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Dawson Geophysical Company (NASDAQ:DWSN)

F2Q10 (Qtr End 03/31/10) Earnings Call Transcript

May 5, 2010 10:00 am ET

Executives

Steve Jumper – President and CEO

Christina Hagan – EVP and CFO

Analysts

Marshall Adkins – Raymond James

Neal Dingmann – Wunderlich Securities

Veny Aleksandrov – Pritchard Capital Partners

Pierre Conner – Capital One Southcoast

Operator

Good morning. My name is Tamika, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dawson Geophysical Company’s second quarter earnings and update conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions). Thank you.

Mr. Steve Jumper, you may begin our conference.

Steve Jumper

Thank you, Tamika. Good morning and welcome to Dawson Geophysical Company's second quarter 2010 earnings and operations conference call. As Tamika said, my name is Steve Jumper, President and Chief Executive Officer of the company. Joining me on the call are Christina Hagan, Executive Vice President and Chief Financial Officer; and Decker Dawson, Founder and Chairman of the company.

As in the past, today's call will be presented in three segments. Following opening remarks, Chris will discuss our financial results. Then I will then return for an operations update, then the call will be opened up for questions. The call is scheduled for half and hour and we will not provide any guidance.

At this point, I will turn control of the call over to Chris Hagan, our CFO, to discuss our financial results.

Christina Hagan

Thank you, Steve. First, let us go through our Safe Harbor provision. In accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, Dawson Geophysical Company cautions that statements made today in this conference call, which are forward-looking and which provide other than historical information involve risks and uncertainties that may materially affect the company's actual results of operations.

These risks include but are not limited to the volatility of oil and natural gas prices, disruptions in the global economy, dependence upon energy industry spending, cancellations of service contracts, high fixed costs of operations, weather interruptions, inability to obtain land access rights of way, industry competition, limited number of customers, credit risk related to our customers, the availability of capital resources and operational disruptions. A discussion of these and other factors, including risks and uncertainties, is set forth in the company's Form 10-K for the fiscal year ending September 30, 2009. Dawson Geophysical Company disclaims any intention or obligation to revise any forward-looking statements, whether as a result of new information, future events or otherwise.

During this conference call, Dawson will make reference to EBITDA, which is a non-GAAP financial measure. A reconciliation of this non-GAAP measure to the applicable GAAP measure can be found on Dawson's current earnings release, a copy of which is located on the Dawson’s web site www.dawson3d.com.

This morning, we reported revenues of $48,585,000 for the quarter ending March 31, 2010, our second quarter of fiscal 2010, compared to $64,625,000 for the same quarter in fiscal 2009, representing a decrease of 25%. Net loss for the second quarter of fiscal 2010 was $2,706,000, compared to net income of $6,170,000 in the same quarter of fiscal 2009. Loss per share for the second quarter of fiscal 2010 was $0.35, compared to income per share of $0.79 for the second quarter of fiscal 2009. EBITDA for the second quarter of fiscal 2010 was $2,488, 000, compared to $16,814,000 in the same quarter of fiscal 2009.

The revenue decrease in the quarter compared to the same quarter of fiscal 2009 was primarily the result of previously announced reductions in active crew count from 16 to 9 crews, which began in the second quarter of fiscal 2009 with four crews; and in the third quarter of fiscal 2009, two additional crews; and in the first quarter of fiscal 2010, one additional crew. Revenues in the quarter continued to include relatively high third-party charges related to the use of helicopter support services, specialized survey technologies and dynamite energy sources, and we are reimbursed for these expenses by our clients. Steve?

Steve Jumper

Well, thank you, Chris. Our second quarter of fiscal 2010 results showed significant improvement over our first quarter fiscal 2010 results.

EBITDA increased from a loss of $2,11,000 in the first quarter to a gain of $2,488,000 in the second quarter. During the second quarter, we redeployed two seismic data acquisition crews, and operated 11 crews for much of the quarter. Utilization rates were improved from what we experienced in recent quarters, particularly the first quarter of fiscal 2010, although difficult weather conditions, including heavy snowfalls across the country, which included record levels in Pennsylvania, along with wet and icy conditions across many areas of the country negatively impacted our utilization rates and our quarterly results.

The weather impact in the quarter reduced revenue levels due to increased downtime, and that the same time increased expenses on several crews by requiring us to employ additional personnel and equipment to complete projects in a timely manner. In addition, weather conditions forced us to temporarily discontinue a project, which in turn negatively impacted utilization rates for a short period of time.

We plan to return to this project in the early fall timeframe. The third party reimbursable charges for the quarter increased to very high levels as a percentage of revenue. The percentage increase is related to lower crew revenue, but more importantly reflect an increase in activity in areas such as the Marcellus, Haynesville, and Fayetteville shale basins, which require more preparatory work and lead time than many other regions of the country.

Demand for our services remained steady and it is greatly improved compared to the second quarter of fiscal 2009. Our current order book reflects commitments sufficient to maintain operations of our 11 crews well into calendar 2010. We currently have projects in the Marcellus shale, Fayetteville shale, Eagle Ford shale, Haynesville shale, Barnett shale and throughout the oil producing basins in the western regions of the country.

Currently our project mix is approximately 70% natural gas and 30% oil driven. Our project size has ranged from very small projects, something in the neighborhood of 10 square miles to very large projects involving hundreds of square miles. And our contract mix is predominantly turnkey type contracts.

While demand levels remained relatively high for mid 2009 levels, the US seismic market continues to be challenging. Availability of ready projects, aggressive price competition, weather-related risk and the resurgence of multiclient surveys are among our most difficult challenges. Over the course of our company's history, we have faced these similar challenges before. We believe the key to our long-term success is to remain disciplined in our approach to the business, maintain key employee and client relationships, acquire equipment as needed and stay focused on the balance sheet.

Our project size mix and the recent strengthening of our order book should allow us the opportunity to mitigate some of the short-term utilization rates issues we have faced in recent quarters. While pricing is competitive, our turnkey contracts should allow us to capitalize on improved crew efficiencies and productivities with increased channel count.

However, I would caution that while turnkey contracts allow us more opportunities to increase margins, we also bear more risk related to weather and operational down time. Our focus remains on our core business, helping our clients find and develop oil and gas reservoirs cost effectively.

As I said, we remain disciplined in our approach to our business model as we continue to seek out new opportunities, clients, markets and applications of our technology. During the second quarter, the board of directors approved an increase to our 2010 capital budget from $10 million to $20 million. The increase in the budget was to take advantage of an opportunity to purchase additional RSR and ARAM channels as the demand for increased channel count in the industry continues, and we continue to replace MRX capacity.

We took delivery of additional channels in March. Our current channel count is in excess of 120,000, all of which we own. In February, we deployed our new OYO GSR system as previously announced. Today the OYO system has been utilized as a three component expansion of an ARAM system, and as a standalone system on several small projects. We continue to see opportunity to deploy the OYO system in various capacity as we become more familiar with this operation.

The balance of the 2010 capital budget will be used for the purchase of additional geophones and maintenance capital requirements. After our recent purchases, our balance sheet remains strong with no debt in over 80 million of working capital. Overall the lower 48 seismic data acquisition market is beginning to show signs of positive growth, certainly in comparison to the first half of 2009. There are still however obstacles to overcome.

Weather and land access permits will continue to impact our results going forward, particularly with our shift towards predominantly turnkey contracts. Pricing remains competitive and difficult. The overall pace of economic activity is uncertain, however, we believe the opportunity to overcome the difficult pricing environment and operational risk in our turnkey contracts exists with increased productivity and efficiency at the crew level.

In closing, our strong balance sheet with over 80 million in working capital and no debt, our asset base, the retention of key technical and operational staff, our strong client relationships we believe puts us in a position to capture the upside of the business cycle. It is our intention to continue to operate with a conservative financial structure, remain loyal to our employees and shareholders, while continuing to focus on helping our trusted clients find oil and natural gas.

And with that Tamika, we are ready to open the call up for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Marshall Adkins with Raymond James.

Marshall Adkins - Raymond James

Good morning. Chris, I was wondering if you could go back to the safe harbor statement again. You did such a good job on that. Just kidding there, I don't need that.

Steve Jumper

Hi, Adkins, did you have a question.

Christina Hagan

Thank you then.

Marshall Adkins - Raymond James

Steve, I know this is really hard to do, but weather was a big impact this quarter. Can you to some degree help quantify that for me, you know, how much of that hurt you and really what I am trying to get to is, looking forward to the current quarter we are in or even the next quarter, how do we return to profitability, is it the weather going away or the weather interruptions that we had this quarter going away, or is it higher pricing, is it better utilization, how do we get back to profitability in the coming quarters?

Steve Jumper

In the second quarter, and this was trailing somewhat out of the first quarter, and we had two crews working in North Dakota that were heavily impacted by heavy snowfall. And so we had a negative impact on those two crews, which involved additional equipment and personnel. When the same thing happened on two crews in Pennsylvania, the two crews in Pennsylvania the impact to those two crews was not as significant as the stuff we faced in North Dakota, because we were facing a little bit of freezing and melting and snowfall.

And so we had four crews impacted in the Northern part, we had a crew in the Rockies and that we had to pull off of that project, and then we had quite a bit of snow and ice in, off and on in particularly North Texas up to the Arkansas region. So I think the weather impact certainly in February was, I would say, significant. I don't know that I can quantify what that means Marshall.

Getting back to profitability, you know, the pricing issue is definitely out there, and that is going to be a difficult one to overcome here in the short-term. I think our key to profitability is going to be utilization. It is going to be able to keep projects permitted, downtime between projects limited, more fluid in our movement from job to job, more impact to productivity is probably the biggest key, whether it is permits or weather either one.

You know, over the stretch Marshall in the last year, even in the difficult environment that we have been in, we have had months where we performed very, very well. And we have talked about this in the past, and going back for years that you know, we can be sailing along and having a great quarter, and then all of a sudden we get to a week or two towards the very end of the quarter, and all that can be impacted by weather.

We are starting to get a little bit of maybe slight improvement in pricing. We felt like we were seeing that some last quarter. So I'm optimistic there. I think we're starting to see a little bit going into the summer months the weather impact ought to be less. I'm certainly not going to give any guidance as to when I think profitability will be around, but I think given rise [ph] weather conditions and permit situations, thinks we can't control I think we have got a shock whether we are going to get there in the next quarter or two. I can’t forecast that.

Marshall Adkins - Raymond James

Is it out of the realm of possibility that weather, the snow and ice you referred to cost this $0.20, caused you $0.20 this quarter?

Steve Jumper

Marshall, I don’t know. I think, you know, I don't know that I can quantify. I do know that we had some real lower expenses related to some of this increase, but I think that is a difficult question for me to answer.

Marshall Adkins - Raymond James

Okay.

Steve Jumper

So, I'm going to pass them on.

Marshall Adkins - Raymond James

But does -- it sounds like at the margin from last month or the month before some modest pricing improvement.

Steve Jumper

Very modest. You know, it is still, pricing still down from where it was late 2008 significantly, whether that number is 30% or 40%, I don’t know. 20%, 30%, 40% something like that. But I think the other issue that we are dealing with is back in 2008, early part of 2009, fiscal ’09 as we were rolling off the order book that we had, we also had a contract mix that was about 50,50 turnkey day rate, which is about where we really wanted to be.

Now we are predominantly turnkey, which puts us right back in a situation we have been in before, which is going to make us more dependent upon crew efficiency and productivity, and bring in more risk on the weather and the permit issue.

Marshall Adkins - Raymond James

All right. Okay. So, modest pricing --

Steve Jumper

Very modest.

Marshall Adkins - Raymond James

How about bid levels just the last -- the trend over the last 2 to 3 months, is it pretty much as constant now that we see gas go to 4, are those bidding activities that is trailing off a little bit.

Steve Jumper

I don't think we have seen the bid activity in the Marcellus or the Eagle Ford, for example, be impacted by gas prices going to $4. The demand levels in those two particular areas remain relatively high, certainly compared to where they were a year ago. I would say bid activity ramped up pretty rapidly coming out of calendar ’09 and into first quarter of calendar 2010, I think in recent timeframe, last couple of weeks or a month or so. I don't think we have seen a steady increase in bid activity, but it has been steady.

So we had a ramp up going back into the third and fourth quarter last year, we haven't seen a drop off. I would consider the bid activity to be relatively stable and steady. A lot of activity in the Marcellus, a lot of activity in the Eagle Ford, lot of activity in the Mid-continent oil areas. We have continued to be very active in the Fayetteville, and continue to have a quite a bit of -- quite a few commitments in the Barnett.

So the Eagle Ford and the Marcellus, while they had increased activity, bid-level activity, those are also two areas where there seems to be more activity related to multiclient projects as well.

Marshall Adkins - Raymond James

So, it sounds like it is kind of mirroring the rig count, bidding activity anyway?

Steve Jumper

Yes.

Marshall Adkins - Raymond James

Last question from me, I will turn it over. We have seen a big influx of multiclient stuff, which historically we haven't really seen in US. I guess the shale plays the size of those makes it more amenable for companies to do that. Is that something you consider coming on the multiclient stuff if you would? Thanks.

Steve Jumper

You know, Marshall, it is a different business model from the business model we have followed for a long, long time. And my assessment of the multiclient business model is that one, you have to have the staff to put those projects together; two, it is location, location, location. You know, if it is in the right spot under the right circumstances, I think it is going to work well.

You have a pre-funding level commitment that -- a threshold that needs to be met, and in there is the issue once you have acquired it, or you are in the process of acquiring it, how you account for it. I think there has been some that have worked well. I know some cases where the model in the low 48 and these shale plays appeared to be working well.

I had seen some that the jury is still out on, and we will see how they -- that develops and we are not going to go shoot a multiclient survey and just to keep crews active. We would -- I think that model needs to be looked at very, very closely, and opportunity scrutinized. But at this point, I would say we don't have any intention today of entering into the multiclient data library business.

Marshall Adkins - Raymond James

Thank you.

Steve Jumper

Okay.

Operator

Your next question comes from the line of Neal Dingmann with Wunderlich Securities.

Steve Jumper

Hi, Neal.

Neal Dingmann - Wunderlich Securities

Hi Steve, two question, you mentioned on the OYO system, obviously it sounds like it is going well. I mean is that something that you would continue I guess to bring in. You would bring more of those systems out if demand starts to pick up. I mean are you seeing -- is there that much benefit on those versus previous systems?

Steve Jumper

I think in certain situations, the answer to that question is yes Neal. You know, we just recently increased our channel count with purchases to more RSR and ARAM channels, and so I think there is still a very long life with both ARAM and the RSR. I don’t think the GSR system is going to have its place. We don't have enough of it in-house to operate any large projects as a standalone, but it has worked quite well in areas where we have used it as an add-on component to an ARAM. And we have used it on some very small projects. It works well. It is -- we have been pleased with its operational functionality.

The data quality coming out of it is high-quality data, and we have still got some places we are going to put to work here in the next couple of quarters, both as standalone and add-on to the ARAM. I think over the near future, the majority what it will do will be add-on to ARAM as a three component patch within a larger conventional 3-D survey. And so, we're going to keep watching it very, very closely and hope demand picks up to the level where we need more of a lot of stuff.

Neal Dingmann - Wunderlich Securities

Right. What about -- speaking of that, what would you have to see, obviously now with the 11 crews in order to decide to bring out another crew. Would somebody have to come in and contract that for a month or several months, or would you have to see that bring out another crew?

Steve Jumper

Well, as we have said in the past, going up in crew count and down in crew count for us has to be twofold. It there long-term visibility to keep that crew busy, which certainly could be tied to a long term contract somewhere, and do you have short-term visibility to keep utilization rates high. And what has impacted our decisions in the past have been those two factors along with our clients’ needs and demands at the time.

And I think right now the 11 crew capacity that we are operating is sufficient to meet short-term utilization rate issues. It doesn't do any good to have 14 out there, and 10 of them working. So, our goal is to keep as high a utilization rate on whatever crew count we have out there, currently it is 11 and be able to see some long-term visibility.

It would be easier for us to expand from 11 to 12 to 14, whatever the case may be because we have the equipment in house, and we have retained the key personnel. So there wouldn't be a big Capex level to expand like we've had to worry about it in the 2005 to 2008 time frame.

Right now, I think we are pretty comfortable with the 11 crew count capacity we are operating. But we will see where it goes in the next couple of months or quarters.

Neal Dingmann - Wunderlich Securities

Okay. Then on the cash, obviously you sit in a pretty nice position to generate cash. I mean do you continue to consider buying shares or a special dividend or what is the thought on that?

Steve Jumper

We are a capital intensive, cash intensive business. If you look at just the sudden resurgence in the work back in the Marcellus, particularly related to these high third-party levels, you know, we are capital intensive high working capital requirement operation. And so, at this point we do not have any plans to buy back shares. We don't have any plans for dividends. We are going to continue to invest the cash we have back into the business as we have done historically.

Neal Dingmann - Wunderlich Securities

Okay, and the last thing…

Steve Jumper

If things turns around, we are going to need every bit of that.

Neal Dingmann - Wunderlich Securities

Okay, that is where it is going. Okay. And then, last question, would you look at taking the crew unit, I mean, international, Canada, or you know, again with all the shale plays in touch that will keep you’ll busy?

Steve Jumper

You know, the international market is a tough one to enter and a tough one to stay in. If you're in the right place with the right circumstances it works well. You know, but just to go in and be competitive in an area that you are not accustomed to working is a very difficult thing to do. I don't see anything right now international related.

The international world tends to be more project driven. The US is more market driven. There is more E&P companies, more clients, more areas. International, you work for large companies or NOCs or something like that, and it is not our desire to enter into an international world or market to create competition. We would have to have the right set of circumstances to consider an international opportunity.

Neal Dingmann - Wunderlich Securities

Got it. Thank you.

Steve Jumper

Thanks Neal.

Operator

Your next question comes from the line of Veny Aleksandrov with Pritchard.

Veny Aleksandrov – Pritchard Capital Partners

Good morning.

Steve Jumper

Good morning Veny.

Veny Aleksandrov – Pritchard Capital Partners

I have a couple of questions. My first one, while your book is good, how fully we will see some improvement in pricing you are having in equipment, which means that the crews are getting bigger. Without going into guidance, can I assume that revenue per crew is going to improve for the rest of the year?

Steve Jumper

If the weather holds, I would say yes. I think it is going to be a weather permit related issue more than anything else. And that is why it is extremely difficult for me to project that for you Veny, as I don't really know what the weather conditions are going to be, but you know, if our utilization rates remain high and the weather stays off of us, I certainly think we have a chance for improvement. I don't think we are -- I don't see a significant increase in pricing coming. I think we are going to look at modest pricing increasing at best.

Veny Aleksandrov – Pritchard Capital Partners

Okay, and thank you, and my other question, the new plays [ph], where some of the work is coming, what are the projects, are they long-term jobs, dealer jobs, are they kind of the same as the natural gas sales?

Steve Jumper

We have got them in the Permian Basin, for example, anywhere from 10 to 50 square miles, Permian Basin inclusive of Eastern New Mexico. We have got some things in the Mid-continent that are 100 to 150 square miles, and then the stuff we did up in North Dakota was two crews of about six months each.

And I can see that coming back around as an opportunity later in the year. So I think they are probably more diverse in size than the Marcellus, Fayetteville, Eagle Ford projects tend to be. The Marcellus project, for us tend to be in the 5000 to 7500 square mile range, and you don't see very many real small ones, and we are not involved in any real big ones out there. But I think the oil side, probably will be a little more diverse in project sizes than the shale plays.

Veny Aleksandrov – Pritchard Capital Partners

Okay, thank you. And if you can just remind me, this quarter you had a very high level of reimbursement, if I understand that. But if you look historically before you had the weather impact on everything, what was the level, the usual level of reimbursement compared to revenues?

Steve Jumper

In the last several years, it is the highest we have been at. We have always talked about a range of 25 to 35, and we exceeded the high range by a little bit. We were outside the normal range, weighted heavily to the high side.

Veny Aleksandrov – Pritchard Capital Partners

Thank you so much. Those were my questions. Thanks.

Steve Jumper

Thank you Veny.

Operator

Your next question comes from the line of Pierre Conner with Capital One Southcoast.

Pierre Conner – Capital One Southcoast

Good morning Steve.

Steve Jumper

Hi Pierre. Are you guys still celebrating in New Orleans.

Pierre Conner – Capital One Southcoast

Yes, right. But we have another issue we are working on right now, actually so...but I appreciate it. Hi, Steve, since your questions you answered about the crew count were interesting, but it is more about the channel. And so, I wondered if you could describe the trends of the sort of channels per crew that you are seeing sequentially into this quarter. And then do you have an update about the next couple to see if that changes any in terms of crew, channels per crew, you know, channels per job, or will we see it fairly stable?

Steve Jumper

You know, Pierre, we -- this somewhat relates to the pricing question and that it is very difficult for me to quantify what the pricing levels are from where we were a year ago, two years ago to where we are today, because it is not just an apples-to-apples price comparison. We have talked about 2007 and 2008 that the pricing was not linear with channel count, but yet you know there was an added value with increased channel count.

And so, while it wasn't linear, you know, increased crew capacity was resulting in better images, better efficiencies and all those types of things. Now in relation to pricing, in the last year or so, I don't know how much pricing is down versus -- it is a difficult thing to determine if it is a pricing issue or for adding more channels for the same price as before.

And so, yes, pricing has been a problem, but as demand for increased channel count has continued to grow, you know, we have attempted to be in a position where channel count is actually being utilized at a much higher rate than crew count is. Unfortunately, we haven't been able to price that in in recent quarters like we have in the past.

From a channel count standpoint, our crews are bigger and larger and carry more capacity on an average basis than they ever have. In 2008, we were operating three or four crews in excess of 10,000 at an average somewhere, I don’t know six or so -- five or six. I think our average is probably up to 8500, and so we spread those channels over the existing crews, and so in essence, our utilization rate on channel count has been much higher than crew count, which has somewhat increased a little bit the expense level of the crews, but you know, that is the reason why we brought the RSR and ARAM channels. I think we are going to continue to see channel count increase on a crew by crew basis as we go forward.

Pierre Conner – Capital One Southcoast

Okay. Have you heard any early feedback on this very large channel count shoot that was completed in the Rockies earlier in the winter, and I don’t think the numbers are picking up for more thousand channels. Now, it is pretty early -- but is there anything else out there like that that could have drove have a lot of channels?

Steve Jumper

I don’t see any projects out there. We have not been approached or we're not familiar with any projects that will get up into the 100,000 channel range now. And I believe the last -- I have heard that particular project probably touched 100,000 channels at one point. And we have not heard of anything that size. I think most of what we are seeing is the crew capacity of 8500 to 10,000.

We have some coming up later in the year that will require 13,000 to 15,000 on the crew, but nothing to that level that you are talking about.

Pierre Conner – Capital One Southcoast

Okay. It is helpful. A couple of things, sort of on some of your commentary, and you know, you mentioned that you have some visibility to keep the current crews and working well in the calendar ’10, and I think last quarter we talked about sort of at least until mid ’10. So, is that just sort of a another 90 days, or a quarter later, or did you truly add some -- basically you just sort of replaced your burn off, or are you actually growing?

Steve Jumper

In the last quarter, we have been able to replace the burn off as you said. So, we have had enough demand and enough commitment come in to replace, what we're shooting on the front side. But you do bring up an interesting question in it the reason that it is difficult for me to sit here and tell you it is going to be a particular timeframe in terms of months, crew months or it is going to be in dollars. We don't report our backlog that way.

The efficiency level is such that the replacement, the more efficient we get, the faster we churn through the backlog. And so, a lot of what where we are going to end up is going to replacement of backlog and the weather impact. And I feel like today, and I think our staff feels this way and that there is sufficient demand levels for us to continue to replace backlog on these 11 crews as we acquire at a higher rate, at a high utilization rate.

We will see what happens as we enter the summer months, and see what the crew efficiencies are going to be, what the weather impact is going to be, and what the replacement levels on the backlog will be. Without being terribly specific, I'm trying to help you as much as I can here Pierre.

Pierre Conner – Capital One Southcoast

The thing is actually, you know, it helps to get a picture of -- you know, you will have some improved efficiency, particularly with the weather improvement. So, to that end I think last year, and you indicated earlier I think in answer to Marshall’s question, you were 50-50 turnkey and day rate, and then last quarter I think you shared a number kind of in the 70 to 80. You said majority…

Steve Jumper

I think, you know, over the summer, right now we may have in any given time one or two of the 11 working day rates, and I think we will probably be one or two on day rate through this -- as we get into the summer months. And so we are still heavily, heavily, heavily weighted to the turnkey side of the contract mix at this point.

Pierre Conner – Capital One Southcoast

That was exactly what is the answer to the question. Thank you. Perfect, and then last one, more for Christina, any with the additional capital, would you project without guidance per se where depreciation goes to, are we going to be moving up sequentially?

Christina Hagan

We are going to move up a little, but not significantly.

Pierre Conner – Capital One Southcoast

Okay. That is fine. Okay guys, thank you all very much for the information.

Steve Jumper

Thank you Pierre.

Operator

And there are no further questions at this time.

Steve Jumper

Thank you for listening in. I particularly like to thank our employees for their efforts, and our clients for their continued trust in our shareholders with their continued support, and we will be back in touch with you at the end of the third quarter. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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