Patterson-UTI Energy Inc at Cowen Energy & Natural Resources Conference

New York Dec 8, 2016 (Thomson StreetEvents) -- Edited Transcript of Patterson-UTI Energy Inc presentation Wednesday, December 7, 2016 at 7:25:00pm GMT

TEXT version of Transcript

Corporate Participants

   * Andy Hendricks

      Patterson-UTI Energy, Inc. - President & CEO

Conference Call Participants

   * Marc Bianchi

      Cowen and Company - Analyst


 Marc Bianchi, Cowen and Company - Analyst [1]

 All right, thank you. This is the last fireside for the day in service. We're delighted to have Patterson-UTI, and President, Chief Executive Officer Andy Hendricks with us.

 Patterson, as many of you know, has a land drilling and pressure pumping business. Their pressure pumping business operates in the Northeast and in Texas and really is a very focused company. Knows the cycles, has just the right amount of leverage, and has been a pretty good executor.

 So, with that, I'll turn it over to Andy to make a few opening remarks and then we can do some Q&A.

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [2]

 Thanks, Marc. Thanks for having us here today.

 We're in some interesting times in the market, especially with the pronouncement, or the agreement, with OPEC. And I think one of the discussions that we've been in earlier today and even a little bit last week was: What does that mean for us as a company?

 I think the interesting thing that we see happening in the market today, and especially if you look at our drilling business to start off with, the rigs that have been going out for us and been activated over the last couple of weeks and rigs going out over the next week or so, and even the discussions we're in today, none of this was predicated on OPEC's pronouncement. This was all the result of WTI in the US being at a level in the upper 40s and higher. So the pronouncement of OPEC, assuming the E&Ps get some comfort in that over the next few months, could provide even a little bit more upside for us as well.

 So we really just haven't been in any discussions yet because of the OPEC announcement.

 Marc Bianchi, Cowen and Company - Analyst [3]

 Okay. Well, that was my first question.

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [4]

 Sorry about that.

 Marc Bianchi, Cowen and Company - Analyst [5]

 Maybe very high level before we get into all the specifics of Patterson that are so interesting to talk about, you spent a bunch of years with Schlumberger, got a lot of experience in the industry. We've seen a few -- one high profile merger, one high profile merger that didn't go through. A lot of talk about data analysis, a lot of talk about integration -- is there a change in the competitive landscape that you see? What do you think is going to be different over the next 5, 10 years that might not have been that way previously?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [6]

 Well, when I look at our two business lines, drilling and pressure pumping, they're a little bit different for each. First, the whole discussion of mergers and acquisition, in pressure pumping we still have over 30 companies that we compete against across the regions that we work in. We work in Texas; we work up in the Northeast.

 And any consolidation in that sector is positive. We've acquired three pressure pumping companies since 2010, but during the downturn we've seen private equity step in now with three big deals, relatively big deals. And we see that play working really well to consolidate the sector. And so, any consolidation, whether we're doing it or somebody else is doing it, we think is positive for pressure pumping, to help kind of clean up some of the challenges in that particular market.

 Drilling's a little bit different. It's already relatively consolidated for high-spec rigs, highly competitive but relatively consolidated. So we don't see so many opportunities there.

 The way the market's moving over the next few years, there's certainly some technical challenges that I think we're working to address. We don't get into discussing a lot of the things that we're working on just for competitive reasons.

 But we certainly think, for instance, in the drilling business that software will be a bigger part of the rigs going forward. We have some of our own projects. We work with other companies in that area, too. We like to think of the APEX rig as an open platform in terms of what others can do on a rig. We're not tied to any particular directional drilling company, so any directional drilling company that's been working on automation can come out and plug into our rig and we can work together on those aspects. And I think there's things like that that are going to be interesting over the next four to five years in drilling.

 Marc Bianchi, Cowen and Company - Analyst [7]

 And that's kind of the next question I had for you. We hear a lot about these leading edge trends for rigs with increased mud pump capacity, walking capabilities, racking capabilities. And that's all the stuff that everybody's been talking about for a couple quarters now.

 But it sounds like the software piece -- we had Precision up here talking about the automation piece and closed loop. What are some of the leading edge technologies on the drilling side that we could see become part of those three or four things that we've been rattling off for the last couple quarters?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [8]

 I think at the end of the day it's about how effective the rig is, how efficient it operates. And we've been talking about what we call a super-spec rig. And I give Mike Drickamer credit for that term in the industry. He was one of the first ones to use that.

 But it really begins with that 1,500 horsepower drawworks load capacity on a mast and substructure that's rated for 750,000 pounds. Once you have that and you go to the high-pressure circulating system and then you go to a walking system, that's really kind of what we describe as the core of the super-spec rig. And that's what the market's been asking for since June.

 The interesting thing in the shift in the market is that back in June and July we couldn't get anything extra for having a fully loaded capable rig with those specifications. Now we're at the point where we're almost essentially sold out of those specifications.

 We need to do some upgrades on some existing rigs where we can add the high-pressure circulating system, we can add the walking system. And to do those upgrades, we're starting to push the E&Ps now for additional day rate to help compensate for the capital investment that we're going to make on those rigs.

 And so that's where we see a shift. We're hopeful that some of our competitors are out there pushing the same way as we're trying to push, because we think the market is tightening up in that regard.

 Marc Bianchi, Cowen and Company - Analyst [9]

 So fair to say upgrades that Patterson's doing are not on spec?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [10]

 The upgrades that we're doing, we're just trying to stay ahead of the market. So we're not saying we have a remaining, call it, 42, 44 rigs that we can upgrade. And we're not going on a wholesale capital spend to just upgrade all those rigs.

 What's important to us is to stay just ahead of the market so that we have those rigs available. But we're also wary of capital expenditures in 2017 and just trying to maintain things within cash flow.

 Marc Bianchi, Cowen and Company - Analyst [11]

 Okay. Going along with drilling, how are you seeing the rate environment? Another company talked about there was a little bit of increase off the bottom here, but now maybe we have a pause. Anything you can say about how that landscape looks?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [12]

 In terms of spot rates, I really try to avoid calling out any particular numbers. We work for customers in kind of a range. Some customers are paying a little bit higher. Some customers are paying a little bit lower. And I don't want to be throwing any particular customers under the bus.

 But I do think that we are hearing anecdotally that some of the drilling contractors are starting to raise their pricing. And you have to look at the dynamics of what we've seen in the market since, let's call it, June/July.

 As we worked our way into this downturn from beginning of 2015 to 2016, we were one of the beneficiaries in gaining market share. A lot of that had to do with the contract coverage that we had over the last year and a half.

 And as the market started to put out rigs, we really tried to focus on margin and protecting the pricing on APEX rigs. And so we weren't willing to work rigs as cheap as some other companies were. And some other companies had lower utilization. They were willing to work at lower rates and put rigs out.

 And so, yes, we've given up some share and that doesn't concern us one bit. We're focused on protecting the pricing on APEX rigs. And I think some of those drilling contractors do have room to raise their pricing and you're starting to hear that anecdotally now.

 Marc Bianchi, Cowen and Company - Analyst [13]

 Not necessarily for Patterson, but maybe as you think of the competitive landscape, how do you think about all these other guys that can upgrade rigs to something that's super premium? And how does that sort of maybe loosen the tightening supply/demand balance here? Because if everybody starts adding all these walking systems and everything like that, is there a number -- 600 rigs or 700 rigs in the market that can be upgraded to this capability? How do you think about that?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [14]

 So if we break down the market and we look at the number of high-spec rigs that are in the total market, in round numbers let's call it 1,000 rigs. And of those 1,000 rigs, there's probably only about 700 that are at that 1,500 horsepower in the drawworks. And then, of that 700 only 600 of those have the higher-capacity mast and sub at 750,000 pounds or greater.

 So now you're at 600 rigs that either are or can be upgraded. There's probably about 300 of those that are working. There's probably about another 300 that aren't working that need various upgrades on the circulating system or add a walking system to get them to that level. So that's how we see that kind of rig count.

 So that means that there's probably another 300 rigs that can be upgraded in the market in total. Now, some of those rigs are in basins that just are not active right now. So a number of those rigs are sitting up in North Dakota. And with today's WTI price in that $50, $51 level, that's just not an interesting number for WTI for most operators that have an option to work in the Bakken or not.

 And so, while there's still a number of rigs that can be upgraded, they're not all in basins that are interesting. And the cost to move those rigs on spec, it's still a fair amount of money.

 So when we look at that, there's probably another 100 to 200 rigs that can be upgraded and work in competitive basins. And that's just not a large number of rigs. You know, with oil trading where it is, if it stays at this level we're going to continue to put out rigs. Our competitors are going to continue to put out rigs. And that market will continue to tighten.

 And that's why I believe -- and we said this at the last earnings call, that that's why I think that in the fourth quarter and going into 2017, because the rig count continues to go up, the industry has the ability to raise pricing a little bit.

 Marc Bianchi, Cowen and Company - Analyst [15]

 We're certainly hearing about it.

 How do you think about capital allocation towards new builds? And when do you think we start seeing more meaningful new builds in the market?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [16]

 So today we have no plans to build any new rigs. Even looking at what we're going to project and work on for the 2017 budget, it's highly unlikely that we'll put any new builds into the 2017 budget.

 The market's going to have to improve from that standpoint. And it's really -- I've described it as a two-step process. There's first the technical need. So as we upgrade another 200 rigs or so in the market and get them to that super spec, then we're probably going to reach a point where some of the E&Ps are calling us saying: Look, we'd really like a super-spec rig. We'd like all the technical specifications. But we'd just like a new rig.

 Some of them may call us and say: Hey, I've got a three-year program. I don't just want an upgraded rig. I just want to start fresh with a new one.

 Okay, that's usually where it starts the conversation. But then there's the economic discussion. The market has to be able to take that. So we're going to need some kind of day rate in the mid-20s to give us that EBITDA payback on that investment. And then we're going to need a multiyear contract as well.

 So we may be at the point for the technical discussion sometime in 2017, but we may not be at the point of finding an economic agreement between ourselves and our customers. We'll just have to wait and see what WTI does and what the total rig count does.

 Marc Bianchi, Cowen and Company - Analyst [17]

 Are you worried that some of the competitors are willing to get out ahead of that and be a little bit more speculative? Or do you think everybody will behave?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [18]

 I think in general everybody will behave. I know we have one competitor that's gone ahead and launched a new line of drilling rig. From what I understand, they're filling a gap in the technical portfolio. I think if we had a gap we might look at doing the same thing. But we're very happy with our APEX XK rig. It's been working very well in the US so we don't see any problem there.

 Marc Bianchi, Cowen and Company - Analyst [19]

 Okay. Jamie, go for it.

Questions and Answers

Unidentified Audience Member [1]

 Andy, [given that the] additional requirements for the new rigs most likely have relative to the last round of (inaudible)? In the last round (inaudible) day rates to be justifiable or earning enough return, especially given that we're going to continue to have inflation on the cost side? So rigs were being billed mid- to high-20s last time. Do you think people will really prosecute a program at only a mid-20s rate?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [2]

 Well, I think we would certainly look at it. And if you look at what we were doing, you look at the contracts we were signing in 2014 and the rigs we were building in 2015 for the delivery on those contracts, they were essentially fully loaded, capable rigs.

 And those contracts were signed in the upper 20s, but they were giving us an EBITDA payback period of around 4.2 years, which was faster than we'd normally get. You know, we're okay with getting a five-year -- we might even look at little bit longer than five, given the time and the market that we're in right now. So mid-20s would probably give us an adequate payback period of EBITDA level that would be okay for us.

 Marc Bianchi, Cowen and Company - Analyst [3]

 Are there other services that you can -- or I guess I know there are other services. You just did this Warrior acquisition that may offer you some opportunity. But tell us about the opportunity to add services with Warrior. And then tell us about how you're thinking about adding additional services beyond that.

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [4]

 I appreciate your bringing up Warrior. It's an acquisition we're very excited about. It's certainly not a big acquisition in terms of dollars, but very exciting for the potential that it brings to our company.

 If you look at the transformation that our drilling business has gone through since 2006, since we first started building APEX rigs and transitioning from legacy-style rigs to high-spec rigs, Warrior just gives us much more capabilities. And to give you a little background on Warrior, they're a drilling rig equipment manufacturer that specializes in top drives and some other products. It's based up in Calgary.

 We started looking at their products two years ago, to vet them as a supplier for top drives. We were interested in a higher-torque top drive than what we currently use today. And we see the market starting to move in that direction, not to the point where we get very many requests yet, but I think that will be one of the next things we get requests for over the next few years. And we also needed a higher-torque top drive for our ambitions in the Middle East, whenever that market starts to recover as well.

 So we got to look at that technology, along with some others, but in vetting their technology got to where we really liked it and were satisfied with the test work that they had done and some of the commercial sales and commercial work they were already doing in the field with it.

 When it came to the point of actually cutting a PO we were actually worried about the financial health of their business and their ability to continue to support us. So we changed the tone of the discussions. And it became a mutual agreement that we'd just join up.

 And so Warrior's going to operate as a separate entity under Patterson-UTI Energy, separate from the drilling business, separate from pressure pumping. They'll continue to service customers that they sold top drives to around the world. They'll continue to ship spare parts and provide service. And they'll build and sell top drives to various contractors in different countries as they did in the past going forward. But at the same time, Patterson-UTI drilling will transition to be their largest customer.

 The first thing that we're doing with Warrior, we're building out and expanding their US service center. So they were set up to rebuild, recertify their own top drives. We're expanding their capabilities in the US to rebuild and recertify our existing top drive fleet. We own over 200 top drives in our drilling company today.

 Every five years of active use of a top drive requires a rebuild and recertification that costs around $400,000. So if you figure a 35% to 40% margin that's baked into that with the third-party suppliers that we use, when we transfer that internally to Warrior at their US service center, then that just sends the cash into Warrior and allows us to retain the margin at Patterson-UTI Energy.

 So we're very excited about being able to inject cash flow into a manufacturing company and a technology company today that may not sell any new top drives for a while just because of the market, but we can inject service cash flow and they can continue to do some of the interesting engineering that they've been doing over the last few years and continue to engineer some interesting products.

 One of the things that we like about the new top drive, the way it's designed -- and it's very different from others in the market. When you combine that with their -- [iron roughneck] equivalent, their pipe-handling tongs that go on the rig floor, you can run casing without any additional equipment on the rig. And so it doesn't require any special tongs. It doesn't require what we call a CRT, casing running tool. And so that gives us the flexibility when we start to put their new top drive on rigs in the future, we can run casing without bringing additional equipment to the rig.

 So that's just one of the interesting capabilities. And there's other things we could talk about with Warrior. It's a small acquisition, not a lot of dollars, but it brings us some interesting optionality going forward in the future.

 Marc Bianchi, Cowen and Company - Analyst [5]

 What's the timeline to be running casing? Is this something that's three or four years away? Or could we see it later this year -- later in 2017?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [6]

 Yes, there's a possibility we could have a top drive on our rig late in 2017, early 2018, for the first go. But I wouldn't expect to see more of their top drives in our rigs for the next probably, let's say even three to five years, and expand it out. We're certainly not in the cash process of updating all the top drives on the rigs. We're still in the mode of watching our cash at Patterson-UTI.

 Now, that being said, if there are specific customer requests and customers want to help invest for that upgrade, then we'll certainly look at that, and that would be a little quicker that way.

 Marc Bianchi, Cowen and Company - Analyst [7]

 Okay. Are there any other services that you can add to the rig offering that you don't currently have?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [8]

 Today we're not looking at any. And I know some of our competitors have various other services. As I mentioned earlier, we keep the APEX rig as an open platform. And we don't need to be tied right now to a particular directional drilling company. But if any directional drilling company, whether it's Schlumbergers, or Bakers or however wants to come out and run their services, and if they've been working on something interesting in the area of automation, we'll work with them so that they can tie into our rig and we'll work together on the controls that way.

 Marc Bianchi, Cowen and Company - Analyst [9]

 Okay. Last question on drilling. You mentioned requirements in the Middle East. And you've looked at expanding internationally in the past and have not. Are you closer to doing something about that? What's the current thinking about international expansion for Patterson?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [10]

 Well, we had some great timing in setting up our office in Dubai. It was right about two years ago. So the market just hasn't been in our favor in that direction. But we've kept our small team over there. We've worked on all the organic things that we need to work on in terms of registering businesses, opening bank accounts -- which, by the way, takes a lot longer than it does over here.

 But, yes, we're in a position to start to bid on some work. And when some of these tenders come out you'll see us bid on them. It doesn't mean we're going to be successful on the first round. It'll be our first opportunity to fill in some of the boxes over there.

 But we are going to actively pursue some work over there over time. It's long-term strategy, long-term growth, organic for Patterson-UTI.

 Marc Bianchi, Cowen and Company - Analyst [11]

 Great. You've talked about I think a 20% to 30% price increase that's needed in frac to reactivate equipment. Correct me if I've got that wrong. But just curious: What is the underlying cost inflation assumption that you're using when you talk about those numbers?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [12]

 When we look at the frac spreads that we have currently stacked -- and in our terminology, we either have active or we have stacked. And right now, 47% is active, 53% of our 1 million horsepower is stacked.

 When we look at what it takes to bring out a spread, in terms of total cash cost it's about $2 million to activate a spread. Now, that includes labor. That includes maintenance OpEx and maintenance CapEx. But it's around $2 million total cash cost, and mostly on the labor. In terms of labor, it's going to be 100 to 110 people and we're going to carry those costs for a month before we ever start generating any revenue from the spread.

 And that's why when we look at it we want to make sure we have some visibility on the ability to raise prices. And we'd like at least 20% or more to be able to do that.

 And so, we do believe that activity continues to increase in pressure pumping. Activity in pressure pumping is going to follow the increases in the rig count that you're seeing today in all the numbers. As activity starts to tighten up, you know, companies are out there and they're activating spreads. Not everybody's asking for a price increase, and that's one of our competitive challenges in a very challenging market. But we're going to hold out and try to make sure that we have some visibility on price increase before we activate any spreads.

 Marc Bianchi, Cowen and Company - Analyst [13]

 Okay. What sort of cost inflation items are you watching? Where do you think we'll see cost increase first? Any comment on how much those could increase, or have increased?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [14]

 You know, it's going to be the traditional cost inflation. The first one and probably the most challenging for the whole industry, not just us, is going to be around labor. In drilling, for instance, we kept the wages at the drilling rigs the same for the position. In pressure pumping we've cut back on overtime. We've cut back on per diem. It's just been a more challenged business environment.

 And so there is going to be some inflation in labor in pressure pumping. I think everybody is going to have it, not just us. It's going to be more challenging to recruit.

 I think a lot of people don't realize if you go to Midland, Texas today, even though we've been in this downturn for two years, the unemployment rate in Midland, Texas is still lower than the national average. Many of the people that work in the oilfields in West Texas typically rotate in from other cities around Texas or other cities around the US. And if they've been gone for six or nine months, they're starting to get absorbed into their local workforce and may or may not be so interested to come back to work in an oilfield.

 And so recruiting is going to be a big challenge for the industry in general as we go forward. And once somebody has been out of our business for six to nine months, it's tough to get them back. If they've only been gone six months there's a good chance. So it's really kind of a timing problem in getting people back. So that's going to be the first challenge in pressure pumping when it comes to inflation.

 After that, you've got our traditional oilfield suppliers that are supplying your pump parts and components for fracking. Those are going to start to increase I suspect in 2017. But we haven't seen it yet.

 There's been a lot of discussion around sand. Now remember, when we price a job and we're providing sand and chemicals for a customer, we're already negotiating what that sand price is going to be for us. Then we're going to mark it up with a very small -- trust me, very small, slim margin for the customer. So it's almost a pass-through. We have to make sure we don't lose money on sand.

 Today we've been able to get sand. We haven't seen sand pricing moving up, but I expect it to move up as activity increases.

 We have seen increasing volumes in West Texas. And so that's been one of the challenges. But it's not a touchpoint that's insurmountable yet. We're not near the volumes that we were pumping back in 2014. And so, we're not there yet in terms of being tight. But I do expect as activity improves into 2017 we will see sand prices move up in general in 2017.

 Marc Bianchi, Cowen and Company - Analyst [15]

 We've heard a lot of comments about trucking so far. And when you say sand, does that include trucking or is that another item that could also be an issue? And, if so, are you exposed to that? Or is that something that can be passed along to the customer?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [16]

 When we talk about sand pricing at Patterson-UTI, we're talking about just the sand itself. We manage the logistics ourselves for the most part. And when it comes to trucking, that will be the next thing on the list. Trucking prices will start to go up in 2017. We saw that as a pinch point in 2014.

 At Patterson-UTI, we own a number of our own sand-hauling trucks. Interestingly enough, today we're not even rolling those trucks, because the third-party sand haulers are absolutely willing to work at such low rates. It's probably negative cash flow for them, similar to some of our competitors in pressure pumping.

 And so it's actually cheaper for us to use third-party trucking today. In 2017, when those prices start to go up for us, then we'll start to roll our own trucks. That will kind of cap that part of the market for us and provide some relief. But then I think sand hauling will start to even move up further after that.

 But we own a number of our own trucks that we're not even rolling right now. And I expect that we'll start to accrue those up sometime in 2017 when the third-party prices go up.

 Marc Bianchi, Cowen and Company - Analyst [17]

 Okay. Got time for a couple questions. Anyone in the audience?

Unidentified Audience Member [18]

 I mean, have you thought about different (inaudible) solutions than just straight pneumatic trucking?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [19]

 Today we just -- for us it's sand-hauling trucks. That's the way we run our business. At the well site, we use a storage system called Proplogic that's a gravity feed system. And then we can move the sand from [rail spur] or [trans load] with the trucks and straight to the well site and load it in our Proplogic system. That's the way we do it today.

 We've looked at a variety of different systems. And we've even worked with one customer, one operator, who provides their own sand that uses a different system for storage. So we've worked with various systems. But today we like the one that we have. And it fits all the jobs that we do.

Unidentified Audience Member [20]

 Can you just touch on kind of what you're seeing in the Permian in terms of pricing on the level of rig as well as pressure pumping?

 And then can you just touch on Canada, if you're seeing the opportunity there to expand or maybe divest, or how you're kind of viewing Canada at this point in time?

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [21]

 So let's start with drilling and pricing. I try to stay out of these pricing discussions for a lot of different reasons. But, in general, this is what I've been saying.

 As we put out rigs, high-spec drilling rigs, pricing is going to go up. Because it's a relatively consolidated market. I think there's some relative discipline. It's still highly competitive. Don't get me wrong. But we've seen some of our competitors, they've already improved their utilization off the bottom with the activity levels that we saw in mid-summer.

 So I am hopeful that they can raise their pricing and get it closer to our level of pricing. And overall, fourth quarter going into 2017, as rig count continues to go up, rig pricing is going to continue to go up. That's really my general discussion on rig pricing.

 In pressure pumping, we've been trying to stay cash positive in this business. We've had some of the higher pricing in the industry. Now we weren't successful -- you know, we stayed cash positive in the third quarter. In the fourth quarter we expect to be cash positive at the field level again.

 Really it's a function of some overhang that we had in the third quarter on some higher maintenance OpEx costs. But it's not a pricing component yet.

 I do think there's the possibility that the industry sees the ability to move pricing in 2017, maybe even the first half of 2017, just based on the increased drilling activity that's out there. And if you look at our calendar for how we book the frac jobs, in the third quarter we probably had about 25% open space -- I'm sorry -- in the second quarter it was 25%. In the third quarter it was down to 15%, which means just a day here or two days here, so we're really starting to get tight.

 We're almost at that point that for us to take large-pad work after that we'd have to activate a new spread. We already talked about that. We don't want to do that unless we get some visibility on price increase. But the market is definitely tightening up in that direction.

 Marc Bianchi, Cowen and Company - Analyst [22]


 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [23]

 Canada. Yes, that's a great question. So we've been in Canada for a long time. Canada in general, and certainly for the time I've been with the Company, hasn't been the best return on capital for us. The best return on capital for our company has been to invest in the US because you can drill for 365 days a year. The Canadian market, because of breakup, you're talking about on average 270, 280 days a year.

 Now, that's starting to change and we saw that shift starting in 2013. We were able to sign a contract on a new rig, an APEX XK that went to Canada. We also signed a term contract on a refurbished upgraded rig that we had up there. And those started contracts back in the summer of 2014. So we started making some material capital investment into Canada back in 2014. And I think for us that will continue once we get out of this downturn situation that we're in.

 Very excited that, even though it's only two rigs for us working right now, the last numbers I saw showed these to be the top two performing rigs in all of Western Canada in terms of footage today. So we're certainly doing well in terms of performance. The APEX XK is the top performing rig across North America. And it proved it in Canada as well, even through the winter season. And so it's just a matter of that market coming back. There's certainly interest in our technology, but the economics aren't there for us yet.

 Marc Bianchi, Cowen and Company - Analyst [24]

 Okay, great. That's all the time we have. Thanks a lot, Andy.

 Andy Hendricks, Patterson-UTI Energy, Inc. - President & CEO [25]

 Sure. Thanks, Marc.