Oil States International Inc (OIS) 2007 Q4 法說會逐字稿

Good day. Welcome to the fourth quarter 2007 Oil States International earnings conference call.

My name is Candace and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session after the prepared remarks. (Operator Instructions)

I would now like to turn the presentation over to your host for today's conference, Mr. Bradley Dodson, Vice President and Chief Financial Officer. Please proceed, sir.

Thank you, Candace. Welcome to the Oil States fourth quarter 2007 earnings conference call. Our call today will be led by Cindy Taylor, Oil States President and Chief Executive Officer.

Before we begin, I would like to caution listeners regarding forward-looking statements to the extent that the remarks today contain information other than historical information. We are relying on the Safe Harbor protections afforded by federal law. Any such remarks should be weighed by the many factors that affect our business, including those risks disclosed in our Form 10K and our other SEC filings.

I'll turn it over to Cindy now.

Thank you, Bradley. And thanks to all of you for dialing into our call this morning.

I'd like to just kick off with some summary comments about the quarter, and then we'll follow up with each business segments review and our outlook comment. Despite some softness in the quarter in Canada and certain U.S. markets, Oil States posted fourth quarter results within our previous guidance range. However, our results were benefited by a lower-than-expected tax rate.

Our operations were led by continued strength in our Offshore Products segment and Oil Sands driven accommodation business. The strengths of these businesses coupled with the contributions from the two rental tool acquisitions completed in the third quarter of 2007, mitigated significantly weaker drilling rig utilization due to holiday shutdowns in the quarter.

For the fourth quarter of 2007, Oil States reported record revenue of $581 million, EBITDA of $94.7 million and net income of $48.2 million or $0.95 per diluted share. Our revenues and EBITDA were up 11% and 1% sequentially. Our reported earnings of $0.95 per share were negatively impacted due to greater-than-expected holiday shutdowns and some weather delays in certain portions of the United States.

We also incurred cost over-runs on a drilling equipment project in our Offshore Products group which reduced our EBITDA margins in that segment.

However, record sales of our Offshore Products during the quarter mitigated this margin decline.

Bradley will take you through more details of our consolidated results, and then I will come back on the call and conclude our prepared remarks, with a discussion of each of our segments and our market outlook.

Thank you, Cindy.

For the fourth quarter of 2007, we reported operating income of $71.6 millions, revenues of of $581 million and EBITDA of of $94.7 million. Our net income for the fourth quarter of 2007 totaled $48.2 million or $0.95 per diluted share.

The comparable fourth quarter 2006 results were $73.2 million of operating income on revenues of $484.3 million and with EBITDA totaling $90.4 million.

The fourth quarter 2007 results represented 20% year-over-year increase in revenues, and a 5% year-over-year increase in EBITDA. Depreciation and amortization in the fourth quarter of 2007, totaled $21.4 million compared to $14.6 million in the fourth quarter of 2006. This increase was due to the acquisitions completed in the third quarter of 2007, and the capital expenditures made over the past 12 months. DNA is expected to total 23.6 million in the first quarter of 2008. Net interest expense in the quarter totaled $4.3 million compared to $4 million in the fourth quarter of 2006. Our 1st quarter net interest expense is expected to be be $5.1 million. The effective tax rate in the -- in the fourth quarter was 30.1%. This lower rate was due to the statutory rate changes in Canada which benefited the fourth quarter affected rate.

We expect the first quarter 2008 effective rate to be 34.2%. Our total debt at the end of the fourth quarter was $492 million, up from the $433 million at the end of the third quarter of 2007. This was due to $68 million spent on CapEx in the quarter and $23 million spent on share repurchases with the spending partially offset by our operating cash flow. Our debt to cap ratio at the end of the year was 31%.

At this time, I would like to turn the discussion back over to Cindy who will review the activities of each business segment.

Okay. I'm going to start with our Well Site Services segment, and as usual, my comments will focus on our sequential performance comparing our fourth-quarter 2007 to our third-quarter 2007.

Our Well Sites Services segment was up sequentially 16% in revenues and 3% in EBITDA. Due to increased contributions from our expanded accommodations in the Oil Sands region and a full quarter contribution from the Schooner Acquisition completed in the third quarter, partially offset by softness in our west Texas drilling operations and weather delays in Oklahoma and north Texas due to ice storms in December.

Our accommodations revenues increased 39% sequentially and our EBITDA increased 6.3 million or 28%. Due to contributions from expansions of our Beaver River, Athabasca and Wapasu Creek Oil Sand's Lodges coupled with a stronger Canadian dollar. EBITDA margins were lower sequentially due to transportation and installation costs incurred on our mobile camps, as we ramped up for winter activity.

We remain at full effective utilization levels in all three lodges and seasonal demand for our large camp is robust. Subsequent to December 31st, 2007, we completed the acquisition of a smaller Oil Sands Lodge named the Christina Lake Lodge. This lodge is strategically located in the Southern Oil Sands region near Conklin and provides some expansion capabilities.

On a sequential basis, our Rental Tools revenues increase 12%. And our EBITDA increased 1.7 million or 7% due primarily to a full quarter's contribution from Schooner, coupled with sequential improvements in our wireline and through-tubing rental tool operations.

This strength was partially offset by continued weakness in conventional Canadian activity and weather delays in the mid-continent region region during December, which we mentioned previously. Sequentially, our drilling revenues and EBITDA were down 12% and 38% respectively, due to lower utilization in our west Texas drilling operations due to extensive holiday shutdowns. Our average daily revenues were flat on a sequential basis.

But our cash margins were $1900 a day lower, primarily due to reduced fixed cost absorption on lower utilizations, coupled with higher repair and maintenance costs.

Now, if we can just shift and talk about Offshore Products. In this segment, our revenues and EBITDA remained strong during the quarter, despite disappointments on a drilling rig equipment project. We reported record quarterly revenues of $141.2 million, and EBITDA of $21.3 million compared to revenues of $132.1 million and EBITDA of $24.7 million reported in the third quarter of 2007.

Included in our fourth quarter results are approximately approximately $5 million in project cost over-runs in three BOP transporter systems. Two of these systems have been accepted by our customer and were shipped by the end of the year. The third system is expected to ship during the first quarter of 2008. These cost over-runs were partially offset by stronger-than-expected revenues and profits from our bearings and connector products during the quarter. Overall, our EBITDA margin in the fourth quarter was 15.1%.

Our backlog declined 9% sequentially due to strong revenues recorded in the fourth quarter, coupled with contract award delays. Subsequent to December 31st, 2007, we acquired a 22-acre waterfront facility on the Houston ship channel to expand our internal capacity in support of growing demand for increasingly larger subsea production and floating drilling rig equipment.

A few comments on our third segment tubular services. Here our revenues and EBITDA were up 8% sequentially due to an increase in our tonnage shipped.

Sequentially our gross margins were down slightly to 5.7% from 6% realized in the third quarter of 2007. We continued to successfully reduce our inventory, which was down by 8% during the quarter, in an effort to improve our turn rate and therefore our return on invested capital. OCPG industry inventories also improved during the quarter with months supply on the ground moving to 4.6 months, based upon February OCPG situation report estimates.

I'm going to transition a bit, just to give you some outlook comments again for each of the three segments.

Starting with Well Site Services.

Within our Well Site Services segment, we continue to see significant growth opportunities for our accommodations business in the Oil Sands region. Our board recently approved the further expansion of Wapasu Creek by an additional 800 rooms, bringing its future capacity to 2300 rooms by the end of the third quarter of 2008.

At the time of our third-quarter earnings conference call, we indicated to you that we expected activity to continue to increase in the Oil Sands region, despite the then-recent announcement of proposed royalty increases by the Alberta premier.

Since that call in November 2007, several major Oil Sand's operators, in particular Petro-Canada and Sun Core, have announced approvals for major Oil Sands project expansions.

Our Rental Tool contributions should remain strong in the United States, and will be augmented by our two recent acquisitions. We expect to see growth in resource plays such as the Fayetteville, the Barnett Shell, the Rockies and various mid-continent regions, where we are very active.

Land drilling utilization in west Texas is recovering nicely from the holiday shutdowns experienced in the fourth quarter. We also put a new rig out this quarter in the Barnett Shell, which will contribute to our results in the first quarter. Our overall utilization is expected to improve sequentially, but not to Q3 2007 levels given normal seasonal weakness in the Rockies during this first quarter.

Our outlook for Offshore Products remains robust, despite the fourth quarter decline in backlog. Our backlog position remains at strong historic levels overall, and product mix and margins within backlog remain consistent with recent levels. We are forecasting first quarter EBITDA margins in the 16% to 18% range on continued strong sales activity.

As it related to Tubular Services, industry inventory levels have continued to decrease on a month-supply basis. While some OTCG manufacturers have recently announced first-quarter spot price increases on our OTCG products, I would point out that a large percentage of program work was secured prior to the announced price increases.

As a result, we expect gross margins to be flat to slightly improved in the first quarter. We continue to believe that industry consolidation at the mill level will lead to a stronger environment longer term in this particular business.

Considering all of the above factors, our earnings guidance range for the first quarter 2008 is estimated at $1.10 to $1.20 per diluted share. We remain very positive about our Company and our prospects, particularly in the Oil Sands region.

We have recently announced several strategic actions, which should facilitate our growth in 2008, including the acquisition of the Houston Ship Channel facility, in our Offshore Products division and the acquisition of the Christina Lake Lodge in Canada.

In addition, our board has approved a further expansion of our Wapasu Creek Lodge supporting Oil Sands development in Canada. With that, that concludes our prepared comments.

Candace, would you open the call up for questions and answers at this time?

Sure. (Operator Instructions) Our first question will come from the line of Bill Herbert of Simmons. Please proceed.

Thanks, good morning.

Good morning.

Good morning, Bill.

With regards to the guidance here, and just kind of drilling down a little bit with regard to the assumptions. Taking PTI first. Historically for the past two years, revenues have gone up 30 to 40% quarter-on-quarter Q4 to Q1. In order of magnitude - is that the same type of expansion that you're looking for in Q1?

Bradley's given me a thumb's up. I don't have it in front of me but sounds --

Sounds conservative then, if Brad is giving you a thumb's up, right?

Well, the key for us there -- of course we're doing an awful larger base.

I understand, yes.

As you know, the keys for us are -- and I want to remind everybody who might not recall this.

Okay.

That the winter is certainly impacted not only by our lodge facilities, which we do focus a lot on in our presentations but also these large mobile camps and the drilling camps.

It is not acknowledged in my comments, the large mobile camps are doing exceedingly well in support of sag V drilling operations, as well as pipeline operations and we're at fully -- pretty full use, utilization currently. The drilling count has slowly responded as well. I would say that is the greatest variable there.

But we feel very good about those operations generally speaking.

Okay. And from a margin standpoint, is there any reason why PTI margins Q1 in '08 will not be at least as good as they were in Q1 of '07.

I don't have Q1 in '07 with me.

41.7% I think EBITDA margin.

I'm sorry. How much were they?

41.8%, I think.

That's right.

Yes. And the only reason I ask is that, yes, we had some expense here in the fourth quarter but we're starting at a much lower level in the low 30s and do you claw all that back and then some in Q1 or what would keep that from happening?

I think it will be in the high 30s is -- is my projection right now, and part of that is a little bit of mix. We've got a couple large fabrication projects that are going out in the first quarter in --

In the Gulf of Mexico.

In the Gulf of Mexico, which were nice -- nice projects. And we're excited about them. But they are at slightly lower margins that the high 30s.

Okay. And then secondly with regard to Offshore Products, is the way to think about the quarter with the $5 million worth of cost over-runs, if you will expense, is you add that back and thus you are at about a 18.5% margin for the quarter. And that's -- you know, we -- we've had a nice sort of sustained uptick in martins for that business this year.

If you make that adjustment for the fourth quarter, and again, is there any reason why, you know, incremental margins shouldn't be at least as flush as they were last year going into 2008?

Yes. As -- as we commented, Bill, overall our -- our mix and backlog is very comparable to what we've seen.

Okay.

At times differently by quarter and -- and again, I mentioned it before, there have can be fairly great variability in our margins depending upon that mix.

Yes.

With things like our drilling rides, our flex joints, our SER flex joints, the connectors on TLP's as an example, installation work have been very high margin work. So mix always plays a factor into that. And you can see variability, that is why we generally give kind of a 200 basis point range in our margins.

Okay.

Depending on the mix going out within a given quarter and of course, we are privy to the terms of that backlog that can alter a bit. Fundamentally though, I think the comment is the mix is in good shape. We've got some significant bids out there that make us still fairly confident overall about this business and this is -- you know, these cost over-runs, obviously, are a bit unusual for us. I should comment about it, I think.

But in particular this was some very high-end equipment that is new to the marketplace, never been engineered before. We bid it with a key customer of ours in 2005. So a long time ago when utilization of our facilities was much different. We learned a lot. We've expanded our capabilities dramatically and -- and coming up with these.

But clearly we're -- we're in this business to make money and so it was a disappointment. I also want to point out, there's (Inaudible) in cost overruns that is not cumulative losses on the project. The losses were much less than that. But of course, you've got to erode your margins first.

Got you.

And then you go into a loss position. So I don't want to be misinterpreted that these were aggregate losses overall on the project. But as it related to the impact on the quarter, it was significant.

Last one from me, with the mills raising prices here for OCTG products, any reason to sort of not -- or any reason not to believe that margins have basically bottomed for this business?

Right now, you know, visibility turns kind of quickly in this market but the macro environment is much better today than we've seen it over the last year, just --

Yes.

Because of inventory. Industry inventories on the ground. And, yes, there are mill price increases.

The caveat, I do want to remind everybody, is so much of this business today is led through program work. We had a -- a fairly decent, if not significant, build in what we call apparent backlog by December. Even a more significant build in January because we were awarded a large amount of this program work, which that program work is generally let for six months at fixed prices. So although there's price increases, it really affects the portion of the business that is spot business throughout the first six months.

But all those being said, yes, you're right. The fundamental drivers for the business do look better.

So first after '08 how should we think about margins? Flat with Q4 or a bit better?

Flat, flat to a bit better.

Okay. Thanks very much.

Thank you, Bill.

Thank you, Bill.

Our next question will come from the line of Ken Sill of Credit Suisse. Please proceed.

Yeah, good morning.

Good morning, Ken.

Good morning, Ken.

I wanted to dig into the acquisition of the facility in Houston and try to figure out how we should be modeling that in in terms of, you know, what does it do to your capacity in Offshore Products? And how long before we start seeing a revenue impact and what's the impact on margins as you try to, you know, get that facility started?

Okay. I'd like to comment initially, just from a -- a business perspective and then I'll let Bradley walk you through in a little more detail . But first of all, this was a facility that we had looked at years prior and so we're very familiar with it. This is one of the areas where we were outsourcing some of our large product work anyway.

And so we have, over the course of the last nine months or so, built a quality workforce, trained them in our procedures, our welding technologies, et cetera, and so it is a -- it is not as if it is just an empty facility at this time. And in fact the -- the three BOP transporters that we talked about have been executed in that facility on an outsourced basis prior to this time.

It is an ideal facility for large equipment, both on the drilling equipment side and the production equipment side, where you can load it directly in the slip on a barge given the significant overhead crane capacity and the slip where large barges can come in.

That benefits us quite a lot as we go into increasingly deeper water environments, larger equipment, higher pressure rated type equipment. We have a fantastic facility in our south Houston operations that we're expanded significantly, but it is land locked.

As an example, as I've mentioned, we do a lot of the BOT stackup and integration work in that Houston facility. We do all of the assembly, testing, and then you have to break it down again to truck it out. And so there -- this is an ideal compliment that we can work with these two facilities depending upon the -- depending on the actual manufacturing and assembly work and the size of the equipment that is done. And so, again, we're in a good position because we're not starting from scratch. We will finish this third transporter. It is already obviously in the facility. We'll finish it there and load it out.

And then the -- the -- the next step, obviously, is not only taking our existing backlog and allocating that between the facilities but also bidding on things and building backlog that we might not have been capable of bidding on absent having this facility and I think that Bradley has maybe a few more comments to give you some information there.

Ken, we feel it is an accretive acquisition. We've added -- added the capacity with the transaction, effectively bringing an outsourced facility internal.

The capacity will initially use to deliver some of the items that we currently have in backlog that we had anticipated to outsource. The incremental work that we're looking at, we should start to see benefits in the second half of this year.

And really it -- as Cindy mentioned, it will help us tap in to the hub and spoke development models that a lot of the -- the large, deepwater operators are starting to use. In particular, addressing some of the subsea pipeline equipment, pipeline and manifolds, pipeline and terminals, jumpers, et cetera.

And so we expect to see a -- a good return this year as we head into kind of a run rate state in the second half.

And, you know, before you guys had said that you were essentially kind of maxed out on capacity, other than debottlenecking.

And so could you give us a rougher idea in order of magnitude what this -- this could do to your quarterly or annual revenue capacity or business capacity?

Well, I -- you know, we're kind of looking at each other at this stage. We -- we're -- we haven't even assessed the maximum capacity at this s facility at this stage. But what we really looked at is what we can almost call low hanging fruit and get a pretty ready pay back on this facility within terms that are very attractive.

I have to get back to you on maximum available capacity because it is a -- a very large facility.

I guess from modeling perspectives, what we should look at is say, okay, you're going to be able to continue to grow the Offshore Products business, you're not going to be capped out because of -- of capacity constraints and then, your know, we'll worry about when you max out later.

That is all. All I was trying to get at - is can we just assume that you will go back to a fairly steady, strong growth in Offshore Products?

I think it will help. But a lot of it will depend on -- on we know what we can do in the facility with our current backlog and then it is a matter of being able to market this expanded ability to deliver larger projects that we just quite frankly weren't able to effectively bid on previously.

Yes.

Yes. And then one last question on the accommodations business. Could you give us an idea of how much your capacity in the Oil Sands are going to be up year-over-year when you get this Wapasu expansion down in Q3?

I can.

And will that all come on at once or will it be phased in?

It will be phased in, primarily late second quarter, early third quarter. And, you know, we're building off of of a larger number. We showed significant growth fourth quarter to fourth quarter '06 to '07 this year. This will add kind of an incremental from where we stood, maybe a -- an incremental 15% capacity.

On a year-over-year basis?

Yes. If we -- if we looked kind of fourth quarter '07 to what we expect in fourth quarter of '08.

Okay. Thank you very much.

Thank you, Ken.

Our next question will come from the line of Jeff Tillery from Tudor Pickering. Please proceed.

Hi, good morning.

Good morning, Jeff.

You mentioned in your -- in your prepared comments on the -- on the lodge that you guys acquired in the southern part of the Oil Sands region as scalable. Can you talk a little bit about that? Kind of order of magnitude? And what can you do with that lodge.

It is a -- it is a small lodge, close to 100 beds with capabilities. But the beauty of it is the location, which is in that southern region that we've been targeting. There is -- is owned land and leased land that we can expand incrementally, as long as we get the clearance to do so. That kind of expansion is more in the range of 200, 250 type beds.

But by virtue of them being in the area, they also get some added work on some catering facilities, logistics management services in that southern region. So it -- it's -- it's not so much the size of that operation, as just it is the further penetration in an area that we are targeting.

So is it fair to say that -- I mean it is one avenue that you are using to grow in the south but it is not the only avenue you guys are exploring?

That's exactly right. And I think we've been very clear that we are working with Alberta's sustainable resources to get a lease. We have moved that process forward.

We still believe that we're going to be able to announce that, hopefully without much undue delay. The process with the ARSAD has moved well. We're now working with basically the consultation rights and making sure that we are addressing the needs and concerns of the various Aboriginal groups in the area effectively, which is a -- a process that is very important to doing business in that region. And so that's -- that's really where we are right now.

But clearly, we've said before that is part of our focus, but until we secure the lease with no additional obligations, we're not in a position to announce that.

And you guys in the past have -- have talked to us about kind of the -- the revenue and EBITDA numbers from the Oil Sands versus the non-Oil Sands piece of accommodations. Do you have that, Bradley?

I do. In the fourth quarter we had Oil Sands revenues of just under under $50 million U.S. And the EBITDA kind of fully burdened was order of magnitude, about $22 million U.S.

Okay. So there's a pretty big ramp sequentially in the non-Oil Sands piece. That's fabrication work and that's what you were talking about finishing in the first quarter as well?

No. The fabrication work that I mentioned is a couple of projects that we've got that we are working on in our Louisiana operations that should ship in the -- in the first quarter of '08.

But there is in the first quarter, that's why I tried to make sure we stayed focused on it, with the lodge facilities are one element of our contributions but we have all of these mobile camps, small and large mobile camps that support both conventional drilling and sag B type drilling, as well as pipeline construction, that get a significant seasonal lift in the first quarter.

Okay. And -- and it -- and your land drilling business with utilization in the first quarter somewhere between where you were in the fourth and the third quarter, do you think you get kind of halfway back on a cash margin basis, or EBITDA margin basis in that business?

I don't have all the percentages in front of me, Jeff. But we're clearly looking at -- at improved obviously EBITDA margins. Depending on how we finish the quarter at 400 or 500 basis points of improvement, I believe. I'm kind of looking to Bradley for verification, and they -- they are saying that's correct.

The point is the -- the significant softness in the fourth quarter was really holiday related shutdowns. We felt like for the most part in west Texas. That west Texas operation now, it was not immediate. I mean, the recovery -- you know, the holidays were just severe and they've extended into January, 7th, 10th, 15th, depending upon the operator. But there's every indication that that was just that. It was holiday related downtime. The rigs are working. They are working at comparable rates to what they were working in the fourth quarter.

That improvement in west Texas will be mitigated because we always had seasonal downtime in the Rockies, and it's particularly severe this year with all the -- the extreme weather that they have had. And so it's -- it's moderated. And that's why I just want to be sure that it -- we recognize that we -- we are recovering in total. But we're still impacted by some weather circumstances.

But the major message that I see today is that the -- the business is actually picking up very well and that therefore, my optimism is pretty good as we go into the second quarter.

Okay. And -- and my last question is just on the rental tools business. Margins kind of flashed down a little bit versus the third quarter. I mean, is Q4 representative of what you expect going forward in 2008, or are you seeing any pricing weakness on the margin?

I -- I think we may have lost 150 or 200 basis points sequentially is my recollection. You probably have the numbers in front of you. A lot of that I really think was related, again, to the holidays and to the weather that we experienced.

The key is - we have to figure out what the kind of run rate EBITDA margins are --give the acquisition of these two businesses that have a little service mix versus just pure rental mix .and so we're kind of tweaking that between Q3 and Q4.

But I really think that the margins deterioration was more related to the holidays and weather than anything else.

Okay. Thank you. Thank you very much.

Thanks, Jeff.

Our next question will come from the line of Kevin Pollard of JP Morgan. Please proceed.

Thanks, good morning.

Good morning.

This -- I wanted to follow up with your comment -- on your comments on, you know, potential expansion in southern Alberta.

If you're successful in getting that lease negotiated, would this project be similar, you know, in scale and -- you know, like initial size and ultimate scalability to, like, your Wapasu Creek facility?

It would be. And you're -- you're exactly right.

We would start that out depending on the demand environment around 400 or 500 beds but have it scalable, I haven't talked to them. Whether it is 1500 beds or 2,000 beds, but scalable based upon the growth in demand and the customer activities, so that we time that against the demand, but it would follow a -- a very similar profile to Wapasu.

Okay. And so you would really -- you know, if we kind of look at it on kind of a per room basis if that project's successful on, you know, going forward, you know, ultimately it could be maybe a 25% plus capacity expansion to Oil Sands? Assuming fully scaled up.

If we get it fully scaled up. I think that Beaver Creek is 750, just help me with the numbers for clarification, and Athabasca.

Is at 1500 right now.

Is at 1500?

Right now.

Okay. And then Wapasu.

Headed to 2300.

2300. That will help you do the math, you know, in terms of what capacity expansion that might yield over the course of a year to two years.

Okay. Okay, thanks.

And then if I could switch over to the Offshore Products. I wanted to try to close the loop on Ken's line of questioning there. Sounds like because of both the outsourcing, you know, no longer having to outsource so much work as well as, not perhaps having to run some of the other facilities quite as -- you know, full out, that, you know, even in the absence of, you know, topline expansion from that acquisition, it should help the margins fairly considerably.

Well, we certainly hope that's the case, you know. And we're addressing the -- I think the point we're addressing here bottlenecks where we see them. Particularly on the -- the fabrication and assembly side of the business.

Obviously, another concern that we have and what we're working on is the engineering side of the business. These are all highly engineered products. So a lot of it is exactly doing what, obviously, we are trying to do. Supply chain management. You're going to hear the exact same thing from NOV, Cameron or SNC on this. That even though, we are insourcing or bringing in more of this work, we're still heavily dependent on delivery. Timely delivery, quality delivery of steel beams, formings and machined products and so there's just a lot of things that we have to do to coordinate. And there is the capability to improve our margins from where they are now.

I will tell you though, it -- it's just a lot of work, and we're doing everything we can to address the issues that are out there.

So we it would probably be mid-year or so before we really start to see any impact on the margin from that? Or -- Or is it -- or can you get some of that work reallocated, you know, quicker than that.

You know, I think we're still reallocating some of that work by second or third quarter.

Okay. And just last question, I was wondering if you could, you know, give us some comments on, you know, the acquisition, landscape? You know, you made a couple of fairly sizable deals in the rental tool late last year. Maybe just a quick comment on what you are seeing out there right now.

We continue what we feel is a good discipline of continuing to be out in the marketplace, looking for transactions both on a marketed basis and also trying to -- well, we've had more success sourcing them off ourselves, really from our field operations and -- and management. That discipline continues.

The activity out there has been pretty consistent with the last six or nine months. So we still are looking. And I think execution always is dependent -- is -- it is never quite as easy as we expect it to be. But we continue the discipline of looking and it will continue to be a portion of our -- our growth strategy.

Okay. Thanks, guys.

Our next question will come from the line of Joe Gibney of Capital One Southcoast. Please proceed.

Good morning, everybody.

Good morning, Jeff.

Good morning.

Most of my questions have been answered, a couple of follow-ups. Bradley, I apologize if I missed earlier in the call - could you update us on CapEx expectations for '08?

Yes. We are -- we are going to file our Form 10-K later this week. It will have the disclosure in there. We're currently expecting to spend about $282 million.

There -- as you probably -- as you've pieced together, based on our 68 million in the -- in the fourth quarter of 2007, versus what we're expecting at the end of the third quarter for 2007. We didn't get everything spent in 2007 that we were expecting. So there's a fair amount of carry over from '07 to '08, predominantly, finishing off the lodges and the Oil Sands region.

And then, we have a couple of projects, one of which we announced this morning, the Wapasu Creek expansion. But then also, implicated in that $280 million number is the fourth lodge in the -- in the southern region - the fourth major lodge in the southern region.

Which will be, of course, dependent upon securing that lease.

All right. Thank you. Update us on the share buyback if you could please, 23.4 million in the quarter and I believe that your authorization is 69, is that correct?

That's right.

Okay. You guys are approaching this, how should we think about share buyback as we move through '08, a more opportunistic basis or are you systematic about it.

We do it opportunistically, Joe. We had a fourth quarter share decline in our share price and you saw us step up the existing share repurchasing authorization. We increased that and announced that. I believe it was in January. Just to be sure that we have that capability to respond to things in the marketplace. We view that overall as just a -- a portion of our strategy in total.

Obviously we're -- we're very focused on growth, organic in particular and through acquisitions as well. And so we tend to look at, just like you said, opportunistically and really focus on the -- the balance of capital allocation alternatives that we have at given points in time.

Okay. And just a follow-up a little bit on the OCTG side, flattish margins, expectations saw another quarter of inventory drawdowns, any other anecdotal signs of a turn here, inflection in pricing. You mentioned consolidation at the mid-level, and obviously, a lot of the program work. But just trying to get a sense of what it's -- it's going to take, perception or color on moving the need incrementally higher here -- of where we are right now.

I -- I guess what I would comment, we had a very strong demand environment on a tonnage basis in the fourth quarter. Number one. I think that is a favorable sign.

We are beginning to see some more activity in the Gulf of Mexico that's unrelated to just deepwater type activities. It's hard for me to say or make a call on whether that's going to be a significant turn. I -- I am kind of mitigating that right now until I see more evidence of it.

But I think broadly speaking, today the outlook for natural gas is just a whole lot better than it was a month ago.

And so it's hard to tangibly say where the OTCG market is going, which is kind of a leading indicator of activity in North America. But if I look at the signs, it's very hard to see a whole lot of downside from where we are now.

Sure. Thanks. Appreciate it. I'll turn it back.

Thanks, Joe.

Our next question will come from the line of Chuck Minervino of Goldman Sachs. Please proceed.

My question was more macro related. I was wondering if you could just touch on any anecdotal effects of the higher natural gas prices here on certain areas of your business.

Has there been a change in the dialogue with customers? Or have you guys seen any potential change in pricings as a result of it?

I think it's too early.

You know, we were -- when we built our budgets and our plans we expected on average kind of that same 3% to 5% growth in the United States. But trying to touch on it, it was very much geographic based with some of the greater growth opportunities in our view, for our business lines anyway, concentrated in the Fayetteville, the Rockies, the mid-continent, the Barnetts with the then-thoughts that some of the other markets might be flattish to even potentially down, depending on how that worked out.

But I think that there is certainly a bias to think that with natural gas strengthening that that outlook could improve.

I personally think it's premature to make that call.

Okay. That's helpful. Thank you.

(Operator Instructions) This concludes the question and answer portion of today's conference. I will turn the call back to management for any closing remarks.

Great, Candace. Thank you for your assistance this morning.

I want to extends my thanks to all of you for getting on the call today. We do appreciate all of your continued support. And look forward to hopefully a good first quarter.

Thank you all.

Thank you for your participation. You may now disconnect. Have a great day.