Nabors Industries Ltd.
Q1 2014 Earnings Call Transcript

Published: 23 Apr 2014

[Operator:]

Good morning, and welcome to the Nabors Industries First Quarter Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Mr. Dennis Smith, Director of Corporate Development. Please go ahead.

[Dennis A. Smith:]

Good morning, everyone, and thank you for joining our first quarter 2014 earnings conference call this morning. We will follow our customary format today with Tony Petrello, our Chairman and Chief Executive Officer; and William Restrepo, our Chief Financial Officer providing our perspective on the quarter’s results and provide you with insight into the trends in our markets and anticipated influence on our business. In support of his remarks, we have posted some slides to our website, which you can access following along, if you desire. They are available in two ways. If you are participating by webcast, they’re available as a download within the webcast. Alternatively, you can download them from nabors.com under Investor Relations in the submenu, Events Calendar. And you will find them listed as supporting materials under the conference call listing. With us today, in addition to Tony, William, and myself, are Laura Doerre, our General Counsel; Clark Wood, our Principal Accounting Officer; and all other heads of our various business units. Since much of our remarks today will concern our expectations in the future, they may constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks and uncertainties as disclosed by Nabors from time to time in its filings with the Securities and Exchange Commission. As a result of these factors, our actual results may differ materially from those indicated or implied by such forward-looking statements. Now, I will turn the call over to Tony to begin.

[Anthony G. Petrello:]

Good morning. Welcome to the Nabors Industries Conference Call to review our results for the first quarter of 2014. Thank you for participating this morning. As Denny mentioned, we have posted the quarterly presentation slides on nabors.com. I will refer to these by slide number during my remarks. I want to officially welcome William Restrepo to the Nabors family. I think he will provide a great addition to the company and he is going to be available for the analyst community to help with financial questions and operating questions as well. And I think he will make information more seamless and available to the investment community. I would like to make my opening remarks, William will then discuss the first quarter results, and then I will wrap up before we take questions. Yesterday, we announced our results for the first quarter, which exceeded our expectation from last month when we provided guidance to account for adverse weather conditions in the Northern United States. Our EPS from continuing operations totaled $0.16. Excluding our weather impact to completion segment, all other businesses delivered strong operational performance throughout the quarter and even our completion segment had the highest monthly utilization in recent times during the month of March. Absence of weather-impacting completions, our first quarter earnings were driven primarily by first another strong performance in our International Towing business; second, activity improvements from the U.S. Lower 48 segment excluded the impact of the fourth quarter’s early termination revenue; third, seasonal improvements in the U.S. for offshore Alaska and Canadian drilling operations; and fourth, continued progression into Production Services segment from higher revenue in the recently acquired KVS trucking business. Our Rig Services, which consists mainly of Canrig, reported its best performance in over a year. Results in the Rig Services segment benefited from both strong revenue and margin, which were aided by a restrained level of expenses. I will discuss those factors as well as our outlook in a few moments, first, some recent highlights. Before we get into the details, I would like to note the following ccomplishments during the first quarter. First, during the quarter, we signed contracts for four PACE-X rigs to be deployed later in 2014. These are rigs, which we previously decided to build in advance of securing contracts for them. We believe that this high level of customer interest in additional PACE-X rigs validates our strategy to commence construction and maintain a steady pipeline of long lead time components ahead of signing contracts. Second, we completed deployment of three of our significantly upgraded rigs into Argentina during the quarter, we’re also on time and on budget. Another one deployed earlier this quarter, so we now have five of the total six working and expect the final to spud in the second quarter. Third, we mobilized the first of 11 previously announced newbuild rigs into Saudi Arabia. The rig was subsequently accepted by the customer and went on rate earlier this month. This very large newbuild program is on time and on budget. The financial impact of these rigs will phase in during 2014, and we should see the full impact of our results in the first quarter of 2015. Both the Saudi Arabia and Argentina projects are examples of Nabors unmatched opportunity to improve returns by allocating capital into strategic markets around the globe. Let me now turn to our outlook. Essentially every element of the business looks positive in the near to intermediate term. I will start with the U.S. Lower 48 market where several positive trends are beginning to converge. First, as I mentioned, we see continuing interest in our PACE-X rig. We deployed the first X rig about a year ago and we now have 21 in the field with a 22 expected to go out this week. The performance of this rig and reducing well times has exceeded our expectations. This growing interest in the X rig is a direct result of the benefit the rig is generating for customers. We rolled out five X rigs in the first quarter. Our plans call for an additional 13 rig deployments during 2014, seven of which will already have contracts. Second, customers are developing plans for higher density drilling pads, including in the Eagle Ford and Permian. The PACE-X rig is ideally suited for drilling large well arrays from a single pad. Third, we are realizing broad, though still moderate rate increases on rigs as contracts rollover. We think strong cash flows are driving customer spending while drilling rig efficiency gains maybe starting to plateau. That convergence means additional wells are starting to generate demand for incremental drilling rigs. For our International business, the upturn in the market we have previously identified remains firmly intact. For the second quarter, the short duration factors which we mentioned previously on conference calls will impact results early in 2014 should begin to dissipate. Our largest jackup 660 remains on schedule to go back on day rate late this quarter in the Arabian Gulf. The success of the shipyard visit is a real credit to our local team and in particular their ability to pre-plan the scope and execution of the yard work, while the rig was still operating late last year. Our second newbuild land rig for the Saudi market is scheduled to deploy during the second quarter. We should begin to see the impact of higher day rates as the renewals we signed last year begin to rollover to higher rates. Looking further out, we see opportunities for additional rigs across several markets, including Saudi Arabia, Argentina, offshore Mexico, Kurdistan, and India land. We recently signed our first contract for the Indian land market, a high horsepower rig targeting high pressure, high temperature gas. That market is a new one for us and the high pressure, high temperature work is in our suite spot. Partially offsetting these positive factors are declining prospects for operations in the increasingly competitive Mexico land market, where we currently operate four rigs. In addition, two of our platform rigs operating offshore India have come off contract. And we will spend sometime off rate as we find new opportunities for them. The Alaska market looks highly prospective. The market there appears strong enough support at least one additional rig this year versus 2013 and potentially two more in 2015.We are in discussions with customer for large projects in Alaska, which were potentially requires significant capital investments but which we would also expect to generate attractive returns. For the US offshore segment, we are committed to the platform market, where we think we hold a distinct advantage with our proprietary platform rig designs. Utilization of our platform rigs is firm. We anticipate that the rig supporting the Bigfoot project will mobilize very late this year and come out full operating day rate about mid year 2015. As we have mentioned previously, we are looking at alternatives for the US jackup and barge rig fleets. Prospects for the Gulf of Mexico jackups and barges are limited. So we are likely to see a decline in US offshore business in 2014. Moving out to Canada, we are moving through the break up, so we expect sequential results to reflect that impact. As with the underlying market we have previously described it as the most challenged among our drilling segments from a return perspective and that characterization has not changed. However, we are seeing somewhat more rig demand that we expected at this point of the season due to incremental year round work. We expect the Canadian market to improve if the large liquids projects now contemplated move forward for its LNG export projects move ahead. Our rig services business is benefiting from the strong additions the Canrig’s backlog since the second quarter of last year. The increase in the third-party backlog since that time has outpaced the increase form our internal business. Total backlog now, since at the highest level in the past five years. We expect the slight shift in the Canrig’s business mix as well as an increase in necessary expenses, to compress margin somewhat in the current quarter and for the balance of the year. In our completion services business, although we are disappointed with the financial performance of the segment the first quarter, we are somewhat optimistic for improving performance throughout 2014. As sever weather eased late in the quarter, we saw better financial performance. So the full period’s results are not indicative of the entry point into the second quarter. We expect to return to positive operating income during the second quarter due to higher stage volumes, better cost absorption, and lower cost for purchased items including guar and chemicals. In the production services business, we expect rig and trucking hours increase seasonally. Utilization for our workover rigs and trucks is improving and we are seeing increasing bit opportunities for rigs. The trucking business we acquired late last year continues to perform at our expectation. In the California market, we have seen some tempering of well P&A activity as customers shift their focus to additional production and production enhancement. I’ll conclude this outlook with our near-term expectations. Several factors will impact our result in the second quarter. First, a traditional seasonality in the Alaska and Canadian drilling businesses. Second, we expect abatement of the severe weather that hampered operations and results in the completion services business. The monthly trend in that business has been positive since bottoming in January. Finally, Rig660 our largest jackup rig which is working in the Arabian Gulf is expected to go back on day rate in the later part of the quarter as scheduled. In addition to these factors, in the international segment we foresee a few rigs coming off day rate tempering the positive development I mentioned. The impact of the newbuilds and renewals that we have previously announced should be most pronounced in the second half of 2014. In the U.S. we expect higher quarterly rig years as additional PACE-X rigs enter service. Demand and completion services and pressure pumping in particular is improving and the market maybe tight enough to support limited price increases. The pressure pumping industry and its customers realize that last year’s spot-market pricing does not generate an acceptable return on investment. This is true especially when considering the maintenance expenditures necessary as fleets shift to more 24 hour work and deeper horizontal wells typically with higher rates and pressures. This could support current attempts by us and by our peers to increase pricing. Now, I’ll turn the call to William who will detail our financial results.

[William Restrepo:]

Thank you, Tony, and good morning, everyone. For those following our slide presentation, our consolidated financial results are illustrated on slide number five. Net income from continuing operations was $49 million or $0.16 per diluted share compared to $92 million or $0.31 per share in the first quarter of 2013 and $129 million or $0.42 per share in the fourth quarter of 2013. The sequential decrease was principally driven by the following four items

[Anthony G. Petrello:]

Thank you, William. Let me summarize our views and priorities. First, drilling markets continue to improve globally. We see this trend most prominently in the high-spec segment of the market that is where Nabors traditionally focuses and where we see opportunities to deploy capital and attractive returns. Second, the execution of our major capital projects is proceeding smoothly. The scale of our current capital program is unprecedented in the company’s history and our combined teams are successfully delivering high-performance rigs on time and on budget. Third, our efforts to streamline the company’s activities are continuing. We are perusing opportunities to prove non-core assets in multiple lines of business. We are also consolidating functions where that make sense. A quarter ago, our outlook for the year called for a soft start. We experienced an even greater challenge in completion services. Our expectation remains intact for earnings to improve as the year progresses, especially in the second half. Looking further, the outlook is positive and we’re positioning Nabors to capitalize on that environment. Thank you for the time this morning. With that, I will take your questions.

[Operator:]

We will now begin the question-and-answer session (Operator Instructions). Our first question comes from Jim Crandell of Cowen. Please go ahead.

[Jim D. Crandell:]

Good morning, Tony and team and William, welcome to Nabors.

[Anthony G. Petrello:]

Thank you, Jim.

[William Restrepo:]

Thank you.

[Jim D. Crandell:]

And also my condolences to everyone in Nabors from your recent loss.

[Anthony G. Petrello:]

Very much appreciate it.

[Jim D. Crandell:]

Tony, I wanted to first ask about pressure pumping, you talked about the prospects for increased pricing, are you actually seeing that now in any regions and what is that exactly that makes you optimistic? Is it the tightening utilization you see out there in the field today?

[Anthony G. Petrello:]

Let me first try to answer that, put some context around your question. Last fall commodity prices were oil around 88 and get through 50 at the time operator budgets were done. They are now about 102 and 480, and so all the reports from the operators is that cash flow is running more robust. The second thing is you’re obviously seeing more pads, you’re seeing more laterals per pad, and you’re seeing more prop per well. And I see 215 well pads moving north, and if you just look at our utilization, we’ve had an increase in 50% of work on pads as well. Then layer that on top of the following, which we’re running on 24-hour basis 75% of our spreads are running on 24-hour basis. Now, I think there is a lot of literature out there about the capacity of the frac spreads, and I don’t pretend to have any more greater insight towards that number is whether it’s $3 million actual horsepower or whatever. But I do suspect whatever that number is, it’s nominally overstated, and I also suspect given the number I just gave in terms of 24-hour crews the amount of burning up that we are doing of the equipment is…

[William Restrepo:]

Hello?

[Operator:]

Pardon me, this is the conference operator.

[Jim D. Crandell:]

Hi, this is Jim Crandell, I was asking you a question and it was cut off.

[Operator:]

Yes, I do see that, one moment. Actually one moment here. Mr. Denny Smith.

[Dennis A. Smith:]

Yeah.

[Operator:]

Petrello or you gentlemen….

[Anthony G. Petrello:]

Yes.

[Operator:]

So they may still on, I was cut off there.

[Jim D. Crandell:]

Yes. We hear you.

[Anthony G. Petrello:]

We can hear, Jim.

[William Restrepo:]

We hear you, Jim

[Jim D. Crandell:]

Okay. I’m sorry. I was cut off, but now I’m back on. I missed the end of your response, Tony, but just move on to a follow-up question. You’ve been having great success with getting the orders for your PACE-X. My question is about the performance of the rig to-date, or can you indicate strong performance in the rig? And what – is there a primary factor or two that you can attribute that performance too?

[Anthony G. Petrello:]

Well, so I think that there is a slide in the slide deck at on page 10, where everyone talks about how great the rigs are and it’s very hard with apples-to-apples comparison. So I have been very reluctant to start saying one rig is better than the other rig, because of the apples-to-apples comparisons, but what we did here in this slide is just give a context to show that our rigs are not second to anybody is we went to a customer in a field, where our rig is now working and the competitor rigs they’re well know are in that same field working the same type of job and you can see the dramatic fee per day difference. That’s due to, I think the configuration of the rig and it’s due to the including the horsepower and a bunch of other things on the rig. So, I think the difference is real and I think as you move to pads with multi, as we have talk like this before in terms of what phase excess designed to do its really. It shines in for those operators that wanted to do, multi-wells on pads, particularly multi-wells like lines – I would say four rows of four wells each. That’s where the rigs really shines and I think that kind of work is going to continue I think everything the PACE- X has over the other competitor rigs has a spacing advantage that in terms of size and location. With all the pressure on operators to minimize space which that transmits to costs, it also translates into getting approvals. I think that’s another advantage of the rig. So now I think we – to the extent – this is obviously a bed on pad drilling, but I think the market’s moving in that direction.

[Jim D. Crandell:]

Okay. Then just one quick follow-up to that, Tony. You have been building in advance of contracts here because of your confidence, I think, in A, the market, and B, the rig’s performance. Do you see yourself continuing to do that in the future? Might you get even more aggressive in that regard?

[Anthony G. Petrello:]

The answer is to both yes.

[Jim D. Crandell:]

Okay. Okay. Terrific. Thank you very much.

[Operator:]

Our next question comes from Ole Slorer of Morgan Stanley. Please go ahead.

[Ole H. Slorer:]

Thank you. And, Bill, congratulations again with the move. I suppose all we should do from now on is to follow your every move, because you seem to have an impeccable track record in exiting and entering businesses?

[William Restrepo:]

Thank you, Ole it was not improved this although.

[Ole H. Slorer:]

I don’t believe it for a second. This is not a coincidence, if I look at your track record on entering and exiting. So very positive backdrop all around. Could you help us a little bit with the timing of the international, I think, on North America? Everybody can probably do their own models, but when it comes to the international progress, I mean, you are highlighting a ton on your contract, on what appears to be very profitable terms. At the same time, you are highlighting some near-term misses on the Mexico land and the offshore and Saudi jackups. That’s supposed to Saudi jackup is all incremental, negative this second quarter, but how do you see the EBITDA move for your international drilling operations sequentially into the second quarter with these kind of near-term headwinds and strong tailwinds into the back end of the year?

[William Restrepo:]

Yes, well with that was standing the jackup not going back to work and the transitory effects, we see going into the second quarter at least as well as for the first quarter. And then we see a ramping up internationally in third and fourth quarters. So we see that as the transitory things we talked about those negative were being offset by the early deployment of things we’ve spoken about, and then by the third and fourth quarter those things begin to have a substantial impact when you start to see the ramp up.

[Ole H. Slorer:]

Okay. So flattish into the second quarter and then we start to get to the tailwind?

[Anthony G. Petrello:]

Yes, I think we’re going to have enough of the new stuff on there to make up for any of those transitory things we’ve spoken about, that’s what we’re working toward. And as you can see that sort of what happened this quarter as well, where we had some positive stuff, we came out a little bit better than what we thought given the negative stuff would be jackup.

[Ole H. Slorer:]

So if we look a year ahead until the first quarter of 2015, when they are getting for the full tailwind internationally, but also what you are describing in the U.S., would you care to shed some light on which of your four key divisions U.S., Canada, or international do you think will have the strongest EBITDA growth, percentage wise, year over year as we still look a year ahead, first quarter to first quarter

[Anthony G. Petrello:]

I think clearly International will.

[Ole H. Slorer:]

Thank you. If you look to the Production Services and Completion Services…

[Anthony G. Petrello:]

Yes…

[Ole H. Slorer:]

Clearly a disappointing result on the Completion Services there. But based on what you are seeing in the market right now and getting pressure pumping back to full utilization as you highlighted, what should a sensible near-term EBITDA margin be for that business?

[Anthony G. Petrello:]

In terms of absolute dollars I think we will – we should get back to at least the rate of EBITDA that we’re in the third and fourth quarter and that kind of range or the second quarter, on a consolidated basis for NCPS as a whole.

[Ole H. Slorer:]

And you highlighted some challenges around proppants, for example, was this because of the weather and was this relating to ceramics, the white sand or in general, could you shed some light on that and how you have solved that situation?

[Anthony G. Petrello:]

Yes, well on the supplier side, I don’t think we have problems. I think we have really good arrangements with suppliers and we are working on that in terms of further costs. I think there was issues with some deliver where the rail cars were baked up as suppliers, and that caused a bunch of congestion at the actual FLB plant sites. I think that is starting to ameliorate, and I think they is still a risk maybe at the endpoint of having that congestion repeat itself. But right now, we think we’re managing through it. And as we said in our prepared remarks in addition to that we have put an intense focus on some of the elements here in terms of chemicals, as well as try to reduce our costs and we think all that’s going to start manifesting itself from the second quarter.

[William Restrepo:]

A quick comment, I think in the second we won’t see the full impact of the guar and chemical cost reductions, because they have to flow through inventory. But they will see enough to offset any increases in sand and proppant in general.

[Ole H. Slorer:]

Are you seeing increases in sand prices at the moment?

[William Restrepo:]

We saw a little bit of tightness, that has increased slightly the cost of sand, but we feel it’s a temporary impact due to the weather – to the weather impact in the first quarter.

[Ole H. Slorer:]

Okay. Well, thanks a lot and congratulations with the corporate turnaround.

[Anthony G. Petrello:]

Thank you.

[Operator:]

Our next question comes from Jim Wicklund of Credit Suisse. Please go ahead. Jim K. Wicklund – Credit Suisse Securities (USA) Good morning, guys.

[Anthony G. Petrello:]

Good morning. Jim K. Wicklund – Credit Suisse Securities (USA) You talk about the last remaining contract, the big take-or-pay contract. What is the difference between those contracts signed a couple years ago and the current spot market rate?

[Anthony G. Petrello:]

From the take-or-pay contracts are long term contracts first of all. A lot of them were signed, I think were signed sometime back. So the pricing is better than the spot-market today and basically the client is – during this life of the contract, the client is obligated to guarantee a minimum revenue for the month or for the periods in lots of those contracts. So obviously, that’s a more favorable and steady situation than competing in the spot market. But our team is open to the challenge, we have lost some margin obviously versus because of the timing when those contracts were signed, but we are seeing that our fleet adjusting to the new spot-market and already achieved stability in pricing and even starting to get more I won’t say aggressive but more confident and trying to achieve some pricing traction during the second quarter.

[William Restrepo:]

In terms of the rates for forex recently talked about that we just renewed those are at a very attractive rates equal to a rate range that we have enjoyed previously, so just to give you an idea. Jim K. Wicklund – Credit Suisse Securities (USA) Okay. You’re talking about margins for your rig fleet at $9,400 and obviously that will skew higher as more PACE-X rigs go out. What do you guys think is where we can get in terms of margins before we start having somebody call up NOV and start fostering competition? Is there any risk of that in the future?

[Anthony G. Petrello:]

I mean there is always competition and all I think there is going to be demand for as we’ve said before we think about 300 of these, what we are call high-spec rigs. And I think yes, there is a risk there. The people are going to try to pursue that I think we have as good a mouse trap as anybody right now. We are going to forward and share that, but I’m not going to say that other people can try to access it. I think frankly the people have been within the business for a longer time, should be able to do it better and more cost effectively and deliver the performance with the rig and I think that’s where the advantages are for us. Jim K. Wicklund – Credit Suisse Securities (USA) Okay. Last question, if I could. The jackup rigs and barge rigs in the Gulf of Mexico, the barge rigs have been difficult for a while and the lower-end jackup market has been difficult. I know you have to have a bunch of different options on that, but would you be willing, just from a management point of view, to retire those so that you can focus on other parts of your business, or is that something that you think may one day come back?

[Anthony G. Petrello:]

We would probably at this point I think we don’t want exit the business, so we will do at the most cost effective way possible, that’s were has that right now. Jim K. Wicklund – Credit Suisse Securities (USA) Okay. Gentlemen thank you very much.

[Operator:]

Our next question comes from Waqar Syed of Goldman Sachs. Please go ahead.

[Waqar Syed:]

Thank you very much. I have a question on the US Lower 48 rig count. Looking forward, you have a bunch of PACE-X rigs coming in. Do you think the incremental rig count for your guys is going to be just driven by PACE-X, or do you see some of the conventional rigs, the Tier 2 or Tier 3 currently not working, go back to work as well?

[Anthony G. Petrello:]

Well this past quarter you saw a couple additional legacy exit go back to work and so that is happening obviously it not happened as robust – or hasn’t so far but I am going to turn it over to Joe to add more color to it.

[Joe Hudson:]

The answer is we are continuing to see legacy assets back to work, we are going to continue to see that for the year PACE-X is incremental at this point. It’s not replacing legacy assets we have, so that is all accretive. The answer is we are going to increase the rig count.

[William Restrepo:]

The other point I would like to make there is, if you look at our activity since the second quarter of 2013 I think we’ve taken 20 legacy rigs and redeployed them to international. And give what we still see the appetite of international is at there is still prospect of that as well. So like we’ve said before, we view the legacy rigs as an option on – an upside option, basically that’s approaching getting into money now with tightness we’re seeing

[Waqar Syed:]

Okay. And, Joe, what is your current outlook for where the rig count, US land-to-rig count, could be by the fourth quarter of this year?

[Joe Bruce:]

Nabors count?

[Waqar Syed:]

Well, Nabors, as well as for the industry.

[Anthony G. Petrello:]

We still say it’s modestly higher.

[Joe Bruce:]

Yes. We definitely think, again, with the build input, incremental PACE-X that Tony’s talk about I guess in the past two weeks we put four legacy assets up. So again, you’re moving to rig count up and I think the overall market will continue to improve rig count-wise

[Dennis A. Smith:]

Waqar, of the trends we think is afoot is that as we show on slide 12 is, productivity of rigs this is moderating a little bit. So increased spending is increasing wells, which is increasing rigs, whereas rig count been pretty good flat for the last 3.5 year. So, we think incremental rigs demand is there.

[Waqar Syed:]

Are you seeing any demand at all in any of the gassier basins?

[Joe Bruce:]

Yes. We’ve recently been awarded a few jobs in the Gulf Coast and South Louisiana. We are putting out our first 3,000 horsepower rig we done in years. So, we are seeing in the Gulf Coast part two to three rigs are going out to specific to gas market.

[Waqar Syed:]

How about in the Northeast and Appalachia, Marcellus, in that area? Any demands right now for drilling?

[Joe Bruce:]

Well, it’s somewhat flat. But, yes, I think the Marcellus will continue to improve. Yes, we are going to see some increase of that.

[Waqar Syed:]

And Tony, just a broader question on restructuring. Where do you stand right now, and when do you think you will be able to make any decision on what direction to go with regards to the corporate restructuring that – any major steps in that regard?

[Anthony G. Petrello:]

I have nothing new to update, report. I think it continues to be a priority. We working on it full time basically, I think if you look our asset base, our collection assets today, it was really put together with the view toward appealing to the manufacture drilling in North America to cut the combination of both drilling side and the completion and production side. I think that the division of what is probably – the collection of assets is well suited for that I think the issue for us is the execution for optimal capital deployment and we’re figure out what we need to do to make that even better and that’s what the focus is on. So, in addition to that in terms of the structuring lead to some of the comments we have a series of internal issues we want to take in as well to improve. Improve our profitability as well. Some of the things that William referred to in terms of focus some of the procurement stuff of high significant dollar things and as much or similar initiatives on that across the company. So, one of the other things we’ve done just as quarter as we finally integrated our engineering group. So we all Nabors now have a corporate consolidated engineering group, which we think we’ll [indiscernible] quite a number of benefits now and just from a design point of view making sure we’re bringing the best of Nabors has to offer in all our products, but also standardization and also purchasing power, because as a combined unit, I think we’re still the largest buyer versus everything that anybody needs in the drilling community. So we intend to aggressively use that buying power and that leverage as much as possible in our favor.

[Waqar Syed:]

Great. Thank you very much.

[Operator:]

Our next question come from Byron Pope of Tudor, Pickering, Holt. Please go ahead.

[Byron K. Pope:]

Good morning, guys.

[Anthony G. Petrello:]

Good morning.

[Byron K. Pope:]

Tony, you partially answered this question in your response to one of the prior questions when you talked about 20 or so rigs being – legacy rigs being deployed from the U.S., but I just wanted to probe a little further, because it sounded like on the international side, as you look at potential incremental opportunities in Saudi and Argentina and Kurdistan, all those are – seem to be geo markets where you have redeployed assets from the U.S. And so as you think about incremental rig contracting opportunities in those international theaters, are they such that you’re in a similar position to potentially redeploy some of those legacy SCR rigs from the U.S. market to those specific geo markets where you have already won some of that type of work?

[Anthony G. Petrello:]

I think you hit it right on the head, that’s exactly the plan. And I think the fact that, these awards were done shows that those market has a need and demand for that. And I think as we execute and execute well, it will justify the decision by the operators to do that. I mean one of the things I have emphasized to people is this international market doesn’t really make such a big difference between AC versus SCR, particularly in our case, because our SCR has our K-box functionality, which makes it act like an AC rig anyway, it’s where the power and other things around the rig. And having those that legacy infrastructure does allow us to have expedited cost of time of deployment, which matters as people start gearing up. And I think our job is to take advantage of that, that lead and convert into an opportunity [indiscernible][0

[Byron K. Pope:]

Okay. And then just a second question on the Canrig backlog build, is it reasonable to think that the driver of that is both North America and international top drive demand on both the capital equipment and rental side? Just curious as to what’s driving the big increase…

[Anthony G. Petrello:]

Yes, Canrig has – obviously it’s a primary product, it’s the top drive, but it also produces catwalks and wrenches and all three of those actually have seen recent increases, and it’s not just North America, it is International. Canrig has pretty good footprint in Algeria and Russia and China and Dubai. And so all those markets are now starting to see that demand as we mentioned about half of this backlog is third-party. Canrig is about to open an office in – or is in the process of opening an office in Dubai to improve their ability to locally services the top drives and really think in terms of the fact that we have a pretty large installed base that part of the world and try to capture some more that work as well. So that’s the time to play it right now.

[Byron K. Pope:]

Thanks, guys. I appreciate it.

[Anthony G. Petrello:]

Okay.

[William Restrepo:]

And I think we are starting to approach our one-hour kind of self-imposed time, but let’s take one more question and wrap up the call please.

[Operator:]

Sure, absolutely. And our next question comes from John Daniel of Simmons & Company. Please go ahead.

[John Daniel:]

Hey, guys. Thanks for getting me in. First couple questions just on international. Given the newbuilds and repricing opportunities, can you explain for us, Tony, perhaps just a regional range for international cash margins in 2015, based on what you know today?

[John Daniel:]

Broadly speaking within international. I mean, the cash margins were close to $16,000 Q4, dipped a bit here in Q1, and I know they will be low in Q2. With all that’s going on, the positive traction that you are getting, is it high teens for 2015? Just, again, based on what you know today, and I realize that changes.

[Dennis A. Smith:]

Yes, that’s rational. Not north of $20, but in the high teens range. Development And it varies a lot between some of the Latin America smaller stuff to obviously the at the top end

[Joe Bruce:]

Yes, that’s in the high teens.

[John Daniel:]

High teens? Okay. Thank you. And then turning to the completion services segment, does any of the 2014 CapEx budget include any expansionary CapEx for that segment?

[Dennis A. Smith:]

Very, very little.

[John Daniel:]

Okay.

[Dennis A. Smith:]

We are doing some – as William mentioned, some conversions to duel, we’re upgrading some of the control vans. A lot of refurbishment of equipment.

[John Daniel:]

And then on the stack fleets, I think you have got, it looks like three in San Angelo. Is that right? What’s the prospect for redeployment there?

[Dennis A. Smith:]

Those are being refurbished, the fleets in San Angelo as referring to talks about and what’s our prospects putting back to work.

[Joe Bruce:]

Yes. One fleet can retrofit it right now is there any separate dual fuel little commencing operations for the later part of this quarter. And then this one of the fleet is getting referred when it can probably go out we are on the same time both curse have places to go.

[John Daniel:]

Okay. Awesome. And then just a final quick one from me. The less P&A work in California, as they shift to more production enhancement, is there any impact of that material on margins or revenues with that type of shift?

[Dennis A. Smith:]

No.

[John Daniel:]

Okay. Thanks guys.

[William Restrepo:]

Thank you.

[Anthony G. Petrello:]

Thanks very much everyone.

[Operator:]

This concludes our question-and-answer session. I’d like to turn the conference back over to Mr. Anthony G. Petrello for any closing remarks.

[Anthony G. Petrello:]

Thank you everyone for participating. Very much appreciate your continued interest in Nabors.

[Dennis A. Smith:]

Thank you, ladies and gentlemen with that we’ll wind up the call. Thanks.

[Operator:]

Thank you. The conference is now concluded. Thank you, once again for attending today’s presentation. You may now all disconnect.