Patterson-UTI Energy Inc (PTEN) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the third quarter 2007 Patterson-UTI Energy earnings conference call. My name is Fab and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Geoff Lloyd on behalf of Patterson-UTI Energy. Sir, you may proceed.

Thank you very much. Good morning and on behalf of Patterson-UTI Energy, I would like to welcome all of you to today's conference call to discuss the results of the three and nine months ended September 30, 2007. Participating in today's call will be Mark Siegel, Chairman, Doug Wall, President and Chief Executive Officer, and John Vollmer, Chief Financial Officer.

Again, statements made in this 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 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 actual gas prices that could adversely affect demand for the company's services and their associated effect on day rates, rig utilization and planned capital expenditures. The excess availability of land drilling rigs including, as a result of the reactivation or construction of new land drilling rigs, adverse industry conditions, difficult in integrating acquisitions, demand for oil and natural gas, shortages of rig equipment 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, which may be obtained by contacting the company or the SEC. These filings are also available through the company's web site or through the SEC's Edgar system. The company takes -- undertakes no obligation to publicly update or revise any forward-looking statements.

And now I would like to turn the call over to Mark Siegel for some opening remarks to be followed by questions and answers. Mark?

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

I hope that, by now, all of you have had an opportunity to read our earnings release, which was issued earlier this morning, prior to the opening of the market. Before discussing the results of operations, I would like to take a minute to officially introduce Doug wall in his new position as Chief Executive Officer. While we will clearly miss Cloyce Talbott's unmatched experience and knowledge of our business, we are extremely fortunate to have Doug on our team. In his brief time with Patterson-UTI, Doug has already demonstrated the leadership strength and management skills that we believe will help to develop Patterson-UTI to its fullest potential in the years ahead.

I would like to review the results of the three and nine months ended September 30, 2007, and to indicate some of the financial highlights from the just-completed quarter. As always, we will be pleased to take your questions following these remarks. To summarize, net income for the three month period totaled $98.2 million or $0.62 per share compared to $186 million or $1.12 per share for the three months ended September 30, 2006. Revenues for the just-completed quarter were $524 million as compared to $674 million for the third quarter of 2006. Net income for the nine months ended September 30, 2007, totaled $354 million or $2.24 per share compared to net income of $517 million or $3.03 per share for the first nine months of 2006. Revenues were $1.6 billion for the nine month period ended September 30, 2007, compared to $1.9 billion for the nine months of 2006.

Turning to our drilling operations, average revenues per operating day during the third quarter were $19,150 dollars compared to $19,410 in the second quarter of 2007. Average direct costs per operating day were $10,840 for the third quarter compared to $10,570 for the second quarter of 2007. For the quarter ended September 30, the company had an average of 243 drilling rigs operating, including 234 rigs in the United States and nine rigs in Canada. This compares to an average of 237 drill rigs operating, including 235 rigs in the United States and two rigs in Canada for the second quarter of 2007. We estimate that our October rig count was 238 average rigs operating, including 229 in the U.S. and nine in Canada.

For the fourth quarter, we currently expect our rig count will be similar to the third quarter, with an average of approximately 243 rigs operating. Recently, we have seen some encouraging signs and we believe that the land rig market continues to stabilize. For the quarter, we expect a decrease of approximately $500 per operating day in margin, taking into account changes in mix between the U.S. and Canada, costs from idle rigs at the holidays, and some other factors. For the drilling industry, in the United States, lower 48, land rig counts have remained at high levels during 2007. Land rigs added to this marker have currently exceeded the market's demand. In response, the construction of additional land rigs for the domestic market has slowed significantly. In this climate, day rates began to stabilize during the third quarter.

Importantly, we believe that the long-term upward trend in the number of wells drilled will continue, as it is the principal mechanism to meet demand for natural gas and to offset steep decline rates. For this expected increase in rig demand, we currently have approximately 90 marketable land drilling rigs available to reactivate. Most significantly, despite this temporary oversupply of rigs, our drilling business has remained fundamentally strong throughout 2007. We have been willing to stack rigs in a systematic and disciplined matter in light of this current rig oversupply, which we believe to be a pause in the long-term upward trend toward the utilization of more rigs.

Turning to our pressure pumping business, I'm pleased to point out that this business has continued to successfully expand its operations and had another record-setting quarter in both revenue and operating income. During the quarter, revenue increased by 45% and operating income increased by 57% compared to third quarter 2006.

I will now turn to our balance sheet. We're continuing to deploy capital in a manner beneficial to our shareholders. During the just-completed quarter, the company purchased 2,275,000 of its shares for $50.3 million. These purchases were made pursuant to the board's previously announced decision authorizing purchases of up to $250 million of the company's common stock. In addition, we recently acquired three FCR electric land drilling rigs, two 1500 horsepower and one 1,000 horsepower rigs, and spare drilling equipment, for $29 million. We spent $136 million on capital expenditures during the third quarter and we expect a similar amount in the fourth quarter, and the total spending for 2007 will be in the $600 million range.

I would now like to take a moment to summarize our actions in this area. During calendar 2005 and 2006 and for the first nine months of 2007, we have spent approximately $1.4 billion on upgrading our rig fleet and increasing our assets in the pressure pumping business. We're also pleased that during this period, calendar 2005 and 2006 and during the first nine months of 2007, we have returned $635 million to our shareholders in the form of dividends and buybacks. With $1.4 billion reinvested in our company's assets and more than $600 million returned to our shareholders, our balance sheet has no net debt. We believe our strong balance sheet, our dividend and buy back strategy, and our commitment to invest in our rig fleet and pressure pumping business, all have served and will continue to serve our company and its shareholders in the future.

In addition, the company also declared a quarterly cash dividend on its common stock of $0.12 per share to be paid on December 28th to owners of record as of December 12th, 2007. Most significantly, we would like to express our appreciation for the hard work and dedication of all of our people in each of our business units. We thank them for their efforts.

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

Thank you. (OPERATOR INSTRUCTIONS)

Your first question comes from the line of John Fitzgerald from Raymond James.

Good morning, guys.

Good morning.

Congrats on the quarter. Did really well.

Thank you.

Wanted to ask a couple of questions, on the pressure pumping market you guys are really successful there this quarter. Could you give some color on how you performed so well? Was it just a different region you were working in or what was the deal going on there?

John, I think the answer to that question is really we've seen a lot of strength in both the fracing and nitrogen markets, the number of jobs that we've been on has increased significantly. The revenue for each of those service lines has increased dramatically. And I think our people up at Universal are very well-connected in that marketplace and I think we're very well-positioned for future growth.

Ok. And as a follow-up, I think when you announced that you'd acquired the three new rigs, I think you said two of them were working already. Have you found a job for that third rig?

The third rig, at the moment, is not presently working. We do have a number of leads and we expect to have it working before the end of the year.

Ok. And were the other two signed under long-term contracts?

No, they weren't. The other two were both working on well-to-well contracts. Both operators have expressed interest in keeping the rigs, but we also had some very strong possibilities for placement of all three of those rigs.

Ok. That's it. Thanks.

Your next question comes from the line of Kurt Hallead from RBC Capital Markets.

Good morning.

Hey. I just have some questions, there is a lot of chatter out in the marketplace that the asset quality of Patterson rigs is far inferior. I know Mark you just referenced the $1.4 billion upgrade program, and I also see the fact that you've got 90 idle rigs and Neighbor's has 84, so it doesn't look like you guys have lost any differential share relative to Neighbor's. Also, you did pretty well in terms of your cash margin, so what else can you guys do to put this false rumor to rest here?

Well, Kurt, it is Doug here again. As you know, we've spent a little over a $1.4 billion over the last three years on upgrading our equipment. We think it is a common misnomer in the marketplace both with our competitors and really with the street about the quality of our fleet. I think our customers are speaking very loudly with their wallets, and they do appear to like the work we do for them. As I said, we've taken a very disciplined approach to upgrading our fleet. We've added new rigs. We've completed over 67 refurbs in the last two or three years.

We've spent a great deal of money on our fleet on pumps and mud systems, which is probably one of the key components of improving drilling efficiency. By the end of 2007, we will have in excess of 260 rigs with 1,000 horsepower or greater Tri-Flex pumps We spent a tremendous amount of money on safety improvements on our rigs. We now have iron roughnecks on over 170 rigs.

There's no question that we still feel we have some way to go but we've come a long way in this company, and I think our results both with what our equipment has done and with the people that we have in the field, I think it points out that we do a very good job in the field and people pay for operational efficiency.

Broadly speaking, there's gotta be some element of rig attrition that occurs here over the course of the next six to 12 months. You have a number -- what was it, 350 to 500 depending on what the count is of new rigs that have been entered into the market. It's gotta make a lot of the older rigs somewhat obsolete. What's your general take on rig attrition?

Well, I think you're correct on there's some rig attrition in the market place. If you look at the rig data numbers, there's been about 650 rigs added to the market place in the last three years. We think only about 300 to 350 of those are what I would call brand new rigs. The interesting piece is a lot of those new rigs are not necessarily fit for purpose. We think in terms of quality, not all of those new rigs are what I would call new rigs. There's going to continue to be some attrition, we believe. But I think the attrition is shifting in the marketplace in terms of the horsepower and it really isn't all about new rigs. A lot of it is rigs need to be fit for purpose and the rigs that are very efficient and with improved drilling performance will continue to work.

Ok. And my next follow-up question, given the fact you guys got 90 rigs ready to be marketed as demand warrants, what is your game plan for drill pipe?

Well, we currently have -- we're in a very good situation with drill pipe over the last couple of years. We took the opportunity to make sure we had plenty of pipe and inventory and I'm very, very satisfied that we're in very, very good shape with drill pipe.

Are you going to -- are you going to need to be buying any or are you done for awhile?

Honestly, we haven't really looked at that in any depth at this point. I would be real surprised if we add any significant amount of drill pipe in 2008.

Ok. All right. Thanks.

Our next question comes from the line of Jeff Kieburtz from Citigroup.

Thanks very much. Doug, I would just like to carry on that point and maybe your comment that the rigs need to be -- fit for purpose in, you know, obviously Patterson does have a very substantial amount of, you know, legacy equipment that wasn't built for the drilling environment we see today, but then you've spent a lot of money on it. Can you give us a sense of -- you know, as you're still relatively new to the company, do you have a vision of what the Patterson fleet of the future will look like? And can you give us, if you do have some sense of where we are in the progression toward that goal?

I guess to respond to that, the fleet of the future I don't think is going to look dramatically different than the fleet today. Lots of people over the last couple years have talked about the fact that SGR rigs are going to replace every rig in the market place. Today that conversation is around AC rigs. There's no question that, I think, the industry is moving in that direction. But will every rig in the future be a new SGR rig? The reality is no.

I think probably as I mentioned earlier, probably the most significant improvement in drilling efficiency over the last five years is really related to bit technology. Grand our point of view, that has meant larger size mud pumps and, in lots of cases, top drives. I think those two things are where we have been very disciplined in terms of employing our capital ,and I guess my point is there's only about 350 out of the 1750 or 60 rigs that are working in the marketplace are new. And I think this industry has probably spent -- this is probably the first time in the last 20 years that we've seen this kind of capital infusion into the industry. And there's 1400 rigs out in the marketplace today or more that are not new. Those rigs in my mind are never going to disappear. I think it is a fallacy that new equipment is going to totally replace every rig in the marketplace. There really are markets today where brand new technology is just not fit for purpose. So, I think to generalize and say new rigs are going to totally replace everything in the marketplace is just a misnomer.

So, in our own case, to respond to your question, Jeff, we're going to continue to employ capital. We're going to continue to upgrade our rigs in areas where we think it makes sense. And I think you'll see those. We're in really good shape I think today with things like mud systems and mud pumps. We're going to selectively continue to upgrade our rigs in those areas where we think it is appropriate.

Hey, Jeff, I would just like to add one or two little small points which are really emphasis points to what Doug just said. One is that one of the things we've seen is that some of the brand new rigs that have entered the market, some pursuant to long-term contracts are not fit for purpose and are likely to either retire before the term contract ends or certainly at the expiration of the term. So, that's point one.

Point two, in some markets, the newest, most -- supposedly most technologically fit rig cannot outperform a mechanical rig that's very, very well suited to its purpose in that particular marketplace. So, we think that in both cases, there's a common misconception that either all new rigs are fit for purpose or that some mechanical rigs -- or no mechanical rigs can outperform a new rig. Both of those are flatly wrong.

Right. I don't want to get into a semantic or definitional discussion too deeply ,but you're drawing a distinction between new and fit for purpose. I think what you're saying is the market needs fit for purpose and that may or may not be a new rig.

I think that's correct. We would all agree with you.

As you stand today, how much of the Patterson fleets, inclusive of the 90 rigs that aren't contracted, would you consider to be fit for purpose?

I don't think we're prepared to go through that estimate today, Jeff.

Ok. All right. Fair enough. In terms of those 90 marketable rigs that are idle right now, are they off the market, they're just capable of being marketed or -- what is kind of the -- how are you thinking about those 90 rigs right now?

Jeff, the easy answer to that is of the 90 rigs, most of them are of the smaller horsepower size of rigs. They're scattered around in our various regions. They are currently marketable, are ready to go to work. We probably could not put all 90 of them to work tomorrow. I think the crew situation is -- all of these rigs have actually run within the last 15 months. So, I think, to answer your question, we have not taken them off the market. I think the limiting factor today would be people, and as long as we had enough lead time, I think we could crew the rigs in some reasonable period of time.

Do any of the 90 idle rigs have crews standing by?

I would say the crews are not necessarily standing by. We've redeployed a lot of the drillers and some of the key personnel on other equipment. So, I would call those people standing by. But we certainly don't have them waiting at the house for the call.

Ok. And on the -- on the margin decline, at the end of the second quarter you had forecast that margins would decline $300. They declined $500. Is that re -- does that reflect a somewhat greater weakening of the market than you anticipated or how should we think about that variance?

I'm not following the question. Could you say it again, Jeff ?

I believe you said in the second quarter conference call, land business would decline about $300 sequentially and it declined I think about $500.

No, I think we had -- I think you've got that backwards. We, believe talked more like an $800 decrease in margins and we outperformed that a little bit on the expense side. We talked about $11,000 in costs per day and they turn out to be $10,840 and the rest of it was the stronger pricing. As Mark mentioned in his opening comments, we saw some stable stabilization in pricing in the third quarter.

Ok, thank you.

Your next question is from Scott Gill with Simmons & Company.

Yes, good morning, gentlemen.

Good morning, Scott.

Just a quick question here on the guidance for activity. I think you guys are calling to be flat for the fourth quarter. October was 238, a little bit below that. We've got the holidays approaching. Are you seeing anything in hand today that indicates that November is going to be a meaningfully up month for your rig count?

Scott, there's really two components of that.

Ok.

Our rig count kind of -- U.S. rig count peaks at about August 31 and then September it got a little bit softer. You know, I suspect that -- just being at the end of the injection period. And then in recent weeks, we've seen that U.S. rig count move back up, you know, over the 230. Now, granted at the end of the year, I would agree with you that the last couple of weeks of the year, around the holidays, you lose a little bit of U.S. rig count.

On the Canadian rig count, is also, it is not great but it has been good, running more than ten rigs of late. And taking the two together, our guess is that the U.S. is going to a little north of 230 rigs running for the quarter and Canada, you know, would average something in the 11, 12 kind of range, so our 243.

Ok. You wouldn't have a company in hand that would say that it is going to jump to 245 for the month of November or something like that?

No. I think it is just really more gut feel, based on inquiring on how the rigs are getting deployed right now.

Ok, that's fair. We haven't talked much about the fluids business. It looks softer here in the quarter. Was that due to the weakness in the Gulf of Mexico?

Yeah.

Yeah, absolutely. I think we were very surprised, the number of rigs operating in the gulf, I think has dropped down to 50 or 52. It is down from I think 80 rigs a year ago. And our business in the fluids business is heavily oriented toward the Gulf of Mexico. So, as the Gulf of Mexico is strong, our business is strong, as the Gulf of Mexico declines, we see some weakness there.

A couple of other quick ones. On the oil and gas side, ED&A was up quite a bit. Was there some sort of impairment in the quarter?

Yes, there was. It was about $2 million.

Ok. And we're not expecting that for the fourth quarter, right?

You know, we evaluate it every quarter, Scott. But certainly, I have no visibility of an impairment at this time.

Ok, my last question, again a pretty quick one here, Mark, you spent a lot of time talking about the investments that the company has made over the past two plus years, $600 million of which for 2007, any insights into what the spending might be for 2008 and where that spending might be directed?

Actually, I'm going to let Doug respond to that.

Ok.

I can't give you a number at this point. We are just in the process of working on our 2008 budget. But I will say this. We were going to continue to be extremely capital disciplined. We certainly got a look at our capital expenditures in conjunction with what we plan on doing with dividends, with what we plan on doing with our share repurchase program. And also, looking at our free cash flows for 2008. So, as I said, we're not finished with that process at this point but I do expect it is going to be down significantly from the numbers that we spent in the last couple years.

Doug, would you say that as you look at your rig fleet, you're more inclined to be building more assets as opposed to upgrading some of those 90 idled assets?

I think that's true. You know, we've shared with you before that we ordered 15 brand new ideal rigs from National Oilwell. We have taken delivery of all of that equipment. To date, we have only put one of those rigs in the field. We're are currently constructing another two of them. And we will be looking at selectively adding those rigs to the marketplace over 2008. Now, a number -- as I said, most of the capital expenditures of the big components, we've already paid for.

I'm sorry. You said how many have been delivered?

One is actually out in the field working.

Ok.

We presently just started construction of two additional.

Ok.

Scott, all of them have been delivered to us in our CAPEX expense.

Right. But they're not field ready though, right, Mark?

Correct.

Gotcha. Ok. Thank you.

(OPERATOR INSTRUCTIONS)

Your next question comes from the line of Arun Jayaram from Credit Suisse.

Good morning, gentlemen.

How are you?

Doing well. Mark, in your comments, you mention you're seeing a stabilization in the marketplace and you're guiding to a higher rig count I guess for November and December. Are you seeing that the same stabilization in margins and when do you think, Mark, we could see a plateauing of lower 48 margins for you?

Arun, I think the words you used that starts with a "P" we don't use.

Ok.

But all kidding aside, I think that the sense that we have with $94 oil prices and $8.33, using yesterday closing prices, natural gas, that it's not surprising to us that we're seeing some encouraging signs from our customers, both in terms of utilization and some extent, lessening in the pressures on pricing. And so that's what we're -- that's what causes us to talk about encouraging signs. Doug, you want to say something more to that?

No, I don't think really. Arun, there isn't much we can add to that. I don't think we're ready to say that good times are here again but I think we've certainly seen some encouraging signs that there's some stabilization in the market place.

Ok. Fair enough. Gentlemen, the tax write-off -- I don't know if you mentioned this a bit earlier, the tax rate came in a little bit lower than I had modeled in. Was there anything unusual there? And is that a lower tax rate going forward, could you give us some guidance there?

I think for the year, you would be looking at 35% tax rate. What you're seeing there in the third quarter is when you file your return for the prior year, you true everything up at that point in time and we were a little conservative on our tax rate last year. You're seeing the benefit run through the third quarter. 35% for the year would be the way to look at it.

Ok. My final question, guys, I asked the same question of Neighbor's but the Baker Hughes onshore rig count in the U.S. is up 6% in -- quarter on quarter year over year versus 2006. Yet your rig count was down 19%, Neighbor's down 14%. Why do you think you guys and neighbors are bucking the trend and losing so much share relative to higher rig count by Baker Hughes and Richard Mason saying that this is an all-time high at least in the modern history of the onshore rig? And -- why are the trends so different?

Well, I think, Arun, we started out by saying that the market's been good in the land drilling business and our business has been fundamentally sound. That's the critical thing to see. You know, you look at our business and you see kind of -- net income being -- got a 19% of revenue. The business is fundamentally good. That's a critical fact to see as a starting point. I want to make sure that we say that and we remember that.

Against that, we have had -- we've been very disciplined about our business and we think that we're as -- our charge is to maximize the profitability of our company for the benefit of our shareholders. And given that we're the largest player in the U.S. land market, it makes sense for us to be very careful and very disciplined about the utilization of our rigs. And since we're careful about the utilization of our rigs, in a market that's got an oversupply, we're likely to be a player who takes into account that oversupply and works with it in a disciplined fashion. But I would like to make sure that, you know, you note while you talk about that, the net income results that have been achieved by the company. And the real point here is, did the management maximize the returns for the investors with the assets that are under their handling? We're not supposed to maximize utilization, we're supposed to maximize return and we did that and have done that for a number of years. And that's what my point was. I think all of this other conversation kind of starts to look at some of the detail and overlook the fundamental point.

Ok. Thanks a lot, Mark.

Your next question comes from the line of Waqar Syed from Tristone Capital.

Hi, good morning. Some questions on the pressure pumping side. Fourth quarter pressure pumping typically slows down. Are you going to see -- do you expect that to happen this year as well in Appalachia, and also if you could talk about some margins for the fourth quarter?

Yeah. Based on your comments, you realize the fourth quarter is typically lower than the third, driven by less hours with a shorter days and less days to work because in Appalachia, the custom is to ship out at Thanksgiving through the first day of hunting season. There is also a similar slowdown around the Christmas holiday. So, you know, my guess at this point would be revenues in the fourth quarter would be more similar to the first quarter. At the same time, with less days to work. More similar to the second quarter.

I'm sorry.

More similar to the second quarter. And with, you know, the same number of working days, but less days working, the margins should be slightly lower in the fourth quarter than they were in the third.

Ok. And then, kind of longer term picture, are you seeing -- Appalachian market seems to be -- at least for now, different than what we're seeing in other regions on the fresh pumping side. Do you expect your competitors to start putting more equipment in there or how do you see the market develop next year?

I think a lot of our growth there has really been driven from the [Marsalis shale site]. Certainly that's where we've seen the biggest volume in our business. All of our major competitors are already in that marketplace. I can't comment whether they're going to bring more equipment into that marketplace or not. The reality is that marketplace is different than working in west Texas, it certainly has some different drivers. Like I say, I really can't comment what our competitors are doing. And I think the other thing I guess I would like to point out is the shale plant up there is in its very preliminary stages of development and at this point, we do expect to see further growth but I think it is a little too early to make that call.

The one thing I would like to add to what Doug said is that while Appalachia, as you correctly point out, is a good area, we've been operating in that area for many years. And because of the fact that we're a long-term player in that marketplace, we think we have some considerable advantages over new entrants. We have relationships with customers. We have equipment. We know the area. We have a lot of, we think, significant advantages that we think differentiate our business in Appalachia from our competitors who may be our new entrants who may be trying to join the marketplace.

Sure. And then on the drilling fluids business, you did not disclose the number of jobs that were done in the quarter. Do you have that number handy?

I'm afraid not, Waqar. Talking to our management in that area, they kind of concluded that that wasn't the best indicator and so we've got away from talking about it in our press release.

Ok. And how do you see that market develop in the fourth quarter?

We really think we don't see any significant changes in the fourth quarter from what we saw in the third quarter. I think until the Gulf of Mexico gets reactivated and we get a few more rigs back to work, we see our business there staying in kind of the levels that we witnessed in Q3.

Ok. That's great. Thank you very much.

And your next question comes from the line of Brad Handler from Wachovia Capital Markets.

Hi, Brad.

Thanks, good morning. I guess a little bit more on the pressure pumping side, please. Can you just update us on your capital program on hydraulic horsepower that you have added this year and plans that are already in place for next, if any?

I'm sorry, Brad. We don't have that information available here with us in terms of the horsepower we've added. Over the last couple of years, we've made significant investment as you know, as we look into 2008, we have not finalized our budget yet in terms of what we would add.

Ok.

I don't have anything to add to that.

Ok. Fair enough. And then just -- I guess just a follow-up on Waqar's question. You do not have a sense as to what peers, competitors are doing in terms of their plans for Appalachia, is that right?

I think that's fair. We had some idea of what some of them are doing but I don't think I want to disclose that on the call. There's no question that the market there is on the verge, I think of -- of us knowing whether the shale play there is going to work like it works in other places around the world or certainly around the U.S. ur competitors, since they've been coming into the market really for the last year, so I really don't know what their further plans are. The one thing I do know, to point out what Mark said earlier, we're pretty tough competitor in that marketplace, and we're just not going to cede that marketplace very easily.

Understood. I'm not as close to your trends as I could be but perhaps you can just clarify how much -- the revenues per job, how much of that reflects pure pricing over the last three quarters? So, it is a positive pricing progression, I guess?

In the Appalachian base, I think the pricing works a little bit different than it does in some other markets. That pricing gets really set in February, March timeframe, and a lot of these programs are annual programs. So, I think there's pricing improvement over the year, maybe -- I would guess somewhere toward 8 or 10% and the rest of it is I think driven more by job size.

Ok. That's helpful. And I guess, so you are getting ready to sit down at the table and -- for that February, March review in '08.?

That's correct.

Ok. All right. Very helpful. Thanks, guys.

Thank you.

And there are no further questions -- oh, actually, you have a question from the line of Todd Garman with Peters and Co.

Good morning. Just wondering if you could give us a little bit of color in your land drilling rig business by region. So, are there any regions in the U.S. that are either materially busier than you thought they would be or materially slower?

Well, let me start with the slower ones. I think the one that probably has been -- as everybody knows, has been very slow over the last three quarters is really Canada. But in the U.S., certainly I think the areas where we've seen some declines in activity would be the Permian Basin in west Texas and Oklahoma has probably been slower than we anticipated. The strength, as you might anticipate, has certainly been in the Rockies. It has -- we've seen tremendous amount of strength certainly in the Barnett shale of north and central Texas. We've seen some recent signs of strength in south Texas.

If you look out to 2008, are you seeing any indications from your large clients that -- in terms of spending or activity levels that are going to be materially different from the smaller ones? I mean, do they plan to be busier than the smaller ones do? Or is it vice versa?

I think that's true of -- some our larger customers are planning on remaining very busy. I think what we don't have a real good handle today is on some of what we call the checkbook drillers in west Texas. As you know, most of those people are driven very quickly, based on commodity prices. So, I do anticipate we'll see some resurgence in west Texas towards the first part of the year.

Ok. Thank you. I guess just a follow-up to that then. What about larger clients in the other regions of the U.S.?

Well, again, without mentioning names, some of the larger customers, I think, are presently looking at and trying to determine what their '08 budgets are going to be. But most of the larger customers that we've talked to show that at least flat plans for '08 are somewhat up, but it depends really on the region.

Ok. Thank you.

There are no further questions at this time. I would now like to turn the call back over to management for closing remarks.

Thank you. We would like to just thank everybody for their participation in our call and look forward to speaking with you following up on our fourth quarter. Thanks, everybody.

Thank you for participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.