Parker Drilling Company Q4 2008 Earnings Call Transcript

Feb.24.09 | About: Parker Drilling (PKD)

Parker Drilling Company (NYSE:PKD)

Q4 2008 Earnings Call Transcript

February 24, 2009 11:00 am ET

Executives

Richard Bajenski – Director of Investor Relations

Robert L. Parker Jr. – Chairman of the Board & Chief Executive Officer

David C. Mannon – President & Chief Operating Officer

W. Kirk Brassfield – Senior Vice President & Chief Financial Officer

Analysts

Michael Drickamer – Morgan, Keegan & Company, Inc.

Steve Ferazani – Sidoti & Company

Gary Stromberg – Barclays Capital

David Deckelbaum – UBS

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Parker Drilling fourth quarter 2008 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, Tuesday, February 24, 2009.

I would now like to turn the conference over to Richard Bajenski, Director of Investor Relations. Please go ahead sir.

Richard Bajenski

Thank you, [Michela] and welcome everybody to Parker Drilling’s fourth quarter conference call. This is Rich Bajenski, Director of Investor Relations. Joining me today on our call are Bobby Parker, Chairman and Chief Executive Officer; Dave Mannon, President and Chief Operating Officer, and Kirk Brassfield, Senior Vice President and Chief Financial Officer.

In the course of our comments today, we will 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 meanings 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, including a change in market conditions affecting our industry and other factors addressed during this call.

We will also refer to non-GAAP financial measures such as adjusted EBITDA and non-routine items. Please refer to the table on our current press release or on the Company’s website for a definition of adjusted EBITDA and a reconciliation of these measures to the comparable GAAP measure and for further information regarding the non-routine items.

With that having been said, I’ll turn the call over now to Bobby Parker. Bobby?

Robert Parker Jr.

Thanks Rich and welcome to your conference call. I’m going to mention write-off that we planned to have an Analyst Day in New York in early June and then certainly try to get all of you there as possible and more information will be coming shortly on the exact location and time.

Earlier today, we reported Parker Drilling’s 2008 fourth quarter and full year results. The net result was a loss of $0.35 per share for the quarter and earnings of $0.23 per share for the year. Included in those were several non-routine items, which Kirk will cover later, excluding the non-routine items the largest of, which is $100 million charge for the impairment of goodwill.

Earnings per share for the 2008 fourth quarter were $0.27 compared to $0.23 for the same period last year. And earnings per share for the 2008 full year were $0.85 compared to $0.86 for 2007, all adjusted to exclude to non-routine items.

This quarter draws to close on a year of significant accomplishment for Parker including record revenues and an EDITDA for 2008 for the company and three of our holding segments, a company best safety performance of 0.66 Total Recordable Incident Rate and several key contract wins that recognize our abilities to provide advanced technology and engineering solutions for challenging drilling requirements.

Most importantly, our strategic direction appears sound. Our investments in safety, training and technology have proven to be successful and our strategic balance and geographic diversification have cushioned the impact of current market forces.

We're clearly facing a more difficult and uncertain year ahead. Nevertheless we will continue doing what we do best, providing innovative drilling solutions to our customers often unique and challenging needs and delivering solid financial results from our operations. We are operating our business under what I consider to be a realistic but quite conservative outlook, managing our cost actively and working our opportunities aggressively.

Our U.S. barge drilling business had been most affected by the decline in oil and gas prices and the turmoil in the financial markets. We are currently operating only three rigs in our fleet and we do not expect conditions to significantly improve until there is better visibility in the outlook.

The outlook for Parker’s International Drilling segment is encouraging with recent bid activity in our core geographical markets showing signs of improvement. With huge deficits, the current drilling programs with contracts are going forward. We are seeing good interest and it indicates this market is stabilizing.

And we expect our rental tool business to continue to outperform market trends in 2009. Rental tools is among the premier suppliers of drill pipe and well controlled products on land and offshore in the U.S. Our recent expansion initiative placing new stores to serve the most active shale plays are drilling Gulf of Mexico deepwater activity and increased placement of tools in overseas markets, should support a solid year for Rental Tools.

We expect our Project Management and Engineering Services segment to continue to grow in 2009 as we add more work to our portfolio of technical projects. Well there has been a decline in worldwide drilling activity, E&P companies continue development of longer-term program to build reserves and energy resources. We expect them to continue to look for Parker Drilling for innovative solutions to unlock increasingly challenging opportunities. While we have no new commitments to announce at this time, we expect to maintain our activity nearer to current level and have prospects to add during this year.

In summary, our performance in 2009 is expected to be better than what current industry trends would indicate. In addition, we are financially sound, with a manageable balance sheet and sufficient cash and expected cash flow to meet our investment commitments and cash needs for the future.

Kirk, will assigns numbers to this outlook in a few minutes. Before he does Dave Mannon will review some of our key operational highlights of the fourth quarter. Dave?

David Mannon

Thanks Bobby. I will start with our U.S. barge drilling business. Overall utilization in the fourth quarter was 61% compared to 79% in the third quarter and average dayrates were relatively unchanged. Our deep drilling fleet of 10 barges was 67% utilized during the fourth quarter at average dayrates of $44,600 a day. And our three intermediate depth barges were 50% utilized at an average dayrate of $33,300.

Currently, we have two deep drilling barges that work in the Gulf of Mexico at an average dayrate of $30,000 and one shallow drilling rig. A history of our barge utilization and dayrate is available on our website.

We are now in the fourth year of our refurbishments and upgrade program to establish Parker as the preferred provider with the most efficient and safest equipment in the barge market. As a result, we expect to realize above market dayrates most of the time to have better than market utilization during down cycles and to return to work sooner and in upturn.

During the fourth quarter, deep barge 51 completed its scheduled refurbishment and upgrade and reentered the fleet in October under contract. As 51 exited, deep barge rig 55 entered the shipyard for a similar scheduled refurbishment and upgrade and this is reflected in our fourth quarter utilization. We have one remaining rig to upgrade and we will defer that until market conditions improved.

Though dayrates may decline further, we believe utilization is about as low as it will go. We see reasonable prospects for work in the coming months that will sustain activity and current utilization or better.

Turning to International Drilling, our 31-rig international fleet was 87% utilized during the fourth quarter compared with 84% utilization in the third quarter. Currently, we're at 74% utilization. Our overall international rig activity has been only moderately impacted by the late 2008 decline in commodity prices and a deterioration of worldwide financial markets.

In the Latin America region, we operated at a 90% utilization rate during the fourth quarter. All of the nine rigs currently operating in this region are under term contracts with four extending into 2010 and beyond.

In the Asia-Pacific region, we operated an effective utilization of 100% with all of our six marketed rigs working during the quarter. Two rigs in the region were recently released. Rig 231 was released in late December and rig 252 was released in January. Both were working in Indonesia and are currently being marketed along with one other rig in the region, which will complete its contract during the first quarter.

In the CIS region, our effective utilization in the fourth quarter was 100%. Today eight of our nine marketed rigs in the region are working under term contract with over half of them extending into 2010 and 2011 with an additional option period.

During part of the quarter, three of Parker rigs working in the region were on reduced or zero dayrate due to equipment change-offs. Two of these rigs are back to earning contract rates and the other is expected to be back to work next week.

Rig 257, one of our two international barge rigs executed a three-year contract extension in December. Rig 247 was released in January and it’s currently being marketed. Elsewhere the two Parker rigs in Algeria continued to operate with contracts extending to 2010. We have also have two Parker-owned newbuild land rigs under construction for a five-year development drilling program for BP on the North Slope Alaska beginning in late 2010. This program is on schedule for sealift in the summer of 2010. We believe the Alaskan market had significant long-term growth potential that is well suited to our Arctic operating experience and extended-reach drilling expertise. This newbuilds will join the BP Liberty rig and solidify our position in this region.

The BP Liberty project now in the EPCI are construction and insulation phase is reflected in the Construction Contract segment. This purpose built rig is being constructed for BP development on the Liberty field offshore from the North Slope of Alaska. It is on schedule for deployment to Alaska in mid-2009 and a startup of operations in early 2010.

Project management contracts on Russian Sakhalin Island continue with Exxon Neftegas for the Yastreb land rig and the Orlan platform. During the fourth quarter the Yastreb completed its 100-kilometer move from Chayvo to Odoptu and equipment upgrade project under an EPCI contract when Exxon Neftegas to commence a third exploration and development project. Rig up on the new location is currently underway.

In O&M assignments, we completed the O&M contract on the China platform in December and we continue to operate the Orlan platform under a contract that extends into 2010. First phase of development drilling from Orlan has been completed. We will go to a warm stack condition with reduced crews in March.

We continue work on the E&P project designed a drilling package for Arkutun-Dagi platform offshore Sakhalin Island. We also expect to add additional rigs to the 11-rig technical service contract we have in Kuwait. We are actively bidding additional design construction and operation contracts and anticipate adding projects to our growing project management business in 2009.

Rental Tools posted a record EBITDA for the fourth quarter and revenues that were just short of a record level they achieved in the third quarter. The year-over-year revenue increase was primarily the result of significant increases in activity in shale plays around our Williston, North Dakota and Texarkana, Texas location. The Williston operations were expanded to a full service facility in early 2008 and greatly improved our ability to supply operators in the Bakken Shale play.

Our Texarkana location, which opened in April 2007 put us in the right place at the right time that serviced the growth in the Haynesville shale play. The Rental Tools business is been quite resilient of late, given the rate at which land rigs have come down so far this year. Quail Tools, key customers like Exxon Mobil, BP and Chevron continued to drill through this market, including increases in their offshore and international activity. And in the U.S. other E&P companies have switched from drilling to work over projects and will continue to be serviced by Quail Tools.

That's it for the operations update. I will now turn the call over to Kirk Brassfield to discuss our financial results.

Kirk Brassfield

Thanks Dave. For the fourth quarter of 2008, Parker Drilling reported a net loss of $39.5 million, or $0.35 per diluted share on revenues of $212.4 million. There were several non-routine items that affected this quarter's results. Excluding the non-routine items, Parker's 2008 fourth quarter diluted earnings per share increased to $0.27 from the comparable 2007 fourth quarter diluted earnings per share of $0.23.

The increase from the prior year's fourth quarter was primarily the result of 5% increase in segment gross margin and lower G&A expenses offset by higher depreciation expense in line with our recent trend and higher interest expense.

First, let me deal with the non-routine items. The largest item is the $100.3 million pretax, or $77.8 million aftertax, non-cash write-off of all the remaining goodwill from our 1996 acquisitions of the Gulf of Mexico barge drilling business, Mallard Bay Drilling and the Rental Tool business, Quail Tools.

After this write-off, we have no remaining goodwill on our books. This write-off is the result of a valuation in accordance with FAS 142, which governs the accounting for goodwill and other assets and was triggered by the significant decline in the company's equity and market capitalization.

We continue to expect above market performance from our U.S. Gulf of Mexico barge drilling business and a strong sustained performance by the Rental Tool business. The first of this is the FAS 142 evaluation. These expectations are outweighed by current financial market conditions and the current level of the company's market capitalization. Also included in non-routine items is the cost of continuing investigations by Parker and the Department of Justice into the utilization of a certain customs agents and an internal investigation regarding U.S. economic sanctions primarily related to the Company's operation in Turkmenistan.

In the fourth quarter, we incurred $6.3 million of legal and professional expenses for these investigations. A goodwill impairment charge iand DOJ expenses were partially offset by 12.5-million benefit, the majority of which were foreign tax credits related to prior year’s taxes.

Turning now to operations. Our U.S. drilling segment reported fourth quarter revenues that $33.6 million in gross margins, up $14.7 million. Gross margin as a percentage of revenues was 43.7%. Compared to the fourth quarter of 2007, revenues declined 34% and gross margin declined 52%. This is primarily due to the sharp drop in fleet utilization and some reduction of dayrates.

Our International Drilling operations achieved a significant increase in revenues, gross margin and gross margin as a percentage of revenues. Revenues increased 24%, to $86.2 million compared to the last year's fourth quarter while gross margin increased 61% and gross margin as a percentage of revenues increased 32.2%.

Sequentially, International Drilling revenues declined modestly, primarily due to lost revenues during the equipment changes in the CIS region. Project management and Engineering Services revenues grew by 99% compared to the fourth quarter of 2007 and by 57% compared to the preceding quarter. This represents the impact of higher dayrates on the existing contracts to manage the Yastreb rig and Orlan platform including retroactive billing for dayrate increases and additional services related to the rigs move from the Chayvo field to the Odoptu field.

Gross margin for the fourth quarter increased 150% and gross margin as a percentage of revenues increased 21.3%, the highest for this segment in the last two years. For the fourth quarter, Rental Tools revenues grew by 11%, to $45.7 million compared to the prior year's fourth quarter. Rental Tools gross margin increased by 15% and gross margin as a percent of revenues were 62.7%, its highest level in recent years.

Construction Contract revenues recognized on a percentage of completion basis, were considerably below third quarter levels, primarily reflecting a lower level of content in the quarter’s activities. This is the BP Liberty construction contract, which is a cost plus contract.

Excluding premiums we might earn from our performance, we expect that gross margin, as a percent of revenues will average around 5%, representing primarily a return on our Engineering Services and a market on the rig content. Depreciation expense increased to $32 million in the fourth quarter of 2008 from $25.1 million in the fourth quarter of 2007, and $30.7 million in the third quarter of 2008.

The trend of increasing depreciation expense is primarily the result of the significant capital investments we have made in the refurbishment and upgrade of our barge rate, several newbuild international land rigs and the expansion of Quail Tools’ rental inventory and store locations.

G&A expense increased to $10.3 million for the quarter. Included here are the $6.3 million of professional fees related to the DOJ investigations. Excluding these, Parker’s G&A expense of $4 million was below the prior year and prior year quarter’s level, primarily due to a decline in stock-based compensation expense.

Interest expense increased to $7.1 million in the fourth quarter, higher than interest expense in the prior year and prior quarter. This is primarily because we’ve almost fully utilized the $80-million revolver and $50-million term loan in our credit facility.

This facility was put in place in May 2008 to supplement the construction cost of our two-newbuild rig commitment to BP Alaska. With so much uncertainty in the market about lenders’ willingness or ability to power through under financing commitments, we chose to drawdown much of the facility that was available and assure of the cash on hand when we need to do.

One of the original parties to our credit facility was Lehman Brothers. I’m happy to announce that Lehman’s $10 million commitment has been assigned and fully funded as of the end of January.

Our effective tax rate for the quarter, adjusted for non-routine items, brings our full year rate to 35.4% compared to 35.8% for 2007. Our cash balance at December 31 was $172.3 million, compared to $60.1 million at the end of 2007 and $75.3 million at the end of 2008 third quarter. The increased cash balance compared to the year-end 2007 is primarily the result having drawn our credit facility and also includes $27.8 million of cash from operation in excess of our net capital investment this year.

Capital expenditures were $197.1 million for the year. Included are capitalized interest of $5.1 million, Alaska rig construction costs for the two BP rigs of $53.5 million and Quail Tools inventory purchases of $36.8 million.

Before I turn to the financial side of our 2009 outlook, a few comments about our financial condition. In short, we are in very sound financial state. At the end of the year, we had $461.1 million of debt outstanding and $172.3 million of cash and cash equivalents for net debt position at $288.8 million

Our net-debt-to-capitalization ratio is a very manageable 33.7%, down from the equally manageable 37% at the end of 2007. Of our debt outstanding, the $50 million term loan begins to amortize during the third quarter of 2009 at $3 million per quarter. The remaining components of the company's debt don’t mature until 2012 and 2013.

Our debt covenants contain two important financial tests, debt-to-EBITDA and EBITDA interest coverage. At December 31, 2008, our debt-to-EBITDA ratio was 1.7 against the covenant maximum of four times. Our interest coverage ratio was 11.2 against the covenant minimum of 2.5 times.

Lastly, with our current $172.3 million of cash and cash equivalents, we have funded a substantial portion of our capital needs for 2009, which we estimate will be $200 million or less. We are positioned to meet no new financing in the coming year.

Earlier, Bobby gave you the 2009 outlook for our major markets. Our experience tells us that these markets will turnaround, forecasting exactly when and with what momentum has always been difficult, but today has been made more difficult by the world economic conditions.

In summary, for all 2009, we expect the U.S. Gulf of Mexico Barge business to decline sharply from 2008 levels. The barge fleet is currently operating at 20% utilization and the recent dayrate that Dave Mannon provided are likely to soften.

In modest increase in revenues, for our International Drilling operations, as a result of higher dayrates achieved in 2008, we have four of our international rigs coming off contract during the first quarter, all of them have prospects for new work.

We also expect a modest increase in project management, based on the work we currently have in hand and we do anticipate some softening of Rental Tool demand. Rental Tools has shown it can be captured in whole business and its land markets and is fulfilling commitments to offshore international companies that are providing profitable growth.

Based on these conditions, we expect our first quarter revenue excluding the BP Liberty rig construction contract revenues to be down between 10 and 15% from the revenues of the first quarter of 2008 with almost all of the decline coming in the Barge Drilling business.

Sequentially, this is decline of about 25% from the fourth quater we just reported. Our costs are being tightly managed as we demonstrated in the fourth quarter and we will continue to manage and control our costs consistent with business conditions.

As a result, we expect our first quarter diluted earnings per share to be in the range of $0.02 to $0.05. We believe the first half of 2009 will be our most challenging period. However, given the uncertain nature of current markets it is difficult to provide you numerical forecast beyond the current quarter.

Nevertheless, we will update and extend that forecast overtime as conditions allow.

That concludes my part of the review. We believe the results we can produce in 2009 in this most uncertain of times will demonstrate the value of our strategy to leverage Parker’s technical capability and experience to develop platforms for growth to differentiate our traditional drilling businesses and to diversify and balance the company’s mix. We’ve remain focused on executing our plan and look forward to reporting our progress.

Richard Bajenski

Thank you, Kirk. That concludes our review. Operator, you may now begin taking questions from our listeners.

Question-and-Answer Session

Operator

Thank you sir. We will now begin the question-and-answer session. (Operator Instructions). The first question comes from the line of Mike Drickamer with Morgan, Keegan. Please go ahead.

Michael Drickamer – Morgan, Keegan & Company, Inc.

Hi good morning guys.

Robert Parker Jr.

Good morning, Mike.

David Mannon

Good morning.

Michael Drickamer – Morgan, Keegan & Company, Inc.

Dave, can you talk what are you doing with the idle rates at this point? Are they still warm stacked or are you considering to cold stack at this point?

David Mannon

Sure Mike, I’ll be happy to do that. We currently have one cold stack rig. We have three operating. We have two in the shipyard and we have nine warm stacks. What we’ve done with those warm stack rigs is we’ve grouped those together in various locations of Southern Louisiana, some at the key side in our Fort facility and some in another facility at a Southern shipyard in Southern Louisiana. And so what we are doing is that we’ve stripped out the majority of our crews. We’ve gone to a minimal crew list on average of about nine guys per rig. And so the reason for that is we want to retain those people and we also want to maintain those rigs. We’ve spent about a $110 million in last three years on these rigs, and often times from my experience in the industry, once you cold stack a rig, the management is not compelled to return that rig to service and when they do it often comes with a fairly high capital cost. And so we are optimistic that this market is going to turn for us. We’re optimistic that our rigs are the right rigs for the fleet and that they will go to work first and just from the discussions that we’ve had with our customers, we think that’s going to be a second quarter event, that some of these rigs are going back to work and so we anticipate that with this warm stacking. So what we are doing is that we're working to a break-even EBITDA basis in our Gulf of Mexico operations and so we will continue to monitor our costs and reduce costs as necessary, depending on our activity of our rig fleet.

Michael Drickamer – Morgan, Keegan & Company, Inc.

Okay, when does the decrease in utilization from say the 60% plus they had in the fourth quarter to where you're now? How did that occur? Was it kind of over this timeframe or did you see a sudden decrease in that utilization?

David Mannon

It was a fairly sudden decrease in utilization from the fourth quarter to the first quarter of 2009, and so with that sudden decrease, as rigs came off contract, we stripped out crews and retained our supervisory personnel and sent those rigs to warm stack.

Michael Drickamer – Morgan, Keegan & Company, Inc.

Okay, can you talk about the trends that you are seeing at the Rental Tools as far as we’re halfway through the first quarter here? How did January look relative to December? How is February looking?

David Mannon

Well, January was actually surprisingly good for us. So we're happy with our January results. And as I said in the conference call, we’ve experienced some what we consider good drilling demand from our core customers and in our various areas around the United States as well as some of our customers who have switched from drilling projects to work over projects. Looking forward as I mentioned, we do see somewhat of a softening in our market going forward, but we are still optimistic that we're going to be hitting our budgetary numbers for the year.

Michael Drickamer – Morgan, Keegan & Company, Inc.

Okay, I’ll give somebody else an opportunity now. Thanks a lot.

Operator

Thank you. Our next question comes from the lines of Steve Ferazani with Sidoti & Company. Please go ahead.

Steve Ferazani – Sidoti & Company

Good morning. As you said some of these international rigs coming out from under contract. Are you mainly marketing within the region or are you marketing them globally and seeing without there?

David Mannon

Actually, we are marketing those within the region. We’ve consolidated over the last number of years into our core markets and we see continued activity in those specific core markets. So we don’t anticipate moving rigs from one area to say a new area. Well Kazakhstan remains active. Mexico remains active. Indonesia and Asia-Pacific areas remain active, so we’re optimistic they were going to be able to re-contract those rigs with either existing customers or new customers within our core market.

Steve Ferazani – Sidoti & Company

What kind of pull down in rates you are seeing now with some of these rigs. Are these rigs that went under contract ’05, ’06, ’07. What’s the price level like compared to those past years?

David Mannon

Well we’ve certainly have seen some reduction in the tenders that we have placed recently not dramatic, nothing that like we’ve seen in United States.

Steve Ferazani – Sidoti & Company

Any of your longer-term contracts customers coming back on a renegotiated pricing?

David Mannon

We haven’t hand that Steve.

Steve Ferazani – Sidoti & Company

Okay, there in the inland barges I mean there are certain visit dayrates obviously coming down significantly. Is there a certain break-even point where you will just say now through a customer or given as though if you are working rate now, you are pretty much going to take pricing that you can get.

David Mannon

We certainly understand our break-even costs and we will not work a rig underneath our break-even cost on a per rig basis. As I had mentioned in the previous question, we are looking to as break-even EBITDA over that division going forward in 2009. Yes, we will refuse work if it gets if gets to a break-even cost.

Steve Ferazani – Sidoti & Company

And then just a couple of quick housekeeping questions, you may have said them on the call. What was the projected CapEx for '09?

David Mannon

We are looking just under $200 million probably between $185 million and $200 million.

Steve Ferazani – Sidoti & Company

Any idea how much of that‘s maintenance versus newbuilds?

David Mannon

Yeah, I’ll give you some outline here on the Parker maintenance. We are going to be spending somewhere in that $25 million to $30 million range. Quail is going to be spending $30 million to $35 million. And we’ve got some capital projects that were mentioned in the conference call that are going to be the remaining part of that overall CapEx.

Steve Ferazani – Sidoti & Company

Okay. And how many of the international rigs are under contract through '09? Give me a percentage number?

David Mannon

We’ve getting that.

Steve Ferazani – Sidoti & Company

Okay.

Operator

Thank you. Our next question comes from the line of Gary Stromberg with Barclays Capital. Please go ahead.

Gary Stromberg – Barclays Capital

Hi good morning. A couple of questions on cash, we saw big build in the fourth quarter and having trouble reconciling that build even with the drawdown on the facility, the system working capital, source of funds in the fourth quarter?

David Mannon

Noting that comes out immediately on the working capital, where we are trying to reconcile we did brought down during the fourth quarter we also had David Tucker our Treasurer.

Gary Stromberg – Barclays Capital

What was the balance of the revolver at the end of the year?

David Mannon

The balance of the revolver, all we had remaining on the revolver was close to I think it was around $20 million was the remaining of the revolver. We drew down four of that when we replaced the Lehman Brothers. That happened in the first quarter, the remaining of it is outstanding as part of a commitments against the [LLC]. So, we had a run around 50 million drawn down at the end of the year.

Robert Parker Jr.

There is $58 million at year end where 62 million today that's actually grown.

Gary Stromberg – Barclays Capital

And do you have an update on cash today, is that same zip code?

David Mannon

Yes it is, I think its down to the 150, 160 range today.

Gary Stromberg – Barclays Capital

Okay. And then in terms of I think you guys I didn’t hear the answer on the contract coverage in 2009, I had a question on that as well as cancelation provision?

David Mannon

Sure right now, we’ve got 21 rigs that have contracts through the majority of 2009 and we’ve got fixed rate there are going to be seeking contracts, either rolling off or seeking contracts.

Gary Stromberg – Barclays Capital

And the 21 rig that have contracts do you have revenue figures with that.

Robert Parker Jr

We don’t.

Gary Stromberg – Barclays Capital

Are there cancelation provisions in those contracts. How hard is it for counterparties to get out?

Robert Parker Jr.

The majority of our long-term contracts have been early term provision in them where the operator has to pay a lumps um fee to early terminate.

Gary Stromberg – Barclays Capital

And then final, just on 2009, can you walk us through you talked about CapEx, can you walk us through cash taxes what you expect to have a pay there?

David Mannon

That was the moving target and we did have some non-recurring items factoring in to get into that 35% for 2008. What I expect for 2009 is I would estimate around a 40% effective tax rate and in cash taxes what I would really expect is probably somewhere in the $10 million to $15 million. Part of that 12.5 non-recurring item will help to reduce what we have pay into the U.S. government during willl go against future 2009 payments for this year. So, that will get us down to about a $10 million to $15 million cash taxes.

Gary Stromberg – Barclays Capital

Okay great thank you very much.

Operator

Thank you. (Operator Instructions). Our next question comes from the line of David Deckelbaum with UBS. Please go ahead.

David Deckelbaum – UBS

Good morning guys. How are you?

David Mannon

Hello, David.

David Deckelbaum – UBS

Wanted to go back to CapEx real quick for a moment. Is it fair to say that say $130 million or so $140 million for capital projects? Is that committed right now?

David Mannon

Let me give you some granulation on that. The majority of that capital, David is associated with our two AADU rigs – Alaska and Arctic Drilling Unit rigs the we have a five-year contract with BP Alaska. The other portion of that is associated with our Caspian barge rig that is required under contract to perform an upgrade program sometime in the latter part of 2009. Once again we have a three-year contract and the capital associated with the upgrade is included in the dayrate once that rig goes back to work after the upgrade and that capital or that dayrate is sufficient enough to pay off that upgrade during the contract term.

David Deckelbaum – UBS

Okay. I appreciate that. Now moving to the barge market, just briefly, I know that you would mention shooting for a EDITDA break-even point. It seems to me that perhaps you’re already willing to stack rigs in order to preserve pricing right now. It is fair to say that there are other rigs down there that are working at lower break-evens. Or is it more of a question right now of particular customer relationships that are scaling back for you guys down there?

David Mannon

Well I can’t answer for other contractors but what we have seen is fairly a volatile dayrate environment recently with a fair amount of pricing pressure on dayrate. And we have seen that some of our competitors have elected to cold stack rigs. And the answer to that is some of these rigs that have gone to cold stack hadn’t been refurbished in a material amount of time and so that meant maybe the best choice for that particular asset. In our case, at the present time we're electing to make a more conservative approach and combining our rigs within an area and splitting our crews up to maintain those rigs and still market those rigs. But there maybe a time were we elect to not market a rig to send a message to marketplace that we’re taking the rig count out of the fleet to have the marketable fleet.

David Deckelbaum – UBS

Fair enough. Lastly, Rig 270 is that still being marketed right now and is that targeted at the CIS right now?

David Mannon

Yes, 270 is still being marketed. We have effectively placed that rig under lock and key. I guess you could say and so it’s now still in our New Iberia facility. It is not being marketed in the CIS. It is being marketed in more warmer client areas of Mexico and South America.

David Deckelbaum – UBS

Okay, great I appreciate it. And I’ll let someone else step in.

David Mannon

Thanks David.

Richard Bajenski

Thank you. This is Richard Bajenski coming now. We have been informed that there are no longer any parties in our question queue. So we will end our conference call at this point. We appreciate you all for joining us this day, and we look forward to giving you further reports on Parker Drilling throughout the year. Thank you.

Operator

Ladies and gentlemen that does conclude the Parker Drilling fourth quarter 2008 conference call. Thank you for your participation and at this time you may now disconnect.

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