C ompanyName:We at he r f o r d
Int e r nat io nalPlc
C ompanyTicker:WFT
Sector:N/A
Industry:N/A
EventDescription:Q220 15Ear nings
Call
MarketC apasofEventDate:8 .61B
PriceasofEventDate:10 .8 5
WeatherfordInternational(WFT)Earnings
Report:Q22015ConferenceCallTranscript
ThefollowingWeatherfordInternationalconferencecalltookplaceonJuly23,2015,08:30AMET.Thisisa
transcriptofthatearningscall:
Co mpanyPar t ic ipant s
KarenDavid-Green;WeatherfordInternationalPLC ;VP-IR&C orporateC ommunications
KrishnaShivram;WeatherfordInternationalPLC ;C FO
BernardDuroc-Danner;WeatherfordInternationalPLC ;C hairman,President,C EO
Ot he r Par t ic ipant s
JimC randell;C owenSecurities;Analyst
AngieSedita;UBS;Analyst
JimWicklund;C reditSuisse;Analyst
JamesWest;EvercoreISI;Analyst
ScottGruber;C itigroup;Analyst
KenSill;SeaportGlobalSecurities;Analyst
MANAGEMENTDISC USSIO NSEC TIO N
O perator:Goodmorning.MynameisLoriandIwillbeyourconferenceoperatortoday.
AtthistimeIwouldliketowelcomeeveryonetotheWeatherfordInternationalsecond-quarter2015
earningscall.
(O peratorInstructions)
Asareminder,ladiesandgentlemen,today'scallisbeingrecorded.Thankyou.
IwouldnowliketoturnyourconferenceovertoMs.KarenDavid-Green,VicePresident,Investor
RelationsandC orporateC ommunications.Youmaybeginyourconference.
KarenDavid-Green:Thankyou,Lori,andgoodmorning,everyone.Withmeontoday'scallfromGeneva
wehaveBernardDuroc-Danner,C hairman,President,andC hiefExecutiveO fficer,andKrishnaShivram,
ExecutiveVicePresidentandC hiefFinancialO fficer.
Beforewestartourcomments,I'dliketoremindouraudiencethatsomeoftoday'scommentsmayinclude
forward-lookingstatementsandnon-GAAPfinancialmeasures.Pleaserefertooursecond-quarterpress
releaseforthecustomarycautiononforward-lookingstatementsandareconciliationofnon-GAAPto
GAAPfinancialmeasures.
AndnowI'dliketohandoverthecalltoKrishna.
KrishnaShivram:Thankyou,Karen,andgoodmorning,everyone.Iwouldliketostartbycommentingon
oursecond-quarterresults.
Losspersharebeforechargesandcreditswas$0.10.Therevenueof$2.39billionforthequarter
decreased14%sequentiallyand36%year-on-year.Excludingtheimpactofthedivestituresof2014,
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revenuedeclined29%year-on-year.
O peratingincomemarginsbeforeR&Dandcorporateexpensesdeclined365basispoints
sequentiallyto4.9%.TheUSborethebruntofthedowncycle,coupledwiththeseasonalbreakupin
C anada,whileinternationaloperationscontinuedtoberesilientdespiteweakeningfundamentals.The
landdrillingrigsbusinessstayedprofitableinthefaceofreducingrigutilization.
Letmenowdetailtheresultsbyreportingsegment.NorthAmericarevenueof$808millionreduced30%
sequentially.O peratingmarginsdeteriorated1,061basispointstonegative11.5%,reflectingtheactivityleddropinUSlandrigcount,furtheraggravatedbytheseasonalbreakupinC anadaandafullquarter
ofpricingdeclinesacrossallserviceandproductlines,withpressurepumpingsufferingthemost.
Whileourcost-reductioneffortswereaggressive,theycouldnotkeeppacewiththedropinrevenue.
However,theydidcushionsequentialdecrementalmargins,whichcameinatalow23%,abouthalfof
whattheywereduringthepreviousdowncycleof2009andlessthanhalfofthefirst-quarter
decrementalsof49%.
Internationalrevenueof$1.4billiondeclinedby2.7%sequentiallyand16%year-on-year.O urrevenue
performanceinternationallysuggestswehavebeguntogainmarketshare.O peratingmarginsof14.7%
weredown190basispointssequentiallyand93basispointsyear-on-year.
Letmenowexaminetheinternationalresultsbyregion.LatinAmericarevenueof$463milliondeclined
5%sequentiallyand11%year-on-year.Thesequentialrevenuedeclinereflectedseveralweeksof
activityshutdownsinC olombiaasaresultofindustrialactionduetotheimplementationofaheadcount
reductionplanduringthesecondquarter.Whilethingsarebacktonormalnow,alowerlevelofactivity
willpersistinC olombia,reflectingcustomerspendingcutbacks.
LatinAmericamarginsdeclinedby184basispointssequentially,butwereaheadby367basispoints
year-on-yeartoreach18.4%,reflectingtherevenuedeclinepartlyoffsetbycostreductions.Despitethe
sequentialdecline,LatinAmericamarginscontinuetobeexcellent.
TheEurope/C aspian/Russia/Sub-SaharaAfricaregionrevenueof$418millionwasessentiallyflat
sequentiallybutdeclined25%year-on-year.Sequentially,activityreductionsinRomania,Kazakhstan,
Poland,Gabon,andC ongowerecompletelyoffsetbyseasonalimprovementsinNorwayandRussia.
O peratingmarginsof15.7%declinedby129basispointssequentiallyandby346basispointsyear-onyear,reflectingtherevenuemix,withastrongerRussiaandaweakerSub-SaharaAfrica.
MiddleEast/NorthAfrica/AsiaPacificrevenueof$516milliondeclined3%sequentiallyand11%year-onyear.ExcludingthealmostacademicZ ubairEPFproject,revenuewasflat,withimprovementsinthe
MiddleEastoffsettingdeclinesinAsiaPacific.O peratingmarginsdeterioratedby241basispoints
sequentiallyandby246basispointsyear-on-yearto10.6%,principallyduetostartupcostsonnew
contractwinsandanunfavorableactivitymix.
Drillingrigsrevenueof$185millionwas6%lowersequentiallyand53%downyear-on-year.Sequentially,
rigactivitydeclinedinRomania,Australia,andBangladesh.O urfocusistostayprofitableandcash
positiveinthisdifficultenvironment.
Belowoperatingmargins,bothourR&Dandcorporatecostsshowsequentialdeclines,reflecting
cost-reductionstepsthatweretakenduringthefirsthalfoftheyear.Goingforward,bothR&Dand
corporatecostswilltrendslightlybutnotmateriallydownfromsecond-quarterlevels.
Foreignexchangelossesconsumed$0.02ofEPSthisquarter,whichis$0.01morethanthefirstquarter.
Thetaxbenefitbookedinthesecondquarterreflectsthegeographicalmixofearnings,withtaxbenefits
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MarketC apasofEventDate:8 .61B
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onlargebooklossesinNorthAmericamorethanoffsettinganormaltaxchargeoninternationalprofits.
Pretaxchargesrecordedinthesecondquarterwere$492million.Themainitemsincludedthefollowing.
Achargeof$112milliontoreflectthesettlementofalawsuitrelatedtotherestatementofourhistorical
financialstatementsinpreviousyears:Withthissettlementallthelitigationsrelatedtotherestatement
willhavebeensettled,withonlytheSEC investigationstillongoing.
Achargeof$223millionprimarilyfortheimpairmentofpartofourUSpressurepumpingassetbase:with
only44%ofourfleetactiveattheendofthesecondquarter,werananimpairmenttestonthecarrying
valueofourpressurepumpingbusinessintheUS,resultinginthischarge.
Iwouldnowliketoupdateyouonthecost-managementactionstakentodateandourself-helpplans
goingforward.InAprilweannouncedanincreaseofthereductioninforceexerciseto10,000employees
or18%oflastyear-end'sheadcountof56,000.AsofJuly15,wehavereleaseda9,936employees,
generatingannualizedcostsavingsof$754million.
Thesavingshavebeguntohaveeffect,evidencedbythebenigndecrementalexperiencedtodate.
Thesesavingswillrolloverintothesecondhalfoftheyear,withlargernumbers--largereffectthanin
thefirsthalf.
BasedontheprognosiswehaveoftheNorthAmericanbusinessenvironmentandourcostbase,wehave
decidedtoincreasethesizeofthisexerciseto11,000employees,whichis20%oftheworkforceatthe
beginningoftheyear,withtheincreaseconcentratedinNorthAmericaandonsupportpositions.O ur
supportratiohasdippedto41.7%from45%atthestartoftheyear.Wecontinuetotargetasub-40%
supportratiobyyear-endandlowtomid30%sby2017.
Weendedlastyearwith56,000employees,andweendedthefirstquarterwithaheadcountof49,000.
Thesecondquarterendedwith45,000employees.O fthisheadcount,rigsrepresented6,000employees,
whileourcorebusinesshad39,000employeesattheendofthesecondquarter.
Wehadalsoplannedtoshutdownsevenofourmanufacturingfacilitiesthisyear.Twoofthemwere
closedinthefirstquarterandthreemoreinthesecondquarter.Thelasttwowillbeclosedinthethird
quarter.
Separately,wehaveshutdownandconsolidated60operatingfacilitiesacrossNorthAmericatodate,
andweexpecttoclose30moreinthesecondhalfoftheyear.
O urprocurementsavingsinitiativeisalsoontrackandhelpingtoreduceinputcosts.O verall,continuous
focusoncostshasresultedinreducingthenumberandvalueofpurchasesandcapitalspending
significantly,whichhasresultedininventoryandC apExreductions.Wenowhavealeanerandmore
focusedorganization,settingusupforstrongincrementalswhenactivitylevelsincreaseovertime.
Movingontonetdebtandcashflownow,netdebtreducedby$107milliontoreach$7.2billionatthe
endofthesecondquarter,reflectingpositivefreecashflowof$104million.O urfreecashflow
performanceimprovedby$370millionsequentiallydespitelargeroperatinglosses,netcashoutflowsof
$13millionontheZ ubaircontract,and$39millionofseverancepayments.
Workingcapitalbalancesreducedby$110million,withreductionsininventoryandaccountsreceivable
balancespartlyoffsetbyloweraccountspayablebalances.C apExat$187millionreflectedthe
continuouscontrolonourcapitalspending.
Lookingahead,workingcapitalwillcontinuetogeneratepositivecashflowthroughtotheendofthe
year,mainlythroughinventoryreductions.O urcapitalexpenditureplanfortheyearhasnowbeen
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reviseddownbyanother$100millionto$750million,whichisabouthalfthatof2014.
Inthesecondhalfoftheyear,weexpectseverancepaymentstoreducesubstantially,whiletheZ ubair
projectwillbecashneutralasmilestonesthatareachievedtriggeradditionalcashpayments.Working
capitalwillcontinuetoreduceandC apExwillbecurtailed,asevidencedalreadybyourfirst-half
performance.
Thecombinedeffectoftheseitemscoupledwithimprovingresultswillsecurepositivefreecashflowin
boththethirdandfourthquarters.Asaresult,weexpecttobefreecashflowpositiveforthefullyear.
Duringthesecondquarter,wesuccessfullyextendedourrevolvingcreditfacilityof$2.25billionbyone
moreyearonaproactivebasis.ThisfacilitywouldhaveexpiredinJuly2016butisnowvaliduntilJuly
2017.Weexperiencednodifficultyinthisextensionprocess,andourbankgroupcontinuestosupportus
completely.
AsofJune30,availableliquiditywas$1.9billion,meaningwehavealargeborrowingcushionstill
availabletous.Intermsoflong-termbondmaturities,nothingmaturesin2015,only$350millionmature
in2016,and$600millionmaturein2017.Webelievewecanrepaythesematuritieswithfreecashflow
withoutneedingtorefinancethisdebt.
Insummary,wehaveplentyofavailableliquidity.O urabilitytogeneratepositivefreecashflowfrom
operations,asborneoutbyoursecond-quarterperformance,willreduceourdebtlevelsgoingforward.
Insummary,webelievethatwehavemanagedthedowncyclewell,withoveralldecrementalsthatare
comparablewiththebestofourpeersandabouthalfthedecrementalsexperiencedduringthelast
downcycle.WiththatIwillnowturnthecallovertoBernard.
BernardDuroc-Danner:Thankyou,Krishna,andgoodmorning,everyone.Q 2earningspershareisaloss
of$0.10.TaxesreflectedthefactoperatinglosseswereinUSandC anada,whichareefficientlytax
effected.
Wetook$0.02foreign-exchangelosses,noncash.Asasynthesis,operationsdeliveredresultsconsistent
withreportedearnings.
Q 2wasataleoftwosegments.Geographyexplainsthequarter.
Internationalcontinuedtodowell.Marginsdeclinedmodestly,profitabilityremainedstrong,overall
revenueswasnearflat.NorthAmericadeterioratedfurther,bothcyclicalandseasonal--C anada-reasons.
Weshowedamidstreportedlosses,developingstrengthsinoperatingperformance.Revenuesheldup
wellconsideringtheoverallmarketconditions.Totalrevenuesdroppedsequentiallybyonly14%.
NorthAmericarevenuesdeclinedby30%.Bycomparison,rigactivity,combinedUSandC anada,
declined40%--letalonetheconcurrentpricingdeclines.Internationalwasnearflat,downnearthe3%,
whichsignificantlyoutpacedactivityandpricingdeclinesinitsmarkets.O verallwegainedshare,
particularlyinternationally.
Freecashflowwas$104million,regardlessofseverance,etc.ExcludingseveranceandZ ubair,quarterly
freecashflowwas$156million.Thisisfromoperations,notproceedsfromsaleofassets.Netincomeloss
madethismorevirtuousofaperformance,whichalsomeansasprofitabilityreturnsquarterlyfreecash
flowswillgrow.
Q 2unfoldedessentiallyasweexpectedinNAM.O urassessmentofQ 2assharedlastAprilwasasfollows,
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quote:NAMmarketdynamicswillweakenfurtherinQ 2.Therateofdeclinewillflattenoutbytheendof
Q 2forwhatwouldbethemarket'snadirinJune.Endofquote.
O urQ 2earningslossareallaboutNAM.Itisthemarket,ofcourse,butalsoaUSoperationhistorically
lessefficientthantheinternationalsegmentandnotaswellpositioned.
WehavemoreofalandpositionintheUS.InUStoday,offshoreisonly15%oftheregion'srevenues,
whichishalfwhatitshouldbe.
Thisisn'tinevitable,wasn'tthecasehistorically,andisn'tdesirable.Land,ofcourse,wasorderof
magnitudeweakerthantheGulfofMexico.
O urclientbaseintheUSismostlyaTier2andTier3insize.Thisisn'tdesirableorinevitableeither.This
isn'tatallthecaseinternationallyorinC anada.Thesecondandthirdtierclientshavedroppedtheir
activitymuchfasterandfurtherthanTier1.
TheUShadaheavycoststructure,manylayers,andoverlyspreadout.Toomanylocations.
AlthoughtraditionallytheUSliftactsasamoderatingfactorindowncycles,twofactorsheldthisback.
Weengagedinareductionofliftinventoryatsuppressedmargins;andofcoursewehadtheC anadian
breakupremovingthelifteffect.
LiftisverylargeinC anada.O urliftbusinesswasjustaboutborninC anada25yearsago,whichbringsme
toC anada.Manyofyouwillrememberthis:ourNAMisforhistoricalreasonsveryC anadian,morethan
ourpeers.
C anadawentthroughitsseasonallowinQ 2.C ombinedwithitsongoingmassivecyclicaldecline,activity
inQ 2wasextraordinarilyweak.ThiswasgoingtoseverelyimpactourNAMresults,anditdid.
Inlightofalltheabove,Q 1onQ 230%revenuedeclineanddecrementalsof23%wasgoodoperating
performanceandaclearsignofprogress.Bycomparison,Q 1onQ 22009decrementalswerejustabout
twicethislevelor44.6%.
Goodperformance,butfortheUS--buttheUSforonecoulddomuchbettereveninthisenvironment.
ThisiswhywearedoingfundamentalefficiencyworkintheUS,addressingthestructuralaswellasthe
cyclicalandthetalentbench.
TheUSwillbeatransformedoperationwhenwe'refinished.TheUSwasneverwell-managedat
Weatherford,whereasthetwootherWesternHemisphereregions,C anadaandLatinAmerica,wereand
are.
USischanging,andinallitssegments.Landexposure,clientmix,andcoststructureallarebeing
addressedasthoroughlyandasfastaswecan.
C omingoutofthisrecessionourNAMsegmentwillbeanentirelydifferentoperation.I'llalsoaddthat
NorthAmericareachedinthecourseofQ 2whatwebelievewillbeitslowpointthisyear.
Internationalcontinuedtoperformwellinthequarter.Wealsoexpectinternationaltohavereachedits
lowpointinQ 2,albeitinthecaseofinternationalatsolidlyprofitablelevels.
InternationalsegmentsshowedstrongperformanceinEurope,C aspian,andRussia.SSAandAsiaPacific,
asexpected,weakened.MENAbookedmuchincrementalbusinessinQ 2.O verall,ourinternational
businessremainednearflatsequentially.
Thesequentialdeclineinoperatingincomecamefromproductmix,whichwillalwaysmovealittlefrom
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quartertoquarter.TherewasonenotableexceptioninthecaseofLatinAmerica,C olombia,whichisa
Q 2-specificevent.
LatinAmericamorethanhelditsowninBrazil,Argentina,Venezuela,andevenMexicoversusQ 1.Itwas
affectedbyeventsinC olombia.
StrikesinC olombiashutdownoperationsforonemonthinthequarter.Theissuewasresolvedatquarter
endandoperationsresumed,butthequarterwasimpacted.WehavealargepresenceinC olombia.
Takingstockofthefirsthalfoftheyearasawhole,ourinternationalsegmentisonlymarginallydown
year-on-year.O peratingincomeforourinternationalsegmentisdownjust$39millionfirsthalfof2014
versusfirsthalfof2015.Numbersareactually$443millionversus$482million,whichisverymarginalofa
decline;it'slessthan10%.
O peratingincomemarginsareactuallyup.Internationalisperformingverywellandwillholdup.
C ostreductions.AsKrishnamentioned,atthetimeofthiscalltheplanned10,000-positionreductionin
forceissubstantiallycomplete.Wehavereducedourglobalheadcountbyalmost20%.TheUSaloneis
aboveathirdofreductions.
We'lltakethecostreductionalittlefurther,to11,000.O urcoreheadcountwilldipfurtherbelow39,000
employees,withrigsrepresentingthebalanceoftotalheadcount.
Thisistranslatingintodollars.Personnelexpensereductionsexceedtheheadcountdropinallregions.
We'renotcuttingintomuscle.Infact,weareaddingmusclebyhigh-gradinginternally.Also,weare
selectivelyaddingnewhiresforspecificpositionstostrengthenourbench.
Bywayofillustration,fromJanuarytodatewehavechangedsixoutofoureightregionalVicePresidents,
ofwhichfourwereinternalhigh-gradingandtwowereoutsidehires.Andwehavechangedthreeoutof
ourfiveformationevaluationproduct-lineleaders,againacombinationofinternalhigh-gradingand
outsidehires.Theentireoperatingleadershipisgoingthroughthisstrengtheningprocess.
Throughoutthiscost-reductionexercise,wehavebeenveryfocusedonunderstandingandimproving
theefficiencyofoursupportstructures.Therearestructuralgainstobeachievedthroughmanaging
efficientlyandthroughcyclesoursupportresources.
Theratioofsupportversusdirectheadcountcostsisagoodmeasurementofourabilitytooffsetactivity
reductionbothcyclicallyandstructurally.Directwillebbflowwithactivity;supportdoesn'tnecessarily.
Westarted2015ataratioinexcessof45%supporttodirectemployees.AsofJuly,wehavemoved
fractionallyto41.7%.Wearetargetingtobeat40%byyear-end.
Giventhesharpdeclineindirectcosts,thisismoreofanachievementthanthesimplemathof45%to
41%wouldsuggest.Ultimately,weplanon35%supportlevel--andthiswithoutcompromising
administrativeintegrity.
Again,thishaseverythingtodowithefficiencyandproductivity.Itwillpayoffatacompanylike
Weatherford,whoneverpushedthisasfarasitcouldgo.
O utlooktoyear-end2015.Theprognosisassumesnosignificantchangeinmarketcircumstancesthrough
year-end.Itisderivedbyanoperatingassessmentofourmarketposition,contractualwins,andcost
structure.
Q 2financialresultswillendupbeingthelowpointforNorthAmerica.Q 3forWeatherfordwillshow
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modestimprovementsdrivenbycostcutsandsomeactivitypickupinC anada.Q 3internationalfinancial
resultswillbeflatonQ 2,bothrevenuesandmargins.
TheC ompanywillbefreecashflowpositiveinQ 3.Wewillbefreecashflowpositiveforthefullyear,and
asaresultnetdebtwilldeclinefurther.
Takingaregionalview,MENAwillplayanimportantroleasitunfoldsitsturnaround.Theprogressionwill
comefromincrementalbusinessinthethreelargestGulfmarkets,AbuDhabi,Saudi,andKuwait.MENA
willbeprogressivelystrongerinquartersahead.
Russiaisseverelyhitbytherubleexchangerate.Butfromincrementalbusinessvolumestandpoint,our
Russianregionwilldowell,drivenbycontractualgainsinformationevaluationandwellconstruction.Allin,Russiawillnotbeaheadwind;Russiawillinfactprogressyear-on-year,butheldbackbyclient
liquidityandforeignexchange.
Europeanactivitywillbesteadyfrompresentlevels.Therewillbesomecountercyclicalareasofseasonal
improvements,butessentiallyclientactivitywillremainmuted.
WithinEurope,theC ontinentalmarginwillbethemostaffected.TheUKandNorwayforuswillbethe
mostresilient.Thisyearisamarketpenetrationandcostefficiencydriveforus.
SSAwillexperienceactivityslowdownandprojectdelays.O uroperations,though,willcontinuetobuild
onbroadtechnologicalsuccessesinanumberofproductlinesandoverallmarketpenetration.Thiswill
cushionthenear-termheadwinds.
AsiaistheoneexceptionintheEasternHemisphere:Asiawillexperiencesubstantiallyloweractivityfor
thebalanceoftheyear,drivenbyseverebudgetarycutsinMalaysia,Indonesia,andAustralia,while
C hinawillremainanemic.O uraggressivecostactionsunderwayinthatregionalmarketshouldmitigate
thedecline.
LatinAmerica,finally,shouldmovesidewaysforthebalanceoftheyear.Theindustrywideweaknessin
Brazilwillaffectuslessthanourpeers,whilewehavepocketsofstrengthsthroughouttheregion.
BothEasternHemisphereandLatinAmericawilloverperformthroughoutthe2015marketdecline.Wewill
alsosowtheseedsforamarkedlystrongerperformancein2016.Forus,NorthAmericaistheissuein
2015.
Asasynthesis,theoilindustryissubstantiallyunderfundedandsubstantiallyunderinvested.Atcurrent
prices,theindustrywillbechallengedtodeliverneededoilsuppliesin2017.
Thismeansoildemandwillnotbemetbyoilcapacityby2017,whichisunthinkable.Wearequitesureof
this.
Notwithstandingtheabove,wedonotwaitforbettertimes.Thepresentstateofindustrydepression
offersgreatopportunities.
WewillpositionWeatherfordwithselectedmarketsandclients.Wewillusethebrutalrecessiontogear
upincost,culture,andtalentcapabilitiesforwhatwillbeastrongupwardcycleofrequiredcapacity
expansion.
Wereiteratethebestassessmentwecanprovideforthesecondhalfofthisyear:ourinternational
performancewillberesilient;NAMwillremainchallenged,butgraduallymoreconstructive.
Fromadirectionstandpoint,thisisthekindofmarketinwhichwecanmakefastanddeepcostsprogress
andstructuralchangestoeffectivelyredirectacultureandrebuildastrongbench.O uractioncenters
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aroundimprovingthreethingsanddoingsoinaperennialway:one,lowercoststructuresthrough
cycles;two,capitalallocationandcashgenerationasacompany-widediscipline;three,leapfrogtalent
benchandtalentdevelopmentasaculture.
Industrially,wearefocusedexclusivelyonthreemissions:wellintegrity;lowerdrillingandcompletion
costcurve;andsustainedproductionrates.Wedonothaveastrategicneedtoaddorchangeour
productlinebreadthordepth.
O urmeasurementofsuccesswillnotbesizeoranattempttoemulatesomeofourlargerpeers.O urpath
takesustowardsoperatingexcellenceandstrictfocusonourindustrialmission.Wecangrowand
prosperaswearetothegreatbenefitofshareholdersandclients.
Wearetakingstrongactionandtakethismarketasanopportunityasmuchasapunishment.Weare
makingoperating,organizational,andmarketingprogress.Weatherfordwillbeefficient,lean,clientdriven,andorganizationallyflat.
WiththatIwillreturnthecalltotheoperatorforQ &A.
Q UESTIO NS&ANSWERS
O perator:(O peratorInstructions)
JimC randell,C owenSecurities.
JimC randell:Thankyouandgoodmorning.Bernard,bothyouandKrishnamentionedthatyouare
beginningtogainmarketshare,particularlyinternational.C anyoutalkaboutwherethatmaybe?And
doyouthinkthatthegainsinmarketshareareatallareactiontosomeofthe--duetothebig
consolidationmoveintheindustry?
BernardDuroc-Danner:Ithinktheyarewidespread.It'snotinoneparticularplace.
Idon'tthinktheyarenecessarilythatcorrelatedtotheconsolidationunderway,insofarasinanumberof
instanceswedon'treallycompetewiththethree,orwecompetewithoneofthethree.Soit'snotclear
thatithasverymuchtodowiththat.
Ithinkithasmoretodowithus.Hastodowithsomeofthetechnologiesweputonthemarket;hastodo
withthefactthatwewerenotasaggressiveandasfocusedinsomeofthemarketsinthepastasweare
today.Ithinkithasmoretodowithusthanithastodowithindustryevents,atleastfornow.
Andalso,Jim,it'snotintheend--becausewe'renotthatlargeofacompany--it'snotbignumbers.It's
notdramatic.Butitishappening.
Soit'swidespread,affectsanumberofdifferentmarkets,anumberofdifferentproductlines,andI
wouldn'tsaythere'saparticularthemeastowhoislosingtheshare.Krishna,doyouwanttoaddtothat?
KrishnaShivram:Yes,thanks,Bernard.Jim,justtoelaborateabitfurtheronwhatBernardsaid,the
numbersspeakforthemselves.Ifyoulookatthesequentialrevenuedifferentialbetweenthefirstand
secondquarters--andinfactevenbetweenthefourthandthefirstquarterofthisyear--youcansee
thatit'sagradualgaininternationallyrightacrosstheboardineveryregionversusourpeers.
SoIwon'tgothroughthenumbers,butthenumbersspeakforthemselves.Theyarequiteevident.
JimC randell:O kay.
KrishnaShivram:Wealsohaveaslewofcontractwinsrightthroughinthesecondquarterforwhich
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revenueswillberecognizedstartinginthethirdquarter.Andwearequitecomfortabletosaythatthis
trendwillprobablycontinue.
JimC randell:O kay.Asafollow-upquestion,itdoesn'tsoundlike,givenyourcommentsaboutthemarkets
themselves,thatthey'llgiveyouenoughthatyoucouldreachbreakevenbythefourthquarter.C anyou
talktothat?
Andthencouldyoualsoaddresswhatyouthinkwillbetheoutlookina--let'sjustsayina$55to$60
BrentcrudeenvironmentforinternationalE&Pspendingin2016?
BernardDuroc-Danner:Whenyousay,Jim,breakeven,whatbreakevenareyoureferringto?
JimC randell:BreakevenonaP&Lbasis.
BernardDuroc-Danner:O h,before--Idon'tthinkweknow.Q 4isthreemonthsfromnow,sowe'llbe
takingonequarteratatime.Sothat'sprobablyaquestionthat'sbetteraskedinO ctoberratherthan
now.
Idon'tthinkit's--it'snotin--wedon'tknoweitherwayifit'sintherealmofthepossible.Thisisthefirst
answer.
Thesecondquestion,whichis$55,$60,presumably--isthatBrentorWestTexas?Hatetobespecific.
JimC randell:Brent,Brent.
BernardDuroc-Danner:Brent?$55,$60Brentatyear-end,andI'llviewitasbeingtheprevailing
environmentfornextyear,IwouldhavetosaythattheE&Poverallplans,somewouldbeup,some
wouldbedown.Ithinktheywouldbeactually--willgosideways,2015on2016internationally.
Itreallydependswhatpartoftheworld.Ithinkoffshoreanddeepwaterwilltendtobeaffected,because
whenyouhaveasharpdeclinelikewehadtypicallylandgetshitacrosstheboardeverywhere,because
it'smucheasiertocurtaillandthanoffshore;andofcoursethingsgetpostponed.
SoIthinkthatitwillgosideways.Landmaybealittlebitbetter,andoffshorewilldoalittlebitworse;but
itwillgosidewaysotherwiseoverallatthatlevelwillbemyguess.
JimC randell:O kay.Thankyou.
O perator:AngieSedita,UBS.
AngieSedita:Thanks,guys.Goodmorningorgoodafternoon.C anwetalkalittlebitaboutZ ubair?Just
walkusthroughwhat'shappeninginthemarketasfarasyourtarget.
Myunderstandingisyouhaveessentiallythreedifferentphysicallocations,right?Andthreedifferent
targets.Socanyoutalkusthroughwhereyoustandonthosetargets,anddoesthecurrentenvironment
inIraqmakeachievingthosetargetsanymoredifficult?
Andthenwhereyouareon--howdoesthecashplayoutasfarasthecashpayments?Isthatbackend
loadedforthosefinaltargets?
KrishnaShivram:Yes,Angie.I'dliketosaythattheveryfirstmechanicalcompletionmilestoneforthefirst
twositeswillbeclosetocompletionnextweek.Bytheendofthemonth,weexpectthefirstsitetobe
certifiedandthenveryearlyinAugustthesecondsite.
Soit'salittlebitslightlybehindthepreviouslycommunicatedschedule,mainlybecauseoflogisticaland
securityreasonswhichcontinuetoaboundinIraq.Havingsaidthat,wearequitecomfortabletosaythat
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wewillhitthemechanicalcompletionmilestoneswithinQ 3andwe'llstarthittingtheRFC milestonesat
theendofQ 3,goingintoQ 4,foroneofthesites.
Sothecashflowsrelatedtotheachievementofthesemilestoneswillflowsteadilybacktous.And,asI
saidinmypreparedcomments,wethinkwe'llbecashflowneutralinthesecondhalfoftheyearfor
Z ubair.
AngieSedita:Sodoesthatimplythathittingthetargetscouldfallintoearly2016?
KrishnaShivram:Well,therearethreemilestones;mechanicalcompletion,readyforcommissioning,and
performanceacceptancecertification,andwewillhitallthemilestonesbytheendoftheyear.Thecash
flowrelatedtotheverylastmilestonemayslipintofirst-quarter2016.Despitethat,weshouldbecash
neutralduringthesecond-halfoperationsfortheyear.
BernardDuroc-Danner:Nottominimizetheimportanceofeverysinglestage,Angie,butmechanical
completioninthefirststageisreallythemost,Ithink,demandinganddifficult.That'stheonewhichis
uponusinamatterofdays.
AngieSedita:O kay,okay.That'svery,veryhelpful.Thenasafollow-uptoJim'squestiononmarketshare,
andifyouthinkforwardabouttheclosingorpotentialclosingoftheBakerHughes-Halliburtonmerger,
certainlyyoucouldtalkalittlebitifyouwouldonwhereyouthinkthepotentialeasyopportunitiescould
be.
ButIthinkyou'vealsostatedinthepastthatyouhavesomegrowinguptodotocapitalizeonother
opportunities.Andmaybeyoucantalkusthroughonthestepsyouaretakingtocontinuethatgrow-up
processtocapitalizeonmorethanwhatyoucouldeasilytakeadvantageof.
BernardDuroc-Danner:We'requiteinternallyfocused,Angie,whenitcomestogettingreadyto
capitalizeonopportunities.Thereistheeventsintheindustry--thatonethatwasextraordinarily
interesting.C ertainlyfromananalystperspectivetheyarecaptivating,andthey'revery,veryimportant.
Wereallyarenotthatinvolved,obviouslyintheprocess.Andwe'renot--wereallydon'tspendtoo,too
muchtimelookingatthevarioussequencesofevents.
Itwillbeimportanttoeverybodyintheindustry,notonlyus.SoIthinkwe'llwiththatunfoldthewayit
will,withoutspeculatingtoomuchonit.
Wearefocusingaloton--well,it'sallaboutefficiency.Alotofithastodowithdelayeringthe
organization,operatingwithfewerpeoplebutbetterpeople,operatinginamuchleaner,faster,more
disciplinedmanneralso.We'refocusedalotonthat,focusedalotontraining,peopledevelopment.
Focusedalsoalotandsalesandmarketingandre-engagingwithourclientsthewayweusedto.All
thesethingsthatshouldmakeupthefabricofacompanywhichhasnomoredistractions.
Wehavenomoreinternaldistractions.Theonlyfocuswehaveissimplyouroperations,ourclients,and
progressing.
Itreallyisn'twhetherwecangainsharefromthisorthatparticularcompany.Thepointoffactisthatwe
trytodothebestwecaninthefewproductlineswhichwearein.
Again,ourfrontlineisnotasbroadatallassomeofourlargerpeers.Wehavefewerproductlines.Weare
tryingtodothebestwecanwiththoseproductlines,andtherearemanymarketsinwhichwe'revery,
veryunderrepresented.Sowefocusonthat.
Andthat'sit.We'retryingtodoitmoreefficientlywithahigherqualityofpeople.
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It'sassimpleasthat.It'snotveryspectacular.It'sallabouthavingfarbetterexecutionthanwe'veever
had.That'sit.
AngieSedita:Allright.Fairenough.I'llturnitover.
O perator:JimWicklund,C reditSuisse.
JimWicklund:Goodmorning,guys.Irememberthethirdquarteroflastyearyouwereexpectingtogeta
refundofdepositbasicallyfromIraq.ButtheSouthernIraqiO ilC ompanyinBaghdadwasn'tsigningmuch
ofanything.Andnowweunderstandthatthatprocessmaybeimprovingalittlebit.
Whateverhappened,orwhat'sgoingtohappen,withyourstranded$250millioninIran?ImeanIraq.
KrishnaShivram:Jim,you'retalkingaboutthepotentialclaimsonthecost(multiplespeakers)the
variationordersontheZ ubairproject,right?
BernardDuroc-Danner:Yes,heis.
KrishnaShivram:Yes.So,Jim,thesituationisthatwehavecommencedanarbitrationproceedingagainst
ourcustomerandmadetheclaims.Andrightnowatthispresentmomentwehavestayedthearbitration
sothatwecancompletetheprojectinacooperativemanner.
Thisarbitrationisjustinabeyancebutwillcomebackifwedon'tgetasettlementofferfromtheIraqisand
throughourclient.SoIthinkthedialogueonthiswillcontinueoncewecompletethemilestonesand
delivertheproject.
BernardDuroc-Danner:Thejudgment,James,isasfollows.Soyouhavethreepolestothistriangle:you
havetheoperator,whichisENI;youhavetheultimatereservoirowner,whichisSO C ;andyouhaveus.I
thinkit'ssortofdifficulttohaveaconstructiverelationshipandalsobearbitratingatthesametime,so
wedecidedthatthecompromiseortheleast--orIthinktheleastbadwayforward--Iwouldn'tsay-nothingisterriblygoodaboutZ ubair.Theleastbadgoingwayforwardwastofinishtheprojectas
quickly,asefficiently,asprofessionallyaswecould.
Forthat,Ithinkaconstructiverelationshipwiththeoperatorwasuseful.Tothateffect,webycommon
agreementfrozethearbitrationprocessandwe'refinishingtheproject.
Theprojectwillbefinishedthisyear.Fine.
AsIsaid,itwillbefinishedinaprofessionalandqualitymanner.Fine.
O ncethatisdone,thenwewilleithernegotiateasettlementand/orconcurrentlyweinitiatethe
arbitrationprocess.Ithink--sothat'sthesequenceofevents.
Yes,itwilltakelongertocollectwhateveriscomingourwayfromthesettlement.Butwewilldothat,Jim,
purelyasanegotiationoralegalprocedurewithalltheoperatingworkandalloftheactualconstruction
onthegroundbeingbehindus,whichwillbe,Ithink--takemoretimebutwillbealsofar,Ithink,much
healthier.
JimWicklund:Makessense;okay.Iappreciatethat.Second,ifIcould,younotedthatpressurepumping
wasabysmalinthequarter.O nthefirst-quartercall,Bernard,youmadeitsoundlikethefirstconsolidator
whorangyourdoorbellmightendupowningthatbusiness.
Isthatstillthecase?Istherealoveintereststillwithpressurepumping,oristhatadispassionate
potentialdivestitureifsomebodycomesknockingonyourdoor?
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BernardDuroc-Danner:Well,firstofall,I'mnotsuretherearemanypeopleknockingonanyone'sdoor
whenitcomestopressurepumpingintheUS.Ithinkthisisthenumberone.
JimWicklund:That'sagoodpoint,yes.
BernardDuroc-Danner:Ithinkverymuch,likeinthecaseofZ ubair,wetrytobeasbrutallyrealistic
aboutwhatweneedtodoaswecan.Sofirst,whatwehavedonewithpressurepumping--andyoucan
seesomeoftheresultsinmonthbymonthatWeatherford--iswe'velearnedhowtorunitbetter.
Which,allthingsbeingequal,canonlybeapositive,whetheritbecomes--stayspartofthecoreandso
forth,orwhetheritdoesnot.Sowehavelearnedhowtorunitbetter,andthenyoucanseeitinthe
numbers.
Thosenumbersarenotgoodbecausethemarketisnotgood.It'svastlyoversupplied.Youknowallof
this.
However,wehavecometothesuccessfulachievementofrunningthepressurepumpingoperationinthe
USwithhalftherevenueofQ 1--thisisinQ 2--butessentiallythesamedollaramountoflosses.Sothe
losseshavenotincreased.
AndaswemoveforwardintoQ 3,weareEBITDApositive.AndIthinkintermsofqualityofoperationswe
upgradedourclientlist,andIthinkwehaveagraduallymoresuccessfuloperation.
JimWicklund:Excellent.That'sveryhelpful,andthecommentsaboutyourrestructuringofNorthAmericaI
thinkareveryhelpfultoo,Bernard.Thanks,guys,verymuch.
O perator:(technicaldifficulty)West,EvercoreISI.
JamesWest:Hey,goodmorning,guys.Maybe,Krishna,firstforyou.IfI'mdoingthemathcorrectlyhere,
youtookout$500millionincostlastyear;youtalkedaboutcostsavingssofarthisyearof$754million.I
believethere'sanother$300millioninprocurementcostsoverthisyearandnextyear;maybesomeof
thatisalreadyinthat$754million.
Butwe'relookingatacost-savingsnumberthat'ssomewherein--well,definitelyover$1billion,but
maybeinthe$1.5billionrange.AmIintherightareaatthispoint?
KrishnaShivram:Yes,Ithinkit'sover$1billionforsure.Iwouldhesitatetosay$1.5billion.It'ssomewhere
inbetweenthosetwonumbers,yes.
JamesWest:O kay,great.Thenmyfollow-uptothat--andIthinkyou'llseewhatI'mtryingtogetathere-is,howmuchofthecostsavingsofthat--let'ssayit'salittleover$1billion--wouldyouperceiveas
structuralinnatureversusmorejustcyclicalcostsavingsduetothedownturn?
KrishnaShivram:Well,Icanonlygiveyouaroughestimate.Alotofithastodowiththecyclical
downturn,clearly.Withthedropinactivity,yourdirectcostsarejustafunctionofthat.
Butwe'vetakenstructuralcostmeasures,cost-savingmeasures,toquiteadrasticlevelasevidencedby
thedropinoursupportratio,whichstartedlastyearat59%andwearejustshyof42%rightnow.
Andwearerelentlesslyfocusingongettingthattothe30%snow.SoIthinkIwouldsayprobablyaonethird,two-third:one-thirdsupportandtwo-thirddirectwouldbeagoodmixruleofthumb.
BernardDuroc-Danner:Ithink,James,that'saverygoodquestionyou'reasking.Wedon'thavefora
conferencecallsortoftypeofdialoguenumbersdowntoasoundbite.Iwouldhavetosaythatitisnorth
of$1billion,theoverallcostsbeingtakenout;Itotallyagreewiththat.C ash;cashnumbers.
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JamesWest:Right.
BernardDuroc-Danner:Ialsothinkthatathirdbeingperennialisactually,Ithink,averyreasonable--I
wouldsayprobablyIwouldhaveusedthenumber40%myself.Weareveryobsessiveaboutthe
perennialandthestructure.Very,veryobsessive,preciselythesamereasonyou'reaskingthequestion.
ThisisthequalityofthenumberscomingoutofthisC ompanywhenthebusinessimproves.It'svery,very
importantthatthe--andfurthermore,withamoreefficientstructuralcostbasisyouwillruntheC ompany
better.ForgetabouttheP&Lbeingbetter;we'rejustrunningitbetter.
Thedelayering,you'remakingtheorganizationnotasheavy,decision-makingverydisciplined,very
responsible,butnothiringbehindlayersofpeople,IthinkmakesforabetterC ompany.We'retryingto
beabetterC ompany.It'sassimpleasthat.
JamesWest:Absolutely.Makescompletesense.andifit's40%orathirdorso,significantearnings
leverageaswecomeoutofthis.Sothanks,Bernard;thanks,Krishna.
O perator:ScottGruber,C itigroup.
ScottGruber:Goodmorning.IwanttocontinueonJames'slineofinquiry.Irealizethatyou'recontinuing
todelayertheorganization.Butoverallcanyougiveusasenseofwhatlevelofactivityyou'retargeting
intermsofsizingyourUSorganizationtoday?
Idon'tknowifyoucandimensionthatrelativetoarigcount,ormaybeaNorthAmericanrevenue
numberoverall.Butasyouthinkaboutsizingtheorganization,howyou'rethinkingaboutthatin
contrasttothemarketsizeandyouropportunityset.
KrishnaShivram:Well,rightnowwethinkthat,Scott,wethinkactivitylevelsaregoingtoflatten,maybe
slightlytickupwardsbutnotmateriallyfortherestoftheyear.Westillhave1,000morepeoplethatwe
aretargeting,mainlyintheUS,totakeout;andwementionedthatinourpreparedcomments.
Again,thefocusisgoingtobemoreonthesupportside.SoatthispointIthinkthat'sprettymuchit.I
thinkourorganizationiswellsizednowgoingforwardwithjustthe1,000moretogoreally.
BernardDuroc-Danner:Thesupportfunction,whichis--supportisbroad.Ithinkitcoversalotof
activitiesthatwe'redesigning--andnotonlyforNorthAmericabutcompany-wide--it'sdesignedtobe
thesameatthepresentlevelofactivityandalsosomelevelofactivitythat'shigherthanthat.It'sthe
wholepoint.
Sothatwe'rehopingtohavetheC ompanyoperatewithalevelofactivitywhichwouldbe--Ican'tgive
youexactnumbersbecausewedon'twanttodoanythingirresponsible--butquiteafewpercentage
points,highlevelsofactivitywiththesamesupportstructureanddoitveryefficiently.
Butintermsofscalingittowhereitneedstobe,tohelpNorthAmericahavemoreconstructivenumbers,
we'regettingthere.Withtheother1,000,we'llbethere.
Wewillbeatalevelofcoststructurewhere--withthepresentlevelofthebusiness,understandingthat
wearemorelandthanoffshore,whichIthinkinthelongrunisnotdesirable,butintheshortrunactually
itisnotthatbadbecauselandtookitonthechin.O ffshorewilltakeitonthechinnow.
WhichmeansthatallthingsbeingequalforusintheUS,it'slikelytobealittlebitsmoothersailingforus
goingforward.C oststructureandalsomarketexposure.
ScottGruber:Gotit.Thenunrelatedfollow-up,Bernard,youmentionednoneedtoexpandtheproduct
offering.However,withtheDO JpotentiallypushingbackonHalliburton'sbidtobuyBaker,wouldyou
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considerissuing$8billion,$10billionofequity,whatever'sneeded;buyingalargecollectionofassets;
establishingyourselfasthenumberthreecompetitorindrillingandcompletionoffshore;and
deleveragingyourbalancesheetallatthesametime?
BernardDuroc-Danner:Ithinkthatifthecapitalmarketvaluationsonfieldserviceisvery,verydifferent,
thatmightbeaconversationwewouldhave.TodayIthinkthecostofcapitalwehaveisextremelyhigh.
Thisisfirstanswer,meaningthatitssizefeelsprohibitivelyexpensive.
Thesecondansweristhatwereallydon'tknowwhatwillhappenaftertheHalliburton-Baker
combination.Thereisonesetofassets.Wedon'thavemuchofanopiniontodayonthelevelofinterest
wemighthaveornot.Ithinkalotofpeopleareinterestedit.
Sotheansweristhatwe'reverycontentwithwhatwehave.We'renotobsessiveatallaboutwhat's
goingonwiththosetwocompanies.Manyotherpeopleare.
Ithinkourtimeisbetterusedfocusingonwhatwehavethanonsortofdaydreamingaboutwhatwe
couldbeaddingornot.Verydifficultforus.Evenifwediddaydream,verydifficultforus.
ScottGruber:Soundslikeasoundstrategy.Thanks.
O perator:BradHandler,Jefferies.
BradHandler:Thanks.Goodmorning.IguessI'llplaymarketwatcheralittlebitandjustrespondtowhat's
happeningduringthecourseofthecall,ifyou'llallowme.Ifwetrytoputtogetherthethreadof
questionswithrespecttothecostsavings,andbuildingthroughrealizingthosecostsavingsinthe
secondhalfoftheyear,relativetoyourcommentsaroundthisverystableinternationaloutlookandan
improvingNorthAmericaoutlook,isithardtocraftaviewthatthefourthquarterwouldbebreakevenor
evenslightlypositiveEPS?
BernardDuroc-Danner:Krishna,youcananswerit.Formyownpart,I'dsaywethinkitispossible.Ithink
wewouldratheranswerthatquestioninO ctober.Idon'tknow,Krishna,youwanttogeta--?
KrishnaShivram:Yes,Ithink,Brad,inthismarketenvironment,it'sabithazardoustostartforecasting
thatearly.Itisintherealmofpossibility,yes.
BradHandler:O kay.Fairenough.Iguessanunrelatedfollow-upthat'salotmoregranular:canyoujust
becauselittlebittotheprojectdelaysthatyoucitedinSub-SaharanAfrica?Howperniciousisthatand
maybehowwidespreadisit?
Howmuchtakenbysurpriseareyou?Justmaybealittlebitmorecoloraroundthatcommentwouldbe
helpful.
BernardDuroc-Danner:Youprobablyknowasmuchaswedoaboutit,Brad.We'renotsurprisedinthe
least.Whenpricingofoilgoesfrom$110toa$50thefirstbusinesstogotopotisland,acrosstheboard.
Landismucheasiertostop.Landismucheasiertobasicallycancel,right?
O ffshoreanddeepwaterismuchhardertocancelinshortorder.Now,firstthingthatyoudopostponeis
anythingthat'snotactuallyphysicallytakingplace;soanythingthat'sonthedrawingboardgets
adjourned.Thathappens.
Now,whatisalreadyphysicallytakingplace,youcan'tjustpullthepluginthose.Insimpleterms,you
can't.Anythingthat'soffshore,andletalonedeepwater,youjustwaituntilthefirstopportunitywhere
youcanpulltheplug.
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Andthatinevitablyhappensifthepriceofoildoesn'tcorrect,whichitisn't.Weareatthatpointtoday.So
Ithinkyouseearashofcancellations,delays,andsoforthalloverWestAfricaandinallthehotspotsof
activity.
Wearenotintheleastsurprised.Ithinkforusitsimplymeansthattheprognosis,whichwassobullishfor
usinSSA,havegonefromverybullishtosubdued.Butthey'renotbad,simplybecausewedidhavea
largeplayatallinthatgeographicmarket.
Weweregettingitbyrecoveringmarketshareswehadlostandgainingnewmarketsharesbasedon
technology.Well,thenumberswon'tbewhatwewerehopingforthemtobe,butwewillnotatthesame
timeexperiencegreatreversalofeconomics,simplybecauseitwasprospectiveasopposedtosomething
thatwehavealreadyinourP&L.
Sotosummarize,itisverymaterial.Itwillbeincreasinglymaterialastimegoeson.Andtheprospectof
havinganotheryearin2016ofvery,verylowoilpricing,youwillseedeepwaterandanythingoffshore
basicallyweaken.That'sabsolutelynormal.
Landparadoxicallywillnotweakenasmuchbecauseitalreadyhashappened,whichis--againasifyou
lookatthechronologyofeventsinourindustry,thisishowitunfolds.
Sowe'renotsurprisedintheleast.Andyes,it'sdisappointingforusbutIdon'tthinkIwouldcharacterize
itaspainfulwhenitcomestoSSA.It'sjustsomethingthatwillhappenlaterandnotsomethingthatwe
hadinourP&Ltobeginwith.WewereprospectivelyhopingtohaveitinourP&L,okay?
BradHandler:Understood.Thankyou.
O perator:KenSill,SeaportGlobal.
KenSill:Yes,thankyou.GoodafternoontoyoupeopleintheniceenvironmentsofSwitzerlandversus
Houston,whichisupto100.
Iwantedtotalkabout--isbeingaland--heavieronthelandsidegoodorbadinthecurrentprice
environment?O bviouslyinthecurrentpriceenvironmentpeoplearehavingtorethinkwherethe
economicsare,andwe'vebeeninamarketwherethedeepwaterhasbeenthetargetofmorespending
andmorespendingandmorespending.
ButwiththeabilityofNorthAmericatogrowproductionandwhat'sclearlyrisingspendingintheMiddle
East,Iguesslong-termstrategicallydoyouthinkbeingonshoreisactuallyanegativegoingforward,
givenhowquicklyonshorecanrespondtopricechanges?
BernardDuroc-Danner:Ken,Ithinkthat--neitherone.Ithinkthatweobviouslyaresmallerthanour
largerpeers,butwearenotsmall.That'sanoverstatement.Iwouldn'tsaythat.
Andgiventhebreadthofwhatwehave--wesaywe'recontentwithwhatwehave,butgiventhebreadth
ofwhatwehave,wereallyhaveaplacebothonlandandoffshoreindeepwater.Soforusreallyweneed
toberepresentedinboth.
Iwouldn'tmakeanexclusivebetatthispointintime,though,ononeortheother.Ithinkthatwouldbe-Iwouldnotrecommendthat.
Iwouldn'tjustrideone,becauseyou'relikelytopickthewrongone.Sotheanswerisithastobemuch
morebalancedbecausetheprognosisisactually--tomakeitclear,theprognosishasbeenequally--in
abetterenvironmentofcourse--equallyencouragingforlandthanitisfordeepwater.
Today,nothingisencouraging.Buteventually--thepointbeing,eventually--Ithinksomeoftheluster
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thatdeepwaterplayshavehadmay,asoftheturnofthemarket,theymaycomeback;buttheywon'tbe
exclusive.Theywillbesharedwithsomeofthelandplays.That'sasmuchasIcansay.
Butforusreallyweneedtobeinboth.Tacticallytoday,tacticallytoday,becausethelandpeopletookit
onthechinfirst--thatwouldbepeoplelikeus--itistruethatinthelandmarketsyou'reprobably
tacticallyalittlebitbetterofftodaythantheoffshoremarket.Butit'sjustaquestionofthemisery
spreading.That'sall.
KenSill:O kay.That'sagoodanswer.Itmakesalotofsense.Thenonefinalquestion.Iwasalittlebit
surprisedbytheimpairmentchargeinpressurepumping.C learlyalotofassetsstacked.
Butyouguysarethefirstonestoannouncesomethinglikethat.C ouldyougothroughtheprocessand
howtheimpairmentwasdeterminedrelativetoyourassetbase?
KrishnaShivram:Well,Ken,itwaspurelydeterminedfromanaccountingstandpoint.Wehadmorethan
halfourfleetstacked;andwhensuchaneventhappens,wedotestourassetsperiodicallyfor
impairment,andtherewasacasetodothat.Andwhenwedidperformtheimpairmenttest,wefound
that,barringsomeextraordinaryassumptions,wewouldnotbeabletosupportthecarryingbookvalue
oftheassets.
Sowedecidedtotakeanimpairmentcharge.Wethinkthat'saquiteresponsiblewaytodoitgiventhe
marketconditionsinNorthAmerica.
TheimpairmentchargewaspurelyrelatedtotheUSpressurepumpingassets.Itwasjustinonecountry.
BernardDuroc-Danner:AndIthinkthebookvaluenowisveryreasonableofourpressurepumping
assets.
KrishnaShivram:Yes,theyarequite--alotmorerealistic.
BernardDuroc-Danner:Q uitelow.Withthat,Ithink--thankyou,Ken.
Withthat,Ithinkwewillclosethecallandthankyouforyourtime,becauseIthinkthehourisoverand
thereisanothercompanycallwhichisschedulednow,ifIamnotmistaken.Thankyouverymuch.
O perator:Ladiesandgentlemen,thisconcludestoday'sconferencecall.
Allrightsreserved(c)2014TheStreet,Inc.
Pleasefeelfreetoquoteupto200wordspertranscript.Anyquoteshouldbeaccompaniedby"Provided
byTheStreet"andalinktothecompletetranscriptandwww.thestreet.com.Anyotheruseormethodof
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THEINFO RMATIO NC O NTAINEDINEAC HWRITTENO RAUDIO TRANSC RIPT(the"TRANSC RIPT")ISA
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