哈里伯頓 (HAL) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Halliburton fourth-quarter 2011 earnings release call. At this time, all lines are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to your host today, Kelly Youngblood, Senior Director Investor Relations. Please begin.

Good morning and welcome to the Halliburton fourth-quarter 2011 conference call. Today's call is being webcast and a replay will be available on Halliburton's website for seven days. The press release announcing the fourth-quarter results is available on the Halliburton website.

Joining me today are Dave Lesar, CEO; Mark McCollum, CFO; and Tim Probert, President, Strategy and Corporate Development.

I would like to remind our audience that some of today's comments may include forward-looking statements reflecting Halliburton's views about future events and their potential impact on performance. These matters involve risk and uncertainties that could impact operations and financial results and cause our actual results to materially differ from our forward-looking statements.

These risks are discussed in Halliburton's Form 10-K for the year ended December 31, 2010, Form 10-Q for the quarter ended September 30, 2011, and recent current reports on Form 8-K.

Our comments include non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures is included in the press release announcing the fourth-quarter results, which as I have mentioned can be found on our website. We will welcome questions after we complete our prepared remarks. Dave?

Thank you, Kelly, and good morning to everyone. Before discussing our fourth-quarter results, let me begin with a few of our key accomplishments in 2011.

First, I'm very proud to say that this was a record year for our Company with revenues of $24.8 billion, operating income of $4.7 billion, and with growth, margins, and returns that led our peer group. To put this in perspective, our business has nearly doubled in size over the last five years, primarily from organic growth.

From a division perspective, we achieved record revenues in both our Completion and Production and Drilling and Evaluation divisions and I want to thank all our employees for their help in making it happen.

The cornerstones of our strategy remain unchanged and include maintaining leadership in unconventional plays, participating in the deepwater expansion, and impacting the decline curve in mature fields. This year we commercialized key technologies consistent with these growth themes, and Tim will discuss them later.

As the industry leader in unconventional shale plays, we performed the first shale fracs in numerous countries around the globe including Argentina, Mexico, Saudi Arabia, Australia, and Poland. We are now starting to invest more heavily in building out our pressure pumping footprint in the international marketplace.

We are also continuing to invest in our deepwater business and have secured key contract wins in East Africa, Vietnam, Malaysia, Australia, China, Brazil, and other markets and are building infrastructure to support this work.

In addition, it's important to note that our service quality continues to be recognized by our customers as Tim will also discuss. We believe this improving market position and service quality reputation will benefit us as newbuild deepwater rigs are scheduled to arrive in the coming years. Our customers are looking for deepwater alternatives that have the capability and technology and increasingly that company is Halliburton.

Lastly, we continue to build our capabilities in servicing mature fields and supported that effort with some critical acquisitions in specialty chemicals and artificial lift in 2011 that enabled us to broaden the scope of our mature field offerings to our customers. The most significant of these was Multi-Chem. We expect that synergies in sales, manufacturing and distribution will enable us to deliver additional value to our customers and shareholders as we expand the global footprint of this product line.

I am very pleased with our results in the fourth quarter as we set new Company records in both our North America and international operations. Revenues of $7.1 billion represents the highest quarterly revenue in the Company's history with North America, Latin America, and the Middle East Asia regions all achieving new record levels.

Operating income of $1.4 billion was also a Company record and was driven by strong performance in North America and the Latin America regions where we had year-over-year revenue growth of 56% and 46% respectively.

Let me start by providing some commentary on North America. The shift from natural gas to liquids-rich plays continues and was quite apparent in the fourth quarter. The US rig count grew 3% sequentially with oil directed rigs up 8% and natural gas rigs down 2%. The shift toward oil and liquids-rich plays are a direct result of the stability of higher -- of oil prices and higher operator returns for these resources.

Completing these wells requires higher levels of service intensity due to advanced fluid and completion technologies and creates an additional opportunity for us to otherwise differentiate ourselves from the competition.

We have highlighted for some time the dramatic impact that oil-directed horizontal activities has had on the North America market. For instance, in addition to natural gas rigs targeting liquids-rich plays, the oil rig count now represents more than 60% of the total in North America, a level we have not seen in decades. Our customers' sources of revenue has also shifted dramatically toward oil with the sale of US oil and liquids representing approximately 70% of total upstream revenue today. This compares with an approximate 50-50 split just five years ago.

And our customer mix continues to shift toward IOCs, NOCs and large independents who tend to have a more stable spending pattern and more sophisticated supply-chain management and away from those customers who might be more financially challenged in the current market.

We are also seeing a trend toward higher average footage drilled per well up to approximately 7000 feet from 5000 feet just five years ago. And finally today, reserve development demands four times as much horsepower per rig as compared to 2004. So clearly there has been a dramatic shift over the past several years. And all of this bodes well for a continuation of high demand in the North America unconventional markets.

So what will that market look like going forward? The last time the breakeven price for oil development was so far below prevailing oil prices was back in the early '80s when the rig count was more than double what it is today. And despite the vast amount of work we have done in North America in recent years, there has only been a modest increase in net oil production as new supplies are barely offsetting declines from mature North America basins.

As a result, we expect continued liquids-driven activity growth in the coming years as our customers invest in their resources and optimize their development technologies. We plan to continue to expand our capability and drive efficiency through technology and logistical improvements to enable this growth.

Now looking at the results for the fourth quarter, our North America revenue grew sequentially by 6% versus a 3% rig count due to strong activity in the Eagle Ford, Permian Basin, Marcellus, Gulf of Mexico, and Canada. Despite this strong revenue growth, operating income declined slightly from the third quarter and let me go over those reasons.

First, our recent acquisitions and the associated M&A costs that went with them had an impact of approximately 1 margin point on our North America margins in the fourth quarter. Second as you know, the Rockies and the Bakken are two areas where we have a particularly high market share. And both markets experienced some seasonal impacts yielding inefficiencies particularly with our commuter crews. The third quarter is historically our most profitable quarter each year in these two particular areas and this year was no different.

The impact of the holidays was more pronounced this year in these areas as customers chose not to complete wells through the Christmas holidays.

Thirdly, cost inflation continues to have a negative impact. There is a delay between vendor price increases and when we are able to pass through these increases to our customers. In the natural gas basins this is becoming more difficult. We plan to go back to our vendors for price relief in some areas. This will take some time.

Fourth, logistics in proppant supply. While we have a very sophisticated logistics group, there are times when issues arrive that are not within our control. We experienced logistical and proppant supply disruptions in several areas in the fourth quarter and this impacted the Bakken, Rockies, South Texas, and the Permian, all of which had a negative impact on margins.

Finally, we experienced inefficiencies associated with frac fleet relocations to address the challenges the industry is facing in 2012 and I will say more about that in a few minutes.

Also spot natural gas prices are down 33% in the last 50 days due to the resiliency of natural gas production and a mild winter. In response we have seen the US natural gas rig count decline 9% over that same period of time. This change is clearly impacting the industry as we move into 2012 as service companies' resources relocate to the oil basins.

Now we have talked in the past about how we believe it is important to have a balanced portfolio of business in both dry natural gas basins and liquids plays because a large number of our customers have operations in both. Our strategy was to support these customers in the natural gas basins with a hyper efficiency business model that went beyond just 24-hour operations.

We stayed with these customers in the natural gas basins even as other competitors left to chase work in oil plays. This strategy has worked well and deepened our relationship with these customers. Our understanding with them was that in return for staying with them in the natural gas basins, we would get their work in the liquids-rich plays as equipment became available.

This strategy is now playing out to our advantage. As natural gas prices have fallen to the sub $2.50 level, we are proactively working with these customers to now serve them in the oil plays as they shift their capital spend to liquids and away from natural gas.

We have moved or are in the process of moving eight frac fleets from primarily natural gas plays to liquids plays. This requires redeployment of people and equipment. It disrupts a very efficient operation and as well is requiring us to make adjustments to our supply chain.

It is important to understand that these fleets that are moving are not looking for work but in each case now are committed to an existing customer or one who we could not serve before and in each case has or will to place a competitor in the liquids plays.

So while beneficial to us in the long run, these moves do not come out and do not come about without a short-term impact on our margins. First, we lose the productivity of these hyper efficient 24-hour crews as they move away from locations with a solid infrastructure and a higher level of expertise. Then when they start in a new location, they are not as efficient as they get used to new operating procedures and how the reservoir responds.

Finally, there is a doubling up on some costs as we generally have to use commuter crews while a local crew is trained in the new operation.

So we believe that these pressures that come from this on revenues and margins will be limited. The additional benefit we get from these moves is that even more of our revenue will be generated in the liquids plays where we still have the ability to increase prices, which will help to offset inflation pressure.

Furthermore the shift to the oil basins requires more expensive materials, particularly gels and proppant, which are already in tight supply. Additionally, we believe that the movement of service capacity out of the natural gas basins will eventually help remove the overhang in natural gas supply.

So with great success we dealt with a number of these significant logistical challenges in 2011 and we see them being able to accommodate the tremendous growth that we see as we move into 2011, even though it has created some near-term uncertainty and pressure on margins.

The concern about what will happen in the dry gas basins is a real one; however, there are customers who will continue to drill in these basins as they have a low-cost gas basis, a hedge bought before the collapse of pricing, or contracts to send their natural gas to markets where the pricing is better. These are our customers and they will continue to need our services in the natural gas areas. And in most cases, we have a long-term contract with them that value the efficiencies we bring so they can continue to make money even at lower prices.

We have not yet exhausted the demand for fleets that we can relocate to those customers who want our services in the liquids basins and we will continue to do that as necessary. We have established a great position in the US market and in these uncertain times, I believe it will pay off big for us.

As we look at the market dynamics today and even apply a downside scenario to how it might play out based on frac equipment adds as well as reduced gas drilling which would accelerate the equilibrium in the market for pumping, it is clear to us that the strength of liquids demand will provide a cushion to equipment coming out of the dry gas basins.

We also believe that there will be a net overall increase in rig count in 2012, meaning that in our view the increase in liquids-directed rigs will more than offset the decline in natural gas rigs. We believe a much more pessimistic scenario is currently priced into our stock and we do not see that happening.

In the Gulf of Mexico, we continue to see a gradual increase in activity levels, with our fourth-quarter revenue surprisingly now exceeding pre-moratorium levels. We believe we will see an increase in the level of permit approvals in 2012 leading to additional deepwater rigs arriving over the next several quarters.

Margins for the Gulf are expected to improve but not to pre-moratorium levels until later this year or into next year as our customers adopt to new regulations.

So while we expect some inefficiency and therefore downward pressure on margins in the near term, due to the shift in our geographic and commodity mix that I just discussed, we believe that the idea that North American margins will collapse is a ridiculous one. We believe increased activity from our customers due to support of liquid prices, good access to capital, and continued increases in service intensity are very supportive of a healthy market in 2012.

Keep in mind we have also been spending money on improving our cost structure as we outlined in our analyst day to stay ahead of the competition. And finally, we remain focused on providing superior service to ensure that we are the provider of choice and to maximize the value for our customers.

So overall, we are very optimistic about 2012 and fully expect that North America revenue and operating income will increase over 2011, although we could see margins normalize somewhat through 2012. We will have a better view of this absolutely as the year goes on.

Now let's turn to our international results. Latin America had another outstanding quarter, posting sequential revenue growth of 9% compared to a rig count decline of 1% and their operating income grew 24%. Mexico led the growth with higher drilling activity, consulting services, and software sales. Also contributing to the stellar quarter was Colombia, with higher drilling activity, and Brazil. Compared to the fourth quarter of 2010, these three countries combined and grew an impressive 50% year-over-year.

Our Eastern Hemisphere experienced 11% sequential revenue growth compared to a rig count growth of 3%, while operating margin improved to 13% driven by year-end sales of software, completion tools, and other equipment. Also contributing to the strong quarter were improved results in Iraq, Algeria, and East Africa.

We continue to show progress in the markets that have been negatively impacting our margins over the past few quarters. For instance in Iraq, we are running five rigs today, two more than at the end of third quarter. We expect to add additional drilling and workover rigs in 2012, which will enable us to be profitable as activity levels increase. Overall we remain enthusiastic about the future of our Iraq operations despite the challenges we went through in 2011.

Libya's production is coming back online and although we have performed some minor work in the country, we are still awaiting well-defined operational plans from our customers.

In sub-Saharan Africa, we continue to see improvements in Angola and Nigeria and while startup costs have negatively impacted operating margins in East Africa, we saw overall sequential improvement in this market.

And lastly, we have been taking action over the past few quarters to improve profitability in our Europe, Africa, CIS region. We have made substantial progress in our restructuring efforts and believe we are now well positioned to deliver improved profitability in these markets in 2012.

We have been consistent in our outlook for our international operations. We anticipate international pricing will continue to remain competitive, particular in regard to larger projects. In 2012, we expect to see a gradual improvement resulting from new rigs entering the market and increased customer budgets which we believe will be skewed toward deepwater and international unconventional projects.

With tight supply and demand fundamentals for oil and international natural gas prices that are often well above North America prices, we believe the drivers of the sustained activity in the Eastern Hemisphere are sound. So in summary, we expect to see our Eastern Hemisphere margins progress through 2012 with a full year average in the mid teens as new projects ramp up, new technology is introduced and the negative impact of the areas we have mentioned previously continue to abate, which means that we should have Eastern Hemisphere margins in the mid to upper teens by the end of the year.

We believe that our growth prospects are so strong across all of our businesses that we are increasing our capital spending to the range of $3.5 billion to $4 billion in 2012. However, we do not expect to increase our pressure pumping horsepower additions beyond the 2011 levels and we plan to spend -- to send more of this horsepower into our international markets but we will of course maintain our ability to flex the capital as the year goes forward.

So 2011 was a very successful year for the Company with revenue growth of 38% and operating income growth of 57%. We saw record activity levels and we will continue to expand on our market position. I believe we will continue to build on this success which should put us in the unique position to continue to achieve our objectives of superior growth, margins, and returns versus our competitors.

Let Mark give you a little bit more detail.

Thanks, Dave, and good morning, everyone. Let me provide you with our fourth-quarter financial highlights. Our revenue in the fourth quarter was $7.1 billion, up 8% sequentially from the third quarter. Total operating income for the fourth quarter was $1.4 billion, up 7% from the previous quarter.

Our results in the fourth quarter included a $24 million charge in corporate and other related to an environmental matter. As a reminder, our third-quarter results included an asset impairment charge of $25 million in the UK sector of the North Sea. Now going forward, I will be comparing our fourth-quarter results sequentially to the third quarter of 2011, excluding the impact of these charges.

North America revenue grew 6% while operating income declined 1% compared to the previous quarter. As Dave mentioned, the impact of seasonality, cost inflation, and recent acquisitions negatively impacted our North America margins during the quarter. As a reminder, we historically see our first-quarter results affected by weather-related seasonality in the Rockies in the Northeast US where we have a high percentage of 24-hour crews and it's typical to see a sequential revenue and margin decline in the first quarter.

In addition, we are expecting some short-term inefficiencies as a result of rigs and equipment moving from natural gas to oil-directed basins. We are anticipating these issues will result in a sequential margin decline of approximately 100 basis points in the first quarter for North America.

Internationally, revenue and operating income grew 11% and 37% respectively, driven by activity improvements across all our regions and seasonal increases in software completion tools and direct equipment sales at the end of the year. Our international margins improved to 15.2%. About half of the margin increase resulted from our seasonal increase in software and direct sales. The other half of the margin increase was driven by activity improvement in our other operations.

For the first quarter of 2012, we are anticipating the typical sequential decline in international revenue and margins due to the absence of these year-end seasonal activities as well as the typical weather-related weakness in the North Sea and Eurasia.

As a reminder, this international activity decline has historically impacted our first-quarter results by approximately $0.10 per share after tax and we have no reason to believe it will be materially different in 2012.

Now I will highlight the segment results. Completion and production revenue increased $303 million or 8% due to activity growth in North America. And operating income was essentially flat as improved international profitability offset a slight decline in North America.

Looking at Completion and Production on a geographic basis, North America revenue increased by 7% from higher US land, offshore, and Canadian activity. Operating income declined by 2% primarily due to the holiday downtime, cost inflation, acquisition impacts, and fleet moves that Dave described earlier.

In Latin America, Completion and Production posted a 5% sequential increase in revenue while operating income grew by 19% as a result of increased stimulation work in Mexico and higher cementing activity in Colombia and Mexico.

In Europe Africa CIS, Completion and Production revenue and operating income increased 15% and 10% respectively due to improved vessel utilization in the North Sea, increased cementing work in Angola, and higher stimulation activity and completion tools sales in Algeria and Nigeria.

In Middle East Asia, Completion and Production revenue and operating income increased by 8% and 4% respectively due to increased work in Iraq, improved stimulation activity in Australia, and increased direct sales within the region.

In our Drilling and Evaluation division, revenue increased $213 million or 8% and operating income was up 30% due to the year-end seasonality of higher software and direct sales as well as higher activity levels in Mexico, Iraq, Colombia, Brazil, and East Africa.

In North America, Drilling and Evaluations revenue and operating income were up 4% and 2% respectively due to higher wireline and drillbits activity in both the US land and the Gulf of Mexico as well as increased software sales in the US and Canada.

Drilling and Evaluations Latin America revenue and operating income increased by 11% and 27% respectively, primarily due to higher activity levels in Mexico and increased testing and subsea work in Brazil. We also benefited from strong project management activity in Mexico on the Alliance II and Remolino projects.

In the Europe, Africa, CIS region, Drilling and Evaluation revenue and operating income were up 5% and 27% respectively due to increased wireline and directional drilling activity across the region along with a seasonal year-end increase in software sales.

Drilling and Evaluations Middle East Asia revenue was up 17% and operating income was almost 1.5 times greater than prior quarter levels due to increased direct sales in Asia and higher drilling activity in Iraq.

Now let me address some additional financial items. Our Corporate and Other expense included approximately $23 million for continued investment in our initiative to reinvent our service delivery platform in North America and to reposition our supply chain, manufacturing, and technology infrastructure to better support our projected international growth. These activities will continue in 2012 and we anticipate the impact of these investments will be approximately $0.02 to $0.03 per share after tax in the first quarter.

In total, we anticipate that corporate expenses will range between $95 million and $105 million per quarter during 2012.

In November 2011, we issued $1 billion of senior notes. This new debt issuance will increase our interest expense by approximately $10 million per quarter and we are projecting overall interest expense for 2012 to be approximately $75 million per quarter.

Our effective tax rate was 33% for the fourth quarter and 32% for the full year. Looking forward we currently expect the 2012 effective tax rate will be approximately 33% to 34%.

Finally, we expect depreciation and amortization to be approximately $1.6 billion during 2012. Tim?

Thanks, Mark, and good morning, everyone. I wanted to provide some additional detail on the accomplishments that Dave alluded to and some of the technologies which not only have made a substantial contribution to our success in 2011 but will we believe underpin our focus areas for growth in unconventional, deepwater, and mature assets in 2012.

In the North America unconventional market, we have made great progress in deploying elements of our frac of the future strategic initiative. We are rolling out our first series of Q10 pumps that have demonstrated significant reliability and maintenance advantages in field testing over our current fleet, already generally considered to be the best in the industry. Aggressive deployment of Sandcastle storage and advanced dry polymer blenders in 2011 is expected to also provide ongoing improvements in capital efficiency and environmental performance.

We have been particularly pleased with the performance of our GEM wireline analysis tool, which offers rapid evaluation of complex special physical properties called Shale Expert. It has been widely used in unconventional fields in the US and internationally.

We introduced our new RapidFrac sliding sleeve system that provides our customers with a dramatic increase in efficiency for the completion of horizontal unconventional reservoirs. We were also the first to deliver a cemented version of this technology.

We realized a 10% reduction in crew size this year and we expect ongoing improvements as we increase remote job monitoring and complete the deployment of our field mobility program which will deliver enhanced operations and logistics efficiency.

So in total, we believe our frac of the future initiative will make us the most cost-effective service provider in the industry. We expect it to be fully rolled out in North America by the end of 2012 and will serve as a platform for our investment in international unconventional growth too.

We continue to feel positive about international unconventionals. Customer consulting agreements have given us an opportunity to screen some 150 worldwide unconventional basins and 60 in detail. We are very encouraged by the profit as we see in many of these basins and are responding accordingly with capital investment.

Drilling on LWE technology deployment moved rapidly in 2011. Geosteering activity to optimally place well bores in reservoir sections was up 75% year on year driven by unconventional and deepwater activity. Much of this was based on our award-winning ADR Deep Reading Resistivity technology.

Sampling technology while drilling has had a special emphasis for us. A recent GeoTap IDS run offshore was used to gather over 50 pressure and multiple reservoir fluid samples during drilling operations, an industry first. This allowed the customer to save over 80 hours of rig time and eliminated the need for a competitor's wireline run.

We also set numerous records in high pressure, high temperature applications in 2011 both for our wireline and drilling technologies and we continue to see new wins based on this differentiated technology as our customers increasingly exploit deeply buried reservoirs.

The exciting worldwide launch of DecisionSpace Desktop in 2011 was very well-received in the market and contributed to a record profit year for Landmark. Over 1600 individual licenses were established in the first year and 46 of our 50 largest customers have either migrated or are in the process of migrating their data to the DecisionSpace platform.

Integrated project management activities are on a steep upward trajectory. Despite a slow start in Iraq, revenues for our project management segment nearly doubled from 2010. We see this as a major growth platform and the pipeline in 2012 is strengthening notably in mature assets.

So while we have been pleased with the growth of the technology portfolio and its ability to underpin our topline and margin growth in 2012, we are also very focused on execution and service quality. We are pleased with our performance this year.

For example, Sperry Drilling and wireline rates of nonproductive time continued to strengthen by 24% and 26% respectively from 2009 to 2011 and we continue to receive positive customer feedback including a top performance review from a European IOC for formation evaluation.

The combination of fit for purpose technology with excellent execution provides us a strong foundation for 2012 growth. Dave?

Thanks, Tim. So obviously a lot of moving parts this quarter. Let me summarize what I think should be the takeaways.

One, we do not believe that there will be a collapse in margins in pressure pumping in the US. Therefore our revenues and operating income are expected to increase in 2012 in North America.

We expect our revenue growth will be in excess of the rig count growth in both the Eastern and Western hemispheres. We expect our deepwater revenue growth will be in excess of the deepwater rig count growth while we continue to earn from our customers kudos for our distinctive service quality.

And although it will have a short-term impact on our margins, we are proactively moving equipment from dry gas basins to liquids plays and this equipment is immediately displacing competition.

We expect our Eastern Hemisphere margins to return to the mid to high teens by the end of 2012 as we gain traction on new projects and growing our revenue faster than rig count.

Lastly, our positive view of the market supports capital spending of $3.5 billion to $4 billion. But let me reiterate, pressure pumping horsepower additions are not expected to increase over 2011 and we believe more of those will go to the international markets.

So let's turn it over to questions at this point.

(Operator Instructions). James West, Barclays Capital.

Quick question on -- so your North American margins, you mentioned another 100 basis points down in 1Q. Do you expect a further -- I know you don't expect a collapse -- but a further deterioration as we go into kind of 2Q, 3Q, or is that where we start to stabilize out?

I guess a follow-up to that is kind of what should normalized margins be in North America?

I think the answer is at this point, James, that it's too early to tell. Obviously we said in our comments we look at the gas market changes right now with some level of concern but for the time being, most of those rigs are shifting from dry gas to liquids-rich basins and as long as the rigs continue to shift, then we should be able to shift equipment. And while there might be some temporary margin impact, we should be able to get back some level of normalized margins once the cost blip passes. Right now I think it's still a little bit too early to tell.

Okay. Can you just, Mark, remind us what kind of contract coverage you have for the pressure pumping equipment you have in North America today and then for the incremental capacity you have coming in this year?

James, this is Dave. All of our equipment that we have out there today and all that we anticipate bringing out in 2012 is already allocated to a specific set of customers. So none of it will be sort of in the open speculative market.

Okay. Great. Thanks, guys.

Brad Handler, Credit Suisse.

Thanks, I guess I will stick with North America as well please. If the -- is there -- and ultimately that sense of where margins can go -- if you're positioning assets more in liquid markets, what implications does that have on 24-7 operations once they are -- once you are doing what you think they should be doing?

And maybe just conceptually then if you have more pricing leverage than you've had in the last six months, just talk to us a little bit about where you think sort of margins can -- let's strip out a couple of things, if you will, but can margins get back to above levels where you saw say in the third quarter?

Well, I think obviously as they shift into the oil basins, the opportunity to go toward 24-hour operations improves. Right now activity is still fairly robust in those markets and there is a clear shortage of people and equipment as well as some of the supply chain issues that we find.

Based on our -- all the reports that we get from our guys in the field, we are continuing to get some pricing improvements in those oil or liquids-rich basins. The problem I think that we face as we look forward is what will inflation do? As Dave commented, we are going to have continued challenges with logistics, with the supply chain and moving proppants and gels and other things into those basins because they are in short supply and we are fighting back inflation as hard as we can. Most of the price increases that I think that we are being able to achieve right now are serving to basically offset that inflation.

We are going to have to work hard, as Dave commented, to really push back and see if we can get some relief from some of our suppliers as things soften in the gas basins. We will have to continue to work to make sure that we can get all of that passed through with the price increases that we get.

So I think as I said, it's a little early to comment as to how much we can move pricing on a net basis north. I just can't speculate at this point whether we will be able to go back and get them back above those levels that we had in Q3 or even higher.

Understood and I appreciate the color. As a follow-up, related -- coming back to pricing but maybe touching on a couple things slightly differently, can you comment on pricing -- your pricing realizations recently in natural -- in dry gas basins? And then actually can you give us some color on non-fracking pricing in the US as well?

This is Tim. Clearly in the dry gas basins, there has been significantly more pressure than there has in liquids basins. I think that one of the things I have tried to outline for you here just on the call is a few of the key technologies which are giving us an opportunity to extract some pricing realization pretty much across the board from Drilling Evaluation through to -- Drilling and Evaluation through to completion.

So there is leverage I think in North America to do that. That is the technology side and as Dave and others have alluded to, we are also working hard on the cost efficiency side, investing substantially into an effort to lower our cost of delivery. So I think we've got a couple of tools in our chest here to -- in our war chest here to ensure that we minimize the impact of the transfer from dry gas to liquids basins and then once there, have the tools to make sure that we get value for what we're delivering.

Fair enough, but absent the -- and I will let others go. Absent the technology opportunity set in non-fracking related activity say in also in liquids-rich basins for example, are you seeing whether it is in coil tubing or whether it's in your drilling suite, are you seeing pricing opportunities, like for like products today?

There are some pricing opportunities. I think completions would be a bright spot obviously with the introduction of RapidFrac. I would say that -- and to use a negative example obviously as you move out of some of the deeper, hotter dry gas basins like the Haynesville where high temperature, high-pressure tools have been under great demand, there's less demand for those in liquids-rich basins. So there's a couple of pluses and minuses for you.

Okay. Thanks for the color, guys.

Jim Crandell, Dahlman Rose.

Good morning, another question on North America. Dave, it seems that one of the reasons for your success in North America is that you've been able to get your customers to take at least four other product lines for new frac spreads when you contract with them for frac equipment. Your competition says this will change when things come back into balance. Do you see it changing or do you think this can be a somewhat permanent feature of the business?

No, I think it is a more of a permanent feature of where we see the market. We were able to use the leverage of the frac fleet and still continue to use the leverage of the frac fleet. Don't get us wrong, that we lost it. It's still there.

To bring some of our other product lines along, what we have been able to do is prove to our customers that by integrating those products together with a frac either through an integrated completion or integrated drilling that there's actually a benefit to doing that and therefore our customer gets a well down faster, cheaper, more efficiently or more quickly.

So I don't see the world going back to that because I think we've been at this long enough to prove the benefit of that strategy out.

Thank you and my follow-up is an international question. In your opinion will increased demand alone start to be the catalyst that gets pricing to improve on large tenders or will it take a change in mindset by at least one of the major companies in the business?

I guess our planning assumption at this point is that it's going to take an increase in demand overall. I think that clearly there are situations where service quality and technology can come to bear that might help us in pricing. But our planning assumption is that the competition, our competition is continuing to price very, very aggressively to prop up their share positions and so we are continuing to battle hard on that front and that means that it's our responsibility to execute well and to continue to roll out technologies to make sure that we can improve our margins and improve our returns over time at least for the foreseeable future.

Okay, got it. Mark, just one more quick one. Do your international contracts if you have a year or two contracts with -- for your frac equipment, do they have a clause which allows the customers to suggest a lower price to you or to ask for a lower price? Do you then consider it?

No, they typically don't have a clause that allows them to consider a lower price. A number of them have clauses that allow them to step away from the contractual arrangement after some period of time and there are usually some penalties and make-wholes that are associated with that.

What we are seeing in a number -- as Dave alluded to, when they begin to shift equipment, there also is a discussion of them of us shifting the arrangements to continue to work with them as the rigs move to the liquids-rich basins.

Got it, thank you.

Bill Herbert, Simmons & Co.

With regard to your Eastern Hemisphere margins or international in general, if we're looking at a $0.10 hit quarter on quarter Q1 due to reasons that you mentioned, which are largely seasonal, are we looking then for the balance of the year in order to hit your midteens target on the Eastern Hemisphere front for the year up 200 or 300 basis points per quarter as 2012 unfolds at least?

Don't want to set specific expectations on that, but yes, I think when you do the math that's generally how it's going to need to work.

Okay and then with regard to your deployment of pressure pumping internationally and that's going to outpace the deployment of the domestic -- of assets, of fracking assets in North America, is there -- so is that international deployment? Is it at this juncture trying to capture growth option value or is it specifically correlated with project ramps which your -- which you've been contracted for or you are in sort of specific dialogue with customers?

I think, Bill, it's really the latter. I think if you look at the spaces that we enumerated where we have done shale fracs last year, those -- you've got to think of those as really exploration plays still. But we are having enough discussions with enough customers in those geographies to indicate to us that the demand will be there for that equipment. And similar to what we saw in the US, the demand for additional horsepower to do these shale fracs is there.

So typically where the investment is going is to augment the horsepower that we already have in place in these countries to basically take advantage of and have an adequate horsepower on standby to be able to do the larger shale fracs versus maybe conventional work we have done there in the past.

Got you, thank you.

Bill, this is Mark. I want to just make sure we correct the statement that you said. We weren't saying in our comments that we are sending more horsepower to international than we are into North America in 2012. We're just sending more than we -- to international than we sent in 2011.

Okay, great. That is helpful. (multiple speakers)

Higher percentage.

Thank you. And then one more from me. Mark, I'm not sure if you addressed this with regard to your guidance but corporate expense for 2012, how should we think about that?

Well, it should run probably in total about $95 million to $105 million per quarter and we did say in the first quarter there's going to be $0.02 to $0.03 of on an after-tax basis of cost that will be for these corporate initiatives. And that -- it probably will run in about the $0.02 range for the remainder of the year on an individual quarter, so that's a large part of why the corporate expenses have stepped up on a year-over-year basis.

Okay, thank you.

Waqar Syed, Goldman Sachs.

Thank you. Good morning, gentlemen. I just want to follow up on the international shales as well. A year ago when I had asked you a question about how many rigs may be working in international shales, I think at that time the number was maybe in the 10 to 15 kind of range. How has that number changed now in the last 12 months? Where do you expect that number to go in the coming 12 months?

This is Tim and I will use an example to sort of maybe help with that, Latin America, which has got quite a lot of opportunities in the combination of Mexico, Colombia, and Argentina and it seems to us that the opportunity continues to grow. In 2012, it sort of feels to us like there's somewhere between 75 and 100 wells which will be drilled for shale activities in Latin America. And I just -- if we put that in perspective, with respect to a Haynesvilles for example, which is just sort of that 99 rigs or thereabouts at the moment, clearly if you divide that or multiply that 99 rigs by three or let's say four to six wells per year, we are dealing with a significantly smaller opportunity today.

But the opportunity is growing. As David alluded to, we are in the sort of primarily exploration appraisal phrase, low horsepower requirements, primarily vertical, now shifting to horizontal, where horsepower requirements are doubling as well as an increase in activity.

So we think 2012 is a pretty good transition year for unconventionals and we will see the most significant uptake in 2013 and 2014.

Okay, this is just Latin America. How about some of the other markets, Europe or Asia?

Obviously similar pictures there too. We are just using Latin America as an example for you and there are emerging opportunities around the globe. As I alluded to earlier, we've had the opportunity to do some basin evaluation work of some 60 basins in detail and those evaluations are not escaping our customers either. So we're going to see a very positive trend here.

Okay, now would it be fair to say that when pressure pumping trucks were traditionally being employed internationally for let's say cementing and maybe acidization jobs, as they shift to fracturing the revenue potential per crew could increase maybe 10 to 15 times. Is that fair to say, or 10 times or so?

It's not math that I have necessarily done. I don't know that we could say right now. Clearly it's a substantial revenue pop. The difference normally in a horizontal well in the US that's fracked versus a conventional well is almost two times. So you think about the entire revenue opportunity, it's going to step up quite dramatically if that becomes the norm outside the US as well.

Okay, thank you very much.

Angie Sedita, UBS.

Thanks, good morning. Dave or Tim, in the liquid basins on pressure pumping, can you give us an idea today of what you are seeing in wait time for frac crews today versus three months ago versus six months ago?

Obviously we are dealing specifically with the liquid-which basins here just to sort of see if dry gas is different. But I think that based on the reports from our field guys, we are still very heavily booked through Q1, which is pretty much as far as we ever look out, so that to us is a good indication.

Okay, and then given that you are mobilizing equipment from your gas basins into the liquid basins, I assume others are doing the same. Could we reach a balanced market in the liquids basins earlier than originally expected?

I think as Dave alluded to, we continue to expect to see an increase in rig count and as you have noted yourself probably, our customer base is striving to balance their dry gas and liquids-rich exposure and we are seeing a significant shift if you like from their dry gas element of their portfolio to the liquids element of their portfolio. So it's not just a function of individual customers stopping activity. It's the transference of activity and also we tend to get higher service intensity in liquids-rich basins, which obviously is beneficial in terms of the overall revenue picture.

Very, very helpful. Finally, just you talked about mobilization and you were talking -- speaking earlier about the cost and logistic issues and it seems like you are still getting your head around will that continue through Q1 and into Q2 and the time horizons? But at least on the mobilizing of eight crews from the gassy plays to the liquid plays, when will that be completed by? From what regions are you moving equipment from and what regions are you moving it to?

That will be largely -- that will be completed this quarter.

Okay, and into what region?

Into the -- primarily into the Rockies, the Niobrara, the Bakken, the liquids part of the Marcellus, and a couple of other areas that maybe haven't hit the radar screen yet.

Perfect, thanks.

David Anderson, JPMorgan.

Thanks, could you just give a little clarity on your capacity additions in North America on pressure pumping? You are just growing at a slower pace in 2012 -- is that -- or is it going to be flat versus 2011?

Well, the amount of horsepower that we will be producing is going to be flat on a year-over-year basis. There will be more going into international than we did in 2011 which then means that there will be fewer -- a fewer amount of horsepower going into North America.

The numbers go up on a year-over-year basis because of the manufacturing of the Q10 pump, which is in full production as we speak. And then as well as the addition of other kit to go along with that -- the replacement of blenders and the SandCastle and other equipment that's part and parcel to our frac of the future strategy.

Now should we interpret this as your views that the market is getting closer to being in balance or is this just -- or is this somewhat of a reaction to what's happening in natural, gas. How should we interpret that?

I think one of the things that we should respond to there, David, is the fact that particularly with the Q10 pump and some of our other capital investments that Mark mentioned here, the SandCastles, ADP blenders, etc., much more efficient set of assets and Q10 pump in particular is going to be very substantially more efficient than the current fleet. So we just -- we will not need to put as many assets into the marketplace to cover the same territory.

I guess one last question. People have been asking about artificial lift for the last five years and you finally do an acquisition on Global Oilfield Services. Can you talk a little bit about it? Does this fully address your needs in artificial lift and can you talk a little bit about kind of the strengths of this business and where you think you need to build out more?

We certainly have talked about artificial lift for a long time, specifically ESPs and Global is an opportunity for us to enter that segment for us to extract knowledge and continue to build that business. It's a relatively small business today and one in which we have a long horizon on to build this capability and expand it into other areas of artificial lift, but pleased to have it on under our belt.

Okay. Thanks, Tim.

Okay. Thanks, everybody, for your participation. Sean, you can go ahead and close out the call.

Thank you, ladies and gentlemen. Thank you for your participation in today's conference. This does conclude the conference. You may now disconnect. Good day.