Patterson-UTI Energy Inc (PTEN) 2023 Q3 法說會逐字稿

Welcome to the Patterson-UTI Energy third-quarter 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. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded today, Wednesday, October 29, 2003. On behalf of Patterson-UTI Energy, I would like to turn the conference call over to Mr. Jeff Lloyd. Please go ahead, sir.

Good morning and welcome to the Patterson-UTI Energy conference call to discuss the results of the three and nine months ended September 30, 2003. Participating in today's call will be Mark Siegel, Chairman; Cloyce Talbott, Chief Executive; Glenn Patterson, President and Chief Operating Officer; Jody Nelson, Chief Financial Officer; and John Vollmer, Senior Vice President Corporate Development.

Just a brief reminder that today's statements made in the conference call which state the company's or management's intentions, beliefs, expectations, or predictions for the future are forward-looking statements. It is important to note that actual results could 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 services and their (technical difficulty) effect on day rates, rig utilization, and planned capital expenditures, adverse industry conditions, difficulty in integrating acquisitions, demand for oil and natural gas, and 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 calling the company or the SEC. Now I would like to turn the call over to Mark Sigel for some opening remarks, and then to be followed by questions and answers.

Thank you, Jeff. Good morning and thank you for joining us today. I assume by now all of you have seen our earnings release. Before taking your questions, I would like to take a couple of minutes to review briefly some of the highlights from the earnings release and to add some context to the results.

We reported a 42 percent sequential increase in net income to 17.1 million or 21 cents per share, compared to 12.1 million or 15 cents per share for the prior quarter, and $249,000 or 0 cents per share for the comparable three months in 2002. I should add that our 42 percent sequential increase in net income resulted from a 6 percent increase in revenues for the quarter, demonstrating the earnings leverage that we were able to achieve as our margins improved.

In our last conference call, we anticipated relative stability in demand for land-based drilling rigs, leading up to the start of the winter heating season; and that is what occurred. In the third quarter we focused on increasing average revenues and margin per operating day. As we reported this morning, compared to second quarter of 2003, our average revenue per drilling day increased by $340 to $9580; and our average margin per drilling day increased by $370 to $2600.

We have an average of 192 rigs operating during the quarter, including 11 in Canada. While we are beginning to see an increase in the demand for drilling services, September and October activity has been impacted by wet conditions in West and South Texas. These conditions have caused delays both in our customers' preparation of drilling location and our moving of rigs. This is not at all unusual. As many will recall, at this time last year we also had very wet conditions in our focus areas of Texas. As a result of these weather conditions, we expect to average approximately 188 rigs operating for the month of October, including 12 in Canada.

Looking ahead we expect our rig count to increase as the wet conditions recede. Additionally, we expect the rig count to further increase as producers seek to overcome natural gas production declines and to profit from strong commodity prices. Because Patterson-UTI, along with Nabors Industries, own the majority of the additional land drilling capacity in the U.S., we expect both companies to be the major beneficiaries from further increases in demand for drilling rig services.

As our rig utilization increases, daily drilling margins have also historically improved, resulting from both increased efficiency, evidenced by declining daily drilling costs, and day rate increases. If the demand for land drilling services and land drilling rigs increases, we believe that Patterson-UTI earnings will continue to grow based on higher rig utilization and improved daily operating margins. Consequently we remain optimistic and confident about our prospects for 2004.

Finally, I would like to comment about our pending acquisition of TMBR/Sharp drilling. As some of you may have surmised, our registration for this transaction is under standard SEC result. As a result of this SEC review and the pending registration statement, we will not comment further about the TMBR/Sharp transaction on this conference call.

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

(OPERATOR INSTRUCTIONS) Scott Gill with Simmons & Company.

Mark, I was wondering; we saw your rig count down here in the most latest statistic you gave us. What are you looking at in the November, December time frame, in terms of activity? And could you just kind of answer that right now, please?

I think that the first (technical difficulty) that our count for October would have been significantly higher, say 5 to 7 rigs, and probably closer to the high side as opposed to the low side of that number, BUT for the rain conditions. So we are expecting to see a number closer to --

Then we expect that the increase as we spoke about, from demand increasing, to take us approximately five rigs higher than that in both November and December. So that we would kind of be looking to approximately 210 rigs operating, following the holidays. (technical difficulty) We will lose some rig days both for Christmas and for the New Year's holiday; so on an average about 195 or so rigs for the quarter.

That sounds like a fairly flat environment versus where we have been. How does pricing behave in that type of market?

I guess I am not sure I see that as very flat. I think we are going to be seeing a definite uptrend during the quarter. What is more, as we averaged approximately, say, average margin in the quarter about $2600, with approximately a $300 increase in rates, we see the same kind of revenue increase over this quarter; bringing us up to a margin of approximately $2900 for this fourth quarter.

So we think that there is both an increase in rigs running and an increase in margin coming from both higher day rates and probably some improvements on the cost side.

So clearly you are seeing that margin expansion here in October, correct?

It is not even the end of the month. So we can see our pricing, but we can't see margins until after the end of the month.

That is fair. Last question, on pressure pumping; great quarter there. Can you just talk about what you see in the fourth quarter in your pressure pumping business?

Yes, we are very proud of the achievements of our pressure pumping business. We are highly optimistic about that business. Obviously they can have some challenges, owing to wet conditions. But we feel that that business is definitely continuing to show significant growth, and foresee that continuing into the fourth quarter and next year.

And pricing with respect to pressure pumping?

We think it is probably similar to prior quarters. Similar margins; guessing somewhere may be 1500 or so jobs in the fourth quarter. They did have a little bit of holiday impact there. They shut down at Thanksgiving and don't reopen till the completion of the first day of hunting season.

You do probably see a little lower revenue for the quarter on slightly less jobs. But still a great performance, 1500, 1550 jobs. Similar revenue and margin to what you saw in third quarter. That would still be a great quarter for them.

Thank you.

Jim Rollyson with Raymond James.

Mark, your crystal ball worked pretty well last quarter. And obviously a sound like you have got things embedded to be up a little rig wise; and margins up. Is the increase in rates and margins you're kind of looking at just still carryover from rolling onto the contracts from pricing pressure or increases that were around from the last two or three quarters? Or is this something new, with the recent rebound in rigs? Kind of give us a sense of where that is coming from.

Where we came up with the comments on the revenue increase of a couple $100 a day for the quarter, and $100 decrease in costs per day for the quarter, was based on looking at contracts for the period August through last week. It is not picking up a lot of dollars; but you pick up a little on each contract, each week. That is how we came up with the $200.

If the market were to get tighter, we could see better than that toward the end of the quarter. We don't really know. We are basing that on current run rates that we see on today's contracts.

Sure. In your opinion, where do you think you need to see the rig count, to get pricing moving a little more dramatically than a little bit a day?

Our crystal ball is pretty clouded on exactly at what point pricing continues to move. I think it is fair to say that our numbers in second quarter, in terms of margins, where probably better than our expectation (technical difficulty) this quarter, third quarter. Again that is same slightly better. So we have consistently seen improvement. What number would provoke a significant jump, over and above kind of a steady increase, is kind of a hard number to predict.

Any best guess?

I think that to the extent to which activity starts to really increase, given the overall industry level of activity, I would expect that we would see fairly significant increases. But we have some price cutting competitors who are pushing prices lower. So it is a hard thing to give an exact answer to.

Sure. Fluids revenues were up quite a bit from the last quarter. Still not a huge part of your business, but revenues up, margins up a little bit. Is that kind of a mix issue? Or what is going on there?

I think a portion of it is we have gotten some equipment added in, in certain areas; and just demand has increased is what the revenues --

Land versus offshore.

We are talking about pressure pumping.

No, he is talking about mud business.

I misunderstood you; I am sorry. I thought you said the pressure pumping. You said mud? Fluids?

Fluids, drilling and completion fluids.

We are still seeing softness in the offshore market on the fluids business. Land has improved some, particularly in South Texas. I don't really think we will see great improvement there until we see improvement in our offshore market. We have so much cost involved in running our offshore portion of that. When we see improvement there, you will see a pretty dramatic improvement, if and when we see that.

John, I guess CAPEX the rest of this year and maybe next year?

For the fourth quarter we think it will be similar for each of the operating segments to what we saw in the third quarter.

All right, thanks.

Marshall Adkins with Raymond James.

What is your gut feel on what the rig count does here in the first quarter? Are we going to see the normal seasonal slowdown? Or do you think we are going to power right through it, like have a couple of years out of the last five?

I hate to say your gut feel; but my thoughts are that we are going to see an increase in rig count. Again it kind of depends on the withdrawal out of the storage. But if we see a pretty significant withdrawal out of storage, I think you're going to see a rig count increase very similar to what we did last year. I guess my gut feeling is I don't see a downturn after the first of the year, like you would normally see.

Not the normal January, February.

Who knows?

Right. The spending you mentioned is going to be -- the CAPEX has been fairly healthy here. What are you all spending that on? Ex the acquisitions, obviously.

There is a number of places in which our CAPEX is being spent, that I think it might be helpful for you and the others who are listening to understand. You can see it is broken out, obviously, in our reports.

But we have put a significant amount of CAPEX, for example, into our pressure pumping business. Part of the reason that that business has been able to grow, and Cloyce in the answer he was giving before was really talking about that, additional units that we have purchased have helped that business to expand its capability and its revenue. So there has been some CAPEX, higher than, say, if you went back three years ago, that are going into our pressure pumping business.

Additionally we put significant amount of money into the rigs in a rebuilding of mud pits and other things of that sort. So that we have rigs that we think are very quickly able to meet our customers' needs; and be able to do so with the kind of the equipment that our customers really want and demand. We think that is part of the explanation for why we have been able to achieve the profitability that we have been able to accomplish.

Okay. So we have got estimates for next year all over the board. I was sort of looking at some pretty solid increases going into the fourth quarter, both in terms of the number of rigs and modest increases on the pricing. But as you look into '04, and I fully recognize none of us know exactly where the rig count is going to be next year. But can you tighten up that range a little bit for us, from consensus? Can you give us any kind of guidance on that, Mark?

I am going to let John take a shot at it, Marshall.

Sitting here in October, our crystal ball is (indiscernible) I think a good six months if not longer. So that we saw stabilization in the rig count. And then going into winter withdrawal, we believed it would go up. I think Cloyce has reiterated that here today. Just how high, we don't have a crystal ball, in that our customers don't really tell us.

The other key driver to our earnings is obviously margin. What is interesting, if you look at the margins for the third quarter, we have seen a little bit of cost efficiency now. We are down to 6,977, I will call it $7,000 a day at cost. Based on tooth (ph) numbers, and factoring in a little higher insurance, we believe that number is going to get below 6,500. Somewhere towards 6,400 as we run more rigs.

So exactly when we get there, I don't know. But you have got $600 of margin improvement based on simply running rigs more efficiently.

Running greater numbers of rigs. Which leads to greater efficiency.

Correct. If you take the consensus earnings number that is out there, and your costs go down $600 a day on average, and your revenue goes up a mere 300, and you run about 230 rigs, you would meet the consensus number.

SO although I don't we have a lot of clarity as to what this is going to be next year it is not a huge leap from where we are to meet that consensus number.

I am sorry. Was that John or Alan Greenspan that just -- ? That is very helpful.

We will take that as a compliment.

Very helpful. Thanks.

Kevin Simpson with Miller Tabak.

A couple of questions, maybe a clarification first, Mark. I wrote down that you thought you would be in the 210 range before the end of the year, holidays notwithstanding.

I was really saying I think that, in effect, when we come out of the holiday period it would be 210. People like to come out and say, end of quarter number. The problem with the end of quarter for the December quarter is it is obviously a holiday, and it is not a good day. So I was trying to suggest to you that by January 5th, or something like that, post holidays, post everything, the number would be approximately a 210 number.

So that would be presumably (multiple speakers) 17 in Canada and then 193 for U.S. rig count.

It would probably be 15 in Canada. We only have 16 rigs up there. And the best utilization, you don't get paid every day. Last year for the winter it was 15.3 rigs that we got. So I call it 15.

So then in the mid 190s be (inaudible) a target what you think you can do, based on what you see in front of you.

Exactly.

Cloyce, or maybe Glenn, you guys have kind of been the, early in the year, maybe beneficiaries of some of the smaller independents aggressively drilling. I am wondering what you see there? Prices have come down a little bit. There is a little bit more uncertainty on the gas side. Storage is high coming into the heating season. What is your sense on what that customer group is expecting? And do you see any downside risk, meaningful downside risk over the next three months or so from that group of customers?

I don't really see that much downside risk. Of course there is, certainly, the gas price has come down. But we kind of see that as a positive. When gas prices get too high, you sort of destroy demand.

And assuming demand stays in the 22 TCF per year in the U.S., and it has been that for about the last five or six years; if it stays in that range, I think there is going to be a serious, serious problem with storage. We have refilled storage this year. The way they refill storage is having historically high gas prices in the summer.

I don't see anything different than that in the future. I think the customers that we are working for certainly would not be drilling -- I don't think they are figuring their economics at $5 gas. I think most of them are using -- they have probably got up in the 3, 3.50 range now, basing their economics on that. But they are certainly not using 4.50, $5, I don't believe.

I don't see that there is that much risk. I guess the only risk that I would see is assuming we had a plenty warm winter and we didn't empty the storage. But I think that if the demand is there, that you're going to see storage empty, just because of lack of deliverability of natural gas from the producers due to the decline rates.

That certainly looks like the 3Q reports so far would say that trend is continuing.

I certainly think it is.

Of the increment that you see over the next couple of months, and maybe what is already being weather delayed, were the public companies and the larger companies? Or is it still more from your smaller customers?

I think it is a combination of both.

I would say across the whole customer base.

So we can not pinpoint one that is actually fairly positive then?

Exactly. We're not seeing it where we think it is one customer or two customers, either way. Or even a class of customers.

I will ask one more and then get off. What is your Iraqi strategy going forward? I guess you already have some exposure there. What would you like to be going there for you guys over the next six, nine months?

The answer is that we see an expansion of activity in that marketplace generally, and we would like to be a participant in the marketplace.

So no target as to how many rigs you would like to have there midyear next year.

No, we don't work that way. We really are customer driven in terms of where the rigs are.

Okay, thanks. That is it for me.

James Wicklund with Banc of America Securities.

A clarification. I mean in a flat (technical difficulty) down third-quarter market, you got a 13 per cent pricing increase across 85 percent of your entire revenue line. And in the fourth quarter, where the rig count is going to be up, though marginally, considering your market share, Mark your comment that means rig count is going to be up 30 rigs by the end of the year; you're going to get another 10 to 12 percent pricing improvement. I am hearing this right?

Yes, sounds right.

Okay, I am just checking. Because everybody is kind of sounding disappointed. And so far we have listened to a number of calls in the last week where 13 percent pricing increase across 85 percent of your entire top line would have more of a bullish tone to it.

I don't think we are being un-bullish, Jim. I think we are being -- I mean I thought our comments --

It wasn't so much your comments; it was just some earlier questions.

I think I said optimistic and confident.

Okay. Just checking. Sentiment matters in this market a lot.

Our sentiment is very strong.

Cloyce, length of contracts. I know you guys do well to well with options. But are you starting to see any commitment? I mean, the only way these guys would pay a higher day rate, considering the rig count has been basically flat, is if they expect activity to increase. Are you seeing that in the number of option wells that they ask for? Anything (multiple speakers) along the contract terms?

I don't see that it is any different than it has been. I think most people know that we do not do long-term contracts. We do a lot of drilling for customers on a continual basis. But it is usually three to six months, and we work deals with them on the pricing. And that goes up or down after that three to six months.

That is what I'm talking about. Are they more interested now in committing to six month rather than three? I am not talking about long-term contracts particularly; but we used to talk number of inquiries. That kind of thing. Are you seeing interest extend into 2004?

There is some interest extending into 2004, yes. But I don't see that that has changed that much from the past.

Okay, that works. That is all I have got.

Kurt Hallead with RBC Capital Markets.

I don't know, (indiscernible) telling it the last week and a half; and all these conference calls have been kind of blah. You guys put up some pretty good numbers. The outlook seems to be pretty consistent with what you guys talked about going back into second quarter.

Is there anything that could substantially alter the view as we head in here to the fourth quarter? And what kind of reads are you getting from the field with respect to the incremental cash (indiscernible) the companies have accumulated over the course of the year, as we look out into 2004?

Let me take it in reverse order to the two questions you asked. The second question, in terms of customer cash flow, I don't think we have too good a feel for the customer cash flow. But what we do do, before we have this conference call, is spend a day as a management team reviewing everything we know about the company; and talking to the people in the field, face to face; and a getting their read on activity; and so on and so forth.

What you get when you get our conference call, and we are constructive and positive about the trend in the fourth quarter and into 2004, it is based on having spoken with that field management and those field salespeople, and hearing from them their degree of optimism. So that is what that is based on, and that is what it represents.

So I guess the customers must have pretty good cash flow, given 4.50 to $5 gas over the last half of 2003; and almost $6 gas in the first half. So we think their cash flows have been quite good. That supports a significant activity level in terms of drilling and good prices for us. As respects your first question, I'll turn that to John.

Kurt, you want to tell us your first?

I figured that. The point was this. Other than a breaking commodity price, which is anybody's guess at this stage, is there anything that is going to cause your customers basically not to increase the level of activity from this point forward?

I guess it is purely commodity price. I think the risk for a (technical difficulty) changed significant directional change in natural gas prices.

The last couple years we have seen an increase in the first half of the year, and a flattening in activity in the back half of the year. I don't know if two years makes a trend. But how would you assess that situation over the last two-year period?

You are referring to rig?

Exactly.

We believe it makes a whole lot of sense what our customer seems to be doing. The period in which the product they produce out of the ground has got the greatest demand starts with the cold weather and ends when you get to the later part of the injection period. So I think the market seems to be doing that, at or least has for a couple of years.

We think that it makes sense that that will continue this year. Given the economics on oil and gas are mostly driven by the price of commodity, wouldn't you want to produce into the period that the commodity price is likely to be the strongest?

That is particularly with the type of wells we drill now. With the high put-in rates and a rapid decline.

Okay. Thanks.

Mark Urness with Merrill Lynch.

I wanted to ask; you talked I think last quarter about fourth-quarter tax-driven drilling by the smaller checkbook operators, if you will. I wanted to really ask about who is going to drive -- which types of operators are going to drive the rig count higher from here? Is it mom and pops? Is it the midsize independents? Is it the larger independents? Or is it all of the above?

I think it is all of the above. I think we are seeing increased inquiries from the large publicly-traded independents; and I believe what we saw, when we had the drop of rigs by both El Paso and Anadarko, that we filled in that gap quite rapidly with more mom and pops. Or what we call people that have checkbooks rather than budgets. I think that now we are seeing not only increase from them, inquiries from them; but it is also the larger publicly traded.

Could you comment on which markets you expect to be strongest, as we go toward the end of the year and into next year?

I think it is pretty much across the board for us. I mean we have seen a little bit of weakness in South Texas; but then we are seeing improvement there. West Texas is plodding along about the same. And East Texas has been fairly strong for us.

Has there been any shift at all toward deeper drilling? Or has it been pretty much the same?

I think it is pretty much the same, pretty much what it has always been. We have always professed to be primarily intermediate depth drillers. We have the capability to drill in deep wells. And we drill deep wells when our customers want them. But we find most of the drilling to be in the 8 to 15,000 foot range. So that is where most of the work is done. Historically, the higher the commodity prices the shallower the drilling is.

Last question relates to acquisitions. You mentioned you have not closed TMBR/Sharp yet. But are there other deals that you're looking at? In other words, are there other potential sellers in the market?

We are always looking at transactions. I think we have spoken at various conferences and said to people that oftentimes deals that we start 12 months ago come to pass 12 months later, or even 24 months later. That remains the case. So there is always in our briefcases a number of transactions that are under consideration.

It is kind of hard to predict when they are going to come to pass. We do know of a number of sellers who are interested in potentially selling rigs. The question I guess is always whether there is a meeting of the minds between buyer and seller as to price.

Thank you.

Bo McKenzie with Sterne, Agee.

Geographically, will you talk about the improvement that you see in rates? Can you comment geographically as to whether you're seeing significant differences in the improvements in rates? Particularly with respect to South Texas, and (technical difficulty) putting more rigs into the market?

Secondarily, I think we have seen the bit companies post sequential revenue growth (inaudible) growth that we saw might have expected, given the rig count. Have you seen a noticeable decrease in -- let me rephrase that. A noticeable increase in the penetration rates, given the move towards more PVC bits? In other words, more holes per active rig this year? Thanks.

I will take the first part of it first. I don't think we are seeing one area that rates are improving more rapidly over any other area. As far as the penetration rate of rigs, I guess we are drilling wells a little faster today than we have in the past. It has been certain areas I know for sure that we are. In most cases that is not a significant improvement in the loss of revenue days. But you know the way we see it is, if they are drilling wells faster and it makes more money for our customers, they are going to drill more wells. So I don't think that is a real issue.

Going back to Mark and some comments he had; if you look at average kind of asking price per rig trend on the acquisitions that are in the marketplace right now, can you -- adjusting for the differences in the types of rigs between different markets, give us an idea; have you seen a significant uptick in people's expectations on pricing for sales of assets?

I think if you look at the 16 rigs we bought early this year, that is four different transactions; all different market areas. And you look at those rigs, what you find is nothing has really changed; at least based on those closed transactions.

It just over 2 million a rig. The average depth capacity was about 13,000 feet. It included FCRs and mechanicals. It is really the way it has been for four or five years. On any individual transaction there may be reasons why a price is higher or lower. But I don't think we have seen a difference in what we can buy rigs for.

All right, thanks a lot.

One other comment, Bo. You mentioned rates and rigs and what is going on. If you look at our margins, I think what you would find, or look at our operations, part of the key to the margins we have been able to achieve is using the right tool for the job, and providing the customer with superior service. I think that has been demonstrated over the last couple of quarters by the results we have had in a stable rig market.

I think specifically what I was talking towards is a competitor down in South Texas who has been fielding some new rigs, but seems to be putting a lot more pressure on keeping their rigs working than maybe in some other markets.

You know, people bring more rigs into the market, and if they pursue utilization that is going to have some impact on other drillers. But as Mark said in his opening comments, most of the rigs that are available at this point are in the hands of Patterson-UTI and Nabors Industries.

All right, thanks.

Monroe Helm with Cimarron Capital Partners.

Good quarter, guys. Just trying to get a little better handle on your customers. You talk a little about mom and pops, as opposed to publicly traded E&P companies. Can you give us a sense for what percentage of your rigs that you're operating are for those people? Or what percentage of the revenues they might be? Some kind of feel for how much of your mix they happen to be.

At this exact moment I don't have it available with me. I don’t think we brought that with us. Typically it is going to be -- somewhere towards 70 percent is going to be the non-public.

70 percent?

In the 60 to 70 percent range (inaudible) .

Can you typically find them willing to spend more than their cash flow? In other words would that part of your customer mix actually borrow money to do drilling? Or do they just spend their cash flow.

I think in most cases they spend their cash flow. They are probably more conscious of payout and return on capital than -- I shouldn't say more, but they have always focused more on payout out and how quickly it pays out, and when they get their money back in the bank account. I don't think that has changed.

You mentioned earlier that you don't have a great feel for what their cash flows look like. Do you have a sense as to whether or not they spent all their cash flow this year? Or you really don't know.

I really don't know. But I do know that everybody has made a lot of money this year in the oil and gas business, just because of the commodity prices.

Okay, thank you for your comments.

Joe Agular with Johnson Rice.

I wanted to go back to something that was mentioned earlier, I think by John, regarding the decline perhaps in average operating costs per day, with an increase in rigs. John, I think you mentioned $600 a day is possible. I don't recall if you said what kind of number that it would take to get you down by 600? What kind of number of rigs operating it would take you to get you down by 600? I am not sure if it is fair to compare it to two and a half years ago.

I didn't provide such a number, because it is a bit difficult to estimate. We know that in 2001, averaging roughly 240 rigs running, that we were able to get down to those levels of cost per day. We don't know of any reason it would be different. But exactly when that will occur is a bit unclear. If the rate count goes up from call it 200 rigs running to 220 or 230 for us, we would expect to see a fair amount of that savings. But I don't exactly know.

That makes sense. It sounds like you are saying there is no significant changes, at least, from two years ago.

The only thing that is different that we have been able to identify, and obviously we think pretty hard about this one, is really insurance costs. Our actual lowest cost per day I think was about 6250 off the top of my head. And we believe that insurance costs are up maybe 100, maybe $150 a day since 2001, for reasons everyone is all aware of. But that is it. Payroll has not gone up. Nothing else has gone up.

Have you all moved any rigs from region to region recently?

In the last ten months, we had five rigs in the Rockies at the end of last year; we made an acquisition of four rigs in January to take us to nine. And we have moved another four out there.

So it has mainly been just to the Rockies. Going back, I guess also to Mark's outlook I guess, for maybe early January being somewhere around potentially 210 rigs. If I am doing my math correctly, that sounds like you expect to add between 15 and 20 rigs in the United States over the next couple of months. Is there any region that looks stronger than others? Or is this kind of spread out?

I think it is party much across the board. I don't see that one region is stronger than the other. We might be a little possible pickup in South Texas; but I think West Texas, East Texas all will increase just slightly. It doesn't take much increase in any of the areas. And the mid continents will probably increase a little bit. But it just doesn't take much increase to get that many rigs.

Thank you, Cloyce.

Andy Vietor with Stifel Nicolaus.

John, in the $200 expected increase in daily revenues per day, how much of that is a result of improved pricing in Canada? If any.

In what we are talking about for the fourth quarter?

Yes.

Really none, that is primarily U.S.

In terms of crews, how many rigs could Patterson run today?

We figure we have crews to run about between 200 and 210 rigs right now.

Okay, thanks.

Bo McKenzie.

In terms of not expecting a big pickup next year, let's say that we do have normal weather or warmer weather; what can you guys do to further reduce your costs, other than bringing down rigs? Are there things that you can do to lower your operating expenses further in a flat rig count environment?

I think that we operate a pretty tight ship anyway. I guess we could operate to bring down some. But I think we operate about as close to the best as we can.

In terms of the Rockies, I missed what the person before me had asked. Did you guys look to move more rigs into that market? Or is that where you would look to acquire?

We would do both if our customer demand is here. Certainly we look everywhere to acquire, particularly in the markets we work in. And if our customer asked us to move rigs into that area, we will certainly do that.

Thanks.

Fred Fromm (ph) with Franklin Resources.

Your cash position continues to improve; looking pretty strong. And just wanted to know, I know acquisition of probably rigs will be your first priority; but are you considering a buyback? If so, any time soon?

Whenever our Board has a meeting, we consider that subject. So we are always actively considering that and other corporate finance opportunities that may present themselves. It is always under discussion by our Board, and given serious consideration.

We are very well aware of that increase in cash. The management team sitting in front of you takes great pride, frankly, in the number having crossed the $100 million point and standing at $111 million at quarter end. Including a lot of cash spent on a number of acquisitions that we did in the past 12 months. So we are real happy about that; but we also think seriously about the question about buybacks, as well as dividends.

When was the last time the Board considered that?

One quarter ago.

When is your next Board meeting?

Today.

So this afternoon then is when it will be discussed next, I guess?

I would expect.

I appreciate that. Thanks.

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