Nabors Industries Ltd. (NBR) Q4 2014 Earnings Report, Transcript and Summary

Good day and welcome to the Nabors Fourth Quarter 2014 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Denny Smith. Please go ahead. Dennis A. Smith - Director-Corporate Development & Investor Relations: Thank you for joining Nabors earnings teleconference. Today, we will follow our customary format with Chairman, President, and Chief Executive Officer, Tony Petrello; and William Restrepo, our Chief Financial Officer, providing our perspectives on the quarter's and the full year results, along with some insight into the trends we are seeing in our markets and how we expect Nabors to react to these trends. In support of these remarks, we have posted some slides to our website which you can access to follow along with the presentation if you desire. They are accessible in two ways. If you are participating by webcast, they are available as a download within the webcast. Alternatively, you can download the slides from within the Investor Relations section at nabors.com, under the Events Calendar submenu, where you will find them listed as supporting materials under the conference call listing. Instructions for the replay are posted on the website. With us today, in addition to Tony, William, and myself, are Laura Doerre, our General Counsel; and the heads of our various business units. Since much of our commentary today will concern our expectations of the future, they may constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risk 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, our actual results may differ materially from those indicated or implied by such forward-looking statements. Now, I'll turn the call over to Tony to begin. Anthony G. Petrello - Chairman, President & Chief Executive Officer: Good afternoon, and welcome to the Nabors Industries conference call to review results for the fourth quarter and full year of 2014. We appreciate your participation. As Denny mentioned, we have posted the accompanying presentation slides on our website. I will begin with some opening remarks. William will then follow with a financial review of the fourth quarter, and I will wrap up to take questions. I will lead off with our accomplishments during 2014. First, we were awarded multiyear contracts for 23 newbuild rigs. These awards included 16 PACE-X rigs to 10 different customers. Our International segment secured awards for six newbuilds, including four in Saudi Arabia and two in Kazakhstan. Our Alaskan operation received an award for a new coiled tubing drilling rig for work on the North Slope. Second, we deployed 36 new or substantially upgraded rigs during the year. These included our 11 newbuilds for Saudi Arabia, both of the platform rigs for Mexico, five rigs in Argentina and platform rigs in Australia and Malaysia. In the U.S. we deployed 16 new PACE-X rigs. Third, our strategic review process culminated in the merger agreement with C&J Energy Services. In this transaction, we are combining our Completion & Production Services business with C&J Energy Services. We will receive $688 million in cash and retain their ownership of approximately 53% of the combined publicly held company. Next, I would like to mention one very notable achievement. For the full year 2014, the company's total recordable incident rate, or TRIR, improved to 0.93. This is the first time in the company's history that rate has been better than 1. This performance is a testament to the combined efforts of every Nabors' employee and the company's total commitment to eliminating injuries and incidents. Continuing this highly favorable trend, our safety performance in January improved even further. We are encouraged by the start to the year, and we remain focused on our goal of zero incidents. Now I will comment on our fourth quarter performance. In total, our operating results came in slightly below our internal expectations at the beginning of the quarter. The downturn in the Lower 48 rig count impacted several of our businesses during the latter part of the quarter. At the same time, the International business benefited from new rig deployments. We began taking actions to rationalize our expense structure, and I will speak to those in a few moments. As we entered the fourth quarter, we had plans to ramp our PACE-X newbuild program to four per month, starting during the first quarter. In view of the deteriorating environment, we have taken rapid action to drastically cut back on our newbuild schedule for 2015. At this point, we anticipate completing 17 rigs during this year; four of those have already been deployed; five of the remaining 13 already have contracts. We are also continuing our investments in advanced rig and downhole technologies with great prudence. We believe our customers will increasingly demand high performance drilling solutions that improve well economics, especially in this environment. Nabors is fully committed to driving that progress. So, now to some specifics on our fourth quarter results; all of our drilling segments improved on the financial results of the third quarter, excluding the impact of previously reported early termination payments in our U.S. drilling operation. Total revenue for the quarter of $1.78 billion slightly exceeded the third quarter, again without the early termination payment. This performance occurred despite the steep decline in commodity prices during the quarter which impacted volumes in our U.S. and Canadian drilling segments. The drop in oil prices also drove the decrease in volumes in our Completion & Production Services business. Normal end-of-year seasonality for these activities played its part in NCPS's sequential decline. Fourth quarter operating income declined to $152 million from $173 million in the third quarter, adjusted for the $30 million termination payment in the third quarter. EBITDA was $446 million versus $460 million on the same basis in the previous quarter. Moderately improved drilling results were more than offset by more material declines in Completion & Production Services as well as in other Rig Services. As part of the annual review of the value of our worldwide asset base, we recorded impairments and retirements of approximately $1 billion. Of this total, approximately $400 million was for goodwill and intangibles in the Completion Services and Ryan Directional drilling business. The remaining $600 million address legacy rigs and rig-related equipment throughout our global fleet. For the full year, revenue totaled $6.8 billion, up from $6.2 billion in 2013. Operating income for 2014 was $598 million, up from $558 million in the previous year. In 2014, Nabors generated an operating cash flow or EBITDA of over $1.74 billion, up nearly $100 million from 2013. I will wrap up the summary with a recap of our fourth quarter newbuild activity. As we announced a few weeks ago, we received awards for three newbuild rigs. Two were for PACE-X rigs, each for a different customer in the Lower 48. The third was for a new coiled tubing drilling rig for the North Slope of Alaska. We expect to deploy the new X rigs during 2015. With the new Alaska rig, we are looking to begin drilling operations in 2016. Now I will update you on our pending merger with C&J Energy Services. In February, we reached an agreement to reduce the cash portion of the consideration we expect to receive by $250 million to $688 million. Subsequently, on February 13, the SEC issued a notice of effectiveness for the S-4 registration statement of Nabors Red Lion Limited. With that milestone, a special meeting of C&J stockholders to consider a vote on the transaction has been scheduled for March 20. Proxy materials have been distributed to C&J shareholders, and assuming satisfaction of all customary closing conditions, we expect to close the transaction in March 2015. In the meantime, merger integration planning has made substantial progress. Both teams continue to work diligently to plan for a smooth transition after the closing. We are pleased with the progress, and we look forward to realizing the benefits of this transaction. With the consummation of the merger now in sight, I want to reiterate our enthusiasm for this transaction. We believe the combined operations will be formidable competitors in their target markets. The new company, led by Josh Comstock, will have a deep management bench with some of the best people in the sector. Its asset base and geographic footprint will provide ample opportunities for future growth. At the same time, we will sharpen our focus on the drilling business. The transaction enhances our financial flexibility, and our shareholders should benefit from Nabors' ownership of just over half of the new entity. Now let me turn to our results. Our fourth quarter earnings were driven primarily by, first, end-of-year reductions in Lower 48 drilling activity which had a material impact on our results, starting in the month of December; second, a decline in volumes and margins in our Canrig and Ryan Directional drilling subsidiaries; and third, seasonal declines and the impact of lower oil prices in our Completion & Production Services business. These were partially offset by improved performance in the International segment as new rig deployments and contract renewals lifted margins. Our Canadian business benefited from seasonality, while Alaska benefited from seasonality as well as higher demand. Now, let me turn to our outlook. The steep drop in oil prices and uncertain prospects, have caused an extraordinary rapid drop in drilling activity in the U.S. The industry has shut approximately 35% of the rigs that were working at the Peak in the fourth quarter. Our Lower 48 rig count is down approximately 32% from our Peak. It currently stands at 138 rigs including 21 stacked on rate. Thus far, the downturn has been largely indifferent to rig types and capabilities. In this environment, operators are slashing their capital spending commitments. They are shutting rigs based on the lack of term contracts rather than on the quality of the rigs or the drilling performance. Utilization of our U.S. Lower 48 AC rigs has declined to 68% from 94% at our Peak rig count. Among our AC rigs, our 1,000-horsepower M-class rigs have experienced the largest decline in utilization, while our 1,500-horsepower rigs have held up better. Utilization of our X rigs remains at 100%. Legacy rig utilization has dropped to 20% from 40% in the same timeframe. By geography, the Rockies, as expected, including the Bakken and the Mid-Continent, have seen the greatest slowdown in the number of rigs working. Going forward, we expect continued erosion in both the industry's and our rig count. The impacts of pricing and reduced activity will be evident in our first quarter results. Based on the current trajectory of the decline in our rig count, we expect financial results to decline further in the second quarter. As we look further out and as the market stabilizes, we anticipate operators will high grade their rigs after they rightsize their drilling programs. We have already had preliminary discussions with several customers who are interested in upgrading to higher performance rigs for their future drilling plans as their existing rig commitments with competitors expire. We are also working on multiple initiatives to enhance the value proposition on certain classes of rigs. In our Completion Services business, we are also seeing significant impacts from the industry downturn. Price competition has intensified as the market contracts. Utilization has fallen as our clients reduced their drilling and completion activity. We expect this unfavorable environment to persist throughout the first quarter with activity potentially suffering further from harsh weather. The Production Services business has recently experienced some pricing deterioration for both rigs and fluids management. Nonetheless, we have experienced some stability in activity during the early part of the year, and the last major down cycle, demand in this business line proved more resilient than our U.S. drilling business. At this point, we anticipate that should be the case again. At Canrig, the drilling industry's new rig building activity at least for the domestic market is decelerating. Service and rental activity will also be impacted by the decline in North American rig count. Canrig is seeing growth in its repairs business and has been pursuing services and rentals in new international markets. In Canada, activity and financial results improved sequentially in the fourth quarter and we're about on par with the year ago, though less than we originally anticipated. The typical seasonal strength of the winter drilling season was severely curtailed with customer programs and budgets being cut as a result of low oil prices. We now expect declines in both activity and financials in the first quarter, setting the stage for a challenging year in 2015. Now, let me shift gears and discuss our businesses with more positive outlooks. In Alaska, our current outlook calls for a year-over-year increases in both activity and financial results through 2015. That does not include the new rig which we plan to deploy in 2016. Last but not least, I will finish with the outlook for the International business. In 2013 and 2014, we were busy bidding, contracting, building and refurbishing rigs. We started deployments from this activity in 2014 though the financial impact was subdued. As we peer through 2015, based on our work over the past two years, the full impact of these rigs begins to emerge. At the same time, we are winding down some significant programs such as the project in Papua New Guinea and some less significant ones including our work in Romania and offshore India. The international market is not immune to the current price of oil. Many operators are seeking cost relief. We are working with them to implement creative solutions that will benefit both sides. Our forecast for 2015 calls for lower rig activity than in 2014, as a result of the completion of several projects and of our longstanding plans to abandon several low profit or losing markets. Nevertheless, the financial contribution of the rigs we are putting to work should outweigh the negative impact from the lower number of rigs and the short-term concessions to customers. In other words, we still expect our 2015 International financial results to show improvement over 2014, though certain markets could be at risk. Based on the concrete steps we have taken recently and in prior years, I have great confidence in the company's ability to manage the current downturn. This is not our first rodeo. These initiatives are ongoing and we will modify them as market conditions and our outlook warrant. The drilling business, by its nature, requires regular capital expenditures. Our target in the current downturn is to generate adequate free cash which we define as EBITDA minus capital spending to cover interest and cash taxes. The most recent iteration of our capital budget is right at $1 billion. This plan represents $900 million reduction from our spending in 2014. The 2015 budget funds our current projects and supports our ongoing operations. At this point, our budget contemplates 17 newbuild X rigs. It also includes the Completion & Production Services business. If the market deteriorates more than we expect, we will reduce that spending figure. We are also in advanced discussions with multiple operators for additional rigs. We could increase our spending if those opportunities backed by firm contracts materialize. On the operations side, we have reduced field staff by 12% as our operations have contracted. At the same time, we're trying to retain our best field personnel to preserve our competitive position when the market improves. We are also reducing our G&A spending as the business volume declines. The senior executive team have voluntarily reduced salaries. We have already achieved the 10% reduction in company-wide G&A head count. We have established the target and have implemented actions to reduce G&A spending for 2015. Our strategy to manage through the downturn varies somewhat by specific business unit. It includes the following; first, consolidate our footprint in the field by combining or closing field offices; second, reduce our field staff linearly with decline in operating assets; third, lower cost across our supply chain in cooperation with vendors; fourth, implement innovative pricing structures for services; and last, reduce G&A company-wide by $70 million versus the fourth quarter run rate. I would like to call attention to the steps we have taken on the balance sheet to write off the downturn. Recently, we extended our borrowing capacity under our revolver by $225 million and we borrowed $300 million under a new term loan agreement with a group of banks. Assuming we close the merger with C&J later this month, based on the balance sheet at year end 2014, we anticipate having liquidity of approximately $2 billion available post-closing. To summarize, several specific factors could further impact our results in coming quarters. The shareholder vote for the C&J transaction is scheduled for March 20. Assuming a favorable outcome, we'd expect to close the transaction within the following week. The domestic E&P industry continues to reduce budgets and release rigs at an unprecedented rate, implying a high degree of discipline in this environment. Given our term contracts, we expect our financial results to bottom a few quarters after the rig count does. Breakup in Canada after a muted drilling season is earlier than usual. The rig built for the Big Foot platform in the U.S. Gulf of Mexico is set to float out any day. This development will mark a significant milestone for this project. We currently assume the rig will commence operations and go on full day rate before the end of 2015. This project will materially increase the operating profit of the offshore business. We continue to expect year-to-year improvement in our International segment. However, the full effects of lower oil prices may not yet be fully reflected in the international markets. Fiscal stress in certain markets could drive activity lower. In the Mexico market specifically, we completed construction and deployed the two previously announced newbuild platform rigs for the Mexican Gulf. The commencement of day rate has been pushed back by unexpected operator delays with the platforms which these rigs are intended. We anticipate they will begin earning day rates early in the second quarter. Finally, we have taken concrete steps to improve our cost structure and we will implement additional ones. These should dampen the impact of the activity downturn and better position the company for an eventual upturn. This concludes my comments. Now I will turn the call to William, who will detail our financial results.

Thank you, Tony, and good afternoon everyone. Before discussing our operational results, I would like to point out that our earnings included several very material items related to the current market conditions as well as other charges pertaining to transaction with C&J Energy Services. These latter charges have been anticipated during our third quarter conference call. Impairments and other charges related to the downturn totaled $1 billion before tax, or $2.73 per share on an after-tax basis. The following are some details on the impairment charges during the quarter. First, we took a $357 million impairment to goodwill principally in our Completion Services segment related to the acquisition in 2010 of Superior Well Services. The balance of the goodwill impairment was in our Ryan Directional Services business. We also impaired intangible assets by $30 million, again principally in Completions. In the U.S. drilling business, we retired 26 mechanical rigs and four jackups, with limited to no prospects of future work. In addition, we impaired the Lower 48 SCR rigs and retired a certain number of yard assets unlikely to return to operations. The total impairments in the U.S. drilling segment totaled approximately $408 million. In Canada, retirements of four rigs plus impairments totaled $34 million. In the International business, rig impairments, mainly offshore, plus yard asset retirements totaled $127 million. Finally, we retired approximately $41 million of equipment in Canrig. Expenses related to the C&J deal, including losses and debt repurchase and transaction costs, totaled $7 million pre-tax, or $0.02 per share after taxes. Also related to the C&J transaction were tax charges of $180 million, or $0.63, associated to the reorganization of certain legal entities in preparation with a combination with C&J. These charges were essentially non-cash. The combined impact of all of these items was a $3.39 reduction in our earnings per diluted share. Net income from continuing operations, excluding the above charges, was $96 million, or $0.33 per diluted share, compared to $116 million, or $0.39 per diluted share, excluding charges during the third quarter. For the fourth quarter, included in our adjusted earnings, we had other items of note that help explain our results. First, our effective tax rate, excluding net charges, reached 6% for the quarter, which was significantly lower than our expectations. This added approximately $0.05 per share to our earnings compared to our expectations of a 20% effective tax rate. During the quarter, the impact of the downturn was most pronounced in our U.S. operations. Thus, our geographic mix of income shifted significantly towards lower-tax regimes. This shift not only lowered the effective tax rate for the quarter, but required a downwards adjustment to the tax provisions booked through the third quarter. Second, our losses on ordinary fixed asset sales in the quarter were over $2 million higher than the prior quarter, which translates into $0.01 per share. I would now like to focus on the key metrics for our segments. Within the U.S. drilling segment, our Lower 48 daily operating margin increased by $236 to $10,458 per day, excluding the effect of the $30 million early termination payment realized in the third quarter. This translated into a 40-basis point increase in operating margins. Cash margins benefited from the deployment of five PACE-X rigs during the quarter, plus the erosion and the utilization of our lower-margin legacy fleet. Active rigs in the Lower 48 averaged 198, down 4 from the previous quarter. Currently, we have 138 rigs on revenue with our AC rig count at 116 rigs. Utilization of the AC rigs in the fourth quarter was 88%; for our pad-capable SCR rigs, utilization was 65%. During the fourth quarter, contracts on 33 of our rigs expired, 13 of those received extensions or new term contracts averaging 6.2 months, and materially higher day rates. Of the remaining rigs, 9 converted to well-to-well. We expect a sharp decline in the average number of working rigs during the first quarter versus the fourth quarter in line with a decline in the total Lower 48 rig count. Looking across basins, demand is most challenged in the Rockies including the Williston area, but we are seeing rig count declines in all major markets. While all drilling activity decreased in the Gulf of Mexico, Alaska activity increased as the drilling season commenced. In our International drilling business, the improved performance was driven by a 130-basis point margin expansion which more than offset a decline rigs as we closed certain low margin operations. Rig years declined by 9 rig years to 121 rig years, while daily rig margins increased by $2,313 to $17,803 per day. The improvement reflected rig startups in Saudi Arabia, Australia and Malaysia, partially offset by a decline in Mexico. The quarter's performance continues to demonstrate the improved financial performance that our International operation has been working on for some time. Additional newbuild deployments should bolster results in 2015. In Canada, activity increased by almost 3 rig years, and margins improved by over $200 versus the third quarter. Nonetheless, the normal seasonal upturn in drilling activity has been muted. This market is increasingly challenged and we could see both activity and margin declines in the first quarter. Result in our Rig Services segment reflected deteriorations for both Canrig and Ryan Directional drilling businesses. Sequential revenue at Canrig was relatively flat. However, margins declined due to mix. Ryan's results reflected the early impact of the Lower 48 downturn in drilling activity. Completion & Production Services declined compared to the third quarter. The decrease was more pronounced in Production Services with revenue declining by 8% and operating margin decreasing by 325 basis points versus the third quarter. Year-end seasonality and budget reductions by some of our largest customers contributed to the decline. In Completion Services, revenue increased by nearly 3% versus the third quarter, while operating margin declined by 270 basis points. Despite increased mix-driven revenue per stage, pricing concessions and expanded costs related to 24-hour operations outweighed the improvement in revenue. Stage count in the fourth quarter declined by 4%, though October was the highest month in the company's history. During the quarter, 17 of the 19 spreads operated on 24-hour schedules. Looking forward, I would like to share our expectations for some of the important metrics and operating income outlook. We expect full year 2015 capital spending of approximately $1 billion. And we estimate full year depreciation and amortization of approximately $1.2 billion. Our full year effective income tax rate is now estimated at 20% on normalized pre-tax earnings. With respect to the C&J transaction, we still expect to deconsolidate our Completion & Production business after the merger and to account for our investment using the equity method. Now, given the commodity environment as well as the continuing decline in drilling rigs in the Lower 48 and Canada, providing guidance on our first quarter results has become more difficult. Nonetheless, I still want to make some comments on our operating income for the quarter. We expect results for most of our businesses to reflect the decrease in industry activity with a possible exception of the International and Canrig segments. Our North America drilling businesses are particularly impacted by the market decline. I expect the Lower 48 rig count to fall by 50% versus peak level, though I anticipate a somewhat lower reduction in our own number of rigs and revenue given our term contracts. In concluding, I would like to stress this test that Nabors has taken to respond to the current environment. Our CapEx budget reflects an approximately 50% reduction in planned spending. Any increase to our investment plans will require high-return contract visibility. We have targeted cost reductions of at least 15% versus the year end run rate in our SG&A and have already begun reducing the company's overhead cost structure both in the field and in our corporate organization. Since the last week of 2014, our total company workforce has fallen by approximately 12%. These reductions reflect a 20% decline in our U.S. drilling workforce and a 10% decrease in our SG&A organization. These cuts are geared towards generating neutral to positive free cash flow. Finally, we have increased our liquidity by $525 million through an expansion of our revolver and by drawing on a $300 million three-year term loan. This incremental liquidity on top of an already strong balance sheet should bolster our ability to navigate the downturn and take advantage of unexpected opportunities. Now I will turn the call back to Tony for his concluding remarks. Anthony G. Petrello - Chairman, President & Chief Executive Officer: Thank you, William. Let me finish with the summary of our overview and outlook. First, the U.S. drilling market is contracting rapidly and that is rippling through other markets globally. We are responding with focused efforts to balance current market pricing and utilization and adjust our cost structure and capital budget as necessary. Second, we continue to pursue opportunities to add rigs and high-spec drilling markets around the globe at attractive risk-adjusted rates of return. Third, in this environment, the importance of financial flexibility becomes paramount. We have improved the company's financial position significantly over the past several years, and we are positioned to withstand the market downturn. Fourth, we are committed to our vision of the future drilling market, one where technology enables a meaningfully lower cost structure for our customers. We plan to continue to invest prudently through this downturn. We intend to emerge with drilling solutions that position Nabors as the clear driller of choice. That concludes my remarks this afternoon. Thank you for your time. With that, I will take your questions.

Thank you. We will now begin the question-and-answer session. Our first question is from Jim Wicklund of Credit Suisse. Please go ahead. Jim K. Wicklund - Credit Suisse Securities (USA) LLC (Broker): Good afternoon, guys. Anthony G. Petrello - Chairman, President & Chief Executive Officer: Good afternoon. Jim K. Wicklund - Credit Suisse Securities (USA) LLC (Broker): The issue that seems to be on everybody's mind these days is duration of this down-cycle, everybody's hoping for a 2009 recovery including me. But I don't know, I assume that you guys have done some work. If the rig count drops by the 50%, how long does it have to stay there before we fix the problem? And I'm assuming Enron hit the – I mean, EOG hit the nail on the head the other week when they said the problem is slowing U.S. production growth. How long – we know it's going down, how long do you think we have to stay there? Anthony G. Petrello - Chairman, President & Chief Executive Officer: Well, I think, from our point of view, we are not counting on the V. And we – all the plans we're making is an extended period of rebound. We think by the end of the summer, things should sort themselves out where people are, but we don't see a quick read this year. So, I would say, well into next year, Jim. Jim K. Wicklund - Credit Suisse Securities (USA) LLC (Broker): Okay. And I don't disagree with that. And we've heard reports from Saudi Arabia which has been everybody's, including you guys, best growth market in the last couple of years that especially on the jack-up side that Aramco is getting a little draconian on asking for price reductions even under existing contracts. Are we seeing that in the land business at all? Anthony G. Petrello - Chairman, President & Chief Executive Officer: I think it's fair to say that the lines of communication between North America and the rest of world are opened well and every operator that has a standard playbook and they're all asking for consideration. I think our tactic continues to be that we're interested in long-term relationships with these key customers and we're working to find solutions that satisfy their requirements and meet our goals, which means we try to accommodate their interest, at least in the short-term, and that's the response we have to take for these long-term key guys. We haven't seen yet any big shoe drop in Saudi. We know that there's some oil rigs that are coming down, which is not our core there where we're able to tap on to the jack-up market, but we haven't seen what you've talked about in any large scale there or anywhere else yet. Jim K. Wicklund - Credit Suisse Securities (USA) LLC (Broker): Okay. Last question, if I could, and I know the answer to this, but we got to ask you guys so you can say it. I'm assuming that you guys aren't wild about working your equipment at any cash loss. And so, when it comes down to maintaining market share or working at a cash loss, which is the strategy of Nabors going to be if it comes to that? Anthony G. Petrello - Chairman, President & Chief Executive Officer: I think you know us well enough to know the answer to that question. Jim K. Wicklund - Credit Suisse Securities (USA) LLC (Broker): I know. But we have to get it out there, and I'm assuming that you won't work at a cash negative, so. Anthony G. Petrello - Chairman, President & Chief Executive Officer: We're not going to work at cash negative. We're not going to - Jim K. Wicklund - Credit Suisse Securities (USA) LLC (Broker): That's what I needed, guys. I appreciate it. Thank you very much. Anthony G. Petrello - Chairman, President & Chief Executive Officer: Thank you.

Our next question is from Mike Urban of Deutsche Bank. Please go ahead.

Thanks. Good afternoon. You – so, clearly, customers are asking for price reductions, and I would certainly have to assume that's not your first choice. And you mentioned some, I guess, enhancements that you can make to existing rigs, some potential alternatives and kind of creative pricing solutions. I guess without showing your hand too much, could you speak to what would some of those might be and your ability to mitigate just pure pricing declines of the magnitude that your customers might be looking for? Anthony G. Petrello - Chairman, President & Chief Executive Officer: Sure. I mean, obviously, the first thing is extension of term for additional work at a lower rate. The second is to add content, meaning additional rigs that they're – sort of pull them away from somebody else, so we add additional margin to our base. The third is additional sets of services. As you know, Nabors has a bunch of other things that we can put on a rig, everything from instrumentation to rock it, to rev it. There's a whole bunch of these assorted services, and we're making a better push to try to capitalize on those commercialization of those things as well. So, it's – that's the kind of thing that we would respond with.

Gotcha. And then as it pertains to the CapEx program, clearly you said you can scale that up or presumably down if need be. But you still do have a handful of un-contracted newbuilds even in the kind of scaled-back plans there. Why – at this point, presuming even if we do ultimately go under recovery mode, it's probably at a slower rate of growth and maybe we saw – maybe the U.S. needs to be capitalized for a 300,000 barrel a day, 400,000 barrel a day, maybe even 500,000 barrel a day growth market rather than 1 million barrels a day. That was clearly a strategy that worked last cycle. I think, for clear reasons, that you are replacing legacy rigs at a much greater pace, but I think a lot of those are gone. So just if you could walk us through your thoughts in terms of continuing to essentially build on spec at this point. Anthony G. Petrello - Chairman, President & Chief Executive Officer: I think at this down-cycle, which I referenced the fact that we're going to be at a build of 17, including 4 that's already been built, and the remaining 5 have – 5 of those have contracts. So, the amount of exposure we have is pretty de minimis, but what it does is it does leave in place our manufacturing capacity and we also believe that there are markets – North America, as you can see from our financials, compared to everybody else out there, North America is not the be all and end all. We think there are opportunities elsewhere. So this keeps our pipeline active. And if the market does turn, we'll be well positioned to rev up. In the last downturn, last time around, we actually shut everything down wholesale; and, therefore, when things did turn, it took quite a while for us to gear up. So, this time around, I think what we're going to do is just be – we're still going to be mindful of the CapEx. We're not going to extend ourselves or get ourselves in trouble. On the other hand, we're going to keep that capacity in place, and as I said, we're committed to some other technology changes that we're working on as well during this downturn. So, that's the thinking right now.

And really, you don't have contracts at this point, but are there some at least specific projects or jobs or customers that you might have in mind for those X rigs whether in the U.S. or internationally? Anthony G. Petrello - Chairman, President & Chief Executive Officer: Yes, there are.

Okay, great. Thank you.

Our next question is from Matt Marietta of Stephens Inc. Please go ahead.

Hey. Good afternoon, guys. This is actually Chris Denison for Matt Marietta. Just want to clarify some of the completion and production assets as they stand today. At 4Q end, it looks like there was 800,000 horsepower in service between 19 crews. Is all 800,000 horsepower and 19 crews, are they still marketed today? Has any of that gone idle at this point? We're just trying to get an idea of what the current pressure pumping fleet looks like and maybe the average age of the fleet, if you could. Anthony G. Petrello - Chairman, President & Chief Executive Officer: Okay. So, today, we actually have – we're down to 12 crews from 19 crews. And just to give you an idea, there's a couple crews in South Texas. We have four crews in West Texas, the Mid-Con, a couple crew in the Marcellus, one in the Bakken and a couple in Powder River Basin. That's roughly the distribution today. And in terms of – I mean the challenge – this is not an orderly market decline right now. The market's become very competitive as the work declines. There's lot of aggressive pricing going on. For us, the challenge is to maintain utilization that get caught up in extra costs of standby and trying to have things in the marketplace that we can get back good utilization. So, price is important but also utilization and that's a strategy for us to try to blend them together to run operations that are still positive margin. Going back to Jim Wicklund's remark, we're not interested in running stuff at negative margin. So, that's where we stand right now.

Right. Do you have any indication of what the average age of the fleet might be? Anthony G. Petrello - Chairman, President & Chief Executive Officer: Our average age? Well, about half the fleet was post-Superior in terms of capital that we spent. So, that's pretty new since Nabors acquired it. The rest was legacy assets.

Okay.

Yeah, I think that's right. This is Ronnie. I think for the most part, we have right around 250,000 horsepower stack. So, of the active horsepower that we continue with right now, probably 75% of that was purchased right after the acquisition of Superior in the fourth quarter 2010.

Okay, awesome. Great color. And then just a similar question on the well servicing side. 445 U.S. rigs in the fleet at 4Q end, is that the market of fleet that stands today? Have any of those fallen out? And maybe if you could just elaborate – have you seen any bifurcation between horsepower classes or regions? Anthony G. Petrello - Chairman, President & Chief Executive Officer: I'll let Steve.

Sure. Steve here. No, 445 rigs is still the number that we're marketing. We're operating today about 320 of those rigs. We have not seen a bifurcation between normal production work and workover work. But in this downturn, more production work than we've seen in the past.

Okay, awesome. Great color. That'll do it for me guys. Thank you.

Our next question is from Dan Boyd of BMO Capital Markets. Please go ahead.

Hi, thanks. Can you help us with a road map for U.S. drilling margins? I mean recognizing Alaska, you have pretty good visibility there, margin is significantly higher than the U.S. And just assuming that the rig count does fall to 50% that you expect, I would also assume your U.S. margins are going to be potentially higher or not come down as much because you have the contracted rigs earning higher margins than whatever is working in the spot market. So, could you just maybe help us over the next few quarters what should we expect from the aggregate U.S. margin level? Anthony G. Petrello - Chairman, President & Chief Executive Officer: The margin level, as you know, in the first quarter, there are extra costs that come into play. And so I think there is going to be a decline in margin. And I would think over the next first quarter, I would think something around the order of 10% margin decline. Whether that stabilizes or not in the third and fourth quarter, it's going to depend on the vapidity of a bunch of other stuff that's occurring. Where our visibility right now is in the first quarter, I don't see anything more than 10% right now.

Okay, that's helpful. And then pretty much the same thing internationally. I know a lot of the contracts that you have starting up are higher margin and where you're likely losing rigs is going to be lower margin. So how we should think about the first three quarters? Anthony G. Petrello - Chairman, President & Chief Executive Officer: Right. As I said, for international, I would say it's a little bit the reverse. As we mentioned, our expectation going into this year has been that we still have a sight set on year-over-year increases and I've already mentioned that we see some rigs coming down. So, therefore, the only way that's going to be made up is margin increase and we think that there is going to be some margin expansion. And it's our expectation that margin expansion is going to offset any decline and we're actually going to get some year-over-year increase and that's our strategy right now.

Can we hold the 4Q level, operating income level? Anthony G. Petrello - Chairman, President & Chief Executive Officer: Well, I said, year-over-year increase and I would – there's always a black swan event obviously and we've already took signal that the Mexico – the two Mexico platform rigs which we're expecting to go on earlier this quarter is now pushed to the second quarter. So I think there could be some deterioration, but I think in the neighborhood, it should probably try to – they're trying to hold it in the neighborhood.

Okay, thanks. That's all for me.

There are no additional questions. This concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks. Anthony G. Petrello - Chairman, President & Chief Executive Officer: Well, thank you all very much for your participation today and look forward to talking with you again. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.