Pioneer Drilling Company F3Q08 (Qtr End 12/31/07) Earnings Call Transcript

Mar.17.08 | About: Pioneer Energy (PES)

Pioneer Drilling Company (PDC) F3Q08 Earnings Call February 27, 2008 10:00 AM ET

Executives

Anne Pearson Vincent - Investor Relations

Wm. Stacy Locke - President and Chief Executive Officer

Joyce M. Schuldt - Executive Vice President, Chief Financial Officer and Secretary

F. C. “Red” West – Executive Vice President and Chief Operating Officer

Analysts

Marshall Adkins - Raymond James

Steve Ferazani - Sidoti & Company

Michael Drickamer - Morgan Keegan

Mike Urban - Deutsche Bank

Mike Mazar - BMO Capital Markets

Judson Bailey - Jefferies & Company

Joe Agular - Johnson Rice & Company

Operator

Welcome to the Pioneer Drilling Company quarter ended December 31 conference call. (Operator Instructions) I would like to turn the conference over to Ms. Anne Pearson with DRG&E.

Anne Pearson Vincent

Good morning everyone, thanks for joining us for Pioneer’s Conference Call to review its quarterly results. Before I turn the call over to management a reminder that in a few hours a replay of the call will be available, you can access it by the web by going into Pioneer’s website at www.pioneerdrlg.com where it will be archived in the IR section. It’ll also be available by electronic replay through March 5 by dialing 303-590-3000 and entering passcode 11108554. You’ll also find that information in the press release today.

As you know, today’s conference call contains forward-looking statements and information that are based on management’s beliefs and assumptions. Forward-looking statements include but are not limited to, statements related to the pending acquisition in the WEDGE Company, and ability to obtain permanent financing for WEDGE or to close the transaction.

Other forward-looking statements may also pertain to the overall market for land drilling services, Pioneer’s anticipated growth, capital spending decisions by oil and gas companies, the availability of capital and qualified personnel, the company’s expectations regarding its rigs and its ongoing expansion into Latin America.

Although the company believes these expectations are reasonable, they can give no assurance that they will prove to be correct. They are discussed in the detail in the company’s filings with the SEC. Information reported on this call speaks only as of today, February 27, 2008. So you are advised that time-sensitive information may no longer be accurate at the time of any replay.

Now I’d like to turn the call over to Stacy Locke, President and CEO of Pioneer Drilling.

Wm. Stacy Locke

Good morning, with me on the call this morning is Red West, our Chief Operating Officer; and Joyce Schuldt, our Chief Financial Officer.

Let me begin by clarifying a few aspects of the financials. As you’ve seen in the press release in the December quarter, we had a very nice increase in diluted earnings per share. But you also need to note that in the December numbers, we had a $0.04 per share gain from a one-time benefit due to taxes, which Joyce will refer to in a minute.

Also, it’s important to note that in the September quarter the sequential comparison, we had a bad debt expense and when you correct for that one-time bad debt expense that would add additional $0.03 back into the September quarter.

Thirdly, if you look on page nine of the press release, you will observe that the average revenues per day and the average margins per day increased sequentially as compared to September. It’s important to note that our two rigs that are operating in Colombia are factored in those comparisons and had a positive impact to the results.

I’m going to turn it over to Joyce to give a brief financial review and then after Joyce is finished; I’m going to make a little more contrast to the U.S. operations compared to Colombia and provide some guidance and market color.

Joyce M. Schuldt

Good morning everyone, as we previously announced, we’ve undergone a fiscal year end change resulting in this quarter being the third and final quarter of our reporting year. As a result, the press release has a bit more financial data than we’re all used to. It has data related to the quarter and the nine months period ended December 31, 2007; the quarter ended September 30, 2007; the quarter and the nine months period ended December 31, 2006; and the 12-month period ended March 31, 2007.

You will find further information in our Form 10-KT, which we will file shortly after this call. We hope that you will find it easier to analyze our results with the December year-end going forward, as it aligns with those of our peers in our industry group as well as our Colombian subsidiary’s statutory reporting period.

As you all know, it’s been an exciting past several months for Pioneer. Not only did we announce the pending acquisition of the WEDGE Well Servicing, Wireline, and Fishing & Rental businesses, but our Colombian operations are now fully underway. With three rigs operating in Columbia as of now and the bulk of our start-up expenses behind us, we can now see our expansion plan adding to the bottom line.

We finished the quarter with 69 rigs. In addition to the three rigs operating in Columbia, we are also marketing two rigs there. As for drilling contracts, we have 19 drilling contracts in place with terms of six months to three years. Nine of these contracts expire in August of ‘08 of the rest six have remaining terms of seven to 12 months, two have remaining terms of 13 to 18 months, and another two have remaining terms in excess of 18 months.

The highlights for the business overall are as follows. Net income for the third quarter came in at $14.8 million or $0.29 per diluted share. Of that, we had an approximate $0.04 per diluted share favorable tax impact related to income taxes. The adjustment came from the completion of our Federal income tax audit, certain tax benefits related to our tax benefits related to our investment in Colombia, and the lower statutory rate taxing our earnings in Columbia versus our earnings in the US.

Revenues came in at $104.6 million, down slightly from the second quarter. Of this, $95.5 million related to domestic operations and $9.1 million related to Colombian operations.

The U.S. business continued to be solid. U.S. operations contributed $12.8 million of net income or $0.25 per diluted share. The per diluted share impact of domestic tax items approximated $0.02.

Utilization was down slightly for the quarter as expected coming in around 86%. We had a bit more turnkey and footage work domestically, but as we also expected, revenue per day drifted lower by about $330. We managed drilling costs well reducing them by about $200 per day as we reacted quickly to the reduced utilization experienced during the quarter. Daily drilling margins remains strong at about $7,000 per day.

G&A at $3.6 million was about steady with the quarter ended September 30, 2007, but up over the prior year due to costs related to increased personnel and outside professionals as we undertook our international expansion and prepared for the upcoming acquisition of the WEDGE Well Servicing, Wireline and Fishing & Rental businesses.

We anticipate our quarterly G&A run rate will move up a bit, to perhaps the $3.9 to $4.2 million dollar range. Given the change in our year end and the pending acquisition, the first quarter will likely come in at the high-end of that range.

Depreciation domestically came down a bit to about $15.6 million from the $15.9 million we had in the quarter ended September 30, 2007. Looking forward we anticipate depreciation will settle in the $15.3 to $16.5 million range per quarter; depending on our CapEx spend for the year among other things. EBITDA from domestic operations came in at $32.5 million, down just slightly from the September ended quarter.

Colombia added more color to our financial statements this quarter by contributing $2 million of net income or $0.04 per diluted share. When you adjust Colombian taxes to a normalized or statutory rate, their contribution to net income was about $0.02 per diluted share.

It’s important to note that because we have a net operating loss in Colombia given the investment incentive tax credits we received, it will be a bit more difficult to forecast the future tax rate. However, we think year-over-year or during the next year, we expect it to be less than the 2008 statutory rate of 33%.

Utilization in Colombia was 100%. We continued to experience start-up expenses, primarily in supplies, repair and maintenance, and general and administrative costs, but feel the majority of these costs are behind us now. G&A was about $775,000 for the quarter in Colombia, and we are estimating quarterly G&A run rate going forward of about $325,000 to $400,000.

Depreciation for the Colombian operations came in at about $1.1 million for the quarter, but that number will fluctuate as we grow the rig fleet. For the first two quarters of the 2008 calendar year, we estimate depreciation will be in the $1.1 to $1.2 million range. You need to note that these estimated amounts account only for the three rigs in service with an estimated average depreciable life of ten years.

With respect to capital expenditures, we spent about $25.7 million for the quarter, of which $3 million related to new-builds and acquisitions, $14.4 for discretionary spending, and $2.7 for tubulars.

For the 2008 calendar year, we anticipate CapEx to approximate $64.3 million excluding any new-builds we may undertake. Of that, $56.9 million relates to the U.S. operation, which is comprised of 19.8 million of routine, $18.6 million in rig upgrades, and $12 million of tubulars. There’s $6.5 million as well in just other general CapEx. The remainder $7.4 million, of which $1.4 million is routine, relates to the Colombian operations.

Overall for the quarter, EBITDA came in at $35.1 million. Cash flow from operations for the nine months ended December 31, 2007 remains strong at $115.5 million compared to the $95.1 million for the nine months period ended December 31, 2006.

You’ll note we ended the quarter with $76.7 million in cash. However, upon closing of the WEDGE acquisition, we will be in a net borrowed position, given a new credit facility we will undertake, which along with our cash we will use to fund the acquisition as well as future working capital needs.

Wm. Stacy Locke

As Joyce mentioned, our utilization slipped a little bit during this December quarter, a little more than we had anticipated, although the day rate environment remained fairly strong. Going forward, my guess is that our utilization rate will kind of continue at the current level of 85% to 86% probably for the next couple of quarters going forward.

With respect to day rates, they’ve declined very minimally in this last quarter. I think the guidance from our last quarter call was $15.5 to $19.5 for kind of 1,000 to 1,500 horsepower rigs without top drives or fuel, and I think the low end of that is probably dropped about $500 a day. So the forward day rates $15,000 to $19,500 currently.

As Joyce also mentioned, our term contract exposure really hasn’t changed too much. Of the 14 or so contracts that’ll expire during the course of this year, there should be minimal change from the term to the spot or term to new term. So that market remains about as it was in the last quarter.

Geographically, the shallow rig market of western Oklahoma continues to be a challenging market for us. We currently have three rigs stacked there now. Don’t see a lot of improvement there in the near-term.

We also had a little more instability in our North Dakota and North Texas divisions, but I think we’ve certainly stabilized in North Dakota market and that looks strong at least at this point going forward and North Texas, I think is soon to improve as well.

As Joyce mentioned, in addition, we pulled two heavy 1,000 horsepower rigs out of the Utah market to redeploy in to Colombia. One of those rigs we’ve already moved to Colombia and it’s rigged up and has been drilling in February on its first contract. The second rig is completing some upgrades to make it a little more suitable for Colombia and is in our yard in Houston along with our +big 1,500 horsepower rig that is still awaiting a contract in Colombia.

With respect to a little guidance for the operations going forward, if you look at the September quarter versus the December quarter it went from $0.23 diluted per share to $0.29. But in the September quarter we essentially had no diluted EPS contribution out of our Colombian operations. If you adjust the September quarter for the $0.03 that I mentioned previously from the bad debt expense that would have made that quarter about a $0.26 diluted per share quarter.

Going into the December quarter, I am going to bifurcate U.S. and international. As Joyce mentioned, in international it came on fairly strong in the December quarter to add about $0.04 per diluted share but a couple of those cents were from kind of a tax benefit.

Going forward, we believe that we’re looking at something similar to $0.02 per share contribution for maybe the next quarter or two and somewhat dependent on whether we are able to get a fourth rig in the Colombia operating and later a fifth rig. But through the course of this year, we do hope to have five rigs working down there. And as I mentioned, we have two of those, a heavy 1,000 horsepower and a heavy 1,500 horsepower, sitting in our yard in Houston ready for export.

With respect to the U.S. operations in the December quarter, they contributed about $0.25 of the $0.29 but when you correct for the $0.02 benefit from taxes that’s really a $0.23 quarter. So, if you go back and look at September 26th quarter, $0.26 out the U.S. declining to $0.23 and we think there will be a decline in diluted EPS for the U.S. operations into our first quarter of calendar ‘08.

As I mentioned previously, we anticipate something in the range of 85% to 86% utilization but we’ll have two less rigs contributing during this quarter and the remainder of the year than we had in the December quarter and we think average day or average margins per day will probably decline minimally, but perhaps as much as $200 per day.

So that, with the guidance Joyce has provided on depreciation and G&A, that should give you fair handle on what the next quarter or two outlook is.

In closing, I would like to say that our progress with the WEDGE businesses has gone very, very well. Our financing is just about complete. We would hope to close that transaction within the next ten days and as soon as that is closed, we will hold another brief conference call to provide some market color and guidance on the WEDGE businesses.

With that, I’d like to conclude our prepared remarks and open for questions if there are any.

Question-and-Answer Session

Operator

(Operator Instructions) The first question is from the line of Marshall Adkins - Raymond James.

Marshall Adkins - Raymond James

It looks as if in the next ten days probably a lot of the specific guidance on SG&A, etc. is going to probably change a lot. So let me kind of focus or drill down, so to speak, on one of the things I really didn’t understand, I want to get better feel for which is the break out of the daily margins in say Colombia versus the U.S., because it seemed like obviously things looked a lot better for this quarter than most of us thought. How much of that was at least on a daily margin basis a couple of Colombian rigs or was most of it just that debt expense?

Wm. Stacy Locke

Since there’s only two rigs in Colombia, they did definitely contribute but it wasn’t a tremendous amount and due to it not being material to the overall operations, we are not breaking Colombia out in separate financials at this point.

Joyce Schuldt

As well as the fact that it’s run under the land drilling division.

Wm. Stacy Locke

As I’ve mentioned in prior calls, we don’t want to get into too many specifics on the Colombian operation just because that market has become a little bit more competitive, but I think what I have suggested in prior calls was that for modeling purposes you could assume about a 25% enhancement over your U.S. margins for the Colombian operations as kind of our reference point.

Marshall Adkins - Raymond James

On the U.S. trends, you mention you have a lot of ranges there that you threw out in terms of the size. I understand all the different size rigs you are going to be different, but if you had to boil it down into kind of blended average should we be looking for daily margins in U.S. to drift down another $300 or is it $500? And then I guess in the second half of the year, recognizing none of us really know at this stage, are we going to see stabilization of that margin decline given your new calendar quarters in Q3 and four?

Wm. Stacy Locke

Well, I think, Marshall, we’re really seeing a decline a little less than what you suggested there. I think we’re looking on more on the order of $200 decline perhaps over the next couple of quarters. In other words it’s kind of a continuation of the modest drift that we’ve been experiencing, although with may be one caveat that I think the level of the drift from at least what we’re seeing is a little less than perhaps we thought it would be.

I think last quarter we were guiding more of a $400 to $500 margin decline even in this quarter just announced and we didn’t see nearly that rate of a decline. It was less than half of that and I think we’re seeing more of the same going forward.

These natural gas prices have surprised us and have been a little more resilient and firmed up. And, I think that could have a more positive impact this year than, I think, we all felt before. And it could be the impetus for an improvement in the second half, although, as you pointed out, it’s anybody guess still at this point.

There’s still a lot of cause for caution going into the shoulder months and into the summer. But at least there’s probably a little more optimism today than I think we expected and we’re certainly seeing the rig counts are firm. Our customers’ CapEx plans are very solid, and if I had to place a bet at this point I would say that more than likely they’ll be increased in the latter half of the year. So we’re a little more optimistic than we were just on last quarter, but it still an uncertain year, I think.

Joyce Schuldt

Marshall, the G&A I gave, you are correct. We would come out with some additional guidance for supplemental integration cost as well as G&A related to the WEDGE businesses themselves. But the numbers anticipate the transaction that I gave you, so just so you know that.

Marshall Adkins - Raymond James

Long-term contracts, is anyone still signing a long-term contracts or should we expect that percent under long-term contract to continue dwindling on the schedule you mentioned earlier?

Wm. Stacy Locke

It’s a little hard to say. I mean, we are signing some shorter long-term contracts, in other words more in the six month to one year range. We’re not seeing really anything in the two to three year, but we’re also not forecasting building any rigs at this time. So, I think, we’ll see maybe a moderate decline in the number of term contracts but we are resigning some and so it’s going to be modest I think.

Marshall Adkins - Raymond James

How much did it would cost you to ship that rig that down to Colombia?

Wm. Stacy Locke

Those rigs, Red, they’re running a little over $1 million from the time you load it in the Houston yard.

F. C. “Red” West

All the way to the location.

Wm. Stacy Locke

To the port, on the boat, unloaded and moved from the port in Colombia to location they’ve probably been running $1 million to $1.2 million.

Marshall Adkins - Raymond James

Do you expense that or how do you account for that, is that a one-time deal?

Joyce Schuldt

Along with the revenue that we might receive to ship it to down there, those need to be amortized over the life of the original contract and so we’ll have some bleed out of that over the next say nine to 12 months.

Wm. Stacy Locke

And it’ll be further impacted if we move these other two rigs at least so far we’ve been able to make a nice margin on every mob from the U.S. to Colombia.

Operator

Our next question is from the line of Steve Ferazani - Sidoti & Company.

Steve Ferazani - Sidoti & Company

You mentioned you moved the two rigs out of Utah, does that indicate that you see lesser short-term opportunities in the Rockies or what are you seeing out of that region?

Wm. Stacy Locke

Well, really that was more responding to what we think are needs in Colombia. Those rigs were, as I referred to them, as heavy 1,000-horsepower rigs. Those are rigs that are really designed to drill to 15,000 feet very competitively and those are on the big side for what’s required in the Piceance, Uintah Basin.

And so, we had an opportunity to substitute a more mobile shallower capacity rig in for our operator there in Vernal and take those two rigs out. And we had a contract already in process and we had a good lead on another one and those are two sister rigs. They’re identical and they’re perfectly suited for 1,000-horsepower work in Colombia because they’re heavier than a normal 1,000-horsepower.

They’re 750,000-pound hook load mass and subs, highly mobile and we rigged them with top drives and anyway, they’re in great rigs for Colombian application. So that was really more the driver as opposed to softness or any change there in the Uintah Basin.

Steve Ferazani - Sidoti & Company

Tell me a little bit about what the labor market is like in Colombia. I know that in Argentina there was some strike activity late last year. What’s the market like there is that unionized and what’s the potential risks there?

Wm. Stacy Locke

It’s not unionized, but it is in full employment. It’s a tight labor market there, that’s been a struggle. It’s kind of similar to what we’ve had to experience in the U.S. in ‘05 and ‘06 and early ‘07. It’s just a tight market and you just have to work it out just like we’ve done here in the U.S.

But it’s a very skilled labor market and you have many more employees on the rigs than we operate here in the U.S., which is great from the contractor’s perspective since we have a mechanic, electrician, medic, everything right on location and extra people. So your rigs stays very, very well maintained and we’ve had virtually no downtime, isn’t that true Red?

F. C. “Red” West

That’s true.

Wm. Stacy Locke

Yes, just outstanding operation; so it helps having the extra people.

Operator

Our next question is from the line of Michael Drickamer - Morgan Keegan.

Michael Drickamer - Morgan Keegan

Let me see, U.S. you said in the quarter was $0.23 excluding the tax impact? And in Colombia it was $0.02 excluding the tax impact for the $0.25 net number correct? You expect a slight decrease in that $0.23 number going forward driven by a $200 a day or so decrease in the average daily margin?

Wm. Stacy Locke

That’s correct.

In addition two less rigs because we pulled the one rig out and it’s in Colombia. So it’s still contributing but it’s just now in Colombia so there is going to be 64 U.S. rigs and five international rigs but two of those international rigs are in the yard in Houston waiting for a contract to be exported.

So, from an operating standpoint, we will have 64 rigs in our marketed fleet in the U.S., not 66 and we had 66 in the December quarter. So, you’re going to be hit both with a slight decline in average margins and a slight decline in the rig count which will cause that diluted number most likely to go down a little bit.

Michael Drickamer - Morgan Keegan

So, let me try to reconcile then your guidance for this past quarter with what you have now. If I remember correctly, your guidance was, margins would decrease $400 to $700 a day, was it the U.S. market was better than you had anticipated and therefore you didn’t see that decline or was the impact in Colombia greater than you expected and therefore it offset more of the U.S. decline.

Wm. Stacy Locke

Well, all of the above really, the U.S. was better than we had expected and as Joyce pointed out, our cost control even with the decline in utilization helped meaningfully. It’s hard to control costs when you drop from 90% to 86% utilization. And we were able to do it in this quarter, I’m not sure we can do it every quarter as well as we did.

But it’s just an ongoing battle and as we’re trying to control that cost the best we can. But we had a decline in revenues due to the decline in day rates, but the magnitude was less than anticipated and we gained a little back because we were able to control our cost a little better than anticipated. So, it was those two things.

And then actually the Colombian contribution was a little better than anticipated because of the tax benefit and so that was a little better than anticipated as well. So, it was just a combination of those three factors.

Operator

And our next question is from the line of Mike Urban - Deutsche Bank.

Mike Urban - Deutsche Bank

Obviously since you’re preparing to move some additional rigs down to Colombia, you think the demand is going to be pretty strong there. If for whatever reason that doesn’t materialize, or as you said there is again a little bit more competition showing up in that market, is there anywhere else in the region where you might be able to move some of the existing rigs or take those two rigs to another market in the region or elsewhere?

Wm. Stacy Locke

Well, we really don’t plan on taking any more rigs out of the U.S. for international operations. But with respect to the two rigs that we have in Houston, we hope to take those to Colombia.

But if after a period of time, we’re unable to find the right opportunity in Colombia, we would consider moving those to another international market or consider redeploying them back into the U.S. market. We don’t want to have good iron stacked for an extended period of time.

Mike Urban - Deutsche Bank

And I’m assuming you wouldn’t move those without a contract?

Wm. Stacy Locke

That is correct.

Mike Urban - Deutsche Bank

And on the WEDGE deal, I realize you’re going to provide some additional information, so I am not going to get too specific here. But a couple of those markets, in particular in the workover and the wireline markets in the U.S., have in some cases been experiencing some pricing pressure.

What in general is kind of your working assumption there or the assumptions that kind of went into what you are thinking on what you paid valuation wise or how it’s going to be additive for reducing instability there or you built in some potential for price erosion, I’m just trying to get a sense for where your head’s at there?

Wm. Stacy Locke

Well, I think that we’re forecasting a little softness in those markets just like we’re experiencing in the U.S. markets. But I think historically, if our U.S. drilling market becomes precipitously soft, those markets will decline in those other service lines as well, but they tend not to fall with as big a bang.

So, we are forecasting a little more softness in those markets than when we first looked at the transaction almost a year ago for ‘08. But we still are very optimistic about how they will perform, those three business lines in ‘08 and how they’re going to contribute to our diluted earnings per share. So, we’re feeling very, very good about that even in light of a slight adjustment in the markets going forward.

And further, I think certainly in the workover, there’s a bit of a unique opportunity in that business from our perspective in that, you have a very aged workover fleet out there and with the company that we’re buying all those assets are brand new, so every incremental rig that we add through that acquisition is gaining market share.

And while others that will compete in that business are adding rigs, a fair percentage of what they add will cannibalize their own fleet. So, we see that as a real growth opportunity over the next several years at least and we would like to take advantage of it.

We paid a pretty full price to get a spurs team onboard. We wanted a team that was a championship team. We feel like that group is and we paid dearly for it, but we think that as we add assets once we own it going forward that the opportunity for success will be far greater. So, over the long-term we feel like that was absolutely the right way to go.

Mike Urban - Deutsche Bank

And just to make sure I understand it the right way, your base case expectations and your comments on accretion and valuation you made so far are based on some modest additional pricing decline?

Wm. Stacy Locke

Deterioration, that’s yes, definitely deteriorating relative to ‘07 and we’ll still have very, very material accretion.

Operator

Thank you. Our next question is from the line of Mike Mazar - BMO Capital Markets.

Mike Mazar - BMO Capital Markets

Just to kind of check the math here, so 100% utilization in Colombia that equates to something in the neighborhood of around 160 days, is that true for the quarter?

Wm. Stacy Locke

We have two rigs working the entire quarter and one mid-February, well I guess a little before February.

Mike Mazar - BMO Capital Markets

Sorry, I thought one went on the 25 of October according to last quarters.

Joyce Schuldt

No, you are right, you’re right on.

Mike Mazar - BMO Capital Markets

So the point is does that equate to something in the neighborhood of around $55,000 a day, is there something strange in those numbers or am I looking at this wrong?

Joyce Schuldt

No, remember the mob? The mob revenue is in there.

Mike Mazar - BMO Capital Markets

I thought you’d just mentioned the mob revenues were being amortized.

Joyce Schuldt

They are, but you’re still at the outset, you still have some impact due to the first quarter. Say we have a year contract you’re still getting a huge amount of that hitting one particular quarter.

Wm. Stacy Locke

First two rigs were amortized over a much shorter period because the length of the term was less than a year. We had a greater impact, that’s part of the contribution that we’re seeing in December.

Operator

Our next question is from the line of Judson Bailey - Jefferies & Company.

Judson Bailey - Jefferies & Company

Stacy, you gave EPS kind of guidance for the U.S., what about Colombia as it contributed after the tax benefit $0.02 in the December quarter with costs kind of normalizing a little bit. Do we expect that to tick up a little bit and how should we think about phasing in the other rigs, what’s a reasonable timeframe over the rest of the year if you think about the other rigs potentially going to work?

Wm. Stacy Locke

Well, it’s a little uncertain, but I think we would hope to have the fourth rig there in the next two to three months and the fifth rig maybe a couple of months after that. It’s just hard to know right now. But we’re not offering up guidance really assuming those rigs are in place yet because we don’t have the timing on it. So, what we were suggesting is, maybe carry the $0.02 into the next quarter and maybe a slight uptick in the following quarter.

Operator

Our next question is from the line of Joe Agular - Johnson Rice & Company.

Joe Agular - Johnson Rice & Company

Stacy, are you evaluating any other international markets such as Mexico?

Wm. Stacy Locke

Well, we are not evaluating Mexico. We’re aware of the opportunities in Mexico. But we’re probably more closely evaluating opportunities nearer to Colombia.

But I think from a practical standpoint for ‘08 due to the acquisition that we’re soon to close, we probably are not anticipating a material change in the international. We’re going to stay focused on Columbia primarily for ‘08 and then build our plan more for next year. We need to kind of get the WEDGE deal digested and pay down a little debt this year.

Joe Agular - Johnson Rice & Company

But it sounds that you think there are opportunities?

Wm. Stacy Locke

Absolutely, absolutely.

Joe Agular - Johnson Rice & Company

Have you thought through how some of these rig migrations might impact the U.S. market going out whatever a year or two?

Wm. Stacy Locke

Well, I have heard other drilling contractors are pursuing more international opportunities and I think that’s great for the U.S. market, because we’re clearly oversupplied here in the U.S. And I think any rigs like the two we’re moving out and I’ve heard of some others moving rigs out, that’s a benefit to the U.S. market.

So, I think we’ll just see the world is a big market and there are lots of areas to explore. I would say in the near term, we’re focused a little more on South America because we see opportunities there and we like to cluster around what we’ve established in Colombia.

Operator

There are no additional questions at this time. I would like to turn it back to Mr. Locke for any closing remarks.

Wm. Stacy Locke

We appreciate you all participating in the call this morning and we look forward to visiting perhaps next week or the week after to provide some further discussion on the WEDGE acquisition. Thank you very much.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!