Nabors Industries Ltd (NBR) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Nabors Industries Ltd. second quarter 2011 earnings conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions.

(Operator Instructions) This conference is being recorded today, Wednesday, July 27, 2011. I would now like to turn the conference over to our host, Mr. Dennis Smith, Director of Corporate Development.

Good morning everybody and thank you for joining us for our second quarter earnings conference call. With us today, in addition to Gene Isenberg, our Chairman CEO and myself, is Tony Petrello, our President and Chief Operating Officer; Clark Wood, our Principal Financial Officer; and Laura Doerre, our General Counsel, and every business unit head that we have is with us here as well.

We'll follow our customary format where Gene will give some overview remarks on the quarter and some comments about the outlook and how we see things, and then we'll open it up for Q&A. We'll limit the call to approximately 1 hour. Wind it up at that time.

Just want to remind everybody that since we're discussing the outlook, this constitutes forward looking statements and as such is subject to those provisions of the securities and exchange laws. With that I'll turn it over to Gene.

Welcome, again, everybody to the conference call for the second quarter. I want to thank everybody for participating this morning as usual. We have posted to the Nabors website a series of slides that contain details about performance of the various segments of the Company. Please refer to these as we proceed.

Second-quarter results came in slightly better than we had indicated in our pre-release. Primarily on the strength of our North American operations, we achieved significant improvement in our US land drilling business and in Nabors well services, and better than expected resale's in both Canada and Alaska during what is essentially a seasonally low period for those 2 units.

While results in our international operations were somewhat disappointing, they were completely in line with expectations and also flat to the first quarter. Results in our pressure pumping operations were short of expectations for the full quarter, but improved significantly in the month of June and the shortfall prior to that was really de facto investing to gear up.

Net income of 68.1 and earnings per share of $0.23 reflected a significantly higher tax rate due to lower contributions from our international -- proportionally lower contributions from our international operation and obviously more income from the US higher tax operations in the North American ones. It also reflected higher expenses and other reconciling items.

Income from discontinued operations was $124 million, reflecting the sale of our Columbian E&P operations. Total proceeds from those sales would be around $250 million, yielding a gain of around $129 million.

While that's discontinued and others are non-recurring, from our viewpoint, it's all income, and we don't -- we take it in the way that maximizes it to the Company rather than worrying about what's recurring, non-recurring, discontinued, and all that. From my viewpoint, it's all earnings.

Our financial position and balance sheet remains strong. During the quarter, we redeemed approximately $1.4 billion in convertible notes. that we obviously had been anticipating for quite a while. This was funded by a combination of cash on hand, the E&P proceeds, and a partial draw-down of our $1.4 billion revolver, which is pretty low-cost LIBOR plus 1.5.

Bottom line is we reduced our debt by approximately $200 million and still managed to fund approximately $670 million in capital expenditures during the quarter.

Now let's turn to the units. Nabors Drilling USA results in terms of operating income for the US land operations were $99 million plus. That was up approximately $19 million over the first quarter; $7 million of this income resulted from lump sum payments for early termination of rig contracts. The rigs involved in those transactions have since been put to work on new contracts.

Results for the balance of the quarter were attributable to rig count, up approximately 6 rigs to 194, and today we have how many working? 200 and net improvement in our rig margins of a little over $400 per day, excluding the impact of the early termination payments.

During the second quarter, this unit was awarded 7 more new builds, contracts increasing the total of new builds to 144, 36 of which were set to be deployed on long-term contracts are yet to be deployed, and we expect 13 of these by the end of this year and the rest next year, and we obviously hope, based on current inquiry activities, that this total will increase.

In addition to the new builds, we've had 9 SCR rigs undergoing major refurbishment and upgrades for deployment prior to the end of next year, and we have 22 more that match the current market conditions, which is essentially 1,500 horsepower, and make economic sense to deploy.

Meanwhile, we continue to see customer interest, increasing interest in contracting additional rigs, both new builds and majorly refurbished rigs. The outlook for drilling activity remains strong, and the pricing is gradually improving.

Nabors Canada, we posted a loss in a typical loss quarter, substantially down for the first quarter as is also typically the case, but better than we had expected, frankly. The outlook for this unit continues to improve. Although the third quarter resumption of activities was delayed somewhat by July's wet weather, we still expect it to be strong with further improvements in the fourth quarter.

Longer-term, this unit's prospects are even stronger than we have previously envisioned as many large projects are emerging that will result in a fairly substantial number of new builds. We are expanding pressure pumping business to this market, and with discussions that are going on and the demand we see, it's entirely possible we have a couple incremental spreads in this market by the end of the year.

Well servicing posted good results, $16.5 million, up $5 million plus over the preceding quarter. This was attributable to an increase in both rig and trucking hours and was achieved despite some weather disruptions in both the Bakken and Marcellus shales. The unit continues to roll out new capacity including almost 2 dozen new millennium 400 horsepower millennium rigs for the California market.

We are also expanding the capacity of our fluids management sector, which looks pretty good. This is dramatically enhanced by the synergies with our pressure pumping business.

To date, we have deployed 900 of the thousand new frac tanks we ordered and approximately a little over 100, 105 of the more than 150 trucks and tankers we ordered in 2010. Most of these have been deployed on long-term contracts and obviously we are continuing to order this type of equipment as long as long-term contracts are available.

International results of $36 million were basically flat for the first quarter. We continued to receive new contracts. Most of these (Inaudible) rigs require modifications, upgrades, and delayed -- anyway, the income is not as robust as we had expected, and we hope it will become.

In our Saudi Arabian operations, we are scheduled to start up a substantial number of rigs, which will probably bring to over 30, the number of rigs operating in Saudi by the first quarter of 2012. We are the major player there.

Operations in Iraq continue to be challenged. We have logistical challenges. We are undertaking steps to overcome a shortage of equipment, skilled labor, and numerous obstacles to getting equipment in the field and onto a specific field.

In some cases, we had to wait actually for land mines to be cleared before work commences. Bottom line is our second rig is now in the country, and we expect to have 5 rigs operating by year end and more than twice that number in 2012. Siggi has been there. I suspect he has a girlfriend -- he's been there a lot, and it's starting to pay off.

We have eliminated any expectation of resumption measurable activity in Yemen for the rest of the year, and, in fact, our ex-pats have been pulled out of the country. As a result of all this, we expect the third quarter to be essentially flat to second quarter and ramp-up in Saudi, Iraq, and other areas, along with essentially 2 rigs in Papua New Guinea and high platform rigs going into India, high value platform rigs going into India. We expect a meaningful improvement in the results towards the end of this year, building up to a pretty seriously stronger 2012.

Pressure pumping, this is going to be a very valuable acquisition in addition to our operations, even though the results of around $44 million were flat quarter-to-quarter. Equipment delivery delays, also de facto investment in hiring personnel to run this equipment, hits the P&L no problem. But that's hitting the P&L expense and concept; it's really part of an investment.

The biggest single factor was getting the hands on board and trained and unfortunately hitting the P&L before they actually went to work and produced profit. The first of 9 incremental spreads of the equipment arrived mid -- [high to] mid-May and we expect equipment deliveries to be back on pace before the end of the third quarter. We are currently operating 17 frac spreads, of which 8 are on long-term contracts.

We expect to have 23 spreads operating by the end of the first quarter of next year, and I think our long-term objective is to get up to roughly two-thirds on term contracts.

US offshore unit posted a loss of $1.0 million in the second quarter. This has continued delays in activities in the Gulf. Basically the way I look at it is, if we're operating as we should be, the anomalous shutdowns that we have seen and continue to see, we should do about $40 million a year.

So, if we get back to full operations in 2 quarters, we'll do $20 million for the year. If it's 3 quarters, we'll do $10 million for the year, takes 3 quarters. I don't know when it will happen. I don't know who else does either, but we also have other things cooking. [Two trials would be better], as it increases the activity increases, albeit we don't know how much, and we have the operation of a couple big rigs that we're building.

Nabors Alaska, operating income was better than we expected, $8.3 million in the seasonally low second quarter, but down from $11 million this unit posted in the seasonally high first quarter. Expectations were a modest increase this year, but there are a number of prospects emerging that should provide significant improvement in 2012 and beyond.

Other operating segments, the aggregate of the entities in this unit posted a $13 million, $14 million profit in the quarter, up from $7.5 million in the first quarter. This is primarily due to strong contributions from Canrig, following first-quarter supply chain issues. This more than offset our customary seasonal dip in our Alaska joint ventures and the flat results in our recurring operations.

During the quarter, we agreed to purchase our partners' interest in Peak Oilfield Services, our Alaska rig moving and construction business, making it a wholly owned subsidiary. We expect this transition to close at the end of this week, and we are evaluating opportunities to expand this business, both in Alaska and in the lower 48.

The outlook for this unit is strong, driven by Canrig's solid backlog on capital equipment increasing contributions from rentals, as well as continued growth from ROCKIT and some high potential related technologies.

Oil and gas, this unit had an operating income of $5 million in the quarter, but more important, the way we run the business is we don't distinguish between operating income and profit. As I said earlier, we have sold $250 million of Colombian assets, or will have sold, with a little more than 50% -- well, around 50% of that being profit, I think around $130 million profit.

In summary, let me say that while we are disappointed with our slower than expected recovery in our international results, we are encouraged by emerging opportunities in this [easy] international operation, and other units and [by exit rate] was superior, which results will be, I think, further enhanced by new equipment deliveries and the continued strength in that market.

[All our] North American businesses are improving, with the exception of Alaska, where we expect by year end to have projects in hand that will significantly enhance 2012 and beyond outlook. Meantime, we continue to look at acquisitions and divestitures that would enhance and streamline our business and hopefully make it more profitable. It's difficult to predict the pace of recovery, but we expect by year end every single unit will be doing better and showing more clearly its potential. I think we're ready for questions.

Patricia, we'll go ahead and open it up to question-and-answer now.

Thank you, sir. Ladies and gentlemen, we'll begin the question-and-answer session at this time. (Operator Instructions) And our first question comes from the line of Jim Rollyson with Raymond James and Associates. Please go ahead.

Kind of a bigger picture question, Gene. Some of your peers have reported so far this quarter have talked about the sustainability, or at least what they see as sustainability of what's going on in North American operations today and obviously the recovering improving picture on the international front. And from a capital expenditure perspective, kind of what we seem to be hearing so far is that a lot of guys are expecting 2012 CapEx to be similar or even greater in levels than 2011 rates. What do you see for Nabors in terms of opportunities and potential for CapEx as you head from this year to the next?

I think it's pretty similar. I think I've been in business a long time, and I've never had a shortage of capital for good projects. It's the opportunities that are driving [processing], and as I said earlier, they look pretty good.

Okay. On the US lower 48 land rig business, you continue to layer in new contracts which you've done for several quarters. I don't know if it's for you or for Joe, but how many rigs do you think you could deliver in a year at this point if demand were there?

By the end of the year, we're looking at -- [at the end of the day], we're looking at an increase of probably 20 plus rigs. By the end of calendar year 2011 (Inaudible) program right now is about 2 rigs a month, average. We're looking at -- we continue to identify, as Gene mentioned, existing assets and we continue to [upgrade and] utilize some of the technology that Canrig brings. (technical difficulty) what the market demands, we're going to continue to push forward to meet.

Okay. And then a little color on pricing or margins or however you want to look at it, are we still seeing kind of new build opportunities, leading-edge day rates trending up or are they kind of holding steady or where do you see those?

I see them continue to improve. Certain areas are better than others depending on the market, there is some delta between the 2, they continue to be strong.

And how about on the reactivation or upgraded rig side? Where are margin levels for those today and where do you see those going?

Depending on where it's at, again whether it's in the northern areas or the south. The northern areas tend to have a higher demand because limited capacity up there. We feel like we've got a strong market position in the northern areas, specifically the Bakken. The southern area, we've also been able to take some of the refurbs which we put a fairly large cap on -- (technical difficulty) We've got good rates to pay back what we put in.

You can make them almost equivocally attractive to a customer.

Okay, thank you very much.

Thank you. And our next question comes from the line of Scott Gruber with Sanford Bernstein. Please go ahead.

Good morning, gentlemen. Staying on the new build question, the expansion thus far in the US has really been dominated by you and your 2 large peers. Seeing a little bit of a build by yourself on spec, is there an appetite to be a bit more aggressive on the new builds front, to try to capture share in the US in 2012 and beyond, given a clear advantage within the horizontal drilling market?

Well, we have -- I don't think there's any point in describing our total strategy, but we are building a few -- if we have prospective contracts for ex-rigs, we'll probably, right now, build before we have the contracts signed for some percentage of those and we continue to do that and the details we'll announce as soon as all our competitors do.

It sounds like staying in little bit ahead of the contract demands?

Yes, sir. It puts us ahead of the contracts being signed. We're building into.

Got it. And then on the margin outlook, a nice bump up in 2Q. How sustainable do you think this trend is, what should we be expecting for margin expansion in 3Q and 4Q? It seems like we should still expect several hundred dollars a day given the big wage increase at the beginning of the year is behind us and you have a nice tailwind as contracts roll, is that fair?

I think so. I think I'd prefer you don't expect a big increase and that we produce, but basically it's not going to go down.

Should we be expecting something on the order of $300 to $400 a day in Q3?

I prefer you expect a little less and that we produce $300 or $400.

Okay. Fair enough.

It's paced a little bit by contract roll overs. There's a big backlog of contracts at hand, so there's a limit to how fast it can move.

Right. Can you give us a little bit of sense of how the contracts are rolling 3Q and 4Q?

There is actually a slide on the Web site that has that.

Right. I'll check that out. Last question, on California, you have a big position there. On the wells servicing side of the business, obviously OXY has a big opportunity in the Monterey. How are you viewing that opportunity? You obviously have the established relationship with OXY operating bases in the market. Is that going to be strategic focus for you, are you going to be looking at moving rigs and pumps and fluid handling equipment into the market?

We'll be able to cope with whatever we can get. And you are right, we do have a good relationship with OXY. I don't know how it's playing out so far. Do you Joe?

(inaudible - technical difficulty) Yes.

we have -- on the well servicing side, we continue to move rigs in there for Occidental, and we do quite a bit of work for them under [Thumbs Island work] and anticipate participating certainly on that upside.

We do have 20 new well service rigs going into California in the next (inaudible -- technical difficulty).

Gene, overall, do you think you can capture more than your fair share of the drilling activity growth in either acid treatments and stimulation work in that basin, given your relationship and position?

I think so. The relationship is a function of performance and quality of rigs. So far, we're okay.

That's it for me. I'll turn it back. Thanks.

Thank you. Our next question comes from Geoff Kieburtz with Weeden & Company. Please go ahead.

Good morning. Thank you. A couple of questions. You mentioned early termination in the lower 48. Obviously, it hasn't hurt you in terms of re-contracting the rigs, but is there any story behind the early termination?

No. Nothing -- pardon me?

Contracts.

Joe said he wrote good contracts.

Yes. I guess just a little bit surprising somebody is giving up a rig in this environment. Also --

It was a gas related project.

Got you. And you were talking about the SCR upgrades. Can you give us some idea of what the -- how long it takes and about how much it costs to take these rigs and refurbish them to your competitive status?

Yes. It's taking anywhere from 60 to 90 days to bring the rigs in, go completely through the rigs, [top drives], catwalks, et cetera. So, we're taking these rigs out. We're from $8 million to $9 million, but some of these we've received up to 2 years term, some less, but we're getting a good return on investment, we're providing a good piece of equipment to meet a market that's requiring rigs now.

And about how much are you spending to do that?

I'm sorry?

About how much are you spending to do that?

Anywhere from -- the largest refurbs -- now this includes the addition of a cog drive, the addition of catwalk, all of which is Canrig, so it is our own company, but we're putting anywhere from $5 million to $8 million on the larger refurbs. We have mobilized some recently that did not require that level of upgrade and also -- (technical difficulty)

Okay. And are you doing that entirely on signed contracts or are you doing some of that ahead of contracts being signed?

Both. We have some signs terms, like I said, up to 2 years, some 1 plus, some we're building to meet market demand. We think as (technical difficulty) -- the market is increasing and you've got to be prepared to (technical difficulty).

Okay. And if I could shift to SWSI, could you give us any more color on the delays that you incurred during the quarter? Was it getting the equipment into your yard, or was -- because Gene you mentioned something about -- not sure if you were talking about having difficulty getting people or the extent of having the people without the equipment, but can you give us a little more color as to --

Latter was certainly true and the former is why we got the people as soon as we could.

Okay.

Go ahead, Dave.

I guess --

One second, I think -- .

Most of it was on the equipment side. As Gene said, we staffed up, and geared up ahead of time, make sure we had everyone trained prior to, and equipment delays were the biggest part. In June we started seeing a nice influx of equipment started getting ready for third quarter.

I guess where I'm really headed is what underlies your confidence that the delay that you've encountered is roughly a quarter that it's not going to continue to stretch out as we go over the next 3 or 4 quarters? Why is it just a one-time deal?

We saw a nice surge of equipment come in June, and again, looks like the major components have been received by the builders and looks like, again, third quarter should be -- everything looks like it's pretty well on track, start getting the majority of that equipment at this point.

Okay. And lastly, can you tell me what percentage of SWSIs capacity is on a 24/7 operation?

The 17 crews, roughly 50% at this point operate 24-hour operations.

Sorry, there was one other question. The decision to expand into Canada, does that signal that you think that there is a better return on investment opportunity in Canada? It seems with tight equipment, you would concentrate on only the highest return potential. Is Canada better return market in your view?

I think your statement was correct, and I think we're looking down the road sooner or later, we'll be attractive in Canada, as attractive.

Okay. All right. So, open up the operation, but not necessarily pour a bunch of capital into it immediately.

We're not diverting capital from the currently attractive US market.

Great. Thank you very much.

Thank you. And our next question is from Kevin Simpson with Miller Tabak. Please go ahead.

Thanks and good morning. So, I have several questions. First, for Dave, on pumping on SWSI, was there catch up in June? Sounds like June was very good. Was there catch up from what you didn't do in April and May, or is what sounds like a good June result something we can extrapolate for EBIT to grow off of for 3Q and 4Q?

Most of June was just -- we had a new crew coming on in May, so again, there was a little bit of seasonality that carried over May to June in the Bakken, but most of it was really the addition of the new equipment.

So, it's something that -- is that you ought to be able to build off of for your results for the second half of the year?

That's correct.

Okay. Great. And, Joe, I just had a question about the kind of -- your conversations with customers about next year. It just looks like the cycle is stretching out to kind of unusual visibility because of the high returns or maybe because they have to plan a lot more than they normally -- than they used to for wells, but kind of on a scale of 1 to 10, how good is your visibility for further expansion in '12, compared to what you're used to in your career?

My career? That's 35 (Inaudible) -- Visibility is 7 to 8, I'll be very honest. Unless the economy -- whatever occurs in the US economy which we have no control over --

7 to 8 out of 10.

Excuse me? 7 to 8 out of 10. Correct.

You're still being conservative. Not 10 out of 10, then?

I'm not going to say 10 for this perfect world and with those 30 years we've said it's not a perfect world. But, Kevin, there are so many opportunities flowing through with major operators who are also acquiring companies they have to -- they've got to spend the money to drill a well. So, we think there's a lot of opportunity that we haven't seen. The first quarter, we had a bit of a, I would say, 2 to 3 weeks. I don't know how to explain it [the uncertainty], but we've seen pretty dramatic improvement in terms of sustainability for the next 12 to 18 months. What we're seeing just from either bids or customer interface with our marketing personnel.

Some of the deals recently have been -- you spend on drilling to acquire an interest. And the guy who sold it has no interest other than let the other guy spend the money as quick as he can, so that's been a factor in these markets lately.

Okay. And I wanted to swing overseas. I assume Siggi is there. Obviously, these delays have been a disappointment to the marketplace, but ex-Iraq, which sounds like it's tough to predict, the -- do you -- I would ask the same kind of visibility question. My off the back of the envelope is potential bubble of EBIT overseas next year, and just wondered if that would be the kind of forecast that you'd hang your hat on in front of Gene?

I'm very careful about what I'm going to say about the next year, but all I can tell is that we see increased -- first of all it's high demand in all the key markets that we have, Algeria, Saudi, Mexico, all the core markets that we operate we saw increase in activity. So, I think by early next year first quarter, second quarter, we pretty much reach very high utilization, so from that point I'm very optimistic that we have a good 2012.

Okay. And is there -- are you in a position basically where you feel like you can expand over and above what you already have in a number of your existing markets, or do you see need -- opportunities to move into any new markets next year?

We're always hoping to go into new markets Kevin, but it's got to be really future good outlook for us. We are in so many countries already, so we're looking at every country that has good opportunities and we take it if it is worthwhile, but priorities are definitely on the core markets.

Okay. And then 1 last one, Gene, you've got a fair amount of short-term debt and the revolver's are really attractively priced, but are -- is, A, some kind of terming out of some of this debt A likely over the next couple quarters?

I'd say highly probable by over the next couple, 3 quarters, yes.

And so --

In other words, we pulled down a revolver, we are paying -- hopefully reducing it -- I haven't checked recently as what the expectation was, but last time I looked there would probably be $500 million, $600 million, $700 million we'd like to convert away from the revolver to permanent debt.

And so I guess the only -- the follow-up to that is with the stock still below where I know that you think it should be -- can we assume that whatever -- (Inaudible).

No stock. [You can assume no stock.]

So, very probable being straight debt and having no equity component with it?

Yes.

Thanks. That's it for me.

Thank you. And our next question comes from the line of Arun Jayaram with Credit Suisse.

Good morning, guys. Gene or Siggi, I was wondering if you could help us understand exactly what's going on in Saudi. You mentioned you expect the rig count to go from 21 to 30, but I did read in the press release approximately 20 rigs are down. Just trying to reconcile what's going on in terms of the rig count there. And the follow-up would be, what is the potential impact to operating income once all of the rigs are up and running?

I guess in Saudi, it started a couple months back that Aramco went out for [tenure] and basically the message we got is that they go from the plus 90 rigs that they used to have working and they're going to go back to a much higher number, probably in the 120s. And so we have been awarded a few rigs and we're preparing those rigs and we've been running, after the last down turn, we're running 23, 24 rigs average in the year and we're going to go back to plus 30 rigs per year. So, that I guess -- and the rigs -- majority of rigs work in gas, some rigs in oil, and there's quite a bit of activity on the offshore side as well.

But, Siggi, you mentioned in the press release that 20 rigs are kind of down for recertification, upgrade modification. I guess my question is, once those -- what is the timing of those rigs returning to full day rate. I'm just trying to understand what the potential operating income --

They're not all down concurrently, Arun. That means through the whole course of the year. It includes the 4 jack-ups, includes the rigs that are being gas conversions --

Okay.

The upgrades and some (multiple speakers).

But to get the rigs back to work, with the changes that Aramco makes every time they renew a contract, we have to assume anytime between 4 and 6 months and we are in the middle of doing that right now.

Okay. Fair enough. And on the jack-up upside, I know you're working on renewals on 3 jack-ups. Where are you in terms of the renewal process and what is the timing of those jack-ups getting back on the payroll?

We have two jack-ups in the shipyard right now, and probably even, as Gene explained, in the third -- they are basically coming on a little later than we anticipated, but they are under contract. They're going to go on a 3-year contract and the third one is going in the shipyard here next month and then going back into a new contract that is already agreed with Aramco. And the fourth one is in contract until late next year.

Okay.

So, all jack-ups, with the exception of the small joint venture, has been down for a long time waiting to go back to work. At lower rates of course.

Thanks. The second question, guys, I believe you increased your pressure pumping capacity for SWSI by about 109,000 horsepower, yet you are still citing 23 spreads. Are you just increasing the amount of horsepower per spread or just walk me through that?

That's correct. The average is like 42,000.

Okay.

We were at roughly 12 to 13 spreads at the end of last year, or end of third quarter last year. So, we've added some spreads, shifted some horsepower around from some of the higher horsepower areas to do a little more moderate, plus the addition that we're talking about, which [I think is a 23 spread.]

So, what is it like 35,000, 40,000 at this --?

Correct.

Okay. And my last question is just wondering if you could educate us a little bit on the Canadian pressure pumping market, the seasonality there, and what kind of impact to operating income could we see by adding 2 spreads into that market next year?

The seasonal time period, again, is second quarter. Their strong operating time is third quarter through first quarter, and our goal is to have equipment up there in fourth quarter take advantage of that, and take advantage of the fourth quarter first quarter busy season. Again, we'll look at second quarter and how to position ourselves to get through the soft time periods. But it's our first intro into that market, and again we feel like the margins are extremely strong in that area, with the increased oil horizontal play going on. I've got an experienced group coming together up there, so we feel like we're going to be pretty well positioned entering that market.

And the Canadians aren't super competitive up there now.

All right, guys, thanks a lot.

Thank you. And our next question comes from the line of Robin Shoemaker with Citigroup. Please go ahead.

Thank you, Gene. I wanted to ask about further oil and gas property sales. Have you sold all of the properties in Colombia that you intend to sell?

We've sold or will have sold and the numbers we quoted reflect what we will have. I think there is some stuff that we're not currently going to sell. We feel that if we spend a few more dollars on it, we can get those spent dollars plus some extra back. I don't know what the exact status of that is, but the bulk of them are in the numbers we quoted.

And is the status of the NFR potential IPO is the same as you've described previously awaiting -- (multiple speakers).

More acceptable gas price, yes.

Right. Just switching to Latin America for a minute, we see a lot of activity in Mexico, tenders for platform rigs, jack-ups et cetera, and I guess some potential for land rigs, if they pursue the Eagle Ford play in northern Mexico. Is that a market that you see growth potential for Nabors?

I'd say yes, but it's going to be sooner or later and so far it's been later.

Right.

Anything to add, Siggi?

No.

Yes. Okay. And just one final question, when you talk about the blend of term and spot contracts on pressure pumping, if -- it is accurate, I think, that the term is margins are a little below spot. And some of the larger pressure pumping companies believe that contracts really don't stand up to difficult market conditions, that the E&P company kind of walks away. Is your view that you should have kind of 50-50 blend of spot in term? How do you view contracts and sustainability in the downturn? How are they --

(Inaudible). I guarantee you that they are sustainable because what you just said about these contracts, they used to say about rig contracts. When we do a rig contract, we fill it up to 100% of our contract obligations and we will expect the other party to do exactly the same. And, again what you said about these contracts, they used to say about rig contracts, which they don't say anymore. And we want more term contracts. What exactly the target is, is kind of irrelevant. All I can tell you is right now we would welcome more.

Okay. Thank you.

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

Hi, guys. In the supplemental schedule out yesterday, just showing the term contracts for the US 48, there was a pretty big increase out going 4 or 5 quarters in the number of term contracts. Did anything change with regards to your strategy contracting there? Just wanted some color on the big increase in the number of term contracts?

That's the impact of new deliveries and some of the refurbs that Joe is doing when they get delivered.

We've also -- with the term contracts, we've been locking in some very good rates for some good length terms, plus we see there is a fairly good roll over in those contracts, those term contracts. So it's not as if we may show a large number of all these contracts rolling over to be able to effect the spot market opportunity. But we feel the stability of the term contract allows us to put a better product in the field too with personnel, staying with the rigs, stability, et cetera. So, we've -- also we have some rigs in a few areas I won't mention specifically that we are getting tremendous rates on. We've locked in for terms and for us, it was a strategy to improve that market position, understanding signing them to a point that the roll overs give us the opportunity to hit the spot market, but in the unlikely event the thing unraveled and we, as Gene mentioned, we had contracts to support the [off break.]

Basically if it turns out that we are leaving a lot of money on the table by signing these contracts at what I'm -- prices I'm happy with, I'll be delighted.

And just as you think about the working rig count for you guys for the rest of the year, is it fair to think about for each of the third and fourth quarters on average seeing 10 rigs more working for Nabors, 194 going up 10 and then up another 10 for the fourth quarter?

That's about the last forecast I saw.

Yes.

And then just kind of a mundane question on pressure pumping, could you give us an update just where you are today from a frac horsepower standpoint and where you intend to be at the end of the third quarter? Just so we have some guidepost to measure you upon delivering the new equipment?

Yes. At the second quarter, we were about 600,000 horsepower, again, we've got about 90,000 in June, so it was very back end loaded. If you look at the end of third quarter, we expect to be a little over 700 to 750, in that time period. And, as Gene mentioned in his comments, we will be over 800 [going into the] first quarter.

And should I think about your ability to turn the horsepower into revenue is basically being a quarter delayed --

I think that's safe.

That's what we've seen so far this year is about (Inaudible).

Okay. Thank you, guys.

Thank you. And our next question comes from the line of Brian Uhlmer with GHS. Please go ahead.

Good morning, everybody. I have 2 very quick questions. First off, I just want to focus on well servicing and the fact that revenue was hardly up on a per hour basis and what you can prescribe that to. And as we bring on the 200 new millennium rigs, if we expect that number to go up with new pricing for the higher end equipment?

Yes. Well, I think you said 200, I think it's 20. But yes, I mean we'll see some improvement, (Inaudible) I think the costs have gone up. We've kept up with those increases and we've put in increases that will hit in August, so we'll see some improvement.

Okay. So, pricing on the -- was relatively flat from 1Q to 2Q and that wasn't a factor of weather, that was you didn't get any opportunity to push up pricing until just recently?

Correct.

Okay.

We should have, but didn't.

Second off, when we talk about increase in horsepower without -- per job, should we look at revenue per crew to increase or is that requirement due to excessive maintenance that you actually have to have more redundancy in your crews to handle the maintenance and the downtime associated with each crew? Or are the jobs getting harder such that we should increase our revenue per crew projections as we move -- as we add this new equipment through 2012?

[It's very cool about basins], again, some of the -- oilier basins, they use a little less horsepower, a little more chemistry, more cross linked [drills]. So, it kind of varies on our mix. With the oil prices better now than the gas prices we're seeing a trend more towards the oilier areas, which can actually be a little higher revenue per horsepower based on those areas. Probably another trend we're seeing is, again, the [EMCs] are trying to fine tune their economics, so they may drop their quantities of sands or modify their jobs just to try to keep their average (Inaudible), but with the oil mix being a little heavier, price per horsepower is probably going to be a little higher.

Okay. And following up just 1 real quick one, what's the product of accurate number to use for your maintenance on your pressure pumping side? How much is out of service at any given time for maintenance? Has that trended down since -- over the past year of operations?

It's probably about 15% down in any time period. Again, with the new capacity coming on, it's going to be more reliable. It's going to help to offset some of the older equipment that we have. And again, a lot of the crews do have extra back up on location, which helps offset any shift if the (Inaudible) pressure is higher or (Inaudible), but you're looking at 15% down plus probably an extra 20% as back up on location.

On location. Great. Thank you.

Operator, I think we've just got time for one more question please and then we'll wind up the call.

Absolutely. Our last question comes from the line of John Daniel with Simmons and Company. Please go ahead.

Thanks for squeezing me in. Just 1 question, you commented, Gene, about the process of looking at acquisitions, divestitures, can you say if there is one that you're placing more emphasis on at this point?

No. I wouldn't say that. Nothing on the (technical difficulty), but we are always opportunistically looking aggressively.

That was it for me. Thanks, guys.

Thank you.

And ladies and gentlemen, that was our last question. Management, please continue with any closing remarks.

Well, thanks everybody for joining us. That pretty much winds us up for today, and if you've got any questions that didn't get answered, feel free to give us a call, we'll be here the rest of the day and tomorrow. And thanks for tuning in and look forward to reporting to you again.

Thank you, ladies and gentlemen. This concludes the Nabors Industries second quarter 2011 earnings conference call. This conference will be available for replay after 12 PM Eastern standard time today through August 4, 2011 at midnight Eastern standard time. You may access the replay system at anytime by dialing the toll-free number of 1-877-870-5176 and international participants may dial 1-858-384-5517 and entering the access code of 4451031. Thank you for your participation. You may now disconnect.