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Article by DailyStocks_admin    (11-20-08 02:16 AM)

Filed with the SEC from Nov 06 to Nov 12:

Rowan Cos. (RDC)
Steel Partners II reduced its holdings to about 8.5 million shares (7.5%) from the 10.05 million (8.9%) that it had reported owning on June 30.

BUSINESS OVERVIEW

BUSINESS

Rowan Companies, Inc. (hereinafter referred to as “Rowan” or “the Company”) is a major provider of international and domestic contract drilling services. Rowan also owns and operates a manufacturing division that produces equipment for the drilling, mining and timber industries. Organized in 1947 as a Delaware corporation under the name Rowan Drilling Company, Inc., Rowan is a successor to a contract drilling business conducted since 1923.

Information regarding each of Rowan’s industry segments, including revenues, income (loss) from operations, assets and foreign-source revenues for 2007, 2006 and 2005 is shown in Footnote 10 of the Notes to Consolidated Financial Statements on pages 72-75 of this Form 10-K.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are made available free of charge on our website at http://www.rowancompanies.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

DRILLING OPERATIONS

Rowan provides contract drilling services utilizing a fleet of 21 self-elevating mobile offshore drilling platforms (“jack-up rigs”) and 29 deep-well land drilling rigs. Our primary focus is on high-specification, premium jack-up rigs, which we use for exploratory and development drilling and, in certain areas, well workover operations.

We conduct drilling operations primarily in the Gulf of Mexico, the Middle East, the North Sea, Trinidad, offshore eastern Canada, and, beginning in 2008, offshore West Africa, and onshore in the United States. At February 26, 2008, our jack-up rigs were located in the Middle East (9), the Gulf of Mexico (8), the North Sea (3) and Trinidad (1). Our land rigs were located in Texas (22), Oklahoma (3), Louisiana (3) and Alaska (1). Relocation of equipment from one geographic area to another is dependent upon changing market dynamics, with moves occurring only when the likelihood of higher returns makes such action economical over the longer term. In recent years, we have reduced our operations in the Gulf of Mexico and increased our presence in areas where markets are stronger. We returned to the Middle East market in 2006 with four jack-up rigs, doubled our operations there in 2007 and have a ninth rig currently en route from the Gulf of Mexico.

During 2007, our drilling operations generated revenues of $1,382.6 million and income from operations of $661.8 million, compared with $1,067.4 million and $447.7 million, respectively, in 2006.

Offshore Operations

Rowan operates larger, deep-water type jack-up rigs capable of drilling to depths of 20,000 to 35,000 feet in maximum water depths ranging from 250 to 550 feet, depending on the size of the rig and its location. Rowan has aggressively grown its jack-up fleet over the past decade to serve the needs of the industry for drilling in deeper water and harsher environments and is particularly well positioned to serve the niche market for hard-to-drill, deep offshore gas wells.

Our jack-ups are designed with a floating hull that is fully equipped to serve as a drilling platform and three independently elevating legs. The rigs are towed to the drilling site where the legs are lowered until they penetrate the ocean floor and the hull is jacked up to the elevation required to drill the well. Rowan’s rigs are equipped with propulsion thrusters to assist in towing between drilling sites.

Rowan’s jack-up fleet offers the latest technology, including cantilever jack-ups that can extend a portion of the sub-structure containing the drilling equipment over fixed production platforms to perform drilling operations with a minimum of interruption to production. Some of our conventional jack-ups feature “skid base” technology, which enables the rig floor drilling equipment to be “skidded” out over the top of a fixed platform. Conventional rigs outfitted with skid base technology can be used on some drilling assignments that previously required a cantilever jack-up or platform rig. All of our rigs feature top-drive drilling systems, which are automated pipe-handling systems that greatly accelerate the drilling process. At February 26, 2008, Rowan’s offshore drilling fleet included the following:


• 17 premium cantilever jack-up rigs, featuring three harsh environment Gorilla class rigs, four enhanced Super Gorilla class rigs and three Tarzan Class rigs, as described below. One of the cantilever jack-up rigs is held under an operating lease that expires in June 2009.

• Four conventional jack-up rigs, including three rigs with skid base capability

Our Gorilla class rigs, designed in the early 1980s as a heavier-duty class of jack-up rig, are capable of operating in water depths up to 328 feet in extreme hostile environments (winds up to 100 miles per hour and seas up to 90 feet) such as in the North Sea and offshore eastern Canada. Gorillas II and III can drill up to 30,000 feet, and Gorilla IV is equipped to reach 35,000 feet.

We also have four Super Gorilla class rigs, which are enhanced versions of our Gorilla class rigs featuring simultaneous drilling and production capabilities. They can operate year-round in 400 feet of water south of the 61st parallel in the North Sea, within the worst-case combination of 100-year storm criteria for waves, wave periods, winds and currents. We also operate the Bob Palmer (formerly the Gorilla VIII ), an enhanced version of the Super Gorilla class jack-up designated a Super Gorilla XL. With 713 feet of leg, 139 feet more than the Super Gorillas , and 30% larger spud cans, this rig can operate in water depths to 550 feet in relatively benign environments like the Gulf of Mexico or in water depths to 400 feet in the hostile environments offshore eastern Canada and in the North Sea.

In 2004, we completed construction of our first Tarzan Class rig, which was specifically designed for deep drilling in benign environments, offering capabilities similar to our Super Gorilla class jack-ups at around one-half the construction cost. The first one completed, the Scooter Yeargain , was followed by the Bob Keller in 2005 and the Hank Boswell in 2006. A fourth Tarzan Class rig which was under construction at a third-party shipyard will soon be relocated to our Sabine Pass, Texas facility and is expected to be completed in the fourth quarter of 2008.

In November 2005, Rowan’s Board of Directors approved the design and construction of a new class of jack-up rig, specifically targeting the market for high-pressure/high-temper ature drilling in water depths to 400 feet. With more deck space, higher variable load capacity, greater hook-load capability, more cantilever reach and greater personnel capacity, we believe the 240C class will set a new standard as the replacement for the industry’s current fleet of 116C class rigs, which have been the “workhorse” of the global drilling industry for more than 25 years. Construction of the first 240C should be completed in the third quarter of 2008, with the second rig scheduled to arrive in 2009. Two additional 240C jack-ups have been approved, with delivery expected in 2010 and 2011.

On November 1, 2007, we signed contracts with Keppel AmFELS, Inc. to have four Super 116E class rigs constructed at their Brownsville, Texas shipyard, with delivery expected in 2010 and 2011. We estimate that each rig will cost approximately $175 million, with more than a third of that amount attributable to the cost value of the design, kit components and drilling equipment to be provided by our manufacturing businesses. The Super 116E class will employ the latest technology to enable drilling of high-pressure, high-temperature and extended-reach wells in most prominent jack-up markets throughout the world. Each rig will be equipped with the hook-load and horsepower required to efficiently drill beyond 30,000 feet.

Rowan’s current fleet expansion program began in 1995 following our acquisition of the manufacturing and rig-building operations formerly conducted by Marathon LeTourneau Company (now called LeTourneau Technologies, Inc.), which has designed all of the Company’s jack-up rigs. Our manufacturing division is an important part of our commitment to remain at the forefront of jack-up design and technology.

All of our rigs currently under construction are being built without contracts from end users.

See ITEM 2. PROPERTIES beginning on page 17 of this Form 10-K for additional information with respect to the capabilities and operating status of the Company’s rigs.

For a discussion of Rowan’s availability of funds in 2007 to sustain operations, debt service and planned capital expenditures, including those related to rig construction, see “Liquidity and Capital Resources” under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 38-45 of this Form 10-K.

Onshore Operations

Rowan has drilling equipment and personnel available on a contract basis for exploration and development of onshore areas. The company added three newly constructed land rigs during 2007. At February 26, 2008, our fleet consisted of 29 deep-well land rigs. Two additional rigs are under construction for delivery during the first half of 2008.

Contracts

Rowan’s drilling contracts generally provide for a fixed amount of compensation per day, known as the day rate, and are usually obtained either through competitive bidding or individual negotiations. A number of factors affect our ability to obtain contracts, both onshore and offshore, at a profitable rate within a given area. Such factors include the location and availability of competitive equipment, the suitability of equipment for the project, comparative operating cost of the equipment, competence of drilling personnel and competitive factors, as discussed under “Competition” below. Profitability may also depend upon receiving adequate compensation for the cost of moving equipment to drilling locations.

When weak market conditions characterized by declining drilling day rates prevail, Rowan generally accepts contracts at a lower day rate in an attempt to maintain its competitive position and to offset the substantial costs of maintaining and reactivating stacked rigs. When drilling markets are strong and day rates are increasing, we have historically pursued short-term contracts to maximize our ability to obtain higher rates and pass through any cost increases to customers. In recent years, with rates improving to record levels, we have increasingly pursued long-term contracts in order to enhance future revenue predictability.

Our drilling contracts are either “well-to-well”, “multiple-well” or for a fixed term generally ranging from one month to four years. Well-to-well contracts are cancelable by either party upon completion of drilling at any one site, and fixed-term contracts usually provide for termination by either party if drilling operations are suspended for extended periods by events of force majeure. While most fixed-term contracts are for relatively short periods, some fixed-term and well-to-well contracts continue for a longer period than the original term or for a specific series of wells. Many drilling contracts contain renewal or extension provisions exercisable at the option of the customer at prices agreeable to us. Most of our drilling contracts provide for additional payments for mobilization and demobilization costs, which we recognize as revenues and expenses over the primary contract term, and for reimbursement of certain “rebillable” costs, which we recognize as both revenues and expenses when incurred. Our contracts for work in foreign countries generally provide for payment in United States dollars except for minimal amounts required to meet local expenses.

Our drilling revenue backlog was estimated to be approximately $2.1 billion at February 21, 2008, down from approximately $2.2 billion one year earlier. However, we believe that the contract status of Rowan’s onshore and offshore rigs is more informative than backlog calculations due to the indeterminable duration of well-to-well and multiple well contracts and the cancellation options contained in many term contracts. See ITEM 2. PROPERTIES beginning on page 17 of this Form 10-K for the contract status of the Company’s rigs as of February 21, 2008.

Competition

The contract drilling industry is highly competitive and success involves many factors, including price, equipment capability, operating and safety performance and the contractor’s reputation. We believe that Rowan competes favorably with respect to all of these factors.

We compete with several offshore drilling contractors that together have more than 600 mobile rigs available worldwide. Our onshore operations compete with several domestic drilling contractors that have a total of about 200 deep-well land rigs available. Based on the number of rigs as tabulated by ODS-Petrodata, Rowan is the eighth largest offshore drilling contractor in the world and the sixth largest jack-up rig operator. Some of our competitors have greater financial and other resources and may be more able to make technological improvements to existing equipment or replace equipment that becomes obsolete.

Rowan markets its drilling services by contacting present and potential customers, including large international energy companies, many smaller energy companies and foreign government-owned or controlled energy companies. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 27-45 of this Form 10-K for a discussion of current industry conditions and their impact on operations.

Regulations and Hazards

Rowan’s drilling operations are subject to many hazards, including blowouts and well fires, which could cause personal injury, suspend drilling operations, seriously damage or destroy equipment, and cause substantial damage to producing formations and the surrounding areas. Offshore drilling operations are also subject to marine hazards, either while on site or under tow, such as vessel capsizing, collision or grounding. Raising and lowering the legs of jack-up rigs into the ocean floor requires skillful handling to avoid capsizing or other serious damage. Drilling into high-pressure formations is a complex process and problems can frequently occur.

We believe that Rowan is adequately insured for physical damage to its rigs and for marine liabilities, worker’s compensation, maritime employer’s liability, automobile liability and various other types of exposures customarily encountered in our operations. Certain of our liability insurance policies specifically exclude coverage for fines, penalties and punitive or exemplary damages. We anticipate that our present insurance coverage will be maintained, but can give no assurance that insurance coverage will continue to be available at rates considered reasonable, that self-insured amounts or deductibles will not increase or that certain types of coverage will be available at any cost. The extensive damage caused by hurricanes in recent years has reduced the availability of insurance for certain risks while also increasing the cost of the coverage that is available. In 2006, our cost of coverage increased to almost five times the pre-storm level even though we assumed more of the risk for certain losses. In 2007, our rates were lower than in 2006, but still significantly higher than in prior years.

Foreign operations are often subject to political, economic and other uncertainties not encountered in domestic operations, such as arbitrary taxation policies, onerous customs restrictions, unstable currencies and the risk of asset expropriation due to foreign sovereignty over operating areas. As our international operations have grown in recent years, these risks are more significant to us. As noted previously, we attempt to minimize the risk of currency rate fluctuations by generally contracting for payment in U.S. dollars.

Many aspects of our operations are subject to government regulation as in the areas of equipping and operating vessels, drilling practices and methods, and taxation. In addition, the United States and other countries in which we operate have regulations relating to environmental protection and pollution control. Rowan could become liable for damages resulting from pollution of offshore waters and, under United States regulations, we must establish financial responsibility. Generally, we are substantially indemnified under our drilling contracts for pollution damages, except in certain cases of pollution emanating above the surface of land, water from spills of pollutants, or pollutants emanating from our drilling rigs, but no assurance can be given regarding the enforceability of such indemnification provisions.

During 2004, we learned that the Environmental and Natural Resources Division, Environmental Crimes Section of the U.S. Department of Justice (DOJ) had begun conducting a criminal investigation of environmental matters involving several of the Company’s offshore drilling rigs, including a rig known as the Rowan-Midland , which at various times operated at locations in the Gulf of Mexico. As previously disclosed, we entered into an amended plea agreement (“Plea”) with the DOJ in November 2007, which was later approved by the appropriate court, under which Rowan pled guilty to three felony charges relating to operations on the Rowan-Midland between 2002 and 2004. As part of the Plea, we paid a fine of $7 million and completed community service payments totaling $2 million to various organizations. We are also subject to unsupervised probation for a period of three years, during which we must ensure that we commit no further criminal violations of federal, state, or local laws or regulations and must also continue to implement our comprehensive Environmental Management System Plan. Subsequent to the conduct at issue, we sold the Rowan-Midland to a third party.

We believe that Rowan currently complies in all material respects with legislation and regulations affecting the drilling of oil and gas wells and the discharge of wastes. We have made significant modifications to our Gulf of Mexico rigs to reduce waste and rain water discharge and believe that we could operate those rigs at “zero discharge” without material additional expenditures. Except as discussed above, regulatory compliance has not materially affected our capital expenditures, earnings or competitive position to date, although such measures do increase drilling costs and may reduce drilling activity. Further regulations may reasonably be anticipated, but any effects on our drilling operations cannot be accurately predicted.

Rowan is subject to the requirements of the Federal Occupational Safety and Health Act (“OSHA”) and comparable state statutes. OSHA’s hazard communication standard, the Environmental Protection Agency’s “community right-to-know” regulations and comparable state statutes require us to organize and report certain information about the hazardous materials used in our operations to our employees as well as to state and local government authorities and local citizens.

In addition to the effects of government regulation on our own operations, the demand for our services is impacted by state, federal and foreign regulations associated with the production and transportation of oil and gas that affect the operations of our by present and potential customers.

MANUFACTURING OPERATIONS

Our manufacturing operations are conducted by LeTourneau Technologies, Inc. (LTI), a wholly-owned subsidiary of the Company headquartered in Longview, Texas, through two operating segments: Drilling Products and Systems and Mining, Forestry and Steel Products, each of which serve markets that require large-scale, steel-intensive, high-load bearing, complex products, projects and services. In 2007, our manufacturing operations collectively generated external revenues of $712.4 million and income from operations of $72.1 million, compared with $443.3 million and $38 million, respectively, in 2006. External manufacturing backlog totaled approximately $348 million at December 31, 2007, most of which is expected to be realized in 2008, compared with $530 million at December 31, 2006.

Our Drilling Products and Systems segment, which has designed and built all of Rowan’s 21 jack-up rigs, is an important part of our strategy to remain at the forefront of jack-up technology. It supports our drilling operations through timely construction and repair of rigs and equipment and, in recent years, has increasingly generated sales to external customers.

Drilling Products and Systems built the first jack-up drilling rig in 1955, and has since designed or built more than 200 units. This segment is currently constructing the first two of four 240C class jack-ups at our Vicksburg, Mississippi shipyard for delivery in 2008 and 2009 and will provide the rig kit (design, legs, jacking system, cranes and other equipment) for the four Super 116E class jack-ups being built for Rowan by Keppel AmFELS, Inc. for delivery in 2010 and 2011. In addition, Drilling Products and Systems is expected to complete construction of our fourth Tarzan Class jack-up rig at our Sabine Pass, Texas facility in 2008.

The Vicksburg facility is dedicated to providing equipment, spare parts and engineering support to the offshore drilling industry. Some rig component manufacturing and rig repair services, as well as design engineering, continue to be performed at LTI’s Longview, Texas, facility.

Drilling Products and Systems also designs and manufactures primary drilling equipment in a wide range of sizes, including mud pumps, top drives, drawworks and rotary tables, as well as variable-speed motors, variable-frequency drive systems and other electrical components for the oil and gas, marine, mining and dredging industries. During 2006, we began providing complete land rigs and related drilling equipment packages.

Our Mining, Forestry and Steel Products segment features heavy equipment such as large wheeled front-end loaders, diesel-electric powered log stackers and steel plate products.

Our mining loaders featuring bucket capacities up to 53 cubic yards, the largest in the industry. LTI loaders are generally used in coal, gold, copper, diamond and iron ore mines, and utilize a proprietary diesel-electric drive system with digital controls. This system allows large, mobile equipment to stop, start and reverse direction without gear shifting and high-maintenance braking. LTI’s wheeled loaders can load rear-dump trucks in the 85-ton to 400-ton range. Our log stackers offer either two- or four-wheel drive configurations and load capacities ranging from 35 to 55 tons.

Mining products and parts are distributed through our own distribution network serving the western United Sates and Australia as well as a through a worldwide network of independent dealers. These dealers have agreements to sell our products to end-users and provide follow-up service and parts directly to those end-users. We focus on after-market parts and components for the repair and maintenance of our machines and market these items through the same dealer network. Global sites for parts stocking, rebuilding and service include approximately 60 locations on six continents.

From our mini mill in Longview, Texas, we recycle scrap and produces carbon, alloy and tool steel plate products for internal needs as well as external customers. We concentrates on niche markets that require higher-end steel grades, including mold steels, free-machining, aircraft-quality steels and hydrogen, crack-resistant steels, and sales consist primarily of steel plate, but also include value-added fabrication of steel products. Our products are generally sold to steel service centers, fabricators and manufacturers through a direct sales force. Plate products are sold throughout North America while sales of fabricated products are more regional, encompassing Texas, Oklahoma, Louisiana, Mississippi and Arkansas. Carbon and alloy plate products are also used internally in the production of equipment and parts.

We conduct ongoing research and product development, primarily to increase the capacity and performance of our product lines on a continuous improvement basis, and routinely evaluate our products and after-market applications for potential enhancements.

Raw Materials

The principal raw material utilized in our manufacturing operations is steel plate, much of which is supplied by our Longview mini mill. Other required materials are generally available in sufficient quantities to meet our manufacturing needs through purchases in the open market, and we do not believe that we are dependent on any single supplier.

CEO BACKGROUND

D. F. McNease
Age 56
Director since 1998
Class II
Chairman of the Board of the Company since May 2004; Chief Executive Officer of the Company since May 2003; President of the Company since August 2002; Executive Vice President of the Company and President of its drilling subsidiaries from 1999 to 2002.


Lord Moynihan
Age 52
Director since 1996
Class II
Executive Chairman of Pelamis Wave Energy (since August 2005) and Executive Chairman of Green Rubber Global (since October 2007); Senior Partner of London-based CMA (energy advisors) since 1993; Executive Director of Clipper Windpower Inc. and Chairman of Clipper Windpower Europe Limited (wind turbine technology) from 2004 to 2007; Active Member of the House of Lords since 1997; and Chairman of the British Olympic Association.

R. G. Croyle
Age 65
Director since 1998
Class II
Formerly Vice Chairman and Chief Administrative Officer of the Company from August 2002 to December 2006; retired in 2006. He also serves on the boards of Boots & Coots International Well Control, Inc. and Magellan Midstream Holdings GP, LLC.

William T. Fox III
Age 62
Director since 2001
Class I
Formerly Managing Director responsible for the global energy and mining businesses of Citigroup, a corporate banking firm, from 1994 to 2003; retired in 2003.


Sir Graham Hearne
Age 70
Director since 2004
Class I
Formerly Chairman of Enterprise Oil plc, an oil and gas exploration and production company, from 1991 to 2002, and Chief Executive Officer from 1984 to 1991; retired in 2002. He also serves as the non-executive chair of Catlin Group Limited, Braemar Shipping Services Group plc and Stratic Energy Corporation. He is a non-executive director of N. M. Rothschilds & Sons Ltd. and Wellstream Holdings plc.


H. E. Lentz
Age 63
Director since 1990
Class I
Formerly Managing Director of Lehman Brothers Inc., an investment banking firm, from 1993 to 2002; consultant to Lehman in 2003 and Advisory Director since 2004. He also serves on the boards of Peabody Energy Corp. and CARBO Ceramics, Inc.


P. Dexter Peacock
Age 66
Director since 2004
Class I
Formerly Managing Partner of Andrews Kurth LLP, a law firm; Of Counsel to Andrews Kurth since 1997. He also serves on the board of Cabot Oil & Gas Corporation.


John R. Huff
Age 62
Director since 2006
Class III
Chairman of Oceaneering International, Inc., a provider of engineered services and hardware to customers operating in the offshore oil and gas industry, since 1990. Chief Executive Officer of Oceaneering from 1986 to 2006. He also serves on the boards of BJ Services Company, KBR Inc. and Suncor Energy, Inc.


Robert E. Kramek
Age 68
Director since 2007
Class III
President of the Society of Naval Architects and Marine Engineers since 2007. President, Chief Operating Officer and Director of the American Bureau of Shipping (“ABS”) from 2003 through 2006. Mr. Kramek joined ABS in 1998 after serving as Commandant of the United States Coast Guard, from which he retired as a Four Star Admiral.


Frederick R. Lausen
Age 70
Director since 2000
Class III
Formerly Vice President of Davis Petroleum, Inc., an oil and gas exploration and production company; retired in 2002.

MANAGEMENT DISCUSSION FROM LATEST 10K

RESULTS OF OPERATIONS

As indicated in the preceding table, Rowan’s results of operations are heavily dependent upon the performance of our drilling division, which comprises about 94% of our fixed assets and, over the past three years, has generated 69% of our aggregate revenues and 92% of our aggregate operating income. Our manufacturing operations, featuring our Drilling Products and Systems segment, have led the strategic expansion and upgrade of our drilling fleet over the past decade and, in recent years, has expanded product lines and improved contributions to our operating results, as is demonstrated above with revenue increases exceeding 50% in each of the past two years and meaningful increases in profitability. The performance of each of our continuing operations over the 2005-2007 period is discussed more fully below.

The amounts shown in the table above for Income from discontinued operations reflect the aggregate after-tax results of our aviation and boat operations for each of the past three years, including a $13.1 million after-tax gain recognized on the sale of our boat purchase options in 2005. See Note 12 of the Notes to Consolidated Financial Statements beginning on page 75 of this Form 10-K for further information regarding the Company’s discontinued operations.

Drilling Operations

Rowan’s drilling operating results are a function of rig activity and day rates in our principal operating areas, which are offshore in the Middle East, Gulf of Mexico, the North Sea, eastern Canada and, beginning in 2008, West Africa, and onshore in several Gulf Coast states and Alaska. In 2006 and 2007, we significantly expanded our presence in the Middle East and will have nine jack-up rigs or 43% of our offshore fleet in that market by the second quarter of 2008. We are selective in pursuing work in other overseas markets where our premium and harsh environment jack-up rigs are well-suited, and seek opportunities to maximize long-term returns.

Rig activity and day rates are primarily determined by energy company exploration and development expenditures, which are heavily influenced by oil and natural gas prices, and the availability of competitive equipment. Day rates generally follow the trend in rig activity and, due to intense competition pervasive in the contract drilling industry, both measures have historically declined much faster than they have risen.

In recent years, global demand for oil and natural gas has increased in order to fuel growing economies, especially in developing nations like China and India. At the same time, many key producers have increasingly struggled with depleting reserves, requiring more drilling simply to maintain current production levels. These market forces have caused a dramatic increase in oil and natural gas prices. Marginal drilling projects that were deemed uneconomical a few years ago with oil at $25 per barrel or gas at $3 per mcf, are considered worth the additional risk at prices well above $50 and $5, respectively. At the same time, the global jack-up fleet has continued to age, with the average rig now more than 20 years old. These trends caused a surge in worldwide drilling activity beginning in 2005, with all available rigs benefitting. More recently, however, we have begun to see a bifurcation of the jack-up market emerging, with newer and more capable rigs being marketed throughout the world, maintaining more consistent utilization and commanding higher day rates, while opportunities for older and less capable “commodity” rigs have become more limited.

Our rig fleets consist currently of 21 offshore jack-up rigs and 29 land rigs. Our offshore fleet features three Gorilla class jack-ups built during the early 1980s, four Super Gorilla class jack-ups constructed during the 1998-2003 period, and three Tarzan Class jack-ups delivered in the 2004-2006 period. Nine additional jack-ups are under construction or on order with deliveries expected over the 2008-2011 period. Our land fleet includes 12 newly-constructed rigs, four rigs built during 2001-2002 and 11 rigs that have been refurbished in recent years. Two additional land rigs are expected to be completed during 2008.

For much of our history, our offshore drilling operations have been focused in the Gulf of Mexico, where eight of our offshore rigs are currently deployed. This market is extremely fragmented among many oil and gas companies, many of whom are independent operators whose drilling activities are often highly dependent upon near-term operating cash flows. A typical drilling assignment may call for 30-60 days of exploration or development work, performed under a single-well contract with negotiable renewal options. Long-term contracts have been rare, and generally are available only from the major integrated oil companies and a few of the larger independent operators. Thus, drilling activity and day rates in this market have tended to fluctuate rather quickly, and generally follow trends in natural gas prices. Under these market conditions, Rowan generally avoided long-term commitments in the past unless they provided opportunities for rate adjustments in the future.

As discussed more fully below, high natural gas prices and the continued migration of rigs to foreign markets in recent years, coupled with the significant loss of equipment during the 2005 hurricanes, created a jack-up supply deficit in the Gulf of Mexico in 2006. As a result, rig day rates, which increased dramatically in late 2005, continued to set new records during 2006 and early 2007, and the occasional term drilling contract, ranging from six months to two years, became available for certain high specification rigs. These opportunities have been more prevalent in other markets, however, and Gulf of Mexico market conditions have since weakened, especially for less capable rigs. In anticipation of these factors, we had begun to focus our marketing efforts in the Middle East, the North Sea and other foreign areas beginning in 2005, and currently have two-thirds of our jack-up rigs committed to markets outside the Gulf of Mexico.

The Middle East market has been a primary focus for our drilling operations since late 2005, when we obtained a three-year contract from Saudi Aramco for four of our jack-up rigs offshore Saudi Arabia. The 116C class jack-ups Rowan-Middletown , Charles Rowan , Arch Rowan and Rowan-California departed the Gulf of Mexico in January 2006 and commenced operations in the Persian Gulf in April. In 2007, we added four rigs to this market: a two-year contract for Maersk offshore Qatar with 116C class jack-ups Rowan-Paris and Gilbert Rowe which began in late January and a four-year contract for Saudi Aramco with Tarzan Class jack-ups Scooter Yeargain and Hank Boswell which began in late March. The Tarzan Class jack-up Bob Keller recently departed the Gulf of Mexico for a three-year assignment for Saudi Aramco which should begin in the second quarter of 2008.

The North Sea is a mature, harsh environment offshore drilling market that has long been dominated by major oil and gas companies operating within a relatively tight regulatory environment. Project lead times are often lengthy and drilling assignments, which typically require ultra premium equipment capable of handling extreme

weather conditions and high down-hole pressures and temperatures, can range from several months to several years. Thus, drilling activity and day rates in the North Sea move slowly in response to market conditions, and generally follow trends in oil prices.

Our North Sea operations currently include our Super Gorilla class jack-ups Gorilla V , Gorilla VI and Gorilla VII . The Gorilla V commitment should extend into the third quarter of 2010 while Gorilla VI is currently committed through the first quarter of 2010. The Gorilla VII recently obtained a two-year commitment offshore Angola that should begin in the second quarter of 2008.

We have operated offshore eastern Canada at varying levels since the early 1980s, and our presence there peaked at three fully utilized rigs in mid-2000. More recently, demand for harsh environment jack-ups in the area has been sporadic. The departure of the Gorilla VI in late 2006 left us with no ongoing drilling operations there, though one of our Gorilla class rigs will return to eastern Canada for a minimum six-month assignment beginning in mid to late 2009.

Rowan has never cold-stacked its drilling rigs during slack periods as we believe the long-term costs of retraining personnel and restarting equipment negates any short-term savings. Thus, our drilling expenses have not typically fluctuated with rig activity, though they have increased as our rig fleets have been expanded and relocated. Rig fleet additions over the past three years have included the Tarzan Class jack-ups Hank Boswell (September 2006) and Bob Keller (August 2005), twelve new land rigs delivered in 2006 (8 rigs) and 2007 (4 rigs) and two existing land rigs that were refurbished during 2005.

2007 Compared to 2006

Our overall offshore fleet utilization was 94% in 2007, up from 86% in 2006, when several rigs were being prepared for long-term assignments overseas. We compute rig utilization as revenue-producing days divided by total available rig-days. Our average offshore day rate was $156,200 in 2007, an increase of approximately 11% over 2006. Average day rates are determined as recorded revenues, excluding rebilled expenses, divided by revenue-producing days. Total revenue-producing days offshore increased by 1,154 or 19% between years, with over one-half of that increase associated with the relocated rigs. Oil prices continued their upward ascent to record levels in 2007, increasing consistently throughout the year from the upper $50s per barrel in January to the mid $90s in December. Thus, many foreign markets like the Middle East continued to pursue high-specification jack-ups with long-term contracts at historic rates. During early 2007, four of our rigs commenced operations in the Middle East under multi-year contracts following their relocation from the Gulf of Mexico. Our eight jack-ups working offshore Saudi Arabia and Qatar collectively generated approximately $400 million of drilling revenues in 2007, averaging almost $149,000 per day.

Demand for harsh environment equipment in the North Sea remained strong during the year enabling us to keep our rigs fully utilized and increase our contracted backlog in that market. Gorilla V was 99% utilized there in 2007 and generated almost $173,000 per day in drilling revenues during the year. Gorilla VII was 95% utilized in the North Sea market in 2007 and averaged more than $257,000 per day there in drilling revenues during the year. After relocating from Canada in early 2007, Gorilla VI was 100% utilized in the North Sea and averaged more than $302,000 per day there in drilling revenues during the remainder of the year. Our collective North Sea drilling operations generated approximately $246 million of drilling revenues in 2007, averaging more than $241,000 per day.

Gorilla III was 100% utilized offshore Trinidad in 2007 and generated more than $76 million of drilling revenues, or almost $209,000 per day.

The following table summarizes average natural gas prices and our Gulf of Mexico fleet utilization and average day rates during the year:

Natural gas prices remained at historically high levels throughout 2007, though fluctuating weather conditions and high storage levels contributed to price weakness during the third quarter and reduced drilling demand in the Gulf of Mexico and throughout the United States. Thus, the migration of many competitive jack-ups from the Gulf of Mexico continued throughout 2007. Most of the available rigs that remained in the area encountered tougher competition for fewer drilling assignments and, as a result, declining day rates. Our six-month to two-year term commitments for four of our nine Gulf of Mexico rigs — Bob Palmer, Gorilla II, Gorilla IV and Bob Keller — helped to insulate Rowan from the impact of weakening demand. As shown in the preceding table, our average Gulf of Mexico day rate decreased by $9,500 or 7% during 2007.

The four rigs mentioned above were collectively 95% utilized in 2007 and averaged more than $180,000 per day in drilling revenues during the year, with only the Bob Palmer experiencing downtime as a result of contractually-required modifications. The Rowan-Louisiana , which was severely damaged in 2005 during Hurricane Katrina, returned to service in the Gulf of Mexico in December 2006, and was 100% utilized in 2007. Our total revenue-producing days in the Gulf of Mexico decreased by 777 or 20% in 2007 due to the rig relocations that occurred over the past two years.

Our 29 deep-well land rigs in Texas, Louisiana, Oklahoma and Alaska generally withstood the weakening domestic market conditions during 2007, and attained 95% utilization and an average day rate of $22,800 during the year, compared to 97% and $22,600 in 2006. The fleet included twelve new 2000 horsepower rigs that were constructed during the past two years which contributed to a 2,497 or 36% increase in revenue-producing days in 2007. Two additional new land rigs are currently under construction and expected to be delivered during the first half of 2008.

Depreciation expense incurred by our drilling operations increased by $24.3 million or 31% in 2007, due primarily to the addition of the rigs noted above. Selling, general and administrative costs increased by $11.8 million or 21% in 2007, due primarily to incremental incentive compensation costs associated with our improved financial results.

Our drilling operations realized $40.7 million of gains on asset disposals during 2007, including a $14.1 million gain in connection with the sale of our Alaska-based drilling camps and a $23.4 million gain related to the installment sale of the Rowan-Midland and related equipment. The net gain for 2006 was $28.2 million, most of which related to the installment sale of the Rowan-Midland and related equipment. Our 2006 operating results also included a $9.0 million charge in the fourth quarter for fines and community service payments made in 2007 in settlement of criminal charges stemming from a Department of Justice criminal investigation of environmental matters involving several of our offshore drilling rigs. This matter is discussed more fully under LIQUIDITY AND CAPITAL RESOURCES: Contingent Liabilities beginning on page 42.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

Rowan generated net income of $333.3 million in the first nine months of 2008 compared to $345.3 million in the same period of 2007. This 3% reduction in profitability was largely due to increased costs and expenses and decreased asset sales, the effects of which were somewhat offset by higher average drilling day rates and manufacturing sales between periods.

As shown in the preceding table, our consolidated income from operations declined by $23.4 million or 4%, when comparing the first nine months of 2008 and 2007, on a $128.2 million or 9% increase in revenues between periods.

Drilling operations – Our Drilling operations generated a $54.7 million or 5% increase in revenues between periods. Our average offshore day rate was $160,800 during the first nine months of 2008, compared to $153,400 in the same period of 2007. Our offshore fleet was 94% utilized during the first nine months of 2008, compared to 93% in the same period of 2007, with much of the downtime in each period associated with the mobilization or modification of rigs. We realized 60 or 1% more revenue-producing days between periods, and our foreign operations contributed 59% of the total during the first nine months of 2008, up from 56% in the same period of 2007.

Our fleet of 30 land rigs was 95% utilized during the first nine months of 2008, unchanged from the same period of 2007, though revenue-producing days increased by 660 or 10% due to the net addition of two rigs between periods. Our average land day rates were $22,200 during the first nine months of 2008, compared to $23,200 in the same period of 2007.

Drilling expenses during the first nine months of 2008 increased by $46.3 million or 11% over the same period of 2007, due to higher labor, rig maintenance, overhead and crew transportation costs associated with our redeployment of several offshore rigs to foreign markets and the growth in our land rig fleet between periods. Drilling depreciation expense increased by $16.4 million or 22% between periods due primarily to the rig additions discussed above. Selling, general and administrative expenses incurred by our Drilling segment increased by $3.1 million or 7% between periods due primarily to incremental incentive-based compensation costs.

Our Drilling operations included $28.4 million of gains on property and equipment disposals during the first nine months of 2008, compared to $40.0 million during the same period of 2007. The current period included the following gains: $14.6 million from the sale of our London office building, $5.4 million from the sale of our Fourchon, Louisiana service facility and $5.0 million from the sale of a land rig. The prior-year period gains included $23.4 million related to the October 2005 sale of our semi-submersible rig and $14.2 from the sale of our Alaska camps.

Thus, our Drilling operations experienced a $22.7 million or 5% decline in operating income between periods.

Drilling Products and Systems – Revenues during the first nine months of 2008 increased by $43.9 million or 14% over the same period of 2007, primarily due to the following:

Our prior-year revenues included $41.6 million recognized on an external offshore rig construction project which was completed in June 2007. There were no such revenues in the current period.

Our product revenues are greatly influenced by the timing of shipments, and our profitability is impacted by the mix of product sales. Original equipment sales, for example, typically yield lower margins than the related after-market parts sales. Our 2007 operating results included a $15.8 million loss on an external offshore rig construction project and our 2008 operating results included an estimated $3.2 million loss recognized on two land rigs that are expected to ship in the fourth quarter of 2008.

Our 2008 operations were adversely impacted by Hurricane Ike, which temporarily caused employee evacuations, power outages, fuel shortages and mandatory curfews throughout the Houston area during the last half of September, interrupting our manufacturing supply chain, slowing our ability to ship completed products and forcing reductions in plant operating hours and production. We estimate that these factors reduced our revenues by approximately $25 million during the period.

Though revenues have increased between periods, they were below expected levels in 2008, resulting in higher operating costs as a percentage of revenues. Thus, as is shown in the preceding table, our average margin on operating costs was 12% of revenues during the first nine months of 2008, unchanged from the same period of 2007.

Depreciation expense incurred by Drilling Products and Systems decreased by $0.6 million or 8% between periods, due to additional expense recognized in 2007 in connection with the installment sale of certain rental equipment. Selling, general and administrative costs increased by $8.9 million or 86% between periods, due to higher selling-related expenses and incremental staffing.

Our Drilling Products and Systems operating results exclude the effects of approximately $258 million of products and services provided to our Drilling division during the first nine months of 2008, most of which related to construction of three newbuild jack-ups, the J. P. Bussell , Rowan-Mississippi and Ralph Coffman .

Mining, Forestry and Steel Products – Revenues increased by $29.6 million or 20% between periods. Shipments of new front-end mining loaders and log stackers totaled 16 units during the first nine months of 2008 producing $53.6 million of revenues, compared to 19 units and $60.8 million of revenues during same period of 2007. Parts sales increased by $9.5 million or 21% between periods to $54.0 million during the first nine months of 2008, compared to $44.5 million during the same period of 2007. Revenues from steel plate sales totaled $50.7 million during the first nine months of 2008, up by $22.6 million or 80% on a 50% increase in volume between periods. Thus, as is shown in the preceding table, our average margin on operating costs, improved to 21% of revenues during the first nine months of 2008, up from 20% in the same period of 2007.

Depreciation expense incurred by Mining, Forestry and Steel Products increased by $0.7 million or 18% between periods, due to the expansion of our steel mill along with machinery and equipment additions to increase capacity at our manufacturing facilities. Selling, general and administrative costs increased by $5.9 million or 59% between periods, due to increases in shared administrative costs that are allocated between our Manufacturing segments based upon revenue and higher selling-related expenses.

CONF CALL

Suzanne McLeod

Thank you, Sierra and good morning. Welcome to Rowan's third quarter 2008 earnings results conference call. Joining me on the today are Danny McNease, Chairman and Chief Executive Officer and Bill Wells, Chief Financial Officer.

Before Danny begins his remarks, I would like to remind you that this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements as to the expectations, beliefs and future financial performance of the company that are based on current expectations and are subject to certain risks, trends and uncertainties that may could the results to differ materially from those projected by the company.

With that I will turn the call over to Danny.

Danny McNease

Thank you, Suzanne. Good morning everyone and thanks for joining us for our quarterly update on Rowan. Suzanne McLeod will now lead our Investor Relations Efforts to service Rowan in best possible way, as of analysts, investors and the financial press. I am confident that Suzanne is up to this challenge and will server our investors well.

Bill Provine, who previously served as our Vice President of Investor Relations has decided to retire effective at the end of the year after a 21 year career at Rowan. We have been fortunate to have him formed so many great relationships at Rowan within the investment community. He will be missed by all and we wish him all the best in his retirement.

Since we last talked, a lot has happened in the industry and the broader markets. I will begin by covering some topics upfront and then turn I will turn it over to Bill Wells, our CFO, who will discuss our financial performance in more detail and update any guidance. Before taking your questions, I will conclude our review of the worldwide markets, where we currently followed by review of our manufacturing divisions performance for the quarter.

Let me start with our most recent announcement regarding my personal decision to retire as Chairman and CEO effective at the end of this year. I am retiring from Rowan so I can spend more time with my wife and family. My role at Rowan spans over 34 years during that time, I have had the honor of working with the most dedicated, trained and skilled people. From my time spent with other (inaudible) working my way up as the member of Rowan’s drilling crew to my current position as the member of the company’s executive management team and the board of directors.

The success this company has seen over the years should be credited to the people of Rowan. I would also like to thank our shareholders for investment in the company. It has been a pleasure working with them and investment community over the years as well. I am pleased to have the opportunity to leave Rowan as poised thorough some milestone transformations including our strategic initiatives to further diversify our fleet geographically and expand our drilling fleets.

We have also made some tremendous strides in growing our manufacturing business in recent years. Although, the market is fearful regarding worldwide oil demand trends our, operating activities, marketing activities and strategic evaluations remained strong and so are largely unaffected.

So, it is this time that Rowan Board of Directors is in the process of conducting the internal and external search for the candidates to serve as Rowan’s new CEO. Since the search has just recently started, I wanted to update the market as quickly as I could on my decision to retire, which was difficult to make given my long and fulfilling career with the company.

I am leaving with a good feeling for the future of Rowan and I will do what I can to ensure a smooth transition. Despite the present concerns about the global economy and the performance of the equity markets, Rowan reported solid third quarter results.

We recorded consolidated revenues of $527 million, net income of $114 million; our earnings per share of $1. The results, we reported most impacted by downtime on two jack-ups that will undergo modifications during the quarter and the impact of Hurricane Ike, which caused a loss of our oldest offshore drilling rig, the Rowan-Anchorage and significantly disrupted our Houston manufacturing operations.

These times of unprecedented economic uncertainty have effectively driven offshore drilling stocks to all-time lows. While the market has given away tremendous value and energy stocks, we continue to have confidence in our business and customers and remain focused on our long-term strategic initiatives.

We have positioned Rowan as a unique player in the offshore rig markets specialized in high-spec jack-ups daily suited to meet the increasing demanding drilling conditions of drilling deep, high temperature, high pressure wells in the Gulf of Mexico, and the harsh weather environments around the world.

Our fleet of premium jack-ups have more storage capacity, more deck capacity, and more extended [time] to reach capacity than other jack-ups which makes them ideal for completing the deepest drillings in the toughest environments.

Even in these troubled times, oil and natural gas remained the lifeblood of our economy. Our global need for additional oil and gas resources requires innovative exploration and production recovery technologies, and Rowan’s premium state-of-the-art drilling equipment is well suited to meet those needs.

With respect to our manufacturing division, we’ve been actively engaged in evaluating all the viable options to monetize LTI. The recent weakness in the capital markets and commodity prices has adversely affected those opportunities.

Therefore, at this time, we're not pursuing any further negotiation with potential partners; however we will continue to review all strategic options including a spin-off for the LTI to our stockholders.

We do not anticipate their transactions if any, will be completed until capital market conditions improve significantly. In our offshore business, we have seen continues strong in the jack-up market for premium rigs. In the Gulf of Mexico, despite the continued softness in natural gas prices, we expect to see continued improvement in demand, and day rates due in part to the migration of rigs to international markets.

In the premium segment, we received several notable contract fixtures. Our new built Rowan-Mississippi received a contract from McMoRan for two years as day rates in the low 220s beginning in November 2008.

Rowan Gorilla IV currently working with McMoRan and Blackbeard in the mid [190s] received a 150 day firm drilling contract in the low 200s with W&T in the Gulf of Mexico for work beginning in the first quarter of 2009.

Lastly the Rowan Gorilla II received a two year Gulf of Mexico contract signed with Devon Energy Corporation, which is scheduled to begin in January of 2009 at averaged day rate in the high 180s, which is up from its current contracted day rate in the mid 160s with El Paso.

We are pleased to have negotiated these term contracts in what normally is a well to well environment in the Gulf.

I would also like to add that our new bill J.P. Bussell now has a commitment with Shell on Egypt beginning in the third quarter of 2009 for 20 months at a day rate in the low 180s, with options for three additional wells. The rig which we were previously marketing in the Gulf of Mexico before departure to Egypt next year has received a signed contract with [Merit] to complete four wells covering 130 to 150 days.

This contract is expected to provide revenues of approximately $21 million to $24 million and will begin immediately following the rig's christening at our Sabine Pass, Texas facility in mid November.

In the commodities segment, day rates are also staying strong. Because of our good relationships with our loyal customer base we’ve been able to receive good contract fixtures on our three independent slot jack-up rigs, the Rowan- Genoa, the Rowan-Louisiana, and the Rowan-Alaska in the US, Gulf of Mexico.

The Rowan Genoa received a six month contract at day rate in the high 90s, up from it's current rate in the low 90s. The Rowan Louisiana received two new contract awards, one in a day rate in the mid 110s beginning in October and lasting through December, and a second contract with a different operator at a day rate low 120s, that makes a rig contracting until February 2009.

The Rowan Alaska, received a three month contract extension to January of 2009 is the current day rates in the mid 110s.

We believe our ability to push current contracts and higher day rates in a volatile commodity market is a result of the higher spec nature of Rowan's fleet. These contract awards also show at least for the majors, that they are pushing forward programs and are making strong commitments.

As I mentioned earlier, we are well aware of the tremendous pressure the market has placed on offshore drilling stock like Rowan's. Investor's fears a shifting from falling commodity prices and a global recession to the enforceability of contracts and offshore driller backlogs.

Our offshore backlog is strong and continues to grow. We believe our customers are financially sound and fully capable of honoring new commitments, and Rowan has been successful at enforcing our drilling contracts and weathering tough economic times before in the past.

Looking forward we strategically are considering other growth opportunities that can bolster Rowan's competitive edge. With a strong balance sheet, we have the ability to explore suitable acquisition opportunities including in the deepwater market.

We are continuing to see excitement in the ultra-deep gas shelf for the US, Gulf of Mexico where we are operating our Super Gorilla class jack-up with, the Bob Palmer drilling on BP's Eldorado prospect and Rowman well four on the Blackbeard well for McMoRan.

In October the Blackbeard wells drilled to a total depth of 32,997 feet, the deepest of any well being drilled in this region. The initial indications are encouraging.

According to McMoRan's management [strong] analysis has yielded positive indications of four potential hydrocarbon bearing sands require further evaluation.

McMoRan is saying that the Blackbeard's discovery is probably major. A well we've temporarily abandoned while further testing is required to determine if it holds commercial quantities of hydrocarbons.

Should the other deep gas continue to show promise, Rowan will be well positioned to take advantage of renewed operator interest in deep gas drilling. With a majority of high-spec jack-ups that are best suited for drilling such wells.

Our newbuild the Rowan-Mississippi jack-ups that is scheduled to be delivered early November will be used to drill one or more ultra-deep gas projects in the US Gulf of Mexico and including additional drilling on the Blackbeard prospect for McMoRan contract with a two year term and a day rate in the low 220s.

Regarding our nine newbuild rigs under construction, we have two scheduled for delivered this month, one to fall on 2009, and then three each in 2010 and 2011. Given the current market conditions and [improving] drilling, we will review capital expenditures particularly with respect to newbuild rigs. I can assure you that we under missed for such a review and we will be discussing any revisions to our current Bill Plan in our December budget meeting.

As a result of Hurricane Ike in September, we lost Rowan-Anchorage, the oldest and smallest of our jack-up fleet. Already it was getting approximately 60,000 per day in revenues and was in our books for about $4.5 million.

In connection with the loss, we received insurance proceeds of $42.5 million. During the storm, our newbuild jack-up rigs at Rowan, Mississippi and at J.P. Bussell stationed in our Sabine Pass, Texas facility for final outfitting sustained limited damage.

We plan to hold the rig christening for these jack-ups before they leave the shipyards for new contracts. In addition, other power outages and fuel shortages in Houston area during the time of storm resulted in interruptions on our LTI manufacturing division supply chain and shipping delays. Bill will provide additional financial guidance for our manufacturing division, as a result of the storm related disruption.

With that, I would like to turn the call over to Bill Wells, who will discuss our financial performance for the third quarter in more detail.

Bill Wells

Thank you, Danny, and good morning, everyone. Our third quarter 2008 drilling revenues were $357 million, down 3% from the prior year and last quarter, but slightly above our previous guidance.

The sequential and year-over-year decrease is resulted primarily from downtime due to modifications on the Rowan, Middletown and Gorilla V, which collectively reduced our rig operating days by about 4% and our revenues by about $12 million during the third quarter.

Our overall average offshore day rate was down slightly sequentially following the culmination of work in offshore Trinidad in May, but increased in each of our most prominent markets, the Middle East, Gulf of Mexico and North Sea.

Looking ahead we expect that the Rowan Mississippi, our first 240-C class jack-up will be operating from McMoRan in the Gulf of Mexico by mid November and the J.P. Bussell, our fourth Tarzan class rig will commence operations soon thereafter. Assuming these events occur and barring unforeseen rig downtime, we expect that total fourth quarter drilling revenues will be in the range of $380 million to $385 million or 6% to 8% higher than the third quarter.

In addition of these newbuild rigs should increase our average offshore day rate to around $175,000 worldwide during the fourth quarter and a just over $150,000 in the Gulf of Mexico. Our third quarter drilling expenses were $163 million, an increase of 12% over the prior year, but unchanged from last quarter. The year-over-year increase was primarily attributable to higher compensation and maintenance that resulted from our continuing migration of rigs to international markets.

Maintenance cost reductions during the current period however fully offset the impact of an August 1st wage increase, the third and 15 months resulting in no sequential change in our drilling expenses. We expect that our fourth quarter drilling expenses will be comparable to the third quarter amount and then our full year 2008 drilling expenses will be within 10% of the 2007 amount.

Our third quarter manufacturing revenues totalled $248 million including $78 million of arm's length sales to our drilling division. External revenues were $170 million, an increase of 27% from the prior year, but down 23% from last quarter.

Our third quarter, Drilling Products and Systems revenues, totalled $189 million including sales to our drilling division. External revenues were $111 million and featured $52 million from land rigs component packages, $37 million from six offshore rig kit projects, $10 million from parts sales and another $7 million from drilling equipment.

Our third quarter Mining, Forestry and Steel products, revenues were $59 million included $15 million from shipments of mining and forestry equipment, $18 million from steel plate, and $20 million from aftermarket parts.

As previously reported, hurricane Ike temporarily caused employee evacuations, power outages, fuel shortages and mandatory curfews throughout the Houston area, which interrupted our manufacturing supply chain, slowed our ability to ship completed products and forced reductions and planned operating hours of production.

We estimate that these factors reduced our external manufacturing revenues during the third quarter by approximately $25 million. Our average margin on operating costs was 12% of revenues during the third quarter down from 19% in the prior year and 18% last quarter with reduction due primarily to $3.2 million loss, estimated loss recognized on the two land rigs scheduled to ship in the fourth quarter and the impact of higher fixed overhead costs. Similarly our manufacturing operating income declined to 3% of revenues in the current quarter down from 11% in both the prior year and last quarter.

Our quarter end, manufacturing backlog totaled over $1.5 billion, a 25% increase over the past three months that included $694 million of external orders and $847 million related to our own jack-up newbuild program.

The external backlog almost doubled during the quarter and included $328 million of land rigs and component packages, a $115 million related to six offshore rig kit projects, $97 million of mining and forestry equipment, and another $78 million of drilling equipment.

We are currently reviewing the backlog and talking with our customers to reaffirm our commitments. Our third quarter, depreciation expense totaled $36 million up by 8% from last quarter and by 22% over last year primarily due to rig fleet additions.

Our third quarter SG&A expenses totaled $28 million, down by 10% from last quarter, but up by 23% over last year primarily due to fluctuations in manufacturing and selling costs.

Our CapEx totaled $299 million for the third quarter, which included $119 million paid to reacquired 116 C-class jack-up, Cecil Provine following the end of its charter on July 7th. Most of the balance related to construction progress on our newbuild jack-ups, the J.P. Bussell, Rowan-Mississippi, the Ralph Coffman, and the four new Super 116Es.

We currently estimate that our remaining 2008 CapEx will be in the range of $130 million to $140 million, and will be financed through operating cash flows. Despite our positive near-term outlook, we acknowledge the risks to future business conditions resulting from the current capital markets environment and the recent dramatic decline in oil and natural gas prices.

Rowan’s successful management of it's liquidity during the various ups and downs cycles over the past three decades is a primary reason the company has survived longer than any other drilling contractor.

Our primary focus as we work to complete our 2009 operating in capital budget over the next several weeks is to contain, if not reduce operating and administrative costs, thereby improving both profitability and cash flows.

To this end, we are taking a hard look at the scheduled timing of our 240 C newbuild program. Our continuing ownership of LTI allows us to modified rig constructions schedules with very little consequence if and when that becomes necessary.

We will let you know of any significant changes to our plans. And with that I will turn it back over to Danny.

Danny McNease

Thanks Bill. I will now provide an overview of the worldwide markets where we currently have drilling operations followed by a discussion of our manufacturing division LTI.

Rowan's offshore fleet of 20 jack-ups is currently contract at 100% utilization, as a current average day rate of $172,000 per day worldwide. Approximately 70% of our jack-up rigs are contracted through the end of the first quarter 2009; 12 of our 20 rigs are contracted to the international markets, nine in the Middle East, two in the North Sea, and one in West Africa. The remaining eight rigs are located in the US Gulf of Mexico.

Every major operating region where we currently have premium jack-up rigs contracted today, we have achieved highest average day rates in utilization among the offshore drillers. We believe our competitive advantage lies in a better technology and high-spec equipment, combined with our qualified and well-trained crews.

Now from a broader perspective, the drilling markets worldwide continue to be strong, and even under these pressing economic times, we remain optimistic about our future prospects.

According to ODS-Petrodata there are 431 jack-ups worldwide to manage currently 390 rigs, with utilization at 90%. We believe that a current forecast, supply deficit of 26 to 37 jack-ups exist worldwide for the projects through 2009.

Despite the arrival of 19 newbuilds so far in 2008 and another 12 scheduled for delivery before the end of the year, jack-up supply deficit continue to drive demand in almost every major operating area worldwide, primarily due to high specification, high specification operating requirements for the proposed tenders, and a relative lack of regional availability.

Today about 75% of our jack-up net book value and backlog are located outside the US. In the coming year we plan to continue our long-term strategy diversifying our fleet across international markets.

Now let's take a closer look at our current drilling operating areas. Let me begin with the US, Gulf of Mexico. This jack-up market remains predominantly a well-to-well environment compared with long-term contracts available internationally.

Despite these conditions Rowan has continued to set the pace for utilization and day rates for longer term and higher rates than our peers, supplying the region to 77 jack-ups while demand is 55 rigs with a contract utilization of 71%.

(inaudible) jack-ups in US, Gulf of Mexico are currently contracted and our average day rate in the region is approximately $144,000. We expect that high-spec jack-ups will continue to migrate to international markets, and about 8 to 10 rigs could [leave] the US, Gulf of Mexico over the next year.

In the Middle East this region continues to be the most active jack-up market in the world. The supply in the region is 104 jack-ups, while demand is currently at 98 rigs and contract utilization at 94%.

We believe a supply deficit of 10 to 15 jack-ups currently exists. Saudi Aramco is now tendering 45 jack-ups for the program beginning in the second quarter of 2009. By year end 2008, additional tenders are projected from Dubai Petroleum, RAK Petroleum, [Kresit], NDC, Oxy and KJO and KOC. Rowan has nine jack-ups operating in the region at an average day rate of $156,000.

We believe the Middle East market is one of the keys to the future of our drilling division, and we are well positioned for growth, as our current relationship with Saudi Aramco and [Maersk] demonstrates.

The North Sea supply and demand of both 33 jack-ups and contract utilization is 100%. Jack-up demand remains strong in the region with a current deficit of one to two rigs. Despite the forecast the arrival of four newbuild jack-ups before mid 2009, demand will continue to increase in (inaudible) supplier with a possible [peak] of the four rig depths in late 2009.

Today Rowan has two jack-ups operating in the North Sea at average day rate of $235,000. We are currently in discussions with various operators for long-term contracts, utilizing our Gorilla class jack-ups and newbuild 240C jack-ups.

Finally turning to West Africa, the supply in the region is to 27 jack-ups, while demand is at 25 rigs and contract utilization is at 93%. The region is forecasted to see a two to three rig deficits over 2008/2009 due to tenders from Cabinda Gulf and Exxon Mobile.

Our Gorilla VII continues operations for Cabinda Gulf for over two year contract, as day rate in the low 330s. In addition to our current areas of operation we are constantly looking at opportunities around the world to further diversify our fleet.

We currently have tenders for approximately 20 rigs either in-house or in bound for long-term contracts in South America, India, the Middle East, the Mid, West Africa, Mexico, North Sea and we are reviewing all of them, as we continue to implement our diversification strategy worldwide.

With respect to our onshore operations, our fleet of 30 land rigs located in U.S. is currently contracted at 97% utilization and has a current average day rate of approximately $23,000.

Approximately, two-thirds of our land rigs are contracted through the end of the first quarter of 2009. We will continue to see additional long-term contracts in the land rig market. However, operators evaluate their budget future projects very closely due to concerns regarding the credit crisis and volatility and commodity prices.

We delivered one new land rig during the third quarter and have two additional rigs under construction. We expect delivery of the next land rig by year end 2008 followed by the remaining unit in early 2009.

Now turning to our manufacturing division, LTI. As a reminder, we began reporting LTI’s financial results on a standalone basis beginning January 1st, 2008 to improve transparency, while showing the divisions true business levels and earnings potential.

Following several consecutive years of dramatic year-over-year improvements, our manufacturing divisions, year-to-date results were in line with our aggressive plan to achieve another record breaking year in 2008.

We plan to reach this goal despite several disruptions caused by Hurricane Gustav and Ike, modernization activity in the current global financial crisis. As we have mentioned before, LTI’s financial results can be significantly impacted by the timing of our shipments.

So, we prepared the [new] LTI on an annual basis rather sequentially from quarter-to-quarter. With that in mind, we currently project that 2008 external revenue will be more than 10% higher than the record $712 million in 2007. Total revenues [inclined to] sales to Rowan's drilling division are expected to approach $1.2 billion in 2008. LTI’s growth through external sales has contributed significantly to the success over the past few years.

During the third quarter, LTI’s backlog of external orders increased by almost to 100%. Part of LTI’s success is attributed to the growing presence of its global product lines in international markets. While this is evidenced by our more established product lines of mining, equipment and offshore rig kits, which operate on six continents, our drilling equipment has increasingly been shipped to international markets including the Middle East, Singapore, South America, India and Russia.

Year-to-date quotation activity at the end of the third quarter for the Drilling Products and Systems segment exceeded $4 billion. We believe this further demonstrates that the drilling market is turning more and more to LTI as a reliable competitive source for high performance drilling systems and services.

Current rig kit quotations offer deliveries in the second half of 2010, it means that the final delivery of the completed jack-ups associated with these kits would be in 2011. LTI mining products is embarking upon a major [source] to substantially increase this backlog. Aftermarket part sales continue to comprise a significant portion of revenues from mining products.

This concludes our prepared comments. Thanks for supporting Rowan Companies. We are now available to answer any of your questions.

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