Nabors Industries Ltd (NBR) 2013 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by, and welcome to the Nabors Industries Limited fourth quarter 2013 earnings conference call.

(Operator Instructions)

And as a reminder, this call is being recorded today, February 19, 2014. I would now like to turn the conference over to Dennis Smith. Please go ahead.

Good morning, everyone, and thank you for joining our fourth quarter and full year 2013 earnings conference call this morning. We will follow our customary format today with Tony Petrello, our Chairman and Chief Executive Officer, providing our perspective on the quarterly and full year results. We will then provide some insight, as to how we see our business and markets evolving.

To supplement Tony's remarks, we have posted some slides to our website which you can access to follow along if you desire. They are accessible in two ways. If you are participating by webcast, they are available as a download within the webcast.

Alternatively, you can download them from Nabors.com under Investor Relations in the sub menu Events Calendar, and you will find them listed as supporting materials under the conference call listings. With us today, in addition to Tony and myself are Laura Doerre, our General Counsel; Clark Wood, our Principal Accounting Officer; and all of the heads of our various business units.

Since much of our remarks today will concern our expectation of the future, they are subject to numerous risk factors as elaborated upon in our 10-K and other filings. These comments constitute forward-looking statements within the meaning of the Securities and Exchange Act of 1933, and the Securities and Exchange Act of 1934.

Such forward-looking statements are subject to certain risks and uncertainties as disclosed by Nabors from time to time in its filings with the Securities and Exchange Commission. As a result of these factors, Nabors' actual results may differ materially from those indicated or implied by such forward-looking statements. Now I will turn the call over to Tony to begin.

Thank you, Denny. Good morning. Welcome to the Nabors Industries conference call to review results for the fourth quarter of 2013. Thank you all for participating this morning.

As Denny mentioned, we have posted the quarterly presentation slides on Nabors.com. I will refer to these by slide number during my remarks.

Yesterday we announced our results for the fourth quarter which exceeded our expectations. Our GAAP earnings per share from continuing operations totaled $0.42 a share. This includes a few non-operational items that should be considered. These include $0.12 per share of tax benefits related to the fourth quarter impact of our debt tender offer, discrete tax items, and favorable geographic mix.

Second, $9 million or $0.02 per share from the favorable settlement of the previously reserved customer bankruptcy, and third, $5 million or $0.01 per share of lump sum early termination revenue in US Lower 48 business. Collectively, these items account for $0.16 per share. Thus, our fourth quarter non-GAAP earnings per share from continuing operations totaled $0.26 per share.

The sequential earnings growth we are announcing today, without the impact of early termination revenue and other items, was driven by strong growth in our international drilling and US Lower 48 drilling business. In the international segment, our days on revenue once again exceeded our expectations, while in our US drilling segment margins benefited from favorable expense variances. I

n completion services, a relatively full pumping calendar through the quarter substantially offset the negative impact of harsh weather in December. Unusually severe winter weather conditions continues to significantly affect our completion operations in our northern operating areas this quarter. I will talk more about that in our outlook.

Our Canadian drilling business remained challenged by a generally tougher market. Finally, we incurred increased expenses relating to both our strategic review process, as well as our expense rationalization efforts. These are reflected in other reconciling items.

First of all, I would like to talk about highlights in 2013. Before I go into details of each operation, I would like to spend a few moments on our notable accomplishments during 2013.

First and foremost, during the year we were awarded contracts for 34 newbuild or substantially upgraded rigs that collectively added approximately $1.9 billion to our revenue backlog. Second, we deployed the first 15 PACE-X rigs among seven customers. Third, we completed the sales of several non-strategic businesses including Peak, Airborne, several lower spec international rigs in undesirable locations, and our interest in the Eagle Ford oil and gas properties. We realized cash proceeds of over $275 million from these transactions and several other smaller transactions.

Finally, we refinanced nearly $800 million of high coupon notes, allowing us to reduce our interest expense and spread out our debt maturity. In spite of the $208 million premium paid to refinance these notes, we still reduced long-term debt by $475 million and net debt by almost $200 million.

At the same time, we invested just under $1.2 billion in our global fleet, while returning $47 million to shareholders by beginning a quarterly dividend. Cumulatively, since embarking on our Back to the Future initiative in 2012, we have invested in new technology, drilling rigs and retooled the fleet to capitalize on emerging opportunities. We have realized over $600 million from asset sales. We have reduced net debt by nearly $700 million, and we instituted payment of a dividend on our common shares.

Now let me turn to our outlook. We remain convinced of a sustained upturn in the international rig market. Last quarter, we identified several short duration items which would skew near-term improvement in our international business, including time between contracts of several impactful rigs coming off contract in early 2014, and the shipyard visit of our largest jackup in the first half.

The strength of the international rig market is evidenced by the signing of new contracts for many of the rigs recontracting both in the Middle East and Latin America which will commence this year. Also, internationally, our newbuild rig and personnel expansion programs supporting the previously announced rig awards remain on target to achieve rig deployments during 2014 and the first quarter of 2015 as planned.

Similar to the third quarter, our days on rate in the international segment in the fourth quarter were higher than expected, reflecting both excellent operational execution and minimal significant rig moves or other interruptions. Our fourth quarter performance in the international segment once again highlights the international potential resident in the current business, not to mention the potential after deployment of the recent awards.

Turning to the US Lower 48, our US Lower 48 outlook is favorable. We think we have seen the bottom on rates and utilization, and believe there is an opportunity to achieve pricing improvement, as rigs contracted during late 2012 and early 2013 softness are recontracted this year. That said, our growth in this business is dictated by our ability to deploy new PACE-X rigs.

We have an active newbuild program supporting the deployment in 2014 of eight remaining contracted units, on top of three rigs already delivered in 2014. However, we believe we could deploy even more into the field if we had them ready to go. We foresee increased demand for pad-capable AC rigs, and are committed to maintaining a consistent newbuild program to meet this demand. Our current plan calls for an additional nine PACE-X rigs to be built in 2014, and five in 2015 that are not currently contracted, and we are evaluating increasing our monthly pace further. Of course, we remain in active discussion with customers to contract these rigs, and for additional newbuilds built on contract.

In the meantime, utilization of our other AC rigs is already quite high. We are seeing opportunities to increase prices modestly on AC rigs as contracts expire. At the end of the quarter, 129 of our rigs were on term contracts, and 59 were on spot. Demand for our legacy rigs other than upgraded SCR units remains challenged. The recent spike in domestic natural gas prices may support some incremental rig demand, although we believe operators will require more visibility at this price level before increasing their gas-directed drilling programs.

Prospects for the remaining US drilling businesses, namely Alaska and US offshore are somewhat mixed. In Alaska, we believe the market is strong enough to support work for at least one additional rig this year, and two more in 2015. Please remember an Alaska rig is physically much larger than a typical land rig, and a rig in Alaska can yield almost four times the margin of the Lower 48 land rig.

Offshore, prospects for our Gulf of Mexico jackups and barges are limited. Accordingly, we continue to examine alternatives for these rigs. Utilization for our Gulf of Mexico platform rigs is stable, and discussions are underway with customers for additional units. Deployment of the rig for the Big Foot platform is dependent on the deployment of the platform itself. We anticipate the rig going out in the fourth quarter, with full operation in mid 2015.

Moving on to Canada, we have previously described that market as the most challenged amongst our drilling segments from a return point of view. However, there are a number of potential projects targeting Canadian natural gas liquids that continues to generate interest in the Northwest part of the western Canadian sedimentary basin. Additionally the Montney, Horn River and Duvernay areas are expected to benefit from any future LNG export projects.

Within our rig services segment, which now consists almost entirely on our Canrig drilling equipment and technology business and the Ryan directional drilling business, we enter 2014 with a backlog at Canrig that has roughly doubled since bottoming in the second quarter of 2013. Importantly, both the third-party and intercompany backlogs have increased by roughly the same proportion.

Finally, let's turn to our completion and production services segment. For some time, we have discussed the pending expiration of our last two remaining take-or-pay contracts in the pressure pumping business, and the challenge of replacing the contracted utilization.

As expected, those contracts rolled off with the new year. The efforts of our marketing team in this segment paid off, and we have more than replaced the prior utilization with the addition of new customers, yet at a significantly lower per stage rate, reflecting the stark difference in market conditions in the Eagle Ford from when they were initially signed.

The punishing weather thus far in the first quarter has greatly constrained our ability to work in the northern operating areas. We lost about two weeks of work in the Rockies and Appalachia, which are home to 14 of our 24 frac crews.

Beyond the winter weather, the outlook for our completion services business is improving. Our near-term pumping calendar is relatively full, we believe due to our execution in the field. The move to 24 hour pumping schedules and constrained competitor cash flows is likely aging the industries' equipment fleet, and we expect this attrition to improve industry utilization throughout this year and next. We believe market pricing across basins is hitting a floor, as competitors begin pricing in the significant maintenance component of their equipment. We have recently seen less of the aggressive discounting that has characterized much of 2013.

I will finish this outlook with our near-term expectations. Several specific factors will adversely impact our results in the first quarter. First, traditionally higher expenses due to annual resets on employment taxes and workers comp will come into effect.

Second, weather has been unusually severe in many of our Lower 48 operating areas. In particular, operations in our completion and production services segment, either slowed dramatically or ceased altogether in extreme cold. Weather also greatly impacts our customer plans, and therefore impacts our utilization.

And finally, Rig 660, our largest jackup working in the Arabian Gulf, as mentioned on our previous conference call, entered the shipyard in mid December as expected. The rig remains under contract, but is off day rate during its shipyard stay. We expect the rig to return to revenue late in the second quarter. Beyond these factors, we expect seasonal upticks in both Alaska and Canada, though I would note the post holiday rebound in the industry rig demand in Canada has been slower than a year ago.

In the international segment, in addition to the impact of the jackup, we foresee slightly lower revenue days, as more rigs are off day rate while deploying to new operating locations. The impact of the newbuilds and renewals that we have previously announced should be most pronounced in the second half of 2014. In the US, we expect modestly higher quarterly rig years as our PACE-X rigs enter service in Q1, effectively offsetting erosion in our legacy rig fleet.

Demand in completion services and in pressure pumping in particular is improving, and pricing is stabilizing after last year's tendering season, but our operations remain challenged due to brutal weather. We expect EBITDA to decline sequentially due to the aforementioned take-or-pay contract roll off and the weather. However, the actions we took late last year to stem losses in our coil tubing and Canadian pressure pumping businesses will help mitigate the impact on this segment's results.

We anticipate capital spending in the range of $1.6 to $1.8 billion, depending on our actual level of PACE-X newbuilds during 2014. We have seen some slippage in our international CapEx into 2014 from 2013. Finally, you should assume an effective tax rate of 20% to 22% for 2014.

Now let me turn to the financial results. Our consolidated financial results are illustrated on slide 6. Operating income was $160 million, compared to $154 million in the fourth quarter of 2012, and $166 million in the third quarter.

Operating cash flow was $437 million for the fourth quarter, versus $427 million in the fourth quarter of 2012, and $439 million in the third quarter. This comparison includes lump sum early termination payments of $5 million in the fourth quarter of 2013, and $34 million in the third quarter. The fourth quarter results also reflects $9 million from the full recovery of funds owed to Nabors by a bankrupt customer.

Net income from continuing operations was $129 million or $0.42 per diluted share, compared to a net loss of $91 million or $0.30 per share in the third quarter, and $132 million or $0.45 per share in the fourth quarter of 2012. Operating revenue and earnings from unconsolidated affiliates totaled $1.6 billion in the quarter. Also during the fourth quarter, we reduced net debt by nearly $150 million.

Now I will review the results from each of our operating segments. First let me turn to the drilling and rig services section. Drilling and rig services consists of our land drilling operations, offshore rigs, specialized rigs, drilling equipment and manufacturing, drilling software and automation, and directional drilling operations. Our results are summarized on slide 8.

In the fourth quarter, these operations recorded operating income of $157 million, including a total of a $14 million of combined early termination revenue and proceeds from a bankruptcy settlement, compared to $162 million in the third quarter, which included $34 million of early termination income. The US portion of our drilling and rig services segment earned operating income of $75 million, including the aforementioned $14 million. Of this, Alaska was roughly flat, as was offshore.

During the fourth quarter, rig years in the Lower 48 business totaled 183, up from 179 in the third quarter. We expect first quarter rig years to increase slightly from the fourth quarter levels. Our average daily rig market for the fleet increased to $9,712 a day, normalized for the early termination revenue that is attributable to future periods.

Results benefited from typical year-end adjustments including workers comp. We expect daily margins to decline seasonally in the first quarter, as expenses for workers comp and unemployment insurance resume at levels typical of the beginning of the year.

Today, we have 187 rigs on revenue, including five on stand-by rates. Our AC rig count stands at 145. Utilization of our AC rigs in the fourth quarter remained at 94%, and utilization for our pad-capable AC rigs was even higher at 98%. We continue to believe that the prevalence of wells drilled on pads and the number of wells per pad will continue to increase as our customers shift to development drilling.

Drilling on large pads is now common in the Bakken and Marcellus. We see a similar trend rapidly developing in the Eagle Ford and Permian Basin. These trends confirm the direction we took with the PACE-X rig, which was designed from the ground up to optimize productivity and reduce flat time when drilling deep and complex wells on large multi-row multi-well pads.

As I mentioned earlier, rates in the Lower 48 are generally moving higher. For AC rigs, spot rates range in the low 20s depending on basin and rig configuration. For rigs with walking systems, we currently see $1,000 per day premium, and this is increasing $500 or more across regions.

During the fourth quarter, contracts on 23 of our rigs expired. 15 of those received extensions averaging 7.3 months at rates around the low 20s. For the first quarter, we have 29 rig contracts expiring. This all boils down to a flat outlook with a slight upward bias, as deployment of PACE-X rigs at higher rates, are offset by deteriorating utilization and pricing in the legacy fleets.

We are encouraged by the potential impact of recent commodity prices on our customers' cash flows, although we do not anticipate a material increase in gas directed drilling. We continue to see some churn in our existing fleet. However, this churn gives us the opportunity to reprice. Demand for newbuilds at attractive economics remain strong.

Now I would like to turn to the US offshore. Our fourth quarter results in the US offshore business did not see the usual post hurricane season step-up in utilization. Rig years were down, both sequentially and annually. We had anticipated a slow rebound, and it wound up lower than anticipated on both the pricing and utilization fronts.

However, for the rigs that did work, gross margin per day per rate was $21,543, compared to $18,717 the prior quarter, and approximately $15,000 in the prior year when normalized for the allowance of doubtful accounts. The year-over-year improvement in this business has mostly been due to cost improvements, following the consolidation of this business into our US drilling segment. We are now anticipating deployment of our modular offshore dynamic series platform rigs supporting the Big Foot developments in the Gulf of Mexico to occur either late this year or in 2015. Our timing is dependent on deployment of the platform out to the location by our customer.

Next, Alaska. Our Alaska business performed relatively well, as several of our rigs commenced operations earlier than we anticipated, and earnings benefited from favorable mix of rigs since margins were up $32,428 per day versus $29,476 last quarter and $22,344 the prior year. We think this start gives us a good entry point into the 2014 winter drilling season. We remain optimistic for additional drilling activity, thanks to last year's change in the tax structure. We are also engaged in advanced discussions with several operators on large development projects. Timing is still a year or two out, but remember an incremental rig in Alaska is potentially three to four times more profitable than an incremental rig in the Lower 48.

Next, Canada. Among our large drilling businesses, the market for our Canadian drilling segment remains the most challenged. Rig years increased to 33 versus the third quarter of 30, and we exited the year with 42 working rigs, although our average was less than what we had anticipated, as we enter the high season for Canadian drilling.

Day rates and daily margins were roughly in line with our expectations, with margins at $11,478 per rig per day, down from $14,389 in the prior year, as the mix of rigs working was weighted more towards the lighter and more competitive range. We remain optimistic that large scale LNG development will pull through rig demand. I will caution you that timing is uncertain, and our thinking is 2015 at the earliest.

Now let me turn to international. Slide 11 shows the countries where our rigs are currently working. The fourth quarter results for our international operations once again demonstrates the earnings potential that resides within this business unit.

Our operating income was $70 million. We experienced favorable variances versus the previous quarter and our internal forecast. Those variances were evident across several markets, and they illustrate this segment's current earnings power, combined with operational excellence as we continue to rectify the cost issues that have plagued several of these markets.

Our average daily rig margins nearly reached $16,000 in the quarter matching our all-time high, and up from $12,000 in the fourth quarter of 2012. It is important to note that the fourth quarter's financial performance reflects no impact from the awards we announced on the third quarter conference call, or any impact from the rig renewals we also announced. That combined effect is [remains] in our backlog, and should become evident in our earnings as we progress through 2014.

Similar to our outlook a quarter ago, we would caution then against trending near-term projections from the fourth quarter performance. The transitory events we noted on the October conference call are still looming, namely the shipyard visit of our Rig 660, and time off rate for several rigs either for maintenance, rig moves or as they transition between contracts. As we look at the international market, we see demand for additional rigs and supply of the [other] rigs as limited. That situation is likely to lead to rate and margin increases. In turn, we could see additional newbuilds fulfilling the increase in demand.

Turning to the rig services segment, our rig services segment consists mainly of our Canrig equipment and technology business and our Ryan directional drilling business. Segment revenue was roughly flat versus the third quarter, while segment EBITDA and operating income each dropped by approximately $5 million. Canrig's profits were roughly flat on slightly higher revenue, reflecting a modest change in mix.

We are encouraged by the upturn in Canrig's equipment backlog, since bottoming in the second quarter of 2013. The increase in the third-party backlog reflects continuing broad acceptance of Canrig's technology. We continue to pursue multiple initiatives that could also advance the state of drilling technology. At the same time, we are working to improve the cost structure within Canrig.

Next, the completion and production business. Our completion and production services business consists of services that complete and maintain wells including pressure pumping, well servicing, workover coil tubing rigs and fluid management. Operating income for this division is tabled out on slide number 13. Completion and production services posted operating income of $41 million, up from $39 million in the third quarter. We suggested a quarter ago, that the calendar looks relatively full leading into the fourth quarter, and the quarter results bear that out.

Drilling down into completion services. The completion services segment reported fourth quarter operating income of $14 million, up slightly from the previous quarter despite the expected impact from holidays and the unexpectedly severe weather that took hold in December across many of our operating locations. The quarter's results were negatively impacted by coil tubing, as we curtailed operations and stimulation, as we reposition towards power out of the Canadian pressure pumping market and into the Lower 48. Overall, the pressure pumping market remains competitive, so market pricing appeared less cutthroat than in previous quarters.

We added several new customers during the fourth quarter. We began providing pumping services for a few of these during the quarter, and the balance are coming on in the current quarter. We believe our success in adding customers is a function of our field performance. We don't think we are buying business. Currently 14 of our 24 frac crews are working on a 24 hour pumping schedule, another 5 are on 12 hour schedules, five spreads are idle. Across basins, the trend in pricing appears flat, utilization is generally up. We think that the combination suggests the business has marked the bottom in pricing, though we are neither seeing nor projecting a rebound at this time.

Turning to production services. Results in our production services business benefited from the inclusion of the trucking acquisition we made at the beginning of the quarter. Operating income in the fourth quarter was $27 million, up from $26 million in the third quarter. The increase in income in our fluid services line offset seasonal decline in our other services. Even so, revenue per rig hour in our well services business stepped up, even as rig hours declined seasonally.

I would like to make two additional points. The first, is with regard to safety. In 2013, I am proud that we had our best all-time safety record for the Company as a whole. This reflects our focus on execution and performance, and a terrific effort by all our field personnel throughout the Company. The second thing is, we previously announced in a press release that William Restrepo will be joining the Company as CFO. And as you know, we have been searching to fill that job with the right person, with the right mix of talent, both operational and financial, and we think we have it in William and we are excited about his joining us later this month.

Let me summarize our views and actions. We see improving drilling markets globally. The improvement is particularly evident at the high spec end of the market, both domestically and internationally. We anticipate booking significant additional newbuild awards this year. The 2014 impact of the improving market is weighted to the second half of the year. This is due to the fact that our newbuild rollout is heavily weighted to the second half, and also due to the fact that several of our domestic customers have expressed caution for the early part of the year, and adverse weather has been a material factor.

We remain committed to streamline the Company's activities. Our efforts to prune non-core assets continue across multiple fronts. At the same time, we are consolidating functions and ceasing operations where that makes sense. Despite a near-term that could be soft, we are positioned to improve our earnings in the second half of the year. Longer-term the outlook is positive, and we are aligning our business to capitalize on that environment. Thank you for the time this morning. With that, I will take your questions. Thank you.

(Operator Instructions)

And our first question does come from the line of Jim Rollyson with Raymond James.

Good morning.

Good morning.

Thanks for all of the detail this morning. It is pretty clear that on the newbuild rig market right now in the US, that demand remains strong, and it sounds like your backlog order book is going to continue to build. Patterson mentioned on their call a couple weeks ago, because demand is strong for that type of rig, and obviously supply is kind of steadily growing, that there is interest in reactivating some of the better SCR rigs. Curious what you are seeing in that regard?

As we have mentioned before on conference calls, I view our SCR, particularly our SCR plus rig as a free option for Nabors. First, I think I would agree with the comment, particularly with respect to those customers, and customers on the phone I will speak to them, that are looking at lowering well costs, in situations where move time is not as important as drill time. And if that is the case, the SCR plus rigs are well-suited to that, and are a much more cost effective solution. And I think that as people focus on economics, and as things stabilize a little bit more, you might see more in that direction.

Of course, for us the other point we have been trying to make for awhile, was the built-in optionality of our SCR rigs, because those rigs are still the core platform for international. And as you know with our recent international awards, we start to tap that inventory base and move it to international, I think we -- between the announcements we have made today, that it is almost 13 rigs we are moving to international that are SCR rigs. So I think what is challenged is, is obviously the mechanical rigs and strictly SCR.

Thanks, makes perfect sense And then as a follow-up, when you go back to your production service, and completion and production service business, you have obviously talked about the issues in1Q, between contract rollovers and the weather. Maybe some sense of magnitude of how you see margins trending down the first quarter relative to fourth quarter? And then, I presume we just kind of start building back up from there, is that the thought?

Yes, I think as we have indicated in the press release, there is going to be a pretty extraordinary hit in the first quarter. We had basically almost 10 revenue days shutdown on all our crews in the north, the northern areas, which are the Northeast and the Rockies. That 14 crews of loss of flow revenue for 10 days, and there wasn't much opportunity to mitigate costs for that.

And then in addition, as we have previously announced on conference calls, we have rolling over this quarter, we are rolling off of a long-term contract that was substantial revenue, and we have made efforts to replace that equipment. But that is going to transition of moving that stuff to a new operator. So there is some modifying time there as well. So when you put that altogether, it is not just a small hit. It is a pretty big hit to it in the first quarter. As I said, away from that, we have activity for the fleet, and we think we are getting some good traction with customers and adding to the customer base.

And is that work, Tony, mostly short-term in nature, or are you actually getting a little bit of term with the new customers?

I will let Ronnie Witherspoon answer that.

I think we are seeing a mix of both. But we have strategically looked at the client base. As Tony mentioned, we have grown it considerably, and we really are looking at growing with partners that can give us opportunities to increase our pump hours per day. So i.e. people that are going to be doing more and more pad work, and even zipper frac opportunities. And we are seeing that, and we think that is going to continue to take place. (Multiple Speakers). But again, obviously it was lumpy in the first quarter, as for the reasons Tony described. But as we go forward, we hope that lumpiness settles down, and we can maintain a healthy calendar as we just spoke about.

Great. Best of luck.

And our next question does come from the line of Jim Wicklund with Credit Suisse.

Hello, there. This is Brittany in for Jim today. Can you hear me?

That is a high quality substitute, yes. (Laughter).

I like to think so. So it seems like, first of all congratulations on a great quarter. And it seems like you are moving away from an earnings trough. And so, which has been your best returns business during the down time, and which typically is the best returns business on an up cycle?

(Inaudible). Well, through the trough, actually completion and production services particularly on the production side in the 12th period has pretty good returns. And international, when you look at our real cash invested in that, on a net cash flow basis, we have actually pulled out a tremendous amount of cash flow, out of the US rigs since 2006. But I would say, in terms of looking forward, I think we see a great opportunity of improving returns across all three segments, because we have a pretty good -- probably the asset base is good as its ever been for the Company as a whole, measuring in the markets we are in today. So I am pretty hopeful we can extract more from the existing asset base, which is where you are seeing some of these numbers coming in from.

Excellent. And then, secondly on the international side, there has been a lot of talk of Mexico with their energy reform. Do you see that as an opportunity for you in 2014, maybe 2015?

Absolutely. I think in particular, we have commented before that PEMEX is clearly interested in arresting the decline offshore, particularly the Cantarell field. They have a need for several, many more platform rigs, and the platform rigs that Nabors has is uniquely positioned to suit their needs there. And so, there is that. And then, there is also with the advent of the opening up of the whole sector there, we see possibly some additional land opportunities.

Excellent. Well, thank you very much.

Thank you.

And our next question does come from the line of Robin Shoemaker with Citi.

Thank you. I wanted to ask how you are scheduling outlook is for the balance of this quarter or second quarter for your pressure pumping equipment? And is it looking very -- like you will continue to have very high capacity utilization there?

Well, I think as I mentioned, we had the hit the first month. And now we start to move the fleet to customers. And as of today, we have 19 fully working -- 20 fully working so --and we believe there is a book with that-- yes, we have a pretty full calendar. So we believe, in this market as I have mentioned, we have the capacity to keep that leased [equipment] busy right now.

Okay. And just in terms of this increased maintenance CapEx, you mentioned longer pumping hours per day, and I guess, longer pumping hours per frac stage as I understand it. And so, can you give us a sense of how much that increases your maintenance CapEx? And as a kind of corollary to that, what is the lead time now for delivery of engines, transmissions, fluid that you may need in upgrading your equipment?

Ronnie?

Yes. Well, obviously the increase in pump hours, and the more services intensity that we are going to continue to experience, as we move into more 24 hour crew, with 24 hour operation, our maintenance CapEx is going to go up. I think, if you look at 2014 compared to 2013, it is probably about double what the planned maintenance versus what it was in 2013. And that is heavily driven due to the age of the fleet, and what used to take a lot longer to reach 10,000 hours, we have almost cut that in half. And 10,000 hours is usually kind of our limit where we start looking at overhauls and refurbish time for equipment.

The point here is that, there is a lot of smaller size entering the market, and they are having the same burden, and the cost structure for that is going to be more impacted. And so, we think that the market -- that is going to have a stabilizing effect on prices in general.

Okay. And in terms of lead times for delivery of engines, transmissions et cetera, is that -- ?

Yes, for Nabors on engines, I think we are the largest supplier of engines in the world in this sector. So I [don't] have a problem with engines in general. On the other frac pieces of equipment today, I don't know of any real shortages that is available for equipment.

Okay, good. Thank you.

Yes.

And our next question does comes from the line of Jim Crandell with Cowen and Company.

Good morning. Tony, Can you -- I don't think I heard you say this on the call, but can you quantify where you are now on asset sales, and how much still to go, and what kind of proceeds we can expect to receive from those?

Well, I think I did quantify the aggregate number that I have sold this year and life to date (inaudible). In terms of what is left to go, which number is -- where is the number, 670? (Multiple Speakers). Yes, it is almost $700 million.

And also Tony, the biggest components of -- that are still to go?

Okay, the biggest components still to go are -- we have the E&P properties in Alaska, as you know we have that property. And then we have the Horn River properties, the 33,000-acres of Horn River properties up in Canada. Those are the two principal gas assets. And in addition, as I have alluded to in the comments here, we don't see the -- and I have said this before, the barge rigs in the Gulf of Mexico and the jack -- the workover jackups in the Gulf of Mexico is really core, and we are looking to do something with those rigs as well. So those --

And would you be optimistic that all these events will occur in 2014?

Well, like I have said to you before, Jim, what -- I am telling you what I am focused on. And things that I have been focused on, I think I have brought across the line. And these now are on my radar, just the way the other things that came out in 2013. So they are on my focus list.

Okay. Is it possible at this point, Tony, to quantify the quarter to quarter weakness you are looking for, in either domestic or international contract drilling in the first quarter?

Well, it is difficult, like I said. I think the best indication of size, is the fact that we are losing 10 days of revenue, coupled on top of -- in the well service, in the completion side, we are losing 10 days of revenue. Coupled with the fact, that we are going to have some change over, because of rolling off of those big contracts from other customers. So there is a bunch of repositioning costs as well. So that is a serious amount of money there.

Yes.

And it could be $0.04 or $0.05 a share.

And how about the international side?

For the international side, we have been signaling for awhile, if you go back and look at our third quarter, operating income number back then, I think we told you that we are expecting a dip to that in January. And I think those same factors are still at work today. So that should give you some idea, but again that is very difficult to predict. We know the jackup is in the yard, and we are working really hard to make sure it comes out on time, so we don't have anymore leakage into the second quarter on that. I think the team has done a great job of sort of pre-planning that, and figuring out what all the work that has to be done, so it gets back on rate as quickly as possible. And then, there are a bunch of rig moves, for moving between contracts, et cetera that there will be a cost impact. But those impacts, we foreshadowed, we gave back early in Q3. And if you remember back then, we also said Q4 was not going to be -- we didn't expect to do so well. But it gives you an idea, if we keep focusing on the kinds of things we can do. So that's where we stand.

Okay. And then, my last question is about your domestic contract drilling business. Are you finding that you are having, you are seeing a lot of opportunities for the PACE-X rigs to bid on shorter-term work? One of your competitors mentioned on their call that they weren't building -- they weren't getting a lot of rig orders, because they were reluctant to come off of their two to three year time period. They said there wasn't any real pressure on prices, but more pressure on term. Are you seeing that, and how are you responding to that?

Yes. No, this is Joe. Their answer is yes, there is some reduced term basis, but however we welcome that. It is an opportunity for us to put the PACE-X out, show the value, and begin to move our numbers. So yes, we are seeing some, but again the demand for the new, the PACE-X pad drilling continues to increase. So I think it is pretty positive.

I think Jim --

So Joe, is what you are saying, is that you are taking -- working newbuild PACE-X's selectively on one year or less contracts?

No.

No.

No, I am just saying, it is -- there is some shorter duration, not five year, not three year, but they are multi-year contracts.

Okay.

And yes, we are working on some of those now, correct.

Jim, this is Denny. The average duration on all of our PACE-X rigs is still 2.75 years.

Good, good. Okay. And just one more on the PACE-X. Joe, you had a tremendous reception initially when you introduced it. And I say initially, it is still I think tremendous. But as more and more have gotten out into the field, maybe you could give us an update on what you feel operating performance is out there in the field, and both absolutely and relative to the competitive equipment that is out there?

Well, we are -- of course, the first rigs as you know went into the Haynesville, and they are outperforming anything that is in the market. We have deployed some up into the Northeast. We have deployed them into North Dakota. We have now deployed some into the Scoop. So a lot of the areas that we are at, were not really rigged up next to competitive or some of the other -- I would use your words earlier of announced terms. Bottom line is, we are moving a couple down now into the Eagle Ford, one into West Texas that will get lined up door to door with some of our competition. I will be able to give you a much clearer presentation on that, the next discussion, the next Board meeting.

I am going to do a little bragging for Joe. Both in the Scoop where we are head-to-head against other lead competitors, with an example from a customer performance, PACE-X rig is clearly outperforming. In fact, it is the only rig to have crossed 1,200 feet per day for the wells -- for [TD'd] wells there. And in the Bakken similarly, PACE-X rigs, where we can get the update on heads to heads with a given customer, for comparative performance, the PACE-X is outperforming. So we are really happy with the PACE-X. We think the concept of making a rig from the start of pad, multi-pad, contemplated the multi-roll trajectory of development drilling in the Lower 48 was the right move for us. And we think the customer reception will continue to garner momentum.

Another important point is, that these are data points for rigs that have been in the field less than four to six months have been (inaudible).

Absolutely.

And then Tony, how many of these, what is your capacity now in building new PACE-X rigs, and what could you go to?

Well, I think right now, as we have announced, we are at two a month. But just to give you an idea, Canrig, I think is up to at least multiples of that, four times that in the ability to produce top drives. And so, we have the ability to scale that I think as much as the market cap demands. And in fact, we are working on Canrig's infrastructure to provide more of that ability to do it even more quickly. So I don't think that is going to be the issue for us. It is going to be an issue of how -- what the market can absorb and what the demand is.

Okay, thanks, Tony and Joe, and Dennis.

And our next question does come from the line of Mike Urban with Deutsche Bank.

Thanks, good morning. So Tony, you mentioned your focus list earlier in the call, presumably the strategic review is on that list somewhere. The Board reviewed it latter part of last year, and presumably gave you some marching orders there. Do you have any update on where you stand in that process, or when we might be able to get an update on that?

The update is that basically, we have some plans under way, and we are actively working on them right now. And as soon as they are done, you will know. I don't want to talk about things that haven't happened yet. But I can assure you that we are focused on figuring out ways to highlight the value inherent in Nabors, and we have some good ideas about how to do that. And that is what we are going to do, and that is what the Board authorized, and that is what we are currently working on.

And presumably, kind of the better operating performance here, and better outlook that we will be seeing, that doesn't necessarily preclude anything you are looking to optimize what you have. And then separately, you have this strategic review process, is that still -- ?

Yes, I think the two, from my point of view are complementary. Obviously, whatever we do whether, extraordinary-wise or strategic-wise, will all be enhanced by improving the base case, and improving the base case is where we have everybody else in the Company focused. Whereas, I have separate teams working on the strategic review, and implementing what the Board has concluded we should pursue. That's where we are.

Good to hear. And last thing from me was, I would agree with you, that I would not expect to see, at least not yet, very much new gas drilling -- or rather drilling of new gas wells. As a leading indicator though, are you seeing interest from your customers on the well service side, of production services side or still not even there yet?

Not really on the production side. I think, no, not yet.

Okay.

I mean, the other thing I would say, is I think we are, our thesis on the production side has been, and with the shale wells multiplying in number with all of the shale drilling, that there is a kind of built in long-term demand that is building up. We haven't really seen that demand hit the market yet, in part because I think there may have been a change in the life of the construction of the wells, with better pumps et cetera, that require intervention on a longer period basis. But I think what we are expecting that we are going to get to the age, where you get to the end of that new established life cycle, and there should be an increased demand for those services, intervention services on those wells.

All right. Thank you.

And our next question does comes from the line of John Daniel with Simons & Company.

Hello. Congratulations on the continued improvement in safety. Pretty impressive. In international, Denny, can you help us with modeling here? As you migrate through 2014, would you expect cash margins to get back to the Q4 levels, just given the repricing of the rigs you noted in the release?

Yes, eventually they will hold, probably be down a little this time. But I think as we get into 2015, we will be taking out the old highs pretty constantly.

Okay. And then, with pressure pumping, you mentioned in the prepared remarks, 14 fleets were 24 hours, five were basically daylight, and five idle. And then in Q, which 19 working then, but 20 working now. Can you just walk us through what sort of fleet level margins you are targeting to reactivated these fleets? Am I correct, that one was reactivated?

That's correct.

So what do you think the trend in margins will be on the reactivated fleet in general? Is that right, John?

Yes, if you can provide any color.

Yes, so John, I think that it is a bit of a mixed bag. Obviously, the margins are going to be largely dictated on the job design, job mix and the type of volumes we are having, concentrations of sand, chemicals, materials. Obviously, we have run 24 hour operations. We have run zipper operations, continuous operations. So you see a huge -- a wide gamut of things that can change the overall dynamics of your margin, when we start those up. But what we are looking for, is continuous work and sustaining that footprint with a strategic client, so we have the opportunity to grow. As again, as we have mentioned, as Tony mentioned in his notes, that we think we are finally finding a bottom for that pricing. So we are wanting to continue to maintain our strategic footprint to give us that opportunity to grow in the future.

John, the other thing is these guys have done a tremendous job on controlling costs, so there is still a lot we haven't seen in our numbers yet. But there is large reductions in consolidating and overhead that is in the current run rates, sizeable below a year ago. All of this has been obscured by a deteriorating pricing environment, and [slow] rig count. But we do think we are getting to the bottom, and then you haven't seen really the impact of stemming the losses that were in coil tubing and the Canadian pumping business, so that ought to augur fairly well for the second half of the year.

Is it a reasonable supposition on our part to expect incremental fleets to go out at EBITDA margins sort of at least 20%?

I don't know that I want to get on the hook --

I don't think we want to get on the hook for that yet. I think you could assume, for our -- for rigs that are not [losers], that would be --

Long-term profitability.

Okay. And then just two quick ones for me, and staying with pressure pumping for a moment. As you look across the 20 fleets that are working today -- I know there is no take-or-pay contracts per se, but how many of them are under dedicated pricing arrangements?

Yes, I think probably about half are under dedicated pricing, and the other half are truly in what we call spot market pricing, and they kind of juggle back and forth between different operators.

Okay. And then Tony, just a big picture one. How important will acquisitions be in the growth plans for this year?

Now acquisitions have always been a key part of our Nabors strategy, As you know, that is how we sort of built the case in the first 20 years I was here. I think for us, what we have to constantly measure is, given our size and asset base, and our opportunities to deploy capital at sort of defined returns, what an acquisition gives us above that base case? And so, the hurdle I would say, given where we are now is a little higher than what it has been in the past.

Okay.

But we are still looking at every deal, and something that would complement the asset base, and would provide some day one cost savings of some kind, that is synergistic with some customers that we are not -- we are already in most of the markets still, that are the key markets around in the world as you know.

Right.

So again, market entrance is not the decide factors, something that would either differentiate us from our product or service or add customer base. And that is the analysis that we are trying to do on acquisitions, and pass that test. But if you have anything like that, let us know. (Laughter).

Fair enough. Thanks for taking my questions.

Operator, we are running up against our one hour time constraint. If you would just take one more question, and then we will wrap it up, please?

Certainly. Our final question does come from the line of Byron Pope with Tudor, Pickering, Holt.

Good morning. Just two quick ones for me. As I think about modeling the international segment, just given the mix of rig types, Tony or Denny if I think about the 16 international newbuilds and upgrades that are listed on page 10 of your slide deck, how should I think about the progression of those in terms of deployment? And the way I am thinking about it is, all of those newbuilds and upgrades I am assuming are going to be accretive to the international segment daily cash margin. Is that a reasonable way to think about it, and then the progressive -- ?

That's exactly right. The bulk of them deploy in third and fourth quarter, the last of them deploy in first quarter next year. Some of them are -- one or two are starting to deploy right now. So I think there is one already started up.

Some starting up in South America this quarter -- early -- late this quarter, early next quarter, and then you see the progression based on the second year.

Mainly third and fourth quarter with carryover next year.

And the contract renewals that we have renegotiated are extending for three more years on their anniversaries, and those anniversaries of renewal occur between March and December of this year.

Okay. And then with regard to the PACE-X construction program, the 24 rigs that are shown there that are still in the queue, does that include the nine on tap for this year that are yet to be contracted? Or are those nine incremental to what you are showing on page then?

Those include the nine.

Okay.

So, yes, we have deployed three. We have eight, we are going to redeploy, they have contracts. We have nine more for this year, and then four for next year.

Okay, thanks. I appreciate it.

Thanks very much everyone.

Thank you. Ladies and gentlemen, that will conclude the conference for today. We do thank you for your participation. You may now disconnect your lines at this time.