Parker Drilling Q3 2007 Earnings Call Transcript

Parker Drilling Co. (PKD)

Q3 2007 Earnings Call

November 07, 2007 11:00 am ET

Executives

David Tucker - Treasurer and Director of IR

Bobby Parker - Chairman and CEO

Dave Mannon - President and COO

Kirk Brassfield - SVP and CFO

Analysts

Angie Sedita - Lehman Brothers

Mike Drickamer - Morgan Keegan

Gary Stromberg - Lehman Brothers

Frank Bisk - Pilot Advisors

John Keller- Johnson Rice & Company

Steve Ferazani - Sidoti & Company

Doug Becker - Banc of America Securities

Shane Massey - LPL Financial Services

Presentation

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Parker Drilling Third Quarter 2007 Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions). This conference is being recorded today, Wednesday, November 7th of 2007.

Now I'd like to turn the conference over to Mr. David Tucker. Please go ahead, sir.

David Tucker

Good morning and thank you for joining Parker Drilling Company's third quarter conference call. I'm David Tucker, Treasurer and Director of Investor Relations. Joining me today are Bobby Parker, Chairman and Chief Executive Officer; Dave Mannon, President and Chief Operating Officer; and Kirk Brassfield, Chief Financial Officer.

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

With that introduction, I will now turn the call over to Bobby Parker.

Bobby Parker

Good morning and welcome to our conference call. We reported normalized earnings of $0.22 per share for the third quarter of 2007 on revenues of $172 million, which is a 29% increase over the normalized earnings of $0.17 in the third quarter of 2006.

I'd like to share with you some of our recent highlights. Our global utilization now stands at 82%. As forecast, our third quarter results benefited significantly from our international land operations, which generated a sharp increase in EBITDA to $22 million, nearly tripling third quarter 2006 international land EBITDA. The majority of our international rigs that we're transitioning to new projects in the first and second quarters are now online and contributed to much of the third quarter.

We anticipate international land operations to continue to improve into 2008, as most of these rigs earned a long-term contract at significantly high day rates. Both Quail Tools and our US barge rig segment had record quarters and we have also signed a number of new contracts in our international markets, including Rig 122 inMexico, and two rigs, 247 and 269, inKazakhstan.

Demand for our preferred barge rigs remains high and day rates were strong during the third quarter, in our US Gulf of Mexico transition zone market with effective utilization of our marketed rigs averaging nearly 100%. However, we have begun to experience some pushback in day rates, which have declined in accordance with their moderate industry downturn in this market as rates normalized from record-setting highs in 2007. And our backlog of contracts is not strong as earlier this year.

We expect rates to remain steady to modestly lower for the fourth quarter, and we may experience utilization gaps between contracts on some of our intermediate barge rigs. We have secured a two rig contract in Kazakhstan, utilizing Rig 247, which has nearly completed a refurbishment program, and one of the two newest additions to our land fleet, Rig 269, which Dave Mannon will discuss shortly.

Parker Drilling have a history of introducing innovative drilling technology and these designed rigs continue that tradition with our company. On our operations front, we are extremely proud of our industry-leading safety record. Our current total recordable incident rate is 0.83, which is in line with our company benchmark of 0.86 reported for 2006.

Our consistent safety performance was recently recognized by Occupational Hazards magazine, which named Parker Drilling as one of America's safest companies in 2007. An industry-leading, quality management and health and safety environmental program is the heart of our company's culture, and the health and safety of our employees and their families, our neighbors and the community where we operate are among our highest drawers. Our safety performance is a result of contributions from every one of our 3,000 worldwide employees and we are all proud to share in this honor.

That's it for our third quarter overview. I will now turn the call over to David Mannon to discuss operational highlights.

Dave Mannon

Thanks, Bobby. Turning to our US operating segments, despite a slight downturn in day rate, high utilization in our barge operations in the Gulf of Mexico resulted in record EBITDA of $33.7 million for the quarter. Drilling permits are down 10% year-on-year-year.

Let me give you some day rate and utilization numbers for the Gulf of Mexico. In the deep drilling market, our current average day rate is $46,700 a day with a utilization of 100% compared to third quarter of $47,900 and 98% utilization. In our intermediate barge rigs, our current average day rate is $40,400 with the utilization of 67% compared to third quarter number day rate of $36,900 and utilization of 100%.

Rig 122 was recently reactivated for a two-year contract for work in Northern Mexico, and will mobilize in the fourth quarter. We continue to work on our FEED study for BP Liberty Project in Alaska and are ordering long lead items.

Quail Tool's are drilling in production rental tool business rebounded sharply from a flat second quarter, setting new record in the third quarter of 2007 on revenues of $35.5 million and beating it's previous record of $32.8 million for the third quarter of 2006. As forecast, the increase was driven primarily by an infusion of new equipment delivered at the end of the second quarter in an upstream in customer deepwater and Rocky Mountain activity.

Quail, Evanston, Wyoming and Williston, North Dakota location experienced significant growth in the third quarter. Additionally, Quail's newest location in Texarkana, Texas, has continued to beat growth expectations, quickly establishing an independent customer base and exceeding our forecasted performance.

Despite the industry reports of a recent softening in the US land and offshore markets, Quail anticipates strong results for the remainder of the year based on customer projections of activity and increased contributions from our newest locations.

In our Latin American markets, utilization is at 100%. We expect rigs 268 and 271 to operate for the remainder of 2007 in Colombia. However, rigs are being marketed to other operators in the Latin American region for additional work in 2008.

Three of our five land rigs contracted for multi-year work in Southern Mexico are drilling and contributed for the entire third quarter with the two remaining rigs expected to spud in the fourth quarter and rig 122 is expected to spud in Northern Mexico in the late fourth quarter of this year.

In Northern Africa and Middle East markets, both Algeria rigs are now operating under a long-term contract, and rig 121 in Libya is expected to spud in the fourth quarter. In Saudi Arabia, three of our six rigs are now operating with the fourth rig expected to spud in the fourth quarter, and the final two rigs, rigs five and six, in the fourth quarter of 2008.

Our Saudi joint venture has encountered delays during the construction and commissioning phases on our six rigs contracted to Saudi Aramco. These delays involve late delivery of rigs from the manufacturer and subsequent remedial work to correct problems during commissioning to bring the rigs up to our specifications.

We anticipate that we will invest in an additional $20 million to $25 million over the next six months to cover our 50% portion to finish commissioning the six rigs, which will result in a total investment in a joint venture of $35 million to $40 million.

Though we have encountered some initial problems in our Saudi operations, I want to emphasize that North Africa and Middle East continues to be an important part of our long-term strategic growth plan, and we are dedicated to developing a long-term commitment in this area.

In our Asia Pacific operations, rig 246 was reactivated in New Zealand under a six-month contract, and in Indonesia 253 spud in July after being awarded an 18-month contract, bringing utilization in our Asia Pacific region to 67% or six of nine rigs working.

In Papua New Guinea, we continue to operate both company-owned rigs under the long-term contracts. In addition to our current CIS Eurasia operation of four rigs in Karachaganak project, rigs 257 in the Caspian Sea and rig 230 in Turkmenistan, rig 236 was awarded a one-year contract with Euro Oil & Gas in northern Kazakhstan and will commence drilling in the fourth quarter.

Utilization in the region stands at 78%. In addition, our O&M contracts in the Sakhalin Island continue with ENL for the Yastreb land rig in the Orlan platform. Rig 247 and our new build 269 have been awarded contracts in Kazakhstan and will mobilize in the first quarter of 2008.

Rig 269, along with rig 270 are our newly designed 2000-horsepower, high efficiency class rigs, which incorporate some of the most advanced features available in the global land rig market, including a hydraulic cylinder system used to raise both the mass and the substructure to vertical without the use of engines and draw works, our plug-and-play adaptability allowing the operator to quickly and easily customize the rigs individual equipment to the specifics of the drilling program and our fully automatic drilling system featuring fuel efficient AC technology and variable drive frequency.

These features distinguish the rigs as the most versatile, the most powerful and the safest of their kind in the industry. From a company-wide perspective, we continue to focus on our strategic plan of maximizing returns for our stockholder, as we continue to grow our fleet of preferred rigs, rental tool business and project management services, strength in our competitive advantages in deep and frontier drilling through technological leadership, lead the industry in safety performance and continue to improve our balance sheet.

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

Kirk Brassfield

Thanks, Dave. For the third quarter of 2007, Parker Drilling reported net income of $22.7 million or $0.20 per diluted share on revenues of $172.2 million. This compares to a net income of $18.6 million, or $0.17 per diluted share on revenues of $146.8 million for the third quarter of 2006.

For the third quarter of 2007, non-routine items before adjusting income taxes included debt, non-routine expense of $1.6 million or $0.2 per diluted share relating to $2.4 million of debt extinguishment cost, and $1.1 million provision for carrying value and a non-cash credit to tax expense of $0.5 million, relating to FIN 48, which is accounting for Uncertainty in Income Taxes.

Information relating to non-routine items and their impact on our reported results is available on our website. US drilling operations reported gross margin of $34.1 million for the third quarter of 2007, 9% higher than the third quarter of 2006 and 3% higher than the second quarter of 2007.

The margins were driven by 98% utilization in our deep barge market sector and 100% utilization in our intermediate barge sector, offset by modest decreases in day rates of 8% in our deep barge sector and 2% related to our intermediate barge rigs.

Utilization for international land operations in the third quarter of 2007 increased to 75%, compared to 71% for the prior quarter and 55% in the third quarter of 2006. As indicated in last quarter's conference call, international land gross margins rose significantly to $22 million from the third quarter, this is an improvement of $14.4 million from the prior quarter and $14.8 million from the quarter a year ago.

When comparing the third quarter of 2007 to the second quarter of 2007, the areas contributed to the increase were Mexico, where three-land rigs operate the full quarter. Turkmenistan, where two rig 230 operated the full quarter, Karachaganak, an area of Kazakhstan, where one of two additional rigs operated most of the quarter, and our Africa and Middle East operations where $2.8 million of expense relating to prior quarter was reclassified and two rigs in Algeria operated most of the quarter.

Higher results were also reported from our Sakhalin Island operating management projects. International offshore operations were improved this quarter as the day rate increase in conjunction with the two-year contract for 53B in Mexico was in full effect for the full quarter.

Quail Tools reported a record gross margin of $20.9 million for the quarter, up approximately $2 million from the prior quarter. We anticipate these margins will improve through yearend as the amount of equipment rented today is higher than the most recent quarter.

The balance for cash, cash equivalents and marketable securities at September 30th was $67 million, a decrease of $88.2 million from yearend. Capital expenditures were $61.8 million for the third quarter and $191.4 million for the year through September 30th. Included in the yearly capital expenditure number is $4.7 million of capitalized interest.

We expect 2007 capital expenditures to approximate $235 million, as we proceed with our strategic growth plan implemented in 2005. G&A expense was $6.2 million for the quarter, we anticipate G&A expense to approximate $25 million for the year. Depreciation has increased as a result of our capital expansion, and for the year 2007 depreciation expense will approximate $85 million.

We recognize the $1.1 million non-cash equity loss from our Saudi joint venture due primarily our higher than expected start-up cost and depreciation.

Our effective tax rate for the nine months was 42%, excluding the FIN 48 amount of approximately $5.5 million. We expect that the effective tax rate will approximate 42% for the year. On September 20th, we finalized and amended and restated credit agreement that increased the amount of our revolver to $16 million and extended the terms until 2012.

On September 27th, we redeemed into our $100 million Outstanding Floating Rate Notes with proceeds from our 125 million convertible notes. We have previously disclosed the public notice for assessment of $70 million for corporate income taxes from Kazakhstan’s Ministry of Finance on August 7th, 2007.

We immediately filed a complaint against the notice in the Ministry of Finance and acknowledged that no enforcement action would occur pending resolution of the complaint pursuant to the mutual agreement procedures at the US-Kazakhstan tax treaty. The two governments met on October 8th through the 11th to address the double taxation issue, but no decision has been announced.

Finally, we continue to be consistent in our guidance for 2007 and expect to be at the higher end of our previously communicated guidance putting us in the $0.78 to $0.85 earnings per share range.

That completes our prepared statement. We now turn the call over to the operator for questions.

Question-and-Answer-Session

Operator

Thank you, sir. (Operator Instructions). One moment, please, for our first question.

Our first question is from the line of Angie Sedita with Lehman Brothers. Please go ahead.

Angie Sedita - Lehman Brothers

Hi. Good morning, guys.

Bobby Parker

Good morning, Angie.

Angie Sedita - Lehman Brothers

First on the barges, one of your competitors actually decided to stack a barge to help support day rates in the market, and you mentioned some weakness or uneven utilization in the intermediate barges. What are your thoughts there on that market going into the fourth quarter, then going into the first quarter, potentially any desire to stack a rig?

Dave Mannon

Angie, this is Dave. Our deep barges are fully committed through the end of the year, and we actually have pretty good visibility going into next year, first quarter. We do plan on placing one of our rigs, Rig 51-B is going to go into the shipyard for about a 90-day program. And this was actually planned for midsummer of 2007, and we have already constructed the majority of our equipment to be placed on more of that rig. And so that's been pushed off just because that rig has had commitments to go to work.

As far as our intermediate barges, we have some idle time in the fourth quarter in between jobs, but we do have commitments for those rigs through the end of the year. And also if you look into 2008, we have a fairly good visibility for commitment. So, at this time, we don't plan on stacking any of our barge rigs.

Angie Sedita - Lehman Brothers

Okay, great. That's good color. And then, as far as a little bit of pressure you mentioned on day rate, is that fairly consistent across the classes?

Dave Mannon

It's fairly consistent. We've had a fairly meaningful pressure on both our intermediates and some of our deep barge rigs.

Angie Sedita - Lehman Brothers

Okay. And certainly a great quarter, very impressive quarter for Quail, and you've opened up the new locations. Would you expect Quail will still a tick up going into fourth quarter and going into 2008 or ultimately will hit another run rate?

Dave Mannon

Well, we talked about it in our second quarter conference call, about a 10% increase in our revenues associated with Quail. And so, the color that I would like to provide for Quail going forward is, we're looking at something little bit less than that, but we do see a meaningful uptick in our activity, especially in our Rocky Mountains, in our Texarkana, and some of our offshore or deep water programs as well.

Angie Sedita - Lehman Brothers

And that 10% uptick a little less in revenues, is this for all of 2008 or for…

Dave Mannon

No, that's for the fourth quarter of 2007.

Angie Sedita - Lehman Brothers

All right, okay.

Dave Mannon

I'm not providing any guidance right now for 2008.

Angie Sedita - Lehman Brothers

Okay. And then finally, on the international side, you have the six Saudi rigs coming in on your $35 million to $40 million investment in margin there in 2008. Will you still see some rigs rolling over to higher rates or new contracts, or just give a little bit of lay of the land on the topline for international land?

Dave Mannon

Well, if you look in our portfolio, we have three rigs that are cold stack right now that we could bring into our program in 2008. But the majority of our rigs internationally have rolled over to long-term contracts. We still have some rigs that are on the shorter term contracts in Asia Pacific and also in Columbia that are going to rollover in 2008.

Angie Sedita - Lehman Brothers

Okay. Thank you.

Bobby Parker

Angie, this is Bobby. Congratulations to you and your team on your research rating.

Angie Sedita - Lehman Brothers

Great. Thank you, Bobby.

Bobby Parker

Yeah.

Operator

Thank you. Our next question comes from the line of Mike Drickamer with Morgan Keegan. Please go ahead.

Mike Drickamer - Morgan Keegan

Hi. Good morning, guys.

Dave Mannon

Good morning.

Bobby Parker

Hello, Mike.

Mike Drickamer - Morgan Keegan

Hey, Dave, on these new contracts you announced this morning, you guys didn't provide any kind of day rate information. Can you give us maybe some kind of, at least, qualitative feel for what the new rigs are rolling at, maybe perhaps relative to the roll rate?

Dave Mannon

Well, what I'd like to do is maybe just compare them to some of the rates that have rolled over previously. So, the contract at Northern Mexico is at a similar type of margin and day rates that we have in the Schlumberger contract to the South. For Kazakhstan, 236 worked for Maersk earlier in 2007, and so our day rates associated with 247 is similar to those rates and margins.

Mike Drickamer - Morgan Keegan

Okay. And then on the new build here, how much is it going to cost you to build this new rig here.

Dave Mannon

Well, 269 is currently being rigged up and commissioned, so the majority of the rig has been constructed. And I believe in the past we've talked about the $30 million to $35 million range as far as our construction costs. Now, we're going to have to add a little bit to that because it's going to Kazakhstan and it needs to be winterized, and that's usually in kind of the $3 million to $5 million range.

Mike Drickamer - Morgan Keegan

Would it be safe to assume then that the day rate you're getting on 269 would be something suitable for, let's say, return on capital at least in mid teen range?

Dave Mannon

I think that would be safe to say.

Mike Drickamer - Morgan, Keegan

Okay. Kirk, you commented that governments for US and Kazakhstan met earlier in the month and no announcement has been made yet. At this point, where are we? Are we just sitting back waiting for this announcement? Do you have any idea when the announcement will be?

Kirk Brassfield

Yeah, you know how we feel. It's been communicated to us that we should hear something during 2007. Now, when I hear that, I would qualify, because you are dealing with two governments and there is a particular protocol they have to go through for agreements such as this. But right now, we are expecting that we would hear something during this calendar year.

Mike Drickamer - Morgan, Keegan

Okay. What then did you accrue in the third quarter as far as penalties or interests associated with the regulations?

Kirk Brassfield

Looking at the third quarter, when we got our assessment in August, we determined that we have over-accrued a little bit on our interest based on that assessment from Kazakhstan. So, we actually take about $500,000 benefit, which we recognize one of our non-routine items.

Mike Drickamer - Morgan, Keegan

Okay.

Kirk Brassfield

So, it was really more of a correction this quarter. But, as we have a long net phase outstanding, we would continue to accrue the interest going forward and any change in our exchange rate differential. And I think you remember in our previous second quarter, we had indicated that we had accrued the full amount, which was around $91 million, at the end of the second quarter. And of course, that number still remains on our books.

Mike Drickamer - Morgan, Keegan

Okay. That's my question guys. Thanks a lot.

Kirk Brassfield

All right. Thank you, Mike.

Operator

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

Gary Stromberg - Lehman Brothers

Hi. A couple of questions for Kirk. Net debt was up by $60 million in the quarter. Gross debt was up and cash came in. That was a lot more than we were looking for. What caused that change? Was it working capital or taxes or something that drew cash down?

Kirk Brassfield

Well, the total debt did increase. When we went out with the converts, we sold the $125 million and then we paid off a $100 million the floating rate debt. So it did go up $25 million. Just of course, from a cash perspective, we just had a significant amount in the quarter of capital that was incurred during the quarter. So that would have impacted cash balances.

And of course, the other side of it too, when you look at the 25 increased converts over the floating rate debt, part of that was to buy the net cost of buying the call options and receiving the amount for the warrants related to convertible debt. And that amount was about $12 million, $13 million.

Gary Stromberg - Lehman Brothers

Okay. So that gets me some of the way there. That's helpful. The Kazakhstan tax issue, if for some reason you have to pay that out, what source of liquidity do you use? Do you just drain the rest of cash? Can you walk us through that processes.

Kirk Brassfield

Well, and if we did end up having to pay the amount they assessed in the $70 million, we would use some of the cash on hand, but we'll also go to our revolver, which we did increase from $40 million to $60 million. And while we would expect that if we had to pay the full $70 that we would end up having to draw down the revolver upwards around $30 million to pay for that, plus maintain the capital that's required for the fourth quarter.

Gary Stromberg - Lehman Brothers

Okay. That's very helpful. And then finally, looking at the 2008, can you give us some sense of spending levels?

Kirk Brassfield

We've not finished our budgeting process yet, but we are looking at an amount less than what we spent this year and implying what we might end up with is somewhere in the $150 million to $170 million range.

Gary Stromberg - Lehman Brothers

Okay, great. Thank you.

Kirk Brassfield

Sure.

Operator

Thank you. Our next question comes from the line of Frank Bisk with Pilot Advisors. Please go ahead.

Frank Bisk - Pilot Advisors

Yes, hi. Good morning. Nice quarter.

Bobby Parker

Good morning.

Frank Bisk - Pilot Advisors

What's the shallow barge rates this quarter? I didn't see that.

Bobby Parker

We're giving it.

Frank Bisk - Pilot Advisors

And then just while you are looking for that, my other question was, I guess, besides the new contracts in Mexico, you have five rigs working in Mexico now or two you're rigging up this fourth quarter, is that correct? How are those going? Are all five working now or will be working?

Bobby Parker

First of all, Quebec or Mexico, we have three land rigs.

Frank Bisk - Pilot Advisors

Right.

Bobby Parker

That are working right now, plus the barge rig separate contract with PEMEX, it's been working.

Frank Bisk - Pilot Advisors

Okay.

Bobby Parker

Then we have two additional new BOMCO rigs, that one is in a process of rigging up on location and the second one is finishing its commissioning and will be in the field rigging up shortly. That would be the five land rigs, plus a barge rig. And then we announced in addition, a sixth land rig that will be going down rig 122 for a separate contract in Northern Mexico and that should spud right at the end of this year.

Frank Bisk - Pilot Advisors

Okay. So in Q1 '08, we'll have all those working?

Bobby Parker

Yes.

Frank Bisk - Pilot Advisors

Okay, great.

Kirk Brassfield

And Frank, the numbers that I had broadcasted during the conference call earlier with the intermediate rigs, the current average day rate was $40,400 with utilization of 67%.

Frank Bisk - Pilot Advisors

What about drilling of shallow rigs like work-over rigs?

Dave Mannon

Well, we only have one work-over rig working right now.

Frank Bisk - Pilot Advisors

Okay.

Dave Mannon

And that right now is in the range of about $21,000.

Frank Bisk - Pilot Advisors

Okay. It's pretty inconsequential anyway. Okay.

Dave Mannon

Yeah. It's kind of quick apparently in the category of the work-over sales and just one rig in, but that's the answer.

Frank Bisk - Pilot Advisors

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Joe Agular with Johnson Rice & Company. Please go ahead.

John Keller- Johnson Rice & Company

Hey, guys. It's actually John Keller here.

Dave Mannon

Hi, John.

John Keller- Johnson Rice & Company

I was wondering if I could hit on costs for a second. It seems like the utilization picked up pretty nicely on international land front, and costs actually came down quarter-on-quarter, just curious as to maybe what drove that and what to expect going forward there?

Dave Mannon

They get back, and I have mentioned there briefly in the script about that $2.8 million that was reclassed. We would’ve had $2.8 million in the first and second quarter going through expense that once upon, when we looked at and then evaluated the numbers, we saw those items, part of it were costs that should be build and part of it was capital cost.

We reflected that $2.8 through third quarter, so that's part of your costs differential between the two quarters. So, it was reclass going out of the operating expense into an asset.

John Keller- Johnson Rice & Company

Got it. And how about on a go forward basis, I mean should cost remain relatively flat or we're going to see that bump around a fair amount as you continue to position assets in a mobilized thing.

Dave Mannon

I think our margin, when we get the new rigs in, you'll see an overall increase in our margin. But our cost should remain relatively flat on a per rig basis once they become fully operational from the third quarter.

John Keller- Johnson Rice & Company

Okay. Great. And then, just one more quick one on the costs side of things. In international barges, that seems to have bounced a little bit over the last several quarters. How should we look at that on a go-forward basis?

Dave Mannon

I think what you see in the third quarter should be what we expect going forward on the cost side for the two international boundaries we have. Yeah, the margin did go up some, but that related to the Mexico, which had a change in the contracts, so the day rate did increase quite significantly.

John Keller- Johnson Rice & Company

Okay. And then, if I could just get your, sort of, broad commentary on new build and the international land front. It looks like you are building a second new build on spec that should be delivered in the second quarter of '08. You know contracting outlook for that rig as well as the potential to build more.

Dave Mannon

Yeah. 269 has a contract in Kazakhstan, so we are fitting that rig out to mobilize to that location. 270 is a rig that we just started to cut steel on and we are establishing that out just because of some of the interest we have in various international markets we believe that we should be able to put that rig to work. We don't have any defined contracts to date, but we have a fair amount of interest in that specification of rig both in the CIS area and also in the Middle East area.

Bobby Parker

John, this is Bobby. I'll comment some more better philosophy there. It has been a philosophy in the past or not, obviously, builds rigs on specs, so to speak. And so that's what we are trying to do, was changing this market makes most contractors certainly aware of delivery of the critical items has gotten to be so long that if you waited to order certain equipment and until you want to bid, you would not be able to fulfill the contract with delivery.

And so we have started a process of, sort of, one rig at a time, ordering the critical component such as engines, SCR electrical systems, top-drives, things like that that are going to be well over a year in delivery so that we have the capability of bidding on these new jobs.

A couple of things we can do with that equipment, one is finish the new rig out, once we have a job and next the rest of the money and a new rig, that would be the mud system and all the fabrications in that rig after the spec of that job. Or number two, if for some reason the market cools and there is no immediate need for an additional new rig, all that equipment can fit into our fleet to upgrade existing rigs that we have.

This isn't our preferred way. Certainly, our preferred way would be the way to have contracts, but again, with the delivery of largest equipment, we're just trying to make a common sense approach here, where we do have enough equipment coming on board for these rigs, where we can bid for new work out there. We are keeping this to a minimum as we watch the market grow out there, but that's a just I guess a long answer to what Dave, was saying.

Our view to international land mark is still pretty positive. Our comments that we know there is ton of new rigs still coming into the US, some of those may go international. The vast majority of those rigs are smaller than 2000 horsepower. And so, we are still servicing a larger capacity rig international in the market we look at and still don't see a large number of those rigs being order to constructive right now. So, that again our markets are having deeper drilling capacity in that area. It is still serving us very well. Does that help any?

John Keller- Johnson Rice & Company

Yeah. I guess, just what I was getting as, that you wouldn't be doing as much you saw a pretty good chance you'd be contracting it and pretty strong demand for that class of rig out there, relative to the amount of supply that's coming in. So great quarter, guys. I'll turn it back.

Bobby Parker

That's great.

Operator

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

Steve Ferazani - Sidoti & Company

Good morning. Just a follow-up on some of the last comments you made, talk about we know some of the US drillers have been trying to push into South America, have you seen a competitive landscape down there changing? And you haven't added any rigs down there the last couple of quarters, are those markets you're still aggressively pursuing?

Dave Mannon

Well, we have added rig capacity in Mexico with this new announcement of adding a rig in Northern Mexico. As far as farther down into the Latin American countries, we're pretty happy with our two 3000-horsepower working in Columbia. There's a fairly good visibility from a contractual standpoint that we'll put those to work most likely in Columbia after they renew contracts in 2008. But then there's also some interest in another 3000-horsepower rig in Mexico. So we're just kind of weighing those two options.

Bobby Parker

And clearly where we're, certainly there have been a couple of US land guys pushing to get in whether it's Mexico and including Rig 1 that's down in the Columbia. Most of those have either been shallower rigs and a little shallower than the market that we serve. I'm going to tell you that I think our two rig activity in Columbia will stay at two rigs in Columbia.

And we don't see a great need for additional high-powered land rigs in South America, although we continue to watch opportunities in various countries down there like we would anywhere else. But our focus in growth right now outside of Mexico in terms of globally is certainly in the Africa, Middle East area and Kazakhstan.

Steve Ferazani - Sidoti & Company

Okay. Just turning to the barge rigs briefly, now that the backlog has diminished a bit, is there any sort of baseline natural gas price for any kind of data we can look that there would be an inflexion point where maybe that would turnaround?

Dave Mannon

I was hoping you're going to provide that to me.

Bobby Parker

We'd love to know that. Most of our deep barge rigs are working on the gas side, but a lot of those projects were developed or found when gas prices were considerably lower than what they are today. And so, we have confidence that those projects will continue even if the gas prices get down into that $5 range.

As far as our intermediate rigs, a lot of those are working on oil projects, and so they're not dependent upon natural gas as much. But clearly, there is probably a threshold where activity will dropdown. What that threshold is, it's hard for me to guess. But I would say somewhere around the sub five range and there would be a lot of people scratching their heads.

Steve Ferazani - Sidoti & Company

Okay. Fair enough. Last question was on the rental tools business. We know that others with Gulf exposure were hit pretty hard this quarter on the rental tools operations because of rigs leaving the market. You didn't seem to get hit. Was that because of the diversification into the Rockies and elsewhere, or you just didn't see any weakness in Gulf?

Dave Mannon

Well, a lot of our business is farther offshore. It's in the deepwater area. So we were not impacted as much from operations loss in the Gulf of Mexico as rigs left or jackups left. And our client base is mainly for super majors or super independent to majors, and so most of their projects are longer term. And so, they are not predicated as much in the fluctuations of commodity pricing.

Now, we have seen an increase in the Rocky Mountains, mainly because one of our main customers up there are expanding their business. And our business is expanding in the Gulf of Mexico, mainly because in the deepwater market these jobs were planned for earlier in 2007, and they were delayed because the rigs were working for other customers that had delays in their operations. Now that these rigs have switched customers and they're now with customers that we have rental agreements with, we're going back to work.

Steve Ferazani - Sidoti & Company

Great. I appreciate the answers. Thanks.

Operator

Thank you. (Operator Instructions)

Our next question comes from the line of Doug Becker with Banc of America Securities.

Doug Becker - Banc of America Securities

Thanks. Dave, just a quick clarification. Your guidance on the new contracts announced today suggests that day rates and margins are pretty flattish internationally or at least in Mexico and Kazakhstan. And I just wanted to find out have you seen pricing power essentially moderate in those markets or is that just kind of the (inaudible) with guidance?

Dave Mannon

Well, I guess we're talking about a relatively short timeframe in my answer, and I look at international markets in the long-term. So, our Schlumberger contracts are only six months old. So I guess, in a relative sense, I guess if you look very, very short-term, yes, they are flat, but in the long-term we've seen a substantial growth in day rates over the last 18 to 24 months. And we're still seeing some good upside potential in our day rates in other parts of the world.

So, I'm not concerned that there is a flattening out there. I don't see that. And I guess, intuitively, I could say yes because our rate in Northern Mexico is the same as Schlumberger rate, you could say they're flattening, but I don't see that. I think that's just because it's been such a short period of time between Schlumberger those new contracts. I still see some good pricing pressure in the CIS. I see some pricing pressure on the positive side in the Middle East and Northern Africa.

Doug Becker - Banc America of Securities

Now, that's what I wanted to hear. So as we think about rig 268 and 271 that are working in Colombia right now, you'd fully expect those rigs to be higher than they were working at in 2007 as they roll in 2008.

Dave Mannon

I think the potential is certainly there today, yes.

Doug Becker - Banc America of Securities

Okay. Thank you very much.

Bobby Parker

Hey, Doug.

Operator

Thank you. Our next question comes from the line of [Shane Massey] with LPL Financial Services. Please go ahead.

Shane Massey - LPL Financial Services

Hi, guys. Nice quarter.

Bobby Parker

Thank you

Shane Massey - LPL Financial Services

Just an overview I'd like to know in terms of revenues percent offshore to land percent international or the US.

Kirk Brassfield

On the revenue side, what we've been seeing is it's been around 50-50 between US, which includes Quail and the drilling and then the international side of the business. Now, historically over the last year, there has been a shift in the EBITDA side of it as the US reacted very positively and very quickly to that swing in the market two yeas ago.

We are starting to see that. We expect that will shift at the international margins have increased and our day rates increased accordingly. But right now, we're still seeing about a 50-50 split between the two segments of the world on revenues.

Shane Massey - LPL Financial Services

And offshore and land?

Kirk Brassfield

And really getting back on the offshore and land, the same split, 50-50.

Shane Massey - LPL Financial Services

Terrific. Thanks very much.

Operator

Thank you. (Operator Instructions)

Management, there are no further questions at this time. I'll turn it back to you for any closing remarks.

Bobby Parker

Thank you, Ben. I'd like to remind you that a replay of this call is available as noted in this morning's release. Thank you again for your interest in Parker Drilling Company.

Operator

Ladies and gentlemen, that does conclude the Parker Drilling third quarter 2007 conference call. If you'd like to listen to a replay of today's conference, please dial 1-800-405-2236 or 303-590-3000. You can access the conference using the code 11099460 followed by the "pound" key.

AT&T would like to thank you for your participation. You may now disconnect.

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