Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Nabors Industries Ltd. Second Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, July 25, 2012. I would now like to turn the conference over to Dennis Smith, Director of Corporate Development. Please go ahead, sir.

Thank you, Liz, and good morning, everyone. Thank you for joining us today on our second quarter earnings conference call. Our format today will be same as we customarily follow. We'll have Tony Petrello, our Chairman and CEO, provide you with our perspective on the quarter's results and give you some insight into how we see our business and markets evolving. In support of his remarks, we have posted some slides to our website, which you can access to follow along if you desire. They're accessible in 2 ways: First, if you're participating by webcast, they're available as a download within the webcast. Alternatively, you can download them from our website, nabors.com, under Investor Relations, then the submenu Events Calendar where you'll find them listed as supporting materials for this conference call. With us, in addition to Tony and myself today, are Laura Doerre, our General Counsel; Clark Wood, our Principal Accounting Officer; and all the heads of our various business units. Since much of our remarks today will concern our expectations of future, they are subject to numerous risk factors as elaborated on in our 10-K and other filings. These comments constitute forward-looking statements within the meaning of the Securities Act of 1933. For such forward-looking statements are subject to certain risks and uncertainties as disclosed by Nabors from time to time in its filings with the Securities and Exchange Commission. As a result of these factors, we actually encourage you to look at those filings, and the results may materially differ from those that we think are going to develop. Now I will turn the call over to Tony to begin.

Good morning. Welcome to the conference call for the second quarter. I'd like to thank everyone for participating. As Dennis said, we do have the slides posted, and I will be referring to them by page number. So before I get into the details, let me start with some macro comments, particularly those involving North America. First, let me say we would like to be cautiously optimistic about our overall outlook, but it is dependent upon a couple of factors that are not in our control or within our ability to predict, specifically commodity prices. The direction of domestic and global GDP, and there are problematic numbers out there that I'm sure you've all seen, will be a major determinant of these prices, along with the production decline rates and supply availability. Given overall demand uncertainty and several real-time indicators we will mention, it is more prudent and very cautious and conservative over the near term. As you may recall in our fourth quarter earnings call last February, we expected a flattening to modestly declining U.S. land rig count in the second half, a moderation in the number of new build contract awards and the further deterioration of the spot market for pressure pumping. Many of those things have happened. This view was based on the lower gas -- natural gas price, leading to reduced customer cash flows and spending. In reality, the first quarter drop in gas prices caused an initial reaction that was largely offset by increased liquids-directed drilling. This gas-to-liquids offsetting continued throughout most of the second quarter. However, conditions became much worse towards the end of the second quarter as oil prices fell and the effects of declining NGL prices began to be felt. As you can see on Slide 3, U.S. blended NGL prices are…

Operator, we're ready for the Q&A section of the call, please.

[Operator Instructions] And our first question comes from the line of Jim Rollyson from Raymond James. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Tony, it sounds like on the International front that opportunity is still around. You're still seeing interest levels and bidding for different parts of the world on rig activity, and it seems like the big challenge you've had is just kind of delays in one shape or another from -- really driven by customers, it sounds like. And so I appreciate the fact that visibility is a little bit challenging. But curious what you think, with what you know today, maybe what your exit rate looks like for the International rig fleet at the end of the year?

Yes, I think it's -- the exit count at end of the year is like 127 to 130 rigs, at that order of magnitude. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Okay, which I think last quarter, you were right around 130 was the expectation. So that still hasn't necessarily changed, just the timing of when this flows in through the rest of the year?

Correct. James M. Rollyson - Raymond James & Associates, Inc., Research Division: And on the domestic side, you gave pretty good color, I think, on the rig side of the business, just some of the softness you've seen in leading-edge rates and terms shrinking down a bit. On the contract kind of cancellations or buyouts, have you started seeing much of those? It looks like from the slides that you've got an uptick in expected payments on contracts going over $8 million. I'm curious if you're starting to see customers want to try and buy out more rigs? We've seen that in a couple of other guys so far. I'm curious what you're seeing there?

Well, we've had 3, but I'll have Joe comment.

Yes, the answer is we are seeing customers looking to buy out some contracts. So yes, the answer is to date, we had maybe 6 through the process that if they're not buying the contract out, the rigs were actually -- as Tony mentioned, there's 3 rigs right now on payments through the month, which is what the contract allows for.

Yes. And one of the things I think where you'd -- given our portfolio of assets we're able to do is also try to work with customers to make it less painful and, in the long term, make it a win-win. So we have a lot of other services that we could give people. And one of the benefits of doing stuff with Nabors is the fact that we have a full range of other things to offer. So we're always looking to -- on the one hand, we want to get the value for what we have invested in and received in terms of contract commitments. But on the other hand, we want to make sure we're providing value to the customer and helping him through his problems. And it's our job to sort of manage that balance. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Sure. And Joe, are you finding it possible to recontract those rigs elsewhere when you get buyouts? Or is the market just a little too squishy right now?

No, we've been able to secure some work with some of the rigs that are specifically on the lump sum terms that are paid out. And in some cases, we've been able to redeploy those rigs. In some cases, we're -- we've got some commitments, but it's not near term. It may be 30, 45 days down the road that they want to pick up the assets, but, yes, that is an option. As Tony mentioned recently, we've had the opportunity with a major operator that -- he chose to redeploy that term to Canada in lieu of the term in the U.S. So it's a great opportunity for our Canadian guys to have the contract structured in the U.S. I guess we used to call it metric days and now have been redeployed to the Canadian market.

And our next question comes from the line of Jeff Tillery with Tudor, Pickering & Holt. Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: In the slides, Tony, one of the titles was kind of U.S. Rig Count - At An Inflection Point? And I'm just curious if you can talk, either basin or regionally, where you think Nabors will show or is showing the more significant utilization weakness. And now I'm sure it's going to be a -- kind of compound of both your contracted and uncontracted exposure as well as what the customers are doing, but just curious where you're seeing the utilization weakness?

Sure. Joe, you guys got the...

In what regions are you seeing the weaker markets right now in utilization in particular? The industry and us?

The critical area for us right now is we're seeing -- I mean, there are still, although it's moderated, as Tony comments said and he's tested [ph] the Haynesville, that's actually the strengthening of the gas market, that's abated. The Eagle Ford, we're seeing some weakness there, and that's mainly along the lines, as you mentioned, on the natural gas liquids. So there's areas across the U.S. and then the rigs that continue to flow into the Bakken, although that is our strongest area, that is being impacted commercially by all of the offers from other companies. But converse to that, there are areas that we find in Central Texas, some areas that we're seeing some improvement. And that's what -- as Tony mentioned, we can't give them excuses. We've got to find places to redeploy the assets, and that's what we've done. Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: And then for the Pressure Pumping business, half the spreads on contract. I guess, could you -- 2 questions along those lines. Are the spot fleets profitable from an EBIT standpoint at this point? And then could you just give us some color on when some of the contracts start to roll and additional spreads hit the spot market?

Ronnie [ph]?

Yes, I think that as far as the pricing in the spot market we're still seeing pressure, albeit maybe not as much in some of the dry gas markets. But as we start to see rebalancing of assets, we are continuing to see some pressure in the liquid-rich areas. What was the second part of the question? Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: It's really...

Yes, yes, a little color on the contracts. Outside of 1 LTSA that will expire at the end of this year. The rest will expire at various points in 2013 with the number going into 2014 as well. Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: And then those spot spreads, are those still profitable for you guys at this point? Or is there -- I'm sure they're cash flow positive, but are they actually generating EBIT?

Yes, they are.

It's dependent upon utilization, Jeff. It -- you don't need to lose much utilization to ...

Utilization has got to be there but the pricing as it is right now does make it profitable, correct.

And our next question comes from the line of Waqar Syed with Goldman Sachs.

My question relates to one -- in the Middle East, the labor escalation that you saw. Is that a onetime? Or do you think this is going to be a recurring cost, that $5 million cost?

Well, that was a -- it was -- those costs were sort of dictated very centrally, and I think it was in response to sort of macro issues going on in the region where the government sort of said local people had to get paid a lot more because there's a different agenda being served. So that's why they were unusual and that created the dilemma for us, that we sort of had -- we sort of were forced to do it just because it was sort of mandated. So hopefully, that is not -- those kind of mandates don't occur all the time. And we are trying to do our best to see what portions of those could be recovered.

Now what I want to understand is was that a onetime bonus? Or is that just the salaries have been increased, every year you have to pay an extra $5 million?

It was salary increases.

Oh, that was a salary increase.

Actually it was both. It was both. In some cases, it was salary increase; in some, that was onetime deal. So it was both depending on the country where we're in.

Okay. And secondly, as I look at your chart for the rig count decline that you mentioned, about 108 rigs or so since the peak, the same data shows on Baker Hughes that actually, the horizontal rig count went up by about 7 or 8 rigs during this time period and all the fall was just on the vertical rig side. So is that consistent in what you're seeing as well, maybe more pressure on the lower end? And you mentioned some on the day rates side, but what are you seeing in terms of, like, activity with just the vertical rig count, which may be -- sometimes there's some seasonality attached to that as well overall?

Yes, I think vis a vis, yes, I think you're absolutely right. There is a distinction, a dichotomy between the horizontal and the vertical. And I think the horizontal in some sense is a better metric for us in terms of where our utilization is going because it's really in those kind of plays, that's the market for our asset base. And it's also -- the horizontal rigs are working and those things that make economic sense in terms of the plays that are active, so I think you're right. Looking at the overall curve may not necessarily reflect -- for those people active in this particular segment, may not correlate as well as looking at what the horizontal is, which also in part is the reason for our saying we don't see a steep drop-off, a -- possibly a moderate drop-off for exactly that reason you've identified.

And secondly just recently in the last couple of weeks, you've seen a change in NGL prices as well, and some of the turnarounds in terms of the uses of the NGL. The prices have picked up, gas price have picked up. Oil is back around $90. Are you -- your pessimism, is that based on discussions over the last 1 or 2 weeks? Or is that based on more like what was happening a month ago or so?

Well, when you say pessimism, I think that what I've tried to say is that it's almost a tautology between pessimism and optimism versus what your view is as to what the commodity price is. If the commodity price is going to be $85 and above and $3 gas or so, then to me that -- it's almost tautologically reason to be not pessimistic, but cautiously optimistic. And so -- but if you have the view that -- of the reverse, then there's reason for concern. And -- but you guys are as good, if not better, about figuring out what that -- what -- where those price curves are going. And so that's the way we look at it. Since we can't predict with certainty either one, we're just managing ourselves to handle the things that we can control.

And our next question comes from the line of Jim Crandell with Dahlman Rose. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: Tony, in the land rig business, a lot of your strategy for differentiation has been through introducing products like ROCKIT and REVIT into your own fleet and that's met with quite a bit of success. In a more difficult or more challenging market, does that -- do you think it -- does that slow down the acceptance or the penetration of ROCKIT and REVIT? Or is it just as desired on the part of the operator as it is even in hotter markets?

I think it's -- number one, I think it ought to be as desired. And number two, I think in a market that's more difficult, it ought to be even more desirable because I think the value proposition is greater. And our marketing effort to push those is -- we're putting even a greater emphasis on it. And interestingly, we actually have some requests from operators that don't even have Nabors rigs, interested in some of those products. So I think it's -- the way the market is today, operators care about value and cost per well, and those products help them get there. So... James D. Crandell - Dahlman Rose & Company, LLC, Research Division: And would you sell ROCKIT to those operators on some -- let them put it on somebody else's rigs?

Well, we -- operators that have -- I guess the answer is we always think our stuff works better on Nabors rigs because we have Nabors people and we know how to operate the stuff. So that's the short answer. There is some Canrig equipment on some operator-owned rigs. And so on some operator-owned rigs, we have, in certain cases, let -- given some access to the equipment. But our primary focus right now is for our current customers using Nabors rigs to make sure they really are aware of the products, and they're using them to their fullest extent. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: Okay. Second question, Tony, I guess you've been CEO about 9 months now and aside from asset sales and balance sheet progress, how do you think you're progressing on your other initiatives that you've laid out over the last 9 months or so? And in general, is it easier or harder to effect change than you would have thought going in?

I'll answer the second one first. It reminds me of International. It always takes longer than what you otherwise thought. And it's -- so from a timing point of view, I don't find it an issue of being easy versus hard. I think the people, the workforce we have here is really committed to taking Nabors to another level, and I have a lot of support from a lot of people here to do that. And so -- but we are a large company, and we've done certain things the way we've done historically for a long time. And for example, put driving through this new matrix concept through the company is a lot of work, and it's not something that we're going to get done in a couple of quarters. But we're making a lot of progress on it. And we've brought in some senior people in the functional areas, and we've brought in some other people in the operating areas in each of the business units and people are delivering on that. And at the same time, one of the visible things is the consolidation of Nabors Well Services and Sweezey, but we're looking at a whole bunch of initiatives through the company to similarly drive a more efficient company. So it's not just supply chain and facility consolidation, asset utilization, continued back-office improvements; there's a whole series of things. And -- but it's -- as you've signaled, it does take a bit of time. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: Okay, good. And then last question is just a quick one. And Joe mentioned the Haynesville a little while ago. And then Joe, maybe we can get your opinion based on the operators you talk to down there. What kind of a gas price does it take to really get the Haynesville going again?

Well, I haven't heard specific numbers. We -- the -- a majority of the operators working for there already have large position acreage. And so that's truly what's been driving that rig count. We -- they're trying not just to maintain a quick [indiscernible] and develop acreage, especially companies that come in from outside the U.S. to buy the properties, and they've got to show production, it's got to show something back for the investment. So one of the areas we're seeing is the northern extension of kind of the Eagle Ford up into Central Texas. That's where we've seen a lot of success. So East Texas taking off to go to the Eagle Ford and to West Texas, different areas, I think that's going to mitigate [ph] considerably.

Yes, the way I would answer that question, Jim, is if you look at NFR, if -- at a $4.50 gas price, their economics start to look really different. So -- okay, so. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: Okay, good.

That's one way of looking at it, so.

And our last question comes from the line of Scott Gruber with Bernstein. Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division: I had a question on the operators' appetite to continue to support the build-out of AC-powered rigs. You look at the horizontal rig count in the U.S., close to 1,200, still well above the number of AC rigs that are operating even if the active rig count bleeds some. Tony mentioned rigs being down for the AC rigs a little bit. But what's your gut telling you today in terms of whether that falls below the reinvestment threshold or whether those rigs can hold up, and whether the appetite's changing given the shift toward more pad drilling and away from just drilling the whole acreage by production?

Yes, I think for all the reasons we've spoken about today, let's not confuse a pause with sort of the long-term business here. And I think on medium- and long-term business, for those people that have invested in the shales, the fit-for-purpose manufactured drilling concept is core to realizing value. And so I think for those operators that have significant programs that will require development drilling over many years, they will continue to be interested in and will, in fact, want to be part of a process to look at the next generation of fit-for-purpose rigs. And that will occasion doing that on a long-term basis, I think that's what's going to be required. And that's what's going to be required to drive the efficiency and maximum value to the customer. So just because there is a breather here because of the shifts and uncertainty as to where -- what kind of environment we're in, I still think that the overall game hasn't changed. Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division: And how do you think about the spread between the SCR rigs and the AC? What type of maximum spread would be just too wide for an operator to tolerate such that they do trade down and pick up an SCR rig rather than funding a new build?

Well, I mean, the first thing is that our SCR rigs -- a lot of our SCR rigs, as I mentioned, have already been refurbished with a -- what's called a K-box, which is a Canrig tool. And when you put this on a rig, it basically gives that rig the functionality of an AC rig. And so that -- the whole point of that is to narrow that performance gap and, of course, from our point of view, the day rate gap. But depending on area, in some areas for those kinds of rigs, there isn't much of a gap. But in other areas, the gap could be anywhere from 5% to 10% delta on the day rates. Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division: And is that kind of where you think the spread will stay? Or do you think it can widen some?

Over time, I think it will widen.

Operator, that concludes our question and answer. If you want to close the call out, please?

Thank you. Ladies and gentlemen, this concludes the Nabors Industries Ltd. Second Quarter 2012 Earnings Conference Call. This conference will be available for replay. If you -- you may access the replay system at any time by dialing 1 (877) 870-5176 or 1 (858) 384-5517. Thank you for your participation. You may now disconnect.