Archrock Inc (AROC) 2009 Q4 法說會逐字稿

Good morning. Welcome to the Exterran Holdings, Inc. and Exterran Partners, L.P. fourth quarter 2009 earnings conference call. At this time, I'd like to inform you this conference is being recorded and that all the participants are in a listen-only mode. We will open the teleconference for questions after the presentation. Earlier today, Exterran Holdings and Exterran Partners released their financial results for the fourth quarter ended December 31, 2009. If you have not received a copy, you can find the information on the Company's website at exterran.com.

During this call, the Companies will discuss some non-GAAP measures in reviewing their performance, such as EBITDA as adjusted, EBITDA as further adjusted, gross margin, gross margin as adjusted and distributable cash flow. You'll find definitions and a reconciliation of these measures to GAAP measures in the summary pages of the earnings release and on the Company's website at exterran.com. During today's call, Exterran Holdings may be referred to as Exterran or EXH and Exterran Partners as either Exterran Partners or EXLP. Because EXLP's financial results and position are consolidated into Exterran, the discussion of Exterran will include Exterran Partners unless otherwise noted. Also, the term "international" will be used to refer to Exterran's operations outside the US and Canada and the combination of US and Canada will be referred to as North America.

I want to remind listeners that the news release issued this morning by Exterran Holdings and Exterran Partners, the Company's prepared remarks on this conference call and the related question and answer session included forward-looking statements. These forward-looking statements include projections and expectations of the Company's performance and represent the Company's current beliefs. Various factors could cause results to differ materially from those projected in the forward-looking statements. Information concerning the risk factors, challenges and uncertainties that could cause actual results to differ materially from those in the forward-looking statements can be found in the Company's press release as well as in Exterran Holdings' annual report on Form 10-K for the year ended December 31, 2008. Exterran Partners' annual report onForm 10-K for the year ended December 31, 2008, and those set forth from time to time in Exterran Holdings and Exterran Partners filings with the Securities and Exchange Commission which are currently available at exterran.com. Except as required by law, the Companies expressly disclaim any intention or obligation to revise or update any forward-looking statements.

Your host for today's call is Ernie Danner, President and Chief Executive Officer of both Exterran Holdings and Exterran Partners. I would now like to turn the call over to him. Mr. Danner, you may begin your conference.

Thank you and good morning. And welcome to the fourth quarter 2009 earnings call for Exterran Holdings and Exterran Partners. Joining me on the call today are Michael Anderson, the CFO of Exterran Holdings and David Miller, the CFO of Exterran Partners. In today's call, I'll cover a review of our fourth quarter performance, some commentary on market conditions and our activity levels, and a reiteration of our strategy moving forward. Our fourth quarter performance was generally in line with our expectations. We had solid revenue, EBITDA, and cash flow performance in the quarter, but our EPS results were impacted by several charges that Michael will discuss later. In North America, continued challenging conditions led to a decline in working horsepower and our contract operations business, but effective operating and capital cost management helped us produce another quarter of strong, positive cash flow. In our international contract operations business, we started important projects in the quarter in Brazil, Mexico, Nigeria and Indonesia.

Turning to the fabrication business, we had strong revenue performance and a solid level of bookings during the quarter which resulted in a stabilized backlog. And as a testament to the breadth of our business, key bookings in the fourth quarter included a large compression order for China, gas treatment plant in Russia, FPSO topside equipment to be built in Singapore and solid bookings of production and processing equipment across our operating areas. Belleli's backlog has continued to decline as 2008 and 2009 bids on projects have been pushed back due to the financial crisis. Belleli's bidding activity is beginning to return to normal and we expect the segment to continue to do well over the long term. Although 2010 is likely to be a lower revenue year than 2009 was.

We had another strong quarter of cash flow generation and reduced our debt by $125 million, bringing our total debt reduction in the second half of 2009 to $250 million or about $4 a share. We achieved this through a combination of solid operating performance, a continued focus on managing our operating expenses and capital expenditures, and cash generation from other available sources including the sale of our investment in the Cawthorne Channel processing plant for $37 million.

Turning now to a brief look at our markets, I'll start with North America. North America is not a good market yet, but there are signs of potential improvement. We believe horsepower will still decline in the first quarter but at a reduced rate. And business inquiries are up, but our bookings tend to lag any uptick in drilling as you know. So while it feels like we're getting closer to a positive trend, it is simply too early to predict a bottom. And now the normal kind of cautions that come with that.

Continued improvement continues to be dependent upon the broader macro story including storage levels, drilling activity, gas prices and production. And all of these will be driven by the overall economy. As to the shell plays in North America, we aren't well positioned in the shale plays throughout the country. But each shale play is unique and will have different product requirements and timing. And in Marcellus, we added horsepower in 2009 and continue to be optimistic about this market and our position in it. In the Haynesville, it just simply hasn't required significant compression as of yet. But it has been an important contributor for our production and processing equipment revenue. And we're closely watching performance in the the other shales.

Turning to international. We see continuing positive inquiry levels for all our products as well as our integrated projects. These include a combination of production, processing and compression products and services. And many include components of capital and engineering services as well. In Latin America, we have strong growth prospects in Brazil, Mexico, and the other smaller Latin countries. And we're also seeing promising activity in the Middle East and Australia as natural gas infrastructure continues to be developed in these markets.

Moving ahead, our strategy for Exterran remains unchanged. Our focus on free cash flow continues to be a priority. And with expected continuing positive cash flow, we'll reduce our debt balance during 2010. We expect to invest approximately $100 million to $150 million of growth capital in longer-term growth projects with very attractive returns. And we believe that we can accomplish both of these objectives; reducing debt and funding growth projects with internally generated cash. In North America, we will continue to focus on improving customer service, managing costs and the redeployment of our idle equipment. These idle units have significant cash flow potential as industry compression requirements increase.

We will also continue to invest in our infrastructure to ensure our ability to execute on our international growth strategy. We'll do this by adding engineering and product management capabilities to support this expected growth in the Eastern hemisphere. As a result of these investments, our SG&A levels may increase in 2010. In addition, we remain committed to Exterran Partners. Consistent with our MLP strategy, we completed the sale of additional contract ops business from Exterran to Exterran Partners in early November 2009. This transaction enhanced both the distributal cash flow and the financial position of EXL.

And finally, we intend to continue to meet our customer's need by delivering Exterran's unique combination of capital, engineering, manufacturing and service expertise. We believe the ability to deliver all or any subset of these capabilities distinguishes us from our competitors.

I'll now turn it over to Michael for the financial portion of the call.

Okay. Thanks a lot, Ernie, and good morning, everyone. I'm sure that you've had a chance to look at the press release that we issued earlier this morning. So, as you know, overall, our quarterly operating performance was in line with expectations, although we were hit by some unusual and year-end tax items. We had a great event during the quarter in selling our ownership in the Cawthorne Channel barge in Nigeria for $37 million and we also realized a discontinued operations gain related to a $50 million insurance recovery on a portion of our loss related to our ex-appropriated Venezuelan business. We had another great quarter in terms of cash flow, reducing debt by $125 million.

Let's look first of all at the fourth quarter financial performance for Exterran Holdings. North American contract operations revenue was $155 million in the fourth quarter. That was at the upper end of our guidance range. Operating horsepower declined by 116,000 horsepower during the quarter. And that was consistent with our forecast of reduced horsepower losses versus the third quarter. Gross margin percentage for the segment increased sequentially to 57%. That was due to lower per horsepower operating cost. Costs per average operating horsepower were down 7% compared to the third quarter and maintenance capital in North America declined from $12 million in the third quarter to $8 million in the fourth quarter. Our North American operations continue to be focused on managing total cash costs that's both operating and capital. We've got good performance in this area in the second half of 2009 while still maintaining excellent service levels in mechanical run times.

We had a total North America contract compression fleet of 4.32 million horsepower at December 31 and fleet utilization was 66%. So looking ahead at the first quarter, we expect North America contract operations revenues of $148 million to $150 million. This first quarter revenue level would equate to a horsepower decline that is less than what we saw during the fourth quarter. We expect operating costs per horsepower to be a little bit higher than the strong numbers we posted in the fourth quarter. With these potential cost increases and ongoing pricing pressure in the industry, we do expect a modest decline in gross margin percentage versus the fourth quarter. Though we also expect maintenance capital spending to be close to the levels that we've had over past two quarters. So, that should be in the $10 million to $12 million range. So we expect continuing strong levels of cash generation from North America contract operations.

On the international contract operations front, the revenue was $109 million in the fourth quarter and a gross margin of 63%. Overall gross profit dollars were above expectations due to higher revenues and also good cost management. Fourth quarter revenues were positively impacted by earlier than forecasted start-ups of some new jobs and also by about $2 million of revenue adjustments that really related to prior periods. On the margin front, we benefited from our new jobs that are coming online at better than average margins. The international fleet stood at 1.2 million horsepower at December 31 and the utilization rate was 89%. So if we look at the first quarter, we expect international contract operations revenues will remain relatively flat at the $108 million to $110 million level. We expect margins should be similar to fourth quarter levels as well.

If we move over to fabrication, we generated $311 million in revenues in the quarter and we had gross margins of about 15%. Revenue was higher than expected due in large part to strong activity levels in the Eastern hemisphere. As we look forward to the first quarter, we expect fabrication revenues of $260 million to $280 million. That's a bit below fourth quarter performance, and we expect margins to, again, be in the mid-teens area. If we move over to after-market services, fourth quarter revenue was $79 million. That was somewhat higher than our guidance, driven by increased activity levels on the international front. Gross margin percentage was 18%. That was somewhat lower than guidance, due to weaker margins in the competitive North American market.

As we look at first quarter for AMS, we expect to generate revenues of $70 million to $75 million and margins around 20%. SG&A expenses increased from $82 million in the third quarter to $85 million in the fourth quarter. That's higher than we had expected due to some North American reorganization costs and also growth in our international operations. We expect SG&A levels to increase sequentially by a few million dollars or so in the first quarter as we continue to invest in our infrastructure, especially in the Eastern hemisphere. We had almost $28 million in other income in the fourth quarter. That was mainly from the sale of the Cawthorne Channel project. We also had a few gains on sale of other assets and a little bit of foreign currency translation that worked in our benefit.

We generated EBITDA of $140 million for the fourth quarter, that compares to $161 million in the third quarter. As a reminder, the fourth quarter EBITDA does exclude both the $22 million in gains primarily related to Cawthorne and also the $50 million Venezuelan insurance claim recovery. Interest expense totaled $34 million in the fourth quarter and that includes about $5 million of non-cash interest expense related primarily to our 4.25% convertible notes. Also in the fourth quarter, we did record an impairment charge of $4.3 million related to our North American fleets and we also had $2.3 million restructuring charge which is primarily related to severance and the completion of the consolidation of our fabrication facilities in North America that we had announced earlier in the year in 2009. The diluted share count was 61.7 million in the fourth quarter. The results for the fourth quarter of 2009 were adversely impacted by increased tax expense, largely arising from a legal entity restructuring due in part to changing Canadian tax laws. We also had a foreign tax assessment from a prior year and a change in earnings mix between the foreign tax jurisdictions during the quarter.

Now, although tax rates were a lot higher than we expected in the fourth quarter, we do expect a tax rate in the mid to high 30's as we go forward in 2010. Net capital expenditures declined from $71 million in the third quarter, to $14 million in the fourth quarter. That was held by proceeds from the Cawthorne sale. In the fourth quarter total CapEx included about $47 million in growth capital. And that was primarily for the international contract operations backlog. Fourth quarter PP&E sales were $52 million. That included $37 million from Cawthorne. Maintenance capital, the total for the quarter was $11 million, which includes that $8 million that I already mentioned for North America. And as we look forward, we expect that net capital expenditures for 2010 will be in the $250 million to $300 million range. And that should include maintenance capital in the $100 million to $110 million range.

So of this total CapEx amount, we still have about $100 million or of uncommitted capital that we have earmarked to invest primarily in our international contract operations business during 2010. If we look at the balance sheet side of things, total consolidated debt declined by $125 million during the quarter. Went from $2.39 billion to $2.26 billion at the end of the year. So this makes two consecutive quarters that we actually generated free cash flow of $2 per share and used that free cash flow to reduce our debt balances. We do expect that the first quarter should be another good quarter of cash generation as well. Available, but undrawn debt capacity at the end of the quarter, was almost $700 million.

Let's look for a minute now at Exterran Partners. And as we had announced earlier in November, EXLP did complete the purchase from Exterran of a fleet of about 270,000 horsepower in the dropdown. EXLP now owns a compressor fleet of about 1.3 million horsepower, and that is about 31% of the combined Exterran Holdings and Exterran Partners US contract operations business. Last month, EXLP did announce its distribution for the fourth quarter. That was $0.4625 or $1.85 on an annualized basis and that's the same level that we had in the third quarter. EXLP did generate EBITDA of $21.6 million and distributable cash flow of $13.2 million in the fourth quarter. Distributable cash flow was sufficient to cover the distributions by about 1.14 times. This is better than expected, as we paid a full quarter's worth of distributions on shares that we issued in conjunction with the November dropdown. But we only had the benefit of those new assets for about half of the quarter.

Distribution coverage was benefited by our continuing success in lowering maintenance capital. In the fourth quarter, the Exterran Partners fleet average horsepower was about 908,000. That compares to 819,000 that we had in the third quarter. And at the end of the year on December 31, EXLP's fleet had 1.05 million operating horsepower in a spot utilization rate of 81%. Importantly, in connection with that November 2009 dropdown, EXLP closed a new $150 million asset-backed securitization facility and only $30 million of this was funded to help complete the transaction. And the remaining capacity, $120 million, is available to fund future transactions and dropdowns. Last comment is we do expect to file the Exterran and the Exterran Partners 10-Ks within the next day or two. So at this point, I'll turn the call back over to Ernie for some closing comments.

Thanks, Michael. Can I just point out that I really am proud of the accomplishments of our employee team in this challenging operating environment in 2009. I think which importantly included an improved safety performance over 2008 levels, while enhancing the efficiency and the quality of our operations. I believe that we're really setting the standard for commitment to safety in all our various business lines. We believe we're doing the right things for our business from a customer service perspective and are well positioned in North America to benefit from any upturn. And with that, I thank you for your participation on today's call, and we'll turn it back over for questions.

Thank you. We will now begin the question and answer session. (Operator Instructions) And our first question comes from James West from Barclays Capital. Please go ahead.

Good morning, guys.

Good morning, James.

Good morning, James.

Ernie and Michael, I think Michael, in your comments, you alluded to continued pricing pressure in North America. And I was curious, is that compressors that are rolling off of older contracts coming down to new market rates or are you continuing to see your competition take the market rate lower?

No. It's mostly just, at this point, it's the rollover effect. So, just expiring contracts going to new kind of lower market levels.

Okay. So you think pricing is now stable?

You know, it has been. It continues to be an oversupplied market, so we're worried about this, but no, it has been stable.

Okay. And then on the international side of the contract compression business, has the bidding activity improved as we've gone into 2010 and new capital budgets are being put to work?

We are seeing -- we haven't made any large contract ops bookings in the last couple of quarters. We had a lot on our plate and we're seeing good opportunities so I'll remain very optimistic about what's there. On the sell side it's been robust throughout this period. It's just kind of the way these mixes and the way they go. Sometimes it's on a sell opportunity and sometimes it's a contract ops opportunity. So we've seen good sales and the backlog kind of reflects that. And we have plenty of opportunities on the contract ops to spend our capital.

Okay. And then, when you think about those opportunities, how do you weigh the investment in putting new horsepower to work internationally versus the focus that you and Michael have right now of generating a lot of free cash flow?

Well, clearly we're always trying to put idle horsepower to work whether that be in the US markets or taking them abroad. Most of the opportunities that we're putting our international capital to work at today involves gas processing plants and treating facilities much more so than it does compression. So, just as you'll continue to see that our contract ops revenue kind of grows quicker than what compression grows on the underlying part of that. We're weighing that. We are going to live within our cash flows as we put this capital to work. So I am -- we remain committed to doing both. We're going to grow on international markets and we're going to generate free cash flow. We can do both.

Okay, and then I think Michael mentioned $100 million of uncommitted capital at this point. Is that enough, in your mind, based on the opportunities you see, to support that growth, that potential extra growth?

Yes. I never want to say never in terms of where we find other opportunities that are too tempting to do, but our strategy is to really live within our capex. And I think the $100 million will do just fine for spending -- for what we can effectively sign and spend because of the timing of these projects in 2010.

Okay. Very helpful. Thanks, Ernie.

Our next question comes from Robert Christensen from Buckingham Research. Please go ahead.

Yes. Do you have a working capital number available, Michael, versus where we were, I guess, at the end of the third quarter?

You bet. Obviously, that'll be in the K when we file it here, but we benefited by about $30 million of working capital during the course of the quarter. To the good, so we've reduced working capital by $30 million.

The receivable related to Nigeria, was that all recovered here in addition to the sale of the barge?

Yes, yes.

Weren't you owed some money as well?

Yes, we received all of the proceeds on the Cawthorne Channel sale. In the quarter.

Okay. May I just ask a little bit more about some of these growth plays for natural gas? Can you give us some metric related to improved horsepower shipped into the Marcellus? We have no sort of benchmark as to where you were before the play began. We know the rig count is basically tripled up there. So can we get some sort of metric on the Marcellus from you, if we could?

Ernie?

You know, Bob, it's not an unfair question. We've never gotten that detailed by our various markets, and so I'm kind of hesitant. So, I'll dance around it, because I don't want to be unresponsive. But I don't think we're going to give detail by individual markets. It has been kind of the singular growth area for us throughout 2009. And I think it will drive our growth in 2010 as well. It is a big -- it is the most optimistic area for us, and just kind of the way to think about it without going into the details of what's in individual markets, that area grew about 10% for us in 2009. Is that helpful?

Yes. Is there any kind of rule of thumb as to 1,000 horsepower is equated to so much gas movement?

Well, I will tell you this is one of the ones we spend a lot of time on, Bob, as the shales are developing. And the Marcellus -- we don't have this. It's still coming in early. What I can do tell you is that the Marcellus is a better market for compression per MCF produced than the Haynesville is to date. The Haynesville is an area that's just come in very high pressure. And so -- and the way they're handling the wells from a choking standpoint suggests maybe that it doesn't need as much in the early stages anyway, compression per MCF produced. But we're not ready to go out there on the Marcellus and kind of just give you a rule of thumb that says so many horsepower. It's just too early for to us know that.

Okay. Let's go to the granddaddy of them all, the Barnett. It seems like there's been sort of a regular rhythm of compression adds. It seems to be every 24 months when I look at some of the bigger producers out there. We would seem to be approaching a new 24-month line to see more compression. Is that where some inquiries are coming from at the moment?

Yes. We continue to have good success in the Barnett. And the Barnett has been around long enough and has had material decline that it is in the compression-rich phase. Some of that is owned, some of that's outsourced. But yes, we're getting a lot of inquiry and have a lot -- have a good market position there and it goes throughout our compression profile from large to small. So we would very much like to think that all the plays play out like the Barnett does. That would be wonderful for compression.

Thank you. I'll get back in line.

Our next question comes from Brad Handler from Credit Suisse. Please go ahead.

Thanks. Good morning, guys.

Good morning, Brad.

Good morning, Brad.

Maybe first, could you please help us understand a little better the strength in your international margins and maybe the specific question underneath that is, you mentioned better than average margin projects starting up? Is that a function of your current bidding procedures and kind of the higher rates of return thresholds?

I think part of that is that. I think it's also just a historical standard with us. I mean, if you look at the projects when they come first of all online, they end up having pretty good margins. And while they do well on a gross margin dollar perspective, we typically have inflation-based increases built into the contracts. And so as you go along in time, you'll see a $10 increase in cost that gets made up with by a $10 increase in revenues. But what that has in effect of, while it stays whole on a market perspective, it actually decreases margins a bit. So you'll start out typically getting better margins for a start-up project and that margin percentage will decrease a bit over time. That's really a lot of the phenomena, and part of the reason why the new jobs are coming on at nice margins.

Makes sense. The $2 million revenue adjustment that you mentioned from prior, did that fall through to the operating income line as well?

Yes, it did. And basically that is -- when we get projects started up, oftentimes we're haggling a bit over what the right standby rate is going to be. And that's basically what it is. So it's a stand by rate that was associated with prior quarters. We figured out what that was. And so, that $2 million of the $109 million for the fourth quarter, that one's not going to recur. So a better baseline to look at for the business was $107 million for the quarter.

Okay. That makes sense. That helps. And just an unrelated follow-up, please. On the impairment charge to the fleet, can you -- how much horsepower was associated with that? I'm assuming that that's what we're talking about (inaudible).

Yes, it was about 60,000 horsepower and real small stuff, you know, 150 to 200 horsepower type units.

And is that -- you've taken some impairments over time. And obviously this is a continuing process, and I understand that, but is that kind of a function of the continued decline in utilization it's just making it that much less likely that you're going to be putting that back to work at some point?

Yes, it's some of both. It is, yes, we have more idle units. Most of these units that we retired, by far the lion's share, were units that had been working in the prior quarter. It's just that we look at the condition, we look at what we have extra idle in our fleet. When it comes idle, we work on what's going to be our cheapest units to operate going forward. And these units were ones that we chose to retire. And we'll either cannibalize them or sell them for some scrap. But they weren't worth re-investing in for the long term.

Understand. I recognize that this is hard, but as you continue to survey your landscape, can you hazard a guess as to where you do think you bottom out in terms of US utilization?

It's a very fair question, and we're in that kind of awkward in-between stage where we are seeing good inquiry levels and it would suggest with more data in it it, would suggest a bottoming is very near. However, it's just way too short a time for to us get to that, because it could be involved around holiday events and things that got pushed into a new capital year. It can be a lot of other things other then a bottoming as well. But with inquiry levels and everything are in the good beginning stages, it's just too early to tell.

Right. So, I know you're not committing and I respect that. But, what I guess I hear you saying is if the inquiry levels are an honest indicator, then you're probably pretty close. At least, I guess that would be your best guess today.

If, with a big qualifier on your if, that would be correct.

Okay. Alright. That's helpful. Thanks, guys.

Hey, Brad, I just want to go back in on the horsepower that was affected. Make it clear, it was 16,000, one six.

Oh, oh.

16,000 horsepower.

Thanks, I had heard 60, so thank you. Okay.

Our next question comes from Sharon Lui from Wells Fargo. Please go ahead.

Hi, good morning.

Good morning, Sharon.

These questions are related to the ML P. The spot utilization at the end of the quarter, is that just the function of the dropdown in terms of the improvement?

Yes. Because basically what we drop down is 100% utilized equipment.

Okay. And looking at maintenance capex it looks like it came below your guidance. Is the $15 million to $17 million run rate still good?

We're actually going to say that the guidance for 2010 is going to be a little bit higher than that. 20 to 25 but you know, we're clearly out-performing that rather handily right now with the good stuff that we're doing with regard to maintenance. I think it's going to be tough to replicate the levels that we had here in this last quarter, $1.5 million or $2 million. So we expect that to increase over the course of the year. And again, that range should be a little bit closer to 20 or so.

Okay. And also if you could just talk about this sale because it looks like there was a gain from asset sales during the quarter?

Yes. So basically, we sold some of the assets to one of our customers, and it was gross proceeds of about $4.5 million and a gain of $1.5 million.

Okay. Great. Thank you.

Our next question comes from Daniel Burke from Johnson Rice. Please go ahead.

Good morning, everyone.

Good morning, Daniel.

I wanted to return to the capex budget for this year. I think you guys nudged your expectation up towards the higher end of the pre-existing range. Just wanted to see if a, that was correct and b, if so, is that communicating a little more conviction in the international opportunity or have you changed maybe your estimate of actually what asset sales would be on a forward basis since it's a net figure? Just trying to see what the dynamic is there.

We did nudge it up to the top end of the range. So you got the math exactly right. It's around probably two things. A, we are optimistic. The projects are coming that we thought might. Then b, we're also just getting a little more clarity about what the year looks like. So, we're committed to living within cash flow and as we get more clarity about what the year kind of looks like, then we can commit to more capital projects. So it's a combination of both of those, Daniel.

Okay, great. I think the only other question I had, I was hoping to revisit the costs that it looked like you all were able to pull out of the domestic contract business. I know you tempered the outlook there a little going forward. But can you address what you're doing there? Particularly given we're beginning to hear some service companies talk about just the very beginning of some cost inflation they're seeing out there?

Yes. Well, we did benefit and particularly as we go through the quarters, I think our fluid costs help a little bit both in terms of oil and diesel and gas for the trucks. But mostly it's just good old fashioned management by the people in the field. Our employees have done very well in terms of caring a lot about costs and how they are operating the equipment. So it is -- it's been good, solid management, and they are taking this to levels that we don't know if they're sustainable, but we're excited about the work they're doing. So, I can't point to any kind of magic thing that was done. It's just been good, detailed work by our field people.

Okay, great. Well, I appreciate the comments.

Our next question comes from Tom Curran from Wells Fargo. Please go ahead.

Morning, guys.

Good morning, Tom.

Just a few detailed questions on fabrication. First, for the fourth quarter revenues, what was the percentage that was production in processing and then how much of that was Belleli?

Alright. For the quarter, we had about a little bit more than 50% related to production and processing in Belleli was about half of it.

Okay. So Belleli was -- so production processing about 155 million and then Belleli about 77 million or something like that?

Yes, production processing was actually a little bit north of 160.

Okay, great. And then Belleli, half of that 160?

Yes.

Okay. And then for the backlog increase we saw sequentially on the compression side, how much of that -- what percentage of the new orders we saw were international?

Yeah, it was probably a pretty even mix, Tom. Because the expression backlog, as you can see, went up a bit. And we had orders both on the international front and a little bit on the US side as well.

And on the US side, what is your best understanding of what would be driving that demand at this point?

Yes, it is continuing and it's both conventional and shale plays. It's all across the natural gas production curve. I think people got more clarity and they got more comfortable that what pricing was going to be and so they completed some of the projects that they put off in 2009. And I think if you just kind of think back on what we've been talking about, if you go -- a lot of fabrication orders, it was just -- none of them in the US really from October of 2008 through the summer of 2009. So there's always some things that they want, whether or not they're electric or they're specialized in a way that they don't sit in somebody's fleet. So they're going to end up ordering those. And it's just kind of a return to normal -- not to normal, but it's a return to ordering anyway.

Okay, Ernie. That's helpful. And is there anything about either the customers who have been placing these orders for what you know about where the capacity is headed that might help alleviate concerns that we're now once again adding new capacity to a market that already remains oversupplied?

You know, that's a really good question. It does bring compression in. But again, I think this is compression that, what we've seen so far, is specialized enough, and that's not to say some of it isn't competing with our idle fleet, but most of it is specialized enough so far that I wouldn't say it's kind of adding to the mix. It's just stuff that's not idle today. So not all of it but some of it fits that category.

And Tom, I just went back and checked the numbers. I was a little bit off on the 50/50 split. In terms of the increase in the backlog, it was probably more like 70% international, 30% domestic. So let me just make that correction.

Okay, that is helpful. Thank you for that, Michael. And then a last unrelated one for me. On the Venezuela side, are there any other potential recoveries coming other than what you'll be pursuing via arbitration?

Yes, there are. We do have -- we had a number of projects kind of for Peda Vasa that were in process at the time that they expropriated. And those aren't as clean for them to just take because they need us on a continuing basis and our engineering and our drawings and some of the fabricated equipment to complete those projects. So we're working through those. But there is some opportunity that we'll have some settlement on those on the first half of of this year. But they would be issues on -- that are kind of separate from the expropriation and certainly don't compensate us for all the assets that were expropriated.

Sure. And could you give us a rough idea or even just a range for the potential size of that recovery?

Yes. Certainly less than $50 million.

Okay. Thanks for all the details, guys. I'll turn it back.

Our next question comes from Robert Christensen from Buckingham Research. Please go ahead.

Would you characterize the Marcellus shale as a specialized compression market? And also when the market's calling, do you lease equipment there under any kind of different terms, longer than the normal just sendout of equipment?

No. We don't think that Marcellus is specialized in any particular way. I mean, it does have some -- as it applies to compression -- it does have some interesting characteristics around their ability to handle some of ethane and other issues with the gas but not on the compression side. And the terms so far, yes, I mean, we've had some projects that look longer term in that, but we've also had some that are kind of standard. In a market where there's this much idle equipment, it's really hard to convince somebody to go longer than they view is necessary. They keep that optionality to themselves, I think, which is only logical.

And what would be your best guess as to when inquiries will come from the Haynesville shale or, you know, approaching May of this year would be 24 months for the first well that I remember in Elm Grove. What would be your best guess as when that --

Well, when it becomes in any material amount, it's probably not to the latter half of 2010. We're just going to have to continue to see. They've done some very interesting things in terms of, as I mentioned earlier, choking back the wells to keep pressures up and extend kind of the noncompression life to it. So we're not seeing material amounts today, and I think that probably, I guess without dancing around anymore, second half of this year, Bob.

That's earlier than I would have thought. Thanks.

(Operator Instructions) Our next question comes from Robert Wiegand from New Salem Investments. Please go ahead.

Hi. Good morning.

Good morning.

Good morning.

Back to the limited partner. I'm still a little confused by the capex. So there was a sale of proceeds in there or proceeds from the sale. I mean that's obviously not reoccurring. So if you remove that, am I correct to look at it and say that the distributable cash flow would have actually been less than the distributions paid?

No. We don't include that in distributable cash flow. That had no effect on the 1.14 times coverage.

Okay.

That was basically cash that we had over and above the 1.14 times.

Secondly, it still appears that you're fairly leveraged there and you did do a shelf filing recently for the partnership. Given the current environment for amassing limited partnerships, any chance that you might actually try to do an offering any time soon?

What I will say is that we did, with the dropdown, put more equity into it, and we're now somewhere around four times debt to EBITDA if you look at that with the effect of the dropdown. And we basically said that our longer term strategy is to have the LP levered three to 3.5 times. So it does say that we would want to have some more equity in the business. Whether we do that sooner or later and with a dropdown or without a dropdown are just things that we'll continue to evaluate.

All right. Thank you.

Our next question comes from Brad Handler from Credit Suisse. Please go ahead.

Thanks. Hi, again. Just a question at the holdings level on D&A -- it was a little bit higher than we're looking for? Is that fully explained by the international business starting up in the quarter or are there some other elements that were more one time in nature there?

Most of it was with the new projects that are starting up. Actually had a little bit in the quarter that was probably some unusual one-time stuff. I would expect that D&A to moderate a bit more because that was a pretty big jump in the fourth quarter. So likely to be flat, maybe even a little bit down in the first quarter.

Thanks again. That's it for me.

(Operator Instructions) We have no further questions at this time.

Thanks, everyone, for your participation in the call today. And we'll talk to you in a quarter.

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.