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Parker Drilling Company (NYSE:PKD)

Q4 2012 Earnings Conference Call

February 21, 2013 11:00 ET

Executives

Richard Bajenski - Director, Investor Relations

Bobby Parker - Chairman

Gary Rich - President and Chief Executive Officer

Kirk Brassfield - Senior Vice President and Chief Financial Officer

Analysts

Trey Cowan - Clarkson Capital Markets

John Keller - Stephens

Daniel Burke – Johnson Rice

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Parker Drilling Fourth Quarter 2012 Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Thursday, February 21, 2013.

I would now like to turn the conference over to Mr. Richard Bajenski. Please go ahead sir.

Richard Bajenski - Director, Investor Relations

Thank you, and good morning to everyone who has joined us today for Parker Drilling’s 2012 fourth quarter conference call. This is Richard Bajenski, Director of Investor Relations. And joining me today are Bobby Parker, Chairman; Gary Rich, President and CEO; and Kirk Brassfield, Senior Vice President and Chief Financial Officer.

In the course of our comments today, we may make statements regarding management’s expectations for the company’s future performance that we believe will be informative and beneficial to our shareholders. These statements are considered forward-looking statements within the meaning of the Securities Act. Each forward-looking statement speaks only as of the date of this call and actual results may differ materially due to various factors we have referenced in our public filings and other factors addressed during this call including changes in market conditions affecting our industry.

We will also refer to non-GAAP financial measures such as adjusted EBITDA and non-routine items. Please refer to the table in our current press release or on the company’s website for a definition of adjusted EBITDA and a reconciliation of this measure to the comparable GAAP measure and for further information regarding non-routine items. Our first comments today are from Bobby Parker. Bobby?

Bobby Parker - Chairman

Thank you, Rich, and welcome everyone. Good morning and welcome to our conference call. Earlier today, we reported our 2012 fourth quarter results. We will review our operational performance and financial results in detail in a moment. Before that takes place though, I wish to acknowledge the departure of Kirk Brassfield, our long serving CFO. Though Kirk will not be leaving us until the end of April, this may be his last appearance on a Parker Drilling earnings call. So, I am going to take this opportunity to say farewell.

Kirk will be leaving Parker in better shape and in a better condition than it was when he took over the CFO responsibilities. He has been instrumental in getting our balance sheet de-levered and sustaining the company’s ability to invest despite several tough commodity cycles and some complicated international issues. In addition, he has built a sound financial organization. He has been a leader in implementing new technologies to improve our processes, internal controls and financial reporting and has been a control voice for doing the right thing. It is my honor then to say this farewell to Kirk to recognize his contribution to Parker’s success and our shareholders’ well being. So, Kirk, on behalf of us at Parker, I thank you for all you have done for the company, for your commitment, and your dedicated service, we wish you a very successful future. But until April 30, Kirk is the CFO and he will continue providing the same leadership and guidance he always has. He is with us today to take us through the financial results of the fourth quarter, which he will do in a few minutes.

What Gary and Kirk will cover has not been made easier by industry trends during this period. In the U.S., the fourth quarter price of oil was down 5% compared to the third quarter, continuing a year long slide during which oil price has declined around 15%. And though natural gas prices finished the year on upward trend, the increase only succeeded in getting prices back to the mid $3 range, a little higher than they are right now. They surely contributed to the operator’s decision to scale back their drilling throughout the year including a 5% decline in the U.S. land rig count in the fourth quarter.

Since year end though, with natural gas prices have for the most part moved sideways, oil prices have reversed their decline and began to move upward. This maybe a little too data to call this a trend, but I am pleased to see that U.S. land rig count has moved slightly upward lately. Trends in the U.S. offshore and international markets have been more encouraging. The U.S. offshore rig count rose through 2012 ending the year at 51 rigs active. That trends continues into 2013 and U.S. offshore rig count stood at 55 rigs most recently. Meanwhile, the industry surveys indicate the international market is expected to have one of the highest growth rates in E&P spending following the year of solid growth in 2012. Included are expected increases in land markets in Latin America, the Middle East and in various Asian areas. Overall, weak market trends in the U.S. land drilling in late 2012 were a harsh backdrop for our domestic operations and appear now to be improving. Meanwhile offshore U.S. and international trends indicated available opportunities.

I will turn this over to Gary to review how our business adverse these conditions and the current direction of our operations. Gary.

Gary Rich - President and Chief Executive Officer

Thanks Bobby. I too convey my thanks to Kirk for all he has done for Parker. He has my best wishes along with those of many who know him well both from within and outside of the company. The search for his successor is process and we hope to have a person in place soon. I look forward to making that announcement when the time comes.

I previously communicated my initial focus on getting our Alaska drilling units in service and improving utilization on our international rig fleet. Let me start there, I am pleased to report that both of our Alaska drilling units are now operational. Rig 273 moved to its second well and Rig 272 is on location and poised to spud its first well. Startups of the large drilling operations such as these are often plagued with miscellaneous issues.

In December the deployed Rig 273 had good operational performance. However, we experienced 54 hours of downtime. In January we had 13.5 hours of downtime. This may not seem like a big deal to many on this call, but it tells me we have a great team and a great product too, so early after the initial commencement of operations only have 13.5 hours of downtime. February should continue to show our progress on this front. And I am confident that our team is focused on reducing the downtime number to zero. As a reminder in the fourth quarter, we only had a few weeks of revenue from one of these two rigs, so don’t take the reported results as indicative of anything other than we are now generating revenues with these two drilling units.

While the results of our International Drilling segment included lower rig utilization, we are progressing towards higher utilization and let me give you a few examples. We ended the fourth quarter with one more rig under contract than at the beginning of the quarter. Additionally we have recently placed two previously idle rigs in Columbia under contract. One went on revenue in January and the other in February. During the quarter we also made commitments to move two of our idle rigs from Kazakhstan to Kurdistan. We have signed contracts for both of these rigs and are in process of mobilizing the rigs as we speak.

This initiates our presence in what we believe will be a profitable growth market for Parker and reduces our exposure to the lower utilization we have experienced for sometime in Kazakhstan. By electing to remove the rigs from Kazakhstan we will forego the opportunity to recover a portion of VAT tax we paid when we first imported the rigs into the country resulting in a $3.5 million write-off in the fourth quarter. I don’t like write-offs of anything, but I believe moving these rigs was the right decision.

Additionally previously idled Rig 258 located in Kazakhstan was deployed yesterday on a contract within Kazakhstan. This rig actually went for work on or went to revenue back in December, but the rig physically moved yesterday. During the quarter we concluded that after several years we do not have sufficient assets or opportunities at this time to build a successful business in Algeria. As a result we have decided to exit the country and began removing our rigs during the fourth quarter. These rigs are being moved without firm contracts, so we incurred approximately $1.2 million a fourth cost that was expensed as it occurred. These rigs had just come off a contract and if they were to be idle in the country for a long period we were exposed to some significant tax payments.

Since we had struggled for years to earn a reasonable return in this country we decided to move. We have several viable options for these rigs and are currently in discussions with operators that could lead to drilling contracts in the near future. I remain committed to improving the utilization of our international assets. With steps we are taking to reposition these assets will result in some bumpiness in our quarterly results. But these steps are necessary to ensure improvement happens and then we can capture opportunities that will be accretive to our operating margins and our return on capital.

So, let’s talk about some of the more routine activities in this past quarter. In the U.S. trends during the latter part of 2012 presented utilization and profitability challenges. This was particularly evident in our Rental Tools in our U.S. Barge Drilling segments during the quarter. Our responses focused on both ways to preserve our competitive position and shore up our operating results. Within Rental Tools we faced the challenging U.S. land market during each of the past two quarters. The competitive environment has become quite aggressive as many players are trying to maintain utilization of their rental assets. This business management team with the confidence they have in their customer driven marketing strategy is being very selective in the use of discounts and service offerings primarily to defend their market position, but also to strengthen their customer base. Our margins and utilization within Rental Tools remain substantially higher than during the last activity trough we experienced in 2009.

We remain committed to a combination of customer service, product quality and geographic scope that will prove valuable for our clients. We expect our rental business will strengthen and recover profitability as the inherently self-correcting mechanisms of this market take hold. Already there are signs of improvement. Our inventory utilization is rising, improving in December and then again in January. But I expect it will take sometime before price discounting and utilization are clearly on an upfront.

Our rental tools business in the offshore drilling market continued to grow servicing drilling programs on the shelf and then deepwater with drill pipes, surface BOPs, landing strings and related products. We made capital investments in the fourth quarter to support this growth and expect to continue to make further investments in this area in 2013. With respect to the barge business working in the inland waters market of the U.S., activity slowed in the fourth quarter a bit more than it’s typical for the seasonal slowdown that we see. We took advantage of the short-term slack in demand and drydock three of our growing barges for planned inspections, repairs and upgrades that otherwise would have taken these same barges out of service later in 2013, when we expect much stronger demand. In the process we incurred our capital costs. Some of this continued into the first quarter. But I am pleased to say this today we are backup to 100% utilization of our drilling barges.

With respect to the O&M business it was a – it continues to provide a bit of stability for us and did so in this quarter. This business tends to be more predictable and less cyclical. We are seeking to expand our O&M portfolio of projects and in February we did just that and in a new O&M contract for three Exxon Mobil offshore platforms in California. We are already crewed up and at work under the contract. The rapid response in this case being operationally ready an under 60 days is a capability we believe gives us a strategic advantage in building this business.

Additionally I am pleased to report we have made progress towards reaching a final settlement regarding the DOJ and SEC investigations in the possible violations of U.S. law. Last week we announced an agreement in principle on this matter and recorded to fourth quarter charge of $15.9 million. We look forward to receiving the necessary court and government approvals and concluding the settlement process. As I mentioned in last week’s announcement, we will continue to maintain of vigorous compliance program because we believe in the importance of compliance and ethical business conduct and we will continue to enhance our compliance efforts.

I hope you can see in this brief description the connections between our strategic objectives and our responses to market conditions and the actions we were taking to drive performance. Get in the Alaska rigs on revenue, building our O&M portfolio, being selective in our response to competitive conditions in the rental tools market, using a period of slow demand to prepare our barge drilling rigs for more continuous work in a better market, decreasing our exposure to the Kazakhstan market through rig redeployment, positioning ourselves in the growing Kurdistan market and exiting Algeria are all consistent with my commitments that I made during the last call to focus on delivering more reliable results, improving the profitability of the organization, strengthening our strategic position and developing paths for future growth.

While there are certainly more to be done, I would like to start we have made, credit is due to a lot of people here at Parker and I really appreciate the reception they have given me since I have been here. But there is many other accomplishments that are also not so evident, but contributed the overall performance of the company and I certainly appreciate all of those who have made those contributions. With this kind of dedicated focus we have a great future ahead of us.

Now it’s your turn, Kirk to discuss our financial performance.

Kirk Brassfield - Senior Vice President and Chief Financial Officer

Thanks Gary. For the 2012 fourth quarter we have reported revenues of $157.2 million, segment gross margins of $44.1 million, adjusted EBITDA of $19.9 million and a net loss of $20.1 million. The loss included $16.3 million of non-routine expenses primarily those associated with our proposed settlement with the DOJ and SEC. Excluding non-routine items we’ve recognized the loss of $0.03 per share.

The Rental Tools segment reported revenues of $55.7 million, gross margin of $32.8 million, and gross margin as a percent of revenues was 59%. Compared with the third quarter, revenues declined 7% and gross margin declined 14% and gross margin as a percent of revenues fell by 4.5 percentage points. Our greatest competitive challenges in the quarter were in the Bakken and West Texas fields with availability of inventory relative to drilling activity improves the level of discounting in the market. We continue to invest in the business. In the fourth quarter, we received about $10 million of new rental tools inventory, much of it for the growing offshore market.

The U.S. Barge Drilling segment reported fourth quarter revenues of $29.4 million, gross margin of $13.2 million, and gross margin as a percent of revenue of 44.8%. Compared with the third quarter, revenues declined 11% and gross margin declined 17% primarily driven by lower utilization. We had the equivalent of one less barge rig working during the fourth quarter compared to the third quarter as the utilization moved to 83% in the fourth from 94% in the third on a comparable base of 11 marketable rigs. This was partially offset by an increase in the average rate to 33,600 per day from 33,200 per day in the preceding quarter. Today, all of our available 11 barge rigs are at work and our average rate has increased to 34,400 per day.

The U.S. Drilling segment recorded revenues of $1.4 million for the 2012 fourth quarter produced by the first of our two Alaska rigs as it went into operation during the month of December. The fourth quarter’s operating expenses of $5.9 million include the cost of our Alaska-based rig related operating cost and rig commissioning expenses. These costs are higher than the prior quarter as the first and the Alaska rigs progressed from the construction project through the acceptance testing and then to operating.

Our International Drilling segment reported fourth quarter revenues of $67.6 million, gross margin of $2.7 million, and gross margin as a percent of revenue of 3.9%. Compared with the third quarter, segment revenues declined 1% while gross margins declined by $9.9 million. While revenues appear to be relatively unchanged, we recorded a $3.4 million increase in revenues from reimbursable expenses. Excluding these, segment revenues declined approximately 7% primarily the result of lower rig fleet utilization. Our international rig fleet had the equivalent of nearly two less rigs working during the fourth quarter compared to the number of rigs working during the third quarter and as average utilization declined to 42% from the comparable 49%.

In the Latin America region, our 10 rig fleet operated at 60% average utilization, the same rate of the utilization as in the third quarter. In the Eastern Hemisphere region, our 14-rig fleet operated at 29% utilization. The third quarter comparable was 41%. The primary cost of the decline in utilization compared with the third quarter was the completion of contract work by each of our two rigs in Algeria, one during the third quarter, one during the fourth, and by one of our two rigs in Indonesia. The $9.9 million decline in segment gross margin is due to market and operating conditions as well as cost associated with the repositioning and redeployment we have underway. Reduced activity in Indonesia and higher operating cost in Mexico impacted gross margin.

The cessation of operations in Algeria, the cost to reposition those two rigs outside the country without contracts, and the commitment to redeploy rigs from Kazakhstan to Kurdistan has associated costs of approximately $4.7 million in the fourth quarter. This included $1.2 million for the repositioning of the two rigs from Algeria and the write-off of approximately $3.5 million of VAT taxes in Kazakhstan. As a result of our decision to redeploy certain Kazakhstan rigs to other countries, we deemed certain VAT taxes to be unrecoverable.

Our international O&M contracts produced higher revenues, the lower earnings in the fourth quarter compared to the third. The increase in revenues was largely due to an increase in reimbursable expenses, which do not impact earnings. The reduction in earnings from O&M contracts reflects the impact of having been successful in retaining the consolidated Sakhalin Island, Russia contracts after they were re-fashioned from operating contracts, the lower margin cost plus contracts, and re-bid by the operator.

Our Technical Services segment was $3.1 million for the fourth quarter and gross margin was a loss of $119,000. Revenues in gross margin are lower than in the third quarter, reflecting primarily the completion of some early phase engineering projects and the cost of retaining our engineering expertise and experience as we transition between projects.

G&A expense in the fourth quarter reflects the charge for the proposed DOJ and SEC settlements and related expenses. Excluding these, adjusted G&A for each quarter was $8.3 million. Total interest cost in the fourth quarter was $10.7 million with $8.4 million recorded as interest expense and $2.3 million was capitalized. Most of the capitalized interest is related to AADU rig construction. The increase in interest expense is due to both the increased rate on the debt we refinanced earlier in the year and the deployment of the first AADU rigs. Thus moving interest cost from being capitalized as part of construction to being an expense of operations.

Looking forward, our 2013 interest expense will increase from 2012 for the same reasons, debt refinancing and construction project completion. As a result, we expect our 2013 interest expense to be approximately $10 million per quarter. Excluding the impact of the proposed DOJ and SEC settlements, our effective tax rate for the year was 39%. We expect our 2013 tax rate to be about the same. Fourth quarter capital expenditures were $43.9 million bringing our year-to-date capital spend to $191.5 million. Included in our 2012 capital expenditures were Alaska rig construction spending of $86 million, which includes approximately $10.2 million of capitalized interest, Rental Tool expenditures of $62 million, and $13.8 million for our new ERP system.

Our cash balance at quarter end was $87.9 million compared to $97.9 million at the end of 2011. At the end of 2012, we had $479.2 million of debt outstanding or a net debt position of $391.3 million. Our net debt to net capitalization ratio at quarter end was 39.9%. As we announced earlier, we are in discussions from finalizing settlement with the DOJ and SEC should we reach a final settlement at the amount included in the agreement and principle, which is $15.85 million. We have the final financial capacity to make this payment and fund our current operations.

Before turning to the outlook, let me summarize some of the current or upcoming events that will impact our near-term financial performance and comparison. The second of the two AADU rigs completed is acceptance testing process and is onsite. We will soon have both the rigs working under current contract. First quarter results will reflect a full period of revenues for one rig and a few weeks of revenues for the other, but a full period of operating cost for both rigs. An additional impact of bringing the two AADU rigs to operating status is their effect on depreciation expense. The two rigs will add approximately $15 million to 2013 depreciation and amortization expense.

As a result, we expect our 2013 depreciation expense to approximately $33 million per quarter. The relocation of the two rigs from Algeria will be completed in first quarter. Costs we incur will be expensed in that quarter. We are in the process of implementing our new Oracle-based enterprise resource planning system. As we proceed through deployment and the implementation, we expect to have higher G&A expenses this year related to the conversion and personnel training. The added expense is expected to be approximately $2 million per quarter. That is the operations and financial review.

I’ll turn this over to Gary for comments on the outlook and then we will take questions.

Gary Rich - President and Chief Executive Officer

Thanks, Kirk. Well, I feel good about the progress we are making. There are further things we can do to improve the performance of our operations. Two of our segments, Rental Tools and U.S. Barge are in better shape today than they have been at this point in past cycles. Our Rental Tools segment has grown to be larger, more diverse, and as a business with very strong gross margins. Our barge business has had the higher gross margins at fourth quarter’s average of 9 rigs working than it ever had in the past when it was working with the similar level number of rigs.

These are leveragable positions. And I believe the primary markets they serve will offer opportunities for them to do just that as we progress into 2013. Our two Alaska rigs have commenced operating under their five-year contracts, as they began operating experiences and continued to learn more about the operation of these, we should gain some additional efficiencies. We just initiated an O&M project offshore California as I mentioned earlier that will be also be a source of incremental revenue and earnings relatively little capital cost on our side.

We are making progress on the International Drilling segment, but the changes we are implementing to improve the position in this market while they will deliver better returns in long term – run, we will also continue to see some bumpiness as we move forward and execute these redeployments. There are still more to be done, but I really do feel confident that we have made a very good start at this point. And our Technical Services business continues to be involved with some of the new and interesting projects that apply our technical knowledge and engineering expertise and expand our technical foundation something that we feel is important and will be a valuable contributor to our long-term growth in the business.

To summarize our outlook, the rental tools business is making these gains offshore and we are continuing to invest in that business. While the U.S. land operations remains a little bit challenged right now as I mentioned before because of the competitive environment. Our U.S. barge drilling fleet is all back to work now and is in good shape for the remainder of the year and we feel confident that the year will bring some good opportunities further – for the barge drilling business. The repositioning of several of our international drilling rigs will continue to improve our rig fleet utilization and will place us in markets with more growth potential.

Our capitalized O&M portfolio is growing. We are confident that these will produce better operating results and translate into an increase in our cash flow. This will allow us to further strengthen our balance sheet, make investments for operating and increase and improve our internal expansion as well as support the development of pads for further strategic growth in the future.

That concludes my comments. Operator we are ready to take some questions from the audience.

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen we will now begin the question and answer session. (Operator Instructions) Our first question is from the line of Trey Cowan with Clarkson Capital Markets. Please go ahead.

Trey Cowan - Clarkson Capital Markets

Good morning nice job on certain things for 2013. Looking at the intermediate drilling barge rigs here in the Gulf of Mexico and the three that just came back on line. And going from your operational status report versus the 34,400 that you discussed today is the average day rate, is that more a function of the deep drilling barges. And if so can that still kind of I think of it is like about $2000 difference between the two or has that gap widened between the deepwater and the intermediate rigs?

Gary Rich

Trey this is Gary. The opportunities we have continued to show real promise for us to move prices along with all ranges of our barges in the inland waters. And I think we have a pretty good track record and if you go back and look over the last several quarter where we have shown repeated increase in pricing for the organization. As far as the differentials between the mid-range and the deepwater, the deeper it’s just widening. It is widening some, but I think that again its general market environment that creates some opportunities for the entire range of our barge rigs.

Trey Cowan - Clarkson Capital Markets

But both are actually moving up is what it sounds like you are hearing you say?

Gary Rich

Yeah.

Trey Cowan - Clarkson Capital Markets

Yeah. Okay. And internationally the rigs moving out of Algeria are they going to stay in North Africa or have you all decided yet?

Gary Rich

Not likely the stay in North Africa, we’ll position them in Tunisia for a time. And as we continue to look for some opportunities I would say not likely in North Africa only because of the discussions we are having with the people right now will suggest that there is some pretty good opportunities else where.

Trey Cowan - Clarkson Capital Markets

Great that’s all I have. Thank you.

Operator

Thank you. Our next question is from the line John Keller with Stephens. Please go ahead.

John Keller - Stephens

Hey good morning guys and congrats on the entry into Kurdistan.

Bobby Parker

Thanks John.

John Keller - Stephens

I am curious as you can elaborate on that a little bit. You have taken two rigs from Kazakhstan and moving them there when will those things actually be on the ground and up in running?

Gary Rich

That’s a very good question and I am sure that you can imagine John it’s not a simple task to move these rigs from one location to another and it does take some time. The contracts for one of the rigs – that contract for one of the rigs will initiate in Q3 of 2013 and the second one in Q4 of 2013. So, it’s the later part of this year, we’ve already initiated the move process.

John Keller - Stephens

Okay. And so is that something where you will – are you getting paid to mobilize those?

Gary Rich

There are some funds that are helping to offset a portion of the mobilization, but not 100% of them.

John Keller - Stephens

Okay. And so, I guess you will continue to incur some level of cost over the – really the balance of the year just moving those around.

Gary Rich

We will and that’s what I was trying to communicate earlier about – there is going to be some bumpiness as we’ve worked through this, but it’s the right thing to do, we really feel good about the move and what we are trying to do here.

John Keller - Stephens

Sure and along those lines, how about the remaining extended Q1 cost that you still see lingering on the two rigs coming out of Algeria.

Gary Rich

Kirk?

Kirk Brassfield

Yes, John, this is Kirk. As we noted, we spend about $1.2 million, the remaining cost impact in the first quarter be $1.5 million to $2 million additional cost during the quarter.

John Keller - Stephens

Okay.

Kirk Brassfield

It’s not a very long move.

John Keller - Stephens

Got it. And then I guess inferior there could be incremental cost once you decide what to do with those rigs beyond Indonesia.

Gary Rich

It depends on the contract that we have. Again I’m quite pleased with the options that we are developing through redeploying those and some pretty good market. One of the things that we’ve been working really hard and I just need to congratulate our business development and sales and marketing teams is that we’re working options and the last thing in the world you want with these big capital intensive units is not have options will then put you in a pretty tough negotiation position and so they’re developing some good options for us as we work to redeploy rigs in different areas and I am quite pleased with the progress we are making.

John Keller - Stephens

Okay and sticking with the international rig fleet here for a minute and switching to Latin America, you get several rigs rolling off contract, it looks like middle of the year still have one idle rig, notwithstanding the barge rig in Mexico kind of how do you see that the environment for those rigs playing out over the course of the year.

Gary Rich

We continue to see Mexico is one of the areas where there is an increase in demand for drillings rigs and consequently we are optimistic that we’ll be able to keep those rigs operating going forward in the future. We feel really good about Mexico. Columbia is also been a challenge to you – to us and I mentioned a second ago that we’ve had two of those idle rigs down there that have just going under contract, one in January, one in February. So, we are pleased with the progress we are making there as well.

John Keller - Stephens

Those are under term commitments or how long the contracts are those?

Gary Rich

Those are on a rig - well basis, but looks like they will work for less than one year on the current contract.

John Keller - Stephens

Okay perfect. And then just one more from me guys is where do you projected the CapEx this year if you said it – if you said I apologize I missed it.

Gary Rich

Yes, what we are looking at is between $150 million to $175 million for the current year and that would include any cost involved with moving the rigs from Kazakhstan to Kurdistan.

John Keller - Stephens

Got it. Sure. And could you – with the split there between what sort of maintenance what’s going toward Quail etcetera?

Gary Rich

Yeah, I think we have usually around $100 million of total maintenance probably $60 million, $65 million of that is Quail and the rest just maintenance for our barge rigs in our international fleet and then anything above that would be the more growth intensive amounts. Some of which like moving from Kazakhstan to Kurdistan is to make some changes to current rigs to put them on contract. But our normal maintenance typically runs around $100 million including Quail’s $60 million to $65 million piece.

John Keller - Stephens

Perfect, I’ll get back in queue guys, thanks.

Gary Rich

Thank you.

Operator

(Operator Instructions) The next question is from the line of Daniel Burke with Johnson Rice. Please go ahead.

Daniel Burke - Johnson Rice

Good morning, everyone.

Gary Rich

Good morning, Daniel.

Kirk Brassfield

Good morning, Daniel.

Daniel Burke - Johnson Rice

I was curious with the decision to exit the Algerian market thus the review of other regions or countries is a concluded or you comfortable with the markets are otherwise active in or we see you exit, one or two additional countries.

Gary Rich

That’s a very good question, Daniel. And I think that hopefully our actions were indicating that we’re pretty aggressive in trying to make sure that we get these rigs in places where we can get some good utilization and good return on them. And so there is definitely some ongoing reviews of other countries and that to consider where our best opportunities are. But no other decision has been made right now.

Daniel Burke - Johnson Rice

Okay great. And then I guess more specifically than that for rig that’s a little bit more difficult to move Rig 257 any update on the prospects there?

Gary Rich

Yeah, I am a little embarrassed on that because in the last call I told you guys we are in the final stages of negotiating a contract on that thing and the reality is we continued to be in the final stages of negotiating a contract on that. Actually the contracts negotiated, is going through the approval process right now. And as these things when you get different entities some public, some private the process that they go through to get approvals takes forever and I think that’s the case here with respect to Rig 257. But we remain optimistic that, that will be working soon.

Daniel Burke - Johnson Rice

Okay. And actually one more are there any further color on the duration of the employment you will be looking at?

Gary Rich

It’s the support to drilling program, I think it might be is it two years?

Bobby Parker

Yeah, I think what we’re looking at is that rig available for a couple of year of period. And then hopefully it goes into more of a full drilling contract after that.

Daniel Burke - Johnson Rice

Okay.

Bobby Parker

In the short-term this is about a two year program.

Daniel Burke - Johnson Rice

Okay, okay. And then maybe just last one from me. On the Rental Tools and the notation that utilization has ticked high in the couple of months. I was unclear is that being entirely driven by the improvement in the Gulf of Mexico or if we parse it land versus – U.S. land versus international, in the U.S. land business you are also showing a stabilizing utilization trend at this stage?

Bobby Parker

I think is more indicative of the U.S. land than I guess offshore because of the way that we have calculated that utilization. But I have been cautious I want to say wow that’s we’re on the road, but I’ve been in this business long enough to say you know what two months is enough to give me too much confidence. So, I’m going to watch that little bit. But we think its going in the right direction and as I mentioned earlier I am really pleased in the leadership team that we have running that business segment and the selective efforts they are taking to target the right customers and make sure they maintain their position and that’s sort of thing, I’m very pleased with them.

Daniel Burke - Johnson Rice

Great, I appreciate the answers guys. Thanks.

Gary Rich

Thanks Daniel.

Operator

Thank you. I am showing no further questions at this time. I would now like to turn the call back over to management for closing remarks.

Richard Bajenski - Director, Investor Relations

Great, Camille, thank you for assisting us on this call today. I want to extend my appreciation to all for joining us during this busy earnings season. That officially ends our call. We look forward to speaking with you in the days and weeks ahead. Have a good afternoon.

Operator

Ladies and gentlemen, this concludes the Parker Drilling fourth quarter 2012 conference call. You may now disconnect. Thank you for using ACT conferencing.

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