Nabors Industries Ltd (NBR) 2011 Q1 法說會逐字稿

Welcome to our conference call this quarter. My name is Denny Smith, the Director of Corporate Development.

With me today, obviously, is Gene Isenberg, who will be doing most of the call. We'll do the format as we usually do. Gene will give 20 or 30 minutes of comments about the quarter and, more particularly, about the outlook as we see it, and then we'll open it up to Q&A and limit to approximately one hour total duration of the call. In addition to Gene and myself, Tony Petrello, our President and Chief Operating Officer, Laura Doerre , our General Counsel, Clark Wood, our Principal Accounting Officer, and the Presidents of our Bay Area major business units.

Before we begin, just want to remind everybody in that we will be discussing the outlook, that constitutes forward-looking statements under the SEC Act, and as such are subject to a lot of risk factors and changes in outlook which are elaborated upon in our various filings, particularly our 10-Ks and we encourage you to read that.

With that, I will turn it over to Gene to

Thanks, and welcome again to the Nabors conference call for the first quarter. I want to thank everyone for participating again this morning. As usual, we have posted to the Nabors website a series of slides that contain details about the performance during the quarter which I suggest you look at as we talk.

First quarter operating income was generally in line, modestly below First Call consensus at $191 million. However, we would have reported another $24 million, or $0.06 per share, were it not for certain items which obscured a solidly improving outlook for virtually all of our business units. Most of the items included in that $24 million are unique to the first quarter and will not recur. Approximately, in fact -- in fact, approximately $8 million of that is deferred and will be recovered during actually this calendar year.

The most significant of these items incurred in our pressure pumping unit, weather delays and additional costs for fuel and repairs, and also those associated with the ramp up we have planning resulted in a $13 million hit. These costs, the ongoing costs, other than the build up costs, will be recovered in pricing as we go forward. Additional negative impact of approximately $7 million resulted in a supply chain interruption at Canrig which delayed the delivery of ten rigs. The supply chain problem is repaired, and the income in fact will be recovered over the remainder of this calendar year.

Internationally, we incurred a couple of million in unusual costs during the period. One time payment to Saudi nationals at the behest of Saudi Aramco, which in principle they have agreed we were covering day rates, and the details of that are being firmed up. We had to suspend the operation of a couple rigs in Yemen, when we evacuated all our ex-pats due to the obvious political risk there, and a short labor strike in Oman that has now since ended but impacted operations there. Lastly, we took a $1.7 million hit in our US well services unit due to the unusually poor weather.

In addition to these items, a highly effective tax rate for our continuing operations adversely impacted EPS by $0.02 a share. The tax rate is now about 30%, 31% compared to the effective tax rate of 24% if we combine continuing and discontinued operations. This is primarily due to the reduction in the international income, which is taxed at a lower rate, and increase in contributions from our domestic operations, which are obviously taxed at a higher rate. In particular, the acquisition of Superior, which at the moment is 100% domestic, increased the average tax rate. The sale of our Columbian units which will be affected on a tax-free basis, or no tax paid basis, will also affect the overall tax rate. Collectively, these items serve to reduce our earnings per share by about $0.06, so we reported $0.29. These items would have made it $0.35.

In summary, although I look at the noise in the quarter, it's becoming increasingly clear that the underlying fundamentals are strong in nearly all of our business, and especially in all of our financially significant businesses. Sequentially, our quarter should progressively confirm this view or projection. By the end of the year, nearly all of our units will likely be growing at a solid pace, with improving the visibility even in our financially less significant offshore and Alaskan operations.

Our financial position and balance sheet remained strong, as we have discussed previously. We'll be redeeming approximately $1.4 million (See-See Press Release) in convertible notes due in about 2 weeks. This will be funded from a combination of cash on hand and a partial draw down of our revolving lines. The lines total approximately $135 million at the moment. We have $800 million in cash, approximately, at the moment, and we can borrow on this line extremely attractively at LIBOR plus 150 basis points, which for 3 months LIBOR means we'll be borrowing at 1 point -- 1.75%.

Near term, we will receive over $250 million for our Columbian E&P transactions, which should be closed -- this part of the sale should be closed in the next 3 weeks. So that's going to go to the cash to pay off the debt. And we continue to generate cash flow from operations, so we'll pull down the revolver but gradually we'll pay it back, so that at the end we'll have paid off the $1.4 million (See-See Press Release) and we'll have increased use of the revolver by net about $700 million or $800 million.

Let me turn to the units now, quickly. Results in Nabors Drilling USA. Results were down from $85 million in the prior quarter, and this is usually what happens in the first quarter. Margins are good. Year-over-year, they will be almost $1,000 higher this year, the rig years, it number is strong and likely will be stronger than even we're projecting. Right now, we have 189 today, Joe, rigs working?

197.

197. Okay.

I think the important part there is we were awarded additional 4 new build contracts during the quarter, bringing the number of new build awards to 33 orders received in the last 12 months, including the 3 economically equipment major SCR upgrades. I think the bottom line there is we're getting more new builds than our overall basic market share, so that means we're doing something right. Currently the customers are going with us. And also, when we do these things, we lock in at least a 3 year profit in growth.

Nabors Canada. This unit also reported $39 million in the first quarter, which more than doubled the under -- approximately $17 million achieved in the prior quarter. Seasonally, strong rig activity reached almost 50 rigs, and the margin was pretty high, close to our all-time high per rig. We expect a second quarter loss due to typical seasonality, but are optimistic about the remainder of the year in Canada.

Well servicing. This unit reposted a respectable profit of $11 million in the quarter, in spite of approximately a $1.7 million hit due to weather. Rig hours and pricing were both up, and we expect steady improvement throughout the year. We continue to upgrade our equipment, 20 new 400-horsepower rigs are being delivered in California. We are also adding 150 tank trucks and 1,000 frack tanks. We're finding really good synergy in here between our Superior well service, our fracking operation and our US well servicing, particularly in the matter of water issues.

International. The unit was down $35 million, pretty big drop, the reasons which we've discussed previously. And this drop was not unexpected. 2 of the 4 Saudi rigs down in early February, and currently in dry dock for regulatory checks and upgrades for new term contracts which will begin later this year. Frankly at lower rates, but in general what the market is doing and what we had expected. 2 other jack-ups will be dry dock for regulatory checks, one to be upgraded pending an anticipated new contract in June, but as is the market for jack-ups, at lower rate. The second of these jack-ups will continue under its existing contract but does not renew until mid-2012.

9 rigs are temporarily shut down to accomplish upgrades for new long-term contracts, 6 in Saudi where they're converted for gas drilling, and 3 others in Iraq. The suspension of 2 rig operations in Yemen due to civil unrest, and a short labor strike in Oman. The final factor was the Saudi mandated ownage, which they assured us we'll get back and we're now negotiating the method and timing. We think the second half will be much better with all of these rigs returning to work. We also will deploy 15 to 17 incremental rigs during the remainder of the year, 7 of which are in Iraq and 5 in Saudi. 2 additional rigs in India, platform rigs, and 2 in Papua New Guinea for that big Exxon project. There are also several more incremental rigs in various stages of finalization. The outlook looks pretty good and by the end of this year, the fourth quarter should frankly be modestly above the fourth quarter of last year, which was very good, which also portends a good 2012.

Pressure pumping results, approximately $44 million, were down quite a bit compared to expectations, due to weather delays and cost increases for fuel and repairs, along with the higher labor and other costs associated with getting ready for the ramp-up in spreads. We're implementing increases in pricing as we go, with the addition of surcharges. So in the future, we can't avoid the costs associated with ramp-up, but the market is strong enough right now that we can pass through cost increases. We continue to pursue long-term contracts, at least multi-year contracts, which had been unusual in this business, and we're increasingly successful in this project -- in this regard. And we're currently employing -- deploying, really, our first added frack spread, which has been delayed 2 months, but I think we'll deploy them at the rate of one a month and have them all deployed by the end of the year.

Offshore is obviously a P&L problem. Nothing really has changed. We're running at a rate of about $40 million a year operating income, below where it would be if there were no problems or pre-problems. But we do have 2 sizable rigs, 4,000-horsepower rigs, that will be deployed in the next little bit, and making some profit on that, because one of those rigs is for sale, and we're taking some profit. But the big profit hit --benefit will come when they're both operating and we're on good margin day rates.

Nabors, Alaska. The profits were modestly below expectations, which expectations were pretty modest in the first place. The outlook is challenging, but there is no question that sooner or later, later I would guess means the most likely time is 2013, Alaska will have a lot of work in high yield --(inaudible) operations and I think we have the ideal tool up there in our coil tubing unit for that operation.

Other operating income segments did pretty well, not materially, but pretty well as projected. I think we already mentioned that $7 million was deferred because of a delay in Canrig's deliveries, but that will be made up for this calendar year.

In oil and gas, as you know, we have NFR which ultimately we'll go public with. But we need a better gas price for that operation. We have a Columbia operation. All these in 50/50 joint ventures, 3 I am talking about, the third being Horn River. And we have our Rams Horn operations.

And the thing that's immediately on the table right now is the sale of our Columbian holdings, and I think the bottom line of this is that sometime in the next -- before the end of the second quarter, we'll have sold a number of these holdings. And we'll probably -- our share of the joint venture and our 100% holdings, will probably exceed $250 million, I think, maybe $260 million, but at least more than $250 million. And then of the remainder -- remaining acreage, in order to optimize its value for sale, we're going to have to spend some capital. And our guess now is that if we spend $25 million incrementally, we'll get back the $25 million plus at least another $25 million. So that isn't firm, but that's what we plan to do. And that equals a nice profit, and our carrying costs of that is probably around $100 million, or a little over $100 million, so it is a real good profit.

In summary, the operating income this quarter is down substantially, but the second quarter will probably be -- and the second quarter will be essentially the same. But we expect to see a rapid and material significant recovery in the third and fourth quarters. By year end, nearly all our units should be demonstrating significantly improved results, with increasing visibility for an even more robust 2012 and thereafter. Just overall, I think the basic foundations that we're looking at right now are, in my view, pretty bullish. Domestically, we're increasing market share as reflected by percentage of new builds compared to our basic market position. We have excellent relationships with customers, and the rigs are doing really well. Internationally, we have I think, not arguably, I mean can't be -- I think we have the best infrastructure. And with the oil price being high and likely staying high for the long-term, that's going to convert into profit sooner or later, and my hope is sooner. Then we have fracking, which is a really timely addition to our portfolio, and we got that at a good price in spite of the concerns to the contrary, the supply/demand is still in our favor, and margins are good, and pricing potential is still good.

That covers my prepared comments, and we'll take questions.

Alicia, I think we're ready for the Q&A session, please.

Thank you, sir. (Operator Instructions)

Our first question is from the line of Dan Boyd with Goldman Sachs. Please go ahead.

Hello. Good morning, guys.

Hello.

Gene, this one for you. It might even be for Siggi. But just to want get a little bit more visibility from you on the international market, particularly in the Middle East and with Saudi. And from what I remember, you guys I think have a dominant position in Saudi. But maybe just give us a recap, in terms of how many land rigs you had working at Saudi at the prior peak, where you are today and what, based on your conversations with Saudi, what that might look like as an exit rate as we enter 2012?

Siggi was afraid of that question. No, I'm kidding. He's in Dubai. But John? This is John Gass.

As discussed, earlier, we renewed Aramco (indiscernible), we renewed some of theses contracts and put five of our stack rigs to work, and we received tenders for twelve land rigs yesterday which would -- three of them are renewals for Nabors rigs, two for competitors. The rest are for incremental rigs, which would take up the stack fleet that we do have in Saudi Arabia. So we're looking to have 30 land rigs working plus the four jack-ups.

And what did that look like peak of the last market?

He asked what it looked like in the last market.

Actually, we were down two land rigs. We were down to 22 land rigs working. So we'll be up to -- we could be up to 30 to 31 land rigs working there.

Dan, I think on a gross basis, including all the joint venture rigs we got up in the mid-high 30s, 36, 38, something like that.

Okay.

And did you take any rigs out of the region? Are you sourcing some for Iraq or other areas from your Saudi rigs?

Three of the rigs, Saudi rigs, will be going -- are mobilizing now for Iraq.

A couple went to Kuwait, right, the Shell rig? There has been about five or six rigs.

And what's the startup timing? I am trying to gauge -- I understand, Gene, it is very helpful when we talk about something in the maybe mid-70s for the fourth quarter of this year. But if everything is starting up, is the run rate into the first quarter of 2012 significantly higher than that, or do you have other contract rollovers that we should be thinking about that might roll to lower margins, or just where you might have more uncertainty in the future?

No. The run rate will definitely be a lot higher. The only exposure that's in 2012, really, is there's one more jack-up that has to renew in June, but it will only be in effect for half the year, so it kind of dilutes its impact.

And I'll kind of leave this one as an open question, but back to North America, just trying to get a sense of how many rigs you have on the side lines today that you might be able to put back by year end, what the capital might be required for those, and how you see that evolving as we think about your rig count, beyond just the new builds that you're going to be putting to work?

Domestic or international? Legacy?

Legacy rates.

Exactly. Legacy rates, yes.

Well, again, we have two in the yards right now. We have six more that are in the reactivation process, as far as going through the approval. We've got approximately 26 SCR rigs that could be looked at to be put back in the field. Cost, depending on level of refurb, could be anywhere from $4 million to $8 million a rig.

On mechanical rigs, we have approximately 18, of which probably only maybe 8 to 10 that we would actually put money in to redeploy. Small mechanical, because we discussed some of the shallower horizons would be that number on the mechanical.

On the SCR rigs, most of those are minimum 1,000 to 1,500-horsepowers SCRs that we're looking at. Again, we're looking at a total of eight, two are in the yards being worked on as we speak, and those range anywhere from a big 1,000 horsepower to 1,500-horsepower SCRs.

Okay. So it sounds like exit rate rig count for this year could be in the 225 range?

I would say right at 220. Correct.

Okay. Thanks. I will turn it over.

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

Good morning, gentlemen.

Gene, I want to follow up to Dan's question. Can you help us think about, as you put incremental rigs to work in Saudi, I am thinking onshore and also in Iraq, what is the incremental -- I think this quarter you reported about $13,400 margins in international. Can you help us think about what the margins will look like on those incremental awards relative to what you reported this quarter? Just trying to understand how the margin outlook will look, on a forward basis.

I don't see a super major change. I think the real problem is CapEx and incremental contract term and margin. So if you have to spend X million dollars and you're getting an extension of two, three years, and you're not raising the day rate, the margin's okay, but you're sort of treading water because you're having to spend the CapEx that you are -- incremental CapEx, which is going to be covered, only covered, by the incremental term. But you do have investment and prospects and all of that. In the meantime we're kind of investing in this way in Saudi, but we recognize that as an issue.

Okay. So the margin preview, just to understand your comments, is you're going to see flattish type of margins from the incremental work?

Yes.

But you are getting the duration of the awards?

Yes. Those are the positives and negatives of spending capital.

Right.

And my final question is, Gene, can you help us frame, you said earnings essentially flat. You obviously had a little bit of noise in Swizzie. Can you help us think about the 2011 outlook for Swizzie, adding one frack fleet a month, have maybe some delays in terms of supply chain, but can you help us think about how the next couple of quarters look like at Swizzie, or give us some guidance on Swizzie, going forward?

The good news is the supply and demand, in my view, I mean the market confirms this is still reflects a shortage of fracking units. We're finding that we have more price inelasticity. In other words we have more pricing power than we thought. We recently, for example, put in a fuel surcharge, and I mean it just got paid, which indicates that we could do maybe a little more than that or there is some pricing power. Anyway, we're reflecting all of this. For example, specifically, we already had our long-term contacts geared with cost escalation pass throughs. We're adapting that to our everyday contract as well, and the more we find that we can push prices, we'll do it. And hopefully, are doing it.

So that argue for margin expansion through the year?

I don't know about through the year, but for the time being, yes. Bear in mind that a number of prominent prognosticators said that by beginning of April there would be a surplus of fracking equipment. So there is a lot on order, but it is being delayed and a lot is being chewed up. It is uncertain.

All I am telling you is right now we have a pricing power, and I don't see a near term reversal of that.

Okay. Fair enough, Gene. Thanks.

Thank you. The next question is from the line of Robin Shoemaker with Citigroup. Please go ahead.

Yes. Thank you, Gene.

Wanted to ask about Canada. You indicate in the press release that 45 rigs are contracted after spring breakup, which would be quite a few more than you were running in the third and fourth quarter of last year. So is this -- can you describe, is this demand in Canada coming from an oil play or --

It is very similar. Moving out of the British Columbia pure gas into the oil or oil heavy oil or liquid content gas, analogously to the states.

Yes. So just following through, so like 45 rigs contracted, is that kind of the number you could anticipate operating in Canada in the third and fourth quarter?

I would say at least that.

Yes. And the margin improvement in Canada, really quite pronounced in the first quarter. Is that also a sustainable trend or --

I think so.

Okay.

Should be.

Yes, because that was quite a big improvement in margin.

So then on the US land side, you said you got 225 rigs at the end of the year and you anticipate margin progression through the year. Your margins peaked at a little over 11,000 a day in the US in the last cycle, and is that a level that's achievable in the current cycle, given the cost pressures?

Probably not. We'll do pretty well.

Yes. Okay. Good. Thank you.

Thank you. The next question is from the line of Jim Rollyson with Raymond James. Please go ahead.

Good morning, everyone.

Gene, maybe going back to Robin's question, just on Canada, to cut to the bottom line. I think a quarter ago you guys were thinking operating income from that business for the year might be in the $35 million, $40 million range, from a low 20s last year. You almost did that already in the first quarter. And I recognize second quarter is going to be a loss, but given the visibility you have with those 45 rigs in the latter part of the year, any revision or kind of thoughts on where operating income from Canada might end up for the year? Are we talking $80 million now, or just kind of what are you thinking?

Now, what number did you say we had given you earlier?

35, 40.

I think we'll do, on the really juicy side, up to 50% better than that.

Okay. That's very helpful.

On the lower 48 side, just kind of some semantics here. Costs went up quite a bit this quarter sequentially, and you typically see that I guess with the payroll tax and stuff. Was all of the 650 plus increase per day for rig day in costs related to the payroll tax that kind of fades somewhat as we go through the year, or is there some other more recurring things in those numbers?

No. About $250, $300 a day is specific to the payroll tax. There is some incremental cost vis-a-vis R&M starting these rigs up. We have reactivated last year. We reactivated 36 conventional rigs, put those in the market, so we're still incurring some costs from that. Now the payroll tax will fall off in the -- basically starting April going forward, late March, April. Also there was a pushdown in terms of our success from our HSE efforts in the fourth quarter that also showed you would see a flip in cost basis from that, and that -- so you saw some increase vis-a-vis that, which I think was about 200 plus also, 250.

Okay. That's real helpful.

And then, Joe, on new build opportunities, you added four kind of up to 33 now. Seems like the rig count is still going up and interest in the newer types of rigs is still there. Maybe characterize what you're seeing for opportunities for additional new builds just going forward?

Yes. We're, again, with the new builds we have several operators we're currently -- we were hoping to be able to put those in numbers today. We're unfortunately, we're a week or two weeks away from being able to finalize some of those negotiations. But there is still a lot of opportunities, especially where operators are looking at pad development, IARB series rig up in North Dakota, tremendous interest in that rig, develop again as costs escalate up there they want to minimize location, size, sign up operations on locations and reduce their cost. So we're seeing a lot of interest, continued interest. But again, I don't have a specific number for you, but we're not back to where we were at, the 2006, 2007, early 2008, but we are definitely seeing a strong interest in the new builds.

In order of magnitude, are we talking like four or five rigs, or are we talking like twenty rigs?

On a go-forward basis somewhere in between the four and the 20, on a go-forward basis. How does that sound?

Good hedge. Thanks, guys.

All right.

Thank you. The next question is from the line of Jeff Kieburtz with Weeden and Company. Please go ahead.

Thanks.

Gene, in the press release you said that by the end of 2011 you could see international land rig supply and demand imbalance. What gives you the confidence on that, and what are the ramifications if you are right?

The ramifications are what we have been trying to not overstate, and we're saying by the fourth quarter of this year international, in spite of the hickeys we've had because of other things, but because of these favorable trends will frankly meet or exceed, and bluntly it is likely to exceed, the fourth quarter of last year, which was pretty good. That was like $70 million operating income. And these are the factors that go into making that projection, which is a little aggressive, but you know I am pretty sure we can do it.

Okay.

In terms of margins, without getting caught onto the details about when the peak was, if you return to balance in the fourth quarter, when do you think you get back to peak international margins on the land business?

Not for a bit. We had unusually good circumstances in rig supply demand back in 2006 which, it is a worldwide phenomenon. Specifically, there were differences, obviously, but there were really super favorable confluence of factors that isn't likely to occur in the near term or foreseeable future, and frankly we can do pretty well without doing that super well.

Okay. So that's not necessarily even in your forecast at all, it sounds like?

Correct.

And can you give us any kind of quantification on the step-down in the jack-up rates that -- on the ones that have rolled over? Anything on that, specifically?

It is in line with what's happening in the industry generally.

The first one was a 1,000-horsepower rig, and it is in the high 60s, just below 70, and the other one is approximately in the high 70s, close to 80.

Compared to?

Compared to -- the first one was at 90 and the second one was at136.

So it is like what you see going on in all the jack-ups, and that's like more or less a 35% drop.

Right. Okay.

On the pressure pumping, the deployment delay. If I understood your comments earlier, you have incurred about a two-month delay on the arrival, or let's say deployment, of the first spread. Your sense of the market now, is that kind of now you're on track and you keep going, or is there risk that we see a creeping delay as we move through the year?

The expectation is that this is it, but there is no absolute guarantee.

Okay. And is there anything in particular that you know of that caused that delay in the startup?

Yes. Pumps and transitions were the biggest long lead item.

Okay.

And just high demand out there right now.

Okay. Great. That's it. Thank you very much.

Thank you.

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

Good morning, guys.

Hello.

Just wanted to get some color on 30% tax rate this quarter. It sounds like that's what we should expect, generally the rest of this year, and then do we step down a little bit next year as international profitability returns? Just wanted to hear how you guys are thinking about that.

I think the big thing is that we added Superior Well Servicing which is, at the moment, 100% domestic, at the higher tax rate. I don't know. I think the US tax units are going to increase proportionally about as well as the international.

Okay.

Maybe better.

And the characterization in the press release of expanding margins --

Incident ally, we don't actually pay cash taxes. This is the appropriate accounting including accruals, but we're not paying, currently, taxes.

That's good feedback.

On the lower 48, the press release discusses expanding margins, so that would say that the spot margins have approached where your term contracts are. Is that correct? Just trying to understand how to think about that through the rest of the year.

Joe?

Again, it is relative to different areas in the spot market. If it is North Dakota or if it is East Texas or wherever it is at, I mean, those margins, i.e. North Dakota, are approaching, yes, some of our term contracts. Again, as some of the contracts roll over, we're seeing opportunities to get improvement on some of those term contracts that are now coming off. So the rest of the year ,we think, looks to continue to improve.

And new term work being signed up for North Dakota, is that now high 20s?

Yes.

And my last question, just international has a lot of moving parts in the first half of the year. Second quarter, is it more impacted by the jack-ups being down, in other words, is operating income down sequentially in the second quarter internationally?

Probably flattish.

All right. Thank you very much.

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

Good morning.

I just had a quick follow-up for you guys. Can you -- maybe you just answered it. I was distracted by something. But on the tax rate for the Company going into 2011 and into 2012, can you provide a little more clarity on how you expect that to progress?

The fundamental above the line feature is that we're adding Superior, which is 100% in US at the moment, Well Servicing is growing rapidly, 100% US. The US taxable entities in Canada, which is also a high tax rate domain, they're growing faster than international. So I don't know if we have -- do we have one for 2012, estimated tax? But it is not going to be lower.

Okay. Great. Thanks. That's it for me.

Thank you. The next question is from the line of John Daniel with Simmons and Company. Please go ahead.

Hello, guys. Just a couple questions on the Well Service segment. The 20 rigs going to California, Gene, are those going to be incremental to the fleet and will they work on a 24 hour basis?

They will be incremental. Will they work 24 hours?

No. Those are not 24 hours.

They're work over rigs.

Okay. And then just --

Without the TLC?

Right. Non-TLC.

Some of those rigs out there I thought worked two shifts.

We have some that are, yes.

Okay.

And then, Gene, how do you see the margins evolving in this segment over the course of the year, in light of all of the pricing that people are trying to implement right now?

I think it is good, and I think we're going to do better than the forecast our guys are showing me.

Okay.

Back to your prior levels, I mean, that's a common question asked across the various segments.

Sorry. I don't remember the prior levels.

All right. Fair enough. Thanks, guys. Thanks for taking my questions.

Thank you. The next question is from the line of Scott Gruber with Bernstein. Please go ahead.

Good morning, gentlemen.

Gene, I just have one broader market question. On the international markets, we have seen horizontal drilling and some shale gas development pick up faster than we originally anticipated. We have had exploration, or delineation, programs begin in Mexico and Argentina and China, and this morning Baker mentioned interest in Saudi, and we've actually heard the Russians start talk about horizontal drilling as well.

Gene, when do you think the opportunity will manifest for Nabors to start putting high efficiency pace rigs to work abroad?

Particularly on the horizontal drilling?

Yes.

All I can tell you is we have one of our very best sales guys located internationally, and do we have anything specific, Dave, that we can look forward to?

I think what Gene is referring to, we actually moved one of our pressure pumping guys to the international group to explore these opportunities. So along with the drilling side we're looking at pressure pumping footprint to expand into ( indiscernible ).

Are we missing -- I heard something about an experimental operation in Argentina.

Looking at some different initial operations.

But nothing really firm?

Yes. That's correct.

-- base rigs already deployed internationally. Those opportunities are still coming.

Also we're talking about fracking, I think, now.

We'll have 130ish base rigs domestically, and there is another 80ish or so away from the US land market, so the total will probably be 220 by the time Joe gets his rigs delivered. Worldwide we have pace rigs deployed.

And also, we have had several operators that is we currently work in the shells where they have potential JV partners that are coming from eastern Europe, different areas to look at our rigs, state side, which we then could possibly either deploy or deploy to international other opportunities, so that's been ongoing.

Okay. And are you looking at bundling the pumping and rigs together and marketing those in unison?

We originally contemplated the integrated package this week and offered more than just those two. At the moment the profitability, frankly, on the pumping side is way higher than anything else. S

o the point at the moment is we would like to get term pumping, and there is no point in making that less easy to sell any which way, because frankly there is a like a one-year payout on that stuff, compared to a good payout but a three and-a-half year payout on a rig. So in the meantime, we're saying that while we could do all of those things and where the opportunity arises we do it, but we're not going to risk or delay or make them think twice about doing a multi-year fracking contract because we have a package including rigs.

okay. That makes sense. Thanks. I will turn it back.

Thank you. The next question is from the line of David Wilson with Howard Weil investments. Please go ahead.

Good morning, everyone.

Gene, kind of a high level question here. In the past, you have comment how the stock didn't accurately reflect all the value you guys have in your E&P segment and you are remedying that by selling or monetizing portion of that. Are there any other segments out there right now where you sit back and think, you know, gosh, the full value of this segment isn't clearly reflective in our stock? Are there any segments you think that are not being appreciated by us on the sell side?

Fully appreciated?

And you can't say all of them.

That's what I was about to say.

I don't know. I think the valuation of the pieces is greater than the valuation of the whole still, and maybe that's because we're presenting this stuff in less than the most effective way. I mean, the domestic situation is extremely strong, but we have to say it is drilling, it is work over, it is fracking, it is, you know -- it is not -- I don't think we're presenting it the most effective way somehow, yet.

Okay.

And then, maybe a little more specific one. Recently you made comments around devoting some capital expand Nabors capacity to enter into the coil tubing business. Can you quantify how much capital is being devoted to that and maybe frame the number of units to be added? I think last time you mentioned that that was going to start up in the may/June time frame. Is that still the case?

It is about 50 million that we have placed for twelve units, and the units will start coming late second quarter. We expect to have the first units deployed in third quarter, and we'll get about a unit a month from there, so pretty well on track as far as the timing of those units.

We have some of our own capital that gets added to that in terms of total capital employed.

And just kind of a follow-on there. Is there any concerns about getting crews for these coal tubing units? Do you foresee any problems there?

It is a challenging market for sure, but we have started the staffing process, and it's going quite well at this point. And again, we feel like we got key people for the first four or five units, in place, and so feel like we're pretty well on track to get the key people for those units.

And we're taking the financial hit for hiring these guys in anticipation of deployment.

Correct.

Okay. Great. That's it for me, guys. Thank you.

Thank you. The next question is from the line of Brian Uhlmer with Global Hunter. Please go ahead.

Good morning, gentlemen. How are you guys doing?

Hello.

I have a quick question, a follow-up on Swizzie. You mentioned taking, most of it is in the US for now. What are your plans? What do you envision for that on the international front tracking your rigs, or setting up whole new segments in new countries, and how do you best see yourself attacking that market over the next year, two or three years and what's your strategy there?

I would say we're looking to where we have controlled the situation and ideally where we own the acreage to the rigs and all of that stuff, but so long as the payout is as high in this market as it currently is, the grass is definitely not greener on the other side of the fence, so we're looking at it. We won't be late. We have areas where we control the employment of those things and we'll do that, but nothing is as attractive as what's here at home now.

Okay. So you say you're in the early stages of strategizing how you would do it.

Until we control it, which would be like Canada or Alaska, that's a logical place to put it, and we've looked at that already.

Okay.

And following up on the delays and kind of the costs with having all of those additional folks on hire while you waited on equipment, how do you see your crew expansion and personnel expansion? And are you slightly worried about getting people to staff up all of this new equipment, moderately worried, or starting to get very worried?

I think if anything the delay is just giving us more confidence that we can staff up. The excess people we talked about now that we added in the system will man the first four crews, and we're looking at roughly nine crews we're adding through the rest of the year. So if anything it probably put us a little ahead of the curve, and gave us more confidence that we can continue to add people and get them trained in time for the deployment of the extra equipment.

Great. Thank you. Back to you.

Thank you. The next question is from the line of Janice Rudd with Pritchard Capital. Please go ahead.

Good morning.

I just wanted to revisit the US land rigs that you're building and kind of get a timeline of when you think these are going to be delivered, and are you experiencing much increase in component lead times and/or pricing and high pricing, and the next part is and are you negotiating in Canada for new builds there?

The answer to your question is right now we're deploying about two rigs a month.

Domestically.

Domestically. Excuse me, yes. As far as pricing, we have -- our supply chain group has worked well with our vendors to log down the pricing on our incremental rigs, so we're not seeing a tremendous amount of inflationary pressure on the equipment that's coming to us.

In Canada we're building I think actually two drilling and two work over slant rigs, and we anticipate they will have more than full payout contracts.

So you don't have contracts for those rigs at the moment?

We didn't have one last week. I am hoping we're coming closer to having them at the moment.

When that manager tells me he is going to do it, he is going to do it. He is going to be accountable if he spends the money and the rig isn't working on a contract. I am not saying it never happens. It very rarely happens, and we may have the contracts by now. Haven't checked.

Okay. Thank you.

Thank you. The next question is from the line of Jack Moore with Harpswell Capital. Please go ahead.

Good morning, Gene, and thanks for the call.

I was wondering if you could just talk about kind of a bifurcation in margins upon where the E&Ps and the integrated seem to be flocking to like the Permian and the Eagle Ford, and where I think a few of your competitors are enjoying some robust margins, just how you see the competitive landscape in those regions going forward, and do you see some of the margins there attracting more competitors?

The answer is when the margins are good, the competitors are going to come. Joe Hudson is running that unit. He is not going to readily admit he is not ( indiscernible ) competitors. I would say, to me the pleasant surprise is in some of the hot markets the less than state of the art rigs are getting good margins because they can do the job.

Interesting.

In general, it is good. I would say the Bakken particularly, you don't need a super duper rig.

No, and again, I think the question is a good one for us, in the USA. We specifically have a very (indiscernible) in the Bakken which was the most attractive E&P market, as we understand, in the US. We are moving into West Texas. We have had a significant increase in the rig count in West Texas in the past probably six months, pace rigs and stemming from down from the Haynesville area. We've deployed rigs again from the same gas prone area to the Eagle Ford. So we are seeing market rate improvements in both of those areas. Again, for us, the key point has been the Bakken which we have 25%, 26% market share up there.

Right. And where you are moving rigs, you are looking to compete on the full scale of Nabors offerings, is that correct?

Yes.

And then, thanks very much.

And finally, can you talk about Yemen, just what your expectations are there and how long, obviously you can't predict how the fighting ends and when it ends, but just from the energy business perspective, their disruptions you're seeing and what you expect going forward?

I expect I won't visit and go from town to town like six or seven years ago. I don't know. I think what's the status right now, all the ex-pats out?

All the ex-pats are out. And our rigs are being staffed by the locals to keep them up and we have negotiated with our customer and long-term stand by rate without proves, so they didn't want to put them on force majeure. They don't want to cancel the contracts. They want to keep them there. Their expectations are they will start up, they don't know when, but they feel like it is not going to be forever, so they are working through the Ministry and everything to put the rigs back to work, and they still are being earning revenue while they're staffed.

How many rigs are up and running, and how many are affected?

We have three rigs that are down, but we still have one rig working.

Great. Thanks very much.

Thank you. The next question is from the line of Tom Curran with Wells Fargo. Please go ahead.

Curious, when it comes to Columbia, following the acreage you will be selling, what's your net production going to be?

I frankly don't know. Do you know?

It is pretty small and it's more in the middle of the Magdalena basin. The acreage that we'll be left with in the Yanos is all prospective acreage, it's not really been evaluated yet.

Okay.

And then turning to the US Well Servicing market, do you see the potential for further consolidation there within the legacy fleet, as the market continues to strengthen and might Nabors have an interest in it?

I would say we'd have an interest in it. That is a business where consolidation should be very economical because they have multiple locations. I mean, scores of locations which any at the moment we should be progressively looking at the location redundancy that our own separate business units create, in other words, Superior has a bunch of them, work over has a bunch of them, controlling has a bunch of them. We have room for consolidation ourselves, which I hope and I think we're working on that But, yes, this is an area where the over head, fixed over head is humongous, and if somebody has X dozen or X score of locations and you merge with somebody else, you're going to have a significant portion of those redundants, consolidatable.

So --

We're not doing anything with that. The work over, in my view at the moment, and everything is subject to change including my view, you know, this is a local base thing. It isn't our forte, it is more important the guy who's running the Little League team is more likely to get the business. And the equipment is, you know, there for a very short periods, so quality of the equipment isn't always appreciated or as relevant in drilling.

Okay.

As a result of that, do you -- as you look to continue to extend the fleet, is it more likely that we'll see you continue ordering new build work over units or could we see a shift to more asset transactions?

I would say it is more likely to be organic.

Great.

Everything is possible.

Okay. Thanks for the overview.

Alisha, I think we're up against our time limit here. We'll just entertain one more question, please, and then wrap up.

Okay. Thank you. The next question is from the line of [Ovenna Obilo] with Citigroup. Please go ahead.

Hello. Good afternoon.

Quick question. Actually focusing on the balance sheet, I know the $1.4 billion of converts are coming due and the intention seems to be, I guess, to draw on the revolver and then use available cash and not cash from operations. Is there a consideration of just coming into the bond markets, given that the markets seem to be pretty receptive and open, perhaps to refinance or maybe just drawing down on the revolver first and then coming with a new issue?

We'll look at our options and frankly the terms of the convertibles are getting so juicy that while we absolutely don't want to issue equity, it is opportunistic. If we looked like we'll end up with $600 million or $700 million or $800 million short by the end of the year, after paying off the 1.4, there could be asset sales that we're looking at. We have manufacturing that's non-core that we could consider selling, et cetera. But we'll see what it is then.

But I think the important point is, today we could do a billion dollars even debt deal tomorrow, but today -- so the markets are wide open.

Okay.

We traditionally have borrowed before we needed it. We'll continue to be conservative that way.

Okay. Thank you. Appreciate it.

Alicia, I think that we'll wind up the call now. If you want to close it out for us, please.

Absolutely.

Ladies and gentlemen, that does conclude our conference call for today. You may now disconnect, and thank you for your participation.