate?

What does that give you in terms of gross margin income? I don't know.

We assume 20% EBIT margins, it would be consistent with that a little bit over $200 million.

I think that's -- yes.

Okay.

There are risks to it. But I think it's fair to hold us to that standard

Okay. Fair enough. Gene, I just want to get over expectations. You said for the E&P asset sales, you're comfortable with your thoughts. Is that still $1 billion on a pre-tax basis for both of those sales? Is that still what you're thinking?

Yes, sir.

Okay. And my final comment or question is regarding the three jack-ups that roll over the next few months, what your expectations are? Are your expectations that you'll be able to keep the rigs working but just at lower day rates, and your confidence in the ability to maintain utilization on those rigs?

Yes, I think that's it. I think we've kept the sugar out of the margins but expect it to work.

Okay. Okay. Thanks a lot.

Thank you. And our next question is from the line of Jeff Tillery with Tudor, Pickering, Holt. Please go ahead.

Hi. Good morning.

Hi.

I wondered if you could talk a little bit about packaging your rig business with the pressure pumping offering? I heard (inaudible) go through that and I just want to add a few color on what's going on.

Obviously, I would guess calibrated by the way combining pulling through whatever is scarce. You try to package with something that's not as easily marketed. So I wouldn't say we've been having enormous success with that. But we're saying if we can do it -- if we can get an incremental rig or anything else, with a relatively scarce frac-ing availability, we'll do it. I wouldn't say it's super significant yet.

Okay. My second question is just on the Nabors' Lower 48 Land business. You mentioned in the press release leading edge rates well above the average rates you're realizing. Can you give us a feel for normalizing for the asset class mix, how much headroom, leading edges above what the average rates you're realizing?

Joseph, can you contribute to that?

Again, we're still seeing in the new bill opportunity day rates in excess of 25. Some of the existing assets were starting to push, again, dependent on the market, we're starting to see some improvement in the legacy rigs. I can't tell you exactly what percentage we're converging, but we are seeing some improvement on those numbers results.

My last question is just on the three international jack-ups. The one you're throwing this quarter and then it comes the first one in the spring next year. Is their work lined up for those? I'm curious is the utilization risk on top of the day rate rollovers? Just wanted a little color on that.

We don't think so. It's pretty confident they're going to renew.

Okay. Thank you, guys.

Thank you, and our next question is from the line of Kurt Hallead with RBC Capital Markets Please go ahead.

Gene, I take that if you are bearish on pressure pumping, you wouldn't have bought Superior when you did, right?

Right. The other thing is it pays to be lucky when you get the smart

We know that all too well. From a synergy standpoint, it seems like you guys made a lot of headwind in a very short period of time with Superior. So kudos to you guys and I'm assuming that was mainly on a lot of the cost front. When you think through the revenue opportunities, on a basin-by-basin standpoint, one of the areas that I think you would agree sticks out is the Bakken, right? You guys have a big market share there. I don't think that Superior Well Services necessarily does. Two questions. How far is the Bakken, where do you see the 2011 new synergy opportunities? And then secondly, can you give us some general sense as to how we can tie back the number of frac crews needed per rigs running?

I think, generally speaking, the hot areas which are the Bakken, the Eagle Ford and the Marcellus are where the opportunities apply for both drilling, not only drilling, drilling works over hand at Bakken. What was the other question? I'm sorry?

Yes, I was just trying to get a sense of, if we tied into connect the dots here between a number of rigs running and determine how many frac crews --

I guess the rule of thumb that I had is if you need a frac crew for three rigs roughly.

And is that -- that's pretty much basin? It doesn't matter what basin you're in as you look at that or --

I'm sure it does. My rule is not the best (inaudible) in the world.

Yes. And then, I just wonder if you might be able to give us some general sense, you have number of different discussions with E&Ps and so on. Do you -- where is your bias here? You think that the oil rig count will definitively more than offset natural gas. Obviously, you've been -- had some very good success in this business over a long period of time. What's your gut instinct tell you?

I got instinct that as gas price goes much lower, that balance is at greater risk. I don't know what it was today. It was $3.30 or $3.29, I mean that's horrible. The ratio between gas and oil and prices on a BTU basis. That's long gone history. But the long-term average was about 10-to-1. And now, it's 25-to-1, something like that. Nobody ever asked me, but I'll assume you asked me. My position is that a number of things happen over a period of time that are unexpected. And if you look at what's likely to happen like maybe the EPA doing something uncool or Obama realizing this gas is not a swear word or any number of things, but I think the spread is multiple times more likely to contract than expand. So maybe in our business you've got to be optimistic, but I think the odds are -- also the other thing I've always been is I've never been involved in a situation where everybody's betting the same way and they make money. Doesn't happen. But I'm still not personally buying in gas futures.

Okay. That's great color Gene. Appreciate it. Thanks.

Thank you.

Camille we're running up against our time constraint. So I think we'll take one more question, please.

Our final question is from the line of Roger Read with Natixis Bleichroeder. Please go ahead.

Hi, good morning.

Good morning.

Just a quick question, I guess, along on the international side because a lot of the other stuff has been hit. If you look for and I understand what's happening with international jack-ups. But if you look at the operations you have now, let's assume may be a little recovery in Mexico and some progress in other international markets. Do you believe that the international segment has the potential to surprise you next year or is it just given the contract terms, timing, et cetera, that, that really is just going to be --

Right now, I know I'm always subjected to price, but I'd be very surprised if international makes a big headway next year. I'm willing.

If you could, where would it come from.

Well, it has to be a place where -- if there's a new deployment that's not going to impact next year very much.

Right. So I guess it's more about where rigs throttle.

It would have to be where we're at . Saudi, Algeria, you have Mexico. But Mexico will likely -- Mexico has been sooner or later, but later not sooner. Fortunately, I think this PEMEX situation is unrelated to the overall problem with the government with (inaudible) and all that stuff. But it still an unresolved problem and it doesn't look like it's going to be short-term results. But that's what it would have to be -- leave it there

We're 70% of the ratings. We'll contract 2011. So we have a good data and substantial number, protected contracts. And as Gene mentioned, that the markets that have the multiple rigs whether it's existing to (inaudible) PEMEX, extra rigs offer that potential, but there's lots of delay.

I understand, I was trying to get an idea of could you get surprised or not? It doesn't sound like --

I think you can bet on Nabors without betting that it's going to recover internationally next year.

I'm with you on that. All right. Thank you.

Camille, that will wind up the call. I just wanted to thank everybody for participating. And If you don't get your questions answered, feel free to call us anytime. Camille, I'll hand it back to you.

Thank you. Ladies and gentlemen, this concludes the Nabors Industries third quarter 2010 earnings conference call. This conference will be available for replay after 1.00 PM Eastern Standard time today through November 3, 2010, at midnight. Thank you for your participation. You may now disconnect.