Good day, ladies and gentlemen, and welcome to the Patterson-UTI Energy's Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference is being recorded. I would like to introduce your host for today's conference Mr. Mike Drickamer, Director of Investor Relations. Sir, please go ahead.

Thank you, Michelle. 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 three and nine months ended September 30, 2015. 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, 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 2015. We are pleased 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 a net loss of $226 million or $1.54 per share on revenues of $422 million. The financial results for the third quarter include a pre-tax noncash charges totalling $280 million or $1.28 per share after-tax. These charges include $125 million from the impairment of pressure pumping related goodwill and the write-down of assets including $131 million of drilling equipment, $22 million of pressure pumping assets and $1.9 million related to certain oil and natural gas properties. The $131 million write-down of drilling equipment is primarily related to the reduction in the carrying value of mechanical rig fleet as well as related spare components. We retired 33 rigs including 24 mechanical rigs and non-APEX electric rigs. These 33 rigs were among the oldest in our fleet and it had an average drawworks horsepower rating of less than 1,000 horsepower. The 19 mechanical rigs remaining in our fleet, net of their write-down have a net book value of only $13.1 million. The $22 million write-down in pressure pumping was related to the write-down of certain closed facilities, equipment and spares including nitrogen pumping equipment and less than 10,000 horsepower of older hydraulic fracturing equipment. Turning now to our balance sheet, our financial position remains strong during the third quarter. Liquidity was unchanged during the quarter and ended the quarter at $576 million including $76 million of cash and $500 million available under our undrawn revolver. Total adjusted EBITDA during the third quarter $127 million and we remained EBITDA positive in all three of our operating segments. With that, I'll turn the call over to Andy.

Thanks, Mark. In contract drilling, our rig count averaged 105 rigs during the third quarter in the US and four rigs in Canada. Compared to 122 rigs in the US and two rigs in Canada during the second quarter. During the third quarter, total contract drilling revenues were $262 million including $28.9 million of revenues from early contract terminations. These early contract terminations positively impacted our average rig revenue per day of $26,010 by $2,870. Excluding early termination revenues average rig revenue per day during the third quarter would have been $23,140 compared to $24,330 per day in the second quarter. Total average rig operating cost per day decreased $140 during the quarter to $13,580. Excluding the positive impact from early termination revenues. Total average rig margin per day was $9,560 compared to $10,600 during the second quarter. At September 30, we had term contracts for drilling rigs providing for more than $800 million of future day rate drilling revenue. Based on contracts currently in place, we expect an average of 71 rigs operating under term contracts during the fourth quarter and an average of 45 rigs operating under term contracts during 2016. Looking forward, we expect current commodity prices will lead to further rig count reductions across the industry during the fourth quarter. For the month of October, we expect our rig count will average 92 rigs in the US and four in Canada. We expect our fourth quarter rig count to average 85 rigs in the US and four rigs in Canada. With the further reduction in our rig count during the fourth quarter, and an improvement in the fleet mix towards more APEX rigs under term contract. We expect total average rig margin per day to improve modestly to $9,700 excluding the positive impact early termination revenues.…

Thanks, Andy. A popular saying is, the cure for low prices, is low prices. This axiom refers to economic theory in the law of supply and demand, but it is also Darwinian. The rebalancing process and more specifically the required rationalization for low prices to cure low prices, is a painful process whereby the weak may not survive. Across the industry, evidence of this has already started to appear with some companies reporting financial distress and others having thrown in the towel and shut the doors. The level of maximum pain has not yet been felt as we believe, industry activity in both drilling and pressure pumping will fall further into yearend and continue to fall into 2016, absent in recovery and commodity prices. Pricing in pressure pumping has already reached the point, that we believe is not sustainable. At current pricing levels, we believe many companies are not generating sufficient cash flow to cover maintenance capital. Under these circumstances, we believe some companies are deferring maintenance and some equipment is being cannibalized. While we are not immune to the evolutionary changes being forced on the industry. We are well positioned in a market being driven by survival of the fittest. We have demonstrated our strength in terms of quality equipment, superior execution and importantly financial stability. We believe our overall fleet in both drilling and pressure pumping is of the highest quality. We believe that higher spec rigs such as our APEX rigs are still the rig of choice for E&P companies. In a recovery, we expect our APEX rigs will be among the first rigs to go back to work. Similarly, our fleet of modern pressure pumping equipment has an average age of only 4 years and has been well maintained, so it so provide a high level…

[Operator Instructions] our first question comes from the line of Marshall Adkins with Raymond James. Your line is open, please go ahead.

What's - if I could spend a little time on the pressure pumping side. The margin in the last few quarters have been all over the board. Despite the fall of this quarter, you're still doing meaningfully better than your peers. But I want to understand what's driving the sequential decline, is it geography, is it something else that happened? Just give us a little more color on that decline quarter-on-quarter?

You know in terms of how the decline played out for us in the third quarter, especially versus what we had discussed in terms of projection. There were some moving pieces there, one of the challenges there's as we've had to stack some of our equipment, we were at 33% and then by the end of the quarter. We were at 38%, when you get down to those lower levels of frac crew. When a frac crew gets delayed on a pad for any reason, all of sudden it becomes a big impact. Whereas a year ago, when a frac crew gets delayed, the impacts muted just by the overall activity and the revenues grew [ph] generating. So with the work that we still have, there is still movement in a typical frac schedule, but the impact is larger for us when we do get those delays on a pad. And so, there are some level of activity that you can predict, but some gets a little bit more challenging especially in today's environment. The commodity price changes haven't help that either. So I don't know if that helps you out, any.

No, that helps a bunch. A lot of, we've heard a lot of your competitors talk about cannibalization of their fleets as things. And we just, cutting off all CapEx even maintenance and letting the fleet size dwindle. What's going to be your approach to that and assuming there is an upturn, as we think there will be later in 2016, how are you going to be prepared for that?

As Mark said, we're still EBITDA positive in this business. We're very pleased with that, we're very focused on the margin and controlling the cost today trying to reduce cost further and you know, as we work through this into next year and we're still maintaining our equipment. We think that, there are other companies out there that are more stress than we are and so therefore, we do believe there is some cannibalization of equipment that's happening, with the equipment we've stacked, we've just parked it, we preserved it, we're not touching it and we're still maintaining equipment through maintenance capital and through OpEx. I'm pleased with the high level of service quality that our crews are still able to provide out there in the field because of the way that they're running the operations today and it makes us competitive in this environment and you have to stay competitive in this environment.

So your fleet size in essence, you don't see deteriorating meaningfully over the next year 18 months, is that what I'm hearing?

That's what you're hearing. We got through a preservation process, whether it's drilling rigs or pressure pumping equipment, when we stack the equipment just to make sure everything is tight and it's going to be there when we need it in the future, don't know when that's going to be, but we're not cooling fluids ends off pumps that are parked on the backside of the yard.

Last one for me, you're still putting up better margins, better performance than most of your peers. What's allowing you to do that? I just want to understand, is it the type of pumps you have or the geography or what dynamics do you think are allowing you, now even this ugly environment hold up margins and performance better than the average guys?

That's a good question, we don't always know what's in everybody else's margins. But let's kind of back up to how this downturn began to play out, early in the year. We have a drilling business and we have a pressure pumping business. And we had a lot of market knowledge from our drilling business as to first three to four months. Our discussions with customers is to how quickly rig count was going to come down and I think because of that, we were fast [indiscernible] on the pressure pumping side to scale that business quickly and keep the size of that business in line with the activity level. We could see with the visibility that we have through the market knowledge of the drilling business, how fast things were going to move into downturn. We all saw that rig count moved really quickly in the beginning.

Thank you. And our next question comes from the line of Sean Meakim with JPMorgan. Your line is open. Please go ahead.

So just starting out with on drilling side, as we look at 2016 are the contract expirations are fairly steady throughout the year, could you give us as to rough sense of the cadence?

Yes, offhand I don't know what that looks like, that's a safe assumption if you're working that into a model.

Okay, fair enough and are we seeing any further day rate pressure in, if you can call the spot market and as we look into 2016, are there any material levers to cut cash cost on the drilling side?

On the drilling side, when it comes to the market. There is not a lot of trades out there to actually call what a spot market is and things vary from region-to-region and for various reasons with different customers today. But there's just not a lot of trades on drilling rigs. You're seeing that rig count continue to go down. So it's safe to say that, there's some pressure on pricing in that market. When it comes to the cost side, if you look at our daily cost and contract drilling. Two-thirds of that is compensation and the people that we have out there working on the rigs and then one-third is our variable. And we continue to work on that variable piece, we're certainly going to stay focused on trying to reduce that where we can and overall we're going to continue to scale the business, where there's drilling or pressure pumping with any changes in levels of activity.

That's fair and just one last question, just to kind of take that over to the pumping side. It looks like completion activity to take another leg down, you mentioned most of the cost reduction efforts during the second and third quarter understandably, is additional stacking the last major lever as we take another leg down activity in 2016?

Well first off, what we were trying to explain that, our treatments and working with our suppliers and we're producing our input cost in that equation of the P&L for pressure pumping. Most of that occurred in the second and third quarters, but it doesn't mean we're done with that either. It just means that any further cost reductions aren't going to be the same double digit percentages that we've got early in the year. They're going to be, more than that single-digit percentage range, but we're going to continue to try to work cost out of the system. And in terms of stacking any equipment in the future, if you look at what we're guiding for the fourth quarter. We could possibly stack a similar percentage in the fourth quarter that we did in the third quarter, we just don't know yet.

Thank you. And our next question comes from the line of James Wicklund with Credit Suisse. Your line is open. Please go ahead.

Mark, I'm going to be in your neck of the woods on Saturday, fine buy you lunch by the way, you never return my emails, so this is the only avenue, I've got. On the quarter, it's obvious that things aren't good and they're getting worse, you guys are going to survive. People is, always a big issue, I know you're still cutting people. So it's premature to ask, but when things do turn, what's the likelihood or the difficulty or the challenges to getting people to the industry and will that be a constraint to the eventual recovery?

I'll take that this morning, Jim. So I'll start by saying it's unfortunate that we've had to scale the business. Patterson-UTI Energy was in great shape in terms of the people that we had in the field last year. So we certainly don't like, how we've had to scale for this particular downturn. With that being said, we've got a lot of great people still left in the company. As we eventually work our way out of this, when you're trying to get people back. If they've only been gone in that first three to six months, is a good chance you get some of those people back in the oil field, but after that it gets more challenging. But as we've seen in other cycles, when we've existed these down cycles. You know it's that people equation that gets tight and while we talk about equipment a lot, whether it's rigs on the sideline or the stacked pressure pumping equipment, you know at some point the people equation is going to tighten up on us and possibly sooner than the equipment piece of that equation.

Okay, that's helpful. Mark, opportunities. You note that you're in better position with your balance sheet and positive EBITDA than a lot of other companies. I know on the Q2 call everybody talked about the eventual M&A. We're not still not seeing it, particularly happened. But we're one quarter closer, can you talk about what might happen strategically in the drilling markets and pressure pumping markets over the next year and half, as we go through the bottom of this bath tub.

Well, Jim I'm happy for you to call the bottom.

Long, bath tub bottom.

Okay, but you know, the way I think we're seeing it is that, as we've seen downturns before and admittedly this one is deeper and more protracted. You kind of want to think about, when the best opportunities arise. Frankly, at this point in the cycle as we see it protecting our balance sheet is, one of the most important things that we can do and so one of the things we've focused on, that's obviously something that was said in our prepared remarks before we started because we look at the M&A landscape. I guess the way I see it is that, there's a number of companies that are in some distress of one kind or another. I suspect those will turn into opportunities, whether there will be opportunities for us depends on whether the quality of their equipment is such that we will find it attractive and it would really add to Patterson and whether we could do so in a way, that would be positive for our balance sheet and so as I look at this moment in time, I don't see it but that's not to rule it out.

Is there a strategic benefit to being significantly bigger in drilling or pressure pumping somehow?

I think that being bigger is never the objective, being better is always the objective and that's the way we've run the business for the past 20 plus years. So better is real important, but bigger is sometimes a benefit.

Thank you and our next question comes from the line of Kurt Hallead with RBC Capital. Your line is open, please go ahead.

So got a curious on two fronts, Andy not too long ago. When we were on the road, on this investor road trip, there were some questions about reducing cost further and you went through everything, that you've gone through on the call so far, but then there was also a reference to that, there could be a possibility to finding ways to reduce, if you will labor cost further, if you felt that there was going to be an extended downturn. I don't know, kind of feels like an extended downturn to me, was looking to get some updated view points from you as to how you're assessing the downturn now?

Yes, good morning. So the downturn is certainly is extending I think from what people had talked about it few months ago. But in terms of cuts the individuals compensation and wage cuts. Especially for people that are working hard for us out in the field, we're not just quite there yet, you know it's a little bit scenario than the downturn that we had in 2009, 2010. Where the general labor market around us kind of evaporated as well, but in this particular case there's still is a labor market around us. And we have to make sure that, we're relatively competitive in the labor market and we also want to make sure that, we're retaining the best people we can for the eventual outcome of this down cycle.

And a follow up to that, would be in the context of your commentary about stacking equipment and just want to make sure that I understand the way you guys are looking at it correctly. So effectively you're ring fencing the equipment and not cannibalizing it and I want to make sure I understand that correctly and if that true, I guess I'm a little bit kind of puzzled because isn't that one of those deals where you're not cannibalizing equipment, you're going to have to pay to maintain what you've got, so you're either going to pay now or pay later. And if things are kind of tight now, why put the money forth to maintain stuff, when you could just kind of take it from the yard.

Yes, so the way you stated it's correct. We're essentially parking the equipment, we're doing the preservation process. We're ring fencing it and then we're not touching it. In other words, when it's time to replace a fluid in on a pump, we're not taking a used fluid in off a pump to fit the back of the yard and putting it on a pump. We're taking a new fluid in, as we would normally do. We're still running a high quality operation out in the field, we still have customers that expect high service quality, even though it's a very challenging market and you know the pricing is gotten very competitive. But we're still spinning maintenance capital in OpEx because it's a right thing to do run a high quality business. The cannibalizing, it's inefficient, you're taking used components off of pumps or engines and then you're using used components and then all you're doing is deferring the maintenance. You're going to have to buy that part down the road anyways. We're still EBITDA positive and it's still a right thing to do for our customers to keep our service quality up.

Okay and then, I just got on the context of the maintenance and everything else. It seems like there is been a big deal made of this transaction between Schlumberger and Energy Recovery and everybody is extrapolating that is going to mean obsolescence of the way things are being right now. I know it doesn't necessarily happen that way in this business because it's more evolutionary than revolutionary, but do you have any perspective on that kind of technology and some things that you guys maybe looking at to maybe produce maintenance cost and extend the lives of stuff that you're using it.

I think from our standpoint, all we know about that technology today is that, it had some early trials up in the Bakken, it had some good results and certainly obviously it was interesting to Schlumberger to go after that. I think we'll just to have to wait and see, how that works out in general. The market for pressure pumping is very large and any disruptive technology would certainly take long time to work its way through the market.

Thank you and our next question comes from the line of Byron Pope with Tudor, Pickering, Holt. Your line is open, please go ahead.

On the contract drilling side of the business, just trying to think through in an environment where you've got 200 marketed rigs now and if we're an environment, where you're working 85 to 90 for a while, can you help us think through your approach to maintaining the idle rigs, so that they're in a position just to go back to work and in the context of your overall fleet average daily cost. I'm just trying to figure out, if there is some potential to see those gravitate lower, when the eventual recovery does take hold. So if you could provide some color on that, it will be helpful.

Yes and I'll answer part of that and I just want to make sure, I understood your question. But with the rigs that we're stacking and that are idle. We got through a very basic preservation process, but we're not spending anything in terms of maintenance, there is no carrying cost. There is no cost associated with an idle rig, in general. So there is nothing to do in that particular case, until the market actually starts to move in that direction and we get into direct discussions with customers that we would want to look at an idle rig and decide what to do with it. Was there anything in particular that you want to know about that?

Well and then, when you get to that point. I'm assuming that there wouldn't be much in a way of incremental capital required to basically put that rig back to work.

That's correct, there is no real incremental capital there. These were working rigs, when they stacked and you made, some very minor things but not much to get that rig back out and get it back to work.

Okay and then, a quick question on the pressure pumping side and just, thinking about what I heard so far, with regard to the asset write-down. It doesn't sound as though, you've taken any steps with regard to your logistics infrastructure. I'm assuming, that's staying intact and so that you can service both of your geographic regions, whenever welcome [indiscernible] activities does start to pick up?

That's correct, no change to our logistics infrastructure. You know and on the equipment side, on that pressure pumping write-down, we had some older nitrogen equipment that we used to use in the North East, but there is not much a market for that anymore and in terms of hydraulic fracturing horsepower is less than 10,000 horsepower of older pumps.

Thank you and our next question comes from the line of James West with Evercore ISI. Your line is open. Please go ahead.

Andy on the rig side of the business. I know you mentioned earlier, there is still pricing pressure even the high spec side with your AC rigs, your APEX rigs. But has anybody, are you seeing your competitors. I know you're not going to give me a number or anything, but have you seen the major suppliers of rigs, started to break ranks here and really lower day rates significantly. I mean it seems to me like, the big floor had kind of set, all right we're not going much lower, we're going to keep a margin. Is that still a case or are you starting to see some guys become undisciplined?

As the rig count inches its way down, it is getting a little bit more price competitive. The good news about that market is, the players in that market although were highly competitive. There is still a little bit of discipline. Again you know, it is getting more price competitive, I think that's the most I can say on that.

Okay, fair enough and then, Mark and Andy, probably for both of you, but on the M&A side. Another question is been asked and I've been pushing it for couple of quarters in M&A, but you know it might be used probably changed here recently, just given that we're about to see two horrific quarters in a row and the fourth quarter and the first quarter and slow recovery here. Why even look at buying companies at discipline, why not just let these assets go away and just lead the market?

I don't think we've said anything different from what you just said.

Fair enough.

I mean the short answer is, we understand that the outlook is not particularly favorable for the next quarter and you went further, but we're certainly agreeing with you for the next quarter and that's clearly driving a lot of people's thinking [indiscernible] thinking about, what kind of activities are in the marketplace.

Thank you and our next question comes from the line of Robin Shoemaker with KeyBanc Capital Markets. Your line open. Please go ahead.

Most of my question is been answered, but I - just wondering, if at this point although it's only late October. You've had any indications from your customers about the 2016 budget processes reload the budget cycle and go into the next year? Clearly, you see was going to start out low, but is there any light you can shed on that, have you had any kind of indications at all about what some of your customers are thinking or planning for the next year's budget cycle?

No and I think it's just too early. I think you're going to see the E&P companies defer some of these decisions as long as they can. I think most of our customers in that respect have just been quite and we just don't expect a lot of visibility on some of their division for a little while to come.

Right, okay. The other question I had was on, with a very low level of investment, you're talking about not building APEX rigs or building new frac fleets. Did you give a figure as to what your kind of CapEx would look next year under those assumptions? Which I guess is basically a maintenance level for rigs and fracking, please?

Yes, what we said was that, we haven't completed our 2016 budget and like you mentioned, we don't expect to build any rigs or buy any pressure pumping equipment in terms of frac horsepower. We currently expect that the 2016 CapEx budget will be primarily maintenance capital and we expect that it'll be less than $200 million.

Thank you and our next question comes from the line of Scott Gruber with Citigroup. Your line is open, please go ahead.

Andy, you just mentioned there is an overall lack of clarity with regard to customer budgets which we all know about, but we did hear from the diversified service companies, their expectation, the rig count here in the US would recover over the course of 1Q to offset the 4Q drop that's underway. How you're thinking about that dynamic? Is that possible that unlikely in your view?

So the most visibility, we have today. We've given you the projections that we see the rig count continuing to go down in Q4. We also see a downward trajectory in the rig count, as we enter 2016. Don't really know what the timing of that's going to look like or certainly when we're get to any inflection point. So that's really about all of the visibility, we have today.

Got it and then the APEX SCR rigs that are still operating today, despite the low level of activity. Are all those operating under term contracts or are there some of them that are simply competitive with AC rigs, given the quality of the asset in the crew?

Yes, I mean it's a mix and all of our APEX rigs compete as high spec rigs and there is very little difference in what they command to day rates, whether it's term contracts or in whatever spot market, we have today.

And then, if I could just ask you another on frac. I believe Universal is operating about 100,000 frac horsepower before the Shell revolution hit. How much of that remains today, even if it's in cold stacked mode?

On the original horsepower from pre-2010. I think there might be some, but it would be a very small amount.

But if you've been retiring some of that legacy equipment.

Yes and we have over the years. You've seen that in some of the numbers we've done write-downs over the years. If you look at the average age of our total hydraulic fracturing horsepower today is write around 4 years.

And the assets impaired during the quarter I assume those were, are sent for scraping?

They will be yes, it was under 10,000 horsepower, per frac horsepower.

Thank you and our next question comes from the line of Chase Mulvehill with SunTrust. Your line is open. Please go ahead.

So, I guess on your turn day rates. How should we be thinking about that, I mean you talked about the pricing pressure that is starting to come back into the market as activities declining. Are your customers coming back to you and asking to renegotiate term contracts?

The term contracts are still holding up, we're going to work with the customers wherever we can. Within the boundaries of that term contract, but the term contracts are still holding up.

Okay and could you walk us through the components of your gross margin per guidance? What's the revenue per day and the OpEx per day implied [ph]?

I don't have that in front of me.

Okay, all right. Moving onto pressure pumping, so what are you seeing for frac sand pricing, is that kind of stabilized and if it has, what do you expect frac sand pricing to do kind of end of the fourth quarter?

Yes, I wouldn't expect to give in the projection to that we've talked about this morning, that any of these input costs have stabilized for us. It's just that the challenges we've gotten majority of the cost out of the system in the second, third quarters. But I expect that we will get some more concessions, but they're going to be much smaller than they were earlier in the year.

Okay and how much of your horsepower is currently working 24 hour?

It had been as high as 90%, it's probably still close to that level, but I don't have that number in front of me.

And do you expect that, the 24 hour will be the first place that you see utilization come off or do you think it will be on your non-24 hour or so?

Well what we've seen in terms of utilization, is we've seen operators that take a 24-hour crew and take that to 16-hours or 12 hours a day and it's really just the function of the frac inventory, with just less wells per month to frac. And so we've seen that already which is why. I know we've had a decrease in that percentage of 24 hours, I just don't know what it is, off hand.

Okay, all right that's helpful. Last one and then, let's see. So maintenance, so you talked about CapEx potentially for next year being mostly maintenance which would be less than $200 million. I think in the Barclays presentation you guys talked about $100 million of carryover CapEx. Is that now not going to happen?

I'm going to hand that over to John.

Yes, just to clarify little bit on the CapEx from Andy's comments of less than $200 million, that's correct but apply about a quarter of that, is carryover. [Indiscernible] projects started earlier in the year, that are up of an upgrade nature etc. In a true maintenance mode, it would be if we just call it $200 million, although it's less that. It would be much less and if the drilling activity or the pressure pumping activity further deteriorated it go even lower. So we're not - need to suggest that maintenance capital is $200 million [indiscernible] activity drilling and you know on to kind of current levels of activity, we think that's something less than $200 million or about quarter of it being carryover for non-maintenance items.

Thank you. Our next question comes from the line of Marc Bianchi with Cowen and Company. Your line is open. Please go ahead.

If I could just follow-up on Chase's question about frac sand pricing. Could you put some numbers around that, what you've realized? Kind of through that second quarter, third quarter and then kind of what you're seeing quarter-to-date?

I think, we said early on that even in the last presentations, we've given at conferences that, we've seen frac sand pricing come down in that 25% to 35% range since the beginning of the year. And just what I'm trying to explain today is, there could be some further price reductions for us on sand, which is great pass through for our customers, but it's probably moving into that single digits. As our projection show, rig counts going to come down. Which tells you that overall frac activity is going to come down and you've seen or numbers and so I do think, that there is probably room to get some more of the input cost down. It's just that the majority of these percentages decreases that we receive were earlier in the year and it's just probably not going to be double digits moving forward.

Sure, makes sense, thanks for that Andy. With the pressure pumping guidance you guys are offering for fourth quarter and the revenue and margin. It looks like decremental's are pretty small so I suspect that there is not much pricing expected in there, that's all kind of activity or maybe that's wrong, could you kind of give a little bit more color around that top line there.

Yes, I would say it's more towards the activity. Pricing is still tough, it's very challenging right now, but looking at our projection. Relative to Q3 in some of our numbers for Q3 were the result in activity that we thought we were going to have, where pad just got delayed and when one pad gets delayed today, it hits the numbers pretty big and so also had some pricing declines in the third quarter, but I would say it's more towards the activity side in the fourth quarter.

Have you gotten any indication from your customers and this could go across fracking and land drilling, where there is holiday slowdowns, activity being stalled, but some sort of expectation and portion of that will be resumed in the first quarter and is there, anyway to put some numbers around that.

You know it's hard to say exactly, how it's going to play out into the first quarter. But I mentioned earlier, that in terms of rig count on the drilling side. We're seeing the rig count go down for the fourth quarter and we see that trajectory going down entering the first quarter and so there's a little bit of extrapolation there to pressure pumping activity.

Thank you and our next question comes from the line of [indiscernible] with Victoria Advocate. Your line is open. Please go ahead.

I just wanted to ask you, in this price environment, where are you seeing the most activity and demand for your rigs, still emerging from? Especially when you're talking about Texas, are you talking about places like the Eagle Ford and the Permian and if you can into detail, what sorts of areas or counties are you talking about?

We work all the major basins across North America and drilling with the exception of California and then pressure pumping. We work in the North east across multiple states and then we work across Texas and New Mexico today and we are seeing pricing pressure in all these regions. I wouldn't say, it's - that there is any pricing, any better than any one region because in this level of downturn, where you've got since the peak we've had roughly 59% of the rig count dropped. We just got pricing pressure across all basins today.

Thank you and our next question comes from the line of John Daniel with Simmons. Your line is open, please go ahead.

Just quick one. Andy on the $9,700 cash margin guidance, is that including or excluding the contract termination payments?

That would be excluding the contract terminations and we're estimating about $9 million right now in potential contract terminations in fourth quarter.

Okay. Follow-up on the CapEx questions, but adjusting for the carryover seems like the maintenance number is more like 150 for next year. What percent of that CapEx is tied to pressure pumping?

We haven't even worked up the full budget yet for 2016 and we're just trying to give everybody some round numbers because we know, there is a lot of questions around potential cash flow. So I don't have that off hand in front of me, but it's going to be roughly about half.

Okay and would that number include any rebuilds on the equipment?

We continue to maintain the equipment and we're transmission rebuilders required. It's going to be part of maintenance capital. We're still running a high quality service.

But this would be just replacing the component parts as oppose to full blown rebuild, correct?

It depends on what are the need, we're not changing the maintenance schedules. We're still maintaining engines, transmissions, pumps, as we normally would.

Okay, a question on M&A. Consolidation you mentioned, it's not about the need to get, it's the need to get better versus the need to get bigger. So specifically as it relates to pressure pumping, but if the industry is cannibalizing equipment and deferring maintenance and you guys are not, would acquiring any of your pressure pumping peers, make you better?

I think the answer is, we don't. I mean, it would all depend on what it was and their quality and conditions of the equipment at the time.

It certainly alters the valuation equation when you're looking at the equipment.

Okay.

But you know John, we've always taken into account the quality of the equipment, every time we've ever looked at an asset that we've been interested in acquiring. So it would naturally fall under these circumstances we would do the same. Particularly this time, I suspect with heightened sensibility.

Okay, fair enough. On the 10,000 frac horsepower that was [technical difficulty]

John?

Can you hear me?

We lost you for a second.

Okay, sorry about that. The last question from me, is just on the pumps that were written off, the 10,000 horsepower, was that damaged equipment or was there a financial calculation that triggered that write-off just any color? Because it seems pretty small given the size of your fleet.

Yes, they were just older, smaller pumps. That's all.

Thank you and our next question comes from the line of Jeffrey Campbell with Tuohy Brothers. Your line is open, please go ahead.

In your major operating regions, do you have any visibility concerning which ones have the most significant DUC inventory currently?

No, it's really by customer because different operators have different levels of DUC inventory versus others. There's a lot of discussion around how that plays out, as we come out of a down cycle and does pressure pumping go back to work quickly based on DUCs and I think it really depends on the operator. I think certainly for us, we will be fracking some of these drill but on completed well, that are on inventory when we come out, but I think at the same time you'll see our rig counts start to inch up as well.

Okay, thanks. The press release said that there was still value in maintaining, Patterson's 19 mechanical rigs, even though they won't contribute much to future earnings power, could you just give us a little color on what the tactics are there?

Yes, sure. So we don't expect these rigs to make meaningful cash flow, but we still have customers that are working in a difficult market environment, right now and we still want to be able service a few of these customers and these rigs may help some of these customers as we work through this. This allows us to meet some of their need, it also will potentially allow us to keep some people busy, we want to do that, where we can. I think the main point on these rigs is that the valuation is down to $13 million.

So really the idea is just to kind of keep some things going and hope that will matriculate up to better equipment in future.

That's it, yes.

Okay, perfect. I would like to return real quickly to the preservation process for the stack, the pressure pumping equipment that we've talking about. I just wondered, is that an ongoing part of your maintenance budget or is it more of one-time spend when you stack? And what level of cost are we talking about here anyway?

Yes, it's really, it's certainly not ongoing. Once the equipment is stacked, there is no need to spend any money on it and preservation is very basic. You're just talking about making sure, that systems are sealed up, so that weather doesn't interact with things. And put it away, that's it. There is not much too it.

Okay great and finally, just returning to the energy recovery question, but a different way. I was just wondering, if there was any other technologies out there that, you're aware of or considering that might eventually reduce the cost of pressure pumping in the future and I think, the one reason we're all interested in this because we hear E&P's talk a lot about trying to successfully reduce cost on the drilling side, but we hear a lot less about in on the completion side except, maybe input cost like [indiscernible] stuff like that, just wondering what you thought about that?

There is ongoing projects in these areas in our particular case, we're looking at chemistry on fluid ends. We continue to try out different material chemistry, different types of forgings, different blends of nickel and chrome and the material to try to see how we can reduce corrosion and extend the life of fluid ends. There's various things that are happening all the time in that area. And we're doing what we can to extend the life of these components and get our cost down, so we can stay competitive.

Thank you and our next question comes from the line of Jason Wangler with Wunderlich. Your line is open, please go ahead.

Just had one quick one on the early terminations, obviously coming down pretty significantly in the fourth quarter. Can you just maybe comment I assume it's lot is rolling over of some contracts, but as you look into 2016 is that really going to become something that even gets more minimalized [ph]?

At this point, it's hard to say, how that's going to look into 2016. We're just trying to give you a little bit of feel for how we think it might play out in the fourth quarter. We had them in, the third quarter, we had them you know in every quarter this year. Right now, it's little bit early to know what's going to happen in 2016.

Thank you and our next question comes from the line of Judson Bailey with Wells Fargo. Your line is open, please go ahead.

Wanted to ask question, either Andy or maybe John. Help us think about your margin for per rig [indiscernible] side, maybe beyond the fourth quarter. Andy, you indicated margin per day is going to be up in the fourth quarter, just primarily from mix? If your rig count is down again slightly stay in the first quarter, does margin per rig day go up a little, just because you're getting rid of, you still have most of your higher price rigs under a term contract? And then as, as things start to improve is there any guidance you can help us with, to think about how that margin per rig day may progress if things stay down for a while?

Yes, I think you're getting a little bit further ahead from the visibility that we have and we're certainly pleased that our mix on the APEX rig is improving towards the APEX in the fourth quarter, it's helping us out, that's a great rig for us and I did mention that trajectory, we continue down into Q1, but terms of what the total mix will look like by the end of Q1. It's just going to be too early to know, what that is right now.

Okay that's there. I guess my follow-up would be just. The rigs that you have under term contract for 2016, is it fair to assume that, most of those, not all of them are going to be your best - your most recently built APEX rigs in the last couple of years, the term contracts, that kind of peak rates?

That's correct, these are mostly APEX rigs built in the last two years at this point.

Thank you and I'm showing no further questions at this time. And I would like to turn the conference back over to Mark Siegel for any further remarks.

Operator, thank you. And to all who participated in our third quarter 2015 call. Many thanks, we look forward to speaking with you, after the fourth quarter. Thanks everybody.