Nabors Industries Ltd (NBR) 2014 Q1 法說會逐字稿

Good morning, and welcome to the Nabors Industries first-quarter conference call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Mr. Dennis Smith, Director of Corporate Development. Please go ahead.

Good morning, everyone, and thank you for joining our first-quarter 2014 earnings conference call this morning. We will follow our customary format today, with Tony Petrello, our Chairman and Chief Executive Officer and William Restrepo, our Chief Financial Officer, providing our perspective on the quarter's results and provide you with insight in the trends in our markets and their anticipated influence on our business.

In support of his remarks, we have posted some slides to our website, which you can access following along if you desire. They are available 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 Investors Relations, then the submenu events calendar, and you will find them listed as supporting materials under the conference call listing.

With us today, in addition to Tony, William and myself, are Laura Doerre, our General Council; Clark Wood, our Principal Accounting Officer; and all the heads of our various business units. Since much of our remarks today will concern our expectations of the future, they may constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities 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, our actual results may differ materially from those indicated or implied by such forward-looking statements. Now I'll turn the call over to Tony to begin.

Good morning. Welcome to the Nabors Industries conference call to review our results for the first quarter of 2014. Thank you 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.

I want to officially welcome William Restrepo to the Nabors family. I think he will provide a great addition to the Company and he is going to be available for the analyst community to help with financial questions and operating questions as well, and I think it will make information more seamless and available to the investment community.

I would like to make my opening remarks. William will then discuss the first-quarter results and then I will wrap up before we take questions. Yesterday, we announced our results for the first quarter, which exceeded our expectation from last month, when we provided guidance to account for adverse weather conditions in the Northern United States. Our EPS from continuing operations totalled $0.16.

Excluding our weather impact to completion segment, all other businesses delivered strong operational performance throughout the quarter and even our completion segment had the highest monthly utilization in recent times during the month of March. Absent the weather-impacting completions, our first-quarter earnings were driven primarily by, first, another strong performance in our international drilling business; second, activity improvements from the US Lower 48 segment, excluding the impact of the fourth quarter's early termination revenue; third, seasonal improvements in the US, offshore, Alaska, and Canadian drilling operations; and fourth, continued progression in the production services segment from higher revenue in the recently acquired KVS trucking business.

Our Rig Services, which consists mainly of Canrig, reported its best performance in over a year. Results in the Rig Services segment benefited from both strong revenue and margin, which were aided by a restrained level of expenses. I will discuss those factors, as well as our outlook, in a few moments.

First, some recent highlights. Before we get into the details, I would like to note the following accomplishments during the first quarter. First, during the quarter we signed contracts for four PACE-X Rigs to be deployed later in 2014. These are rigs which we previously decided to build in advance of securing contracts for them. We believe that this high level of customer interest in additional PACE-X rigs validates our strategy to commence construction and maintain a steady pipeline of long lead time components ahead of signing contracts.

Second, we completed deployment of three of our significantly upgraded rigs into Argentina during the quarter also on time and on budget. Another one deployed earlier this quarter, so we now have five of the total of six working, and expect a final one to spud in the second quarter. Third, we mobilized the first of 11 previously announced newbuild rigs into Saudi Arabia. The rig was subsequently accepted by the customer and went on rate early this month. This very large newbuild program is on time and on budget. The financial impact of these rigs will phase in during 2014 and we should see the full impact of our results in the first quarter of 2015. Both the Saudi Arabia and Argentina projects are examples of Nabor's unmatched opportunity to improve returns by allocating capital into strategic markets around the globe.

Let me now turn to our outlook. Essentially, every element of the business looks positive in the near to intermediate term. I will start with the US Lower 48 market, where several positive trends are beginning to converge. First, as I mentioned, we see continuing interest it in our PACE-X rig. We deployed the first X rig about a year ago and we now have 21 in the field, with a 22nd expected to go out this week.

The performance of this rig in reducing well times has exceeded our expectations. This growing interest in the X rig is a direct result of the benefits the rig is generating for customers. We rolled out five X rigs in the first quarter. Our plans call for an additional 13 rig deployments during 2014, 7 of which will already have contracts.

Second, customers are developing plans for higher-density drilling pads, including in the Eagle Ford and the Permian. The PACE-X rig is ideally suited for drilling large well arrays from a single pad. Third, we are realizing broad, though still moderate, rate increases on rigs as contracts roll over. We think strong cash flows are driving customers' spending, while drilling rig efficiency gains may be starting to plateau. That convergence means additional wells are starting to generate demand for incremental drilling rigs.

For our international business, the upturn in the market we have previously identified remains firmly intact. For the second quarter, the short duration factors, which we mentioned previously on conference calls, would impact results early in 2014, should begin to dissipate. Our largest jackup, 660, remains on schedule to go back on day rate late this quarter in the Arabian Gulf. The success of this shipyard visit is a real credit to our local team and, in particular, their ability to preplan the scope and execution of yardwork while the rig was still operating late last year.

Our second newbuild land rig for the Saudi market is scheduled to deploy during the second quarter. We should begin to see the impact of higher day rates as the renewals we signed last year begin to roll over to higher rates. Looking farther out, we see opportunities for additional rigs across several markets, including Saudi Arabia, Argentina, offshore Mexico, Kurdistan, and India land. We recently signed our first contract for the Indian land market -- a high-horsepower rig targeting high pressure, high temperature gas. That market is a new one for us and the high pressure, high temperature work is in our sweet spot.

Partially offsetting these positive factors are declining prospects for our operations in the increasingly competitive Mexico land market, where we currently operate four rigs. In addition, two of our platform rigs operating offshore India have come off contract and will spend sometime off rate as we find new opportunities for them.

The Alaska market looks highly prospective. The market there appears strong enough to support at least one additional rig this year versus 2013 and potentially two more in 2015. We are in discussions with customers for large projects in Alaska which would potentially require significant capital investments, but which we expect to generate attractive returns.

For the US offshore segment, we are committed to the platform market, where we think we hold a distinct advantage with our proprietary platform rig designs. Utilization of our platform rigs is firm. We anticipate that the rig supporting the Big Foot project will mobilize very late this year and come on full operating day rate about midyear 2015. As we have mentioned previously, we are looking at alternatives for the US jackup and barge rig fleets. Prospects for the Gulf of Mexico jackups and barges are limited, so we are likely to see a decline in US offshore business in 2014.

Moving on to Canada, we are moving through the breakup, so we expect sequential results to reflect that impact. As for the underlying market, we have previously described it as the most challenged among our drilling segments from a return perspective and that characterization has not changed. However, we are seeing somewhat more rig demand than we expected at this point in the season due to incremental year-round work. We expect the Canadian market to improve if the large liquids projects now contemplated move forward or if LNG export projects move ahead.

Our rig services business is benefiting from the strong additions to Canrig's backlog since the second quarter of last year. The increase in the third-party backlog since that time has outpaced the increase from our internal business. Total backlog now sits at the highest level in the past five years. We expect a slight shift in Canrig's business mix, as well as an increase in necessary expenses, to compress margins somewhat in the current quarter and for the balance of the year.

In our completion services business, although we are disappointed with the financial performance of this segment in the first quarter, we are somewhat optimistic for improving performance throughout 2014. As severe weather eased late in the quarter, we saw better financial performance, so the full period's results are not indicative of the entry point into the second quarter. We expect to return to positive operating income during the second quarter due to higher stage volumes, better cost absorption, and lower cost for purchased items, including guar and chemicals.

In the production services business, we expect rig and trucking hours to increase seasonally. Utilization for our workover rigs and trucks is improving and we are seeing increasing bid opportunities for rigs. The trucking business we acquired late last year continues to perform at our expectations. In the California market, we have seen some tempering of well P&A activity, as customers shift their focus to additional production and production enhancement.

I will conclude this outlook with our near-term expectations. Several factors will impact our results in the second quarter. First, a traditional seasonality in the Alaska and Canadian drilling businesses. Second, we expect abatement of the severe weather that hampered operations and results in the completion services business. The monthly trend in that business has been positive since bottoming in January. Finally, Rig 660, our largest jackup rig, which is working in the Arabian Gulf, is expected to go back on day rate in the latter part of the quarter as scheduled.

In addition to these factors, in the international segment we foresee a few rigs coming off day rate, tempering the positive development I mentioned. 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 higher quarterly rig years as additional PACE-X rigs enter service. Demand and completion services, and pressure pumping in particular, is improving and the market may be tight enough to support limited price increases. The pressure pumping industry, and its customers, realize that last year's spot market pricing does not generate an acceptable return on investment. This is true, especially when considering the maintenance expenditures necessary as fleets shift to more 24-hour work and deeper horizontal wells, typically with higher rates and pressures. This could support current attempts by us and by our peers to increase pricing.

Now I will turn the call to William, who will detail our financial results.

Thank you, Tony, and good morning, everyone. For those following our slide presentation, our consolidated financial results are illustrated on slide number 5. Net income from continuing operations was $49 million, or $0.16 per diluted share, compared to $92 million, or $0.31 per share, in the first quarter of 2013 and $129 million, or $0.42 per share, in the fourth quarter of 2014.

The sequential decrease was principally driven by the following four items. First, a $0.16 per share reduction in completion services, mainly from the first quarter's adverse weather conditions. Second, $0.12 per share of various income tax benefits in the fourth quarter of last year. Third, $9 million, or $0.02 per share, from the favorable settlement of a previously reserved customer bankruptcy. And, fourth, $5 million, or $0.01 per share, of lump sum early termination revenue in the US drilling business.

Operating revenue on earnings from unconsolidated affiliates totalled $1.6 billion in the quarter, essentially flat sequentially and up modestly compared to the first quarter of 2013. Operating income was $109 million, compared to $133 million in the first quarter of 2013, and $160 million in the fourth quarter of 2013. These reductions mainly reflect our completions business performance, which fell by nearly $48 million sequentially and by over $51 million versus the comparable period of last year.

The deterioration in profitability was driven by the conclusion of our last remaining take-or-pay contract at the end of December 2013 and by unfavorable weather in critical geographical areas. As mentioned in the net income comments, the sequential comparison also includes lump sum early termination payments of $5 million, as well as $9 million from the full recovery of a receivable from a bankrupt customer, both of these items in the fourth quarter of 2013. EBITDA was $391 million for the first quarter, versus $413 million in the first quarter of 2013 and $437 million in the fourth quarter of 2013.

I will now review the results from each of our operating segments, starting with the drilling and rig services. Our summarized results are on slide 7. In the first quarter, we recorded operating income of $156 million, compared to $157 million in the fourth quarter of 2013, which included a total of $14 million of combined early termination revenue and proceeds from a bankruptcy settlement. US drilling earned operating income of $72 million, compared to $75 million in the fourth quarter of 2013. Alaska was up seasonally, while offshore was flat. The Lower 48 was down, as expected, due to seasonally higher expenses for workers comp and unemployment insurance, as well as the absence of $5 million in early termination revenue.

During the first quarter, rig years in the Lower 48 business totalled 187, up from 183 in the fourth quarter. We expect second-quarter rig years to increase from the first-quarter level. Our average daily margin for the fleet declined to 9,423 from 9,712 in the fourth quarter, normalized for the early termination revenue realized in the fourth quarter. Although the first quarter margin was affected by seasonally higher compensation expenses, we expect daily margins to rebound seasonally in the second quarter.

Today we have 199 rigs on revenue, including 2 on stand-by rates. Our AC rig count stands at 150. Utilization of our AC rigs in the first quarter was 95% and utilization for our pad-capable AC rigs was even higher at 97%. As Tony mentioned earlier, we see day rates in the Lower 48 generally moving higher. For AC rigs, spot ranges are flat since last quarter, in the low 20s, depending on basing and rig configuration. However, we are seeing more pricing strength in the Rockies and for rigs with walking systems. We still see a 500 to 1,500 per day premium depending on the region.

During the first quarter, contracts on 27 of our rigs expired. 15 of those received extensions averaging 7.8 months at rates around the low 20s. For the second quarter, we have 29 rig contracts expiring. At the end of the first quarter, 122 of our rigs were working under term contracts, and 70 were on spot. As we deploy additional PACE-X rigs our rig mix improves, which should progressively lead to higher daily revenue and margins.

Results for the US offshore business improved sequentially in the quarter, excluding the effect of the settlement of the customer bankruptcy in the fourth quarter. Rig years improved over Q4, although we're down year over year. As Tony mentioned, we are examining alternatives for the Gulf of Mexico jackups and barges as part of our effort to sharpen our focus on our business. We continue to anticipate deployment of our modular offshore dynamic series platform rig for the Big Foot development in the Gulf to occur either late this year or in 2015. Our timing is dependent on deployment of the platform out to location, though at this point we would not expect to realize the full operating day rate on this rig before mid-year 2015.

The business in Alaska normally steps up significantly in the first quarter and this year was no exception. On a sequential basis, we saw an increase of three rig years and daily rig margins exceeded $38,000. In the fourth quarter of 2013, margins were $32,000 to $33,000. The first quarter performance of our Alaska drilling business confirms our belief that drilling activity would pick up on the heels of last year's favorable tax reform. For the balance of the year, we anticipate a normal seasonal pattern of rig activity. We continue to engage customers in advanced discussions for additional large projects in Alaska with timing expected a year or two out. As the preeminent driller in the North Slope, we are well positioned for such opportunities should they materialize.

Moving on to Canada, although the Canadian drilling season got off to a slow start, our operation realized nearly 10% more rig years than a year ago. Margins were down versus the first quarter of 2013 due to longer duration contracts rolling to market rates, heavy tailor doubles replacing triples on some projects, and the impact of newbuilds from competitors. The Canadian market remains challenging. We have had higher return opportunities for capital in other markets, notably US land and international. Thus, we have refrained for now from deploying significant newbuild capital into the Canadian market. We think the turning point for Canada will be the onset of widespread drilling to support LNG development. Considering the large scale of those projects, the timing of a rampup in drilling is uncertain and, in our view, 2015 at the earliest.

Our international drilling results are illustrated on slide 13. This segment continued to perform well in the first quarter, exceeding our own projections. Operating income totalled $48 million, down from $17 million in the fourth quarter of 2013. We signalled on last quarter's call our expectation that operating results would decline sequentially due to several specific transitory factors, including the Rig 660 shipyard stay and other impactful rigs coming off contract. While those expected factors impacted the quarter's results, our execution otherwise was strong, resulting in more days of revenue than we anticipated.

The financial performance of the international segment in the first quarter reflects very little from the rig awards we announced last year. The results include the partial impact of four of the Argentina rigs and no impact from the Saudi newbuilds. The effect of the remaining rigs should become more evident in the second half of the year, though the full impact will not be reflected until early 2015.

The last business within our drilling related segment is rig services, which is mainly Canrig and the Ryan directional drilling business. This segment's revenue increased 8% sequentially to $144 million. EBITDA more than doubled and operating income swung into the black versus the fourth quarter's depressed levels. EBITDA margins for the segment improved to 11% from 4% in the December quarter. We expect product development expenses to ramp up in the second quarter, which could narrow our margin slightly. As mentioned earlier, backlog at Canrig increased during the quarter and is approximately 2.5 times the low point in the second quarter of last year. In addition, the improvement in backlog is queued towards third-party customers.

Continuing with completions and production services, operating income for this division is illustrated on slide 16. The segment experienced a difficult quarter, with an operating loss of $3 million, down from operating income of $41 million in the fourth quarter. Part of the sequential decrease was anticipated, but as we announced earlier, the US completion services business was severely challenged by harsh weather throughout the quarter and it generated an operating loss of nearly $34 million. In addition to weather, operations in this segment were impacted by inefficiencies as it transitioned from the last remaining take-or-pay contracts to the spot market and to more 24-hour operations.

January marked the low point for monthly results, while March was the best month of the quarter, reflecting a very strong stage count. This despite some lost activity from prop and shortages and the tail end of the weather issues. Revenue was similarly affected, with the first quarter reaching $228 million, down from $292 million in the fourth quarter.

Currently, our horsepower is configured into 20 frac fleets. Of those, 15 are working on 24-hour pumping schedules while another 4 fleets are on 12-hour schedules. One spread is currently being retrofitted with dual fuel capability. We use the remaining additional capacity as relief horsepower for the existing crews, and we are refurbishing some of our older equipment so it can work on high pumping intensity wells. While this operation's results for the quarter were disappointing, we realize that our completions team had to contend with tough weather conditions during most of the quarter in the majority of the geographical locations.

On the positive side, during the first quarter our operations managed to replace a very material take-or-pay contract in the spot market while achieving very high utilization and price stability for our fleet at the end of the period. Consequently, we expect financial performance to improve in Q2. Our frac crews are fully booked for the second quarter and the market for pumping capacity appears tight enough to support some pricing improvement. In fact, most companies are requesting higher prices from their customers. Nonetheless, it remains to be seen whether the industry can actually realize pricing that materially improves margins in the near term.

Finally, in Q2 we should begin to see the benefit of the cost initiatives we have put in place. Specifically, around sourcing consumables. Our production services segment turned in a positive performance in the first quarter. Revenue was $275 million versus $266 million in the fourth quarter of 2013. Revenue was up seasonally in Canada and also in our US operations.

Segment EBITDA increased sequentially to $60 million from $56 million in the prior quarter. The improvement in our operating results came from several factors -- primarily, our trucking business in California and our combined operations in West Texas. We have seen some softening in our California well servicing operation as plug and abandon activities down versus last year.

This concludes my discussion on segment results. In terms of consolidated metrics, which may be useful for financial modeling purposes, we anticipate 2014 capital spending in the range of $1.6 billion to $1.8 billion, depending on the actual timing of PACE-X newbuilds during 2014. In terms of income taxes, you should assume a four-year effective income tax rate of 18% to 20% for 2014, though our ultimate geographic mix of income could cause that to vary somewhat.

In conclusion, we continue to work on various profitability improvement initiatives and on reducing purchase costs of our principal consumables, optimizing overhead in our field operations, improving our revenue capture, and ensuring all of our operating locations are delivering appropriate return on investment or are on a path to doing so. We expect to start seeing results from these efforts in the second half of the year. And with that, I will now turn the call back to Tony for his concluding remarks.

Thank you, William. Let me summarize our views and priorities. First, drilling markets continue to improve globally. We see this trend most prominently in the high-spec segment of the market. That is where Nabors traditionally focuses and where we see opportunities to deploy capital at attractive returns.

Second, the execution of our major capital projects is proceeding smoothly. The scale of our current capital program is unprecedented in the Company's history and our combined teams are successfully delivering high-performance rigs on time and on budget. Third, our efforts to streamline the Company's activities are continuing. We are pursuing opportunities to prune non-core assets in multiple lines of business. We are also consolidating functions where that makes sense.

A quarter ago, our outlook for the year called for a soft start. We experienced an even greater challenge in completion services. Our expectation remains intact for earnings to improve as the year progresses, especially in the second half. Looking farther, the outlook is positive and we are positioning Nabors to capitalize on that environment. Thank you for the time this morning. With that, I will take your questions.

(Operator Instructions)

Our first question comes from Jim Crandell of Cowen. Please go ahead.

Good morning, Tony and team. And William, welcome to Nabors.

Thank you.

Thank you.

Thank you.

And also, my condolences to everyone at Nabors from your recent loss.

Very much appreciated.

Tony, I wanted first to ask about pressure pumping. You talked about the prospects for increased pricing. Are you actually seeing that now in any regions? And what is it exactly that makes you optimistic? Is it the tightening utilization you see out there in the field today?

Let me first try to answer that, put some context around your question. Last fall, commodity prices were oil around $88 and gas $3.50 at time operator budgets were done. They are now $102 and $4.80, and so all the reports from the operators is that cash flow is running more robust.

The second thing is you are obviously seeing more pads. You are seeing more laterals per pad and you are seeing more prop per well. And I see 2 to15 well pads moving north. If you look at our utilization, we have had an increase in 50% of our work on pads as well.

Then layer that on top of the following, which is, we're running on 24-hour basis -- 75% of our spreads are running on 24-hour basis. Now, I think there is a lot of literature out there about the capacity of the frac spreads and I don't pretend to have any greater insight what that number is, whether it's 3 million extra horsepower or whatever. But I do suspect, whatever that number is, it's nominally overstated and I also suspect given the number I gave you in terms of 24-hour crews, the amount of burning up that we are doing of the equipment is (technical difficulty).

Hello?

Pardon me. This is the conference operator.

Hi. This is Jim Crandell. I was asking a question and was cut off.

Yes, I do see that. One moment. Bear with me one moment here. Mr. Denny Smith?

Yes.

Mr. Petrello? Are you gentlemen still with us?

Am I still on? I was cut off there.

We could hear Jim.

We hear you, Jim.

I'm sorry. I was cut off. But now I'm back on. I missed the end of your response, Tony, but just move on to a follow-up question.

You have been having great success with getting the orders for your PACE-X. My question is about the performance of the rig to date. Are you continuing to get strong performance in the rig? And is there a primary factor or two that you can attribute that performance to?

Well, I think there is a slide in the slide deck on page 10, where everyone talks about how great their rigs are and it's very hard to get apples to apples comparison. I have been reluctant to start saying one rig is better than the other rig because of apples to apples comparisons.

But what we did here in this slide is just to give a context to show that our rigs are not second to anybody, is we went to a customer in a field where our rig is now working and the competitor rigs, that they're well known, are in the same field working the same type of job, and you can see the dramatic fee per day difference. That's due to, I think, the configuration of the rig and it's due to including the horsepower and a bunch of other things on the rig.

So I think the difference is real. I think as you move to pads with multi -- we have talked about this before in terms of what PACE-X is designed to do. It shines for those operators that want to do multi-wells on pads, particularly multi-wells in lines of wells -- I would say four rows of four wells each. That's where the rig really shines. I think that kind of work is going to continue.

I think the other thing that PACE-X has over the competitive rigs, it has a spacing advantage in terms of size and location. With all the pressure on operators to minimize space, which that translates to costs, it also translates into getting approvals. I think that's another advantage of the rig. So I think we -- to the extent -- this is obviously a bet on pad drilling, but I think the market's moving in that direction.

Okay. Then just one quick follow-up to that, Tony. You have been building in advance of contracts here because of your confidence, I think, in A, the market, and B, the rig's performance. Do you see yourself continuing to do that in the future? Might you get even more aggressive in that regard?

The answer to both is yes.

Okay. Okay. Terrific. Thank you very much.

Thank you.

Our next question some from Ole Slorer of Morgan Stanley. Please go ahead.

Thank you. And, Bill, congratulations again with the move. I suppose all we should do from now on is to follow your every move, because you seem to have an impeccable track record in exiting and entering businesses.

Thank you, Ole. It was not on purpose, though. (Laughter, multiple speakers)

I don't believe it for a second. This is not a coincidence, if I look at your track record on entering and exiting. So very positive backdrop all around.

Could you help us a little bit with the timing of the international, I think, on North America? Everybody can probably do their own models, but when it comes to the international progress, I mean, you are highlighting a ton of new contracts, on what appears to be very profitable terms. At the same time, you are highlighting some near-term misses on the Mexico land and the offshore and Saudi jackups. That's supposed to Saudi jackup is all incremental, negative this second quarter, but how do you see the EBITDA move for your international drilling operations sequentially into the second quarter with these kind of near-term headwinds and strong tailwinds into the back end of the year?

Well, with -- not withstanding the jackup not going back to work and the transitory effects we see going into the second quarter, at least as well as the first quarter, and then we see it ramping up internationally in third and fourth quarters. So we see that as those transitory things we talked about, those negatives were being offset by the early deployment of the things we've spoken about. And then by the third or fourth quarter those things begin to have substantial impact and you start to see the ramp up.

Okay. So flattish into the second quarter and then we start to get to the tailwind.

Right. I think we will have enough of the new stuff on there to make up for any of those transitory things we have spoken about. That's what we're working towards. And as you can see, that's what happened this quarter, as well, where we had some positive stuff. We came out a little bit better than what we thought given the negative stuff with the jackup.

So if we look a year ahead until the first quarter of 2015, when they are getting the full tailwind internationally, but also what you are describing in the US, would you care to shed some light on which of your three key divisions -- US, Canada, or international do you think will have the strongest EBITDA growth, percentage-wise, year over year as we still look a year ahead, first quarter to first quarter.

I think, clearly, international will.

Thank you. If we look to the production services and completion services, clearly a disappointing result on the completion services there. But based on what you are seeing in the market right now and getting pressure pumping back to full utilization as you highlighted, what should a sensible near-term EBITDA margin be for that business?

Well, let me -- in terms of absolute dollars, I think we will -- we should get back to at least the rate of EBITDA that we were in the third and fourth quarter, in that kind of range, by the second quarter on a consolidated basis for NCPS as a whole.

And you highlighted some challenges around proppants, for example. Was this because of the weather and was this relating to ceramics, the white sand or in general? Could you shed some light on that and how you have solved that situation?

On the supplier side I don't think we have problems. I think we have really good arrangements with suppliers and we are working on that in terms of further costs. I think there was issues with some delivery, where the railcars were backed up at suppliers and that caused a bunch of congestion at the actual FOB plant sites.

I think that is starting to ameliorate and I think there is still a risk, maybe, at the end point of having that congestion repeat itself. But right now, we think we are managing through it.

As we said in our prepared remarks, in addition to that, we have put an intense focus on some of the elements here in terms of chemicals as well as try to reduce our costs. And we think all that's going to start manifesting itself in the second quarter.

A quick comment. I think in the second quarter, we won't see the full impact of the guar and chemical cost reductions because they have to flow through inventories, but we'll see enough to offset any increases in sand and proppant in general.

Are you seeing increases in sand prices at the moment?

We saw a little bit of tightness. That has increased slightly, the cost of sand, but we feel it's a temporary impact due to the weather, to the weather impact in the first quarter.

Okay. Thanks a lot and congratulations with the corporate turnaround.

Thank you.

Our next question comes from Jim Wicklund of Credit Suisse. Please go ahead.

Good morning.

Good morning.

You talk about the last remaining contract, the big take-or-pay contract. What is the difference between those contracts signed a couple years ago and the current spot market rate?

So the take-or-pay contracts are long-term contracts, first of all. A lot of them were signed -- they were signed some time back, so that the pricing is better than the spot market today. And basically the client is, during the life of the contract, the client is obligated to guarantee a minimum revenue for the month or for the period in loss of those contracts. So obviously, that's a more favorable and steady situation than competing in the spot market.

But our team has risen to the challenge. We have lost some margin, obviously, versus because of the timing with those contracts were signed. But we are seeing that our fleet adjusting to the new spot market and already achieving stability in pricing and even starting to get more, I won't say aggressive, but confident in trying to achieve some pricing traction during the second quarter.

In terms of rates for the four X rigs that we talked about, that we just renewed, those are at a very attractive rates equal to a rate range that we have enjoyed previously, just to give you an idea.

Okay. You're talking about margins for your rig fleet at $9,400 and obviously that will skew higher as more PACE-X rigs go out. What do you guys think is where we can get in terms of margins before we start having somebody call up NOV and start fostering competition? Is there any risk of that in the future?

There is always competition. I think there is going to be a demand for, as we've said before, we think about 300 of these, what we call them, high-spec rigs. I think yes, there is a risk that other people are going to try to pursue that. I think we have as good a mousetrap as any place right now. We are going for our lion's share of it, but I am not going to say that other people can't try to access it.

I think, frankly, the people that have been in the business for a longer time should be able to do it better and more cost effectively and deliver the performance with the rig. And I think that's where the advantages are for us.

Last question, if I could. The jackup rigs and barge rigs in the Gulf of Mexico, the barge rigs have been difficult for a while and the lower-end jackup market has been difficult. I know you have to have a bunch of different options on that, but would you be willing, just from a management point of view, to retire those so that you can focus on other parts of your business, or is that something that you think may one day come back?

We would probably, at this point, I think we really want to exit the business. So we'll do it the most cost effective way possible. That's where our head is at right now.

Okay. Gentlemen, thank you very much.

Our next question comes from Waqar Syed of Goldman Sachs. Please go ahead.

Thank you very much. I have a question on the US Lower 48 rig count. Looking forward, you have a bunch of PACE-X rigs coming in. Do you think the incremental rig count for you guys is going to be just driven by PACE-X, or do you see some of the conventional rigs, the Tier 2 or Tier 3 currently not working, go back to work as well?

Well, this past quarter you saw a couple additional legacy rigs did go back to work, and so that is happening. Obviously, it's not happening with robustness, or hasn't so far. I'm going to turn it over to Joe to add more color to it.

The answer is we are continuing to see legacy assets go back to work. Period. We are going to continue to see that through the year. PACE-X is incremental at this point. It's not replacing the legacy assets we have, so that is all accretive at this point. Yes. The answer is we are going to increase the rig count.

The other point I would like to make there is, if you look at our activity since the second quarter of 2013, I think we have taken 20 legacy rigs and redeployed them to international. And given what we still see the appetite of international is at, there is still a prospect of that as well. So like we've said before, we view the legacy rigs as an option on -- an upside option, basically, that's approaching getting into money now with all the tightness that we're seeing.

Okay. And, Joe, what is your current outlook for where the rig count, US land rig count, could be by the fourth quarter of this year?

Nabors' count?

Well, Nabors, as well as for the industry.

We still say it's modestly higher.

We definitely think, again, with the build input, the incremental PACE-X that Tony's talked about plus, I guess, in the past two weeks we put four legacy assets out. So again, we're moving the rig count up, and I think the overall market will continue to improve rig count-wise.

Waqar, of the trends we think is afoot is that as we show on slide 12 is, productivity of rigs is moderating a little bit. So increased spending is increasing wells which is increasing rigs. Whereas, the rig count had been dead flat for the last year and a half or two. So we think incremental rigs demand is there.

Are you seeing any demand at all in any of the gassier basins?

Yes. We've recently been awarded a few jobs in the Gulf Coast in south Louisiana. We are putting out our first 3,000 horsepower rig we have done in years. So we are seeing, in the Gulf Coast, probably two to three rigs are going out specific to gas market.

How about in the Northeast and Appalachia, Marcellus, in that area? Any demands right now for drilling?

Well, it's somewhat flat. But, yes, I think the Marcellus will continue to improve. But, yes, we are going to see some increase up there.

And Tony, just a broader question on restructuring. Where do you stand right now, and when do you think you will be able to make any decision on what direction to go with regards to the corporate restructuring that -- any major steps in that regard?

I have nothing new to update, report. I think it continues to be a priority. We are working on it full time, basically. I think if you look at our asset base, our collection of assets today, it was really put together with a view towards appealing to the manufacture drilling in North America to cut the combination of both drilling side and the completion and production side.

I think that the division of that is probably -- the collection of assets is well suited for that. I think the issue for us is the execution and optimal capital deployment and we are figuring out what we need to do to make that even better, and that's what the focus is on.

In addition to that, in terms of the structuring, as alluded to in some of the comments, we have a series of internal initiatives we have undertaken, as well as to improve our profitability as well. Some of the things that William referred to in terms of focus on some of the procurement stuff of high significant dollar things and there's a bunch of similar initiatives on that across the Company.

One of the other things we have done just this quarter is we finally integrated our engineering group. So all of the Nabors Companies now have a, there is now a corporate consolidated engineering group, which we think will yield quite a number of benefits. Not only just from a design point of view, making sure we bring you the best of what Nabors has to offer in all our products, but also standardization and also purchasing power. Because as a combined unit I think we are still the largest buyer of virtually everything that anybody needs in the drilling community. So we intend to aggressively use that buying power and that leverage as much as possible in our favor.

Great. Thank you very much.

Our next question comes from Byron Pope of Tudor, Pickering, Holt. Please go ahead.

Good morning. Tony, you partially answered this question in your response to one of the prior questions when you talked about 20 or so rigs being -- legacy rigs being deployed from the US, but I just wanted to probe a little further, because it sounded like on the international side, as you look at potential incremental opportunities in Saudi and Argentina and Kurdistan, all those are -- seem to be geo markets where you have redeployed assets from the US. As you think about incremental rig contracting opportunities in those international theaters, are they such that you're in a similar position to potentially redeploy some of those legacy SCR rigs from the US market to those specific geo markets where you have already won some of that type of work?

I think you've hit it right on the head. That's exactly the plan. I think the fact that these awards were done shows that those markets have a need and demand for that. I think as we execute, and execute well, it will justify the decision by the operators to do that.

One of the things I have emphasised to people is if the international market doesn't really make such a big difference between AC verses SCR. Particularly in our case, because our SCR has our K-BOX functionality, which makes it act like an AC rig anyway. It's more the power and other things around the rig.

Having that legacy infrastructure does allow us to have expedited cost of -- time of deployment, which matters as people start gearing up. And I think that our job is to take advantage of that lead and convert it into an opportunity. I'll let Siggi add some -- any other comments. Anything else?

No.

Okay. And then just a second question on the Canrig backlog build. Is it reasonable to think that the driver of that is both North America and international top drive demand on both the capital equipment and rental side? Just curious as to what's driving the big increase --

As you know, Canrig has -- obviously, its primary product is the top drive, but it also produces catwalks and wrenches and all three of those actually have seen recent increases. It's not just North America. It is international. Canrig has a pretty good footprint in Algeria and Russia and China and Dubai.

And so all those markets are now starting to see the demand, as we mentioned. About half of this backlog is third-party. Canrig is about to open an office in -- or is in the process of opening an office in Dubai to improve their ability to locally service the top drives and really take advantage of the fact that they have a pretty large install base in that part of the world and try to capture some more of that work as well. That's what's on their plate right now.

Thanks. I appreciate it.

Okay.

I think we're starting to approach our one-hour self-imposed time limit. Let's take one more question and wrap up the call, please.

Sure. Absolutely. And our next question comes from John Daniel of Simmons & Company. Please go ahead.

Hey. Thanks for getting me in. First couple questions just on international. Given the newbuilds and repricing opportunities, can you frame for us, Tony, perhaps just a regional range for international cash margins in 2015, based on what you know today?

Regionally, John, are you talking about?

Broadly speaking within international. I mean, the cash margins were close to $16,000 in Q4, dipped a bit here in Q1, and I know they will be low in Q2. With all that's going on, the positive traction that you are getting, is it high teens for 2015? Just, again, based on what you know today, and I realize that changes.

Yes, that's rational. Not north of $20,000, but in the high teens range.

High teens for sure.

And it varies a lot between some of the Latin America smaller stuff to obviously the (technical difficulty) at the top end.

Yes, the high teens that --

Very regional.

Definitely the high teens.

High teens? Okay. Thank you. And then turning to the completion services segment, does any of the 2014 CapEx budget include any expansionary CapEx for that segment?

Very, very little.

Okay.

Very little.

We are doing some -- as William mentioned, some conversions to duel fuel. We are upgrading some of the control vans. A lot of refurbishment of equipment.

And then on the stack fleets, I think you have got, it looks like three in San Angelo. Is that right? What's the prospect for redeployment there?

Those are being refurbished. The fleets in San Angelo, he is referring to. Talks about, wants to know, what our prospect of putting them back to work?

One fleet is getting retrofitted right now, as Denny said, for duel fuel. It will commence operations through the latter part of this quarter. There is one other fleet that's getting refurbed and it can probably go out around the same time. Both crews have places to go.

Okay. Awesome. And then just a final quick one from me. The less P&A work in California, as they shift to more production enhancement, is there any impact of that material on margins or revenues with that type of shift?

No.

Okay. Thanks.

Thank you.

Thanks very much, everyone.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Anthony Petrello for any closing remarks.

Thank you everyone for participating. Very much appreciate your continued interest in Nabors.

Thank you, ladies and gentlemen. With that we'll wind up the call. Thanks.

Thank you. The conference is now concluded. Thank you once again for attending today's presentation. You may now all disconnect.