C ompanyName:He lme r ic h&Payne
Inc
C ompanyTicker:HP
Sector:Bas ic Mat e r ials
Industry:Ene r gy
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:6.22B
PriceasofEventDate:58 .73
Helmerich&Payne(HP)EarningsReport:Q3
2015ConferenceCallTranscript
ThefollowingHelmerich&PayneconferencecalltookplaceonJuly30,2015,11:00AMET.Thisisa
transcriptofthatearningscall:
Co mpanyPar t ic ipant s
JuanPabloTardio;Helmerich&Payne;VP,C FO
JohnLindsay;Helmerich&Payne;President,C EO
Ot he r Par t ic ipant s
C haseMulvehill;SunTrustRobinsonHumphrey;Analyst
KurtHallead;RBC C apitalMarkets;Analyst
ByronPope;Tudor,Pickering,Holt;Analyst
BradHandler;Jefferies;Analyst
WaqarSyed;GoldmanSachs;Analyst
SeanMeakim;JPMorgan;Analyst
MichaelLaMotte;GuggenheimSecurities;Analyst
JeffSpittel;C larksonC apitalMarkets;Analyst
JimWicklund;C reditSuisse;Analyst
MANAGEMENTDISC USSIO NSEC TIO N
Ope r at o r :
Goodday,everyone,andwelcometothethird-quarterearningsconferencecall.Atthistime,all
participantsareinalisten-onlymode.Lateryouwillhavetheopportunitytoaskquestionsduringour
Q &Asession.(O peratorInstructions).Pleasenotetoday'scallisbeingrecorded.
ItisnowmypleasuretoturntheprogramovertoJuanPabloTardio,VicePresidentandC FO .Pleasego
ahead.
JuanPablo T ar dio (VP,C FO ):
Thankyouandwelcome,everyone,toHelmerichandPayne'sconferencecallandwebcast
correspondingtothethirdquarteroffiscal2015.ThespeakerstodaywillbeJohnLindsay,Presidentand
C EO ,andme,JuanPabloTardio.AlsowithustodayisDaveHardie,ManagerofInvestorRelations.
AsusualandasdefinedbytheUSPrivateSecuritiesLitigationReformActof1995,allforward-looking
statementsmadeduringthiscallarebasedoncurrentexpectationsandassumptionsthataresubjectto
risksanduncertaintiesasdiscussedintheC ompany'sannualreportonForm10-Kandquarterlyreports
onForm10-Q .TheC ompany'sactualresultsmaydiffermateriallyfromthoseindicatedorimpliedbysuch
forward-lookingstatements.
Wewillalsobemakingreferencetocertainnon-GAAPfinancialmeasuressuchassegmentoperating
incomeandoperatingstatistics.YoumayfindtheGAAPreconciliationcommentandcalculationsonthe
lastpageoftoday'spressrelease.
IwillnowturnthecallovertoJohnLindsay.
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page1of17
C ompanyName:He lme r ic h&Payne
Inc
C ompanyTicker:HP
Sector:Bas ic Mat e r ials
Industry:Ene r gy
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:6.22B
PriceasofEventDate:58 .73
Jo hnLinds ay(President,C EO ):
ThanksJuanPablo,andgoodmorningeveryone.Thankyouforjoiningusonthecallthismorning.
Youmayrecall,atthetimeofourlastconferencecallinApril,theUSlandrigcountwasstilldecliningata
steeprateandwewerereluctanttocallthebottom.Therehavebeenseveralindicationssincethenthat
thetroughwasapproachingandtherigcountdidappeartobottomout,buttoday,seeingoilprices
declinebyover$10perbarreloverthepastseveralweeks,thatbottomcouldsoonprovetobefalse.This
isunfortunateforallofusintheenergysectorwhohadhopedtoseeatleastsomerecoveryintheback
halfof2015.
Theindustryhasidledover1,150rigsintheUSsincethepeakrigcountin2014.That'smadeupof
approximately720legacySC Randmechanicalrigs,andapproximately440AC driverigs.H&Palone
hasidledover180AC driveFlexRigs.
WhilecostmanagementinthiskindofdecliningenvironmentbecomesaC ompany-widepriority,the
challengeistoinitiatereductionswiththerightbalance.Thatundertakinginvolvesrightsizingthe
organizationaswellaspreservingourFlexRigassetsforthefuture.O neimportantaspectintheprocess
isavoidingindiscriminatereductionsthatundulydamageourcapacitytoreadilyrespondtoareversalin
marketconditions.
AlthoughJuanPabloisgoingtoaddressexpensesinamoment,Iwanttomentionthatmuchofthe
quarterlyexpenseperdayincreaseisassociatedwithoursystematicapproachtoidlingourAC FlexRigs.
Duringthe2008and2009downturn,weidentifiedseveralbestpracticesforidlingAC rigsandpreserving
equipmentintegrity.Weputthoselearningsintopracticewhenthedownturnbegan.Therearethree
pointsIwanttounderscorerelatingtothisprocess.
First,ourcurrentlyidledfleetisworthbillionsofdollarsintermsofreplacementvalue.Wetakegreatcare
topreservethatvalue.
Second,aportionofthatpreservationeffortentailsoperating,maintenanceandsecurityprocedures,
whichdoesaddtoourper-dayexpense.C ouldwedelaythatexpensetoday?Perhapssomeofit,butwe
seeourapproachasalong-terminvestmentinourFlexRigs.It'sthecaseofpaymenoworpaymemore
later.
Finally,thereplacementcyclewillcontinue.Astheindustry'shigh-gradeprocessmovesforward,our
abilitytorespondinatimelyandefficientmannerwillpositiontheC ompanyformoreopportunitiesand
willultimatelyallowustoprovidegreatervaluetocustomers.O urrigpreservationprocessenablesour
FlexRigstobepreparedtoworkwhenthecustomerisready.
Webelieve,intermsofspeedandscope,ourabilitytoplacerigsbackintoserviceduringthelast
recoverycreatedsignificantvalueforourshareholders.Thatquickresponsecapabilityremainsoneof
ourkeygoalstoday.
O urfleetprofileisacompetitiveadvantage.TheFlexRigsdesignallowsustoprovideafamilyofsolutions
forourcustomers.Wehaveover310AC driveFlexRigswith1,500horsepowerrating,whichrepresents
over90%ofourUSlandfleet.
Inmanyofthebasinswework,therequirementisforlongerlaterals,multi-wellpadsandhigher
horsepowerspecifications.Wehaveover180padoptimalFlexRigswith1,500horsepowerrating,AC drive
powersystems,multi-wellpadcapability,and,toasignificantextent,7,500psimudsystems.Todayandin
thefuture,ourorganizationremainsfocusedonsupportingourcustomersthroughinnovationstoour
serviceofferingaswellasupgradestoourfleetasneeded.Notallrigsrequiremulti-wellpadand/or7,500
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page2of17
C ompanyName:He lme r ic h&Payne
Inc
C ompanyTicker:HP
Sector:Bas ic Mat e r ials
Industry:Ene r gy
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:6.22B
PriceasofEventDate:58 .73
psisystemstoday,butaswehaveoutlinedonpreviouscalls,weareseeingpreferencesshiftandmore
E&PcompaniesarechoosingAC drivetechnologyforhorizontal,unconventionalresourcedrilling.
AC driverigscontinuetoreplacelegacyrigs,andtodayhaveover50%oftheUSlandindustrymarket
share.Andthat'supfrom40%atthepeaklastyear.
TherearesignificantcompetitiveadvantagesforH&Pbyhavingastandardized,modernfleetofAC
driveFlexRigs.Weareabletoleveragethelearningswecaptureandprovidegreaterefficiencies,
reliability,safety,andsavingsforourcustomers.Wehavebeenfortunatetohavepickedupover10new
customersthisyear,andthatnewcustomeradoptionisaresultofourperformanceandreliability.
BeforeturningthecallbackovertoJuanPablo,Iwanttoaddresstheoutlookforactivityfortherestof
2015.Weknowbetterthantotrytopredictoilpricesorrigcount,soIwon'tattemptthattoday.Iwill
shareafewanecdotalexperiencesfromthepastfewweeks,thetonefromthecustomerofwhatmay
happenassumingoilpricesdon'timprovefromhere.
First,wehaveseeninstanceswheresomecustomershave,atleastfornow,backedoffofplansforreactivationsinthesecondhalfof2015.Secondly,somecustomersbelieveit'sreasonabletoassumethat
thecurrentUSlandrigcountmaynotbesustainablewithWTIoilpricedinthe$40s.Finally,operators
remaindisciplinedwithrespecttotheirbudgets,andtheyplantospendwithincashflowandlower
commoditypricesmeanfewerwellsdrilled.
Thisremainsaverychallengingenvironment,butwebelievetheC ompanyiswell-positioned.Long-term
contractscontinuetoprotectourinvestments.Thebalancesheetisingreatshape,ourcustomerbase
remainsstrong,andourcompetitiveadvantageshavepositionedustomanagethroughthiscycleandto
captureopportunitieswhentheyemerge.
NowI'llturnthecallbackovertoJuanPabloandhewillmakeafewcommentsregardingtheresultsof
ourthirdfiscalquarterandsomeremarksrelatedtotheoutlookforthefourthfiscalquarter.
JuanPablo T ar dio (VP,C FO ):
ThankyouJohn.TheC ompanyreported$91millionofnetincome,$130millioninoperatingincomeand
$660millioninrevenueduringthethirdquarteroffiscal2015.Asexpected,thesequarterlylevelswere
downsignificantlyascomparedtothepriorquarter.
Followingaresomecommentsoneachofourdrillingsegments.O urUSlanddrillingoperationsdelivered
approximately$122millioninsegmentoperatingincomeduringthethirdfiscalquarter.Thenumberof
quarterlyrevenuedayssignificantlydeclined,resultinginanaverageofapproximately156rigs
generatingrevenuedaysduringthethirdfiscalquarterandrepresentinga32%declineinrevenuedays
ascomparedtothesecondfiscalquarter.O naverage,approximately128oftheserigswereunderterm
contractsandapproximately28rigsworkedinthespotmarket.
Excludingtheimpactofearlyterminationrevenues,theaveragerigrevenueperdaydecreasedby3.4%
fromthesecondfiscalquarterto$26,634inthethirdfiscalquarter,andtheaveragerigexpenseperday
increasedby5.5%to$14,130,resultinginanaveragerigmarginperdayof$12,504inthethirdfiscal
quarter.Thedeclineinaveragerigrevenueperdaywasattributabletosoftermarketconditionsandto
mutuallybeneficialtemporarydayratereductionsforsomerigsthatareunderlong-termcontracts.Those
temporarydayratereductionsweregrantedinexchangeforadditionaltermdurationsatfullypricedday
rates,alsofullyprotectingthebacklogforthecorrespondingrigsandeffectivelyextendingtheduration
ofthecorrespondingwork.Theincreaseintheaveragerigexpenseperdaywasprimarilyaresultofthe
highvolumeofidledrigsandrelatedeffortstobecost-effectivethroughthecycleandwell-positionedfor
apotentialindustryrecovery.
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page3of17
C ompanyName:He lme r ic h&Payne
Inc
C ompanyTicker:HP
Sector:Bas ic Mat e r ials
Industry:Ene r gy
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:6.22B
PriceasofEventDate:58 .73
Duringthequarter,thesegmentgeneratedapproximately$76millioninrevenuescorrespondingto
long-termcontractearlyterminations.Givenexistingnotificationsforearlyterminations,weexpectto
generatelessthan$4millionduringthefourthfiscalquarterandabout$23millionthereafterinearly
terminationrevenues.
SinceNovemberoflastyearandexcludingsomerigsworkingforcustomersthatdecidednottoearly
terminatetheircontractsasperpriorwrittennoticetous,wehavereceivedearlyterminationsforatotal
of47rigsunderlong-termcontractsinthesegment.Totalearlyterminationrevenuesrelatedtothese47
contractsarenowestimatedatslightlyunder$200million,approximately$87millionofwhich
correspondstocashflowpreviouslyexpectedtobegeneratedthroughnormaloperationsduringfiscal
2015,$62millionduringfiscal2016,and$49millionafterthat.
Asoftoday,our342availablerigsintheUSlandsegmentincludeapproximately156AC driveFlexRigs
generatingrevenueand186idledrigs,including179idleAC driveFlexRigs.Includedinthe156rigs
generatingrevenueare124rigsundertermcontractsand32rigsinthespotmarket.The156rigs
generatingrevenueincludesomerigsthatareonstandbytypedayratesandsomenewbuilddeliveries
thathavebeendelayedinexchangeforcompensationfromcustomers.Notethatthesedelayed
newbuildrigsdonotyetgeneraterevenuedays.
SinceourlastconferencecallinlateApril,thenumberofFlexRigsonstandbytypedayrateshas
significantlydeclined,asoverhalfofthosehavereturnedtowork.
Lookingaheadtothefourthquarteroffiscal2015,weexpectrevenuedaystodecreasebyabout3%to
4%quarter-to-quarter.Excludingtheimpactofrevenuescorrespondingtoearlyterminatedlong-term
contracts,weexpectouraveragerigrevenueperdaytodeclinetoroughly$26,000.Theaveragerig
expenseperdaylevelisexpectedtodeclinetoroughly$13,900aswecontinuetomanagethetransition
towardswhatweexpecttobeamorestablelevelofactivityduringthenextfewmonths.
Subjecttoadditionalearlyterminationsandexcludingrigsthatwehavereceivedearlytermination
notificationsfor,thesegmentalreadyhastermcontractcommitmentsinplaceforanaverageof
approximately120rigsduringthefourthfiscalquarterandanaverageofabout108rigsand82rigs
duringfiscal2016andfiscal2017,respectfully.
Therecentandmutuallybeneficialnegotiationsofsomelong-termcontractsthatresultedinreduced
dayratesinexchangeforadditionaltermdurationsatfullypricelevelsimpactedtheaveragerigmargin
perdaylevelforallrigsontermcontractsbylessthan5%.Thisaverageforrigsthatarealreadyunder
termcontractisexpectedtoremainstrongandroughlyflatduringthenextseveralquartersassomerigs
rolloffandnewbuildsaredeployed.Theaverageisexpectedtoonceagainincreasetopreviouslevels
whenthementioneddayratereductionsexpireandtheremainingtermcontractdurationsfromthose
contractsbegintoonceagainapply.
Theaveragepricingforrigsinthespotmarketdeclinedbyapproximately7%fromthesecondtothethird
quarteroffiscal2015andisexpectedtocontinuetoatleastslightlydeclineduringthefourthfiscal
quarter.Averagespotpricingtodayisabout28%lowerascomparedtospotpricingatthepeaklast
November.
Letmenowtransitiontoouroffshoreoperations.Segmentoperatingincomedeclinedtoapproximately
$15millionfrom$19millionduringthepriorquarter.Totalrevenuedaysdecreasedbyabout8%asone
rigwasdemobilizedandbecameidleattheendofthesecondfiscalquarter.Alsoasexpected,the
averagerigmarginperdaydeclinedbyabout24%to$14,265duringthethirdfiscalquarter.
Aswelookatthefourthquarteroffiscal2015,weexpectrevenuedaystoberelativelyflatasone
platformrigthatwasexpectedtobecomeidlewasrecentlycontractedbyanothercustomerand
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page4of17
C ompanyName:He lme r ic h&Payne
Inc
C ompanyTicker:HP
Sector:Bas ic Mat e r ials
Industry:Ene r gy
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:6.22B
PriceasofEventDate:58 .73
continuedgeneratingrevenuedayswhilebeingpreparedforthenewproject.
Weexpectthesegment'saveragerigmarginperdaytodeclinetoapproximately$10,500duringthe
fourthfiscalquarter.Theexpectedaveragerigmargindeclineismostlyattributabletofourrigsthatare
notperformingoperationsbutthataregeneratingrelativelylowmarginsunderstandbytypedayrates
andonerigthatisearningatemporarilyreducedoperatingdayratetoaccommodateforaspecial
projectthatisexpectedtoexpandthetotaldurationoftheoverallproject.Thelatterarrangementis
mutuallybeneficialasitextendsthetotaldurationoftheprojectwhilefullyprotectingourminimumterm
contractdurationatfullypriceddayrates.
Managementcontractsonplatformrigscontinuedtofavorablycontributetoouroffshoresegment
operatingincome.Theircontributionduringthethirdfiscalquarterwasapproximately$8millionandis
expectedtodeclinetoapproximately$6millionduringthefourthfiscalquarter.
Movingontoourinternationallandoperations,segmentoperatingincomeincreasedbyapproximately
$10milliontoover$16millionduringthethirdfiscalquarter.Theincreasewasmostlyattributableto
earlyterminationcompensationearnedduringthequarter.Excludingtheimpactof$373perdayand
$4,658perdaycorrespondingtoearlycontractterminationcompensationduringthesecondandthird
quartersrespectively,theaveragerigmarginperdayincreasedfrom$10,524to$13,086perday.This
increasewastheresultofstrongperformanceduringthequarterinallofthecountrieswherewehave
activerigs,evenwhiledealingwithseveralrigsintransition.
Revenuedayssequentiallyincreasedbyabout2%toanaverageofover20activerigsduringthethird
fiscalquarter.Asoftoday,ourinternationallandsegmenthas17activerigs,including11inArgentina,
twoinC olombia,twointheUAE,oneinEcuador,andoneinBahrain.23rigsareidled,includingeightin
Argentina,sixinC olombia,fiveinEcuador,twoinBahrain,andtwoinTunisia.Thus,weexpect
internationallandquarterlyrevenuedaystobedownby10%to15%forthefourthfiscalquarter.
Wealsoexpecttheaveragerigmarginperdaytodeclinebyabout30%to35%ascomparedtothethird
fiscalquarter,excludinganyimpactfromearlycontractterminations.Weexpecttogenerateearly
terminationrevenuesofapproximately$9millionduringthefourthfiscalquarterinthesegment.The
expecteddailyrigmargindeclineinthesegmentisprimarilyduetoexpensescorrespondingtoseveral
rigsthathavebecomeidleandtworigsthatarescheduledtobedemobilizedoutofTunisia.
Letmenowcommentonsomecorporateleveldetails.O urliquiditypositionisverystrongandweexpect
nochangetoourregulardividenddollarpersharelevelsintheforeseeablefuture.O urcapital
expendituresestimateforfiscal2015remainsatapproximately$1.3billion.Althoughwedon'tplanto
provideacapitalexpendituresestimateforfiscal2016untilournextconferencecallinNovember,atthis
point,wewouldexpectthefiscal2016estimatetobesignificantlylowerthantheoneforfiscal2015.
O urFlexreconstructioncadenceplanremainsgenerallythesamewith12newFlexRigstobecompleted
betweennowandtheendofMarchof2016.Includingthelong-termcontractsforthese12newFlexRigs,
wealreadyhavesecuredtermcontractsforanaverageofapproximately137rigsacrossourthree
segmentsduringthefourthquarteroffiscal2015.Inadditionandalsoforallthreesegmentscombined,
anaverageofabout122rigsisalreadyundercontractforfiscal2016,andanaverageofapproximately
95rigsforfiscal2017.
Giventhesoftmarketconditions,ourbacklogdecreasedfromapproximately$3.9billionasofMarch31,
2015toapproximately$3.5billionasofJune30,2015.Thevalueofourbacklogisexpectedtocontinueto
declineduringthefourthfiscalquarterasweearnrelatedincomethroughoperationsorthroughany
additionalbutatthistimeunexpectedearlycontractterminationcompensation.Wenowexpectourtotal
annualdepreciationexpensetobeapproximately$580millionduringfiscal2015andourgeneraland
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page5of17
C ompanyName:He lme r ic h&Payne
Inc
C ompanyTicker:HP
Sector:Bas ic Mat e r ials
Industry:Ene r gy
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:6.22B
PriceasofEventDate:58 .73
administrativeexpensestobeapproximately$130million.Interestexpenseaftercapitalizedinterestis
stillexpectedtobeapproximately$[15]millionforfiscal2015.
Theeffectiveincometaxrateforthethirdfiscalquarterwas28.9%.Thisreducedratewasmostlyaresult
ofafavorableadjustmenttoourUSdeferredstateincometaxratecausedbylessactivityinthestates
whereweoperateinaswellasdecreasestosomeofthestateincometaxrates.Theeffectivetaxratefor
thefourthquarteroffiscal2015isexpectedtobeapproximately34%.
O urdeferredincometaxliabilityasofJune30,2015wasapproximately$1.33billion.Westillexpectthis
liabilitytoremainintherangeof$1.3billionand$1.4billionthroughatleasttheendoffiscal2017.
Withthat,letmeturnthecallbacktoJohn.
Jo hnLinds ay(President,C EO ):
ThankyouagainJuanPablo.Andbeforeweopenthecalltoquestions,Iwanttomakeafewadditional
commentstoframeupthechallengesandopportunitiesaheadforH&P.Thechallengesareclear.
Facedwithaglobaloversupplyofoilaswellasothergeopoliticalandmacroeconomicheadwindsthat
intensifythesupply-demandimbalance,theshort-termoutlookfortheindustryisunfavorable.
However,asignificantdifferencetodaycomparedtopreviousdowncyclesisthattheUSmaybeina
positiontobecomeaglobalswingproducer.Insuchanenvironment,theenergyserviceslandscape
wouldmostprobablybecomemorecompetitivewithevengreaterpressuretoreducewellcosts,enhance
productivity,andaddvalueforcustomers.Webelievethattypeofamarketisagreatopportunityfor
H&P.O urlong-termstrategyhasdeliveredatrackrecordofinnovation,performanceandvalue
creationforcustomers.O urpeopleremaincommittedtothisendeavorandwelookforwardtothe
opportunitiesahead.
SoLindy,wewillnowopenthecallforquestions.
Q UESTIO NS&ANSWERS
Ope r at o r :
(O peratorInstructions).C haseMulvehill,SunTrust.
Chas e Mulve hill(Analyst-SunTrustRobinsonHumphrey):
Goodmorningfellows.SoIguessinoneofyourrecentpresentations,youguystalkedabout
renegotiatingtermdayrateslowerforadditionalterm.C anyoujustwalkusthroughthekindofdetails
hereandkindofwhenyouexpectthosetostepbackup?
JuanPablo T ar dio (VP,C FO ):
ThisisJanPablo.Thosearerelativelyshort-termtypeagreements.Withinayear,weshouldbeoutofthat
typeofarrangement,butwewillseehowthemarketgoes.Again,wedobelievethatitisamutually
beneficialarrangement,andwehaveafullyprotecteddeminimumdurationofthetermaswellasthat
minimumdurationatfullypricedlevels.
Chas e Mulve hill(Analyst-SunTrustRobinsonHumphrey):
O kay.Thanksforthecolor.3Andthenifwekindofmovetointernationalrealquick,isthereany
opportunitiestomoveUSFlexRigstointernationalmarkets?Andwithoutjustkindofidentifyingmarkets,
whatkindofexpectationsdoyouthinkthatyoucouldhaveoverthenext12to18monthskindof
potentialtomoverigstointernationalmarkets?
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page6of17
C ompanyName:He lme r ic h&Payne
Inc
C ompanyTicker:HP
Sector:Bas ic Mat e r ials
Industry:Ene r gy
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:6.22B
PriceasofEventDate:58 .73
Jo hnLinds ay(President,C EO ):
Sure.ThisisJohn.Ithinkthereareseveralopportunities.I'msureyourecallwedidsend10Flex3sto
Argentina.ThosewereallexistingFlex3s.AndthatopportunityinitiallypresenteditselfinIguessitwas
2013.Wehadalittlebitofaslowspotatthetime.Wehadprobably20idleAC rigs,andsowesourced
thoserigsoutoftheUS.
Andsothere'snodoubtthereisanopportunity.TheFlexRigshaveclearlyperformedwellinevery
countrythatwe'veworked.Theperformancehasbeenoutstanding.SoIthinkthere'sopportunitiesnot
onlyinSouthAmericabutIthinkthere'salsocontinuedopportunitiesintheMiddleEast.SoIdothinkthis
slowdowninourcapabilityandhavingthoserigsavailableintheUSdoesgiveusthatopportunityto
expandourinternationalfleet.
Chas e Mulve hill(Analyst-SunTrustRobinsonHumphrey):
O kay.Allright.Lastkindoffollow-upforme.MaintenanceC apEx,youtalkedaboutfiscal2016C apEx
beingdownsignificantly.HowcanwethinkaboutmaintenanceC apExforfiscal2016,assumingaflatrig
countenvironment?
JuanPablo T ar dio (VP,C FO ):
ThisisJuanPablo.We'vesaidinthepastthatofthe$1.3billionestimateforfiscal2015,lessthan20%was
expectedtobeinmaintenanceC apEx.Andsothat'stheonlyparameterthatIcanrefertoitatthispoint.
Whetherit's$200millionto$260millionforfiscal2015,wewillseewhatthenumberisintheend.We'll
have--ifwe--asyousaid,assumingthatactivityremainsstable,thenwewillprobablyhaveaneven
lowerlevelofmaintenanceC apExforfiscal2016.
Chas e Mulve hill(Analyst-SunTrustRobinsonHumphrey):
Great.That'sallIhave.ThanksJohn.ThanksJuanPablo.
Ope r at o r :
KurtHallead,RBC C apitalMarkets.f
Kur t Halle ad(Analyst-RBC C apitalMarkets):
Thankyou.Goodmorning.Youguysmentionedalittlebitearlierinyourpresentationabouttheday
ratestoremainflatoverthenextseveralquarters,andthentheaveragewouldincreasetheirprevious
levelspredicatedonafewdifferentfactors.I'mnotsorry,butIwasalittlebitslowintryingtofollowhow
youweretryingtoexpressthat.Socouldyoustatethatonemoretime?
JuanPablo T ar dio (VP,C FO ):
Sure.ThisisJuanPablo.Wewerereferringexplicitlytorigsthatareundertermcontracts,sonottoallrigs
butonlyrigsthatareundertermcontract.Andwewerereferringtotheaveragerigmarginperday.And
aswelookedattheimpactoftheserenegotiationsonthataveragerigmarginperdayfortermcontracts,
wedeterminedthatthatimpactwasunder5%.
Sowithinthenextseveralmonths,probablylessthanayear,wewouldexpectthosetemporary
reductionstoexpireandtogobacktopriorfullypricedlevels,whichwouldyield,again,thetypeof
marginswherewewereatbeforethesereductions.Sowewouldexpecttogetthatapproximately5%
back,again,oncewehavethesetemporaryreductionsexpire.Doesthatbringclaritytoyourquestion?
Kur t Halle ad(Analyst-RBC C apitalMarkets):
© 2014TheStr eet,I nc.Al l R i ghtsR eser ved
Page7of17
C ompanyName:He lme r ic h&Payne
Inc
C ompanyTicker:HP
Sector:Bas ic Mat e r ials
Industry:Ene r gy
EventDescription:Q320 15Ear nings
Call
MarketC apasofEventDate:6.22B
PriceasofEventDate:58 .73
Yes,thatdoeshelpalot.Appreciatethat.Thefollow-upquestionIhad,John,youindicatedkindofearly
on,orhadgivensomeindicationsoftoneandtenorofthecustomerbase,andindicatedthattherig
countwouldbeunsustainableata$40oilprice.AndIthinkwecanunderstandthatprettywell.
Butmaybediggingalittlebitdeeperintosomeofthistoneandtenor,overallareyouthengettingthe
impressionthattheE&Pmindsetisthatoilisgoingtoremainaroundkindofcurrentlevels,$50-plus
levels,andattheselevelsthatthereisnoupsideornodownsidetoactivity?Howwouldyoucharacterize
theviewpointsonthat?
Jo hnLinds ay(President,C EO ):
Asalways,whenyoustarttalkingaboutthesekindofthingsandusingnumbers,it'seasytoget--tonot
beasclearasyouwanttobe.Ireallymeanttosayinthe$40s.Weareinthe$40s.Weareamidtohigh
$40range.Andagain,Ithink,eveninthatpriceenvironment,wearemorethanlikelygoingtoseethe
behaviorsthatImentioned,whichissomerigsthatwerepreviouslygoingtobereactivatedontheback
halfof2015mostlikelywon'tbeunlessoilpricesimprove.Thequestionisatwhatoilprice?
Andagain,Ithinkwesawtheindustrybeginningtomove.Yousawtherigcountbegintoflattenandyou
begantoseemorediscussionsregardingrigsandthespotmarket.Butinthispricingenvironment,Ijust
don'tthinkyou'regoingtoseethat.Infact,Ithinkyoucouldseetherigcountpullbacksome.So,again,
it'sachallenge.Ithinkinordertoseetherigcountbegintoimprove,we'regoingtohavetoseea
strongeroilpriceenvironmentthanwhatwehaveseen.
Ifyourecall,Ithinkitwasinthelastroundofearningscalls,thereweresomethatwereexpectinga200rigincreasebytheendoftheyear,andwesaidwejustdidn'tseethat.Wecouldn'tseehowtherecould-thatcouldhappen.Weweren't--atthattime,ofcourseweweren'texpectingoiltopullbackintothe
$40s.
ImeantherealityisIthinkifyouwentoutandsurveyed10differentE&Poperators,youwouldgeta
prettywiderangeofexpectationonpricing.AndIthinkalotoffolksarethinkingoilpricesaregoingto
belowerasopposedtomovinghigher.
Kur t Halle ad(Analyst-RBC C apitalMarkets):
O kay.
Jo hnLinds ay(President,C EO ):
Butagain,I'mnotheretopredicttheoilprice.I'mjusttellingyouwhatwe'veheardfromcustomersand
othersintheindustry.Ithinkyouguyshaveheardthesamething.
Kur t Halle ad(Analyst-RBC C apitalMarkets):
Yes.Iappreciatethatcolor.That'shelpful.Thanks.
Ope r at o r :
ByronPope,Tudor,Pickering,Holt.
Byr o nPo pe (Analyst-Tudor,Pickering,Holt):
John,Ijustwantedtogetyourthoughtsonaveragerigrevenueperdaytrends,andunderstandingthat
youguyswanttokeepyourfleetinquickresponsecapability.Andsoifwe--sowhateverrecovery
scenariowewanttoassume,isitfairtothinkthatasweseesomeofyouridleAC rigsgobacktowork
overthenext12,18months,thatthatrigexpenseperdayshouldgravitatebackdownclosertowhatit's
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beenhistoricallyincallitthe$13,000or$13,300range,justsomewhereinthathistoricalrangeisstillthe
appropriatewaytothinkaboutyourtruerigexpenseperday,again,puttingasidethecoststhatyou
guysaretemporarilyincurringtogetyourfleetready?
Jo hnLinds ay(President,C EO ):
Right.AndyousawthatJuanPablohadtalkedaboutourcostexpectationsforthenextquarter.Butyou
areright.Partofthechallengeofcourseistherigsthatareidlehaveanongoingexpenseandatthe
sametime,youraveragenumberofrigsworkinginlower,soyourdenominatorissmaller,soyoujusthave
ahighercost.Butasrigsareidlelonger,theexpenseislower.Wearenotspendingthatsamelevelof
moneythatweareday90onasweareinthefirst30to60days.
SoIthinkyourexpectationisright.Ithink--andagain,we'vetalkedaboutthisandwearenotgoingto
throwanumberoutthere,but$13,000isachievableagaininthefuturewithmorerigsrunning.Idon't
exactlyknowwhatthatnumberofrigcountis.ButIthink,aswebegintogetmoreclarityoverthenext
coupleofquarters,wewillseethat.
Icantellyouwearespendingalotoftimeandeffortonthecostside,butatthesametime,likeIhadin
myremarks,wearegoingtomakecertainthatwearespendingandinvestingintherigsinthewaythat
weneedto.
Byr o nPo pe (Analyst-Tudor,Pickering,Holt):
Andthenjustasecondquickquestionforme.Itseemedasthough,atthepeakofyournewbuildorders,
thelion'sshareoftherigsweregoingtobeheadedtowardthePermianandtheEagleFord.Soifyou
thinkaboutthe12remainingnewbuildstobedeliveredbetweennowandnextMarch,isitreasonableto
thinkthatthegeographicmixofthoseissimilartowhatithasbeen?
Jo hnLinds ay(President,C EO ):
Yes,Ithinkthat'sfair.Ithinkabout--IbelievenineofthosearegoingtoPermian,andIthinktheothers
aregoingintoO klahoma.
Byr o nPo pe (Analyst-Tudor,Pickering,Holt):
O kay,thanksguys.Iappreciateit.
Ope r at o r :
BradHandler,Jefferies.
Br adHandle r (Analyst-Jefferies):
Thanks.Goodmorningguys.Iguessmaybecomingbacktotheinquiriesintheconversation,towhat
extentisthehighgradingconversationthereforealsokindofbeingputoff?Itsoundslikeitis,butevenif
anoperatorwasn'tplanningontakingmorerigs,Ithinkthatyouhadsomeoptimismearlierthatperhaps
ahighgradingprocessmighthavebeenrelevant.
Jo hnLinds ay(President,C EO ):
Highgradingisstillveryrelevant.Idon'thaveinsightintothenumberoflegacyrigs,SC Rmechanicalrigs
thatarerunningtodaythatarealsounderatermcontract.ButIthinkthere'safairamountofrigsthat
areinthatcategory.Andsoyes,thoserigs,weareindiscussionwithcustomerswith--hopefullythe
intentwouldbetoreplacethoserigs.
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SoIthinkthereplacementcycleisaliveandwellandinsomerespectsevenmoresobecauseofthe
typesofwellsthatarebeingdrilledtoday.SoIthinkthat'sgoingtohappen.Again,alotofthatisgoing
torelatetothenumberofthoserigsthatarerollingoffofterm.Doesthatansweryourquestion?
Br adHandle r (Analyst-Jefferies):
Yes.Itabsolutelydoes.MaybeImissedit,JuanPablo,butintermsoftheinternationalinyourfiscalfourthquarteroutlook,soI'mjustjumpingtointernational,perhapsImissedit,andsoapologies.C ouldyou
describeagainthebasisforwhythemarginsfallbacktothe$10,000-ishkindofdaylevel?
Youmentionedverygoodexecutioninfiscal3Q .Areyoujusthedgingagainstthatbeingabletorepeat
infiscal4orwastheresomethingmorespecificthatweighsonthemargininternationally?
JuanPablo T ar dio (VP,C FO ):
ThisisJuanPablo.Thereareacoupleofconsiderationsthataremostrelevantinexplainingthedecline,
andthefirstonerelatestoseveralrigsbecomingidle.Unfortunately,we'vehadclosetohalfadozenrigs
thathavebecomeidleinrecentmonths,andsowearedealingwiththeprocessofstackingthoseand
dealingwiththose.Andofcourse,there'sexpensesassociatedwiththat.
TheotherconsiderationrelatestorigsthatarenotcontractedbeingdemobilizedoutofTunisiathatdo
haveanimpactonmargins,arelativelysignificantimpactonmargins.So,thecombinationofthosetwo
thingsareleadingustothetypeofdeclinethatweareprojecting.
Br adHandle r (Analyst-Jefferies):
O kay.Justafollow-uponthatpoint.AsIthinkmaybeaboutthefirstfiscalquarterof2016then,canwe
imaginethatthecoststhatyou'vejustdescribedinbothofour--you'refinishedspendingthemso
there'salittlebitlowerrigcount?Idon'tknowifthetwo--dothetworelate--sothetwoaren'tworking
anyway.Soarethecostsoutofthesystemthen,andsoyoumight--onemightnaturallyexpectmargins
toreboundonthe17activerigsinthefirstquarterof2016?Isthatlogical?
JuanPablo T ar dio (VP,C FO ):
Ithinkitis.Ithink,everythingelsebeingequal,thatisafairexpectation,forustoseeanimprovementin
marginsduringthefollowingquarter.However,andaseverythingelsebeingequal,we'llhavetosee
whatelsehappensinthesegment,andwewillcertainlycommentonthatduringournextconference
call.
Br adHandle r (Analyst-Jefferies):
Sure.O kay.Thanksguys.I'llturnitback.
Ope r at o r :
WaqarSyed,GoldmanSachs.
Waqar Sye d(Analyst-GoldmanSachs):
Thankyoufortakingmyquestion.O ntherigsthatareidlerightnow,theFlexes,couldyouprovideus
withabreakdownofrigsbetweenFlex4s,5s,and3?
Jo hnLinds ay(President,C EO ):
Letuslookatitrightquickly.Letmegetabetterhandleonthosenumbers.So,approximately111
FlexRigs3s,sevenFlexRigs5sandtherestareFlexRigs4s.
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Waqar Sye d(Analyst-GoldmanSachs):
O kay.Andsothetopnumber-Jo hnLinds ay(President,C EO ):
IthinkyouweretalkingonlyabouttheFlexRigs.Sowedohavesevenconventionalidledrigsaswell.
Thoseareall3,000horsepower.
Waqar Sye d(Analyst-GoldmanSachs):
O kay.AndsotheFlexRigsnumberwas180thatyouhadgiven,right,theidleFlexRignumber?
Jo hnLinds ay(President,C EO ):
Ithinkitwas179.
Waqar Sye d(Analyst-GoldmanSachs):
179?O kay.Andthenofftheserigs,howmanyarepad-drillingcapable?Andcouldyougiveabreakdown
betweenthethreeaswell?
Jo hnLinds ay(President,C EO ):
Well,oftherigsthatare--oftherigs,overhalfoftherigsarepad-capable.O fthoseparticular,what'sthe
numberhere?Ithinkthethingthatisakey,whenyousaytheyarepad-capablerightnowinthat,asan
example,ifit'saFlex3,manyoftheFlex3shavepadcapability,havehadthatupgradeinstalled,but
manyofthemdon't.
ButwecontinuetoupgradeFlex3sintheexistingfleettomakethempad-capable.Sothenumberwe
wouldbegivingyourightnowisasnapshottoday.Ifyouaskusthatsamequestionthreemonthsfrom
now,thenumberisgoingtobehigher.
JuanPablo,doyouwanttogoahead?
JuanPablo T ar dio (VP,C FO ):
Ithinkthenumbersareabout36FlexRig3s,about41FlexRig4s,andsevenFlexRig5s.
Waqar Sye d(Analyst-GoldmanSachs):
Arepad-capableoftheonesthatidled?
Jo hnLinds ay(President,C EO ):
Andidled,yes.
Waqar Sye d(Analyst-GoldmanSachs):
O kay.Myunderstandingis,gosh,maybelikea$1millioninvestmenttomaybemakeanyrigpad-capable.
Doyouexpensethatcost?Doyoucapitalizethat?
Jo hnLinds ay(President,C EO ):
Wecapitalizethat.
Waqar Sye d(Analyst-GoldmanSachs):
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Youcapitalizethat.O kay.Makessense.Andthenwhatisthedifferencebetween,datadifferencemaybe
inpercentagetermsbetweenrigs,inthelastquarter,betweentherigsontermcontract,thedatathere
orrevenueperdaythereversusthoseonspot?
Jo hnLinds ay(President,C EO ):
Letmegiveyouageneralanswerforthat.Thedayratesandpricingfortermcontractshasremainedvery
steadyexceptforwhatImentionedearlierasitrelatestothesetemporaryrenegotiations.Thatimpacted
marginsbyabout5%.Sothedayrateswereonlyimpactedbyafewpercentagepoints,acouple
percentagepoints,maybe2or3.
Sothosehaveremainedflatawhile,sinceNovember,asI'vementioned,we'vehadadeclineinthe
averagespotpricingforourrigsofabout28%.Ithinkitisfairtoassumethatatthepeak,theaveragerig
--excuseme,theaveragedayratesorpricingforrigsontermwassimilar.Ithinkitwasmaybeacoupleof
percentagepointshigherthantheaveragespotpricingatthatpoint.So,thosearesomedatapointsfor
consideration.
Waqar Sye d(Analyst-GoldmanSachs):
O kay.
Jo hnLinds ay(President,C EO ):
Andofcoursenow,again,IjustwanttomakesureIclarify.Thetermdayratesoraveragepricingthatwe
sawatthepeaklastyearhascomedownslightly,temporarily,andweexpectittocomebackup,asI
mentionedinthepreviousanswer.Right?
Waqar Sye d(Analyst-GoldmanSachs):
Sure.Iunderstandthat.John,justabroaderquestiononcosts.Likecostis--obviouslycuttingcostsis
goingtobecomeabigtheme.Foralanddriller,whereistheopportunitytocutcosts?Howcanyoucutit
inG&A?Isitattheriglevel?Whereistheopportunitytocutcosts?
Jo hnLinds ay(President,C EO ):
There'sobviouslyefficienciesassociatedwiththecostcuttingsavings.Let'sfaceit.Thecostincreaseswe
havehadaretransitionaryinnature,aswehavealreadydescribed.O bviously,thelaborcostisthe
largestportionofthatcost,andasyouknowthat's,adirectcostpass-throughtothecustomer.Soany
wagedecreaseisgoingtobepassedthrough,sothereisanoffsettingrevenuereduction.
There's--themaintenanceandsupplycostistheotherside,ortheotherlargerpieceorlargestpieceof
thecost.Andagain,Ithinkweareinasgoodapositionasanyonetobeabletomanagethatas
effectivelyaspossiblewiththefleetthatwehave,thesizethatwehaveandthefleetuniformity.Butthe
factis,andyou'veprobablyheardmesaythisbefore,butthefactistherigsareworkingharderand
harderbecausetheyaredrillinglongerlateralsathigherpumppressuresandthere'sjustmore--therigs
aredrillingfasterwells,fasterwellcycletimes.Sothat'sworkingagainstus,sotospeak,ongettingthe
maintenanceandthesupplycostsdown.Sothere'seffortsthatwehaveunderwaytoworkonthat.
JuanPablo,doyouhaveanythingelsetoaddonthat?Imeanagain,thebiggestchallengewehaveright
nowiswe'vegotcostsassociatedwithrigsthatareidlethataren'tearningrevenue,andsothat'sthe
challenge.Andthere'sfixedcostsassociatedwiththatthatthere'snotanythingwecandoaboutatthis
stageofthegame.
Waqar Sye d(Analyst-GoldmanSachs):
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Sure.O kay.Thankyouverymuch.Thanksfortheanswers.
Ope r at o r :
SeanMeakim,JPMorgan.
Se anMe akim(Analyst-JPMorgan):
Goodmorning.SoIjustwantedtotalkalittlebitaboutnewbuilds,thenewbuildprogram.Historically,
we'vethoughtabouttherigsashavingprettylonglives,maybe20,30years.Andwiththehigh-specrigs
thatarecomingouttoday,we'reworkingonthemalotharder,theshiftintechnologydemandfromthe
clientside.Doyouthinkthatthelifeofrecentbuildsisgoingtobemuchshorter,somethinglikecloserto
15years?Andthenhowdoesthatinfluence--ifyouthinkthat'sthecase,howdoesthatinfluenceyour
viewonfuturedemandfornewbuildsaswelookoutthenextcallitcoupleofyears?
Jo hnLinds ay(President,C EO ):
Wehaveofcourseouroriginal32Flex3sthatwebuiltfrom2010to2014.Andagain,you'veprobably
heardussaythisbefore,butwehavecontinuedtoinvestinthoserigsandwe'vecontinuedtomake
certainthatthetechnologythattheyhaveisuptospeed.
Thestructures,wehaveanongoing,verydetailedstructuralinspectionprocess.Thestructuresarevery
sound.AndsoIdon'tknowifit'sa15-yearlifeor20-yearlifeora30-yearlife.O bviously,themarketis
goingtodictatethat.Iwouldliketothinkthatwiththeinvestmentswearemakingintheserigsthat
they'regoingtocontinuetowork.Isuredon'tseeanyevidencethatthosefirstFlex3sthatwehavebuilt
areanylesspopular.Thoserigscontinuetowork.Somehaveskidsystemsandsomedon't.
SoJuanPablo,Idon'tknowifyouhaveanythingelsetoaddonthat.
JuanPablo T ar dio (VP,C FO ):
I'lljustaddthatthecommentthatforfinancialpurposeswedepreciateourrigsin15yearsstraightline
witha10%salvagenumber,andthatnumberorthatapproachwebelieveisafairone.
Jo hnLinds ay(President,C EO ):
Ithinktheotherthing,asIthinkaboutyourquestion,youareright.Therigsareworkingharder.It'smore
wearandtearontheassets.Andsoagain,that'soneofthethingsthatweprideourselvesin.Ithinkwe
doaverygoodjobin--isinassetintegrityandtakingcareofthoseassetsandsupportingourpeople,
becauseit'snotonlytherigssideoftheequationonthesemuchfasterwellcycles.It'salsopersonnel
andwhattheyarerequiredtodointhatgivenwellcycle.Sothere'salsotheorganizationalsupportthat
weprovideourpeoplethatallowthemtobettermaintainthatequipment.Again,Ithinkthat'soneofour
significantcompetitiveadvantages.
Se anMe akim(Analyst-JPMorgan):
That'sallveryfair.Iguessjuststickingwiththenewbuildtheme,aswelookforwardhere,wearetalking
nowaboutpotentiallysomesofteningofdemand,maybesomeevaporationofincremental.Butiftherig
countdoesn'ttakeanotherlegdown,ifweflatlinehereforseveralquarters,let'ssay,istherean
opportunityasre-fleetingrunsitscoursethatyoucouldseeincrementaldemandfornewbuildsevenina
worldinwhichtherearestillotherAC rigsthatarestillidle?
Jo hnLinds ay(President,C EO ):
Ithinkwe're--Idon'tknowwhattherigcountistohavewhatyoujustdescribedhappen.Ithinkit
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significantlyhigherthan850rigs.Iwouldthinkitwouldatleastneedtobe1,000or1,100,1,200rigs.ButI
think,again,toyourpoint,notallAC rigsarecreatedequal.AndIthinkthat'sprettyevident.O verthe
lastcoupleofyears,therehasremained50or60idleAC rigsthatneverworked.Sothoserigsobviously
arenotincludedintheequation.
Andthenaswetrendmoretowardsahighernumberofrigdrillingonpadsatahighernumberofrigsthat
require7,500psithathavegreaterdepthrequirements,alotofthosethingsdisqualify.Someofthose
maybedescribingasalowertierAC assets.Soagain,itwillbeinterestingtowatch.
Nowdoesthemarket--theotherpartofyourquestionisdoesthemarketgetstrongenoughtohave
ratesthatwillsupportnewbuildeconomics?Andwearealongwayfromthat.
Se anMe akim(Analyst-JPMorgan):
Thatmakesalotofsense.Thanks,John.Iappreciateit.
Ope r at o r :
MichaelLaMotte,Guggenheim.
Mic hae lLaMo t t e (Analyst-GuggenheimSecurities):
Thanks.John,ifIcouldfollowuponyourverylastcomment,themarketbeingalongwayawayfrom
newbuildeconomics.C anyoutalkaboutjustphilosophicallyhowyoufeelabouttheinfrastructureyou've
builtbeforenewbuildingaswegointo2016?Inpreviousdownturns,you'vemaintainedacadenceof
onerigamonth(technicaldifficulty)integrityofthat.Howareyouthinkingaboutthatintonextyear?
Jo hnLinds ay(President,C EO ):
Youknow,youheardussaythatourdesireistokeepthatfacilityorthatcapabilityupandrunningand
operating.Ithinkthelowestwe'vebeenisonerigamonthoverthelast--well,since2006.Andwehad
talkedaboutgoingtoonerigaquarter.
Thegreatnewsrightnowiswedon'thavetomakethatdecisionnow.That'spartoftheadvantageof
pushingournewbuildsoutinto2016.Butwewillhavesomelevelofmanufacturingcapability.We
wouldn'tclosetheentirefacilitydown.ButIdon'tknowwhatitlookslikerightnow,Michael.
Therealityistheoutlookisprettydifficult.Andagain,wehaven't--wesawsomeimprovementinoil
pricesandstartedtoseealittlepickupitappearedinactivity,andnowwearefacedwithwhatweare
facedwith.Butagain,Ifeelprettygoodthatwewillfigureoutsomewaytokeepthatfacilityworkingin
somefashion.Ijustdon'tknowwhatthatlooksliketoday.
Mic hae lLaMo t t e (Analyst-GuggenheimSecurities):
Andmaybe--Iknowaftermarketsarelong-termbutifIthinkaboutyourabilitytodomaintenanceonrigs,
preparethemforworkoverseas,youknow,asopportunitiesemerge,isthatthekindofworkscopethat
wecouldseeback-roomfillingiftherewerenocontracts(technicaldifficulty)
Jo hnLinds ay(President,C EO ):
Thereareseveralopportunities.That'soneofthem,international,justotherupgradestorigs.Andagain,
IsaidbeforewecontinuetoaddpadsystemstoFlex3sandotherupgrades,7,500psisystemsandthose
typesofthings.Sothere'salotofthingsinamarketthatcontinuestoevolveandhashigherandhigher
expectationsforrigs.That'soneofthewaystokeepthefacilityoperating.
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Mic hae lLaMo t t e (Analyst-GuggenheimSecurities):
Thelastoneforme,youtalkedaboutthecompetitivenessandthefactthat90%-plusoftheUSfleetis
1,500horsepower--obviouslyimpacting.Howdoyouthinkaboutautomationpenaltieswith
Schlumbergernowtalkingmoreaboutthenextgenerationrig(technicaldifficulty)integrationof
downholesurface,moreautomation.Isthefleetsortofplug-and-playready?Shouldthat(technical
difficulty)
Jo hnLinds ay(President,C EO ):
Ithinkweareprobablyaswell-preparedasanybodywithrespecttoautomation.AndIthinkitobviously
hasanopportunitytodomoreandcontributemoreinthefuture.Again,Ilike--andyou'veprobably
heardussayIlikeourposition.IlikewhereweareinthatspacewiththeAC fleetthatwehaveandwith
thefootprintthatwehaveandtheknowledgethatwehaveasanorganization.
SoIfeelprettygoodaboutit,andIthinkit'sgotsomelikelihood,butitalsohas--justbecauseofthe
levelofperformancethatwearedeliveringtoday,asyouknow,it'sharderandhardertogetother
technologiesthatareinvolved.Butagain,Ithinkthere'ssomepossibilitythere.
Mic hae lLaMo t t e (Analyst-GuggenheimSecurities):
Thankyou.
Ope r at o r :
JeffSpittel,C larksonPlateauSecurities.
Je f f Spit t e l(Analyst-C larksonC apitalMarkets):
Thanks.Goodmorningguys.Iknowwearegettingtowardstheendofthehournow,somaybejusttolook
atthatcommentthatyoumadeaboutstandbysandrigsbeingputbacktoworkaswesawforatleasta
fleetingmomentofrecoveryinoilprices(technicaldifficulty)andsomeotherassetsoftheconversation.
IsitfairtoconcludeIguessthatyoudidseequiteabitofupsidesensitivityto,allthingsconsidered,a
relativelymodestincreaseincrudepricesaswewentthroughthequarter?Andobviouslythatisn'tthe
casetoday.Butmaybesomecauseforoptimismthere.
Jo hnLinds ay(President,C EO ):
IwanttomakecertainIunderstoodyourquestion.Soifweseeanimprovementinoilprice,wecouldsee
acorresponding--afairlyquickcorrespondingresponse.Isthatwhatyou'reasking?
Je f f Spit t e l(Analyst-C larksonC apitalMarkets):
Yes.That'skindofwhatIamgetting,John,Iguessfromyourcommentthatyoudidseealotofrigsthat
wereonstandbyratesgettingbacktoworkwhenwesawoilpricesrecoverbrieflyduringthequarter.
Jo hnLinds ay(President,C EO ):
Yes,Ithinkthat'soneelement.That'soneindicator.Andagain,justcustomerdiscussionsandlookingfor
rigsandhighgrades,insomecasesit'sahighgrade.Inothercases,it'sanadditionalrig.AndIthinkyou
probablywouldseefewerdiscussionsonadditionalrigsandwe'llcontinuetohavediscussionsregarding
highgradingorreplacingrigsthatareolderthatarenotperformingaswell.
Je f f Spit t e l(Analyst-C larksonC apitalMarkets):
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Sure.O kay,thatmakessense.Thanksguys.I'llturnitback.
Jo hnLinds ay(President,C EO ):
Lindy,wemayhavetimeforonemorequestionplease.
Ope r at o r :
JimWicklund,C reditSuisse.
JimWic klund(Analyst-C reditSuisse):
Goodmorningguys.Thanksforlettingmein.Iappreciateit.
Youguysmentionedonaconferencecallacoupleofyearsagothatyouhave57customerswhoarejust
finewiththefactthatyourrigsskid,notwalk.Youtalkedaboutpad-capablerigs.Havey'allputany
walkingsystemsonanyofyourrigs?Doyoufeelanypressureto?Andwhenyousaypad-capable,what's
thedifferencewithyouguysbetweenpad-capableandnotpad-capable?
Jo hnLinds ay(President,C EO ):
O kayJim.Thatwasamouthful.
JimWic klund(Analyst-C reditSuisse):
Haha,lastquestion.Iwon'tdoafollow-up.
Jo hnLinds ay(President,C EO ):
Thankyou.Idon'treallyknowhowtoaddressthelastpartofyourquestion.Withus,again,we'vebeen
utilizingskidsystemsonFlex3sforquitesometime,andofcourseFlex4sandFlex5s.Youknowthestats.
Lastyear,wehad89newbuildsandovertwo-thirdsofthosehadpad-capablesystemsaspartofthe
investment.
JimWic klund(Analyst-C reditSuisse):
Andyou'recallingpad-capablesystemswalkingsystems?
Jo hnLinds ay(President,C EO ):
Well,no.It'sinterestingbecausealotofpeoplewillreferenceapadrigaswalkingevenwhentherigisn't
awalkingsystem.SoIthinkthere'ssome--Ithinkthere'ssomeoverlapinthere.O urexperiencehas
beenwehaveafamilyofsolutionswithourFlexrigoffering,andthere'supgradecapabilitieswithinthat.
We'vehadalotoftractionovertheyearsutilizingit.
Toansweryourquestion,wedon'thaveawalkingsystemnow.Ithinkit'sfairtosayyou'veheardmesay
inthepastthatifandwhenwegettothatpointwhereit'sadifferencebetweenhavingajobandnot
havingajob,obviouslyit'snotabreakthroughtechnology.Thetechnologyhasbeenaroundforalong
time.Sowewouldputawalkingsystemonarigifitwerethedifferencebetweenhavingalargeshareof
themarketandnothaving.Sothat'sreallythebottomlineforus,isthatcustomerdemandhasbeen
prettysignificant.Wecontinuetoupgraderigswithoursystem,ourskidsystems,andwehavecustomers
thatloveit.So...
JimWic klund(Analyst-C reditSuisse):
O kaygentlemen.Iappreciateit,andthanksforsqueezingmeinattheend.
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MarketC apasofEventDate:6.22B
PriceasofEventDate:58 .73
Jo hnLinds ay(President,C EO ):
ThankyouJim.Andonemorequickcomment.Imayhaveusedaroundreferenceof$130millionasit
relatestooperatingincomeforthethirdfiscalquarter.Amoreaccuratenumberwouldbe$132.8million.
Sowiththat,thankyoueverybodyandhaveagreatday.Goodbye.
Ope r at o r :
Thatdoesconcludetoday'sprogram.
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