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Nabors Industries (NYSE:NBR)

Q3 2010 Earnings Call

October 27, 2010 11:00 am ET

Executives

R. Wood - Principal Financial & Accounting Officer and Controller

Eugene Isenberg - Chairman of the Board, Chief Executive Officer and Chairman of Executive Committee

Dennis Smith - Director of Corporate Development at Nabors Corporate Services Inc

Analysts

Jeff Tillery - Tudor, Pickering & Co. Securities, Inc.

Roger Read - Natixis Bleichroeder LLC

Arun Jayaram - Crédit Suisse AG

Kurt Hallead - RBC Capital Markets Corporation

J. Adkins - Raymond James & Associates

Ole Slorer - Morgan Stanley

Daniel Boyd - Goldman Sachs Group Inc.

Dennis Smith

Good morning, ladies and gentlemen. Thank you for joining us today on Nabors' Conference Call. As usual, we'll limit the call about an hour. Gene

will give 20 to 30 minutes of remarks about the results of the quarter and the outlook as we see it. And then, we'll line up with 30 minutes or so of Q&A.

With us as usual besides Gene and myself today is Tony Petrello, our President, Chief Operating Officer; Laura Doerre, our General Counsel; Clark Wood, our Chief Accounting Officer; all of our Unit President including the most newest one, Dave Wallace, with the exception of SIGI [ph], he is figuratively safer than we're at today, sitting across the table from James [ph]. He is in the Middle East today.

I just want to remind everybody quickly that since we'll going to be talking about the outlook, that is considered forward-looking statements and subject to change. But we're trying to give you the best guess we have, and please refer to our risk factors in our various filings for the full download of the possible things that could go wrong. With that, I will pass it over to Gene.

Eugene Isenberg

Thanks, Denny. Again, welcome everybody to the third quarter conference earnings conference call. Again, I want to thank you for participating. As usual, we have posted to the Nabors' website a series of slides that contain details about the performance of the various segments of the company. Please refer to these as we proceed. I'll try to be as I usually try to be short of the normal and give the highlights and give room for questioning thereafter.

Again, it was a terrific quarter. I think the clear bottom line, however, is that because of our solid operational performance in our North American businesses, we had $164 million of operating income in the quarter, overall, and $0.29 in earnings per share, exclusive of items and I'll spend a few minutes on the items.

These are changes from GAAP results and as usual, you folks are welcome to and usually do making our own adjustments to what we think is an investment. Firstly, our Canadian and Colombian E&P assets are not only on sale, but I'll discuss later how that's proceeding. And so we've previously said in ourselves to classify those as discontinued operation, and the impact of that is that they were not discontinued operations, pro forma the adjusted earnings would have been $0.27 instead of the $0.29. So that's a $0.02 impact.

In addition, here are some of the other things, pretax. $37 million write-down of buildings in HH are Chinese rig manufacturer even though we have a sizable unrealized gain in that. We have expensed $7 million pretax cost related to the acquisition of Superior Well Services Inc. And finally, we have a number of pretax non-cash asset impairment, which added up to $0.33 per share after taxes. A pretax number of $54 million in E&P investments, which is unlikely to be recovered given the forward script of Gas. $45 million in goodwill is largely related to the spill and the impact of the spill on near term and certainty of utilization in some of Nabors offshore assets. And another $24 million pretax including North American Drilling, U.S. Wells Servicing and Canadian Drilling and our work over. So a whole bunch of stuff because of the low gas pricing and relatively little impact be in the test that's being written off.

An important development in the quarter was the acquisition of Superior for an enterprise value of approximately $900 million and essentially in all-cash transaction, which we're able to close in a pretty quick time. We funded this transaction through the placement of the $700 million debt offering, with about a 5% yield in cash on hand. Superior is a company with excellent equipment and great technical expertise that they have recently been constrained by lack of capital for growth and Nabors is ready and willing and able to submit the capital required to achieve Superiors potential.

Another notable achievement in the quarter was the securing of 11 new long-term contracts and new builds rigs in our Lower 48 drilling unit. A large percentage of this will go to the Bakken. We are the market leaders. Two more will go to Marcellus, we have some catching up to do. But we expect to have a dozen rigs operating there by the end of next year.

Before I turn to the unit pad, note that we're seeing what has become an industry trend. That being the natural operations continued to be weaker than expected for our U.S. results are exceeding expectations.

I should also obviously note the obvious thing that our domestic results were augmented by regularly strong contributions from Superior Well Services affecting operations even though that only reflected 20 days of operations. These 20 days yielded $12 million in operating income, which implied an annual rate of earnings of $220 million, which I think is a reasonable standard to hold us to even though there are risk. There are risk in the rig count, there are rigs on coming frac-ing equipment. And in particular, there are fourth quarter seasonal issues as we have in work over associated with the Frac-ing business.

Let me turn to NDUSA. Our U.S. Land Drilling operations is surprisingly well in spite of the persistently anomalous, incredibly low gas prices and pretty poor future curve. Results of $70-plus million for the quarter were up from $58 million on the prior quarter. The average rig count actually increased to 10 rigs to 182. It was an average rig margin of $8,628, which was up $840 per day from the prior period. The average margin consists of the bifurcated $11,000 margin for our 95 base rigs that operate during the quarter and roughly $7,100 for the balance of the fleet.

I think the day rate increase reflected a bunch of factors. Increased margins from rig that had been on standby. They're making 8,500 going to an operating mode with margin might be $3,000 or $4,000 higher. I think the more important thing was the leading edge of rates per existing rigs declined pretty dramatically and then improved pretty substantially, the latter was probably the main factor. These increases were offset by operating pads and we're planning on margins being essentially flat next year, maybe up a modest amount but essentially flat.

As I previously mentioned, we secured the level of growth contracts during the quarter, bringing the year total to 20 new build contracts and three major FDR modifications with the same economic effect as a new build contract. The market acceptance of our new 1,500 horsepower B class rig is I think the particular bright spot. This rig was developed for deeper pad drilling prospects like those usually found in the Bakken and Eagle Ford.

We think the trends in the market are maintainable but there's pretty great risk. For example, our Haynesville joint venture decided that they really can't economically hedge right now and they can't economically continue six rigs in April. So they have, even though 95% of their assets eventually, we'll have to drill up there, moving probably up to four rigs of the six they have in Eagle Ford, which is probably what's going on in the industry as a whole. Anyway, right now, I think although there's risk to it, if next year, sustained account level of rig activity which is around 188 settled represented an increase of almost 15 rigs from this year's average and if that happens, as I've said it's a rig risk, if that happens, even at the same margins that will be up a notable increase in income.

International. Results in this unit were modestly and it was $64 million for the quarter compared to our $65 million, essentially flat for the prior quarter. But they were substantially below expectations. And I think there were two major factors here. One is that Mexico and Saudi Arabia were industry that everybody knew that were involved in those two places that adversely impacted. The problem is it's a bigger portion of our portfolio than anybody else is, specifically, for example, last year versus this year, we're projecting a pretty sizable drop. And of the roughly $125 million operating income drop we're protecting, roughly $100 million of that is in Mexico and Saudi Arabia. And as I've said before, we expected a pickup in Iraq, and the good news is we're getting awards in Iraq and the bad news is the margins don't make us rich really.

So we remain confident, however, that PEMEX will sooner or later, they have to sell their financial problems but clearly [indiscernible] sooner. And we are seeing an increase in activity in international, but it's going to be offset by major hits on our jack-ups in that market, renewed at lower comp market prices. I think the bottom line, however, here is I'm now convinced that even though things are not great during the quarter and they won't be great next year either, I'm pretty much convinced we're at the bottom. And longer term, the pressure of a strong oil price and worldwide infrastructure and the reputation and the quality of the rigs will be pretty significant and favorable. The important thing is I think the bottom is here. Nabors Well-Servicing posted probable results of $9 million, a noticeable improvement over the $3-ish million in the second quarter.

The second quarter was largely negatively impacted by gearing up for growth that we're now seeing with extra labor cost and stuff and things like that. I think we have -- with that operation I think is heading substantially in the right direction. I think the management has been unchanged, as you know, they're doing pretty well. They have a modest improvement in pricing. We have actually market position increased and sooner or later, the $80-plus crude is going to impact that favorably.

Also, this unit will substantially benefit from the superior acquisition. Ready the same economy of scale related to real estate consolidations, and we'll probably see more of that as we get into it, and we've also moved Superior's Fluid Management business into Nabors Well-Servicing where, I think, we can effectively, more effectively drive growth and profitability. So as I look forward to sustained improved results in Nabors Well-Servicing.

Canada. Canada was up a little bit, modestly positive compared to a loss in the preceding quarter, which was typically seasonal in nature. Our new management is performing exceptionally well and the effort for the year is expected to be more than doubled what we originally forecasted. However, double a relatively small number doesn't make us rich. We continue to be encouraged by the improving activity in this market, particularly the oil-directed drilling in the traditional areas of Saskatchewan and Alberta. And that also includes new oil shale cutting.

In addition, we're having actually significant activity and profitability in our drilling in support of product production. So future drilling in Canada are definitely shifting to heavy doubles in Alberta. And as we frequently mentioned previously, the higher horsepower rigs or pad drilling in the British Columbia shales. Again, I'll repeat that while we traditionally have less than a 10% overall market position, we consistently have a 40% in the Horn River and to the extent that, that represents the future of the key service is pretty good.

Nabors Offshore. We reported a loss of $1 million in the third quarter, down from a gain in the prior quarter. We expect a similar low, not bad results in the fourth quarter. This unit was pretty obviously, that is being impacted by the Gulf of Mexico, by the BP issue. And we get through our, the Haynes, we think that the impact of the BP in our operations was probably on the quarter of $30-ish million of operating income this year.

So even though we make a positive and decent number, I guess we're now projecting $14 million operating income for the year. That was probably would have been in mid-40s after tax. And next year, we're projecting a come back, but not up to that level. It's pretty high to project.

Alaska. Results in Alaska were $14 million for the quarter, up from the prior quarter and some of this was we recognized income that otherwise would have been recognized in the future. It's pretty good but the facts are this level of income is not likely to continue in 2011, primarily because of lack of BP stability to figure out exactly what they want to do. And obviously, it didn't help when we lost three new builds that BP awarded to competitors a couple of years ago. As a result, we believe that next year's results will be probably 40% of what we delivered this year.

With respect to BP in the last couple of weeks, I spoke probably 45 minutes with the new E&P boss of production under their new set up. This was that in the last few gain and the guy is quite good and he's acutely aware of our performance particularly in the Lower 48. And I guess he spent probably 30 hours and that was John Minge, who's the CEO of BP Alaska. Net-net I think our future with BP -- first of all, BP does not make out thinking of surviving, I think, eventually, do recently well. I think our position with them is going to be pretty good. Specifically, for example, in Alaska, everybody is certain that the heavy oil is going to be developed someday, somewhat. I think even more immediate than that is kind of the low [indiscernible] of which BP is identified based on a couple of frac well that's to be drilled. And the issue of negotiating with the state and taxes quit proposing, all that stuff. But eventually, I think it's possible to come back. Frankly, I still think we have the best two tools in Alaska, Rig 19 and CDR 2. And I think, we're going to get more profit from those and I think sooner or later, they'll be emulated.

Superior Well Services, we completed this on September 10. And again, I repeat the $5 million we're investing in this quarter was a pleasant surprise and represented the last 20 days of the quarter. Let me emphasize that in the short time, we've been associated with very much impressed quality of equipment. The technical expertise of sales people in the whole organization, the capability of management and perhaps even more important, super favorable comments we're getting from pretty important knowledgeable customers don't let that equity head up.

The synergies as we expected when we made these acquisitions kind of relatively low-hanging fruit now. And most of you these are related to our Well-Servicing business, which has a lot of locations throughout the country as those Superior. The first deal we did on consolidating the location in Eagle Ford was Superior is going to have to pay on a lease for stepping here as we own the thing. So the difference in cost of capital and the availability of capital was making a difference. And I think I do want to emphasize though while I'm prepared to have the $12 million in 20 days be extended, that's accountable for us, there are risks in this business. There are rig risks, there are rig count risks, there are frac equipment risks, there are seasonal risk. Typically in the fourth quarter, we will have a seasonal impact that we are not used to.

Moved to Nabors Oil and Gas, as I mentioned last quarter, we have retained good investment package with the sale of our Canadian and Colombian E&P assets. And consequently, because we're pretty much on the way there, we classify this, re-classify them as discontinued operations. The marketing process that has been going on for several weeks and I'd say we're on schedule to date. We have more in expect expressions of interest than we had anticipated. I think it's virtually secular, but it's highly probable that by the next report we'll have something really firm of at least one of these two things. And our expectations in pricing haven't changed. So I think it's affected and reinforced. That we won't know until we hit the projects.

Let me talk briefly about NFR. They're showing a profit, but also part of the profit is because we have -- most of the profit is because we have a good decent hedging program there. We continued to contemplate and prepare an IPO, although it's going to be perfectly run at these prices at yesterday's closed, an IPO won't be feasible. It won't be feasible until the gas price gets some better. Clearly, there has to be some way and a lot of them are dependent how well we do within the oil in Eagle Ford, stuff that we're now working on.

The results in other operating segments were very good, and that's third-party sales which from Canrig that's very good and good contributions from our Alaskan last joint venture companies. The technology developed at Canrig continues to be a significant plus enable us to make money by declining the technology of the third-parties or enhanced the marketability and value of various rigs.

Our financial position is strong. We have a little over $800 million in cash and investment as of the end of quarter. This balance reflects, as I mentioned before, essentially the outcast acquisition of Superior, as well as the proceeds for $700 million of senior unsecured notes. In mid-September, we also established the first time in probably a decade a $700 million revolving credit facility, which allowed us to borrow that I find almost unbelievable rates of LIBOR plus 1.50%. We can access this market in less than 2%. And I don't see LIBOR changing very much a bit but the question will be, can we find good use for money.

In May 2011, we redeemed our $1.4 billion remaining face, I don't know what the accounting number is but we actually owe $1.4 billion and we'll do that relatively easy. I mean, the sources to fund our cash flow and even with a substantial investment program, combination of cash flow, cash on hand and the proceeds from the sale, even if we sell half of the real estate of the E&P assets by the end of 2011. We won't need to borrow money, we might have occasionally, seasonally, temporarily use the revolver and we certainly won't have to issue equity.

Moving further, the GAAP tax rate to non-GAAP tax rate was probably 13.5%. And we expect that the fourth quarter will be about the same. But we expect the tax rate in 2011 to be 20% and that's based on the increased income we're expecting from Superior, U.S. income. And I think that our position basically is with the investment we're making in the NOLs with 79 of the cash tax payer and we probably won't be next year either.

Bottom line is that I'm very bullish longer term, maybe even after medium term. I'm now convinced as I was in the couple of months ago that we've reached the bottom in NDIL, and although it's going to be pretty poor this year and pretty poor next year, sooner or later. And in this case, I expect a little sooner maybe beginning at the end of 2011. The high crude price will drive recovery in the international markets and the quality of our rigs, infrastructure and personnel will enable us to fully participate.

I think the other thing that boosted my confidence is what's going on in the U.S., I think the 23 rigs, 21 new goals and three were major FCR upgrades, which have economic equivalency of new builds. That demonstrates to me that our estimates are pretty confident that's it's going to be drilling and it's even more pleases me that we're getting more than our overall market share in this market. So that's not only good. So those two things, namely that we won't go lower internationally. And we'll likely to go stronger with Superior, domestically, to make the outlook look pretty decent.

And just as a final comment I think the unrecognized value of some of the things that I mentioned hopefully over the next few quarters as demonstrates, we'll convert those into bottom line results and I think when it happens and I think it will. We'll be happy and our investors will be happy as well. Anyway, that concludes my comments.

Dennis Smith

Camille, I think we're ready to begin the question-and-answer session please.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question is from the line of Dan Boyd with Goldman Sachs.

Daniel Boyd - Goldman Sachs Group Inc.

I think North America pretty much speaks for this quarter. But you mentioned that international has been a drag in the past few quarters. So when we look out to '11 and we look at the guidance that you're given basically $340 million in EBIT, how should we think about sort of the upside risk, downside risk to that, and how much of it is already contracted, how much of the fleet rolls over in '11? And maybe talk about your expectations for what it's contracted?

Eugene Isenberg

Basically, I think Denny can probably offline give you the specific assumptions. But we're assuming that the rigs, the jack-ups that's being contracted but essentially, the margin comes close to disappearing. I think we've been awarded contracts. As I said, the good news is in Iraq we will be making a little bit of money short-term and hopefully that our money long term. And also, Saudi is getting a little better than we have thought initially on land with our rigs being converted to gas drilling. So it's hard to say but where as -- and also Mexico is not going to get worse. It's not going to get worse. So when you consider everything that's relevant, including we haven't started with the Papua New Guinea project yet. A couple bunch of things that are signed, sealed but not yet bottom line. You can never be certain, but I am pretty much certain than I have been certainly they were at the bottom internationally.

Daniel Boyd - Goldman Sachs Group Inc.

On North America, you made a couple of comments on margins. On one hand, it sounds like you're seeing leading-edge margins when we got but expect that continue to roll for the results as rigs that were maybe repriced in '09 can roll to higher rates. Yet your comments were -- seems like you're maybe just being just not wanting to be conservative on guiding up from the guidance outlook because you're talking about flat margins from here. Why if the market stays...

Eugene Isenberg

I guess I would say that if you push us we'd say, we expect a modest increase. But more like 100, 150 or 100 a quarter a day or anything like it. The whole thing, I don't know what the gas price is today but it was like $3.30 or something yesterday and we just track with our NFR affiliates and they're not able to drill on anything. And so the drill in connection with the hedges they have in place. But that's going to impact where our own operations or approximately for the whole NAM industry I think. You got to say with these kinds of gas prices, the rig counts at risk. And it's not sandbagging, it's the real risk and I hope it doesn't come fast and I did point out that if we're lucky enough to keep the current rig count, we'll end up with higher profit. But you know, that's the hope but the risk is real. It's not sandbagging, absolutely.

Daniel Boyd - Goldman Sachs Group Inc.

On Canrig, saw a really nice or there's the other segment which includes Canrig saw a nice jump off this quarter and you mentioned in the press release, you think that's sustainable. Can you just talk about what the outlook is there? What you're seeing in your backlog and how that's progressing?

Eugene Isenberg

It's pretty good. I mean, we have to increase the production level in cap drive and we're trying to develop a bigger top drive and looking on developing smaller top drives more units and things like that. I think they have really good -- technically, we weren't even looking at the -- maybe, I don't know, a couple of three acquisitions that would fit in there. So I think the people are really good technically. I think as I said the two ways, they help us is the make money on their own and even better as they help us market rigs, $12,000, $14,000 a day margins. But it's hard to get into the details but if you want to call Chris and go over with him, be my guest.

Operator

And your next question comes from the line of Marshall Adkins with Raymond James.

J. Adkins - Raymond James & Associates

Gene, why am I having a hard time visualizing you at the LSU Football Game?

Eugene Isenberg

The President of LSU is Dr. John Lombardi, he's one of our Directors and he's a long-time friend of mine, and I was at the Tennessee game because I couldn't make the Alabama game.

J. Adkins - Raymond James & Associates

Just trying to fill in some of the gaps on this. You kind of animated, Gene, that the $60 million revenue and the $12 million of earnings contribution, the 20 days maybe a little aggressive on a run rate. Can you help us with a run rate there kind of for a full quarter? And also, help us with the SG&A bump up? And more specifically, you mentioned the tag that you're going to free them up to spend more money. What is your CapEx for that subdivision?

Eugene Isenberg

Let me put it this way. I think we're prepared -- we have capital and assets to capital at pretty decent rates. And they were start of capital basically, so I don't want to get into specifics because it doesn't help me competitively. But basically, they have a whole bunch of decent return items which include a number of things including growth to being other stuff that's they are not really in yet. And obviously, somewhere that too and as long as we can -- quasi, like we do for rig. It's not exactly the same. If we have pretty good insurance that we can use the investment possibly, we'll make the investment and how much it will be, is the function of how many opportunities do we have and what evolves in the market. And also, we are not leaders in this everyone of the competitors that's been spending money ordering equipment doing churn tie ups and all that stuff in a while now. So we have a way to go. I think it's a function of the opportunities and right now, they look pretty decent.

J. Adkins - Raymond James & Associates

Fair to say a meaningful bump up in what they were spending and since you're going to be increasing horsepower. Is that a fair conclusion?

Eugene Isenberg

Yes.

Dennis Smith

Marshall, one thing you have to take into account when you talk quarterly, the fourth quarter is always really a tough seasonal quarter because they operate a lot in Northeast in the Bakken and talking to Dave earlier, just no one in the Bakken that they have roads shut down can't move today. So six of their 14 crews are in those kind of areas. So fourth quarter will be less.

Eugene Isenberg

But, yes, and after when we invest, it's not going to be available in the fourth quarter.

J. Adkins - Raymond James & Associates

And then the SG&A bump up, Denny, can you give some help there?

Dennis Smith

I think it's mostly the addition of Sweezey...

J. Adkins - Raymond James & Associates

It seems like maybe $30 million a quarter maybe, not too much?

Dennis Smith

No, that's not even close. $15 million a quarter I think is our stand. We also had the restoration of some large pay cuts that management took.

Operator

Your next question is from the line of Ole Slorer with Morgan Stanley.

Ole Slorer - Morgan Stanley

Are you sure you're not too optimistic on the pressure pumping side?

Eugene Isenberg

I wish you would lower the barrier for us. You were saying this before we acquired them. Now they have the capital to get there. I'm not certainly, there are risk, all that stuff, all those conditions, but I don't think it's crazy.

Ole Slorer - Morgan Stanley

None of you have the business in-house for a month, you've had several meetings with the management and your international people. Where is the biggest opportunity to expand the business?

Eugene Isenberg

I think short-term, it's domestically. The medium term, it should be Canada where we control on the drilling opportunities. And originally, our stuff was that it would be international to fill out our suite of integrated services offering. But that's domestic is two things. One, on their own and two the synergies with our entities. Likely next we'll look at Canada and we're continuing to looking at international, but if we get a deal in most or something like that, we could use it. But actually -- anyway, that's the answer.

Ole Slorer - Morgan Stanley

Imagine Canada and Mexico be the easiest places to expand, but the timing in Canada, you mentioned Canadian oils in your press release. Can you expand a little bit on what you see the Canadian opportunity to be like and how it differs from the U.S.?

Dennis Smith

Yes. I would say the oil shales so far in the gas shales, we haven't gotten some oil in Canada which we do in the States. And they have the improvement in the Bakken in one or two places. And I think the big difference overall is the geology in the British Columbia shale is really exciting and sexy. They really remove from market and the development factor in credible enormous. So maybe somebody like Quicksilver can look to do it or DOG or Apachi [ph]. But we can't have to do it. I think there is some of the differences.

Ole Slorer - Morgan Stanley

What about some of the mature oils in Canada and doing a more unconventional applications. Is that an opportunity for you larger rigs and is also an opportunity for stimulation in pressure pumping or is it too far off?

Eugene Isenberg

Not to my knowledge yet. We haven't kind of real sense of knowledgeable look at frac-ing up. We're looking at other stuff out there but -- I think I told you, we know that the we enforced 45,000 super prime acres right in the heart of the best in Canada. We're trying to sell that and retain our ability to provide services.

Ole Slorer - Morgan Stanley

Gene, can you explain the tremendous difference in profitability right now in pressure pumping stimulations relative to the kind of rather lackluster, although improving performance in Well Servicing? We'd imagine that with the direction going more towards oil that we'd see a sort of momentum.

Eugene Isenberg

I agree with you. I think that the frac-ing supply demand is uniquely tightened now as far as I can tell. And that's because of the shale, the evolution of frac-ing in shales is kind of new and unique and the whole damn thing is what, three years old or something. And now you hear 35 fracs per well, 20 fracs. They're getting to be more intensive. And as a backlog now. So while there are risks for supply demand for that is uniquely tight. And obviously, you get payouts that are proportionate and consistent with supertight by demand compared to what it was a year ago. And that is in the case in Well Servicing, but I think that your point is right that persistent $80-plus crude price and good relations and good performances is going to do a better. I mean, next year, we're projecting like a hockey stick. And I think they can do it, we'll see. But right now, we still have no tightness really, super tightness in Well-Servicing rigs.

Ole Slorer - Morgan Stanley

It seems like an illogical disconnect...

Eugene Isenberg

It's how it is. And we have $80 of it for a while.

Ole Slorer - Morgan Stanley

Just finally, Gene, you gave your guidance on 2011 international relative to this year but in 2012 sort of have the last really high-performing jack-up roll over early on, and if you assume that it rolls down to something more in line with the age and the profile of that units, you're probably looking at the $40 million headwind early on in...

Eugene Isenberg

Yes, I think from the jack-ups.

Ole Slorer - Morgan Stanley

But in 2012 it's less than 2011, do you feel that domestically...

Eugene Isenberg

It's probably 185 now or something and it's probably go 120 or something.

Ole Slorer - Morgan Stanley

Assuming that if it goes somewhat lower than that, do you think you could, is it enough momentum in the rest of the business to have 2012 be at least and growth here?

Eugene Isenberg

Yes, I think so. Let me put it this way. Sooner or later, if you look at the future's growth for crude for a pretty deep market, and of course, the big guys don't play it, pretty indicative of what the market says the price is going to be and they're going to be pretty strong. And I think I do want to go into the peak discussion. But I think it's clear to me that it's going to be higher and more expensive incrementally to get more oil and the pricing is going to be better and going to be more rig intensive. And as I said in the presentation, things like Papua New Guinea are going to be in the picture. I don't even know when. Whether without he P&L do you think.

R. Wood

Algeria, the eight rigs there, seven of them are locked up in 2012.

Eugene Isenberg

With new prospects there.

R. Wood

Additional prospects and additional interest that Gene referred to in terms of...

Eugene Isenberg

Specifically, we have a little bit of an edge and availability of 3,000 hostile rigs just Middle East and not Africa, including Iraq. In fact, even in Iraq, what the deal is we're having to invest money there and if you appreciate the money over 10 years or 15 years, it's okay. But we really working for three years just to get the incremental investment back, which is unfortunately the situation in Saudi now. Even in Iraq, we have a high prospect of the jack-ups that's decent margins, not the typical.

Ole Slorer - Morgan Stanley

What's the probability, are you closing one of these big divestitures this quarter?

Eugene Isenberg

I think I'll be disappointed. Let me put it this way. My own probability assessment is in 90% that we have one of them, and all probability, Colombia with deals firm, if not closed, by the end of the year.

Operator

Our next question is from the line of Arun Jayaram with Credit Suisse.

Arun Jayaram - Crédit Suisse AG

Gene, I want to talk to you a little bit about obviously what you can tell us on the sequential improvement in Sweezey? It looks like on a revenue basis, on an implied basis, the revenues were up by a mid 40% kind of percentage a quarter-on-quarter. So I just want to understand how you generated that type of sequential growth? And on an implication basis, you're generating about $3 million per day in revenue, if you look at the last 20 days. So that implies that in 2011, you may be able to do $1.1 billion in revenue. So I just want to make sure I understand this component a little bit as we think about the earnings power of Sweezey in 2011.

Eugene Isenberg

I only look at the whole year. Next year, I'm worried about what we do quarter by quarter. I'd say, they went from probably breaking even in the same calendar year, so maybe $280 to $300 approximates which has on it by itself has a margin probably 40% or something. So that market pricing has improved pretty dramatically and I guarantee the pace of improvement won't continue and there's a risk of the whole thing. I mean if we can stay where we are at now and kind of get some of it locked in more than a well frac-to-frac contract, that's what they're planning to do, and I think the only comment that what's the potential is are not crazy.

Arun Jayaram - Crédit Suisse AG

So a potential of a little over $1 billion seems achievable if we can't continue at the same kind of run rate?

Eugene Isenberg

What is that give you in terms of gross margin income? I don't know.

Arun Jayaram - Crédit Suisse AG

If we assume 20% kind of EBIT margins, it would be consistent with that a little bit over $200 million.

Eugene Isenberg

Yes, there are risks to it. But I think it's fair to hold us to that standard.

Arun Jayaram - Crédit Suisse AG

Gene, I just want to get over expectations. You said for the E&P asset sales, you're comfortable with your thoughts. Is that still $1 billion on a pretax basis for both of those sales? Is that still what you're thinking?

Eugene Isenberg

Yes, sir.

Arun Jayaram - Crédit Suisse AG

My final comment or question is regarding the three jack-ups that roll over the next few months. What are your expectations are? Are your expectations that you'll be able to keep the rigs working but just at lower day rates, and your confidence in the ability to maintain utilization on those rigs?

Eugene Isenberg

I think that's it. I think we can't figure out of the margins, but expected to work.

Operator

Our next question is from the line of Jeff Tillery with Tudor, Pickering, Holt.

Jeff Tillery - Tudor, Pickering & Co. Securities, Inc.

I wondered if you could talk a little bit about packaging your Rig business with the pressure pumping offering? I just want to add a few color on what's going on.

Eugene Isenberg

Obviously, I would guess calibrated by the way combining pulling through whatever is scarce. You try to package with something that's not as easily marketed. So I wouldn't say we've been having enormous success with that. But we're saying if we can do it -- if we can get an incremental rig or anything else, with a relatively scarce frac-ing availability, we'll do it. I wouldn't say it's super significant yet.

Jeff Tillery - Tudor, Pickering & Co. Securities, Inc.

My second question is just on the Nabors' Lower 48 Land business. You mentioned in the press release leading edge rates well above the average rates you're realizing. Can you give us a feel for kind of normalizing for the asset class mix, how much headroom, leading edges about what the average rates we should be like?

R. Wood

Again, we're still seeing in the new bill opportunity day rates in excess of 15. Some of the existing assets was starting to push, again, dependent on the market, we're starting to see some improvement in the legacy rigs. I can't tell you exactly what percentage we're converging, but we are seeing some improvement on those numbers results.

Jeff Tillery - Tudor, Pickering & Co. Securities, Inc.

My last question is just on the three international jack-ups. The one you're throwing this quarter and then it comes the first one in the spring next year. Is their work lined up for those? I'm curious is the utilization risk on top of the day rate rollovers? Just wanted a little color on that.

Eugene Isenberg

We don't think so. I'm pretty confident that they're going to renew.

Operator

Our next question is from the line of Kurt Hallead with RBC Capital Markets.

Kurt Hallead - RBC Capital Markets Corporation

Gene, I take that if you are bearish on pressure pumping, you wouldn't have bought superior when you did, right?

Eugene Isenberg

Right. The other thing is they tend to be lucky to get the smart.

Kurt Hallead - RBC Capital Markets Corporation

From a synergy standpoint, it seems like you guys made a lot of headway in a very short period of time with Superior. So kudos to you guys and I'm assuming that was mainly on kind of a lot of the cost front. When you think through the revenue opportunities, on a basin-by-basin standpoint, one of the areas that I think you would agree sticks out is the Bakken, right? You have a big market share there. I don't think that Superior Well Services necessarily does. Two questions. How far is the Bakken, where do you see the 11 new synergy opportunities? And then secondly, can you give us some general sense as to how we can tie back the number of frac crews needed per kind of rigs running?

Eugene Isenberg

I think, generally speaking, the hot areas which are the Bakken, the Eagle Ford and the Marcellus are where the opportunities apply for both drilling, not only drilling, not only drilling, drilling works over hand of Bakken.

Kurt Hallead - RBC Capital Markets Corporation

I'm just trying to get a sense if we tie in to and connect the dots here between the number of rigs running and try to determine how many frac crews that might...

Eugene Isenberg

I guess the rule of thumb that I had is you need a frac crews for three rigs, roughly.

Kurt Hallead - RBC Capital Markets Corporation

That's pretty much basin. It doesn't matter what base in your end if you kind of look at that or is that Nabor specific.

Eugene Isenberg

I'm sure it does but my rule is not [indiscernible].

Kurt Hallead - RBC Capital Markets Corporation

And then, I just wonder if you might be able to give us some general sense, you have number of different discussions with E&P and so on. So where is your bias here? You think that the oil rig count will definitively more than offset natural gas. Obviously, you've been had some very good success in this business over a long period of time. What your gut instinct tell you?

Eugene Isenberg

I got instinct that gas price goes much lower, that balance is at greater risk. I don't know what it was today. It was like $3.30 or something. $3.29, I mean that's close. The ratio between cash and oil and prices on a BTU basis. That's long gone history. But the long-term average was about 10:1. And now, it's 25:1, something like that. Nobody ever asked me, but I'll assume you asked me my position is that a number of things happen over a period of time that are unexpected. And if you look at what's likely to happen like maybe the E&P doing something uncool or Obama realizing this gas is not as where were at or any number of things, but I think the spread is multiple times more likely to contract than expands. So maybe in our business you got to be optimistic, but I think the odds are also -- the other thing I've always been is I've never been involved in a situation where everybody's betting the same way and they make money. But I'm still not personally buying in gas futures.

Operator

And our final question is from the line of Roger Read with Natixis Bleichroeder.

Roger Read - Natixis Bleichroeder LLC

Just a quick question, I guess, along on the international side because a lot of the other stuff has been hit. If you look for and I understand what's happening with international jack-ups. But if you look at the operations you have now, let's assume may be a little recovery in Mexico and some progress in other international markets. Do you believe that the international segment has the potential to surprise you next year or is it just given the contract terms, timing, et cetera, that really is just going to be will not...

Eugene Isenberg

Right now, I know I'm always subjected to price, but I'd be very surprised if international makes a big headway next year. I'm willing.

Roger Read - Natixis Bleichroeder LLC

And if you could, where will it come from?

Eugene Isenberg

Well, it has to be a place where -- there's a new deployment. It's not going to impact next year very much.

Roger Read - Natixis Bleichroeder LLC

Right, I guess it's more about where rigs rattle.

Eugene Isenberg

We have to be where were at. We have Algeria, you have Mexico. But Mexico will likely -- Mexico has been sooner or later, but later not sooner, I think this PEMEX situation is unrelated to the overall problem the government good and all that stuff. But it still an unresolved problem and it doesn't look like it's going to be in short-term results. But that's what we have to be is there in Saudi...

Dennis Smith

We're 70% of the ratings. We'll contract 2011. So we have a good data and substantial number, protected contracts. And as Gene mentioned, that the markets that have the multiple rigs whether existing to PEMEX, extra rigs offer that potential, but there's lots of delay.

Eugene Isenberg

I think you can bet on Nabors without betting that it's going to recover internationally next year.

Dennis Smith

Camille, that will wind up the call. I just would like to thank everybody for participating. And If you don't get your questions answered, feel free to call us anytime. Camille, I'll hand it back to you.

Eugene Isenberg

Thanks for joining us.

Operator

Thank you, ladies and gentlemen. This concludes the Nabors Industries Third Quarter 2010 Earnings Conference Call. This conference will be available for replay after 1:00 Eastern Standard time today through November 3, 2010, at midnight. Thank you for your participation. You may now disconnect.

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