Helmerich & Payne, Inc. (HP) Q3 2014 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to today's program. [Operator Instructions] Please note today's call is being recorded, and I'll be standing by should you need any assistance. It is now my pleasure to turn the conference over to Mr. Juan Pablo Tardio. Please go ahead, sir.

Thank you, and welcome, everyone, to Helmerich & Payne's conference call and webcast corresponding to the third quarter of fiscal 2014. The speakers today will be John Lindsay, President and CEO; and me, Juan Pablo Tardio, Vice President and CFO. As usual and as defined by the U.S. Private Securities Litigation Reform Act of 1995, all forward-looking statements made during this call are based on current expectations and assumptions that are subject to risks and uncertainties as discussed in the company's annual report on Form 10-K and quarterly reports on Form 10-Q. The company's actual results may differ materially from those indicated or implied by such forward-looking statements. We will also be making reference to certain non-GAAP financial measures such as segment operating income and operating statistics. You may find the GAAP reconciliation comments and calculations on the last page of today's press release. I will now turn the call over to John Lindsay.

Thank you, Juan Pablo, and good morning, everyone. 2014 continues to be a strong year for the land drilling industry as the shale revolution marches on. This upbeat earnings season has been notable for new build announcements from all the major drilling contractors. For a decade, we believe H&P has been the undisputed leader in the new build replacement cycle, and with today's announcement of 13 new FlexRigs, we have a total of 30 signed new builds since last quarter's earnings release. In fact for our 2014 fiscal year-to-date, our 74 FlexRig announcements set a new all-time company record in a 12-month period. It's an interesting contrast to look at today's very strong market versus the market we were faced with a year ago. Even though oil prices at this time last year were near $100 a barrel, like they are today, we didn't announce any new build contracts while some of our competitors did. In fact, the market would only bear very low day rates and short-term contracts on new builds at that time, providing very low rates of return. We decided to be patient rather than sign contracts for new builds at low rates. Our belief was that the market would improve, allowing those rigs to be contracted at attractive rates of return at a later time. We were fortunate the market did begin to improve in the fall of 2013. Today we are again leading the way in what is shaping up as round 3 of the new build replacement cycle. We have been successful in supplying AC drive FlexRigs in response to our customers' demand for high efficiency rigs to drill horizontal wells with increasing complexity in the unconventional resource plays. Since 2006, customer demand has allowed H&P to increase our new build cadence for the third time to 4 FlexRigs per month. While more competition exists for AC drive market share, we believe H&P continues to be best positioned to benefit from the new build awards with the best customers, as we have in the past, because our focus remains on execution. H&P's ability to design and cost-effectively build the FlexRig on a reliable cadence, crew the rig with quality personnel and deliver the best drilling and safety performance on the largest scale in the industry are all very strong competitive advantages. Three notable milestones were accomplished by the company during the third fiscal quarter. We achieved record revenue, operating income and rig activity after activating 11 new FlexRigs during the quarter. Our U.S. land rig count today leads the industry with 292 active rigs, up 49 rigs since our third quarter call this time last year. Of the 74 new builds announced this fiscal year, we have already delivered 36 FlexRigs to date. Our new build construction effort delivered 2 rigs per month for the first half of the fiscal year, and during April we increased our cadence to 3 FlexRigs per month, and we'll continue until September when we transition to 4 rigs per month. No industry peer has sustained a 3 rig per month cadence, much less 4 rigs in the U.S. land market, although it appears that some of our competitors have now targeted these high levels of rig production. And with these new higher levels of new build plans from our peers, there are more questions today by investors related to the number of AC rigs needed in the industry. While we won't try to predict the AC drive rig count required to reach a saturation point, the fact is there are still over 1,000 legacy mechanical and SCR rigs running in the U.S. today and an even larger amount of very old rigs running internationally. Furthermore, of the 1,000 legacy rigs running in the U.S., approximately 75% are drilling horizontal wells. Since 2006, AC drive rigs have replaced hundreds of mechanical and SCR rigs. So we believe there are still many years of the replacement cycle ahead prior to approaching AC rig saturation in the industry. A review of the macro environment shows oil and gas prices remain stronger than originally expected for 2014. This has resulted in providing many of our customers with the confidence to expand their drilling budgets. The U.S. land industry activity is up approximately 130 rigs in 2014, according to the Baker Hughes rig count, and H&P has been able to grow along with the expansion and capture incremental market share gains. The increase in activity has primarily been associated with horizontal wells with longer laterals that FlexRigs are designed to efficiently drill. As a result, we expect our activity and market share to continue to improve. We are encouraged by customer discussions for additional new builds in 2015. Assuming market conditions remain favorable, our plan would be to continue the 4 rigs per month cadence through at least the first 9 months of the 2015 fiscal year. With 38 contracted new build FlexRigs still left to deliver and encouraging conversations with customers for additional new builds, we believe fiscal 2015 is setting up to be very strong. These market conditions should allow us to improve our pricing in the spot market, as well as for term contracts for existing rigs and new builds. We were also pleased to announce earlier in the third quarter that our board approved a dividend increase of 10% to $2.75 per share on an annualized basis. You've heard us talk in the past about an all-of-the-above strategy, meaning our strong financial position and strategic position provide a combination of organic growth opportunities and at the same time allows us to return cash to shareholders. Let me conclude my remarks by noting H&P's long-term strategy for growing shareholder value. We will continue to drive innovation at the rig site and in the systems that support our FlexRig value proposition. We will continue to invest in technology to drive safety improvements for our people and operational excellence for lowering our customers' drilling cost. And we will continue to invest capital that results in attractive returns for our shareholders. H&P's continued success is a result of our people and new technology solutions that drive lower well cost for our customers, and I would like to thank all of our employees for their contribution to the effort. And now I will turn the call back to Juan Pablo.

Thank you, John. The company reported $952 million in revenue during the third fiscal quarter of 2014, along with $272 million in operating income, which represents an increase of over 6% as compared to the prior quarter. In reviewing some of the drivers that led to these all-time record levels, I will comment on each of our drilling segments and will then expand on other considerations. Our U.S. land drilling operations delivered stronger than expected results at $271 million in segment operating income. The number of revenue days increased by about 7.3% from the prior quarter, resulting in an average of over 286 active rigs during the third fiscal quarter. In average, approximately 165 of these rigs were active under term contracts and approximately 121 rigs were active in the spot market. The average rig revenue per day slightly increased to $28,126 and the average rig expense per day slightly declined to $13,035, resulting in an average rig margin per day improvement of $134 to $15,091. As of today, the 333 available rigs in the U.S. land segment include 292 contracted rigs, 35 idle rigs and 6 inactive rigs that are currently held for transition to the YPF Argentina project. Of the 35 idle rigs, only 3 are AC drive FlexRigs, and the remaining 32 idle rigs are SCR rigs. The 292 contracted rigs are comprised of 291 AC drive FlexRigs and 1 3,000-horsepower SCR rig. Included in the 292 contracted rigs are 178 rigs under term contracts and 114 rigs in the spot market. Spot pricing has continued to slightly increase, and it is still about 4% lower as compared to pricing for rigs currently under term contracts, most of which were originally priced in even stronger markets during the last few quarters. Looking at the fourth fiscal quarter. We expect revenue days to increase by about 2% to 3% quarter-to-quarter. We also expect improvement in our average rig revenue per day level, primarily as a result of continuing increases in spot pricing in the market, which offset the negative impact of rigs that, in average, are rolling off from long-term contracts into today's lower pricing environment. Our best estimate at this point for the fourth fiscal quarter's average rig revenue per day is approximately $28,300. The average rig expense per day level is expected to remain relatively flat at roughly $13,000 with a potential variance of a few percentage points given the slightly volatile nature of quarterly expenses. Regarding our U.S. land term contract backlog, we already have term contract commitments for an average of 175 rigs for the fourth quarter of fiscal 2014 and an average of 142 rigs for all of fiscal 2015. The average quarterly pricing level for these rigs that are already under term contracts is expected to be flat to slightly up during the corresponding 5 quarters. Should spot pricing improvements continue through fiscal 2015, we would expect our total average rig revenue per day for the segment to also continue to slightly increase, approaching and hopefully eventually exceeding the average pricing of rigs that are already under term contracts. As John mentioned, the 74 contracted new builds announced since the beginning of our fiscal year represent yet another record for H&P. Of the 74 announced rigs, 32 are going to the Permian, 14 to the Oklahoma Woodford, 13 to the Eagle Ford, 4 to the Utica, 4 to the Bakken, 3 to the Tuscaloosa Marine Shale, 2 to the Haynesville and 1 each to the Niobrara and Woodbine. Of these 74 rigs, 48 are FlexRig3, 25 are FlexRig5 and 1 is a FlexRig4. Furthermore, about 2/3 of the 74 rigs have skidding systems suitable for multi-well pad drilling. Of the 13 newly announced rigs, which are included in the 74, 6 are going to the Oklahoma Woodford, 3 to the Permian, 2 to the Tuscaloosa Marine Shale, and 1 each to the Eagle Ford and Woodbine. Of these 13 rigs, 5 are FlexRig3 and 8 are FlexRig5. Let me now transition to our offshore segment where segment operating income declined as expected to approximately $17 million. The average rig margin per day declined to $24,303 and utilization remained flat at 89%. Eight platform rigs were active in the quarter, and our ninth platform rig is being prepared to commence operations before the end of this calendar year. As we look at the fourth fiscal quarter, we expect flat utilization levels and a decline in the average rig margin per day to approximately $22,000, primarily as the result of pricing adjustment -- of the pricing adjustment during the third fiscal quarter on 1 of the 8 active rigs as mentioned during our April conference call. Additionally, management contracts on platform rigs continue to contribute to our offshore segment operating income. Their contribution during the third fiscal quarter was approximately $4 million, and it is expected to be slightly under that level during the fourth fiscal quarter and then increase to approximately $5 million or $6 million during each of the following quarters. I will now transition to the international land segment, where segment operating income declined to $6.6 million as we experienced a lower average rig margin per day level as compared to the prior quarter, in addition to a $1.5 million currency exchange loss, which was mostly related to 2 countries in South America. Revenue days were roughly flat for an average of 22 active rigs. The average rig margin per day was $9,324 during the quarter. As of today, our international land segment has 23 active rigs, 15 of which are AC drive rigs. 7 of the active rigs are in Argentina, 5 in Colombia, 5 in Ecuador, 3 in Bahrain, 2 in the UAE and 1 in Mozambique. A total of 8 rigs are currently idle in the segment, 3 of which are in Colombia, 2 in Tunisia, 2 in Argentina and 1 in Ecuador. For the fourth fiscal quarter, we expect international land revenue days to be up by approximately 2% as compared to the third fiscal quarter. The corresponding average rig margin per day is expected to be down by approximately 5%, also as compared to the prior quarter. We believe that the margin weakness in the segment is temporary, due to several rigs that are either in transition from country to country or starting up operations. Given weak market conditions in Tunisia, we plan to move our 2 rigs out of that market. Separately, we have 2 new projects, 1 in Mozambique and 1 in Colombia, where 2 rigs recently commenced operations. The 10 rigs deploying to Argentina from the U.S. are expected to commence operations during the first half of fiscal 2015. We expect to see the full impact of these new projects by the third quarter of fiscal 2015. Transitioning from drilling segment-related information, I will now comment on other items. The company's total fiscal 2014 capital expenditures will probably be lower than our $1.1 billion estimate, primarily as a result of the timing of procurement related to our ongoing new build efforts. We are still in position to fully fund our fiscal 2014 CapEx program, as well as other scheduled commitments, from existing cash and from cash to be provided by operating activities. We now expect total depreciation expense for fiscal 2014 to be 1% to 2% higher as compared to our original estimate of $500 million. This increase is attributable primarily to a higher-than-expected FlexRig construction and deployment cadence during the second half of the fiscal year. General and administrative expenses were higher than expected during the third fiscal quarter but are expected to come down during the fourth fiscal quarter. Total general and administrative expenses for the fiscal year are now expected to be 2% to 3% higher as compared to our original estimate of $130 million. Our effective income tax rate for continuing operations for fiscal 2014 is expected to be slightly over 35%. As it relates to our investment portfolio, the company sold another 250,000 shares of its Schlumberger holdings for total proceeds of over $25 million that favorably impacted earnings per share by approximately $0.13 in the quarter. Our remaining investment portfolio recently had a pretax market value of approximately $250 million and an after-tax value of approximately $155 million. And that concludes our prepared comments. Zach, we will now open the call for questions.

[Operator Instructions] And we'll go first to Michael LaMotte with Guggenheim.

John, the build cadence going from 2 to 3 to 4, what do you figure is the max rate? Is 4 a month it? Or could you go even higher?

Well I think there's the potential for us to go higher. We've talked about it a few times in the past. Each time we've increased the cadence, obviously, it's a function of a demand pull from customers. We haven't ever been at 5. I'd mentioned in my prepared remarks that this is the -- this will be the third time that we've been at that 4 month -- 4 rigs a month cadence. So it is possible, but it's going to be a function of having the demand there, having the supply chain there. And again, I think we have the capability to do that. Our guys do a great job, and I think they could get to that level assuming we've got enough strength in the market.

Okay, good. And then Juan Pablo, for you on the working capital, again running pretty high, 8% of revenue for the second quarter -- I guess it was 6% last quarter. Is that inventory purchases on components? Or is that receivables-related?

Mostly receivables, Michael. But it does include several other items of course.

Okay. But it shouldn't...

But there's nothing there that we see that is inconsistent with the structure that we've seen in the past in general or what we might expect going forward.

Okay. So it's -- I should think about it more as volatility, not run rates in -- at that kind of level.

I think that's reasonable.

Okay. And then just out of curiosity, when I look at the cash flow, you all have referred to using the balance sheet in the past for growth. But not being an acquisition-oriented company and now building at the max rate of 4 a month -- or historical max rate of 4 a month and still being effectively cash flow neutral from a free cash flow standpoint, I was just wondering about your willingness or appetite for using the balance sheet to repurchase stock.

Well, Michael, we have -- of course you recall, we have repurchased stock in the past. So that obviously is, as we talk about this "all of the above" strategy, that's one of the strategies that we've implemented in the past. We're -- we continue to have an opportunistic-type view, and we think at this stage the most effective way to return value to shareholders is through cash back to shareholders versus buying back shares at this time. That's just -- that's been our position

And keeping the balance sheet essentially 0 debt?

Well, I'm trying to remember, Juan Pablo, in the past, we've been as high as 20%?

20%.

20%.

[indiscernible]

You know this business well. You've followed it a long time. It's a very cyclical business, and as drilling contractors, I think we don't necessarily have a goal of being debt free. But we would look at it in terms of being opportunistic. And in making -- whether it would be in acquisition, you mentioned that, we've talked about that as well, Michael. Acquisition of a land contractor would be dilutive so that isn't something. But there are other opportunities out there, but we're just going to continue to keep our eyes open and look for opportunities to grow the company and -- anything else, Juan Pablo, to add?

It's good to be in a position to have a very strong balance sheet to be able to take advantage of any opportunities that may come up.

And we'll go next to Kurt Hallead with RBC.

Just your commentary about the pricing progression as you head out into fiscal 2015. If I heard you correctly, you indicated that current spot pricing is about 4% below those rigs that have already been under contract, but on a go-forward basis, you would expect that the pricing improvements will start to lift the average rig rate. Now can you help me connect the dots? Does that generally mean that you think over the course of the next few quarters that the spot pricing dynamic will then be above what your historical high had been? Could you just give us some color? So if spot market is 4% below term contract right now, if you look at the exit rate for fiscal '15, do you think that spot pricing could be above -- 5% above or 4% above? Can you just give us some color on that?

Thank you, Kurt. This is Juan Pablo. I think you read exactly what we were trying to communicate, and that is that spot pricing is still about 4% under where we've seen it over the last few years in stronger markets. And so hopefully, spot pricing continues to improve as we've seen it over the last few months. And if that is the case, we would not be surprised if we once again reach the prior peak in terms of spot pricing, which would be approximately 4% over where we are today. The timing of that depends of course on market conditions, but over the next several quarters, it would not be surprising to see us get to that point. And as you mentioned, if that were to happen and everything else being held more or less equal, we would expect the total average rig revenue per day in this segment to be slightly up as well. So we're optimistic about the market and we hope that, that is the case.

And maybe my follow-up then, just on the international front. You indicated that the Argentina rigs will be at full impact by the third fiscal quarter of 2015. So should we assume a -- when we think about the increase in the number of rigs, so 5 rigs maybe in the fiscal first quarter and then the remaining 5 in the fiscal second quarter so that you're at full run rate? Or is it going to be spread out a little bit more than that?

Well, not -- I think that your expectation is reasonable. Of course, the rigs will be deployed at approximately, roughly speaking, 1 per month or so, so they will be spread out during that 6-month period. It's obviously less than 1 per month -- excuse me, 1 for every 20 days or so. And so if you go through that, I think that's a reasonable way of modeling it. And by the time we get to the third fiscal quarter of '15, hopefully all of those rigs will be operating and generating the types of margins that we expect.

And then in that context, on the margin dynamic, you said a temporary decline in margins given some rig moves and startups. So is the rig margin then from the fiscal fourth quarter into the first half of '15, are we going to start to see improvement at that point? Or is it more like a second half of fiscal '15 when we start to see some margin improvement internationally?

It's hard to say at this point, Kurt. We're certainly going to be keeping everybody updated on a quarter-to-quarter basis. It depends on a lot of moving variables and on market conditions for rigs that are in the spot market, et cetera. But in general, after the decline in margins that we've provided as an expectation for the fourth fiscal quarter, our hope is to start seeing improvements and then by the second fiscal -- excuse me, by the third fiscal quarter of 2015, we would hope that margins are significantly higher than where they are today and where we expect them to be in the fourth fiscal quarter.

And we'll go next to Walt Chancellor with Macquarie.

I guess staying internationally, in Argentina there've been some -- obviously, some recent labor issues and then this default. It's clearly a great resource in place. How are you all feeling about the market opportunity there, I guess now versus when you initially sign those contracts? And then if you could talk about sort of what your protections are within those contracts to sort of be kept whole on margin.

Walt, this is John. I'll talk about the opportunity. I don't think anyone is surprised. I mean this default has been out. It's been discussed for, I don't know, for how long, but I know it was being talked about prior to the bid. And so that -- we knew that was out there and a potential. We still don't understand exactly how or if it will impact us. We looked at Argentina and YPF in general as a long-term opportunity. These are 5-year term contracts. And clearly the resource is strong, and we think the opportunity is out there to grow the fleet pretty significantly. And it's not just with YPF, it's with other international oil companies as well. So are we disappointed? Yes, we're disappointed. And does it really change the outlook? I don't really think that it does. Again, it was one of the factors, we knew that it was a potential situation. And what was the second half of your question?

Just how you feel about those contracts? Is there any change or sort of protections for these maybe unexpected or expected events over the course of that 5 years?

Right. Well, we've talked in the past that we felt like these were really good contracts, and we still stand by that. These are good contracts. We've said before they're not risk-free. I mean working internationally has its own set of risks and challenges, as we all know. So we feel good about it, and we feel like -- in fact, we're in a good position, and we're just working on the execution part of the contract right now.

Great. And then to follow up, certainly a company strength, we continue to see E&P is talking up sequential improvements in drilling efficiency, especially in these Q2 results. I'm just wondering, what you're seeing with your fleet year-to-date? I know the rate of improvement is tapered a bit for you guys in the last year. Just what you're seeing thus far in calendar 2014?

Well, we do continue to see efficiency improvements, but as you said, it's the year-over-year improvements are less because of the starting point from the year before. And the -- but the exception would be the Permian because the mix shift of verticals to horizontal. I think there's a great opportunity and great upside -- pardon me -- to continue to improve in Permian, and that's what we're seeing. So part of the overall fleet, Permian pulled that down just little bit if you look at it from a just a year-to-year improvement. I think Permian is setting it up for some great opportunities. But a lot of the low-hanging fruit opportunities, I think, are gone. But there's still a lot of other things that we're working on. I think the reliability, we continue to talk about reliability. Customers are very interested in that and just reliably drilling wells and being consistent.

We'll go next to Brad Handler from Jefferies.

Maybe just a little more color, please, on the challenges related to ramping cadence. Is that -- and maybe it's broadly we can think about labor challenges, perhaps, and you can speak to that to some degree. I know you obviously have a great pool to work from in your existing workforce. But to what extent are you, as you watch your peers also try to ramp up their cadence, to what extent do you think they'll -- to what extent do you think the industry can kind of find enough able-bodied people to get the job done if we're looking out 6 months and 12 months from now?

Well, I think if -- at least from my perspective, there's a couple of questions in there. I don't feel like our cadence is limited by the labor, by our personnel. We have great people. We have a really strong bench and a lot of opportunities for people to continue to grow. Obviously, 4 rigs a month today at the size of the organization we are, compared to 4 rigs per month in 2006 and 2007 from a growth perspective is much different, a greater challenge for the organization. So I feel really good about our field operation and us having a good group of guys to continue to draw upon. I think that really the challenge is going to tend to be in the supply chain. I think that's what everybody is going to face. In 2012, the best we can tell, I think that the industry delivered around 150 new AC rigs. Last year, I think it was between 60 and 70. This year, we thought it was going to be around 100, 110. I think it's going to be probably closer to 120 to 130. And so obviously, 2015 is setting up to have a higher number than that, higher than the 150. So I think that's where the real challenge is. Because if you consider the overall Baker Hughes rig count today and contrast that with previous cycles, I -- again, I don't think it's a function of a constrain on people so much as it is on the supply chain in just being able to get the rigs out. And I think the other challenge, of course, is building them, building the rig at a reasonable cost to be able to get a reasonable rate of return on your investment.

I appreciate the redirect. That's part of it -- that's part of the question anyway, is the prioritization, so that's helpful. I guess the -- at the risk of sounding like I'm not listening, but I am, I'm curious if there are wage pressures in -- that are building in your business now. And as we think about net margin improvements relative to your pricing commentary, whether there's a lot -- there's some cost offsets we need to be aware off?

Well, yes, anytime of course, Brad, when you get this kind of activity, there's the potential for wage increases. We haven't had a wage increase recently, but obviously that's a possibility in the future. Keep in mind that our contracts have -- a provision in the contract to cover labor increases, so it's a pass-through. So while it is a cost increase for us, we get a corresponding revenue to offset the cost.

And we'll go next to Matthew Marietta with Stephens.

Just one from me. I wanted to hit on the international business a little bit. When you look at the international prospects, it's obviously good to move rigs and beneficial for you guys to move rigs and help with overall fleet utilization. But what about the new build potential or any new designs that you may be working on to meet customer demand as they develop deeper targets or different international-type drilling?

Well, Matt, I think your sense is right. I think there are opportunities for us internationally, both FlexRigs and deeper rigs as well -- or deeper horizon-type rigs. We've continued to believe that the real opportunity, at least for H&P internationally, is this move towards unconventional drilling, towards more of a resource development-type move because of the efficiency and the experience that we have related to FlexRigs and working in the resource plays. And I think that speaks to the opportunity with YPF in Argentina and that's what YPF saw. And so our belief is that's where our international growth opportunity is going to be in the future. And from a new build perspective, as long as the market is as strong as it is in the U.S. I mean there's no stronger market in the world, at least from our perspective, from a risk perspective, and from a return on invested capital perspective, we think this is the best market to be plowing our capital back into for the new build. And so as we talked about before, we're getting to 4. Is there enough demand to reach 5? I think at this stage of the game, it would make more sense to direct those new dollars, new rigs towards the U.S. market as opposed to international just because of -- again, because of the rates of return and the risk profile.

[Operator Instructions] And we do have another question from Walt Chancellor with Macquarie.

As the new build market sort of tightens up and your competitors take on incremental orders, are you all seeing the opportunity to maybe push for more term in using your build -- new build deals? Or on the other hand, are you seeing customers push for longer terms? And if not, is that a direction you could see things turning on the new build front?

Walt, that's a great question. And as these cycles -- again, as a third round, that tends to be the progression is term contracts have a tendency to get longer. We've -- over time, we've had a target of 3 years, but in previous cycles, we've had 4- and 5-year term contracts. And so I think that's a possibility to do that. We're not necessarily pushing on that, but a lot of times the push ends up coming from the customer. They want to make certain they've got the rig and they got it locked up, which obviously from a contractor perspective, that's the place to be. You want to hear your customers talking about long-term activity and outlook. So again, it's a good observation I think it is possible. We're not pushing hard on that effort right now, but I do think it's possible.

And we'll go next to Mike Breard with Hodges Capital.

Could you please comment on what the day rate is on a new FlexRig order today versus what it was on one order back in October?

Oh, Mike, for competitive reasons, I prefer not to go there, Mike. It is, suffice to say, it is -- the rates have improved. And -- but I prefer not to give an exact number. But the pricing has continued to improve, and I would expect that it will continue to improve going forward as long as commodity prices remain strong.

[Operator Instructions] And we do have a question from Andrew Shirley [ph].

Have you guys analyzed the formation of an MLP? And if so what are your thoughts at this point?

This is Juan Pablo. Andrew [ph], we certainly have looked at what the industry has done and what those structures look like in general. We don't believe that it is a type of structure that applies to contract drillers in the land drilling business. So we really are not further investigating that option.

[Operator Instructions] It appears we have no further questions at this time.

All right. Well, thank you, Zach, and thank you, everyone, for joining us. Have a good day.