Parker Drilling Company Q3 2009 Earnings Call Transcript

Parker Drilling Company (PKD)

Q3 2009 Earnings Call

November 3, 2009 11:00 AM ET

Executives

Richard Bajenski - Director, IR

Robert L. Parker Jr. - Executive Chairman

David C. Mannon - President and Chief Executive Officer

Kirk Brassfield - SVP and Chief Financial Officer

Analysts

James West - Barclays Capital

Steve Ferazani - Sidoti & Company

Joe Agular - Johnson Rice & Company

Mike Drickamer - Morgan Keegan

Douglas Becker - SMH Capital

Presentation

Operator

Welcome to the Parker Drilling Third Quarter 2009 conference on the 3^rd of November. (Operator Instructions). I will now hand the conference over to Mr. Richard Bajenski. Please go ahead sir.

Richard Bajenski

Thank you Danny and good morning to all of you and welcome to Parker Drilling’s Third Quarter 2009 conference call. This is Rich Bajenski, Director of the Investor Relations and joining me today are Bobby Parker, Executive Chairman, Dave Mannon, President and Chief Executive Officer, and Kirk Brassfield Senior Vice President and Chief Financial Officer.

In the course of our comments today we will make statements regarding the management’s expectations for the company’s future performance that we believe will be informative and beneficial to our share holders. These statements are considered forward-looking statement 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 the 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 tables 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.

That said here is Bobby Parker to begin our review. Bobby?

Robert L. Parker Jr.

Thanks Rich and welcome to our conference call. Before taking on the discussion of our performance there is another subject worthy of comment and that is the recent appointment of David Mannon as Parker’s Chief Executive Officer. Dave is and has been a great fit for Parker.

His industry experience, discipline, strategic thinking, and leadership have benefited Parker for the past five years. He is a natural to be selected as CEO and I look forward to seeing Parker grow and prosper under Dave’s leadership.

Earnings in the business in hand, we reported earlier today our 2009 third quarter results. The net result was an income of $0.6 per share, excluding non-routine items earnings per share for the quarter was $0.4 compared to $0.19 for the same period last year.

We’ve completed another quarter in which our geographic diversity and business balance has produced a profitable outcome despite the harsh conditions of some of our markets.

While our U.S. operations were responding to the effects of weak drilling activity in volatile natural gas prices, our international drilling and project management businesses operated in a more resilient environment.

More specifically, weak domestic drilling activity has been accompanied by stiff competitive pricing which was evident in day rates for our Gulf of Mexico barge drilling business and rental rates for our rental tools business.

In international drilling markets, with their greater focus on oil and long-term production growth and reserve development projects have recovered somewhat measured by tender activity, but drilling remained below prior levels.

As a result, our international fleet overall utilization has softened from both last year and last quarter, but is currently showing signs of improvement. Under these conditions, we have had some notable accomplishments in the quarter.

Parker’s international drilling operation improved its gross margins as a percent of revenues to 34% from 31% in the prior years third quarter. The U.S. barge drilling business achieved a better than break-even gross margin.

Year-to-date this segment is on track to meet its 2009 operating objective of the better than break-even cash flow despite market conditions, that are the worse this industry has seen in recent times.

Our rental tool operation established our presence in Pennsylvania serving the Marcellus Shale play and has a growing book of business in that area.

Parker was awarded the O&M or Operations and Maintenance contract for the BP owned Liberty Rig. During the quarter we successfully completed the sealift and delivery of the rig to its drilling site in Alaska.

It is now in the process of assembly rig-up and commissioning and is on schedule to begin operations in early 2010.

Our investment in safety awareness and training has resulted in a year-to-date TRIR or Total Recordable Incident Rate of 0.54, better than our industry leading performance of last year.

This not only creates a safer and more secure working environment for our employees, but also contributes to better operating efficiency and better customer relationships.

Though I do not expect industry conditions to change significantly in the near term, I do see signs of improvement in most of our markets. The number of barge rigs in the Gulf of Mexico has grown significantly since earlier this year.

The industry wide marketed fleet, which we estimate is 27 barges in total, is operating at over 60% utilization. Tendering activity in our international markets has improved and we believe we will have good opportunities to maintain or improve our fleet utilization.

U.S. land drilling is in recovery with the focus on more unconventional drilling programs. This should lead to a pick up in rental tool demand.

Overall our business balance and geographic diversification have been important contributors to our recent results. We are in good financial condition with a sound balance sheet and sufficient cash and expected cash flow to meet our investment commitments and forecasted cash needs.

I feel comfortable with how are positioned in our markets and the long-term outlook for operational, financial and strategic performance is improving.

Kirk will discuss our financial performance and expectations in just a few minutes, but before he does Dave Mannon will review some of the key operational highlights of the quarter. Dave?

David C. Mannon

Thanks Bobby. I will start with international drilling. Our 31 international rig fleet was 61% utilized during the third quarter, compared with 84% in 2008 third quarter and 68% utilization in the preceding quarter.

Business has improved a bit from the just completed quarter and we are currently operating at 65% utilization. In the Americas region, we operated on average 75% utilization, with eight of ten rigs working during the quarter.

One rig went into service this past quarter on a new term contract that extends into 2010. Another rig completed its quarter, its work on a prior contract and immediately went to work under a new contract.

Few rigs were idle throughout the quarter. One rig is scheduled to finish up its work before year-end. Otherwise, seven of ten rigs in the region are working under term contracts extending to 2010 or later.

In the Asia-Pacific region we operated on average 40% utilization, with four of the eight rigs in the region working during the third quarter. One rig that came off contract during the second quarter was contracted for new work during the third quarter. That work will extend into 2010.

One rig is scheduled to finish up its current contract before year-end. We have a verbal commitment for new work for this rig that will keep it active during the fourth quarter and into 2010. There are three rigs in this region working under contracts that extend beyond year-end.

In the CIS/AME region, our third quarter utilization on average was 69% with nine of twelve rigs working during the quarter.

One previously idled rig began working under a new contract that includes options that may extend that work beyond year-end.

Three rigs were idle and one rig came off contract during the quarter. Seven of the twelve rigs in the region are under contracts extending into 2010 or 2011.

Rig 257, our arctic-class barge rig operating in the Caspian Sea and scheduled for a plant overhaul and upgrade that is expected to begin in the fourth quarter and will be completed after a year-end.

This will affect our utilization and income for the time it is in the shipyard. During its overhaul, it will receive a more powerful top drive and upgraded mud handling system and new controls that will allow it to operate in more challenging locations and on deeper and more difficult wells.

Upon completion, it will return to service for an additional year and a half under the terms of its current contract.

In summary, our International drilling operation ended the third quarter with two more rigs working and we are working at the start of the quarter.

In addition, there is a number of active rig tenders in each of our operating regions. To-date we have responded to more rig tenders than we did in all of 2008. This leads me to expect that fleet utilization may improve in the months ahead.

We also have two Parker owned new build land rigs under construction for a five year development drilling program BP on the North Slope. The rigs remain unscheduled for a sea lift in the summer of 2010 and should begin operating latter that year.

Our project management activities expanded significantly in the third quarter as we move forward with the sealift, rig-up, and commissioning of the BP owned Liberty Rig. More importantly we are awarded O&M contract to operate the rig for its initial drilling program.

Regarding other major projects, the Exxon Neftegas or ENL owned Yastreb rig continues to drill on the Odoptu field, offshore Russia’s Sakhalin Island.

Parker operated Orlan platform remains on a scheduled warm stack condition while the operator evaluates the field and we continue to work on our drill package for the Arkutun-Dagi platform offshore Sakhalin Island.

There are several field EPCI, and O&M contracts that we are currently evaluating. Each utilizes our technical capability and will be welcome addition to our project in engineering service business.

Now turning to the Barge drilling business, overall utilization in the third quarter was 33%. This is the second quarterly increase in Parker's fleet utilization since the low point earlier this year.

The up tick in utilization came with a lower average day rate compared to prior quarter, diluting the earnings impact of the higher rig count. On deep drilling fleet of 10 barges was 38% utilized during the quarter at an average day rate of $28,400.

One of our three intermediate depth barges worked this past quarter and one of our two shallow work over barges worked during the period but not for the entire quarter. By our estimate, the entire industry has 17 barge rigs at work, 9 of those are Parker rigs.

Today, Parker’s barge drilling business is the leading contractor in the U.S., Gulf of Mexico measured by rigs available to work.

More importantly, by keeping our rigs warm stacked and work ready by retaining ties through our key employees to reduce work schedules or furloughs with benefit and by managing our business operating and supporting costs.

We have enhanced our competitive standing in the industry and achieved a better than average or better than break-even operating cash flow even at current low day rates and industry utilization.

The markets appear to be improving. Drilling for deep gas has been better market during the downturn. More recently, we’ve had increases in drilling for oil. This trend and the passing of the hurricane season should provide a better market for us going forward from here.

As expected, demand for rental tools was down for the past quarter. The primary contributor has been the increase in discount pricing, the locations working and a more active shale plays that is the Williston, North Dakota store serving the Balkan oil shale play and Texarkana store serving the Haynesville, Fayetteville and Woodford shale plays had faired better than the overall business.

Even those were down year-to-year reflective above slow drilling activity and competitive discounts, providing some offset to this has been the new business coming from our recently established operation in the Marcellus shale area, continued growth of our international business and additional rentals going to deep water customers.

We have seen some signs of pickup in our domestic markets of late. We expect to supplement this with new business we've developed in the Marcellus and some new work on several deep water-drilling program in the Gulf of Mexico.

The BP Liberty rig is all that is included in the construction contract segment. This purpose filled rig is been constructed on a cost-plus contract for BP's development of the Liberty Field offshore from the North Slope of Alaska.

The rig components are now onsite at the operating base in Alaska and are in the process of rig up in commissioning. We expect to complete the commissioning to be ready for full drilling operation in early 2010.

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

Kirk Brassfield

Thanks Dave. For the third quarter of 2009 Parker Drilling reported net income of $7.1 million or $0.6 per diluted share on revenues of $181.4 million. There were several non-routine items that affected this quarter's results excluding the non-routine items Parker's 2009 third quarter diluted earnings per share was $0.4.

The comparable result for last year's third quarter was $0.19 per diluted share. Last year's results have been restated for the impact of the recently issued guidance related to accounting for convertible debt instrument, which we've adapted effective of January 1^st.

Other non-routine item included the cost of supporting the ongoing investigation by the DOJ and SEC and internal investigation regarding U.S. economic sanctions primarily relating to the company's operations in the CIS region.

In the third quarter of 2009, we incurred $2.4 million of expense related to these investigations. In addition we had a $2.8 million write off of a prepayment to equipment supplier who went bankrupt.

Lastly, we had a tax benefit of $6.1 million resulting from the recognition of prior year's tax credits not previously utilized. After tax, these non-recurring items increased earnings by $0.02 a share.

Turning now to ongoing operations. Our International Drilling segment reported third quarter revenues of $64 million and gross margins of $22 million. Despite the decline in revenues, gross margin as a percentage of revenues increased to 34.4% up from 31% in the prior year's third quarter.

The decline in revenues reflects the lower overall fleet utilization while the improvement in gross margin profitability is primarily the result of lower operating cost.

The U.S Barge Drilling segment reported third quarter revenues of $12.4 million and gross margin of $2.3 million. The decline in revenues and gross margin compared to the prior year's third quarter are due to the sharp drop in rig activity and reduced average day rates.

In the 2009 third quarter, we had the equivalent of five rigs in service while in last year's third quarter; we had the equivalent of 12 rigs at work. During the same time our fleet's average day rates declined by 34% to 26.200 per day in this past quarter from 39.9 in the third quarter of 2008.

Year-to-date we have met our 2009 operating objective of the break-even or better cash flow for this business and we expect to remain cash flow positive in the fourth quarter. This has been an extremely challenging market and our operating team deserves a lot of credit for this accomplishment.

Rental Tool segment revenues declined 48% to $23.9 million from $46 million in the 2008 third quarter. Gross margins declined by 58% and gross margin as a percent of revenues was 48.8%.

Lower overall demand has led to increased discounting, which impacted both revenues and profitability.

Project Management and Engineering Services segment revenues rose by 7% compared to the third quarter of 2008. The year-to-year increase is primarily due to the incremental revenues for the Arkutun-Dagi platform and Liberty rig project.

The segment's third quarter gross margin as of percent of revenues increased to 24.9% from the 11% in the prior year due to the additional project work and a lower amount of reimbursable in the current quarter.

Constructing contract revenues represents the progress made on the BP-owned Liberty rig contract with the income recognized on a percentage on completion basis. There was no significant change in depreciation expense compared to last year or the prior quarter.

G&A expense increased to $9.8 million for the quarter compared to the prior year's third quarter expense of 9.3. Each period included expense in professional fees related to DOJ investigation.

Excluding these G&A expense for the 2009 third quarter was $7.4 million, a 6% increase from the prior year's third quarter expense primarily due to a moderate increase in corporate expense and personnel cost.

Interest expense was $7.1 million in the third quarter about the same as of prior year's quarterly expense of $7 million.

Included in interest expense this quarter is $1.3 million of non-cash interest expense relate to the January 1^st, 2009 adoption of the required change in the counting method for convertible debt. The prior year's third quarter interest expense includes $1.2 million for the same item.

Reported tax expense for the quarter adjusted for non-routine items appears as a credit or income and it's a result of benefited losses primarily in the U.S. as well as the differing tax rates in effect in the locations where we had taxable income this quarter.

Our cash balance at September 30^th was $94.4 million compared to $172.3 million at the end of 2008. The decline in cash balance primarily reflects funding the construction spending on our two new built Alaska rigs and $20 million partial repayment of our drawn revolver balance.

Capital expenditures were $32.9 million for the quarter and $126.9 million year-to-date. Included are, capitalized interest $1.6 million for the third quarter and $4.1 million year-to-date.

Alaska rig construction spending of $9.1 million this quarter and $40.4 million year-to-date and rental tool inventory purchases of $5.4 million in the third quarter and $30.9 million year-to-date.

We are in very sound financial shape. At the end of the quarter, we had $425.7 million of debt outstanding and $94.4 million of cash and cash equivalents or net debt position of $331.3 million.

Our net debt to net capitalization ratio is a very manageable 35.6%. Of our debt outstanding, the $50 million term loan began to amortize on September 30th at $3 million per quarter.

The remaining components of the company’s debt do not mature until 2012 and 2013. Our debt covenants contain two important financial tests; a leverage ratio of debt-to-EBITDA and an interest coverage ratio.

At September 30, 2009, our leverage ratio is estimated to have been 2.2 times against the covenant maximum of four times. Our interest coverage ratio is estimated to be 6.6 times against the covenant minimum of 2.5 times.

Lastly, with $94.4 million of cash on hand, we are positioned to meet the remaining capital needs we expect for 2009.

Few words about the outlook. We believe that the third quarter may represent the low point for market in Parker's business areas this year while there is some uncertainty in our outlook.

We remain confidant in the ability of our businesses to mange through these conditions, to find opportunities to add business based on our technical capabilities, and safety performance, and to control cost consistent with business conditions as we have demonstrated through out the year.

Specifically, we expect our international regularization to hold at about the current rate in the short-term. The level of rig tendered is improving and should support the current fleet utilization rates.

There is still some pressure on day rates on re-contracted rigs and our challenge will be to match this with lower cost and improved efficiencies.

The rental tool business should benefit from some additional deep water work and from incremental activity in the Marcellus and other major shale plays. We expect the U.S., Gulf of Mexico barge business to stabilize around current levels.

There has been a significant improvement in the industries overall, fleet utilization and this along with the official end of hurricane season should be helpful to our fleet utilization.

Based on the work we have in hand, we expect project management to continue to perform at current levels through the reminder of the year.

The outlook will be impacted by a few issues including Caspian barge rig 257 is scheduled to move into the shipyard for schedule upgrade in November and is expected to be there through the first quarter. The barge rig will be on a reduced day rate during this time.

In addition, a slow recovery in the U.S. drilling may also slow the pace of an improvement in rental tool prices. This could prolong the discounting we are currently experiencing, slowing the recover in rental tools margins.

Taking these into account tempers our expectations. In summary and excluding non-routine items, we would expect our fourth quarter EBITDA would be - to be about the same as or better than the preceding quarter and that our market conditions and operating success will establish some momentum for 2010.

Assuming that the market conditions are no worse than they are currently, we would expect 2010 will be a better year for Parker than 2009.

We believe that we are in as good position as any to drive profitable return from the markets that we serve and that the results we can produce will demonstrate the value of our strategy to leverage to the company's technical capabilities and experience to develop platforms for growth.

To differentiate our traditional drilling operations and to diversify and balance the company's business mix. I look forward to reporting that progress.

Rich Bajenski

Thank you, Kirk. That ends our overview for the company and the quarter. Operator you may now begin taking questions from audience.

Question-and-Answer Session

Operator

(Operator Instructions) And the first question comes from James West - Barclays Capital.

James West - Barclays Capital

Hey Dave or Bobby, on the international land drilling business right now, I know there is still pricing pressure. Could you, I guess first kind of characterize the leading edge day rates where they stand versus day rates now, how much further they are down?

And then second, I know you guys have done a good job of cutting cost and squeezing suppliers. Are we in a situation where, where the rate may come down and touch the percent margin at least as flat or maybe even the margin percentage goes up the touch?

Robert L. Parker Jr.

Sure James, from it depends on area, but overall we've seen about a 10% downdraft in day rates in renewals and what we are focused on is really now to our OpEx about the similar amount.

So from a margin perspective, I think our margins will stay, stay flat hopefully on a forecasted basis going into the fourth quarter of 2009 into 2010.

James West - Barclays Capital

On the Rental-Tool business, as you see it now still lot of discounting in that market, as the discount will at least stabilize at this point or are you seeing a still increase in discounts?

Robert L. Parker Jr.

Well, we haven't seen any increase in discounts recently, but there has been a material shift in discounts over the last two quarters.

And so what I think is going to go is going to happen moving forward is those discounts are going to stay in place for a meaningful period of time until we see a fairly substantial increase up ticking activity in North America gas drilling.

James West - Barclays Capital

Still on the rental tools, how much of that business now is -- comes international market and I know part of the strategy here is to move into some international regions, could you maybe give us some color on the timing of setting up shops elsewhere?

Robert L. Parker Jr.

Yeah, we've got about 5% of our overall revenues generated in the international group. As I mentioned in the past there is four areas that we have targeted, that's Alaska, Middle East, Brazil, and Asia Pacific. We've done some due diligence on some of those areas and we're not at present, prepared to open up any stores in 2010.

We are still monitoring it. We want to be pulled into these areas and so we've got various projects throughout the world that have come from U.S based E&P companies doing business internationally.

And I think that’s going to continue to increase our revenue percentage internationally in 2010 but we don’t anticipate adding a store in the near term. Something that surprised us and it's been a pleasant surprise is the activity growth in the Marcellus.

And we've put a satellite store in the lower part of Pennsylvania earlier this year. And right now, we are conservatively ahead of our forecasted curve for growth rate in the Marcellus.

And so right now we are focused at the potential putting the store in the Marcellus in early part of 2010 rather than international.

Operator

Your next question comes from Steve Ferazani - Sidoti & Company.

Steve Ferazani - Sidoti & Company

I was hoping to get an update on the Alaska progress, timing of the celebrity project and the land rigs and if you’ve offered any kind of if you can quantify at this point, the likely impact of Alaskan operations next year?

Robert L. Parker Jr.

Okay, I will start with timing. We are in the rig up and commissioning phase of Liberty right now. The rig is completely put together from a heating aspect. But we are still putting pieces of equipment inside the rig and so our start up of operations is targeted for kind of the mid to late part of the first quarter of 2010.

The plan right now is, and really this is BP's plan is to drill an initial water well and then we start drill operations thereafter. And so we're currently on schedule to perform those tasks in early part of 2010.

Right now we're on a cost plus. In 2010, it roles into an O&M contract as we finish the commissioning and start drilling operations. Moving to the AADU rigs we're currently constructing those rigs in Vancouver, Washington, same place we constructed the Liberty rigs and also the same place we constructed 269 and 270.

The first role out of the utility module happened last weekend that was successful operation that rolled out from the covered gantry area out into the rig up yard. That's a first large piece of equipment that's been moved out and we anticipate additional large pieces moving out here as time goes by.

That's currently on schedule for both rigs and the sea-lift to those rigs will be in June of next year, which is very similar to the sea-lift of Liberty, it's the same timeframe in the June, July timeframe, it goes up from Vancouver up around Alaska and then docks into the North Slope, sometime in the August, September timeframe, it will be off loaded thereafter.

Those rigs will be fully commissioned in Vancouver and so once they move up to the Slope, there will be just some last check out commissioning operations on the well site and then we'll start the operations in the later part of 2010.

Steve Ferazani - Sidoti & Company

Have you offered any kind of a guidance at this point or anyway we can quantify what the impact might be on these operations next year? I'm guessing the land rigs minimal.

Kirk Brassfield

Yes, that will be correct if you're going to tell me, and Steve this is Kirk. Coming at the end of the year, we did note in our earnings release for the two land rigs that the five-year contract, we generate revenues of about $250 million over the five-year period.

So that would look at a full year run rate of revenues of $50 million for those two rigs. Regarding the Liberty project, we haven’t said anything yet but as we are working through our budgets now, we'll be more prepared to talk a little more as we move forward after that process.

Steve Ferazani - Sidoti & Company

Just one brief question on the inland barge market, given the activities picking up but there was still pricing pressure, any concern that some of these cold-stacked rigs by your competitors return and what kind of pricing pressure that might lead to?

Robert L. Parker Jr.

Well sure, I mean that’s always a concern that we have is that these rigs could return to service. What I will add is that they are going to have to do some capital improvements of those rigs more than likely to get them into the shape to bring in the service.

And I think we have a head start on our warm-stacked rigs because of that. There is about ten cold-stacked rigs that could be brought into service and so I don’t think we are going to see a material increase in day rates because of that overhang in the near future.

But I guess I'm excited that we have more rigs working today than the combined barge rig fleets of our peer group. So I think we are going in the right direction. I think it's early in the next cycle and so I don’t really see a whole lot of improvement until some time in 2010.

Operator

Your next question comes from Joe Agular - Johnson Rice & Company.

Joe Agular - Johnson Rice & Company

I wanted to ask you a question on a comment you made earlier regarding international land rig tenders and I think you said that you have more tenders in-house today than you had in 2008 or something to that effect. Could you explain?

David C. Mannon

That is a correct statement. On a year-to-date basis, in 2009 Joe, we have submitted more tenders internationally than all of 2008.

And so, what I have said in the past, you tend to have kind of a 6 to 8-month lag period between tender and the actual impact of that on your utilization. And so, I think this is an optimistic projection of what's going to happen in 2010.

Joe Agular - Johnson Rice & Company

Over the last three months I would say, the number of tenders, you mentioned year-to-date. Has it been the last three months where the pick up has increased?

David C. Mannon

It started our increase looking back in the rear view mirror; it looks like it started to impact us around April of this year.

Joe Agular - Johnson Rice & Company

Any interesting trends in terms of where these are coming from?

David C. Mannon

Well, it is in the three core markets that we currently work. So, this is Asia-Pacific, CIS and Latin America.

Joe Agular - Johnson Rice & Company

Spread evenly?

David C. Mannon

Yes, and I will say that due to the senior management change in PEMEX in Mexico, there is a material amount of tenders that were submitted that haven’t been acted upon.

Joe Agular - Johnson Rice & Company

One question on the barge rig fleet, I am not sure if you said this, if you did, I apologize, but you are at 60% utilization right now, which I assume needs 9 rigs total. Could you give the split between the classes? How many of the ten deep drilling barges do you have working today?

David C. Mannon

Of the nine, we have 5 deep working and then we have 4 intermediate rigs. Actually, we have 3 intermediate rigs and 1 shallow rig working.

Joe Agular - Johnson Rice & Company

And basically, I think you said that you expect that sort of level to hold going for the next couple of quarters.

David C. Mannon

I think what we have today is something that we certainly are excited about, that we have nine working. It is certainly a lot better than February earlier this year. So, I think that the market today is going to be somewhat flat moving forward until something materially happens to gas pricing.

Operator

Your next question comes from Mike Drickamer - Morgan Keegan.

Mike Drickamer - Morgan Keegan

Looking at the construction segment, I think you commented that this is all construction of that [30 rigs]. What do you have left to recognize that perhaps you are in the fourth quarter as construction winds down?

David C. Mannon

I think we would look around a couple of million more in the fourth quarter and then there are some contingency, I won't contingency, there have been incentive payments out there that we have become more aware of as we roll into 2010 that our potential, that could be anywhere from $2 million to $4 million additional at that point of time, that is income not revenues

Mike Drickamer - Morgan Keegan

I'm sorry when you say a couple million more, are you saying a couple million more than a third.

David C. Mannon

Probably 2 million more income and that’s EBITDA in the fourth quarter and then going into the next year, you could be anywhere from $2 million to $4 million more recognized during the first-second quarter as we complete the project.

Mike Drickamer - Morgan Keegan

Okay. For tax rate guidance then for the fourth quarter perhaps 2010 if you can offer it, when are you going to use up all of these tax credits?

David C. Mannon

Well the tax rate credit is - where we were for the nine months was right at about 38% and I would expect that we would be at that 38% to 40% at the end of the year and that does get dependent and the issue that we run into when your at this lower income level.

It is very sensitive and it depends on where the income is being generated and the impact. But right now we're looking at in around of 40%. And that’s not projecting anymore-unusual type tax credits.

The $6 million that we recognized this time was going back into some prior years and amending some returns because we did have the ability to take additional credits. And so those were unusual in nature and those have been taken care of now.

Mike Drickamer - Morgan Keegan

Okay, so going forward it should be in that 38 to 40% range?

David C. Mannon

Yes for the remainder of 2009.

Robert L. Parker Jr.

Danny it looks like we have time to take one more question if we could.

Operator

The final question comes from Dough Becker - SMH Capital.

Douglas Becker - SMH Capital

I want to get a little more color on the barge day rates. I know you mentioned you don’t expect them to increase. Is it reasonable to expect them to hang in on an average basis with what we saw in the third quarter given that utilization is certainly higher?

David C. Mannon

Well I guess it all depends on what the competition does. But we have been on the higher end of day rates in comparison to our peer groups all the way through this last down-cycle. And we’re still pushing rates.

What we have seen recently is that there has been an increase in activity, predominantly on the oil side and deep gas side, and the wedge of the pie of demand for shallower gas just hasn’t come forth yet.

And I think that until that does; you’re not going to see a whole lot of uplift in day rates in the intermediate and the shallow-deep market. And it’s hard for me to time that Doug but it really is predicated on a gas price over in the $6 range.

And there’s a lot a people that - some people are saying that’s going to be realized this year, there are a lot of other people that are saying that won't be realized until sometime next year.

Douglas Becker - SMH Capital

And switching internationally, it looked like revenue per day declined by about a little over 10%, which seems high given if pricing on contract rollovers is just down around 10%. We’re just hoping to get a little reconciliation on the average revenue per day internationally.

David C. Mannon

I just think that’s the mix of the business. We’ve had some idle times and bear in mind, as we move rigs around, we do that on a cost basis and so that also affects that overall revenue rate for the days on location. But overall we've seen about a 10% decrease in our renewal rates.

We had some areas that are larger than that in Asia Pacific but we've had some -- that are smaller than that in the CIS. But looking forward I'm cautiously optimistic that 2010 from an oil demand side will at least stabilize the erosion of our day rates.

Rich Bajenski

Doug, Rich Bajenski. Also to add into that, is we had a much lower level of reimbursables this quarter versus last year in the revenue line. So that will have an impact that is not reflective of day rates.

Robert L. Parker Jr.

Well that concludes our conference call. We appreciate your interest in Parker Drilling and we look forward to speaking with you again throughout the quarter and our year-end results, which will come out sometime in late January, early February. Thank you.

Operator

Ladies and gentlemen, this concludes today's presentation. Thank you for your participation and you may now disconnect.

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