Executives
Suzanne McLeod - IR
Danny McNease - Chairman and CEO
Bill Wells - CFO
Analysts
James West - Barclays Capital
Rob MacKenzie - FBR Capital Markets
Kurt Hallead - RBC Capital Markets
Dan Pickering - Tudor, Pickering, Holt & Co.
Ian MacPherson - Simmons &Company
Arun Jayaram - Credit Suisse
Robin Shoemaker - Citigroup
Marshal Adkins - Raymond James
Judd Bailey - Jefferies & Co.
David Smith - JP Morgan
Tom Curran - Wachovia
Angeline Sedita - Macquarie Securities
Rowan Companies Inc. (RDC) Q3 2008 Earnings Call Transcript November 4, 2008 9:30 AM ET
Operator
Welcome to the Rowan Companies Incorporated third quarter 2008 Earnings Call. Today's call is being recorded. And now, at this time for opening remarks, I would like to turn the conference over to Suzanne McLeod. Please go ahead.
Suzanne McLeod
Thank you, Sierra and good morning. Welcome to Rowan's third quarter 2008 earnings results conference call. Joining me on the today are Danny McNease, Chairman and Chief Executive Officer and Bill Wells, Chief Financial Officer.
Before Danny begins his remarks, I would like to remind you that this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements as to the expectations, beliefs and future financial performance of the company that are based on current expectations and are subject to certain risks, trends and uncertainties that may could the results to differ materially from those projected by the company.
With that I will turn the call over to Danny.
Danny McNease
Thank you, Suzanne. Good morning everyone and thanks for joining us for our quarterly update on Rowan. Suzanne McLeod will now lead our Investor Relations Efforts to service Rowan in best possible way, as of analysts, investors and the financial press. I am confident that Suzanne is up to this challenge and will server our investors well.
Bill Provine, who previously served as our Vice President of Investor Relations has decided to retire effective at the end of the year after a 21 year career at Rowan. We have been fortunate to have him formed so many great relationships at Rowan within the investment community. He will be missed by all and we wish him all the best in his retirement.
Since we last talked, a lot has happened in the industry and the broader markets. I will begin by covering some topics upfront and then turn I will turn it over to Bill Wells, our CFO, who will discuss our financial performance in more detail and update any guidance. Before taking your questions, I will conclude our review of the worldwide markets, where we currently followed by review of our manufacturing divisions performance for the quarter.
Let me start with our most recent announcement regarding my personal decision to retire as Chairman and CEO effective at the end of this year. I am retiring from Rowan so I can spend more time with my wife and family. My role at Rowan spans over 34 years during that time, I have had the honor of working with the most dedicated, trained and skilled people. From my time spent with other (inaudible) working my way up as the member of Rowan’s drilling crew to my current position as the member of the company’s executive management team and the board of directors.
The success this company has seen over the years should be credited to the people of Rowan. I would also like to thank our shareholders for investment in the company. It has been a pleasure working with them and investment community over the years as well. I am pleased to have the opportunity to leave Rowan as poised thorough some milestone transformations including our strategic initiatives to further diversify our fleet geographically and expand our drilling fleets.
We have also made some tremendous strides in growing our manufacturing business in recent years. Although, the market is fearful regarding worldwide oil demand trends our, operating activities, marketing activities and strategic evaluations remained strong and so are largely unaffected.
So, it is this time that Rowan Board of Directors is in the process of conducting the internal and external search for the candidates to serve as Rowan’s new CEO. Since the search has just recently started, I wanted to update the market as quickly as I could on my decision to retire, which was difficult to make given my long and fulfilling career with the company.
I am leaving with a good feeling for the future of Rowan and I will do what I can to ensure a smooth transition. Despite the present concerns about the global economy and the performance of the equity markets, Rowan reported solid third quarter results.
We recorded consolidated revenues of $527 million, net income of $114 million; our earnings per share of $1. The results, we reported most impacted by downtime on two jack-ups that will undergo modifications during the quarter and the impact of Hurricane Ike, which caused a loss of our oldest offshore drilling rig, the Rowan-Anchorage and significantly disrupted our Houston manufacturing operations.
These times of unprecedented economic uncertainty have effectively driven offshore drilling stocks to all-time lows. While the market has given away tremendous value and energy stocks, we continue to have confidence in our business and customers and remain focused on our long-term strategic initiatives.
We have positioned Rowan as a unique player in the offshore rig markets specialized in high-spec jack-ups daily suited to meet the increasing demanding drilling conditions of drilling deep, high temperature, high pressure wells in the Gulf of Mexico, and the harsh weather environments around the world.
Our fleet of premium jack-ups have more storage capacity, more deck capacity, and more extended [time] to reach capacity than other jack-ups which makes them ideal for completing the deepest drillings in the toughest environments.
Even in these troubled times, oil and natural gas remained the lifeblood of our economy. Our global need for additional oil and gas resources requires innovative exploration and production recovery technologies, and Rowan’s premium state-of-the-art drilling equipment is well suited to meet those needs.
With respect to our manufacturing division, we’ve been actively engaged in evaluating all the viable options to monetize LTI. The recent weakness in the capital markets and commodity prices has adversely affected those opportunities.
Therefore, at this time, we're not pursuing any further negotiation with potential partners; however we will continue to review all strategic options including a spin-off for the LTI to our stockholders.
We do not anticipate their transactions if any, will be completed until capital market conditions improve significantly. In our offshore business, we have seen continues strong in the jack-up market for premium rigs. In the Gulf of Mexico, despite the continued softness in natural gas prices, we expect to see continued improvement in demand, and day rates due in part to the migration of rigs to international markets.
In the premium segment, we received several notable contract fixtures. Our new built Rowan-Mississippi received a contract from McMoRan for two years as day rates in the low 220s beginning in November 2008.
Rowan Gorilla IV currently working with McMoRan and Blackbeard in the mid [190s] received a 150 day firm drilling contract in the low 200s with W&T in the Gulf of Mexico for work beginning in the first quarter of 2009.
Lastly the Rowan Gorilla II received a two year Gulf of Mexico contract signed with Devon Energy Corporation, which is scheduled to begin in January of 2009 at averaged day rate in the high 180s, which is up from its current contracted day rate in the mid 160s with El Paso.
We are pleased to have negotiated these term contracts in what normally is a well to well environment in the Gulf.
I would also like to add that our new bill J.P. Bussell now has a commitment with Shell on Egypt beginning in the third quarter of 2009 for 20 months at a day rate in the low 180s, with options for three additional wells. The rig which we were previously marketing in the Gulf of Mexico before departure to Egypt next year has received a signed contract with [Merit] to complete four wells covering 130 to 150 days.
This contract is expected to provide revenues of approximately $21 million to $24 million and will begin immediately following the rig's christening at our Sabine Pass, Texas facility in mid November.
In the commodities segment, day rates are also staying strong. Because of our good relationships with our loyal customer base we’ve been able to receive good contract fixtures on our three independent slot jack-up rigs, the Rowan- Genoa, the Rowan-Louisiana, and the Rowan-Alaska in the US, Gulf of Mexico.
The Rowan Genoa received a six month contract at day rate in the high 90s, up from it's current rate in the low 90s. The Rowan Louisiana received two new contract awards, one in a day rate in the mid 110s beginning in October and lasting through December, and a second contract with a different operator at a day rate low 120s, that makes a rig contracting until February 2009.
The Rowan Alaska, received a three month contract extension to January of 2009 is the current day rates in the mid 110s.
We believe our ability to push current contracts and higher day rates in a volatile commodity market is a result of the higher spec nature of Rowan's fleet. These contract awards also show at least for the majors, that they are pushing forward programs and are making strong commitments.
As I mentioned earlier, we are well aware of the tremendous pressure the market has placed on offshore drilling stock like Rowan's. Investor's fears a shifting from falling commodity prices and a global recession to the enforceability of contracts and offshore driller backlogs.
Our offshore backlog is strong and continues to grow. We believe our customers are financially sound and fully capable of honoring new commitments, and Rowan has been successful at enforcing our drilling contracts and weathering tough economic times before in the past.
Looking forward we strategically are considering other growth opportunities that can bolster Rowan's competitive edge. With a strong balance sheet, we have the ability to explore suitable acquisition opportunities including in the deepwater market.
We are continuing to see excitement in the ultra-deep gas shelf for the US, Gulf of Mexico where we are operating our Super Gorilla class jack-up with, the Bob Palmer drilling on BP's Eldorado prospect and Rowman well four on the Blackbeard well for McMoRan.
In October the Blackbeard wells drilled to a total depth of 32,997 feet, the deepest of any well being drilled in this region. The initial indications are encouraging.
According to McMoRan's management [strong] analysis has yielded positive indications of four potential hydrocarbon bearing sands require further evaluation.
McMoRan is saying that the Blackbeard's discovery is probably major. A well we've temporarily abandoned while further testing is required to determine if it holds commercial quantities of hydrocarbons.
Should the other deep gas continue to show promise, Rowan will be well positioned to take advantage of renewed operator interest in deep gas drilling. With a majority of high-spec jack-ups that are best suited for drilling such wells.
Our newbuild the Rowan-Mississippi jack-ups that is scheduled to be delivered early November will be used to drill one or more ultra-deep gas projects in the US Gulf of Mexico and including additional drilling on the Blackbeard prospect for McMoRan contract with a two year term and a day rate in the low 220s.
Regarding our nine newbuild rigs under construction, we have two scheduled for delivered this month, one to fall on 2009, and then three each in 2010 and 2011. Given the current market conditions and [improving] drilling, we will review capital expenditures particularly with respect to newbuild rigs. I can assure you that we under missed for such a review and we will be discussing any revisions to our current Bill Plan in our December budget meeting.
As a result of Hurricane Ike in September, we lost Rowan-Anchorage, the oldest and smallest of our jack-up fleet. Already it was getting approximately 60,000 per day in revenues and was in our books for about $4.5 million.
In connection with the loss, we received insurance proceeds of $42.5 million. During the storm, our newbuild jack-up rigs at Rowan, Mississippi and at J.P. Bussell stationed in our Sabine Pass, Texas facility for final outfitting sustained limited damage.
We plan to hold the rig christening for these jack-ups before they leave the shipyards for new contracts. In addition, other power outages and fuel shortages in Houston area during the time of storm resulted in interruptions on our LTI manufacturing division supply chain and shipping delays. Bill will provide additional financial guidance for our manufacturing division, as a result of the storm related disruption.
With that, I would like to turn the call over to Bill Wells, who will discuss our financial performance for the third quarter in more detail.
Bill Wells
Thank you, Danny, and good morning, everyone. Our third quarter 2008 drilling revenues were $357 million, down 3% from the prior year and last quarter, but slightly above our previous guidance.
The sequential and year-over-year decrease is resulted primarily from downtime due to modifications on the Rowan, Middletown and Gorilla V, which collectively reduced our rig operating days by about 4% and our revenues by about $12 million during the third quarter.
Our overall average offshore day rate was down slightly sequentially following the culmination of work in offshore Trinidad in May, but increased in each of our most prominent markets, the Middle East, Gulf of Mexico and North Sea.
Looking ahead we expect that the Rowan Mississippi, our first 240-C class jack-up will be operating from McMoRan in the Gulf of Mexico by mid November and the J.P. Bussell, our fourth Tarzan class rig will commence operations soon thereafter. Assuming these events occur and barring unforeseen rig downtime, we expect that total fourth quarter drilling revenues will be in the range of $380 million to $385 million or 6% to 8% higher than the third quarter.
In addition of these newbuild rigs should increase our average offshore day rate to around $175,000 worldwide during the fourth quarter and a just over $150,000 in the Gulf of Mexico. Our third quarter drilling expenses were $163 million, an increase of 12% over the prior year, but unchanged from last quarter. The year-over-year increase was primarily attributable to higher compensation and maintenance that resulted from our continuing migration of rigs to international markets.
Maintenance cost reductions during the current period however fully offset the impact of an August 1st wage increase, the third and 15 months resulting in no sequential change in our drilling expenses. We expect that our fourth quarter drilling expenses will be comparable to the third quarter amount and then our full year 2008 drilling expenses will be within 10% of the 2007 amount.
Our third quarter manufacturing revenues totalled $248 million including $78 million of arm's length sales to our drilling division. External revenues were $170 million, an increase of 27% from the prior year, but down 23% from last quarter.
Our third quarter, Drilling Products and Systems revenues, totalled $189 million including sales to our drilling division. External revenues were $111 million and featured $52 million from land rigs component packages, $37 million from six offshore rig kit projects, $10 million from parts sales and another $7 million from drilling equipment.
Our third quarter Mining, Forestry and Steel products, revenues were $59 million included $15 million from shipments of mining and forestry equipment, $18 million from steel plate, and $20 million from aftermarket parts.
As previously reported, hurricane Ike temporarily caused employee evacuations, power outages, fuel shortages and mandatory curfews throughout the Houston area, which interrupted our manufacturing supply chain, slowed our ability to ship completed products and forced reductions and planned operating hours of production.
We estimate that these factors reduced our external manufacturing revenues during the third quarter by approximately $25 million. Our average margin on operating costs was 12% of revenues during the third quarter down from 19% in the prior year and 18% last quarter with reduction due primarily to $3.2 million loss, estimated loss recognized on the two land rigs scheduled to ship in the fourth quarter and the impact of higher fixed overhead costs. Similarly our manufacturing operating income declined to 3% of revenues in the current quarter down from 11% in both the prior year and last quarter.
Our quarter end, manufacturing backlog totaled over $1.5 billion, a 25% increase over the past three months that included $694 million of external orders and $847 million related to our own jack-up newbuild program.
The external backlog almost doubled during the quarter and included $328 million of land rigs and component packages, a $115 million related to six offshore rig kit projects, $97 million of mining and forestry equipment, and another $78 million of drilling equipment.
We are currently reviewing the backlog and talking with our customers to reaffirm our commitments. Our third quarter, depreciation expense totaled $36 million up by 8% from last quarter and by 22% over last year primarily due to rig fleet additions.
Our third quarter SG&A expenses totaled $28 million, down by 10% from last quarter, but up by 23% over last year primarily due to fluctuations in manufacturing and selling costs.
Our CapEx totaled $299 million for the third quarter, which included $119 million paid to reacquired 116 C-class jack-up, Cecil Provine following the end of its charter on July 7th. Most of the balance related to construction progress on our newbuild jack-ups, the J.P. Bussell, Rowan-Mississippi, the Ralph Coffman, and the four new Super 116Es.
We currently estimate that our remaining 2008 CapEx will be in the range of $130 million to $140 million, and will be financed through operating cash flows. Despite our positive near-term outlook, we acknowledge the risks to future business conditions resulting from the current capital markets environment and the recent dramatic decline in oil and natural gas prices.
Rowan’s successful management of it's liquidity during the various ups and downs cycles over the past three decades is a primary reason the company has survived longer than any other drilling contractor.
Our primary focus as we work to complete our 2009 operating in capital budget over the next several weeks is to contain, if not reduce operating and administrative costs, thereby improving both profitability and cash flows.
To this end, we are taking a hard look at the scheduled timing of our 240 C newbuild program. Our continuing ownership of LTI allows us to modified rig constructions schedules with very little consequence if and when that becomes necessary.
We will let you know of any significant changes to our plans. And with that I will turn it back over to Danny.
Danny McNease
Thanks Bill. I will now provide an overview of the worldwide markets where we currently have drilling operations followed by a discussion of our manufacturing division LTI.
Rowan's offshore fleet of 20 jack-ups is currently contract at 100% utilization, as a current average day rate of $172,000 per day worldwide. Approximately 70% of our jack-up rigs are contracted through the end of the first quarter 2009; 12 of our 20 rigs are contracted to the international markets, nine in the Middle East, two in the North Sea, and one in West Africa. The remaining eight rigs are located in the US Gulf of Mexico.
Every major operating region where we currently have premium jack-up rigs contracted today, we have achieved highest average day rates in utilization among the offshore drillers. We believe our competitive advantage lies in a better technology and high-spec equipment, combined with our qualified and well-trained crews.
Now from a broader perspective, the drilling markets worldwide continue to be strong, and even under these pressing economic times, we remain optimistic about our future prospects.
According to ODS-Petrodata there are 431 jack-ups worldwide to manage currently 390 rigs, with utilization at 90%. We believe that a current forecast, supply deficit of 26 to 37 jack-ups exist worldwide for the projects through 2009.
Despite the arrival of 19 newbuilds so far in 2008 and another 12 scheduled for delivery before the end of the year, jack-up supply deficit continue to drive demand in almost every major operating area worldwide, primarily due to high specification, high specification operating requirements for the proposed tenders, and a relative lack of regional availability.
Today about 75% of our jack-up net book value and backlog are located outside the US. In the coming year we plan to continue our long-term strategy diversifying our fleet across international markets.
Now let's take a closer look at our current drilling operating areas. Let me begin with the US, Gulf of Mexico. This jack-up market remains predominantly a well-to-well environment compared with long-term contracts available internationally.
Despite these conditions Rowan has continued to set the pace for utilization and day rates for longer term and higher rates than our peers, supplying the region to 77 jack-ups while demand is 55 rigs with a contract utilization of 71%.
(inaudible) jack-ups in US, Gulf of Mexico are currently contracted and our average day rate in the region is approximately $144,000. We expect that high-spec jack-ups will continue to migrate to international markets, and about 8 to 10 rigs could [leave] the US, Gulf of Mexico over the next year.
In the Middle East this region continues to be the most active jack-up market in the world. The supply in the region is 104 jack-ups, while demand is currently at 98 rigs and contract utilization at 94%.
We believe a supply deficit of 10 to 15 jack-ups currently exists. Saudi Aramco is now tendering 45 jack-ups for the program beginning in the second quarter of 2009. By year end 2008, additional tenders are projected from Dubai Petroleum, RAK Petroleum, [Kresit], NDC, Oxy and KJO and KOC. Rowan has nine jack-ups operating in the region at an average day rate of $156,000.
We believe the Middle East market is one of the keys to the future of our drilling division, and we are well positioned for growth, as our current relationship with Saudi Aramco and [Maersk] demonstrates.
The North Sea supply and demand of both 33 jack-ups and contract utilization is 100%. Jack-up demand remains strong in the region with a current deficit of one to two rigs. Despite the forecast the arrival of four newbuild jack-ups before mid 2009, demand will continue to increase in (inaudible) supplier with a possible [peak] of the four rig depths in late 2009.
Today Rowan has two jack-ups operating in the North Sea at average day rate of $235,000. We are currently in discussions with various operators for long-term contracts, utilizing our Gorilla class jack-ups and newbuild 240C jack-ups.
Finally turning to West Africa, the supply in the region is to 27 jack-ups, while demand is at 25 rigs and contract utilization is at 93%. The region is forecasted to see a two to three rig deficits over 2008/2009 due to tenders from Cabinda Gulf and Exxon Mobile.
Our Gorilla VII continues operations for Cabinda Gulf for over two year contract, as day rate in the low 330s. In addition to our current areas of operation we are constantly looking at opportunities around the world to further diversify our fleet.
We currently have tenders for approximately 20 rigs either in-house or in bound for long-term contracts in South America, India, the Middle East, the Mid, West Africa, Mexico, North Sea and we are reviewing all of them, as we continue to implement our diversification strategy worldwide.
With respect to our onshore operations, our fleet of 30 land rigs located in U.S. is currently contracted at 97% utilization and has a current average day rate of approximately $23,000.
Approximately, two-thirds of our land rigs are contracted through the end of the first quarter of 2009. We will continue to see additional long-term contracts in the land rig market. However, operators evaluate their budget future projects very closely due to concerns regarding the credit crisis and volatility and commodity prices.
We delivered one new land rig during the third quarter and have two additional rigs under construction. We expect delivery of the next land rig by year end 2008 followed by the remaining unit in early 2009.
Now turning to our manufacturing division, LTI. As a reminder, we began reporting LTI’s financial results on a standalone basis beginning January 1st, 2008 to improve transparency, while showing the divisions true business levels and earnings potential.
Following several consecutive years of dramatic year-over-year improvements, our manufacturing divisions, year-to-date results were in line with our aggressive plan to achieve another record breaking year in 2008.
We plan to reach this goal despite several disruptions caused by Hurricane Gustav and Ike, modernization activity in the current global financial crisis. As we have mentioned before, LTI’s financial results can be significantly impacted by the timing of our shipments.
So, we prepared the [new] LTI on an annual basis rather sequentially from quarter-to-quarter. With that in mind, we currently project that 2008 external revenue will be more than 10% higher than the record $712 million in 2007. Total revenues [inclined to] sales to Rowan's drilling division are expected to approach $1.2 billion in 2008. LTI’s growth through external sales has contributed significantly to the success over the past few years.
During the third quarter, LTI’s backlog of external orders increased by almost to 100%. Part of LTI’s success is attributed to the growing presence of its global product lines in international markets. While this is evidenced by our more established product lines of mining, equipment and offshore rig kits, which operate on six continents, our drilling equipment has increasingly been shipped to international markets including the Middle East, Singapore, South America, India and Russia.
Year-to-date quotation activity at the end of the third quarter for the Drilling Products and Systems segment exceeded $4 billion. We believe this further demonstrates that the drilling market is turning more and more to LTI as a reliable competitive source for high performance drilling systems and services.
Current rig kit quotations offer deliveries in the second half of 2010, it means that the final delivery of the completed jack-ups associated with these kits would be in 2011. LTI mining products is embarking upon a major [source] to substantially increase this backlog. Aftermarket part sales continue to comprise a significant portion of revenues from mining products.
This concludes our prepared comments. Thanks for supporting Rowan Companies. We are now available to answer any of your questions.
Question-and-Answer Session
Operator
(Operator Instructions) At this point we will take our first question from James West with Barclays Capital.
James West - Barclays Capital
Hi. Good morning.
Danny McNease
Good morning, James.
James West - Barclays Capital
Danny, let me be the first to congratulate you on a long and successful career at Rowan and wish you the best of luck in your retirement.
Danny McNease
Thanks James. I appreciate that.
James West - Barclays Capital
Quick question on the business. As we look at 2009 in the Gulf of Mexico, I think there is a consensus building here that the market at least going to be weaker in the shallow water, perhaps much more so for the commodity rigs than your rigs?
Two parts of the question; first, how do you see this potential weakness playing out for your high-spec fleet? Then secondarily, if it is unfolding like I think most people believe now, do you want to become more aggressive in seeking long term international contracts for your Gulf asset?
Danny McNease
Well. I think James if you look at our high-spec fleet, a lot of those rigs are contracted through next year and like in BP's case, the Bob Palmer is contracted at June of 2009 and BP is already talking just probably extending the year. So, I think the high spec rigs are going to be fine in the Gulf of Mexico.
Like I said earlier in our leaden, we are constantly bidding these rates on the international markets and there is a long-term contract three to five years came up, we would sure take it. Another market that we see evolving of course is the PMEX market. We have people down in Mexico City today talking to PMEX about one of our big oil rigs for deeper water. So, we see that market switching more to the high end type rigs also. So, we think there is going to be enough opportunities around the world. The demand on high spec side is going to continue to be stronger, stronger than it is today.
James West - Barclays Capital
Okay. Then on those international opportunities given where you bid those contracts currently and how the markets evolved in here, do you need to discount those current bids maybe a touch? Or do you think that is your primary bid?
Danny McNease
We are saying, we are primary bid James I mean, we think there is enough opportunities with the high and jack-ups around the world, we are going to be fine. I mean West Africa it looks like it is going to be a big market for us in the future.
We have got a lot of bids outstanding there. As I said, we have got several bids then from South America. We are talking to PMEX about one high end jack-up. So, I mean, we are going to be fine in that market. I think anyone will be making a mistake thank to that market it is not going to be strong.
James West - Barclays Capital
Okay. Great. That is very helpful. Thanks, Danny.
Danny McNease
Thank you.
Operator
Thank you. We will take our next question from Rob MacKenzie with FBR Capital Markets.
Rob MacKenzie - FBR Capital Markets
Good morning. Danny, I wanted to ask a length question on the land rigs here for you.
Danny McNease
Okay.
Rob MacKenzie - FBR Capital Markets
If the downturn comes as expected as many on the street anticipating a $400 to $500 decline in the US land rig count, how would you approach marketing your land rig fleet as they come off contracts? Are you be more inclined to defend rate and give up some utilization or would you try and keep your utilization up at the expense of rate?
Danny McNease
If you look at our long-term contracts, we are [not] in place right now. We have got a big percentage of the fleet contracted. We are not focused so much on the shell, as lot of our competitors are with the smaller equipment.
It is always been our strategy in the past that we will defend our market share. Hopefully that we will be able to get a higher price for our rigs than our competitors because of the equipment that we are providing. If you got the best equipment it is the last one to go to the bank, as I always say then they just got a commodity type unit.
So, once again, I think that a lot of people maybe jumping ahead of themselves saying that the world has come to an end, on land because we really have not seen that yet. We have not seen any of the people that we got long-term contracts, who will come to us and say; we want to have this deal. We are not going to do any work.
One thing about the Shell work is you got to drill a lot of wells keep production levels up. So it may slowdown for a short period of time. It will come right back and whatever being] and it bounce back a lot stronger than it was if production slows there.
Rob MacKenzie - FBR Capital Markets
Okay. Great. Shifting gears a bit to manufacturing great growth in the external backlog there. Can you give us a handle on when you might expect to recognize that backlog? Also any risk to that backlog based on customer mix or potential renegotiations based on customer financing?
Danny McNease
Well. We have had a few people call and say that they want to lay their equipment somewhat and they want to work with some doing that. As I was listening to Pete's conference call the other day, it is a very small percentage of those people.
Most of the people have commitments for those rigs or that equipment around the world and they want to get as quickly as possible. As Bill said in his part of the presentation we are going back to everybody that we have contracts with and asking [but already] do not have a problem so that we can try to workout their rotation. Most of the backlog is the rest of this year and next year, a lot of that being the kits. We are very excited about the number of kits we sold in the last few months.
Bill Wells
Rob just to give you some more specifics there. The $700 million of external backlog about 40% of that should fall in the fourth quarter give or take a few percentage points. The most of the balance of it is in 2009. There is a little bit trickles out into 2010.
Rob MacKenzie - FBR Capital Markets
Yes. Okay. Great. How would you describe inquiries for incremental sales of kits etc cetera in the drilling systems business?
Danny McNease
That is still going on. There is still lot of the, as I told you in the last conference call, a lot of inquiries from NOCs around the world and that is continuing on. The PetroVietnam folks of Aramco, Petrobras, there is still a lot of interest there. So we are still chasing all those deals.
Rob MacKenzie - FBR Capital Markets
Okay. Thanks. I will turn it back.
Operator
Thank you. We will take our next question from Kurt Hallead with RBC Capital Markets.
Kurt Hallead - RBC Capital Markets
Hi. Good morning.
Danny McNease
Good morning, Kurt.
Kurt Hallead - RBC Capital Markets
Hi Danny, once again well wishes on your upcoming spending retirement.
Danny McNease
Okay. Thanks.
Kurt Hallead - RBC Capital Markets
The question I had for you was the comments coming out of Saudi Aramco yesterday regarding the Manifa project and prospect of renegotiating some deals. I know that you are well-won on customers trying to back out the stuff and it came out victorious if you will. Is there any given the cost of rigs in general relative to services, any word yet from Aramco in terms of them coming to you and saying hey we need to sit down and discuss the terms of the deal we signed with you?
Danny McNease
No. we have not heard that at all. In fact they have told us that, we got four rigs coming up next year. They told us when the time comes; they plan on sitting down and working some out with us for the extension on those rigs. So, we have not heard they come back and hey, we want to renegotiate any current contracts at this time.
Kurt Hallead - RBC Capital Markets
Then the contract that you signed with Saudi was it any different than any other contracts you signed. Do they have more wiggle room than some other customers maybe to renegotiate with you midstream or not?
Danny McNease
No. There is no wiggle room at all and they are about renegotiating.
Kurt Hallead - RBC Capital Markets
Okay. There, I think you referenced there are some additional upcoming tenders in Saudi is that they are still going as planned?
Bill Wells
They order us five. There is five out right now Kurt that we are working on.
Kurt Hallead - RBC Capital Markets
Okay. Then given some of the changes in Mexico's legislation here recently, what do you think that implies for additional offshore rig activity over the course of the next say 6 to 12 months?
Danny McNease
Well. We I could let you know a lot more about it tomorrow. We have got a people down here today and if you will call back in tomorrow, we will be glad to give you a heads up on that Kurt. Our indications are is, they are looking at drilling in deeper water, I will deeper water for jack-up, I am talking about 350 to 500 foot water depths. We have got several projects identified that they want to meet with us today about.
Kurt Hallead - RBC Capital Markets
Have you been surprised given the drop in natural gas prices that there has not been a bigger decrement in general and in rig demand in the Gulf of Mexico?
Danny McNease
No I really have not because, I mean if you look at the type reserves that people are chasing like Blackbeard those are huge reserves. So they are not as expected by lower prices than the other, smaller reserves would be. So you are looking at chasing more than a tea of gas a lot of these wells, it would drill into highly exploration wells. So, we think that most are looking at the long-term event, not the short term.
Kurt Hallead - RBC Capital Markets
Okay. Steel prices have been coming down is that had a positive impact on the ultimate costs of the rig you still have in process?
Danny McNease
Well the rigs we have in process in Pittsburgh it will have some effect on the third and fourth rig. The second rig however steels bombard and I would say probably 75% of the steel for the third rig its bombard. So the third rig and the fourth rig would have some impact, Kurt.
Kurt Hallead - RBC Capital Markets
You said you are delaying or pushing out the third and the fourth rig for liquidity preservation type stuff? Can you comment on that a little bit?
Danny McNease
We have not made that decision, yet. What we are talking about, we are taking a look at that right now. What we do not want there is, to get in a situation, where we outrun our cash flow and right now we are fine. We also would like to be in a situation with a strong balance sheet if the opportunity came up to acquire additionally equipment.
So we are balancing all that. We will make a decision on December the 1st, if we will slow them down or whatever. That is what we are evaluating right now, as Bill said in his part of the presentation. We are talking a look at that, seeing how much it would help us to do that and also we are getting a lot of calls from around the world as everybody is about opportunities and we are evaluating those as they come in.
Kurt Hallead - RBC Capital Markets
Okay. That is helpful. Thanks a lot, Danny.
Danny McNease
Thank you.
Operator
We will take our next question from Dan Pickering with Tudor, Pickering, Holt & Co.
Dan Pickering - Tudor, Pickering, Holt & Co.
Good morning.
Danny McNease
Good morning Dan.
Dan Pickering - Tudor, Pickering, Holt & Co.
Danny, given LTI’s not going to be monetized this year, can you just walk us through the agreement with Steel Partners? Is that still in effect? Is that means they are coming on the board walk us through what happens from a board perspective given the LTI situation?
Danny McNease
Well I mean the agreement we have with Steel Partners was that we did not get a deal done by the end of the year. They had the right to put a board member on the board. You would have to call them to ask what they are planning on doing that.
I mean I think that we have got a close working relationship we want and it is been working well. I do not know, if he want to come on to the board or not you would have to call him and ask him. He is well aware of everything it is been going on. I mean he understands that there was economic crisis none of us was aware about that it happened. So, you just ask him that question.
Dan Pickering - Tudor, Pickering, Holt & Co.
Okay. From the mechanical perspective, they have that ability, it is at their option does not require a vote or anything like that?
Danny McNease
That is correct. He has ability to come on the board January the 1st, if he wants to.
Dan Pickering - Tudor, Pickering, Holt & Co.
Okay. Thank you. Then my other question would be you talked a little bit about some losses on land rig construction in the third quarter. What happened and is there any risks that there are other issues like that in the remaining backlog?
Danny McNease
No that was a case where we had a rig designed and built to be shipped to India that deal fail through and we had to take that rig apart and reconfigure for another sale in South America, which cost some money and time. So that is what happened there. It was just a matter of reconfiguring an unit, which cost about $3 million to do.
Dan Pickering - Tudor, Pickering, Holt & Co.
I see. Okay. Then last question from me, can you talk a little bit about just in general where the newbuild cost estimate stand relative to three or six months ago, have they changed any at this point?
Danny McNease
Well currently, the cost estimates on newbuilds as far as Rowan is concerned, the cost is relatively same. As I said earlier, the steel prices hadn’t affected the rigs. We got into construction now and we have a turnkey price on the four 116-Es with landfill so that is going to affected. What may be affected in the future is, if steel prices remain where they are today or comedown you may see a price saving on 240C number three and 240C number four.
Dan Pickering - Tudor, Pickering, Holt & Co.
In general Danny where I am going with this is, if you think given where the market is, what is going on with shipyard demands in general? If you went to landfill today for a turnkey on a new rig, do you think that price has changed at this point?
Danny McNease
I think probably would be due to steel prices. We have seen some of the spot prices for jack-ups come down also. There is people some of the speculators have lowered some of their prices on the equipment. It is still hangout, where it needs to be.
You would probably save some money if you want landfills today and say look I want to build a 116D for delivery in 2011 and they could lock the steel prices and today’s prices you should save some money.
Dan Pickering - Tudor, Pickering, Holt & Co.
Is that a 10% number or 30% number?
Danny McNease
10% number.
Dan Pickering - Tudor, Pickering, Holt & Co.
Okay. Thank you. Good luck with your retirement.
Danny McNease
Thank you.
Operator
We will take our next question from Ian MacPherson with Simmons &Company.
Ian MacPherson - Simmons &Company
Hey. Good morning, Danny with regards to the options on the table for changing the CapEx certainly your market overview for the jack-ups does not seem to indicate any fundamental reason that you would like jack-ups less than you did six, nine months ago when you embarked on this path?
Danny McNease
Yes that is right.
Ian MacPherson - Simmons &Company
So when you talk about freeing up liquidity, and your other options, you mentioned possible acquisitions competing with capital?
Danny McNease
Right.
Ian MacPherson - Simmons &Company
What type of acquisitions might those look like growing?
Danny McNease
Well. It would have to be a same type of high end jack-up or deep water rig that would fit into our fleets. I mean there is some jack-ups that are under construction that are being built have $2 million pound of workload capability and high performance capability, which we are looking at those. That would supplement our fleet and especially it would be a quicker delivery than what we currently have. Then the other thing we have been talking about for the last few quarters, is the right opportunity came about in the deepwater business we should take a look at that.
So, we just want to keep all our options open. We want to continue to grow the company. We want to maintain the strong balance sheet because we do remember what happened in 1981 and we want to maintain the same capabilities, be able to get through the downturns that might come up. But, right now, as I said earlier, as you just said I mean, the deal is, we do not see that happening today. We still want to have our balance sheet strong enough if something did happen, we could weather the storm.
Ian MacPherson - Simmons &Company
Okay. Just to clarify, you are not going to be contemplating curtailing the newbuild program only slowing it down a little bit?
Danny McNease
If we did anything it would be slowdown the 243 and the 244 that would be the only thing we do. We still believe that there is demand for jack-ups and we want to continue to grow our company and those stag rates, we believe the demand is there.
It is just a question; could we get a unit quicker somewhere else that would have a similar type spec, but they work quicker at a reasonable cost and if that opportunity came up we would sure take advantage of.
Ian MacPherson - Simmons &Company
Okay. If I would get one more, quick one for you or for Bill, Q3 was a little bit sloppy with hurricanes. I just want to get an updated review on what the margin expectations are for the external workflow until now and if Q4 is going to be a catch-up quarter for margins or more of a normalized quarter? Any colour there would be helpful? Thanks.
Danny McNease
Well you can probably take out the $3.2 million loss. It just depends on where the revenue comes in. We expect revenues in Q4 to be up over Q3, and which gives us a better absorption of overhead costs and therefore margins go up accordingly. So we expected to be a little bit higher than Q3.
Ian MacPherson - Simmons &Company
Going forward, you still see the same low to mid 20s gross margin embedded in your backlog today?
Danny McNease
Yes.
Bill Wells
Yes.
Ian MacPherson - Simmons &Company
Okay. Thanks, Danny. Congratulations and good luck.
Danny McNease
Thank you.
Operator
Our next question comes from Arun Jayaram with Credit Suisse.
Arun Jayaram - Credit Suisse
Good morning.
Danny McNease
Good morning.
Arun Jayaram - Credit Suisse
Danny, Bill, Bill Provine, if you are listening, you will be missed. I wanted a follow-up quickly on Saudi Arabia. I think the timing feels like, it slipped a little bit in terms of the five rig tender primarily for Manifa. Danny, can you update us on when you think this tender could be announced? Have you bid any additional rigs into this tender?
Danny McNease
We bid three additional rigs into that tender. As far as announcement, I do not know, just talking about midyear, next year, start date. So, its still have to be relatively quick in order to book a heavy hauler to get the rigs there. That is not the only rigs they are talking about. They are also talking about some additional rigs next year and how much say, how many. They are telling us, there is going to be additional tenders also. Also the KJO deal joint venture between Kuwait and Saudi there is going to be some additional tenders there also.
Arun Jayaram - Credit Suisse
Okay. Which class of equipment did you bid? Danny
Danny McNease
We bid one of our Gorilla rigs and that was high end. We bid two high end rigs and then 116C.
Arun Jayaram - Credit Suisse
Fair enough. I want to understand a little bit of what is going on in the land rig segment. It looks like your day rates were down 8% or $1,700 per rig day sequentially. I think Danny you mentioned that they are currently averaging 23,000. So, I do not understand what is going on there?
Danny McNease
Yes. That is hard to understand. I should have clarified that in the intro. The deal is, we have a lot of rigs moving. It moves, it will reduce day rate during the third quarter. That is what happened. It was not the fact we lowered the rates, it was just they were moving. A lot of rigs move at 50% rate and we had a lot of rigs moving so that resulted in lower day rate average.
Arun Jayaram - Credit Suisse
Okay. In total, the newbuild order books at nine rigs, Danny how many of those do you think based on the supply chain and stuff you awarded do you think you definitely need to complete and which could potentially be delayed or pushed back given if the macro environments were to deteriorate?
Danny McNease
The only two that maybe pushed back would be the 243 and the 244. The four 116-Es will be build as scheduled and the other, there is strong possibility that 240s will be also. What we are trying to do was the state that there might be some flexibility, we have that flexibility, while in return we can not move those forward or back depending on the timing issues as far as jobs go.
So I mean we are taking a harder look at that in our December budget and we can make that decision then. I probably want to do is still above we are looking at that from a standpoint that we plan on not outrunning our cash flow in the future and we plan on building cash so we can have the opportunity to take a lot at lot of other things if they come up.
Arun Jayaram - Credit Suisse
Okay. Seven of the nine would get built?
Danny McNease
All nine would get built. Just might be a delayed. They might be delayed by a few months but all nine will build, as I mention.
Arun Jayaram - Credit Suisse
Okay. Last question is for Bill. Bill I believe your operating costs guidance was flat sequentially but you are adding a couple of rigs newbuild. I just want to understand some of the moving pieces there?
Bill Wells
You are talking about in terms of the fourth quarter?
Arun Jayaram - Credit Suisse
Yes. Is there some unrecognized Mobil Exxon’s that comes out? Do you want to make sure that is a good assumption, flat sequentially, even though you are adding a couple of rigs?
Bill Wells
Yes, It is. I mean we have looked at it. We just expect to continue bringing our maintenance costs down. So we do have the two rigs coming online. They are coming on in the middle of this month. So you are not going to have a full quarter of costs there. We think there are enough things going the other way.
Arun Jayaram - Credit Suisse
Okay. Fair enough. Thanks a lot.
Bill Wells
Thank you.
Operator
Next we will hear from Robin Shoemaker of Citi.
Robin Shoemaker - Citigroup
Yes. Thank you. Danny, I also want to add my thanks for your good work at Rowan especially in the international arena.
Danny McNease
Thank you
Robin Shoemaker - Citigroup
I wanted to ask you in the process in which you were talking to potential buyers of Laterno do not want to ask you to disclose anything but you were I think said that you thought there were opportunities to combine Laterno with other entities that would give us some size and scope. Are those opportunity is still there I mean in a more favourable capital markets environment?
Danny McNease
There is no doubt they are still there and there is no doubt that they have the same goals of becoming the true number two to NLVs as what Laterno does. When the capital markets turnaround those opportunities will be back. I mean there is a heck of a backing for a true number two guy and that is the reason I was so excited about LTI being able to grow it was the fact that, that will happen and the bigger you can get to fill that void, the more business you are going to have because there is a heck of a movement there. As soon as capital markets turnaround, we will be back looking at it again.
Robin Shoemaker - Citigroup
Okay. I wanted to ask you about the jack-up market in the newbuilds that are in some either owned by companies that are in some financial distress potentially. I heard a comment on another conference call that the sellers, who are approaching you or the pricing that they are talking about does not yet reflect the financial bind that some of the rig owners are in. Is that your perception that perhaps waiting that the level of pricing may comedown? Hello
Operator
[Technical Difficulty]
(Operators Instructions) All lines are now reconnected.
Danny McNease
Okay.
Operator
We will go back to Robin Shoemaker with Citigroup.
Danny McNease
Yes. Robin, go ahead.
Robin Shoemaker - Citigroup
Yes, yes. Thank you. My follow-up question had to do with the rigs that you are seeing now being offered for sale. What can you say about the pricing? Do they reflect urgency or distress on the part of the seller? Or are prices still relatively high compared to what where you think they might be perhaps a little further down the line?
Danny McNease
Well, I will tell you, we do not have financing. I mean, he is definitely not going to raise any money to pay the shipyard. If you go back and look what happened in the last downturn for the shipyards was that contractors were able to save a lot of money by waiting and dealing directly with the shipyard.
Now, where the shipyard has already got some money down for the rig from the contractors, speculator, so you are able to take advantage of that. So right now to answer your question, the speculators are going lowering their price. There is no doubt. They have lowered their price about, if you look from a year ago to today, they lowered their price 10% to 15%.
I think the call you were talking about last week that occurred he said the same thing basically he was getting calls and the price was reduced. Based on history, I think what we are going to do is just wait and build with the shipyard, when these most speculator does the fault.
Robin Shoemaker - Citigroup
Right. Got it. Okay. Thank you.
Danny McNease
Thank you.
Operator
Thank you. We will take our next question from Marshal Adkins with Raymond James.
Marshal Adkins - Raymond James
Good morning. Bill Provine hit the wrong button there here a minute ago.
Danny McNease
Well, CFO he did not pay the phone bill here for a minute. Thank God it started back working.
Marshal Adkins - Raymond James
Dan you mentioned deepwater plans. I assume you are not mentioning, you are suggesting floaters, it is just the bigger jack-ups is that correct?
Danny McNease
Now we will take a look at floater deal is the right deal came along. We have been in the floater business two times previously and right opportunity came along we will should take a look at it.
Marshal Adkins - Raymond James
Okay. That sounds like a little bit of change recently. Hurricane impact just a minute on that though you want your whole bunch of stuff on that. Can you just give us a rough guess in terms of cents per share, what you thought the overall hurricane impact was between all the divisions?
Danny McNease
Well Marshal, if you count on our insurance proceeds is actually accretive. The rig we make sure it performed more than it was on our books for.
Marshal Adkins - Raymond James
Well, I am saying it just from a operational standpoint. Was it a nickel share or $0.20 per share?
Danny McNease
We really have not looked at it. I mean I know that LTI’s revenue was about $25 million based on where they thought they were going to come out before the storm and where they came out. As for the third quarter, they have also anticipated some revenue in the fourth quarter that is going to be deferred out. I do not know, what that number is, I think it is larger than the $25 million.
Marshal Adkins - Raymond James
Okay.
Danny McNease
About that time we got hit with the credit crisis. So, there was some speculation in that fourth quarter number, I believe.
Marshal Adkins - Raymond James
All right. Last quick one here Danny, you have talked about the Blackbeard and it seems like things looked pretty good there. Would you venture a guess on, looking out five years from now, how many rigs you think you are going be drilling the deep horizons out there?
Danny McNease
Well. Marshall I think it has to do a lot with this Blackbeard East. Well we are getting ready to drill and of course rather we are drilling for BP. I mean what we proved is that the lower massing structure does have hydrocarbons in it on the shelf. That is a big first I think.
That is first I want to prove and of course when we first started drilling Blackbeard if you remember Exxon put a twist on it was, it is really not the best place to drill the well but we believe it will be the easiest place to drill the well due to the salt situation.
So, I mean, we knew that what ideally the best place to drill the well. So we are getting ready to move to the best place to drill the Blackbeard well and I think McMoRan said in their conference call that it could be the same type of sands laying and as they have seen in deepwater which is 1000s of feet of sand. So we are very excited about it.
To answer your question, in five or six years, there could be six to ten rigs driven ultra-deep projects are more. It just depends on the financial impact that it has versus deepwater. You have got deepwater costs if you could prove up these lower massing structures similar to what you have seen in deepwater, you have a tremendous back on the shelf.
We believe that is possible. I mean the lower massing structure is definitely there. We have proved with El Paso that the middle massing structure there a couple years ago. Look how many wells we drilled in that. So we have got a tremendous amount of hope for the lower massing structure.
Marshal Adkins - Raymond James
Certainly it would be a positive thing for your high spec rigs.
Danny McNease
It will be very positive.
Marshal Adkins - Raymond James
Fantastic. Thanks.
Danny McNease
Thank you.
Operator
Next question comes from Judd Bailey with Jefferies & Co.
Judd Bailey - Jefferies & Co.
Thanks. Good morning.
Danny McNease
Hi, Judd.
Judd Bailey - Jefferies & Co.
Danny, in your comments, you rattle off a number of different other tenders in the Middle East. Do you have any sense of the timing that some of those tenders could happen or if some of those perhaps could be delayed given the overall environment?
Danny McNease
Well I say not most of them, all of them are for the last half of 2009.
Judd Bailey - Jefferies & Co.
Okay.
Danny McNease
…is what they are saying now.
Judd Bailey - Jefferies & Co.
Is that a delay from what you were giving a few months ago?
Danny McNease
No, no that is on the same schedule.
Judd Bailey - Jefferies & Co.
Okay. You mentioned the KJO tender. Can you remind me that the Scorpion rig that got a contract there is that one of the three tenders received the contract?
Danny McNease
Right. That is correct.
Judd Bailey - Jefferies & Co.
Okay. Then…
Danny McNease
They are saying that they may go out for an additional two rigs.
Judd Bailey - Jefferies & Co.
Okay. If we see continuously a stronger dollar, what impact would that have on your operating costs maybe for 2009?
Danny McNease
Well, I do not think it will have much of an impact there Judd it is hard to say.
Judd Bailey - Jefferies & Co.
Okay.
Danny McNease
Most of our activities in dollars in anyway so.
Judd Bailey - Jefferies & Co.
Okay. All right. Well enjoy your retirement, Danny. I will turn it back.
Danny McNease
Thank you. All right.
Operator
Our next question comes from David Smith with JP Morgan.
David Smith - JP Morgan
Hi. Good morning. I will take my questions offline and just wish Danny and Bill Provine all the best with retirement.
Danny McNease
Greeat. Thank you.
Operator
Thank you. Our next question comes from Tom Curran with Wachovia.
Tom Curran - Wachovia
Good morning. Danny hopefully next time I see you, your arm in a sling it will be from swinging too many irons and lifting too many plain glasses?
Danny McNease
You are probably right.
Tom Curran - Wachovia
I have no doubt that Provine will be right there next to you.
Danny McNease
That is right.
Tom Curran - Wachovia
I wanted to dive into the Laterno order flow, in the second quarter a bit more, come up with a $195 million in orders. We just like to know, first how many additional jack-up rig kit orders did you get over the quarter and then where do you exit the quarter?
Danny McNease
We got two additional jack-up kits this quarter, third quarter.
Tom Curran - Wachovia
So you exit with a total of how many? Exit the quarter?
Danny McNease
Right now, we have six that are confirmed. The total backlog there is about $120 million. We will close on a couple of other ones though that we lack the signature to having two down in Brazil.
Bill Wells
We have got down payments on them but we do not have the final documents signed. We put down. We got earnings money, put down on them. So we are confident that is the due that I was talking about.
Tom Curran - Wachovia
Okay.
Bill Wells
We received the earnings money in the third quarter.
Tom Curran - Wachovia
So, those two would be incremental taking it to eight if they come through?
Bill Wells
Yes. That is correct. Yes.
Tom Curran - Wachovia
Okay. Then in terms of land rig packages, how many total land rig package orders did you get in the quarter?
Danny McNease
I do not have that for the quarter but we are sitting in backlog currently we have got just over 30 altogether.
Tom Curran - Wachovia
30 altogether.
Danny McNease
Yes, in different shapes and sizes, but just over 30 in the backlog currently.
Bill Wells
Most of those are international.
Tom Curran - Wachovia
What is the dollar amount associated with those 30 in the backlog?
Bill Wells
It is about $270 million.
Tom Curran - Wachovia
Okay. Then turning to the mining and logging division, how many stackers and front end loaders are in that backlog?
Bill Wells
At a total of 24 units in backlog currently.
Tom Curran - Wachovia
What is the dollar amount associated with those 24?
Bill Wells
About $105 million.
Tom Curran - Wachovia
Okay. Thanks for the additional details. I will turn it back. Best of luck, Danny and Bill.
Danny McNease
Thank you.
Bill Wells
Thank you.
Operator
Thank you. Next we will go to Angeline Sedita with Macquarie Securities.
Angeline Sedita - Macquarie Securities
Thanks. Good morning.
Danny McNease
Good morning, Angeline.
Angeline Sedita - Macquarie Securities
Good morning. Again I have got a sentiment of previous callers’ very best wishes and certainly Danny you strategically done a great deal for Rowan. I think with the spin-offs in the past and the investor focus and certainly the strategic interest in the international side. So, certainly a job well done.
The question I have is regarding the Laterno the LTI in your comments it seem that you did not see the spin-off as a real option or certainly less appealing than a sale or merger. Is that fair?
Danny McNease
Its really Angeline, what we are looking at is we are going to continue to look at that. The whole lot deal was to grow the company as quick as possible to be the true number two. That is the way to take it public and that is way to monitorize it and we are going to continue to look at that.
The problem with that I mean we would went ahead and done that if a credit facility would have been available in order for us to get credit to spend LTI out and make it a company that could survive. What we did not want to do is, spending not enough cash for us to survive with all the orders they would ask. So we will continue to look at that and if no other option comes up, once the credit market comes back we will do that.
Angeline Sedita - Macquarie Securities
Okay. Okay. Fair enough. The other question is, some of the competitors and even on the service side have commented about the North Sea and potential weakness given the smaller European independents there and credit issues, cash flow issues etc cetera. Have you not necessarily for your rig fleet but have you seen or heard other players having any issues with some of these smaller EMPs starting to disappear or slowdown their spending as we would ultimately see in the Gulf of Mexico?
Danny McNease
Our listeners, goes to the conference call and they hadn't seen any and either Angeline we hadn't heard of any. I mean we think that the Norwegian sectors going to put a lot of the larger jack-ups into that area over the next 12 months. So that certainly put more pressure on the UK side. So I think, all this well balance out and that market still be a very strong market in the future.
Angeline Sedita - Macquarie Securities
Okay. Despite the newbuilds coming in?
Danny McNease
Despite the newbuilds coming in, yes. I mean the Norwegian incentive plans they have for the operators recover 75% of their expenditures. I mean it is not going to be big effect we think.
Angeline Sedita - Macquarie Securities
Okay. Then finally, just as the channel check in the Middle East and with the spec builders coming in are you still good seeing these guys bid reasonably? Their bids trying to come into these markets considering that there are new bidders or new builders or new operators, are you starting to see any softness in the bids that you are putting out there trying to get their rigs work?
Danny McNease
We have not seen that yet I mean. We are still seeing bids in the Middle East range from $140 to $190 just depending on the type of rig. PMEX is a good example. The last round of those bids were $150 to $170. So, we think the market is still holding in there. I mean a lot of these. They are speculators, they have got tremendous amount of debt they got to payback and they got a service so they will not be able to cut the rate so much in order to do that.
Angeline Sedita - Macquarie Securities
Okay. Great. Thanks again and my best wishes.
Danny McNease
Thank you. Sierra, we will take one more call.
Operator
(Operator Instructions) At this time, we have no further questions in the queue.
Danny McNease
Okay. Well thank you Sierra.
Operator
You are welcome. I will turn things back to you for any closing or additional remarks.
Suzanne McLeod
That is it. Thank you for joining Rowan's third quarter earnings conference call. If you have any other questions, please feel free to give Investor Relations a call. Thank you.
Danny McNease
Thank you.
Operator
That does conclude today's presentation. Thank you for attending and have a nice day.
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