Dennis A. Smith - Director of Corporate Development for Nabors Corporate Services Inc Anthony G. Petrello - Chairman, Chief Executive Officer, President, Member of Executive Committee and Member of Technical and Safety Committee Joe M. Hudson - President

James D. Crandell - Dahlman Rose & Company, LLC, Research Division J. Marshall Adkins - Raymond James & Associates, Inc., Research Division Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division Brad Handler - Jefferies & Company, Inc., Research Division

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Nabors Industries Third Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, October 24, 2012. I would now like to turn the conference over to Mr. Dennis Smith, Director of Corporate Development. Please go ahead, sir. Dennis A. Smith: Good morning, everyone, and thank you for joining our second quarter (sic) [third quarter] earnings conference call. Our format today will be to have Tony Petrello, our Chairman and Chief Executive Officer, provide you with our perspective on the quarter's results and give you some insight into how we see our business in the next few quarters and over the longer term as well. In support of his remarks, we posted some slides to our website as we customarily do, which you can access and follow along, if you desire. They're available in 2 ways. If you’re on the webcast, they should be available through the webcast on the Web for Thomson's webcast. Alternatively, you can download them from our Nabors website, nabors.com under Investor Relations, then under the submenu, Events Calendar, and you'll find them listed as Supporting Materials under the conference call listing. In addition to Tony and myself today are Laura Doerre, our General Counsel; Clark Wood, our Principal Accounting Officer; and all of the heads of our various business. Since our remarks today will concern our expectation of the future, they are subject to numerous risk factors as elaborated upon in our 10-K and other filings. These comments constitute forward-looking statements within the meaning of the Securities and Exchange Act of 1933. Such forward-looking statements are subject to certain risk and uncertainties as disclosed by Nabors from time to time as filings with the SEC, and as a result of these factors, our results may vary from what we expect. Please refer to those filings for further details of the risk factors. Now I'll turn the call over to Tony to get started. Anthony G. Petrello: Good morning, everyone. Thank you for participating this morning. As Dennis said, we have posted to the Nabors website a series of slides about our business. During the course of my remarks, I'll refer to the slides by slide number. I won't refer to all of them, but the slide presentation tracks the comments. First, I'd like to start with some macro comments. I would like to give you an update as to how we see the current market environment, particularly in North America. In sum, we did not see anything positive over the past quarter to change our previously spoken of outlook. We remain very cautious and conservative over the near term. As you may recall on our earnings call last February, we expected a flattening to modestly declining U.S. land rig count in the second half, a moderation in the number of new build contract awards, and the further deterioration of the spot market for pressure pumping. In reality, the first quarter drop in gas prices, coupled with declining NGL prices and volatile crude prices in the second and third quarter, caused conditions to worsen. These forces eroded our customers cash flows and reduced their spending. In addition, it appears that the operators overspent their 2012 budgets in the first half of the year, further impacting their expenditures in the second half of the year. The upper section of Slide #4 shows the Baker Hughes U.S. land rig count over the recent cycles, and the lower section from its peak in November to last week. Since the peak in November, we have seen a decline of 201 U.S. land rigs, 123 of which have occurred since the beginning of the third quarter. That's much more than what I thought previously. We expect a decline -- continued decline in the first quarter rig count with 2012 CapEx budgets nearing exhaustion, accompanied by potential weather and holiday impacts. Seasonal improvements in Alaska and Canada will not be enough to stem, in our case, the Lower 48 tide in the fourth quarter. We anticipate a ramping up in spending levels in the first quarter with the initiation of 2013 drilling budgets that should restore some level of utilization, but will probably not result in high enough activity levels to support pricing improvements. Notwithstanding all the negativity in the market, we have had some successes. We deployed 7 new rigs in the quarter, which accounts for the mix change in our business and some of the margin improvement when you look at our numbers. Those 7 new rigs roll with long-term contract commitments. We also secured long-term contract commitments during the quarter, for 3 additional new generation PACE-X rigs. This brings the number of new rigs to be delivered under long-term contracts to 9, all of which are PACE-X rigs. I haven't spoken previously about PACE-X, but you'll see a slide in the package. Our new PACE-X rig, which we have been speaking of with various customers, we believe is a step change in both drilling efficiency, particularly in accelerating the trend toward pad drilling and conventional move mobility. The recognition of this rig's capabilities and its acceptance is evidenced by both the fact that we've gotten 9 new contracts before we have actually put one on the ground. And this quarter, getting 3 in a time of budget constraints. We are in the process of additional customer conversations as well. Nabors, as you know, pioneered pad drilling in the early 1970s. And including new builds yet to deploy has more pad-capable rigs than anyone at 172 rigs, with 93 in our U.S. Lower 48 operation alone. And I know the focus has been mainly in these charts about AC rigs, but I think one of the things we need to look at is pad-capable given where the market and the fat part of the market is going. The PACE-X moves things to another level in our view, with its omnidirectional ability to accommodate multi-well, multi-row applications, and it is adaptable to cross-border and international applications as well. Slide 8 highlights some of the rig's new features. One important feature is that the rig requires only 1/5, 20%, of the number of permit loads typically required for moving, a capability that we believe will be very valued by customers, particularly in areas where you're logistics-challenged like in the Northeast. Moving on, a few additional points to cover before we get into the quarter's results. Business unit realignment. As we previously have discussed with you, we've undertaken certain initiatives to streamline our business, improve our operating performance and effect economy throughout our operation. The initial step, as we relayed to you previously, was the consolidation of our well-servicing and Pressure Pumping business into 1 business line, Nabors Completion & Production Services. Senior and field-level management for this organization has been set within the matrix organization structure this past quarter, while the integration of support functions and facilities is ongoing. We have actually added to our management capabilities with the hiring externally of some seasoned operational and sales executives, each with 30 years experience. In addition, effective October 1, we are consolidating our U.S. Offshore and Alaska drilling operations under Nabors Drilling USA. Senior management has been established, and we are now integrating the support functions. With the benefit of the combined scale and talents, particularly the deep technical expertise of Alaskan offshore, we will increase our focus on bringing innovative solutions to our customers that deliver distinctive value. Both these organizations have an extraordinary deep bench of experienced personnel and deep technical knowledge. As I've mentioned to you before, when you look at the marketplace, I think things that have occurred offshore internationally and in places like Alaska are finally with the advent of the willingness of customers to adapt to technology, making their way into the U.S. land market. And one of the thinking behind this, is to take advantage of the fact that we play into those markets and to consolidate that talent. So we're confident that by integrating them, we can enhance our operating excellence by drawing on the best of what we do. We can improve our customer interface, particularly for those who we serve in multiple markets, not just across the U.S., but across geographies, and we can create growth opportunities for our talented employee base in the larger combined units. With these consolidations, we're focusing on operational improvements and cost savings, which we hope will be visible in future quarters. Although the full impact of these will be obscured by fourth and first quarter seasonal weakness. In addition to the realigning and consolidation at the operating unit level, we are consolidating support functions into the central organization. I think I've previously mentioned we've already consolidated our human resources, and we've hired an external person to head that up. We've hired a new corporate HSE person. We brought in an external person for that as well. And our next large step is to consolidate our engineering and technical functions, concentrating nearly 300 engineering and technical support professionals we have throughout the company. I think one of the things even within Nabors we don't appreciate is the scale of this talent that we have. And one of the things, again, that we're trying to do is optimally allocate those resources as workloads change and allocate the best of what we have to the best opportunity. Again, we're hoping this will harmonize our adoption and use of best practices. It'll help us achieve the utmost level of asset integrity, which I think we've been on the forefront of in terms of the procedures and infrastructure we've devoted to that, and importantly, deliver to our customers an even higher level of consistent operational performance across our operations. Let me move to another topic, the divestiture process. As you know, a priority of ours has been the balance sheet improvement through both free cash flow generation and monetization of non-core holdings. The divestiture process remains underway, but it is moving slower than we had hoped. The various business lines we have designated for possible sale are listed on Slides 12 and 13. In Canada, we remain in negotiations to sell our small Canadian aircraft business. Given the market, we initially decided not to proceed with the sale of our Canadian well-service business. We'd like to mention that since we've decided not to do that, we have reengaged our customers, and we've had a lot of customer interest. The sales process for the Peak Alaskan subsidiary continues, and we hope to complete this sale in the fourth quarter. The marketing of our jackup rigs and barges is currently on hold due to the number of jackup packages. I think everyone's aware of that are out there right now and the related valuations. On the E&P front, we sold some miscellaneous properties again in the third quarter, and we plan on selling an additional set of properties in this quarter, reflecting our commitment, again, to get out of the E&P side of things as expeditiously as possible. Most notably, we launched the Eagle Ford property sale that I signaled on the last conference call, and the process is being pursued together with our partner, Halcon, who has operatorship, and it's being marketed together. The data room was opened in September, and we hope to conclude a sale by year end. As we previously indicated, the remaining E&P holdings, specifically Alaska, British Colombia, NFR Energy require more time to effect sales, but we're still looking at them diligently and looking to achieve value for them. Another macro issue, the balance sheet liquidity and strength. The balance sheet remained strong. And as shown on Slide #4 (sic) [14], we finished the quarter with $620 million in cash and investments. The financial position is solid, with leverage of 2.3x 12-month EBITDA and interest coverage improved to 8.3x that amount. Except for our revolver balance of $1.2 billion at the end of the quarter, our term debt matures in 2018 or later. Total net debt stands at $4.1 billion, down $160 million from last quarter, primarily due to our ability to generate significant operating cash flow, while containing our capital spending and focusing on reducing working capital to decrease leverage. Operating cash flow for the quarter was $495 million, while CapEx was $249 million. And accounts receivable declined by $78 million sequentially as we focused on DSO. And these efforts reflect what we've been trying to do the past 3 quarters is, a lot of focus on allocation of capital and scrutinizing what we're spending. And I think that message is getting through across the organization. The improvement in cash generation helped fund the redemption of $275 million in maturing notes. It paid for $120 million in semiannual interest payments and $249 million in CapEx, while still affecting the $160 million reduction in net debt. Our ability to reduce net debt will continue in the fourth quarter and throughout 2013 as we, again, target minimizing the capital expenditures, notwithstanding lower expectations for operating cash flow in the near term. Our net debt to capitalization is 41%. As you are aware, when I first spoke about this back early in the year, we have been targeting reduction. The goal to a net debt to cap of 25% by the end of 2013. Since we first created Slide 14 for the first quarter call, consensus EBITDA estimates through next year have been reduced considerably. These changes have increased estimated net debt to 33% at the end of 2013. This implies it will take another 6 to 9 months or approximately $970 million in divestitures to reach our 25% target. We're committed to do that one way or the other. Now let me turn to the financial results for the quarter. Operating income was $226 million, marginally down from $230 million in the prior quarter and down from $269 million in the same quarter last year. Our earnings per share from continuing operations was $0.42 per share, excluding a ceiling test impairment in NFR, which amounted to pretax noncash charge of approximately $96 million or $0.20 per share. The quarter's results reflect the receipt of 25 -- roughly $25 million in contract termination payments in our U.S. Lower 48 and International operations, of which $6.7 million or $0.02 per diluted share would have been received in future periods, extending as far as December of 2013. The quarter's numbers also reflect a lower effective tax rate, a portion of which, approximately $5.5 million or $0.02 per diluted share, was attributable to favorable return-to-provision tax adjustments in multiple jurisdictions. Our effective tax rate for the quarter, excluding noncash charges, was 21.7%. We anticipate the full year tax rate to be on the order of 29%, excluding noncash charges. For 2013, we now anticipate a tax rate of approximately 28%. Our capital expenditures for the quarter of $249 million, with year-to-date at $1.2 billion. Earlier in the year, we anticipated capital expenditures would be approximately $1.6 billion for 2012. We now believe 2012 CapEx will approximate $1.5 billion for the year, with the decline attributable to our focus on capital -- containing capital spending. Depreciation for the year is expected to be about $1.1 billion and sustaining CapEx about $500 million. Our businesses are closely scrutinizing the CapEx in the current market environment, and we are reviewing opportunities for further reductions. For 2013, we expect depreciation of approximately $1.2 billion, and while we have not finalized our 2013 CapEx budget, we believe it will be substantially reduced. Now let me turn to the performance of the various operating groups. First, the first for our group is the Drilling & Rig Services group. As you know, this group consists of our land rig operations, offshore rigs, specialized rigs, drilling equipment, software and directional drilling operations. In the third quarter, this group earned $185 million in operating income, down $2 million from the second quarter of this year and up $4 million over the third quarter of last year. As you can see on Slide 17, the seasonal improvement in Canada and better International results were offset by the hurricane pause in the Gulf of Mexico, weaker U.S. Lower 48 and Canrig results, and the seasonal slowdown in Alaska. Slide 18 shows the current status of our worldwide drilling rig fleet. Including rigs scheduled to be deployed, we have 217 top-of-the-line AC rigs, including advanced deepwater platform rigs and remote location rigs in the Arctic and internationally. Additionally, we have 261 SCR rigs and 112 mechanical rigs. And as I mentioned previously, a significant number of these rigs have been upgraded with Canrig top drives and instrumentation such as our knowledge box that make these rigs compete with AC rigs in the most challenging basins. Including 9 new builds yet to be deployed, 172 of the rigs are outfitted with moving systems to accommodate pad drilling, which as we all know is becoming a key ingredient in the shale plays. Drilling deeper into this group, let's look at U.S. Lower 48. The U.S. Lower 48 land rig operation earned operating income of $115 million, down from $127 million in the prior quarter, but up $10 million from the same quarter last year. In terms of activity, we lost 24 net rigs, but our average margins for the fleet rose $852, finishing the quarter at $12,030 per rig per day, which included $40 per day related to early termination margins for future periods. Margins for the AC rigs increased $1,337 per day, while margins for our legacy rigs decreased $392 per day. I don't think that margin increases in the AC rig contains that much for margin attributable to the future periods, since the average as a whole was $40. We deployed 7 new rigs during the quarter, bringing the total year-to-date to 25 new rigs deployed, with another 9 contracted new rig deliveries scheduled through June of 2013. We extended term on 6 rigs during the quarter, adding an average of 7 months to those contracts, and those contracts were extended at essentially unchanged rates. While our average rig count declined by 24 net rigs, our exit rate rig count declined by 35 rigs. Obviously, disproportionate compared to the market. A significant component of the decline was having 16 rigs that were being compensated for, but were not working and are therefore not reported in the industry rig counts. We had a large number of rigs that were contracted in 2010 and 2011 that matured into the weak market. Also, we had 3 rigs released that were bridge rigs to new rigs that started in the quarter. Today, we have 175 rigs on revenue, including 6 not working but earning revenue. We are focused on being more aggressive in getting rigs back to work, particularly in South and West Texas. Looking across the various regions, current rates on average have moved from last quarter. For AC rigs, the range is $500 to $1,000 -- $500 per day to $1,000 a day, a little wider for the SCR rigs, and for the mechanical, an average number would be about $1,000. In certain markets like the Rockies, the change is more pronounced for specific rig types given the redirected supply of rigs. Our customers are indicating a resumption of more normalized activity with their 2013 budgets, but not commensurate with the higher levels that characterized the first half of 2012. This should serve to improve utilization and stabilize pricing, although there continues to be a number of new rigs entering the market at lower rates and shorter terms. As shown on Slide 19, our U.S. fleet is well-positioned in every major region, and it's complemented by the strong U.S. presence of our Completion & Production business. A few comments now about our offshore position. Our Nabors -- the offshore operation reported an operating loss of $4 million, down from $10 million of operating income in the prior quarter and $2 million reported in the third quarter of last year. This decrease was driven primarily by our rigs being placed on standby during the hurricane season. Margins declined by $10,000 per rig per day during the quarter, due to a higher proportion of rigs receiving standby rates. We expect this business to be continued to be dampened through the early fourth quarter due to the hurricane season. We anticipate some recovery later in the fourth and first quarters, with 4 of our platform rigs expected to load out later in the fourth quarter. However, the shallow water platform market is still plagued by increased regulatory requirements that are limiting activity. One benefit of the ND USA alignment is frankly providing the mobility for our field personnel, and so one of the things we hope to do with this is to be able to retain these people but reduce costs. We also have in process the 2 new 4,000-horsepower deepwater platform rigs that you're aware we're building for major customers that are anticipated in the first half of 2013. These rigs should be working in late 2013, early 2014. A few comments about Alaska. Our Alaska drilling operation posted operating income of $4 million, down seasonally as expected from $9 million in the second quarter, but up slightly from the $3 million posted in the third quarter of last year. We have another first in Alaska. Nabors is currently drilling the first unconventional well on the North Slope. Alaska has become highly seasonal with little year-round drilling work being conducted in the legacy North Slope fields, where progressive tax rates limit reinvestment. We expect the fourth quarter to decline further, but anticipate a sharp rebound in the first quarter, with another active exploratory drilling season. We're well-positioned to capitalize on this activity given our on-the-ground asset base and proven experience and long-standing position in the marketplace. There continues to be a high level of optimism regarding relief in the progressivity of the tax structure with the 2013 legislative session, whereupon we expect to see a significant increase in activity over time. Longer term, there are numerous strategic projects planned in new areas where tax incentives are in place now, but these are characterized by long lead times, it would likely not commence for another 2 or 3 years. Let me [ph] comment about Alaska. Our Canadian operations posted an operating loss -- operating income of $23 million, up seasonally as expected from the $4 million loss in the second quarter, and up slightly from the $22 million posted in the third quarter of last year. Rig activity increased sequentially by 14 to average 34 rigs operating in the third quarter, while margins improved significantly to average $13,439, an increase of about $3,500 per rig per day over the second quarter. As compared to the prior year, the per day margin increase more than offset the 8-year rig activity decline. While customer cash flow constraints are limiting growth in activity, we do expect to see for the full year 2012 operating income to exceed 2011 levels on margins, while still having lower rig years. Another positive note, we are deploying a new 1,500-horsepower rig with a pad drilling moving system under a 5-year contract for a key customer. International. International posted operating income of $30 million, a significant increase from $16 million in the second quarter, and up slightly from the $29 million posted in the third quarter of last year. Third quarter operating income included an early termination payment of $8.8 million, of which $6 million would have been earned in future periods. Rig activity was 119 rigs, 2 rigs less than the prior quarter, which saw 4 rigs temporarily idled in Algeria, that should return to work around the end of the year. Margins improved by $1,340 to $12,299 per rig per day, representing about $550 per day -- with $550 per day representing the future portion of the early termination receipts. The absorption of higher labor cost in certain Middle East countries, the temporarily idled Algeria rigs, the need to perform some deferred contract rig upgrades, and the ongoing situations in Yemen and Iraq will dampen improvement through the first half of 2013. There is potential to put some platform rigs to work in Mexico, and we have a warm stacked jackup in the Middle East that we're hopeful of finding a place to work in the near future. Longer term, we expect steady progression in results, but it will be at a modest pace. Rig Services. Our Rig Services line which includes Canrig, Peak and Ryan posted consolidated results of $16 million this quarter, compared to $28 million in the prior quarter and $20 million in the same quarter of last year. We have lower results as our Alaska trucking and construction business slowed seasonally and Canrig experienced a moderate slowdown of rentals and domestic shipments, consistent with other land rig equipment manufacturers. While Canrig's capital equipment backlog has decreased recently, as in line with slower North American rig construction, recent international orders have come about, and there's some focus there about increasing those. Now let me turn to the Completion & Production Services group. This business line, as you know, consists of completing and maintaining wells, including well-servicing, workover rigs, fluids management and pressure pumping. Operating income for this division is tabled out on Slide 28. Completion & Production Services posted $80 million in operating income, up from $75 million in the first quarter, but down from the $88 million reported in third quarter of 2011. Operating income of $47 million for the third quarter, I'm looking at Pressure Pumping, was up marginally from $46 million in the prior quarter, but down from $65 million in the third quarter of 2011. We did experience an 80 basis point improvement in U.S. Pressure Pumping margins, principally attributable to lower transportation and logistics cost, as we realized benefits from our integration of the trucking and transloading and third party logistics cost -- operations into our consolidated operations. This quarter's operating income also included about a $2 million loss for operations in Canada. We currently have 26 frac spreads in the United States and Canada, with the whole total hydraulic horsepower of 805,000. In the U.S., we have 13 long-term contracted crews. Some of our long-term customers have reduced stage counts to contractually required minimums. The spot market continues to deteriorate. And the resulting lower utilization creates unrecoverable costs. In response, we have recently idled an additional crew. In the U.S., we now have 6 spot market spreads idle. These spreads were operating in Marcellus, Haynesville and Mid-Continent, Barnett and Permian markets. Regarding our inventory management and material costs, we made significant improvement on inventory turns over the past 2 quarters. Our guar gel cost peaked in July, and these higher prices were reflected in third quarter material cost of goods sold. However, guar prices should continue to decline from recent highs if the market returns to historical supply-demand balance. Referring to Slide 30, we now have 18 crews working in the U.S. and 2 in Canada. We have 10 crews working in the Bakken/Rockies, with 8 of these crews working under LTSAs. 2 of our 3 Eagle Ford crews have LTSAs. We have 2 LTSA crews and 1 spot in the Marcellus, and 1 LTSA crew and 1 spot crew in the Permian. There are 2 crews working in Canada. Our visibility with respect to the near-term pressure pumping spot market remains challenged, and I don't think that's unique, given the horse -- current horsepower supply-demand imbalance. Our objective is to continually, proactively manage our spot crew exposure. Rates in the Rockies, West Texas, South Texas, the Mid-Continent continue to be under severe pressure. The rate of decline in the Northeast has apparently slowed somewhat. Turning to U.S. well-servicing. Our well-servicing operating income of $33 million was up from $29 million in the second quarter and $23 million in the third quarter of 2011. The sequential increase was driven by our average hourly rates, increasing 6% for rigs and 12% for our fluid services trucking fleet on essentially flat utilization. Rate increases in this market have stalled as we head into the seasonally weaker fourth and first quarter. As shown on Slide 29, at the end of the third quarter, our U.S. operating fleet consisted of 504 well-service rigs, more than 1,000 fluid service trucks and 3,800 frac tanks. We are encouraged by the long-term prospects for these services given the large number of new oil wells that will convert to artificial lift over time and require more frequent maintenance. The increased inventory of horizontal wells, which are more workover-intensive also, I think, in the mean term creates some optimism on our part. Oil and Gas. As you are all aware, our Oil and Gas segment now really only consist of NFR as all our other holdings have been reclassified as discontinued operations. When we exclude the ceiling test impairment, our results were a loss of $2.5 million, down from $5.1 million of operating income reported in second quarter. NFR, I would refer you to NFR's website, which has a lot more detail on the operations and what's going on there. Big picture is NFR's principal assets are East Texas gas. But it has evolving prospects in 2 East Texas liquid plays: One that abuts and encompasses Anadarko's acreage secrets and another in the same general area. It is also currently drilling on farm-in acreage in a highly prospective area of Gonzales County section of the Eagle Ford, slightly southeast of our GeoResources joint venture producing acreage. As I mentioned, our goal here is to continue to see ways to optimize value on -- out of NFR. In summary, the near-term market is challenging. Macro worries are still prevalent and the lower level of customer spending and seasonal constraints in North America are adversely affecting all our operations. While we anticipate some increase in customer spending levels at the beginning of the new year, which will improve utilization moderately. It is not likely to absorb sufficient capacity to restore pricing momentum. That will come with a more meaningful increase in demand for rigs and services, which can occur for a variety of reasons, the most notably of course would be improving gas prices. Meanwhile, our focus and efforts are on the priorities we have established, which include improving the balance sheet, streamlining the business, focusing on operating performance, using the best of our technology and applying it for the benefit of our customers and a keen focus on our customers and their needs. Achievement of these goals, coupled with our existing global infrastructure, and I think asset base that's unequaled in terms of its scale and our workforce, I think still puts us in an advantageous position to take advantage of imbalances -- as imbalances in the North American market recede and as international opportunities uncover, particularly in the unconventional area. So this concludes my remarks, and I'd like to hand it over for questions. Thank you. Dennis A. Smith: Camille, we're ready for the Q&A session, please.

[Operator Instructions] Our first question is from the line of Jim Crandell with Dahlman Rose. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: Tony, how long these 9 new PACE-X rigs that you are coming out with, how long are the contracts that you've signed? And how did the day rates compare with the contracts for AC drive rigs you signed on term contracts here in the last cycle? Anthony G. Petrello: Yes. Well, first of all, all the contracts are -- the 3 we just signed are all 3-year contracts, and the 6 before were 3-year contracts. So and I think that's a testament to, in the market we're talking about, the perceived value of this new platform. And in terms of day rates, they're consistent with our allocation of capital objectives, because one of the things we've spoken about is the fact that we're letting capital seek the best opportunities, and that's what these will do so. And they are loaded with all the stuff that you've talked about, AC top drives, the latest in terms of the integration of some directional tools that Canrig has, the substructure is kind of unique in the way it's going to be moved. It's kind of unique. And we're kind of excited about it, and we hope to have all of you on the call to be able to see one shortly. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: Okay. My other question, Tony, of your -- in pressure pumping, of your spreads that are still on longer-term contracts, how many of those are still on what you would call above market day rate contracts? Anthony G. Petrello: I think all of them. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: All of them? Anthony G. Petrello: Yes. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: And when did those come -- and when did those come off contract? Anthony G. Petrello: At various point through...

At various points of 2013 all the way until early 2014. Anthony G. Petrello: Yes, through the various points of 2013 and some even into 2014. And yes -- now having said that, on the rates, the customer does have the opportunity to scale back numbers of stages. So there's always this issue of rate versus utilization. And the customers, as I mentioned, one of their responses to those is to scale back some of the utilization. And with all customers, we view the contracts as a means to satisfy mutual end, and we're always willing to talk with them about other ways to optimize the whole thing, and we've looked at things like that. And we'll continue to do that to make it all work for everybody so. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: Okay, good. And one more quick one, Tony. I think most people or most observers of the industry expect a decline here through year end. And then there seems to be 2 different point of views. One is that we'll see a typical seasonal decline in the early months of the year and go down further. The other is, it's a new year and companies are on next year's budget, next year's cash flow and because they had been overspending early in the year that we could see an increase in activity and sort of right out-of-the-box in January into February. And that seems -- I don't want to put words into your mouth, but that seems to be your view at this point? Anthony G. Petrello: Well, I'll let Joe -- Joe has just had some just recent conversations, but in terms of this quarter, I do see a further decline given where the budgets are, given the holidays and a whole bunch of other things. Whether that's a 50, 60 rig further decline order of magnitude, I do see another decline this quarter. And in terms of the pickup in January, Joe, anecdotally, he can give some ideas about what he's hearing. Joe M. Hudson: Jim, we -- I met with the president of a large major independent public company. He indicated last year or this year, they ramped up from 41 to 82, capital was spent inefficiently. Just money wasn't being spent well, they pulled back. Pulled back to 50 and they intend to right after the first of the year go back up to 60 rigs. 60 with quality contractors. Now will that be all 60 in the first week? The answer is no. But they're going to ramp up so they can spend the money efficiently, plus their own pad offers [ph]. So we hear a lot of this. We're already seeing tenders, requests for numbers today, starting mid to late fourth quarter. So there's a lot of opportunity we think coming in the first quarter. So we think the money that's been spent, they call it inefficiency. We call it drilling efficiency has allowed them to spend their budget very early, the public companies are having a reload. They have production targets. They've got to meet those production targets. To do that, they have to put the rigs back to work. So no, we're optimistic about next year, but it'll be a gradual increase.

Our next question is from the line of Marshall Adkins with Raymond James. J. Marshall Adkins - Raymond James & Associates, Inc., Research Division: Oh, I remember when it used to be easy to model you all. So let me get this thing straight. We've got... so we got contract cancellations up, but your total number of contracts are also up. You're leading edge rates, the number of rigs active are down, but margins are up, which is totally absolutely abnormal, so we need help here. Help us at least in the Lower 48 land stuff understand where you think margins are going to go when you add up the new contracts, the shift in mix to the higher priced stuff? Help us understand where costs are going and I guess finally, leading-edge rates, I mean, I know there's a lot of parts to that, but the answer I'm ultimately trying to get to is, kind of where should we model daily margins going the next few quarters? Anthony G. Petrello: Let me just -- I know that the guys -- because there's a lot here in this topic. But let me say that one of the things is, there's always the macro point on each one of these things. But as we encounter each specific situation, our guys are always trying to create the best value. And so part of the -- part of the margin increase you see, for example, in the third quarter compared to second quarter, and as we mentioned, there was this termination and when you back out the portion of the termination that's due to future periods, there's still a healthy increase. That healthy increase is really due to 2 things. One is the base change in the mix, because we have new rigs that have higher rates coming on to the payroll, that's new AC rigs and some old stuff dropping off. And then frankly, even with respect to termination payments, in connection with those terminations, sometimes we figure out ways working with an operator to make 1 and 1 equal 3. And sometimes the extra 1 falls to the bottom line. So there's some of that at work as well. So I appreciate your dilemma, if that's kind of hard stuff to model. But I think I just want to emphasize, it reflects our culture here of trying to really optimize value. So with that, as an introduction, I let Denny add any more color to the specifics of what your question is. Dennis A. Smith: I think Tony put it very well. We spent dozens of hours sorting this out, because there's a lot of elements to it, and there's dozens of elements. But satisfied ourselves that legitimately the numbers we published are right. There are, just as Tony said, there's some 1 and 1 made 3 this quarter, where our guys were -- got lucky. We kept some good deals, cut the rights, put the rig back to work, got terminated and they had some successes in some of those. But it's all in the third quarter. Going forward, as Tony alluded to, a lot of it's mix. And what you had was a spike in rates at the leading edge that's now come in. And rigs that are rolling over, particularly a lot of them that went down in the third quarter, are rolling over at substantially low prices. And one small element of why we lost so much rigs relative to others, other than the many things we articulated is, we may be -- we've had to get more aggressive with net pricing reductions in certain markets where prices are down a lot. So I expect fourth quarter margins are going to be down $1,000, $1,200, $1,500 a day, something in that range, probably. It's a little bit of a reversal of that. It's all the rigs that you've seen gone down roll over. So that's where I would suggest you model. Longer term, they migrate up from mix because there's more and more new rigs deployed. As Tony mentioned and Joe, the X rig has got enough features. We haven't had to back off stuff at all, and we're getting our capital returns at our targets and still getting good long-term contracts, contrary to some of the other rigs that are coming to the market. So I think margins will be down in the fourth quarter, probably about the same in the first quarter and migrate up from there. Anthony G. Petrello: And the only thing I'd add, Marshall, is that, I mean, one of the consequences of the terminations is that there are -- we now have a number of AC rigs out there that are obviously at good leading edge rigs and the numbers you're seeing are numbers without all of them working. So I think the guys have some work ahead of them to get them working in all the right places, at the rates that make sense, and that's the mission so. J. Marshall Adkins - Raymond James & Associates, Inc., Research Division: Awesome. That's exactly what I needed. The follow-up, same thing on the pressure pumping. Your margins, at least relative to what I thought, they'd be a little more stout. Are those going to hold up or should we model those dropping off a little bit here in the next quarter or 2? Dennis A. Smith: They're probably coming in a little bit, and this stuff where everybody's pushing us back to minimum. Some of that on some big contracts that just happened recently late in the quarter. So that impact would be felt going forward. And the spot market just continues to be pretty slack, plus we stacked the crew. Anthony G. Petrello: I mean one of the major participants in their call talked about their changed position about following this market. I think our philosophy on this has not really been different than our philosophy has been on the rig side for the past 20 years. And we, as I said earlier in the year, we're not going to run equipment to make negative cash to keep things going. And so our mission is, we have these spot crews out there, and we want to create value for the customer. We want to do a good job, but we don't want to lose money. And so we'll try to be as fast as we can and try to show differentiation of value, and that's the game. But we idled 5, and we just idled 1 more, and we're going to keep that balance. So that's the way we're approaching it.

Our next question is from the line of Scott Gruber with Sanford Bernstein & Co. Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division: Tony, you sidestepped the rig question on the new build the first time, so I'll try it from a different angle. Given the rate secured, are you still looking at double-digit returns? Anthony G. Petrello: Oh, yes, absolutely. Yes. It's still within the kind of payout number that we have always aspired to. Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division: And what's the all-in cost on a PACE-X unit today? Anthony G. Petrello: We're not giving those numbers out. Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then when I look at... Anthony G. Petrello: That is one of the advantages of the key components. That we have control over the manufacture of the key components. In this rate, the VFD, the top drive, the walking system, the drillers cabin, is all something we control. Not necessary something that every piece of it that Canrig builds, it's something we control, and that we can add value to. And one of the values of adding is obviously on the cost side. But also more importantly, and just getting the kind of integration that we think that the evolving generations are going to require. And that's really a mission of ours here to -- and that's actually the thinking behind consolidating our engineering to put more effort into that. But that's all, and that's all still being mindful of the overall objective, which is the allocation of capital and achieving the kind of return that everyone's aware of. Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division: And if you had to ballpark it, what percent of the total cost of the unit is supplied by Canrig today? Anthony G. Petrello: 40%. Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then if I look at your market share, the market share of your large public peers, in the third quarter, there was a rather consistent loss within Lower 48 despite more aggressive new build programs. You highlighted the contract role issue for you. I'm just curious, is there an element here where smaller drillers are cutting pricing more aggressively to maintain utilization on their fleets? Joe M. Hudson: Yes. Anthony G. Petrello: Yes? Joe M. Hudson: Yes. Anthony G. Petrello: I think there's 2 things. First, for the reason you said, the percentage, the real percentage of what was going on is obscured by the terminations. But yes, there's no question in this market there's been aggressive price cutting. And frankly, we have to do a better job of getting the stuff that's been terminated back to work quickly. And to regain -- I mean, the good thing about terminations is -- consistent with what we've all told you is, this shows that when we say we have term contracts that are real, when they're terminated, we get the cash flow, and it's in the bank. I think the follow-up now is, we still have good rigs, and we got to get them back to work now following those terminations. And that is definitely on the table. But you correctly pointed out, there's 2 things. It's not only those guys, but it is also other people that maybe had new builds in the pipeline or some other rigs that came off contract as well and everyone's sort of heading to the same areas where they know the work is. It's no secret that pressures in both the Eagle Ford area and North Dakota have become much higher the past 4 or 5 months given what's happened in terms of rigs coming loose. And so it's not just the small drillers, but it's those other people that may have thought that they had a home, that are looking for a home now, and they're affecting the pricing. Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division: So does that suggest that we need to see activity positively inflect and start to grow again before we see rates stabilize or is a stable activity sufficient? Joe M. Hudson: No, I think the -- again, I think in the next 6 months, as Tony just said, there's equipment in broad areas in the U.S. that is down. We've mentioned like 200 rigs total. We think the upside in the rig count next year is going to be in AC rigs. So we think the opportunity to -- you have to put the rigs back in. Rigs coming off term, as Tony mentioned, are coming off. Now we're doing back into the market as we rollover price threshold. We're going to get back into the first quarter, we think we'll see a ramp-up in activity starting sometime in the first quarter when we do. And so when we look at contracts now on the existing AC assets, customers are asking for -- now what they're saying -- just talking about terms for me, we're looking not, let's say, 15% of the customer base. So we say, well, we don't want to go past a 6 month term or we'll do a mix, because we got caught this time with a lot of rigs rolling off term. So we're looking at 6-month term, it gets rigs back into the market, but also it doesn't put you in a position on pricing that you take and you can't take the upside in the marketplace. So we think that's the proper strategy to getting back in. We do think there's a comeback in the marketplace next year for the AC rigs. Dennis A. Smith: So our hope is that whatever increase we see throughout first quarter, utilization will kind of arrest pricing declines. But it's yet to be seen.

Our final question is from the line of Brad Handler with Jefferies & Company. Brad Handler - Jefferies & Company, Inc., Research Division: Maybe I could ask a question keying on your enthusiasm about both the PACE-X and the AC rig demand, generally. How do you best position for that? Obviously, contracted opportunities are ideal, but are you willing to, given the success of PACE or your optimism about the success of PACE, are you willing to put some capital upfront to have availability there? Are you willing also to put some moving systems to convert more rigs to have moving systems on a speculative basis, just to try to capture your perception of how the market is shifting? Joe M. Hudson: I have -- to answer your question -- this is Joe. I have currently ordered 10 moving systems. We placed those last month on spec. I believe 3 to 4 of those have already been taken on contracts. We currently have 3 to 4 spec rigs still in the mix, which we think there's a great opportunity for contracts on those. We have bought long lead-ons, so we can consolidate quickly and build incremental rigs. We're making the investment. We're not going to miss the market this time by not making that investment. Anthony G. Petrello: Yes. I think that, again, one of the reasons why we're taking this approach with the new X -- I think in my remarks you might have heard, how it's being designed to be something that maybe not just works in the U.S. but elsewhere, and Joe mentioned a couple of additional rigs don't have contracts. One of the benefits we have is the long lead components. That's really the part of the thing you got to get in the hopper. So with Canrig, we can do that and reserve those slots and without a lot of risk here of engaging in so-called spec building or spec commitments, get these components lined up and those components could be either used for U.S.A., used for International, used variety [ph] or even third parties, potentially. And so one of the reasons, one of the thinking behind this is, that's part and parcel of the strategy here. Brad Handler - Jefferies & Company, Inc., Research Division: Interesting. Makes sense. I suppose there's probably a certain minimum level of manufacturing designed around efficiency as well, right? Anthony G. Petrello: Exactly, yes. Exactly. Brad Handler - Jefferies & Company, Inc., Research Division: Sure, makes sense. If I could sneak in an unrelated follow-up, and I recognize that the premise for a lot of the corporate consolidation is probably as much about revenue efficiency and revenue opportunity as anything else. But can you ballpark for us some of the cost savings relative to consolidating that engineering and technical staff, for example, and some of the corporate consolidations in the United States business? Anthony G. Petrello: I'm just not ready to do that, but you can -- I mean, we do have some internal numbers that I'm actually ratcheting up on the guys. But it's a priority to make that number meaningful and making it visible. As I mentioned, the visibility given the dwarfing of what's happening on the gross margin level is hard to make that visible. But I can tell you we have numbers, and we're driving as best we can. Dennis A. Smith: But in the corporate side, like you specifically talked about in engineering, it's more on harmonizing our old efforts and concentrating the resources, people and technology where it's needed the most, instead of having individual pools of resources. So it's more of an efficiency driven issue. Brad Handler - Jefferies & Company, Inc., Research Division: Sure. That makes sense. And maybe since you're going to lock this call up, maybe I could sneak in one more, if you don't mind. I'm getting a little confused about the concept of Alaska's seasonality, and that's probably -- that may just be my own. Dennis A. Smith: Yes, it's basically the reduction in work in the legacy fields because of the progressivity of the tax. Now it's much, much more exploration-focused in the winter season. That's the bottom line of it. If we get some tax changes as the industry seems to be optimistic about, the operators have already promised a restoration some activity in the legacy fields. So that will level things out a little more. Brad Handler - Jefferies & Company, Inc., Research Division: Okay, that helps. How much -- what's a realistic kind of ballpark for Q1 activity levels then and how much does that falloff in Q2, normally? Dennis A. Smith: I think you can look at the same profile last year and it's probably pretty close to that -- or this year. Brad Handler - Jefferies & Company, Inc., Research Division: The first half of the year and that path [ph], okay. Dennis A. Smith: Yes, the quarter-by-quarter progression should be pretty much in line with this year. Dennis A. Smith: Camille, that wraps up our call. If you want to wrap it up for us, please?

Thank you, sir. Ladies and gentlemen, this concludes the Nabors Industries Third Quarter 2012 Earnings Conference Call. Thank you for your participation. You may now disconnect.