Patterson-UTI Energy, Inc. (PTEN) Q3 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Quarter 3 2013 Patterson-UTI Energy Inc. Earnings Conference Call. My name is Sean, and I'll be your operator for today. [Operator Instructions] We will conduct a question-and-answer session towards the end of this conference call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Mike Drickamer, Director of Investor Relations. Please proceed.

Thank you, Sean. 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 and 9 months ended September 30, 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 or 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 third 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 September 30. 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 third quarter. As set forth in our earnings press release issued this morning, we reported net income of $74.4 million or $0.51 per share for the third quarter ended September 30, 2013, and $171 million or $1.16 per share for the 9 months ended September 30. Consolidated revenues for the third quarter were $731 million and EBITDA was $266 million. Our contract drilling business performed well during the third quarter. Rig operating costs per day came down from a high level in the second quarter, and we will get our -- we were able to get our costs into a more acceptable range sooner than expected. Demand for APEX rigs remains strong. We were able to maintain more than 95% utilization for APEX rigs during the quarter, despite the early termination of 6 APEX rigs that we had previously announced on our prior conference call. With the strong demand for APEX rigs, we were able quickly -- we were quickly able to recontract these 6 rigs, thereby having a negligible impact on our utilization. We recognized early termination revenues during the quarter of $62.8 million related to the early termination of contracts for these 6 rigs. In pressure pumping, despite some customer-specific issues and challenging market conditions that -- caused by equipment oversupply, we achieved an all-time record revenue level, but margins declined. During the third quarter, we repurchased 3.2 million shares of our common stock for approximately $63.4 million. In early September, we completed our previous $150 million share repurchase authorization. Our board then approved a new $200 million share repurchase authorization, of which $188 million remains available. Our balance sheet continues to be strong as we exited the third quarter with $205 million of cash and equivalents and a very manageable 15.2% net debt-to-cap ratio. Included in the our SG&A expense during the third quarter was approximately $1.7 million to evaluate and prepare for international growth opportunities. We are taking steps to be positioned for long-term opportunities outside of North America, but at present, we do not expect these international opportunities to generate meaningful revenues in the near term. With that, I will now turn the call over to Andy.

Thanks, Mark. Following our typical format, I'm going to start this morning with some commentary on our drilling business and then finish with comments on pressure pumping. Total drilling activity improved with the seasonal recovery in Canada, as our Canadian rig count averaged 8 rigs during the third quarter, up from 2 in the second quarter. The U.S. rig count averaged 181 rigs compared to 183 during the second quarter. Excluding the benefit of the early termination revenues from the 6 rigs, our total average revenue per day decreased $480 to $22,650 in the third quarter, due in part to contract rollovers. While our average revenue per day decreased due to contract rollovers from term contracts entered into several years ago, day rates for APEX rigs remained stable. This decrease was more than offset by a $650 per day decrease in our average rig operating costs per day to $13,750 in the third quarter, due to more stable rig utilization and lower repair and maintenance costs. We are pleased that excluding the benefit of early termination revenues from the 6 rigs, our total average margin per day increased to $8,900. Looking forward, in the fourth quarter, based on continuing strong demand and utilization for APEX rigs, but possible lower demand for other rigs, we expect our rig count to average 176 in the U.S. and 9 in Canada. We expect total average rig revenues per day of $22,900 during the fourth quarter, which excluding the early termination revenues in the third quarter, would be a sequential increase of approximately $250 per day. This expected increase is related to a greater benefit in the fourth quarter from an improving rig mix, as well as from additional equipment such as walking systems and natural gas engines being added to the rig fleet. Additionally, it is our expectation that base day rates for our rigs will remain stable. Total average rig operating costs per day are expected to be roughly flat during the fourth quarter at approximately $13,800, which reflects the seasonal increase in operating costs for rigs in Canada. Accordingly, we expect our total average rig margin per day to increase by approximately $200 per day to $9,100 in the fourth quarter. Turning to our APEX rig newbuild program, we completed 1 new APEX-XK 1500 with a walking system during the third quarter, which brought our total APEX rig fleet to 121 as of September 30. We now expect to complete 3 APEX newbuilds in the fourth quarter, which would bring us to the total of 11 new APEX rigs completed during 2013. At this point in our budget cycle, we plan to complete 20 new APEX rigs during 2014. We currently have term contracts for all of the rigs to be completed this year and 3 other rigs to be completed in 2014. We continue to see strong demand for pad drilling. As such, all of the contracted new APEX rigs will have walking systems, and we continue to upgrade existing rigs with walking systems. Through the end of the third quarter, we have upgraded 5 rigs with walking systems this year. And based on customer demand, we plan to upgrade another 10 rigs with walking systems by early -- in 2014. Regarding natural gas, we continue to see demand from our customers for rigs that use natural gas as a fuel source. We currently have 5 rigs operating with the new GE Waukesha natural gas engines. We worked closely with GE and are the first drilling contractor to use these engines on a modern land rig. We have plans to upgrade an additional 4 rigs with these engines. We also currently have 18 rigs with bi-fuel systems installed and another 7 rigs slated for bi-fuel technology upgrades. By early 2014, we expect to have approximately 34 rigs utilizing natural gas as the primary fuel source. And we continue to have discussions with customers for additional natural gas engines and bi-fuel technology systems. During the third quarter, we signed 27 term contracts. As of September 30, we had term contracts for drilling rigs, providing for approximately $967 million of future day-rate drilling revenue. Based on contracts currently in place, we expect to have an average of 116 rigs operating under term contracts during the fourth quarter and an average of 58 rigs operating under term contracts during 2014. Turning now to pressure pumping. During the third quarter, we saw further growth in our 24-hour activity, with revenues from 24-hour work increasing to 3/4 of our fracturing revenue, up from 2/3 during the second quarter. There were also challenges during the quarter, as we had approximately 40,000 horsepower sit idle for almost 1 month during the third quarter due to customer-specific delays. In total, revenues increased to $259 million during the quarter, representing our fourth sequential quarter of revenue growth and another quarter of record revenue for our pressure pumping business. Given the inefficiency from the customer-specific delays, combined with pricing pressure in what continues to be an oversupplied market, our EBITDA from pressure pumping decreased sequentially to $50.7 million for the third quarter. For the fourth quarter, we expect our pressure pumping revenues will decrease sequentially to approximately $240 million as a result of fourth quarter seasonality, while we expect our gross margin to be approximately flat at 21.5%. Our focus on pressure pumping continues to be on well site execution, a focus that has made us a preferred vendor for many of our customers. In the Permian, we moved into our new facility in Midland during the third quarter. This facility offers a new, larger laboratory for quality control testing of frac, cement and acid service chemistry. This facility was also designed to improve the efficiency with which we are able to maintain our equipment and to improve our product and chemical handling capacity. In the Marcellus, we have completed approximately 400 stages using natural gas as a fuel source for our equipment. We continue to believe that we are a leader in bi-fuel frac technology and that we have one of the largest bi-fuel frac fleets in the Marcellus. As in drilling, we believe that natural gas bi-fuel is an important green technology that both reduces the environmental impact of our services, and generates cost savings with our bi-fuel frac units able to cut diesel fuel consumption in half. To date, our bi-fuel frac units have replaced over 112,000 gallons of diesel with lower costs and cleaner burning natural gas and thereby, eliminated more than 800,000 pounds of transportation loads on local roads. We continue to invest in new technology in order to differentiate ourselves and continue to keep our margins at a reasonable level. We recently introduced the new powder stim [ph] technology for hydrating powdered friction reducers at the well site. This technology, which we have tested for over 1 year, gives us an advantage on the costs and on the quality of friction reducers needed for recycled produced waters used in fracturing treatments. This new technology is more environmentally friendly than other products and has allowed us to displace a competitor with an improvement in margins. Our new powder stim [ph] technology, along with our high-quality service, has allowed us to be a preferred frac supplier in the Eastern Permian. We are encouraged that demand remains strong for our services. We have recently experienced an increase in customers asking us to bid on incremental work. However, as there continues to be too much capacity in the market, pricing on this work continues to be challenging. 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. We now expect our CapEx for 2013 will be approximately $750 million. SG&A during the fourth quarter is expected to be $18.5 million, which includes any expected costs associated with an international opportunity. Depreciation expense during the fourth quarter is expected to be $144 million. Our effective tax rate for the fourth quarter is expected to be approximately 36.75%. With that, I will now turn the call back to Mark.

Thanks, Andy. While Andy has identified some of the uncertainties surrounding the fourth quarter, we are pleased that the 2014 market outlook for onshore North American oil and gas is improving. As customers finalize their 2014 budgets, visibility into activity levels for next year will become clearer, though many have already indicated spending will be higher, which would ultimately benefit us. We continue to see strong demand for APEX rigs, especially in relation to pad drilling. This demand validates the decision we made years ago to heavily invest in the new fleet of APEX rigs. We currently plan to build 20 new APEX rigs next year. We have the capacity to deliver more than this. And as customer spending plans continue to unfold, we will evaluate our APEX newbuild plans for 2014. We will continue to focus on being good stewards of capital, and we are proud of our track record. Over the last 18 months, we have returned approximately $256 million to shareholders by repurchasing a total of 14.8 million shares of our common stock. We continue to evaluate potential uses of capital, including opportunities to reinvest in our company and to return capital to our shareholders when appropriate. 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 that the company declared a quarterly cash dividend on its common stock of $0.05 per share to be paid on December 31, 2013, to holders of record as of December 17, 2013. Sean, operator, we would like to open the call for questions at this point.

[Operator Instructions] Your first question comes from the line of John Daniel of Simmons & Company. John M. Daniel - Simmons & Company International, Research Division: Mark, just some more color, if possible, on international. The $1.7 million in costs, that seems a little bit high for prospecting. Can you walk us through just some of the things that were included in that? And then also, which geo regions are appealing to you guys and why? And which product line do you think will lead the way internationally?

Sure. Let me see if I can take those. I may hit them, John, in a different order than the one you put them in. But I guess, the first thing I'd say is that we're -- the international situation -- the international opportunity appeals to us because we see the opportunity for returns equal to or greater than the ones that we see here in the U.S. And we see it as an opportunity to continue to grow our company and to -- we see that particularly on the drilling side, more so than the pressure pumping side. We think that the drilling side will be the lead area for us. Frankly, we expect the international market to go through a transformation in the same sort of way as the U.S. market has gone through a transformation with higher -- new technology, APEX rigs of the sort, coming into that market. And we also see a potential opportunity for us to move some of our existing larger rigs into that marketplace. In terms of timing, not exactly sure when it's going to happen, but strongly thinking that organic growth is the way. In terms of the $1.7 million that we spent, I think the first thing to recognize is that in bringing Andy to the company approximately 18 months ago, we brought in someone with very, very good international experience. We think the company is well positioned, meaning that our existing operations are run by capable people in a very professional manner, in a way that we think allows us the opportunity to expand our business outside of the U.S. So those are the things that kind of give us the benefit of it. In terms of costs that we spent, frankly, one of the most important things, I think, that's been an earmark of Patterson, is we'd rather spend some money carefully on the front end and thoughtfully -- and do our due diligence and really understand what we're doing ahead of the time and rather than, in effect, trying to do it and then fix it later on. So, yes, we've spent some money. We wanted to call that out, but really wanted to get it right. And we made a number of trips and did a number of careful looks at a number of markets. And I'm not prepared to say which markets because, I think, that's competitive. And for that reason, I prefer not to say it. John M. Daniel - Simmons & Company International, Research Division: Fair enough. Last one for me, just as you look into the crystal ball for next year with the 20 rigs that you're building, at this point, I presume all of those are going to be -- would you -- do you think they're going to be incremental, or would there be replacements, so forth, in terms of -- outlook for rig activity for next year is the question.

That's a good question. Whether or not they're going to be incremental is exactly hard to say. I think there's no doubt that there's strong demand for our APEX rigs right now, especially with the walking system. Our utilization is just a little over 95% for our full APEX fleet. And so, we're certainly encouraged by that and by the discussions that we're having next year. But it's no big secret, for the last few quarters, we've seen challenges in the markets for the other types of rigs. So it really kind of depends on how 2014 plays out with customer spending, as to what happens there.

The next question comes from the line of Jim Rollyson of Raymond James. James M. Rollyson - Raymond James & Associates, Inc., Research Division: Andy, maybe going back to that topic on APEX rigs on the pricing side of things, there's actually 2 questions there. One, can you characterize maybe how pricing talk or just pricing levels are for the newbuild contracts you're doing today, maybe relative to where they were 6 to 12 to 18 months ago? And secondly, as we think about your additions of new rigs on the high end of the market that are in demand, the pad drilling, et cetera, and maybe some of the losses at the lower end of your fleet, how are you thinking about the kind of all-in weighted average mix in rates or margins as you go through the next 4 quarters? Easy stuff.

So looking backward, forward. So if we look at APEX pricing through this year, I would say that I would characterize it as being relatively stable. If we look at the base price of an APEX rig, it really hasn't moved much all year long. And we're encouraged by that. We're encouraged by the high utilization, the discussions that we're having with the customers. Even when we look at the other classes of rigs that we have, for us the pricing on those rigs has remained steady, too. We just haven't seen much in the way of demand on some of those rigs relative to the high-spec rigs. And so we're certainly encouraged as we go into 2014. We have optimism based on what we're hearing from some of the E&P companies so far, that there's potential for more spending in 2014. And so that's why we've raised our plan up to 20 rigs for delivery in 2014. James M. Rollyson - Raymond James & Associates, Inc., Research Division: And it would seem like the mix -- you're stepping on the gas a little bit on the APEX rigs side and the better margins that those carry, that your mix, weighted average mix actually might benefit you next year. Is that fair?

That's fair. I think as well, it goes back to what we think spending is going to be in 2014, how much it goes up, as to how many of our other rigs go back to work as well.

The next question we have comes from the line of Byron Pope of Tudor, Pickering, Holt. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Andy, I was just curious, given your long background on the international side and experience with IPM work, as you think through opportunity -- long-term opportunities on the international side, do you think that the international rig market is migrating toward one where you need to have an alignment with, say, an IPM provider, or are there a multitude of opportunities where that's not necessarily something -- a strategic imperative?

Byron, first off, I would like to restate your characterization. It is a long-term market. It's a long-term plan for us. We've made some initial expenditures, but we look at this in a long-term way. I don't think you have to be aligned with 1 IPM-type supplier or a single customer. I think there's multiple customers in multiple countries. And so we're looking at various markets, and we have some good leads out there as well. But as Mark said, we prefer to just keep that to ourselves for now for competitive reasons. But I think there's a variety of opportunities. There's a variety of people that are operating rigs, whether they are IPM providers or they are operators in the traditional sense. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay. And then with regard to the U.S. land business, I mean, I think you guys talked about it in the Q2 call, some initiatives on the R&M side and nice improvement on the cost side of the equation this quarter. Any reason to think that, that wouldn't continue? My assumption is that the cost side of the equation, with regard to your fleet, should probably remain stable going forward as we step through the next several quarters. But just, I wanted to see the potential that we might actually see improvements as opposed to flattish on the cost side of the equation.

I think right now, we're more comfortable with giving a bit of a projection that says we're going to be roughly flat in the fourth quarter at approximately $13,800. There's a few moving pieces there with some more APEX rigs going out, but also maybe some potential challenges with some of our other rigs. So a little bit of uncertainty there, but certainly, we're comfortable right now saying flat in Q4. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay. And then last question for me, on the pressure pumping side. I mean, the Q4 guidance feels like that's just a function of the seasonality and depending on kind of how jobs line up. As we think about activity going into the Q1, let's say, of next year, fair to think that we might get some rebound? I know you guys don't provide guidance more than 1 quarter out. But it's -- I guess my main question is it just feels like that's mostly seasonal impacts with regard to the Q4 guidance for pressure pumping. Is that fair?

In Q4, we certainly agree with you that there's the potential for seasonal impacts. Whether or not the rebound is Q1 or later in 2014, I think that's hard for us to say right now. I think it really depends on customer spend in 2014 and what quarters they choose to make that spend.

The next question comes from the line of Jim Crandell of Cowen.

Andy, a couple of questions about the rig side. I think both of your major competitors on new rigs have announced new AC drive rig orders, a number of rigs in each case. And, I mean, one of them on their call yesterday said those came in at moderately lower prices than what existed. And I think we both know about the job in the Permian Basin, that one of your large customer won at seemingly a lower price than he's ever been before. Don't you think that the newbuild price for AC drive rigs is going down sort of through the mid 20s in here? It certainly would seem that this is a case based on those data points, or is there other data that suggests differently?

Well, Jim, we hear similar things that you're hearing, but what we're -- we really have the data that's in front of us here at Patterson-UTI. And what we're seeing through this year is that our pricing for the base case of a new APEX rig with a walking system, not counting other things that a customer may add, has really remained steady through the year. And even as we look into what we're contracting into 2014, I would say, for us, that's remaining steady.

Okay. Secondly, Andy, even if there is an increase in spending next year, many observers think that because of efficiencies, you could see a mid to high single-digit increase, but see very little increase in the rig count. If we see, because of the -- as you say, the great demand, at least 75 to 100 new rigs added, we could see the demand for the existing rig fleet drop. If that is the scenario, do you think that would come mainly out of the SCR and mechanical rigs? And what are the implications for that on which you may choose to do, particularly with your throughput mechanical rigs that you have?

So back to what I was saying earlier, we're very encouraged by the demand on our APEX rig, the utilization that we have right now. And so that's why we've increased what we plan to deliver in 2014 up to 20 rigs. I think the impact that that's going to have on SCR and mechanical rig fleets really kind of depends on what those relative increases are for customer spend in 2014. We're optimistic that we're hearing that there's the potential for increases, but I think that relative increase is really going to drive that. Certainly, there are efficiencies with the new high-spec rigs, and that's why we're seeing the demand on the APEX. So I think we're just going to have to see how it plays out with the spend in 2014.

The next question we have comes from the line of Jim Wicklund of Crédit Suisse. James Knowlton Wicklund - Crédit Suisse AG, Research Division: Guys, the capital that you're spending relative to the growth, I understand that there's earnings growth, but the cost of it kind of chills me. How long do you think it will take as an industry for us to recapitalize the fleet to the point where when we talk about the rig count going up 50 rigs, it's going to be a net 50 rigs? When do we get to that point?

That's a great question. We look at the capital costs. We're very conscious of how we're spending shareholders' money here in this business. And we do think it's the right thing for the business to invest in the 20 rigs that we're planning on for 2014. We think it keeps us competitive. We think the demand is there. And we don't think we're going to have any challenges putting these rigs to work. Customers are wanting more and more efficient rigs out there. And so... James Knowlton Wicklund - Crédit Suisse AG, Research Division: I understand you don't have a choice. I mean, that's what it comes down to, which is good. That's in any business. I'm just wondering when we get to the point where the recapitalization of the industry fleet is actually -- we can say that it's done now.

Jim, I think you're ignoring one kind of key part of the Patterson story, which is that at the same time that we've been doing this retooling, we've also bought back a large amount of our stock. And so the view from this side of the table has been that we have been able, because of our strong cash flows, to both rebuild our industry and retool our, at least rig fleet, while at the same time, shrinking our number of shares outstanding. So... James Knowlton Wicklund - Crédit Suisse AG, Research Division: So you've always had that slide, numbers of rigs per share. It's always been impressive.

Yes. I think that when you look at it from purely the perspective that, yes, there's a retooling going on in the industry. And therefore, to some degree or another, APEX and other high-spec rigs are replacing older mechanical rigs, we would acknowledge that, Jim. And that's not something that we're -- that we're shying away from. The real question is can you do it with enough efficiency and with enough cash flow generation and future earnings, as well at the same time, being able to buy back enough stock so that you can say to your shareholders and to all constituencies, look, we're really building a company for the future, at the same time, we're also rewarding you in the present. James Knowlton Wicklund - Crédit Suisse AG, Research Division: And Mark, I appreciate that. Second follow-up, Andy, natural gas bi-fuel, I was at the Chicago conference in August that spoke about it. When you put bi-fuel on a rig, though, the operator pays for the fuel when you're drilling. So most of the benefit, I would think, would accrue to the operator. Whereas in pressure pumping, any cost savings due to fuel, you get to keep. Does that skew where you put your capital and how quickly you transform each of the businesses?

No. It doesn't really skew the capital and how we allocate it. When -- and there are some slightly different models between the 2 businesses, but -- there is a hardware cost, and we get a nice payback on that hardware cost and a slight improvement on the overall margins by adding that hardware to the rig systems. It's true that there's more of a savings benefit for us when it comes to the frac fleets, but we also -- there's a sharing that goes on with the customer there, too. But net-net, there's a margin improvement in both cases.

And the next question comes from the line of Dave Wilson of Howard Weil.

Andy and Mark, I know you guys touched on international a couple of times, Andy, with longer term in nature and Mark, with the returns that are competitive or even more so than what you have in years in the U.S. But how should we interpret that in relation to the returns that you are able to generate in the U.S., especially in light of the commitment to build 20 more APEX rigs in 2014? Is this international or something we shouldn't really expect anything tangible until 2015? Or could something happen next year?

I think we don't really have much visibility about it right this minute. We're just starting this foray at this point. And frankly, it's 1 quarter into the effort, and it's too soon to make an accurate forecast of when they will have some meaningful impact. That's why we told you in the remarks -- prepared remarks that we didn't expect anything meaningful in the near term. Obviously, when you start up a new business enterprise, you hope that it's meaningful quickly. But that's not something we can talk about right this minute because we don't have anything tangible yet to report.

Let me just add that looking at international opportunities is not any kind of commentary on the U.S. market. U.S. market in returns still remain very good, and we're still encouraged to build 20 rigs for next year.

Okay. Great. And then my second question. You guys have made some very well-timed repurchase of your share during the year and with the stock now a bit over $20, while still undervalued, it might not seem as opportunistic as it was previously in the year. Given that and the preliminary projections for cash flow and CapEx for next year, has increasing the dividend been more a topic of discussion? And along those lines, understanding that it might not be -- it might not come at once, but what level of yield do you think investors will get even more interested? Or is it just a matter of just having a yield that makes them interested?

Well, let me say this, and for those who have heard me say this for a long time, apologies for the redundancy. But literally, at every quarter's board meeting and even more frequently among the management, we talk about both dividend and buyback strategies and the concept of if there's excess capital, how do you return it in the best form to shareholders. We're not wedded to the $0.05 quarterly dividend that we've been paying. We think about it kind of each quarter. Frankly, we think that what the course of action we've been on of some yield, admittedly not a high yield but some yield, and with more of our -- and in fact, free cash being used to buy back shares has been the better choice for shareholders over the past several years. But I'm not in any ways ruling out the idea that we might go to an increased dividend under the right circumstances.

The next question we have then comes from the line of Doug Becker from Bank of America.

This is Vaibhav filling in for Doug Becker. I understand international markets have been touched many times, but -- and I know it's early, too early in this kind of process. But just thinking if 5 years from now, how should we be thinking about -- in terms of number of rigs or geographies, any multiples that you can give?

Well, in a 5-year outlook, I think, for us, it's really a little bit early to tell exactly how it's going to play out. We are encouraged by some of the meetings we've had and some of the markets we've looked at. But again, for us, it is long term. It's going to be at a measured and steady pace that makes sense for the business and for the shareholders.

Okay. And that thing about pressure pumping, there is about 90,000 horsepower of contract that would roll over potentially in late 2014 -- 2013. As you think about first quarter '14, is it reasonable to think that the margins could be up despite the contracts rolling over as we come out of the seasonality from the fourth quarter?

So the contracts that are going to roll over, as you stated, 90,000 horsepower, roughly, that's an event that happens at the end of our fourth quarter with a first quarter impact. And back to what I said earlier, we're looking at roughly flat margins from Q3 to Q4 for pressure pumping. But it's hard to say right now exactly what that's going to mean for us going forward into 2014. I think some of this is going to be impacted by the discussions we're having now and towards the end of the quarter and what customer spend is going to look like in 2014 as well.

The next question we have comes from the line of Jason Wangler of Wunderlich Securities.

Just one on the customer delays, was there any more color to that as far as it was a regulatory permitting issue or weather or anything like that? Just kind of curious, and even if you could give the region?

So we had about 40,000 horsepower that was delayed. It was almost for 1 month. It had to do with a mechanical issue on a well that held the rig on a pad so that we couldn't get our frac fleet to the pad. I'd rather not mention the region or the customer, but that's basically what happened in this particular case. It was a delay.

Okay. And then, I mean, based on that, at least, it seems pretty onetime in nature. It was a mechanical issue and it's moving forward, back to service and should see no delay, at least foreseeable?

Correct. And one more thing, it wasn't our rig. It was a well-related issue on a pad.

The next question we have comes from the line of Doug Dyer of Heartland Advisors.

With regard to the 20 new APEX rigs that are coming next year, are they priced to hit a return hurdle? And if you can share with us, what would that return hurdle be? And also what would give you reason for pause to maybe slow down newbuilds, maybe going into 2015? What might be an early indicator that it's time to pull back?

This is John Vollmer. Relative to returns, as the -- as time passes, we get different rates and margins with the new rigs. They've been relatively stable over the last years, Andy indicated. I would say that we're probably looking at 5-year paybacks on the rigs that we're putting out currently. And what was the second part of the question?

I was just asking what might give you reason to maybe slow things down into 2015? And what would be an early indicator that it might be time to pull back a little bit on additional spending in the future?

I think what we're always doing is looking at the marketplace and trying to make a best guess as to what will be demand going forward. Obviously, with this 95% utilization that we're currently experiencing and with customers, in effect, looking for incremental APEX rigs at this point, we see the demand for that high end of our rig fleet to be significant. And so that's what's causing us to increase the plan from 15 to 20 rigs for next year. What would change that would be something that would tell us that, boy, that demand is not coming forward. One thing for you to know is that we're ordering this equipment for delivery in time for, in effect, assembly. We have the ability at any point to, in effect, slow down the deliveries going out some period of time. We also have the ability to not, in effect, assemble the rigs, both of which would save us money down the road if we saw a change in demand. Frankly, we don't think that's going to happen. Otherwise, we wouldn't be going from 15 to 20, but that's always in the repertoire of things that we could do.

Okay. Thank you. We have no further questions. [Operator Instructions] Okay. We have another question come through from the line of John Daniel of Simmons & Company. John M. Daniel - Simmons & Company International, Research Division: John, I don't know if you can answer this or would want to answer it, but I'll try. The 90,000 horsepower that rolls, can you say what percent of the gross profit in pressure pumping that is?

I don't have that here with me, John. I'm sorry.

Thank you. Again, no further questions.

Okay. Well, thank you, everybody, for participating in our third quarter conference call. We look forward to having you join us again for our fourth quarter call in February. Thank you very much.

Okay. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.