Nabors Industries Ltd. (NBR) Q4 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and thank you for standing by, and welcome to the Nabors Industries Ltd. Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] And as a reminder, this call is being recorded today, February 19, 2014. I would now like to turn the conference over to Dennis Smith. Please go ahead.

Good morning, everyone, and thank you for joining our fourth quarter and full year 2013 earnings conference call this morning. We will follow our customary format today with Tony Petrello, our Chairman and Chief Executive Officer, providing our perspective on the quarterly and full year results. We will then provide some insight as to how we see our business and markets evolving. To supplement Tony's remarks, we have posted some slides to our website which you can access to follow along, if you desire. They are accessible in 2 ways. If you are participating by webcast, they're available to download within the webcast. Alternatively, you can download them from nabors.com under Investor Relations in the submenu, Events Calendar. And you will find them listed as supporting materials under the conference call listing. With us today, in addition to Tony and myself, are Laura Doerre, our General Counsel; Clark Wood, our Principal Accounting Officer; and all other heads of our various business units. Since much of our remarks today will concern our expectations for the future, they are subject to numerous risk factors as elaborated upon in our 10-K and other filings. These comments constitute forward-looking statements within the meaning of the Securities and Exchange Act of 1933 and the Securities Exchange Act of 1934. 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, Nabors' actual results may differ materially from those indicated or implied by such forward-looking statements. Now I will turn the call over to Tony to begin.

Thank you, Denny. Good morning. Welcome to the Nabors Industries Conference Call to review results for the fourth quarter of 2013. Thank you all for participating this morning. As Denny mentioned, we have posted the quarterly presentation slides on nabors.com. I will refer to these by slide number during my remarks. Yesterday, we announced our results for the fourth quarter, which exceeded our expectations. Our GAAP earnings per share from continuing operations totaled $0.42 a share. This includes a few nonoperational items that should be considered. These include $0.12 per share of tax benefits related to the fourth quarter impact of our debt tender offer, discrete tax items as favorable geographic mix; second, $9 million or $0.02 per share from the favorable settlement of a previously reserved customer bankruptcy; and third, $5 million or $0.01 per share of lump sum early termination revenue in U.S. Lower 48 business. Collectively, these items account for $0.16 per share, thus, our fourth quarter non-GAAP earnings per share from continuing operations totaled $0.26 per share. The sequential earnings growth we are announcing today, without the impact of early termination revenue and other items, was driven by strong growth in our International Drilling and U.S. Lower 48 Drilling business. In the International segment, our days on revenue once again exceeded our expectations while, in our U.S. Drilling segment, margins benefited from favorable expense variances. In Completion Services, a relatively full pumping calendar through the quarter substantially offset the negative impact of harsh weather in December. Unusually severe winter weather conditions continue to significantly affect our completion operations in our northern operating areas this quarter. I will talk more about that in our outlook. Our Canadian Drilling business remained challenged by generally tougher market. Finally, we incurred increased expenses relating to both our strategic review process, as well as our expense rationalization efforts. These are reflected in other reconciling items. First off, I'd to talk about some highlights for 2013. Before I go into the details of each operation, I'd like to spend a few moments on our notable accomplishments during 2013. First and foremost, during the year, we were awarded contracts for 34 newbuilds at substantially upgraded rigs. That collectively added approximately $1.9 billion to our revenue backlog. Second, we deployed the first 15 PACE-X rigs among 7 customers. Third, we completed the sales of several nonstrategic businesses, including Peak, Airborne, several lower spec International rigs in undesirable locations and our interest in the Eagle Ford Oil and Gas property. We realized cash proceeds of over $275 million from these transactions and several other smaller transactions. Finally, we refinanced nearly $800 million of high coupon notes, allowing us to reduce our interest expense and spread out our debt maturity. In spite of the $208 million premium paid to refinance these notes, we still reduced long-term debt by $475 million and net debt by almost $200 million. At the same time, we invested just under $1.2 billion in our global fleet, while returning $47 million to shareholders by beginning a quarterly dividend. Cumulatively, since embarking on our back to the future initiative in 2012, we have invested in new technology, drilling rigs and retooled the fleet to capitalize on emerging opportunities. We have realized over $600 million from asset sales. We have reduced net debt by nearly $700 million, and we instituted payment of a dividend on our common shares. Now let me turn to our outlook. We remain convinced of the sustained upturn in the International rig market. Last quarter, we identified several short-duration items, which would fuel near-term improvement in our International business, including time between contracts of several impactful rigs coming off-contract in early 2014 and the shipyard visit of our largest jackup in the first half. The strength of the International rig market is evidenced by the signing of new contracts for many of the rigs recontracting, both in the Middle East and Latin America, which will commence this year. Also, internationally, our newbuild rig and personnel expansion programs, supporting the previously announced rig awards, remain on target to achieve rig deployments during 2014 and the first quarter of 2015 as planned. Similar to the third quarter, our days on rate in the International segment in the fourth quarter were higher than expected, reflecting both excellent operational execution and minimum significant rig moves or other interruptions. Our fourth quarter performance in International segment once again highlights the international potential resident in the current business, not to mention the potential after deployment of the recent awards. Turning to the U.S. Lower 48. Our U.S. Lower 48 outlook is favorable. We think we have seen the bottom on rates in utilization, and believe there's an opportunity to achieve pricing improvement as rigs contracted during the late 2012 and early 2013 softness are recontracted this year. That said, our growth in this business is dictated by our ability to deploying new PACE-X rigs. We have an active newbuild program supporting the deployment in 2014 of 8 remaining contracted units on top of 3 rigs already delivered in 2014. However, we believe we could deploy even more into the field if we have them ready to go. We foresee increased demand for pad-capable AC rigs and are committed to maintaining a consistent newbuild program to meet this demand. Our current plan calls for an additional 9 PACE-X rigs to be built in 2014 and 5 in 2015 that are not currently contracted, and we are evaluating increasing our monthly pace further. Of course, we remain in active discussion with customers to track [ph] these rigs and for additional newbuilds built on-contract. In the meantime, utilization of our other AC rigs is already quite high. We are seeing opportunities to increase prices modestly on AC rigs as contracts expire. At the end of the quarter, 129 of our rigs were on term contracts and 59 were on spot. Demand for our legacy rigs other than upgraded SCR units, remains challenged. The recent spike in domestic natural gas prices may support some incremental rig demand, although we believe operators will require more visibility at this price level before increasing their gas-directed drilling programs. Prospects for the remaining U.S. drilling businesses, namely Alaska and U.S. Offshore, are somewhat mixed. In Alaska, we believe the market is strong enough to support work for at least 1 additional rig this year and 2 more in 2015. Please remember, in Alaska, rigs are typically much larger than a typical land rig, and a rig in Alaska can yield almost 4x the margin of a Lower 48 land rig. Offshore, prospects for our Gulf of Mexico jackups and barges are limited. Accordingly, we continue to examine alternatives for these rigs. Utilization for our Gulf of Mexico platform rigs is stable, and discussions are underway with customers for additional units. Deployment of the rig for the Big Foot platform is dependent on the deployment of the platform itself. We anticipate the rig going out in the fourth quarter with full operation in mid-2015. Moving on to Canada. We have previously described that market as the most challenged amongst our drilling segments from a return point of view. However, there are a number of potential projects targeting Canadian natural gas liquids that continue to generate interest in the Northwest part of the Western Canadian sedimentary basin. Additionally, the Montney, Horn River and Duvernay areas are expected to benefit from any future LNG export projects. Within our Rig Services segment, which now consists almost entirely of our Canrig drilling equipment and technology business, and the Ryan directional drilling business, we entered 2014 with a backlog at Canrig that has roughly doubled since bottoming in the second quarter of 2013. Importantly, both the third-party and intercompany backlogs have increased by roughly the same proportion. Finally, let's turn to our Completion & Production Services segment. For some time, we have discussed the pending expiration of our last 2 remaining take-or-pay contracts in the Pressure Pumping business and the challenge of replacing the contracted utilizations. As expected, those contracts rolled off with the new year. The efforts of our marketing team in this segment paid off, and we have a more than replaced the prior utilization with the addition of new customers, yet at a significantly lower per stage rate, reflecting the stark difference in market conditions in the Eagle Ford from when they are initially signed. The punishing weather thus far in the first quarter has greatly constrained our ability to work in the northern operating areas. We lost about 2 weeks of work in the Rockies and Appalachia, which are home to 14 of our 24 frac crews. Beyond the winter weather, the outlook for our Completion Services business is improving. Our near-term pumping calendar is relatively full, we believe due to our execution in the field. The new 24-hour pumping schedule and constrained competitive cash flow is likely aging the industry's equipment fleet, and we expect this attrition to improve industry utilization throughout this year and next. We believe market pricing across basins is hitting the floor as competitors begin pricing in the significant maintenance component of their equipment. We have recently seen less of the aggressive discounting that has characterized much of 2013. I will finish this outlook with our near-term expectation. Several specific factors will adversely impact our results in the first quarter. First, traditionally higher expenses due to annual resets on employment taxes in workers comp will come into effect. Second, weather has been unusually severe in many of our Lower 48 operating areas. In particular, operations in our Completion & Production Services segment either slowed dramatically or ceased all together in the extreme cold. Weather also greatly impacts our customer plans and, therefore, impacts our utilization. And finally, Rig 660, our largest jackup working in the Arabia Gulf, as mentioned on a previous conference call, entered the shipyard in mid-December, as expected. The rig remains under contract, but is off day rate during its shipyard stay. We expect the rig to return to revenue late in the second quarter. Beyond these factors, we expect seasonal upticks in both Alaska and Canada, so I would note the post-holiday rebound in the industry rig demand in Canada has been slower than a year ago. In the International segment, in addition to the impact of the jackup, we foresee a slightly lower revenue base as more rigs are off-day rate while deploying to new operating locations. The impact of the newbuilds and renewals that we have previously announced should be most pronounced in the second half of 2014. In the U.S., we expect modestly higher quarterly rig years as our PACE-X rigs enter service in Q1, effectively offsetting erosion in our legacy rig fleet. Demand in Completion Services and in Pressure Pumping in particular, is improving and pricing is stabilizing after last year's tendering season, but our operations remain challenged due to brutal weather. We expect EBITDA to decline sequentially due to the aforementioned take-or-pay contract roll-off and the weather. However, the actions we took late last year to stem losses in our coiled tubing at Canadian Pressure Pumping businesses will help mitigate the impact on this segment's results. We anticipate capital spending in the range of $1.6 billion to $1.8 billion, depending on our actual our level of PACE-X newbuilds during 2014. We have seen some slippage in our International CapEx into 2014 from 2013. Finally, you should assume an effective tax rate of 20% to 22% for 2014. Now let me turn to the financial results. Our consolidated financial results are illustrated on Slide 6. Operating income was $160 million compared to $154 million in the fourth quarter of 2012 and $166 million in the third quarter. Operating cash flow was $437 million for the fourth quarter versus $427 million in the fourth quarter of 2012 and $439 million in the third quarter. This comparison includes lump sum early termination payments of $5 million in the fourth quarter of 2013 and $34 million in the third quarter. The fourth quarter results also reflects $9 million from the full recovery of funds owed to Nabors by a bankrupt customer. Net income from continuing operations was $129 million or $0.42 per diluted share compared to a net loss of $91 million or $0.30 per share in the third quarter and $132 million or $0.45 per share in the fourth quarter of 2012. Operating revenue and earnings from unconsolidated affiliates totaled $1.6 billion the quarter. Also during the fourth quarter, we've reduced net debt by nearly $150 million. Now I will review the results from each of our operating segments. First, let me turn to the Drilling and Rig Services section. Drilling and Rig Services consists of our land drilling operations, offshore rigs, specialized rigs, drilling equipment and manufacturing, drilling software and automation and directional drilling operations. Our results are summarized on Slide 8. In the fourth quarter, these operations recorded operating income of $157 million, including a total of $14 million of combined drilling termination revenue and proceeds from a bankruptcy settlement compared to $162 million in the third quarter, which included $34 million of early termination income. The U.S. portion of our Drilling & Rig Services segment earned operating income of $75 million, including the aforementioned $14 million. Of this, Alaska was roughly flat, as was offshore. During the fourth quarter, rig years in the Lower 48 business totaled 183, up from 179 in the third quarter. We expect first quarter rig years to improve slightly from the fourth quarter level. Our average daily rig market for the fleet increased to $9,712 a day, normalized for the early termination revenue and is attributable to future periods. Results benefited from typical year-end adjustments, including workers' comp. We expect daily markets to decline steeply in the first quarter as expenses for workers comp and unemployment insurance resume at levels typical of the beginning of the year. Today, we have 187 rigs on revenue, including 5 on standby rigs. Our AC rig count stands at 145. Utilization of our AC rigs in the fourth quarter remained at 94%, and utilization for our pad-capable AC rigs was even higher at 98%. We continue to believe that the prevalence of wells drilled on pads and the number of wells per pad will continue to increase as our customers shift to development drilling. Drilling a large pad is now common in the Bakken and Marcellus. We see a similar trend rapidly developing in the Eagle Ford and Permian Basin. These trends confirm the direction we took with the PACE-X rig, which was designed from the ground up to optimize productivity and reduce frac time when drilling deep and complex wells on large, multi-role, multi-well pads. As I mentioned earlier, rates in the Lower 48 are generally moving higher. For AC rigs, spot rates range in the low 20s, depending on basin and rig configuration. For rigs with walking systems, we currently see $1,000 per day premium, and this is increasing $500 or more across regions. During the fourth quarter, contracts on 23 of our rigs expired. 15 of those received extensions averaging 7.3 months at rates around the low 20s. For the first quarter, we have 29 rig contracts expiring. This all boils down to a flat outlook with a slight upward bias as deployment of PACE-X rigs at higher rates are offset by deteriorating utilization in pricing in the legacy fleet. We're encouraged by the potential impact of recent commodity prices on our customers' cash flows, although we do not anticipate a material increase in gas-directed drilling. We continue to see some churn in our existing fleet. However, this churn gives us the opportunity to reprice. Demand for new drills at attractive economics remained strong. Now I'd like to turn to the U.S. Offshore. Our fourth quarter results in the U.S. Offshore business did not see the usual post-hurricane season step-up in utilization. Rig years were down, both sequentially and annually. We anticipated a slow rebound, and it wound up lower than anticipated on both the pricing in utilization front. However, for the rigs that did work, gross margin per day per rig was $21,543, compared to $18,717 the prior quarter and approximately $15,000 in the prior year when normalized for the allowance of doubtful [ph] accounts. The year-over-year improvement in this business has mostly been due to cost improvement, following the consolidation of this business into our U.S. Drilling segment. We are now anticipating deployment of our modular offshore dynamic series platform rigs supporting the Big Foot development in the Gulf of Mexico to occur either late this year or in 2015. Our timing is dependent on deployment of the platform out to the location by our customer. Next, Alaska. Our Alaska business performed relatively well, and several of our rigs commenced operations earlier than we anticipated and earnings benefited from favorable mix of rigs as margins were up $32,428 per day versus $29,476 last quarter and $22,344 the prior year. We think this start [ph] is a good entry point into the 2014 winter drilling season. We remain optimistic for additional drilling activity, thanks to last year's change in the tax structure. We are also engaged in advanced discussions with several operators on large development projects. Timing is still 1 year or 2 out, but remember, an incremental rig in Alaska is potentially 3 to 4x more profitable than an incremental rig in the Lower 48. Next, Canada. Among our large drilling businesses, the market for our Canadian drilling segment remains the most challenged. Rig years increased to 33 versus the third quarter of 30, and we exited the year with 42 working rigs. Although our average reflects what we had anticipated as we entered the high season for Canadian drilling. Day rates and daily margins were roughly in line with our expectations, with margins at $11,478 per rig per day, down from $14,389 in the prior year, as the mix of rigs working was weighted more towards the lighter and more competitive range. We remain optimistic that large-scale LNG developments will pull through rig demand. I will caution you that timing is uncertain, but are thinking of 2015 at the earliest. Now let me turn to International. Slide 11 shows the countries where rigs are currently working. The fourth quarter results for our International Operations once again demonstrates the earnings potential that resides within this business unit. Our operating income were $70 million. We experienced favorable variances versus the previous quarter and our internal forecast. Those variances were evident across several markets and illustrate the segment's current earnings power, combined with operational excellence as we continue to rectify the cost issues that have plagued several of these markets. Our average daily rig margins nearly reached $60,000 [ph] in the quarter, matching our all-time high and up from $12,000 in the fourth quarter of 2012. It is important to note that the fourth quarter's financial performance reflects no impact from the awards we announced on the third quarter conference call or any impact from the rig renewals we also announced. That, combined with efforts contained [ph] in our backlog which should become evident in earnings as we progress through 2014. Similar to our outlook a quarter ago, we would caution against trending near-term projections from the fourth quarter performance. The transitory events we noted on the October conference call are still looming, mainly the shipyard visit of our Rig 660 and time-off rates for several rigs, either for maintenance, rig moves or as they transition between contracts. As we look at the International market, we see demand for additional rigs and the supply of the idle rigs as limited. That situation is likely to lead to rate and margin increases. In turn, we could see additional newbuilds to fill in the increase in demand. Turning to the Rig Services segment. Our Rig Services segment consist mainly of our Canrig equipment and technology business and our Ryan Directional Drilling business. Tender revenue was roughly flat versus the third quarter, while segment EBITDA and operating income each dropped by approximately $5 million. Canrig's profits were roughly flat on slightly higher revenue, reflecting a modest change in mix. We're encouraged by the uptear in Canrig's equipment backlog since bottoming in the second quarter of 2013. The increase in the third-party backlog reflects continuing broad acceptance of Canrig's technology. We continue to pursue multiple initiatives that could ultimately advance the state of drilling technology. At the same time, we are working to improve the cost structure within Canrig. Next, the Completion & Production business. Our Completion & Production Services business consists of services that completely maintain wells, including Pressure Pumping, well-servicing, workover coiled tubing rigs and fluid management. Operating income for this division is tabled out on Slide #13. Completion & Production Services posted operating income of $41 million, up from $39 million in the third quarter. We suggested a quarter ago that the calendar was relatively full leading into the fourth quarter, and the quarter results bear that out. Drilling down at the Completion Services, the Completion Services segment reported fourth quarter operating income of $14 million, up slightly from the previous quarter, despite the expected impact from holidays and the unexpectedly severe weather that took hold in December across many of our operating locations. The quarter's results were negatively impacted by coiled tubing as we curtailed operations in stimulation as we reconditioned towards our out of the Canadian Pressure Pumping market and into the Lower 48. Overall, Pressure Pumping market remained competitive, though market pricing appeared less cutthroat than in previous quarters. We added several new customers during the fourth quarter. We began providing pumping services for a few of these during the quarter, and the balance are coming on in this current quarter. We believe our success aiding customers is a function of our field performance. We don't think we are buying business. Currently, 14 of our 24 frac crews are working on a 24-hour pumping schedule, another 5 on 12-hour schedules, 5 spreads are idle. Across basins, the trend in pricing appears flat. Utilization is generally up. We think that the combinations suggests that the business is marking a bottom in pricing, so we are neither seeing nor projecting a rebound at this time. Turning to Production Services. Results in our Production Services business benefited from the inclusion of the trucking acquisition we made at the beginning of the quarter. Operating income in the fourth quarter was $27 million, up from $26 million in the third quarter. The increase in income in our Fluid services line offsets the seasonal decline in our other services. Even so, revenue per rig hour in our Well Services business stepped up even as rig hours declined seasonally. I'd like to make 2 additional points. The first, with regards to safety. In 2013, I'm proud that we've had our best all-time safety record for the company as a whole. This reflects our focus on execution and performance, and a terrific effort by all our field personal throughout the company. The second thing is, we previously announced in the press release that William Restrepo will be joining the company as CFO. And as you know, we've been searching to fill that job with the right person with the right mix of talent, both operational and financial, and we think we have confidence in William, and we're excited about his joining us later this month. Let me summarize our reviews and actions. We see improving, growing markets globally. The improvement is particularly evident at the high-spec end of the market, both domestically and internationally. We anticipate booking significant additional newbuild awards this year. The 2014 impact of the improving market is weighted to the second half of the year. This is due to the fact that our newbuild rollout is heavily weighted to the second half, and also due to the fact that several of our domestic customers have expressed caution for the early part of the year and adverse weather has been a material factor. We remain committed to streamline the company's activities. Our efforts to prune non-core assets continue across multiple fronts. At the same time, we are consolidating functions to cease operations where that makes sense. Despite the near term that we saw, we are positioned to improve earnings in the second half of the year. Longer term, the outlook is positive, and we are aligning our business to capitalize on that environment. Thank you for the time this morning. With that, I will take your questions. Thank you.

[Operator Instructions] And our first question does come from the line of Jim Rollyson with Raymond James. James M. Rollyson - Raymond James & Associates, Inc., Research Division: It's pretty clear that on the newbuild rig market right now in the U.S., the demand remains strong, and it sounds like your backlog order book is going to continue to build. Patterson mentioned on their call a couple of weeks ago, because demand is strong for that type of rig, and obviously supply is just kind of steadily growing, that there's interest in reactivating some of the better SCR rigs. Curious what you guys are seeing in that regard?

As we've mentioned before on the conference calls, I view our SCR, particularly our SCR-Plus rig as a pre-option for Nabors. First, I think it would agree with the comment, particularly with respect to those customers, the same customers on the phone, I'll speak to them, that are looking at lowering well costs in situations where move time is not as important as drill time. And if that's the case, the SCR-Plus rigs are well-suited to that, and are a much more cost-effective solution. And I think that as people focus on economics now as things stabilize a little bit more, you might see more in that direction. Of course, for us, the other point we've been trying to make for a while, was there's built-in optionality of our SCR rigs because those rigs are still the core platform for International. And as you know, with our recent international awards, we sought to tap that inventory base and move it to International. I think we -- between -- and the announcement we've made today, I think I said it was 13 rigs, we're moving international that are SCR rigs. So I think what is challenged is obviously the mechanical rigs and the [ph] SCR rigs. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Makes perfect sense. And as a follow-up, when you go back to your production service, the Completion and Production Service business, you guys obviously talked about the issues in the 1Q between the contract rollovers and the weather, maybe some sense of magnitude of how you see margins trending down in the first quarter, relative to the fourth quarter? And then I presume, we just kind of start building back up from there, is that the thought?

I think as we've indicated in the press release, there's going to be pretty extraordinary hit in the first quarter. We had basically, almost 10 revenue days shut down on all our crews in the northern areas, which are the Northeast and the Rockies. That's 14 crews, of loss of, in revenue for 10 days, and there wasn't a much -- opportunity to mitigate costs for that. And then in addition, as we previously said on the conference calls, we have, rolling over this quarter, we're rolling off of a long-term contract, there was substantial revenue. And we have made efforts to replace that equipment, but that's been a transition of moving that stuff to an new operator, so there's the modifying [ph] there as well. So when you put that all together, it's not just a small hit, it's a pretty big hit in the first quarter. As I said, away from that, we have activities for the fleet, and we think we're getting some good traction with customers and adding to the customer base. James M. Rollyson - Raymond James & Associates, Inc., Research Division: And is that work, Tony, mostly short term in nature, or are you getting a little bit of term with the new customers?

I'll let Ronnie Witherspoon answer that.

I think we're seeing a mix of both. But we strategically looked at client base, as Tony mentioned, we've grown it considerably. And we're really looking at growing with partners that can give us opportunities to increase our pump hours per day so, i.e. people that are going to be doing more and more pad work and even different frac opportunities, and we're seeing that and we think that's going to continue to take place. But again, obviously it's lumpy in the first quarter as for the reasons Tony's described. But as we go forward, we hope that lumpiness settles down and we can maintain a healthy calendar, as we just spoke about.

And our next question does come from the line of Jim Wicklund. Brittany Commins - Crédit Suisse AG, Research Division: This is Brittany in for Jim today. So it seems like, first of all, congratulations on a great quarter. And it seems like you're moving away from an earnings trough, and so which has been your best returns business during the down time, and which typically is the best returns business on an up-cycle?

Well, through the trough, it's actually Completion & Production Services, particularly on the production side in trough years has pretty good returns. And International, when you look at our real cash invested in that, on a net cash flow basis, we've actually pulled off a tremendous amount of cash flow out of a U.S. rig since 2006. But I would say in terms of looking forward, I think we see a great opportunity of improving returns across all 3 segments, because we have a pretty good -- a part of it [indiscernible] as good as it's ever been for the company as a whole, measuring against the markets we're in today. So I'm pretty hopeful we can extract more from these existing asset base, which is where we're seeing some of these numbers coming in from. Brittany Commins - Crédit Suisse AG, Research Division: Excellent. And then secondly, on the International side, there's been a lot of talk of Mexico with their energy reform. Do you see that as an opportunity for you in 2014, maybe 2015?

Absolutely. And I think, in particular, we've commented before that PEMEX is clearly interested in arresting the decline offshore with the Cantarell field. They have a need for several, many more platform rigs. And the platform rigs that Nabors has is uniquely positioned to suit their needs there, and so, there's that. And then there's also with the [indiscernible] opening up of the whole sector there. We see possibly some additional land opportunities.

And our next question does come from the line of Robin Shoemaker with Citi.

I wanted to ask how your scheduling outlook is for the balance of this quarter or second quarter for your Pressure Pumping equipment. And is it looking very -- like you'll continue to have very high-capacity utilization there?

Well, I think, as I mentioned, we have to hit the first month. And now, we start to move the fleet to customers. And as of today, we have 19 fully working -- 20 fully working, so. And we believe there's a book with that. Yes, it's a pretty full canvas. So we believe, in this market as I mentioned, we have the capacity to keep that leasehold busy right now.

Okay. And just in terms of this increased maintenance CapEx, you mentioned longer pumping hours per day and, I guess, longer pumping hours per frac stage, as I understand it. And so can you give a sense of how much of that increases your maintenance CapEx? And as a kind of corollary to that, what is the leadtime now for delivery of engines, transmission fluids that you may need in upgrading your equipment?

Obviously, the increase in pump hours and the more service-intensive that we're going to -- continue to experience as we move into the more 24-hour crews and 24-hour operations, our maintenance CapEx is going to go up. I think, if you look at 2014 compared to '13, it's probably about double what the planned maintenance versus what it was in '13. And that's heavily driven due to the age of the fleet, and what used to take a lot longer to reach 10,000 hours, we've almost cut that in half. And 10,000 hours is usually kind of our limit where we start looking at overhauls and refurbish time for equipment.

I think the point here is that, there's a lot of smaller-sized competitors entering the market, and they're having the same burden. And the cost structure for that is going to [ph] be more impacted. So we think that, that the market, that's going to have a stabilizing effect on pricing, in general.

Okay. And in terms of lead times for delivery of engines, transmissions, et cetera, is that...

For Nabors, on engines, I think we're the largest supplier of engines in the world in this sector. I have a problem with engine in general. On the other frac pieces of equipment today, I don't know of any real shortages available.

And our next question does come from the line of Jim Crandall with Cowen and Company.

Tony, can you -- I don't think I heard you say this on the call, but can you quantify where you are now on asset sales, and how much still to go and what kind of proceeds we can expect to receive from those?

Well, I think I did quantify the aggregate number that I've sold this year and [indiscernible] going forward. In terms of what's left to go, which number is, 6 -- where's the number here, 670 [ph] ? In total achieved so far?

And then, also Tony, the biggest components that are still to go?

Okay. The biggest components, they're still to go are -- we have the E&P probably in Alaska. As you know, we have that property. And then we have the Horn River properties, the 33,000 acres of Horn River properties that's up in Canada. Those are the 2 principal gas assets. In addition, as I've alluded to in the comments here, we don't see, we -- I've said this before, the barge rigs in the Gulf of Mexico and the jackup in the Gulf of Mexico is really core, and we're looking to do something with those rigs as well.

And would you be optimistic that all these events will occur in 2014?

So like -- I've said this to you before, Jim, what I -- I'm telling you what I focused on, and I think that they're focused on, I think I bought across the line, and these now are on my radar, just the way the other thing that came out in 2013. So they are my focuses.

Okay. Is it possible at this point, Tony, to quantify the quarter-to-quarter weakness you're looking for in either domestic or international Contract Drilling in the first quarter?

Well, it's difficult, like I said, I think the best indication of size is the fact that we're losing 10 days of revenue, coupled on top of -- in the Well Service and the Completion side. We're losing 10 days of revenue, coupled with the fact that we have some changeover because of [indiscernible] the big contracts and some other customers. There's a bunch of repositioning costs. So that is a serious amount of money there. It could be $0.04 to $0.05 a share.

And how about the international side?

On the international side, we've been signaling for a while, if you go back and look at our third quarter, operating income number back then, I think we told you that we're expecting a dip through [ph] that in January. And I think those same factors are still at work today. So that should give you some idea of both. Again, that's very difficult to predict. We know the jackup is in the yard, and we're working really hard to make sure it comes out on time, so we don't have any more leakage into the second quarter. On that, I think the team has done a great job of sort of preplanning that and figuring out what the work that has to be done so it get back on rate as quickly as possible. And there are a bunch of rig moves for moving between contracts, et cetera, that will be a cost impact. So those impacts we foresee to be back early in Q3, if you remember back then, we all said Q4 was going to not be -- we didn't expect to do so well, but it gives you an idea we keep focusing on things that we do. That's what we'll do.

Okay, and then my last question is about your domestic Contract Drilling business. Are you finding that you're having -- you're seeing a lot of opportunities for the PACE-X rigs to bid on shorter-term work? One of your competitors mentioned on their call that they weren't building -- they weren't getting a lot of rig orders because they were reluctant to come off of their 2- to 3-year time period. They said there was any real pressure on prices, but more pressure on term. Are you seeing that and how are you responding to that?

Yes, no, this is Joe. Your answer is, yes, there is some reduced term basis, but, however, we welcome that. It's an opportunity for us to put PACE-X out, show the value and begin to move our numbers. So, yes, we're seeing some. But again, the demand for the new, the PACE-X pad drilling continues to increase, so I think it's very positive.

So Joe, is what you're saying is that you are taking or working newbuild PACE-Xs selectively on 1 year or less contracts?

No. No, no, no. I'm just saying, there is some shorter duration, not 5 year, not 3 year, but they're multiyear contracts. And yes, we're working on some of those now, correct.

This is Denny. The average duration on all of our PACE-X rigs is still 2.75 years.

Good, good, okay. And just one more on the PACE-X. Joe, you had a tremendous reception initially when you introduced it, and I say initially, it's still I think tremendous, but as more and more have gotten out into the field, maybe you could give us an update on what you feel performance is out there in the field, and both absolutely and relative to the competitive equipment that's out there?

Well, we're -- of course, the first rigs went in, as you know, went in the Haynesville and they're outperforming anything that's in the market. We've deployed some up into the Northeast. We've deployed them into North Dakota. We've now deploying some into the Scoot [ph] . So a lot of areas we're at, we're not really rigged up next to competitive, or some of the other, I would use your words earlier, of announced terms. Bottom line is, we're moving a couple down now into the Eagle Ford, 1 into West Texas. And we'll get lined up door-to-door with some of our competition. I'll be able to give you a much clearer presentation on that the next discussion, the next board meeting.

I'll do a little bragging for Joe, both in the Scoot [ph] where we're head-to-head against other, the lead competitors, with a sample from a customer performance, PACE-X rig is clearly outperforming. In fact, it's the only rig to have crossed 1,200 feet per day for the wells, for strategic wells there. And in the Bakken, similarly, the PACE-X rigs where we get updates on a head-to-heads with a Cuban customer, comparative performance to the PACE-X, is outperforming. So we're really happy with the PACE-X. We think the concept of making a rig come to start at pad, multi-pad, contemplating the multi-goal trajectory of development drilling in the Lower 48 was the right move for us. And we think the customer reception's going to continue to garner momentum.

Another important point is those are data points for rigs that have been in the field less than 4 to 6 months against rigs [Indiscernible] .

And then, Tony, how many of these, what's your capacity now at building new PACE-X rigs, and what could you go to?

Well, I think right now, as we've announced, we're at 2 a month. But just to give you an idea, Canrig, I think is up to at least multiples of that, 4x that, in the ability to produce top drives. And so we have the ability to scale that, I think, as much of the market at demand. And in fact, we're working at Canrig's infrastructure to provide more of that ability to do with even more quickly. So I don't think that's going to be the issue for us. It's going to be an issue of how, what the market can absorb and what the demand is.

And our next question does come from the line of Mike Urban with Deutsche Bank.

So Tony, you mentioned your focus list earlier in the call, presumably, the strategic review is on that list somewhere. Your board reviewed it, latter part of last year, and presumably gave you some marching orders there. Do you have any update on where you stand in that process, or whether we might be able to get an update on that?

Yes, the update is, that basically, we have some plans underway, and we're actively working on it right now. And soon as they're done, you'll know. I don't want to talk about things that haven't happened yet, but I can assure you that we're focused on figuring out ways to highlight the value inherent in Nabors and have some good ideas on how to do that, and that's what we're going to do, and that's what the board has authorized, and that's what we're currently working on.

And presumably, kind of the better operating performance here, better outlook that we'll be seeing, and that doesn't necessarily preclude anything you're looking to optimize what you have, and then separately, you have this the strategic process that?

Yes. I think the tools from my point of view are complementary. Obviously, whatever we do, whether extraordinary-wise or strategic-wise will only be enhanced by improving the base case and improving the base case is where we have -- that everybody else the company focus whereas by a separate team working on the strategic review and implementing what the board has concluded we should pursue. That's where we are.

And last thing for me was, I would agree with you that we would not expect to see, at least not yet, very much new gas drilling, or drilling of new gas wells. As a leading indicator, though, are you seeing any interest from your customers on the Well Service side, or Production Services side or still not even there yet?

Not really on the production side. I think, no, not yet. I mean, the only thing I would say is, I think we -- our thesis on the production side has been, with the shale wells multiplying in number, with all this shale drilling, that there's a kind of built-in long term demand that's building up. We haven't really seen that demand hit the market yet, in part because I think there may have been a change in the life of the construction of the wells, to better pump setters that require intervention now on a longer period basis. But I think we're expecting is that we're going to be have to be at the age when we get to the new established lifecycle, and there should be an increased demand for those services, intervention [ph] services on those wells, so.

And our next question does come from the line of John Daniel with Simmons & company. John M. Daniel - Simmons & Company International, Research Division: In International, Denny, can you help us with modeling here? If you migrate through '14, would you expect cash margins to get back to the Q4 levels, just given the repricing of the rigs you noted in the release?

Yes, eventually, they will hold, probably be a down a little bit this time, but I think as we get into '15, we'll be taking out the old [indiscernible] pretty constantly. John M. Daniel - Simmons & Company International, Research Division: And then, with Pressure Pumping, you mentioned in the prepared remarks, 14 weeks for 24 hours, 5 for your [ph] daylight, 5 idle, and then -- which 19 working then, but 20 working now. Can you just walk us through what part of street level margins you're targeting to reactivate these fleets? Am I correct that one was reactivated?

That's correct.

What did you think the trend in margins was going to be on the reactivated fleet in general? Is that right, John? John M. Daniel - Simmons & Company International, Research Division: Yes, you can provide any color.

Yes, so, John, I think that's a bit of a mixed bag. Obviously, the margins are going to be largely dictated on, on job design, job mix, the type of volumes we're having, concentrations of sand, chemicals, materials. Obviously, we've run 24-hour operations, run zipper operations, continuous operations. So you see a huge, a wide gamut of things that can change the overall dynamics of your margin, when we start those up. But what we are looking for is continuous work and sustaining that footprint with a strategic client, so we have the opportunity to grow as again, as we mentioned, as Tony mentioned in his notes, that we think we're finally finding a bottom for that pricing. So we want to continue to maintain our strategic footprint to give us that opportunity to grow in the future.

John, the other thing these guys have done controlling costs, and there's still a lot we haven't seen in our numbers yet, but large reductions in the consolidating and overhead, that's in the current run rates, sizably below a year ago. All of this has been obscured by the deteriorating pricing environment, and reducing -- we hit the bottom, and then you haven't seen, really the impact of the stemming the losses that were in, well, $2 million in the Canadian pumping business. So that ought to augur fairly well for the second half of the year. John M. Daniel - Simmons & Company International, Research Division: Is it a reasonable supposition on our part to expect incremental continual audit EBITDA margin, sort of, at least 20%?

I don't know if I want to get on that.

I don't think I've got a note for that yet. I think you can assume that we're taking incremental rigs that are not losers, and that would be long-term profitability. John M. Daniel - Simmons & Company International, Research Division: All right, and then just 2 quick ones for me, and staying with Pressure Pumping for a moment, as you look across the 20 rigs that are working today, I mean, I know there's no take-or-pay contracts per se, but how many of them are under the dedicated pricing arrangement?

Yes, I think probably about half are under dedicated pricing, and then the other half are truly in a, what we call, spot market pricing. And they kind of juggle back and forth between different operators. John M. Daniel - Simmons & Company International, Research Division: Okay. And then -- and Tony, just a big picture one, how important will acquisitions be in the growth plans for this year?

Acquisitions of always been a key part of Nabors' strategy, as you know, that's how we sort of built the case, in the first 20 years I was here. I think for us, what we have promptly [ph] measured is, given our size and our asset base, down our opportunities to deploy capital at sort of defined return, what an acquisition gives us above that base case, and so the hurdle, I would say, given where we are now, is a little higher than it's been in the past. And so, looking at every deal and something that would complement the asset base and would provide some Day 1 cost-savings of some kind, that's synergistic with some customers that were not -- we're already in most of the market throughput, and are in the key markets of the world, as you know. But again, market entrance is not the deciding factor. It's something that would either differentiate us from our product or service. We're at a customer base, and that's the analysis that we are trying to do on the acquisitions and pass that test. [indiscernible] that has anything like that, but it's so.

Our final question comes from the line of Byron Pope with Tudor, Pickering, Holt. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Just two quick ones for me. As I think about modeling the International segment, just given the mix of rig types, Tony or Denny, if I think about the 16 International newbuilds and upgrades that are listed on Page 10 of your slide deck, how should I think about the progression of those, in terms of deployment? And what I'm thinking about it is, all of these newbuild and upgrades are, I'm assuming are going to be accretive to that international segment, daily cash margin. Is that a reasonable way to think about it, in the progressive?

That's exactly right. The bulk of them deploy in the third and fourth quarter. The last of them deploy in the first quarter next year. Some of them -- or 1 or 2 are starting to play right now. I think there's 1 already started to --

Some are starting up in South America this, early -- late this quarter, early next quarter and then you see the progression based on the second tier.

Namely third or fourth quarter but carried over to the next year.

And the contract renewals that are renegotiated are stemming for 3 more years on their anniversaries, and those anniversaries, that renewal occur between March and December this year. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay. And with regard to the PACE-X construction program, 24 rigs that are shown there, that are still in the Q, does that include the 9 untapped for this year that had yet to be contracted, or are those 9 incremental to what you're showing on page 10?

Those include the 9. So we deployed 3. We have 8 we're going to deploy the -- we have contracts. We have 9 more for this year and then 4 for next year. Thanks very much, everyone.

Thank you. Ladies and gentlemen, that will conclude the conference for today. We do thank you for your participation. You may now disconnect your lines at this time.