Patterson-UTI Energy Inc (PTEN) 2003 Q1 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the Patterson-UTI Energy first quarter 2003 earnings conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press the star followed by the zero. As a reminder this conference is being recorded today, Wednesday, April 30 of 2003.

On behalf of the company, I would now like to turn the conference over to Mr. Jeff Lloyd. Please go ahead, sir.

Thank you very much. Good morning. On behalf of Patterson-UTI Energy, I would like to welcome you to today's conference call to discuss the results of the first quarter ended March 31, 2003. Participating in the call will be Mark Siegel, Chairman; Cloyce Talbott, Chief Executive Officer; Glenn Patterson, President and Chief Operating Officer; Jodi Nelson, Chief Financial Officer; and John Vollmer, Senior Vice President, Corporate Development.

Just a brief reminder that the statements made in this conference call which state the company's or managements' intention, beliefs or expectations or predictions for the future are forward-looking statements. It is important to note that the actual results could differ materially from those discussed in such forward-looking statements. Important factors that could cause actual results to differ materially include but are not limited to declines in oil and natural gas prices that could adversely affect demand for the company's services and their associated effects on day rate, rig utilization and planned capital expenditure, adverse industry conditions, difficulty in integrating acquisitions, demand for oil and natural gas, ability to retain management and field personnel. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the company's SEC filings. Copies of these filings may be obtained by contacting the company or the SEC.

Now I would like to turn the call over to Mark Siegel, Patterson-UTI's Chairman, for opening remarks to be followed by question and answers. Mark?

Thanks, Jeff. Good morning and thank you for joining us today.

I assume that by now all of have you seen and read our earnings release. For that reason I won't read the release and instead I would just add a couple minutes, take a couple of minutes, to add some context to the results. First, we reported a 46% increase in net income to $5.8 million or 7 cents a share, on revenues of $165.2 million. As compared to net income of $3.9 million or 5 cents a share of revenues of $128.2 million for the first quarter of last year. This also represents a 215% increase over last quarter's net income of $1.8 million, and 2 cents a share, which occurred on revenues of $140.9 million. I also want to point out the results for this quarter include income in the amount of $1.6 million, after tax, from the collection of a receivable that dates back to UTI's 1999 merger with Norton Drilling Services, Inc.. The results also include an expense of $469,000 after tax brought about by a change in the accounting rules FAS 143 pertaining to the treatment of exploration production activities. The net result of these income and expense items was to increase net income by $1.1 million, or 1 cent per share.

From an operational standpoint, during the quarter, our drilling activities have rapidly increased. In fact, by 26%. Average rigs operating during the quarter increased to 176, including 15 in Canada, compared to 140 average rigs, including 8 in Canada, for the fourth quarter. In the second quarter, we currently expect to average approximately 200 rigs operating. For the month of April, we expect to average approximately 194 rigs, including 6 in Canada, in line with the decline in Canadian activity, resulting from the annual spring break-up. Our average rigs operating in April exceeds the first quarter of 2003 by -- the first quarter of 2003 average by 17%. The fourth quarter of 2002, by 42%. And the first quarter of 2002 by 79%.

We've been able to meet this surge in demand largely because of our decision to retain our most experienced field personnel during the down periods, allowing us to staff up quickly and efficiently as conditions improved. Average revenue per drilling day remained relatively flat during the first quarter at 8544 compared to 8520 in the fourth quarter of 2002. With this increased demand for land-based drilling rigs, we have recently begun to obtain increases in our average drilling day rate. Consistent with that, we expect our daily margin in the second quarter to remain essentially flat with the first quarter. As increases in U.S. day rates offset the cost of field wage increases and the declines in activity in Canada caused by spring break-up. We remain the optimistic about the second half of the year margins and the possibility of a small margin improvements in the second quarter.

As you may recall, field wages for drilling personnel peaked along with drilling industry activity in 2001 at wage levels approximately 40% higher than 1999 levels. These wage levels were no longer appropriate at the reduced drilling activity levels we all experienced in 2002. 10% pay reductions were taken by the company's officers, along with our drilling personnel, during the first quarter of 2002 in response to the declining industry conditions at the time. This allowed us to continue to employ our skilled personnel while maintaining reasonable margins. Our approach was successful. As a result of retaining our skilled personnel during the downtimes, we were able to quickly respond to the increased demand as mentioned earlier. Higher activity levels have resulted in the reduced availability of skilled drilling labor. As a result, we recently restored pay to the peak 2001 levels.

Looking ahead, we believe are there are several factors that bode well for our industry in general and for Patterson UTI in particular. From a macro standpoint we believe overall demand is going to continue to increase as the market reacts to the low natural gas storage level and production short falls. From a Patterson UTI perspective we expect to see continued increase in rig utilization as our customers benefit from the overall upward movement in commodity prices and are willing to invest their increased cash flow in onshore drilling activities. And as rig utilization continues to increase, we expect to continue to benefit from the increasing economies of scale and continued upward movement in day rates commensurate with the increased demand.

In short, we believe that we are well positioned to benefit from the current industry dynamics and look forward with confidence.

At this point, I would like to open the call for questions.

Thank you, sir. Ladies and gentlemen at this time we will begin the question and answer session. If you have a question, please press the star followed by the one on your push but were fall. If you would like to decline from the polling process, press the star followed by the two. You will hear a three tone prompt acknowledging your selection. Your questions will be polled in the order you are referred. If you are use can speaker equipment you will need to lift the hand set before pressing the numbers. One moment please before the first question.

And the first question is from James Wicklund with Bank of America Securities. Please go ahead with your question.

Good morning, gentlemen.

Hey, Jim.

Mark, your margins were flat sequentially. And you expect them to be flat basically again sequentially. So it just strikes me as odd, that like you say you've moved utilization up 42% since the end of the year and we still hadn't seen any traction in day rates, can you come to explain what's happening there.

I think you're leaving a step out of the process. We said we think margins will be flat in the second quarter, owing to two things going on. Or three things, really, in combination. First, we have increases in day rates that we're seeing, which we think will offset the increase in wage rates that we've seen in the field that -- in effect by giving back the 10%.

Okay.

Plus the impact that we're overcoming in the quarter of the break-up in Canada and in effect the decline of the rig activity up there which we had been experiencing at a better than U.S. margin.

A rig company yesterday when I asked about the question about field wages said they were being successful in passing along the increased field wages to their customers. Thereby making actually an improvement in their margins by, you know, between 400 and $500 per day. Can you not pass these along?

We feel we are passing them along at the same kind of way as that. You know, as we see it, that in effect, that operators really do set day rates, and in effect, that's our customers, as you know, and we think they're setting them. Because of the increased demand. We think we're in effect passing on these increases in the wages through increases in day rates. And we think that's what's going to offset, you know be offset by, in effect [indiscernible] and associates, there's going to be margin in improvement, although that's a possibility in the second quarter.

Jim, this is John. Just want to add one point. In effect for us to have flat margin in the second quarter margin in the U.S. improved somewhere in the $150 dollar a day range because remember we're overcoming running an average of roughly 15 rigs during the first quarter at the Canadian winter margins compared to running on average somewhere around four rigs in the second quarter at margins that aren't as high as the Canadian winter margins, so to be flat for the quarter, we're in effect telling that you the U.S. margin is increasing.

That's what I needed. Second question, economies of scale, it has historically been my experience that larger companies do benefit from economies of scale and it makes it more difficult for a smaller companies to benefit. Can you talk a little bit about where these economies of scale are coming from and how they might impact your business.

I'll throw it to Cloyce to fill in on the answer, Jim, but I can think of two that come to mind very, very readily. One is that there are certain measures of G&A costs meaning insurance and things of that sort that we think we have some advantages of, based on the size we are. In addition, I think there is some operational advantages in terms of trucking and rig moves and centralized inventory of parts and equipment.

Probably one of the bigger things in economies of scale is just the fact that you get to spread your fixed costs, running superintendents and office expenses across a larger number of rigs, and that certainly helps a lot. Because we retain all those people, we don't let those people go in the down downtime, so when you are working 90 rigs, you have that spread across 90 and when you are working 200 you have it spread across 200.

So as we go to the upcycle that benefit should magnify.

I think it will.

Gentlemen, thank you very much.

Thank you. The next question is from Jim Rollyson with Raymond James, please go ahead.

Good morning, guys.

Hey, Jim.

Just one question on Jim's question. The timing of that expansion probably sometime around Q3 when you get Canada coming back up a little bit. Does that seem fair. Q3, Q4.

We said we are optimistic about second half margin, Jim, very deliberately. So yes.

Mark, you say you are seeing in some cases rates picking up. You can give us kind of some idea of the range of magnitude?

Cloyce?

I think you see -- it varies all over the place, Jim, but I would say in the -- well, I don't know about that, but 3 to $500 dollars a day, spread across many, many rigs.

Sure. That's fair.

That includes the wage increase that we passed through. As well as just some day rate increases. And Glenn, do you know of any higher

3 to 500 a day is I think a fair estimate.

If you could comment, you've obviously been pretty successful in being able to put out rigs, you know, seemingly maybe a little bit faster than some of your competitors, what, you know, you think it is a customer mix issue or just the fact that you guys have had rigs in place, what are you striving at?

I think that the customer mix certainly one, but I think that we spent a lot of money in the last upturn, rebuilding rigs and when we came out of that, into the downturn, we repaired the rigs that needed repairing, we stacked them ready to run, we kept our skilled people by -- and it makes it real easy to ramp up real fast and I -- you know -- you hear a lot of people saying we didn't ramp up really fast, I kind of challenge that. I think we ramped up really rapidly. We went from 90 rigs a year ago to roughly 200 rigs, [indiscernible] to me that is quite a rampup and I think the ability to do it with getting people in the field, all of our field people in place, I think it has been very fast.

Sure. How do you set from here, Cloyce, on people and your ability to put out more rigs? You're obviously assuming a couple hundred rig average for the quarter. At what point do you start running into people problems.

We are running into people problem as everybody is right now. It is not just at Patterson. It is all drilling contractors but, you know, we seem to always get them. And it just gets more difficult when you get to this level. And what we're really striving to do is to maintain our safety record, you know, safety is such a big expense now, and everybody is so conscious of it, and so we're trying to train and be very careful, and the people that we do put out there. So it's going to be a little slower but we will get there.

Sure. Just lastly, your I know it is a lot smaller and not as exciting but drilling completion fluids, your revenues are down a little bit, which I guess is probably the gulf drilling activity makes some sense there, but your kind of revenues per job were down considerably, as were your costs, your margins were about the same. You can kind of describe what is going on there?

Jim, really what that is about, is we do well in drilling and completion fluids when the gulf is doing well. When the gulf isn't doing well, the other remaining business is land, which is smaller cost per job and smaller revenue per job and quite a bit lower margin per job. And until the gulf improved, you know, we don't see the fluids business improving over the next couple of quarters until you see the gulf improve.

So a lot of it that is mix related?

We are being weighted the land which is not where we make money in fluids.

Sure. Thank you, guys.

Thank you. Our next question comes from Scott Gill with Simmons and Company. Place go ahead with your question.

Yes, thank you. Two questions, here. First question with respect to your outlook for activity in the U.S. in the second quarter, it would appear that the ramp-in activity is slowing. And I guess, you know, Mark, or Cloyce, could you talk a lit little bit about that forecast for Q2, is the ramp-in activity slowing here, or is this just kind of a conservative estimate?

Scott, I don't take the premise. I don't think we're saying it's slowing. Basically, we're saying that our April numbers for U.S. rigs over the number in the third quarter is up 17%. For one month. So in effect, what we're saying is U.S. rig count increased about 20%. In first quarter over fourth quarter. And we're saying effectively I think that we think that the rate of increase for the second quarter in U.S. should be about the same rate. What we're -- what the change is, is on account of in effect the break-up in Canada and the expectation that second quarter Canadian numbers are much smaller portion, in effect as John said in the answer to the question that Jim Wicklund previously asked, if you run four as opposed to 12 you're actually overcoming that with the increase in the U.S..

Okay and Mark, as we look not second quarter, can you talk a little bit about this increase in U.S. activity, you know, which geographic markets is that occurring, and for what type of customer?

I think we're -- looking around the room at the -- at Glenn Patterson and Cloyce Talbott and myself I think our answer pretty much across the board is it's occurring virtually in every region. I wouldn't be able to pick out a particular region in which it is, you know, more pronounced than in any other. So I don't know how to really gauge the answer.

Well, if there is in fact any spots of noticeable weakness in other words.

No clear bright spots or clear dark spots.

My last question, Mark, just trying to understand the previous conversation on labor and day rates, if it's getting more difficult to, you know, staff these rigs, as we kind of approach that magical number of 200, isn't that therefore a catalyst to push day rates higher? Just kind of walk me through that dynamic.

In fact, I think that's what is occurring, Scott. I mean we said in our last call, in response to a number of questions, when do you think that day rates will start to move, and we said we thought that day rates would start to move kind of when the people who had extra capacity, namely the neighbors, the Patterson, the gray wolf, in effect got to a 50% kind of utilization. That is really what happened in this most recent quarter. And at that point, we find scarcity of labor, scarcity of other things, and so in effect, the customers know that in order to in effect get that marginal rig, that they have to pay more than the other customers are willing to pay and we don't set the rates, our customers set the rate by bidding up the available remaining supply.

So it is fair then to say that the customers basically are pushing back the magnitude of that price increase, limiting you to cover the increased labor cost, is that fair? Is that too harsh?

I think that is probably an overstatement.

Okay.

I mean I would say that as demand for rigs -- if demand for rigs continues to increase as it's been increasing, we expect it will be increasing pressure on prices. So that our day rates will go higher.

Scott, this isn't dissimilar from 1999. It took us, you know, several quarters to come off the bottom quarter of around 1,000 dollar margin to get back to the level we're at today 1800 or so. And you know, it's no different. They get scarce. You know people begin to value the rig more, the prices begin to move and once that covers the whole fleet it moves at a pretty brisk rate.

That's fair, we're just trying to factor how much to dial in for rate increases, as we go forth. It's kind of gray to gauge that right here. Thank you, gentlemen.

Thank you, our next question comes from Kurt Hallead with RBC Capital Markets. Please go ahead with your question.

Good morning.

Hey, Kurt.

A question I have, kind of sorting through a lot of data points as we go through here talking to our E&P team and seems like the constant feedback I get is the larger independents continue to hem and haw about the returns and even at pricing at these levels and they can't find things to drill that make sense for them. Maybe that hasn't been the case so much onshore as offshore but recently, you know, Anadarko [ph] was saying they were go to cut back on the rig count until the fourth quarter and pick up in Canada again. I wanted to see if you could put some color between what is going on between the bigger players versus the smaller players. I know the bulk of your business has always been done with smaller players and I just want to get your color on that.

Well, Kurt, we feel that we've been -- we've made presentations to this effect that we've done a real good job with both the major independents, the Apaches and the Andarko's and so on, as well as the smaller or probably better way to say it, less well known independents that are usually nonpublic. But we think we're seeing increases in demand from both sides of our -- both sets of customers at this point. And one of the things that we feel that we don't want to have happen is to be typecast as only doing business with the nonpublic independents. We do a lot of business with the major independents. And in fact, we think their business is actually increasing at this point. Yes, we understand that there are from time to time announcements by those companies, of different utilization, but we don't think there is a significant trend toward declining activity among those players.

All right. And then just -- I don't want to beat this to death on the pricing side but it seems to me given the magnitude in which rig count has increased since the beginning of the year, given the tightness that you guys are suggesting with respect to labor, that there would be much quicker response this cycle relative to last cycle on pricing and I'm just kind of puzzled as to why that is not really set to occur yet until maybe it looks like the third quarter of the year.

Again, Kurt, kind of back to the earlier answers about Canada, I think that, you know, unfortunately when you look at Canada, U.S. together, that seasonality kind of muddies up the waters, but in effect, to say margin is going to be flat versus the second quarter with some possibility of going up, we're -- you know, we took a look at current contracts and what they were a month ago, and you know, we think revenue per day is going to be up $450 roughly for the quarter. You know, it could be better than that. We don't know. On the cost side, the payroll increase costs us, you know, rough dollars, 300 dollars a day. And you know, with Canada coming off, brings our costs per day up because you're running 4 versus 15 rigs and that is a $150 margin going the other way so if are you looking at just the U.S. it is increasing and I would say, you know, four or 500 dollar a day increase in revenue in one quarter is pretty good in the first quarter of the increase in rate.

Are you starting to see some element of the rate of change on pricing beginning to accelerate then?

I don't think that. I don't think we're seeing -- the rate of change accelerating, occurred, I think, you know how we are, we have short term contracts and these things roll in over a period of time and we average about 30 days a contract and it just takes time to roll them in.

And I'm just impatient. It's not happening quick enough. All right.

We share with you the impatience.

Thank you, our next question comes from Geoff Kieburtz with Salomon Smith Barney, please go ahead with your question.

Thanks very much. I am going to be boring and continue the same theme here. One of the observations in looking at history is that, whichever you way you want to take it, at similar rates of utilization, several years ago, you had lower margins, or you didn't get to the current margins, until you had about 10 percentage point higher utilization than you're posting right now. So the first question is, what are the dynamics behind that?

Jeff, that probably goes back to what happened in this downturn. You know, there is a lot of consolidation in the '99 period and even into 2000. And excuse me, I have a cold. What we found is since we came off the peak, you know, rigs running in the middle of 2001, Neighbors and Patterson taken together, stacked about 54% of you know the rigs they were running in the first six months of that. Which, you know, certainly supported rates, and kept us at higher lows than what we had seen in '99. Nearly doubled the number. You know, I think that, you know, we were prepared to stack rigs to make sure that we could run above maintenance capital levels that are somewhere around 8, $900. We don't think it is a good thing to chew up your iron and apparently they were skilled the same way. So that's how we kept the higher levels is the willingness to stack rigs, and as demand goes up, the incremental rigs are going to come from the people who stacked the rigs which is, you know, us and I expect Neighbor's also. So I think that's the different dynamic, the willingness to stack rigs and we have the balance sheet to do it.

Okay. With that as an understanding of what is going on right now, do you -- having a higher margin today, at a lower utilization than you had in the past, as we see the utilization rising, I think as we all expect to, does that mean that the margin plateaus for a longer time? Or do you expect there to be just simply higher margins at lower levels of utilization consistently through this cycle?

Well, you got two sides to that. You have the cost and the revenue side.

Uh-huh.

Just from kind of a historical perspective. You know, our costs in the first quarter were roughly $6700 a day. Compared to, you know, in 2001, we got down to about $6250 was our lowest cost per day. But in 2001 we were paying people more. You back the payroll back into that$6700, you find yourself, you know, 7100, $7200 levels. There is, you know, roughly a $1,000 of margin if everything else is the same, from 2001, from increased utilization over the next few quarters, going the other way, insurance is probably 100, $150 higher per day. So we have about 800, 750 to 850, maybe $900 of margin expansion, just from economies of scale. Not to mention pricing. So, you know, if you look to say the third quarter, and you know we pick up another couple hundred dollars a day which doesn't seem like a whole lot, on the pricing, pick up a couple hundred dollars a day on the economies of scale you're going to find your margins up over 2,000 and the $2200 range. Which is, you know, pretty significant to earnings. And as you go forward, and that continues, the ramp of earnings is pretty impressive.

Right. Again, looking at history, you went from about a $1700 a day margin in the second quarter of 2000, to an almost $5700 a day margin in the third quarter of '01. So five quarters. Is that the kind of progression you think we may see this time?

I think it's pretty hard, Geoff, to speculate on it. It turns so much on what our customers ultimately do, and you know, there is the question of whether the major independents get real active, whether the -- as we described them, the large but not public independents get active, it's really -- it's the degree to which that rate of change increases in terms of rig utilization that will tell us how fast in effect margins will change and how fast earnings will change. I don't know how to predict that.

No, I understand that. Maybe qualitatively , if anyone has some observations about, you know, how -- what are customers saying how are they acting in contrast to say how they were acting and talking in, you know, the middle part of 2000.

My guess is Cloyce has about as much experience in this industry as any and I would as you Cloyce, do you see any differences now?

I think it's pretty much the same and when you will see the dramatic changes would be when the demand gets there where people have to have rigs, for whatever reason, whether it is the lease explorations or whether they want to drill for tax reasons at the end of the year, and maybe it won't expand quite as rapidly as it did before, and stay up at some level of -- for a much longer period of time. I think that we would all welcome that.

I'm ADI' sure that's true. Let me ask one last question then. Neighbor's has been out saying we're going to pay more attention to some of the smaller -- I'm sorry less well known independents. Are you seeing any impact from that -- that behavior at Neighbor's?

Well, actually I've never knew that they weren't paying attention to them. We always felt that they were a real competitor of ours in all areas. Maybe they are changing their tune a little bit to maybe concentrate a little bit more but we've always considered a very formidable competitor with all of our customers.

Thanks very much.

Thank you, our next question comes from Jim Lewis with Morgan Stanley. Please go ahead with your question.

I think may question has been pretty well covered, thanks a lot.

Thank you. Our next question comes from Kevin Simpson with Miller Tyback. [ph] Please go ahead.

Hi I have a couple questions. We've already gone over the rig rate situation pretty thoroughly but I'm wondering Cloyce, are you guys having to turn down work now in areas, or defer starting work because of tight people supply? Or, you know, equipment, allocating, you know misallocating, not miss, but you know.

I don't think we've turned any work down anywhere. We've certainly deferred some work and sometimes that is an agreement between the customer and the contractor, that we defer it, because bring another rig out and you've got green hands and they would prefer to have a hot rig rather than a cold rig starting up so they will wait, 30, 60 days to drill a well. And then the way we bring rigs out is we get more backlog and -- and we're trying to train hands all the time and having them feel comfortable putting some -- another crew out, well then we will bring another rig out but we will have a backlog for that rig, so you know, I guess it's a little bit of both of what you asked.

And you know, I mean are you getting to the point where -- I mean building backlog, and having, you know, more visibility, I guess that's good and bad, and good that you're in a stronger position and bad that, you know, the backlog means rates for the time being are probably locked in at a somewhat lower level?

I don't think we're locking in our backlog. At a lower level for sure.

Well, you know.

Maybe we -- maybe we have a few contracts we won't move up on, as demand increases, but I always see a backlog as a very positive, regardless of what the rates are. Because that tends to -- when you have a backlog, to lead, to more work later on and maybe a little better rates later on.

Kevin, historically what we found in an increase, and that when rig count is increasing is when you hear that leading edge rates are moving, it affects your earnings about a quarter later, that in effect is that backlog, you know, you are going well to well, call it 30 days, and you got a guy behind that so that is another 30 days and you got to get where you're working on it, so it is not a long period of time but it is about 90 day, as best we can figure.

Okay. Just one other question. The -- one of the things that surprised me, just because we hadn't seen much of it recently, is it looks like a pretty decent oil drilling response to the higher price. The baker rig count on oil is up pretty substantially. Are you guys experiencing that? I guess particularly in west Texas but just anywhere where you operate. And then is there some risk that now the prices have come back to something more reasonable, that, you know, you lose a little bit of that work?

You know, I guess we have increased some on the oil side. And we don't track that real closely because we -- when we get a contract we don't know whether we're drilling for oil or gas. The same rigs do both, as you know. But just me personally out in the field I haven't heard many people saying that they're not going to drill because oil prices come back down below, you know, below 30. I think gas is far more prevalent than oil and for what we're drilling probably 85% of our rigs are drilling for gas. And in many cases, there is an oil component with the gas, as you know, too.

Sure.

So it does -- and you know, we think constantly about high commodity prices, and how it affects demand. And particularly, I -- I mean I kind of like to see prices come down some because 25 dollar oil and 5 dollar gas is not a bad combination.

And we're in there with you on that one, Cloyce. That's it for me, thanks.

Thank you. Ladies and gentlemen if there are any additional questions, please press the star followed by the one at this time. As a reminder if you are using speaker equipment you will need to lift the handset before pressing the numbers. One moment please for the next question.

And gentlemen, there are no further questions at this time. Please continue.

One other thing that didn't come up that we would like to comment on, historically, I think people who follow the company over a number of years know we have seasonal activity in Canada that drops of, also our pressure pumping business in the Appalachia which is similarly weather affected, if you looked at 2002, the revenues for second quarter were in the $6.6 million range and margins about 35%. But we found in periods of higher commodity prices that the customers out there, are a little more active in the second quarter. And we don't know, but we would expect that revenues, this year, would be a bit higher, you know, maybe 7 1/2 million, maybe $8 million. And since they will be spreading their costs over, you know, more revenue, they should see a little higher margin. And instead of 35% last year, it would be you know somewhere in that 35, 40 range, a little higher than that which, you know, will contribute to our second quarter earnings.

Thank you, John. Operator if there aren't any more questions, we will then conclude the conference call and thank everybody for their participation.

Thank you, sir. Ladies and gentlemen, this concludes the Patterson-UTI Energy first quarter, 2003 earnings conference call. If you would like to listen to a replay of today's conference call, please dial 303-590-3000 or 800-405-2236. With access code 532307 pound. And once again if you like to listen to a replay of today's conference call please dial 303-590-3000 or 800-405-2236 with access code 532307 pound. You may now disconnect and thank you for using AT&T teleconferencing.