Patterson-UTI Energy, Inc. (PTEN) Q1 2013 Earnings Report, Transcript and Summary

A very good day to you, ladies and gentlemen. Welcome to the Quarter 1 2013 Patterson-UTI Energy Inc. Earnings Conference Call. My name is Nancy, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mike Drickamer, Director, Investor Relations. Please go ahead.

Thank you, Nancy. Good morning, and on behalf of Patterson-UTI Energy, I'd like to welcome you to today's conference call to discuss the results of the 3 months ended March 31, 2013. Participating in today's call will be Mark Siegel, Chairman; Andy Hendricks, Chief Executive Officer; and John Vollmer, Chief Financial Officer. Again, just a quick reminder that statements made in this conference call that state the company's or management's plans, intentions, beliefs, expectations or predictions for the future are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements are subject to risks and uncertainties as disclosed in the company's annual report on Form 10-K and other filings with the SEC. These risks and uncertainties could cause the company's actual results to differ materially from those suggested in such forward-looking statements for what the company expects. The company undertakes no obligation to publicly update or revise any forward-looking statement. The company's SEC filings may be obtained by contacting the company or the SEC and are available through the company's website and through the SEC's EDGAR system. Statements made in this conference call include non-GAAP financial measures. The required reconciliations to GAAP financial measures are included on our website, www.patenergy.com, and in the company's press release issued prior to this conference call. And now it's my pleasure to turn the call over to Mark Siegel for some opening remarks. Mark?

Thanks, Mike. Good morning, and welcome to Patterson-UTI's conference call for the first quarter of 2013. We are pleased that you are able to join us today. As is customary, I will start by briefly reviewing the financial results for the quarter ended March 31, and then I will turn the call over to Andy Hendricks, who will share some detailed comments on each segment's operational highlights, as well as our outlook. After Andy's comments, I will provide some closing remarks before turning the call over for questions. Turning now to the first quarter, as set forth in our earnings press release issued this morning, we reported net income of $56.2 million or $0.38 per share for the first quarter ended March 31, 2013. Consolidated revenues for the first quarter increased sequentially to $667 million, and EBITDA was relatively flat at $231 million. Operationally, the quarter generally progressed as expected as our execution built upon many of the accomplishments seen in our stellar fourth quarter results and in prior quarters. Profitability in the contract drilling segment benefited in the first quarter as we were able to put additional APEX rigs to work and as additional rigs worked in Canada during the busy winter season. In pressure pumping, revenues grew as we activated our remaining horsepower and as was expected, EBITDA was essentially flat. In the first quarter, we stayed the course despite the rough seas of a sideways rig market and pricing pressure in both drilling and pressure pumping. Our philosophy of providing premium equipment, high-quality service and superior well-site execution allowed us to achieve better-than-we-had-expected financial results. In drilling, margins were actually better than we expected as a number of factors contributed to an outperformance in drilling. In pressure pumping, margins decreased in a manner consistent with our expectations. In both businesses, our commitment to the state-of-the-art rigs and pressure pumping equipment, along with highly trained and dedicated personnel, allowed us to achieve good results in a difficult market. As noted in our press release, we are seeing increased price competition in drilling as certain competitors seek to regain lost share with lower pricing. In pressure pumping, our business continued to grow as we saw increases in revenue from fourth to first quarter and we expect continued revenue growth. In pressure pumping, we see relatively stable pricing going forward but at slightly lower average pricing than the first quarter due to pricing adjustments following the expiration of certain term agreements. Andy will, of course, provide more color about our operations and our expectations. Financially, we've further strengthened the balance sheet during the first quarter with our net debt-to-cap ratio improving to 17% as we increased our cash balance to $144 million. The strength of our balance sheet and the liquidity it affords us provides for optionality to continue to grow our company, while maintaining the ability to return capital to shareholders when appropriate. We continue to believe that if commodity prices remained at current levels or increase, the rig count will increase later in 2013. We also believe that our strategic investments have well positioned us to benefit from a market upturn and we expect these -- that these investments have provided and will continue to provide our shareholders with excellent returns. I will now turn the call over to Andy.

Thanks, Mark. I'm going to start this morning with some commentary on our drilling business and then finish up with some comments on our pressure pumping business. Contract drilling continues to benefit from the growth of our high-spec APEX rig fleet. During the first quarter, we completed 4 new APEX rigs. The growth in our APEX rig count lessened the impact of the decrease in our overall rig count, which fell to 188 rigs in the U.S. during the first quarter, compared to 198 during the fourth quarter. This was due primarily to 10 rigs that were on standby rolling off contract. In Canada, our average number of operating rigs increased to 11 rigs from 7 in the fourth quarter. Total average revenue per day increased $940 sequentially to $23,410 due to the positive impact from the higher proportion of APEX rigs on our fleet and a decrease in the number of rigs we had on reduced standby rates. Additionally, we received an early termination payment for 1 rig, which positively impacted average revenue per day by $170. With the increase in average revenue per day, our total average margin per day improved by a better-than-expected $590 to $9,610. Operating cost increased $350 per day to $13,800 as we had fewer rigs on standby. Rigs on standby have minimal operating costs, as we are not required to maintain crews on this rigs, which therefore lowers our overall average direct operating cost per day. Similar to the first quarter, we expect to average 188 rigs operating in the U.S. during the second quarter. Our Canadian rig count will be impacted by the annual spring breakup and it's expected to average around 1 rig. In the U.S., we expect our average margin per day to slightly decrease approximately $200 as the $170 per day contribution from early termination revenues in the first quarter is not expected to recur. Including the impact of the seasonal decline in Canada, our total average margin per day is expected to decrease approximately $500 and our total average revenue per day by approximately $750. At March 31, we had 117 APEX rigs in our fleet, including 14 of our new APEX-XK design, a next generation rig design. APEX-XK rigs have now been working in the field for more than a year, and we are very pleased to report that consistent with our customers and our high expectations, these rigs are performing superbly. The APEX-XK rigs are offering enhanced mobility for more efficient rig up and rig down, and advanced fluid containment on the drill floor to minimize environmental impact. Most importantly, the APEX-XK has a greater clearance under the rig floor and around the wellhead, making it very well suited for pad drilling applications using our optional walking system. These rigs have greater flexibly in moving around the pad that has existing wellheads or other obstructions. Additionally, these rigs are also very efficient in moving between pads, thereby providing a great solution for pad drilling in markets like the Bakken, Permian or Eagle Ford, where there are often fewer wells per pad, which requires the rigs to be moved between pads more frequently. As I've previously mentioned, during the first quarter, we completed the construction of 4 new APEX rigs. This included 1 APEX WALKING rig and 3 APEX-XK 1500s that also have walking systems. Additionally, we upgraded one of our existing APEX 1500 rigs during the first quarter with a walking system. This brought us to a total of 65 rigs capable of walking for pad drilling as of March 31. Including 48 APEX WALKING rigs and 17 APEX rigs with walking systems. We continue to expect that many of the new APEX rigs we build in 2013 will have these walking systems as an added feature. In terms of our newbuild programs, 6 of the 13 new APEX rigs planned for 2013 are under contract. I would characterize demand for newbuild as steady as we are in ongoing discussions, and we still expect to receive term contracts for all of our new APEX rigs before they are delivered. Our total term contract backlog, as of March 31, totaled $1.14 billion. Based on contracts currently in place, we expect to have an average of 116 rigs operating under term contracts during the second quarter. And an average of 100 rigs operating under term contracts during the last 3 quarters of 2013. Turning now to pressure pumping. Our pressure pumping segment benefited from the commissioning of additional frac horsepower in both the fourth and first quarters. Most of this horsepower is originally ordered in mid-2011, but not delivered until mid-2012. We began activating this equipment in late 2012 to meet incremental demand primarily from existing customers. With the additional horsepower in the first quarter, pressure pumping revenues increased $19.2 million sequentially to $231 million. Consistent with our prior expectations, lower margins offset the increase in revenues, leaving pressure pumping EBITDA relatively flat at $58.8 million. Relative to the fourth quarter, margins during the first quarter were negatively impacted by several moving pieces, the most significant of which were increased cost per personnel training combined with slightly lower pricing. During the first quarter, our pricing was reset somewhat lower as horsepower under term contract rolled off and was repriced. We currently have approximately 90,000 horsepower under take-or-pay term contract. We believe that pricing will be relatively flat going forward and there are signs that pressure pumping industry is beginning to take steps towards equilibrium. For the second quarter, our activity levels are expected to improve with the full quarter impact of the horsepower activated in the first quarter, contributing to a forecasted $10 million sequential increase in pressure pumping revenues. With the lower pricing, our average pressure pumping gross margin is expected to decrease approximately 25.5%. At that pricing level, we still earn good returns on our assets, but not the outsized returns that might attract private equity to create new entrants, which is good for the market. We ended the first quarter with approximately 750,000 horsepower on our fleet. We have now activated all of our horsepower. And at this point, we have no plans to add a meaningful amount of frac horsepower to our fleet. Before I turn the call back to Mark for his concluding remarks, let me provide an update on a couple of other corporate financial matters. Our CapEx budget for 2013 is unchanged at $680 million. SG&A during the second quarter is expected to be $17.5 million. Depreciation expense during the second quarter is expected to be $137 million. Our effective tax rate for the second quarter is expected to be approximately 36.5%. With that, I will now turn the call back to Mark.

Before I pick up, I just want to make one clarifying comment. With our lower pricing, our average pressure pumping gross margin is expected to decrease to approximately 25.5%. Let me now continue and say, "Thanks, Andy." The first quarter unfolded largely as we expected as both our core businesses continued to execute well. In summary, in contract drilling, we increased our APEX rig count and our Canadian rig count. Our strong execution allowed us to achieve these results despite drilling activity not accelerating as quickly as some third parties had predicted for the first half of the year. During the first quarter, our number of active APEX rigs increased as we completed 4 new APEX rigs. As of today, we have better than 95% utilization of our APEX rigs. And as Andy said, we are pleased with the performance of our APEX-XK rigs and the customers' recognition of their capabilities. Demand also continues to be robust for pad drilling. Pad drilling reduces nonproductive downtime associated with moving between wells and thereby, increases the efficiency. The average walking time for our APEX WALKING rigs on its phasing of 10 to 15 feet is approximately only 45 minutes. Moreover, our APEX WALKING rigs can move between wells on a pad and be back to drilling within 3 hours. As pad drilling continues to grow, we expect that our customers will focus on pad drilling technology as a means of achieving competitive advantage. We introduced walking rig technology in the Lower 48 with 10 rigs in 2006, '07 and it has become widely accepted as the most flexible pad drilling technology. We have a leadership position in this market, have 65 rigs capable of walking and believe we are well positioned to further our pad drilling position. Rig efficiency, which is the byword of so many current industry discussions, is a long-term trend and Patterson-UTI has been a leader for many years in this long-term trend. Our different classes of APEX rigs, all of which can be outfitted with walking systems, offers our customers different and very efficient rig solutions to their very drilling needs. In pressure pumping, we continue to build upon the strong base we established last year. In fact, our customers awarded us incremental work starting the fourth quarter and it is continuing in the second quarter. This additional work required the commissioning of the horsepower that we have previously chosen not to activate until demand improved. We believe that we will continue to benefit from our operational excellence and strong customer relationships in both contract drilling and pressure pumping. And we remain optimistic that the trend in drilling activity will still end up positive for 2013. The strength of current commodity prices should not only provide for cash flows that were higher than expected when budgets were set, but also provide an opportunity for E&P companies to hedge future production. Moreover, current natural gas above $4 can make increased drilling economical, especially given reduced well costs. As we see it, our results suggest that markets continue to bifurcate as drilling and service companies dedicated to operating efficiency and execution are able to outperform. With that, I'd like to thank our employees, whose hard work and focus on customer satisfaction makes Patterson-UTI a company we can all be proud of. I'm also pleased to announce today, the company declared a quarterly cash dividend on its common stock of $0.05 per share to be paid on June 28, 2013, to holders of record as of June 14, 2013. Operator, we'd like to now open the call to questions.

[Operator Instructions] We have a first question from the line of Jim Rollyson from Raymond James. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Mark or Andy, we've continued to hear a lot of talk about the shift towards pad drilling. And it seems pretty obvious that your APEX rigs have been able to benefit from the trend. Can you maybe talk about how you see that continuing to trend going forward? And what you think the opportunities are for potentially newbuilds, additional newbuilds beyond the 13, and beyond 2013 for that matter?

I'll take that one first. And I'll hand that one back to Mark. As we move through the different phases that you've seen in the various basins in the U.S., we see an increase in pad drilling. And really, pad drilling started in the U.S. and got kicked off in a big way in the Rockies back in the mid-2000s when we had a lot of wellheads on a single pad, and we're talking about numbers of 16 to 32 wellheads on a pad. And when the developments in the unconventional started, we were looking at single wellheads on the location. But that's moved to multiple wellheads. But it's been a little bit different than the large number of wellheads that we see in the Rockies. It's been in the range of anywhere from 2 to 4 to 6 and maybe up to 8 wellheads per pad. So the rig technologies had to adjust for that. We have a great rig in the APEX WALKING rig, which is well-suited when we have a large number of wellheads on a pad. But we had to find a solution that's kind of between a fast-moving rig and a large pad rig, and that's where we came up with the APEX-XK and it's turned out to be a great solution for these types of basins and environments. When you have that range of wellheads from 2 to 8 on the pad, you want to stay on the pad for a while to drill the wells, but then you've got to move quickly to the next pad. So we're quite excited about the uptake of the XK over the last year, as we've built these and put these down in the market. They are moving fast between the pads and -- but they're also walking rigs that are very efficient on the pads with a lot of clearance underneath the rig floor.

The only thing I would add to that, Jim, is one of things that's been a hallmark for Patterson-UTI is to have different kinds of newbuild rigs available for different kinds of customer needs. And one of the -- and this varied resource we think meets our customers' needs very efficiently. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Are you continuing to see interest in additional opportunities? Obviously, you are this year for the 13 rigs. But even beyond, there's, I mean, still customer conversation going on with that?

The answer is yes. Yes. I mean we don't think that this is the last year where we will be building new rigs. I mean we've talked a lot about our plan and this year, it's 13 new rigs. And we anticipate that the market going forward continues to need the high-spec rigs to improve efficiency.

And the interesting thing, Jim, is we're seeing this interest across all of the different kinds of rigs that we offer. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Okay. That's good to hear. Andy, you talked about cost being a bit higher in the quarter just because few rigs are on standby and you actually got to pay to have these things working, or what have you. How do you think cost trend for the year just to kind of frame this up beyond second quarter maybe?

At high level in the market that we're looking at, we're just not in the type of market environment that's really driving cost inflation, whether that's on the labor side or the material side. What you're seeing in the numbers is we're getting some movement between the standby rigs to the Canadian operations that were strong in Q1 and then they'll slow down for the breakup in Q2. But that's really where most of the movement in the cost is coming from. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Okay. And the last one for me. This last quarter, you spent some time talking about 24-hour work on the pressure pumping side. And you -- if I remember right, you thought that would continue until 1Q to some extent maybe what the outlook is for 24-hour work going forward?

In the fourth quarter, that's where we had a big uptake in 24-hour operations on our side. 24 hours, as a percentage of revenue, moved up a little bit into Q1 and is roughly flat to up going into Q2 as well.

We have a next question from the line of Ryan Fitzgibbon from Global Hunter.

I'll start off in the rig side of the business. You guys did a nice job addressing that...

RyAn, can you speak up a little bit?

On the drilling side of the business, there's some, obviously, competitive pressures right now in day rates. Curious on your strategy as you look throughout 2013, not just Q2. Is the focus more on maintaining or taking market share? Or sustaining margins, call, at around $9,000 per day?

Ryan, I think the first thing that we would say is that we've had a strategy of providing very high-quality equipment along with very high-quality personnel, and our customers seem to find that very attractive. And so we have not felt the need to be aggressive with regard to price even though the market hasn't grown as fast as we had expected. I hope it might this year. And so we frankly think that we have not been forced to or even required to have the election that you were speaking about. In fact, we think that, that's been one of the things that's reflected in both our -- this quarter's numbers and in the prior quarter numbers.

Maybe to that point, Mark, is it safe to assume that pricing for APEX rigs are relatively flat Q1 versus Q4?

Yes. That's just a yes.

Utilization on the APEX rigs are still high. And even across the rig classes, we're seeing it relatively flat.

Yes. I think the only thing -- if I didn't make it clear, I would have said not just the APEX rigs, but across all classes of rigs, our pricing was flat from fourth quarter to first quarter.

Okay. And then on the pressure pumping side, if I'm correct, about 65,000 horsepower rolled from a prior contract into the maybe new spot market rates? Can you help us gauge the pricing decline you're seeing on those spreads. And is that accounting for most of the sequential margin degradation in Q2?

We had 2 contracts that we repriced in the first quarter and they came down a bit. I mean I think you saw that our margins have held fairly good. Our margin went down a little bit into Q1 from Q4, where we were really strong in the fourth quarter. But even going forward, we're still doing a good margin. We're going to go to approximately 25.5%, which is still good returns. So while the pricing may have come down slightly on 2 contracts, and I tend to avoid to use spot in our case because spot is really kind of near the bottom. And we haven't had to be the lowest bidder to maintain the work. Our crews are out there doing a great job. Our operations are running very well. And so while we have had to reprice to get a little bit closer to market, we haven't had to be the lowest bidder in this situation. You'd see that reflected in our margins.

And the one thing I would say, in addition to what Andy just said, is in the fourth quarter, we had the perfect storm where all the operators in our work lined up in the most efficient way. We've talked about that during the fourth quarter. This time, it was a little less without wonderful efficiency. But we still feel that we have a very, very, very strong quarter in pressure pumping. Ryan? Next question?

We have the next question from the line of Jim Wicklund, Crédit Suisse. James Knowlton Wicklund - Crédit Suisse AG, Research Division: You mentioned pricing pressure from the competitor and Nabors is obviously trying to force a bunch of rigs into the market. You've also got independence and Sidewinder trying to put rigs into the market. One of your bigger competitors always pushes for utilization rather than day rates. And the land drillers don't seem to be able to get to keep any of the value they create. And the APEX rigs are fabulous. I'm just wondering about the overall pricing trends you guys expect to see through the course of this year with the outlook in capital spending by the E&P industry not just the second quarter and not just by you guys, but I mean the more 20,000-foot question on pricing for land rigs and ability to capture value through the rest of the year?

Well, Jim, I guess I would start out by saying, frankly, we expect to see a greater utilization of rigs as the year progresses. And so we're not expecting that the whole year will be at this level. That's the first point I would make. Second point I would make is frankly, we started out when we set out our capital budget this year at a lower CapEx rate with fewer newbuilds than we had in the prior 3 years. That was a very intentional decision on our part, that said that, in effect, we didn't want to provide too much equipment and have the market in effect oversaturated with equipment. So that -- those 2 decisions were, I think -- or 2 factors are worth here considering. One is the second half is expected to be better and secondly, we're not -- we, Patterson, are pretty disciplined about how many rigs we'll build into this kind of a market.

Jim, we're still at a really high utilization for our high-spec APEX rigs. And we certainly do see the pressures that surround us in the market. But we're offering a good product and it's not just the hardware, it's the people that are running these rigs out in the field. And you'd see in our numbers we just haven't had to reprice these and our pricing is held steady. James Knowlton Wicklund - Crédit Suisse AG, Research Division: Everybody has been returning, including you guys, some of the older more mechanical rigs. Is that a trend we should expect to see continued through the year?

Jim, we are looking every quarter at our mechanical rig fleet to see which rigs ought to be retired. And that's an ongoing trend that's been going on now for quite a long while. We will continue to do that in every quarter as we are -- have been doing. So I don't expect that it's any different now than it has been. We obviously recognize the move towards the new rigs and that's one of the reasons that we built as many new rigs as we have. But I don't see it as materially different at this stage.

And we're not in any rush to retiring. We did a retirement back in the third quarter of last year. And just from a technical and operational standpoint, in all the rigs that we have in the fleet are drilled since 2008. They're all capable of drilling horizontal wells if we needed them to. James Knowlton Wicklund - Crédit Suisse AG, Research Division: That's very helpful. And I'm very sorry about Ken Peak. He was a great guy.

We concur.

We have a next question from the line of Byron Pope, Tudor, Pickering, Holt. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: For the remaining APEX rigs that are scheduled to be delivered this year, is that cadence fairly balanced during the course of the year? And then I've got a kind of a follow-up question regarding the Q2 guidance.

Yes, the cadence is fairly steady, kind of tapering off towards the end of Q3 or early Q4 when we'll likely be finished. And it really has been kind of dependent on the number of walking systems that we're adding. We expect to add walking systems to the majority of these rigs, but some of the discussions are ongoing. So it just kind of moves the cadence around a little bit. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay. And so, I guess, my question is, in thinking about the April for the U.S. rig count, the April guidance and then the full year Q2 guidance for the U.S., I just would've expected that activity for you guys would probably be up a little bit versus Q1. So I'm just trying to understand, is it a function of the remaining rigs may be rolling off standby? Or what is it about the month of April that might be a little bit sluggish?

This year, it's just been a sideways market. I think some people have looked at it and said, "Well if it's not up, it's down." But in this case, it's really just kind of moving sideways and some weeks are up and some weeks are down. But it's just been kind of moving around. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay. And then last question for me. You mentioned kind of one existing rig to which you added the...

Well I'll just add -- Byron, can I add one thing? If you look at the information that Andy just provided in his commentary when he was giving his prepared remarks, basically, we're looking for a flat rig count between second and first quarter between -- so, effectively, what we're saying is we think that rig count is going very sideways and that -- which you may see -- that's U.S. rig count. I should quickly add. But what you're seeing in any given week is sort of fluctuations that we don't consider to be particularly material. I'm sorry to interrupt you. I just wanted to add that. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay. And then last question for me. You guys mentioned the 1 rig, the existing rig to which you added a walking system. Is -- given the value added to E&P operators of those walking systems in terms of kind of saving time, are you -- being able to realize that value in terms of adding -- being able to add on to the -- to day rate of the cash margin, I'm just digging deep [ph] to a quantification, but just thinking conceptually about as you add walking systems to existing rigs whether or not that the E&P operators are willing to kind of see the value added and compensate you appropriately for work?

The answer to that is an easy yes. We have the ability to go back and then add walking systems to existing rigs. We do it on customer request and we certainly refute that investment.

We have a next question from the line of John Daniel, Simmons & Company. John M. Daniel - Simmons & Company International, Research Division: Mark, it sounds like you see activity moving higher later this year, but do you see a scenario where your second half activity is up on the rig side, but just due to the pricing pressures that all -- everyone's been talking that the blended cash margins move a bit lower in the back half?

John, I don't see that. Frankly, I think that we are pretty hopeful that the -- we've seen some sort of an equilibrium on pressure pumping and in effect, we're getting to a bottom there in terms of -- not at the bottom there. So I don't see that. And quite frankly, if activity increases on the drilling side, I'd hope that activity and expected activity would increase on the completion side. And we'd see kind of a robust -- a more robust second half in both businesses.

Let me add to that as well. You're seeing the benefit on our margin is also from the increased count on the APEX rigs. So as we continue to add the high-spec rigs into our fleet, you're also seeing the potential for us to improve the margins. John M. Daniel - Simmons & Company International, Research Division: Okay. Here's my final question. This quarter, it looks like you guys elected not to repurchase stock and it doesn't appear that there's any material change with the CapEx plan this year. I don't know if you can elaborate on this, but is that election not to repurchase stock a function of the nice performance this year? Or should we expect you guys to perhaps turn towards acquisitions in the back half of the year?

John, we actually -- as I've said, I guess, on virtually every conference call, at each board meeting, we and the management and the board considers kind of what we should be doing. And we did that again at the end of our February meeting, and again, recently in our April meeting. And we think about that all the time. And frankly, we thought that it would be a good time this quarter for us to, in effect, see how the year progressed and try to really assess what opportunities that there will be. And so we didn't do it, buying any stock back in the first quarter. But we certainly have the capability of it and the authorization to do so. One of the things that I tried to highlight in my remarks is that we, in effect, increased our cash and gave ourselves some additional flexibility from a balance sheet perspective to consider all the possibilities. John M. Daniel - Simmons & Company International, Research Division: Right. But conceptually, if things are stabilizing on the margin front and the outlook is better, one would think that this would be a better time to not to look at opportunities. That's all.

I guess I agree with it. It's always a good time to look at opportunities.

We have a next question from the line of Michael LaMotte from Guggenheim.

First question on the demand for term work for the existing APEX rigs. As you're rolling off of the newbuild contract, I'm just wondering if there's still a sense of sort of supply side anxiety on the part of the operators to keep the rigs and keep them on term? Or is everything sort of moving into a well-to-well or month-to-month type of environment?

That's a good question. And we continue to sign term contracts both on existing fleet and certainly on the newbuilds, we are signing term contracts on those. It is a sideways market. And operators have options, but as you've seen, we've continued to sign contracts and held our pricing steady.

And so the continuity of the effort is still an important dynamic in terms of performance?

Yes, and still ongoing discussions.

Yes. And then Andy, on the newbuild front, as things kind of soften a little bit, particularly when I look at the CapEx numbers, it strikes me that you've got some components sort of being built. And I'm wondering what the cycle time to delivery would look like if you were to get an order for 3, 5 rigs here in the next month or 2. How quickly they could show up?

Well we have the plan right now that's worked into the budget to build 13 rigs this year. If we were to get an additional order for a rig or 2 on top of that also built into that CapEx budget, we have long lead items, so items that would normally take 9 months. We have a few of those that are already part of that budget. So it wouldn't take too long for us to ramp up and add rigs if that was a request towards the end of the year.

Okay. So I mean not too long, being more like 6 months as opposed to the 9 months at the sort of peak delivery time?

Yes. And I think we can safely say that we could reduce that from 9 to 6 just based on some of the long lead items that we currently have on order.

Okay, great. And final one for me, just a clarification on the $750 a day guidance for down revenue per rig in the second quarter for the U.S. That's inclusive of the $170 bump that you got in the first quarter from that early termination, correct? So it's kind of a net-net, more like $600.

Well, a couple of thoughts. First is it's $750 across the whole fleet. That includes 2 distinct factors that I can call out and my colleagues may have additional ones. But the biggest factor obviously is the dropoff in the Canadian rig count. The second factor is the early termination.

Okay. Both of them are in there?

They're both included and that's a $750 across not just U.S., but U.S. and Canada.

We have just one more question in the queue. [Operator Instructions] The last question is from the line of Scott Gruber from Bernstein Research. Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division: Within pressure pumping, you mentioned continued tick-up in the 24-hour workload. Are you having to offer discounts to your price stack to secure that work?

No, these are existing customers and existing contracts, and it's really based on the schedule, and what we have going forward on the calendar. So we did reprice 2 contracts in Q1. But that wasn't to get more 24-hour work. That was just based on contracts that have been in place for a while and repricing a little bit closer to the market. Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division: Okay. So when you look at the economics of running 24 hours a day in pumping, are you able to clip [ph] your cost of capital at the current rates for that work?

Certainly, more 24-hour operations is better because you've got the resources and you own the asset. Some of the challenge of 24-hour operations is really on the customers' side and the ability for the customer to line up the pads with multiple wells and things like that. What you saw in Q4 was when several things lined up for us including some customers that had up to 8 wells on a pad where we didn't have to move equipment, it's often between pumping. So -- but we do anticipate roughly flat maybe to a little bit up on the amount of 24-hour operations that we're doing [indiscernible] as a percent of revenue.

Scott, I would just add one thought, which I'm sure you know, but maybe everybody listening on the call doesn't, which is that when we get 24-hour operations, it allows us and our customers both to be more efficient. And that greater efficiency saves both parties, in effect, costs, our customer and us. So everybody becomes a winner in it if they can be managed well. But it's a significant logistical set of issues for both our customers and for us to make it work right. And so that's why, in effect, you see it being a benefit to us when it's pulled off well by -- but it really requires great coordination by both the customer and us. Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division: Right. I guess where I'm going with this is with all your equipment now active, if a customer came to you today with a new 24-hour term contract, given current rates, would you commit capital to build against that?

That's a great question. I think that we would have to look at several factors there. If a customer came forward and offered us an opportunity to produce similar margins to what we have today, I think we would have to look at that, and that -- we would lean in that direction. But as you know, there's several pieces to this right now.

There's also opportunities here to arrange things for greater, in effect, effectiveness. One of the things that I think distinguishes between the better companies in this business are the ones who are able to, in effect, schedule their crews to get the maximum out of the crews. And obviously, that's something which we have been trying to do and always are trying to do and fortunately we have some great people in both of our operations who are -- both the Northeast and the Southwest, who are able to do that. So I wouldn't start out by saying that the only opportunity, if we were awarded some additional work, would be to, in effect, buy additional equipment. We may get to that as the means to do that, but I think we also have the capability of increasing our work with our current capacity.

We don't seem to have any further questions at the moment.

Okay. Well I'll then say thank you to all the participants for their -- joining us on this call this morning. And we look forward to speaking to everybody when we report our second quarter results in July. Thanks, everybody.

Thank you. Thank you, all, for joining. Ladies and gentlemen, that concludes your call for today. You may now disconnect. Have a good day.