Oil States International Inc (OIS) 2011 Q4 法說會逐字稿

Welcome to the Oil States International Incorporated fourth quarter 2011 earnings conference call. My name is John and I'll be your operator for today's call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Ms. Patricia Gill. Ms. Gill, you may begin.

Thank you, John. Welcome to Oil States' fourth quarter 2011 earnings conference call. Our call today will be lead by Cindy Taylor, Oil States' President and Chief Executive Officer; and Bradley Dodson, Senior Vice President and Chief Financial Officer. Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent the remarks today contain information other than historical information, we are relying on the Safe Harbor protection afforded by federal law. Any such remarks should be weighed in the context of the many factors that affect our business including those risks disclosed in our Form 10-K and other SEC filings. I will now turn the call over to Cindy.

Thank you, Patricia, and thanks to all of you for joining our call this morning. I'm very pleased to report that Oil States generated record revenues and EBITDA in the fourth quarter both on a quarterly and full year basis. Current commodity prices were conducive to continued customer investments driving strong activity across all of our business lines. This strong demand, coupled with the results of our strategic growth initiatives over the last two years, lead to our record earnings. In 2011, we successfully grew the room count in our Accommodation segment by over 4,500 rooms representing a 36% growth rate from year-end 2010 levels. Opportunities for investment remain strong and we look forward to continued organic room count expansions in Australia, Canada, and in the US shale plays. Our Offshore Products segment also generated record quarterly revenues, EBITDA, EBITDA margin percentage, and backlog. We ended the year with $535 million of backlog in our Offshore Products segment and we expect a strong pipeline of bidding opportunities to continue in 2012.

Our Well Site Services and Tubular Services businesses saw minimal impacts related to holiday downtime during the fourth quarter as complex completions in the active shale plays generated increased demand and pricing for our equipment and services. During the fourth quarter of 2011, Oil States generated earnings of $1.72 per diluted share on $94 million of net income, $206 million of EBITDA, and $996 million in revenue. Consolidated operating income more than doubled to $153 million in the current quarter, up from $68 million in the fourth quarter of 2010. In addition, our gross margins improved to 25% from 21% a year ago.

At this time, Bradley will take you through details of our consolidated results and financial position, and then I will conclude our prepared remarks with a discussion of each of our segments, and we'll give you our thoughts as to the current market outlook.

Thank you, Cindy. During the fourth quarter of 2011, we reported operating income of $153 million on revenues of $996 million. Our net income in the fourth quarter of 2011 totaled $94 million or $1.72 per diluted share. The comparable fourth quarter 2010 results were $68 million of operating income on revenues of $697 million. Our fourth quarter 2010 net income totaled $51 million or $0.94 per diluted share before acquisition costs totaling $6.3 million. The year-over-year increases in profitability were primarily due to organic growth and improved earnings from each of our Company's business segments, coupled with the contributions from the three acquisitions we closed in the fourth quarter of 2010.

During the fourth quarter, we reported cash used from operations of $7 million due to $170 million investment in working capital. Working capital increased during the fourth quarter primarily due to increased receivables in inventory in our Tubular Services segment. Capital expenditures in the fourth quarter of 2011 were $116 million. Our net debt at the end of the fourth quarter totaled approximately $1 billion and our debt-to-cap ratio was approximately 37.5%. As of December 31, 2011, the Company had approximately $769 million of combined availability under our credit facilities and a cash balance totaling $72 million. For the full year 2011, we invested $487 million in capital expenditures. We currently expect to spend between $600 million and $700 million in capital expenditures during 2012, of which $150 million relates to projects carrying over from 2011. Approximately 66% of the 2012 CapEx budget will be directed towards Accommodations, 20% towards Well Site Services, and 14% towards Offshore Products.

In terms of the first quarter 2012 guidance, we forecast depreciation and amortization expense to be approximately $51 million and net interest expense to be approximately $19 million. Diluted shares are expected to total 55.5 million shares in the first quarter of 2012 due to our current stock price. We currently expect our first quarter 2012 effective tax rate to approximate 28.6%. At this time, I'd like to turn the discussion back over to Cindy who will review the activities in each of our business segments.

Thanks, Bradley. I will lead off with Accommodations, which is our largest segment. Our major oil sands lodges, and Australian villages continued to realize strong occupancy levels during the fourth quarter of 2011. Accommodations revenues increased 66% year-over-year and EBITDA increased 115% year-over-year, primarily due to contributions from the MAC and Mountain West acquisitions coupled with capacity additions and higher occupancy levels in our Canadian lodges. On a sequential basis, revenues increased 4% while average available rooms for our major lodges and villages increased 7%. Revenue per available room was slightly lower sequentially due to the mix of rented rooms and some holiday impact.

In our Offshore Products segment, we generated $186 million of revenues and $38 million of EBITDA in the fourth quarter of 2011 compared to $140 million of revenues and $28 million of EBITDA in the third quarter of 2011. This 33% sequential improvement in revenue was due to increased revenues from production platform related equipment and connector products out of Asia, improved profitability in our Houston facility, and additional service work. Reported EBITDA margins reached record quarterly levels of 20.2% reflecting a product mix which favors our proprietary higher margin products along with good project execution and cost absorption. We booked approximately $208 million of new orders during the fourth quarter of 2011 and reached a new record backlog level of $535 million as of December 31, 2011. Significant backlog additions during the quarter included a major pipeline connector order in Brazil, tendon bearings for the Guara/Lula project, also in Brazil, several crane orders, and additional production equipment for a TLP in the Gulf of Mexico.

Our Well Site Services segment generated revenues of $187 million and EBITDA of $59 million in the fourth quarter of 2011 compared to $173 million and $56 million, respectively, in the third quarter of 2011. The 8% sequential increase in revenues was driven by higher US completion activity, coupled with improved pricing and service mix, which favored our more proprietary completion equipment and services. Revenue from our rental tools business increased 10% and EBITDA increased 15% when compared to the third quarter of 2011. These sequential improvements were attributable to the addition of new equipment deployed in the active US shale basins and an improving service mix. Fourth quarter activity was particularly strong in the Bakken, Marcellus, Eagle Ford, and Permian Basin regions. Revenues from our drilling segment increased 2% on a sequential basis due to higher dayrates and better than anticipated rig utilization, despite some holiday inefficiencies; however EBITDA decreased sequentially as cash margins were negatively impacted by adverse Workers' Compensation and other insurance adjustments.

Going on to our Tubular Services segment. During the fourth quarter of 2011, tubular services generated revenues of $386 million and EBITDA of $17 million compared to revenues and EBITDA of $363 million and $19 million, respectively, in the third quarter of 2011. Tubular services OCTG shipments increased 4% sequentially to 189,000 tons from 182,300 tons shipped in the third quarter of 2011. Gross margin as a percent of revenues was 5.6% during the fourth quarter of 2011. The Company's OCTG inventory increased 12% to $421 million as of December 31, 2011, supported by customer orders and strong demand, particularly in the Permian Basin. I'd like to transition and give you some of our comments and thoughts as to our outlook as we move into 2012.

In our Accommodations segment, we continue to see customer demand for additional rooms in Canada, Australia, and in the US; however, we are experiencing some permitting delays in the areas that we do operate in. We recently announced the acquisition of a manufacturing facility in Johnstown, Colorado, and the purchase of an open camp facility in the Eagle Ford region. The Colorado facility will provide additional manufacturing capacity of up to 2,500 modular units per year, facilitating our planned capacity expansions in the US shale plays and Canadian oil sands region. Production is expected to commence in the second quarter of 2012. The Carrizo Springs, Texas open camp features 60 available beds and provides us an entry point into the Eagle Ford region to further expand our Accommodations business. During the fourth quarter of 2011, we opened our first village serving the Gladstone and Curtis Island LNG projects in Australia. In addition, we continued existing village expansions. In the first quarter of 2012, we expect our average available rooms to grow from 17,069 rooms in the fourth quarter of 2011 to approximately 17,800 average rooms available, representing a 4% sequential growth rate. Accommodations revenues are expected to total $260 million to $265 million in the first quarter of 2012, with EBITDA margins within our long term margin guidance range of 41% to 43%.

As it relates to Offshore Products, during the fourth quarter we booked $208 million in orders in this segment, attaining a new record backlog level of $535 million at December 31, 2011. As a result, we enter 2012 with a strong backlog position that provides us with good revenue visibility for this year. The pipeline of potential new bids and quotes remains strong with expected opportunities in Brazil, Southeast Asia, Australia, and West Africa. First quarter revenues are projected to total $170 million to $180 million, EBITDA margins should remain in the 18% to 20% range as has been experienced over the past several quarters depending upon our sales mix in a given quarter.

Our rental tools business has over 50 locations in North America, and it's closely tied to US completion and production services activity with particular leverage to high end multi-stage completions generally tracking movements in shale drilling and the horizontal rig count. Lower natural gas prices continue to impact dry gas drilling activity in the United States. Thus far, declines in the gas rig count have been largely offset by increases in oil and liquids rich drilling. With our broad network of locations covering the majority of active regions, we believe that our rental tool revenues will mirror overall US drilling and completion activity.

First quarter revenue for our Well Site Services segment are expected to range between $100 million and $185 million with EBITDA margins ranging around 32% to 33%. In early February, we lost one of our land drilling rigs working in the Rockies in a rig fire. Fortunately, no one was injured in connection with the incident. The rig, however, is expected to be a constructive total loss but was fully insured. As a result, our marketed fleet will be at 33 rigs going forward as we currently do not have plans to replace the rig although we will evaluate it. We anticipate first quarter utilization for our drilling business to remain at high levels depending upon weather disruptions in the Rockies.

Activity in the OCTG market remains strong with a healthy supply/demand balance of approximately 4.5 months supply of inventory on the ground. Distributor and mill pricing remains competitive as the mills attempt to remain market share in preparation of increasing OCTG mill capacity in 2012. Imported product continues to constitute approximately 50% of the market. Our OCTG sales generally follow trends in the US rig count. Indication from our customer base calls for our continued strong activity, particularly in the Permian Basin, and we are also seeing an increase in inquiries and orders for deepwater pipe. We expect our Tubular Services segment to generate revenues of between $360 million and $370 million in the first quarter of 2012 with gross margins ranging from 5.5% to 6%.

In conclusion, 2011 was, by all measures, a record year for Oil States. The acquisitions that closed during the fourth quarter of 2010 contributed to earnings that well exceeded our acquisition expectations and provided us with new platforms and markets for growth. Demand for our remote site accommodations is strong and supportive of our planned room count growth in Australia and Canada. We also see opportunities to further penetrate the North American remote site accommodations market to support the shale regions as well as SAGD activity in Canada.

Our current record backlog levels in the Offshore Product segment position us well to achieve strong results in 2012. We believe offshore activity and major project announcements will continue at a robust pace throughout the year. Oil prices are at levels supportive of our customers' spending plans, however the recent reduction in natural gas prices will impact activity levels in legacy dry gas shale basins. In 2011, we saw the impact of lower gas prices on activity in the Barnett, Haynesville, and Fayetteville regions. We will continue to monitor current natural gas prices and the impact on activity, particularly in the Marcellus during 2012. We maintain close communication with our customers and at this point believe that any reductions in gas directed activity will be largely offset by oil or liquids rich activity. Our broad North American coverage with over 50 locations affords us the ability to quickly react and relocate our equipment and service personnel to areas as directed by our customers' plans and activities. That completes our prepared comments. John, would you open up the call for questions and answers at this time, please?

Thank you. (Operator Instructions) Our first question comes from Jeff Tillery from Tudor, Pickering and Holt, please go ahead.

Hey. Good morning, Cindy and Bradley.

Good morning.

Good morning, Jeff.

Offshore products, you talked about kind of robust opportunity set going forward. If I take the full year 2011, the order rate, it got close to $200 million per quarter. Is there any reason to think there's not reason to do a similar amount of orders for the full year 2012?

As I mentioned in our prepared comments, the bidding and quoting activity is very strong. A lot of that backlog build over the last 1 year to 1.5 year came from floating production facilities concentrated generally in the Gulf of Mexico and Brazil, but particularly weighted to the Gulf of Mexico. We're going to kind of see a shift, a lot of the bids and quotes that we see that are in-house now are in Brazil particularly West Africa, Southeast Asia, and Australia, just in terms of the geography. But again, my prediction is that it's going to be very strong.

It's hard to predict quarter by quarter when those orders hit as you know, but the overall level of activity is very strong and I see no indication today that suggests that reduces or declines. There's quite a lot of optimism as you know in the various deepwater basins over the next five years or so. Again, we see a significant amount of bidding and quoting activity around floating production facilities both TLPs and SPSOs and we're seeing really kind of a resurgence of activity on the subsea site.

Okay and for rental tools, margins were higher than we thought they would be in the fourth quarter, but if I take kind of second half of 2011, are you seeing anything on the pricing front that would make you nervous about those margins to sustain at least -- it's not like you can see terribly far out, but at least for the next several months?

We really don't see anything at this stage, and again, as you know, we've had a fairly flattish rig count in totality, a lot of shift from dry gas basins into well and liquids rich plays. We've been working through that, in fact, all of 2011, particularly the Haynesville rig count dropped almost 50% since the beginning of 2011. So it's already at a much lower level. I feel like this is kind of not a new thing even though gas has certainly taken a leg down in overall pricing.

Significant declines also were experienced last year in the Barnett and the Fayetteville, and I would just say generally, the one market that we had thought would be fairly robust this year when we're doing our planning late 2011 is the Marcellus. Right now, we're not really seeing any significant declines. I think we're about 135 rigs or 140 rigs last week, so it's holding up. There have been some operators that suggest they may reduce rigs in the Marcellus, but it seems to be they are going to shift those to the Utica right now. So on balance, we see a fairly strong and robust market in totality.

Could you give just some color, you mentioned permit delays for the various areas on the combinations, any color you can provide on that?

Part of it is going to tie into some of the comments Bradley will give you in terms of CapEx spending. Interesting enough, despite being headquartered in Houston, Texas, we're having quite a lot of permitting delays in the State of Texas trying to further penetrate the Bakken. So we've had a little bit of CapEx deferrals from 2011 to 2012 where we had intended to have some facilities up and running in the fourth quarter that are going to move obviously into 2012 at this stage. We face these oftentimes, I'd say part of our delays actually in Australia are related to land banking and seeking development approvals well in advance of the work starting. So there's nothing to take really there in connection with our Australian operations. And quite conversely, a lot of our planned expansions in Australia this year are on expansions of existing facilities with existing customer base such that we are not dependent upon new project awards and our permitting approvals in place. So we feel very good about that growth rate overall. We're also doing some prospective land banking activity in Canada as well.

And my last question just on OCTG. You mentioned in the press release, strong customer demand helping to drive inventories up there. Is that characterized -- is that by a few customers or is it more broad based -- the customer interest that's driving inventories higher?

Well, we go through a lot of as you know following the business as close as you do, there's a lot of program work that reups at the end of a year going into the beginning of the next year. Sometimes it's kind of hard to say in terms of totality other than our apparent backlog as we call it that we track internally and therefore, we do a lot of inventory purchasing based on that is definitely up. And clearly, a portion of that as we mentioned on the call is coming from offshore deepwater programs that are getting some resurgence in activity with the improved overall Gulf of Mexico outlook there.

Okay, thank you very much.

Thanks, Jeff.

Our next question comes from Collin Gerry from Raymond James. Please go ahead.

Good morning, team. Great quarter again and really fantastic 2011, hopefully 2012 will be as prosperous. I want to hone in on the accommodation side. Cindy, did I get your guidance right that on the revenue for next quarter was $260 million to $265 million?

Correct.

Okay, so if I just kind of do some quick math there, I think the room guidance was 4% but the revenue guidance would have been closer to a 10% growth, so I guess the delta there is -- am I right to think that kind of rev per room is going up on a quarter-over-quarter basis?

It's fairly flat sequentially. What's happening Q4 to Q1 is that the mobile camp business in Canada picks up. It's become obviously a smaller piece of the overall business, but it does see a sequential improvement Q4 to Q1 and that's what we're seeing.

And we also, as you know, we suffer more significant -- I won't call it holiday down time, it's really just people taking vacation in the latter half of December around the Christmas holiday. So you have the combination of what Bradley has pointed out on kind of mobile fleet activity and a little bit of lower activity due to the vacation time frame in the fourth quarter.

Okay. That makes sense. It sounds like the Canadian seasonality in there.

Yes, but again, Bradley is pointing out, we're heavily contracted in both of our major markets in Canada and Australia, REVPAR is going to be in that flattish range other than mix type changes.

Okay. And then kind of sticking with this division, a pretty robust CapEx that you kind of -- Bakken and the percentage that you gave us for the accommodations business. My question is -- is that a ratable level of spend kind of linear through the year or is there any kind of lumpiness or is it back end or front end loaded?

Well, the spend will be -- in Australia will be fairly ratable. As you can imagine we produce the rooms and it takes some time for them to be installed. So the rooms going into operation are going to favor Q2 and afterwards for new expansions, some of which we don't have contract in hand quite yet, so they're still subject to getting final customer contracts on them. In Canada, some of the spend will be earlier in the year because we're finishing up the expansions of Henday, Athabasca, and Deep River. And the big question will be the extent that there's an opportunity for expansion beyond the existing lodges in Canada, when do we get the contract there that then allows us to -- the comfort and ability to move forward with that expansion in Canada. The US, I think Cindy politely alluded to it. We would love to spend more money in the Bakken and the Eagle Ford sooner, but we're having permitting issues.

I think our tone maybe is one where we're more surprised by that. We certainly, in the State of Texas, we usually think of as being more pro-business and it really has been more difficult from that standpoint, which has been a little disappointing. But on a relative basis, these aren't problems that our team isn't well equipped and well experienced in handling in Canada and Australia. The municipalities have the right to manage the accommodations in the area and we have experience with convincing them that our solution is one of the better options. So what we'll do in the US, we'll be able to spend a little bit earlier on the Mountain West units and then hopefully, once we get past the permitting issues in North Dakota and Texas, we'll be able to move forward on some open camp expansions.

So it sounds like your CapEx guidance is kind of what you intend to spend and there's going to be some factors that play into that timing, the permitting that you mentioned and maybe getting contracts on some of your Canadian stuff is going to kind of really determine the timing of that spend. Is that a fair assessment?

Yes. That's a very fair assessment.

Okay. And then last one for me just sticking with this division. I think in prior conference calls, we had thought about a 1,500, both in Australia and Canada, room count expansion in 2012. Is that still what we're thinking or is the outlook more supportive for more expansion or is it just kind of we need to see how these factors kind of hit the bottom line and then we'll find out as we go through the year.

I think there's still the opportunity and we still think that -- the opportunity to add 1,500 rooms in both markets. In Australia, Cindy in the past has characterized it very properly that Australia seems a little bit easier to get there mentally because it's essentially expansions to existing villages where we already have the DAs in place, we've got the ability. So we've got the permits in place, we've got existing customers in the existing village, so adding 200 or 300 rooms at four or five of the villages seems very achievable. Still we have to get the contracts in hand, we are not going to be building rooms speculatively in those markets, but given the activity levels that seems like a reasonable forecast.

Canada, we've got the room expansions at the existing lodges, those are in process. That doesn't get us all the way to 1,500 rooms in 2012. Really the next leg of the Canadian growth has got to come from, quite frankly, the Total Suncor activity levels, and those RFPs are out there, but we'll have to see. Hopefully by mid year, we'll have seen some of those rooms get contracted and hopefully we're successful on a portion of it.

All right. That's it for me. Thanks again.

Thanks so much, Collin.

Our next question comes from Jeff Spittel from Global Hunter Securities. Please go ahead.

Thanks, good morning, everyone.

Hi, Jeff, how are you?

Good. How are you?

Doing all right.

Just wanted to maybe follow-up on what Collin was talking about in terms of the RFPs that are out there in totality, understand that you still don't necessarily have anything in hand but just to give people a sense I guess of what the order of magnitude of rooms are that are potentially out there for Canada over -- for the next 12 to 24 months.

Well, it's a great question. There's of course the Suncor Total joint venture or consortium, however you want to characterize it, control a lot of the incremental kind of Greenfield new project activity in the marketplace that are up there. As we have mentioned before, that's generally the Fort Hills development, the Jocelyn development, and also Voyager, and other activity increases with existing operations; but again, those are really the focus that are out there. There's some significant RFQs.

At this stage, we're looking anywhere from probably 12,000 to 18,000 rooms are kind of what are being tossed about. The customer base is still trying to figure out how they plan to do that and what their timing is. And then in addition to that obviously, what the mix of developer owned rooms versus third party supplied rooms will be. We do anticipate that we'll have some further information on these during this quarter. In fact, I'd hoped to have a little better information as of this call. But in any event, it's a substantial opportunity and a strong number of rooms, but we just can't give you better information than that today.

Understood, that's very promising, and maybe if we could switch over to offshore products. I know Houston and Houma, it sounds like you had a nice mix of inbound order flow there. Maybe could you characterize how that fit into the overall $207 million number, and how much more room do you need or how many more quarters of a similar run rate of inbound orders do you need to see before you're happy with the throughput levels at those facilities?

So a lot of times we've got a global manufacturing footprint. And as I've alluded to before, we don't manufacture one product. We have multiple products. And so at times, even though we're at record backlog levels, we're not really where we want to be in a couple of facilities that for us have been Houston and Houma. Houma exposed more to crane and wenchwork, however, we started seeing a recovery in their backlog in the third quarter, and we continue to see good bidding activity. As I mentioned, we got some very good crane orders in the fourth quarter and those are manufactured generally either in our Houma based operations or in Thailand or India. But again, we've got some improvements there in terms of backlog build.

We've also lagged -- again, if you follow the major Subsea players installation contractors, we have kind of a void of activity in 2011 in that space. We're starting to see improved, increased orders there. As I mentioned in our prepared comments, we had a very good pipeline order come out of Brazil that will impact our Houston-based operations. We've booked that in backlog in Q4. And so I guess my point there is we don't need a lot more or any necessarily incremental backlog. It just needs to be allocated in our facility such that we get better margins and better cost absorption, but we've made very good progress in Q3 and Q4.

Thanks for the clarification. Congrats on another great quarter.

Thanks, Jeff.

Our next question comes from Victor Marchon from RBC Capital Markets. Please go ahead.

Thank you. Good morning and congratulations on a good quarter.

Thanks, Victor.

First one is just something that I missed. The guidance that you provided for well site services on the revenue side and did you also provide margin guidance for that segment?

We did. Well site revenue guidance was $180 million to $185 million for the first quarter of 2012 with EBITDA margins ranging from 32% to 33%.

Great, thank you. Had a couple questions just one on OCTG market, just wanted to see if you could talk to what you're seeing from an industry inventory level as we made our way into the year and how you see that moving forward.

Well, it's in a reasonable range, it's been plus or minus 4.5 months and there's some indication that it possibly is starting to expand a little bit, but we're watching it closely. There's some data about what the import [puddles] are going to be here in the first couple months of 2012, so we'll have to watch it. Overall, I think the market has been -- we've been quite straightforward saying we were watching the productive capacity expansions in the US by the domestic mills, we continue to do so. That has generally, as you've seen in our results, put a -- for having 2,000 rigs running, put a slight ceiling on pricing. We think that continues. I think generally the pricing for OCTG is fairly stable. I don't see significant weakness in it, but there could be some softness in it by the end of the year. But in the short term, things are business as usual.

And similar question in the Permian Basin for you, land rigs, have you seen anything change from a competitive standpoint over the last month or so with additional rigs coming into the market putting any pressure on day rates there?

Not at all. It's an extraordinarily robust market. If you'll recall, we moved two rigs out of the Rocky Mountain region kind of in the latter half of 2011 with a commitment to a strong customer of ours to make upgrades to those rigs and in connection, we're going to put a total of six rigs on a year contract with that customer. Those are just types of things that we were seeing, but overall again, it's continuing a very strong market. I acknowledge our margins were lower in Q4 than we would like them to be. That had to do with quite a lot of just really workers type catch-up adjustments, a good portion of which related to prior period issues. So we're not looking for those lower margins to go forward. There's really no negative operational type indication in the Permian.

Okay. And the last one just on the off shore products, just wanted to see if you could talk maybe a little bit about Brazil. I believe you have been increasing your presence there and seemingly have a very good opportunity set, and just wanted to see if you could give an update on your operations in the country and the opportunity you see there.

Well we've been operating in Brazil for about 12 years now more in a service repair type capacity. We've not done some much in the way of new manufacturing in country. We're clearly going to evaluate opportunities to do that as the market grows and develops.

We've opened a sales presence -- strong sales presence in Rio, and we've got an expanded workforce in place. It is clearly an area of focus for us. We do supply a lot of products into Brazil that are manufactured through our global base of operations, but like everyone else, you're going to see us continuing to expand in-country and further build local country content. But in terms of specific guidance in terms of activities in the country, we'll just kind of update you throughout the year 2012. But know that is part of our plans and our focus, and if you'll notice our offshore products CapEx is a little bit higher this year, and part of that will be attributable to planned expansions in the country.

That's great. Thank you very much. That's all I had.

Thank you, Victor.

Our next question comes from Stephen Gengaro from Sterne, Agee. Please go ahead.

Thanks, good morning.

Good morning, Stephen.

Hi, Stephen.

Two things, if you don't mind. The first, on the land drilling, on the implied cash margins, you mentioned I think some noise in the quarter. Should they revert back or are they going to remain at lower levels than we saw in the middle part of 2011?

Kind of taking out what I would say would be -- they are not non-recurring but I would say unusual relative to the year-to-date run rate prior to that. Cash margins in the fourth quarter would have been about 4,500 a day. So you can still see that we had some seasonal or holiday inefficiencies in the fourth quarter relative to the $5,000 a day that we averaged in the third quarter of 2011. As we look into first quarter of 2012, I think that we will have the ability -- we'll have a little bit of down time, we'll have -- once you factor out the fact that we won't have the rig in the Rockies, I think our cash margins should return to that normalized $4,500 to $5,000 a day.

Okay, that's very helpful, Bradley. And then the second question was on the offshore products, you had another quarter of plus 20% margins and you kind of provided 18% to 20% range. What's going on there and is there kind of a confidence that's creeping higher that you can keep margins maybe above that range? I know it's somewhat mix related, but how should we think about that not just in the first quarter but as we go through the next two years. Should that trend higher?

Well, as I have always said, you've got mix related factors that come into play and timing of shipments. We do major projects, large projects on a percentage of completion basis but then we'll have a lot of things that are tied to actual shipment dates. So it's hard to predict with the level of precision around an 18% to 20% range is a fairly tight range given the diversity of our operations, but the major message here is that we've got a very high historic backlog level, in fact, a record level. Our mix is a good mix weighted towards our either proprietary or semi proprietary products, a greater weighting there. And we're seeing the improvement in backlog builds in some of our facilities that lagged on an EBITDA margin base than last year. So yes, to answer your question, I feel better, good about sustainability about the margins in offshore products.

Great. That's helpful and then just one final, when we look at the CapEx spending and sort of what's targeted on the accommodation side, are you -- how's your capacity to handle that growth right now? It seems like you're getting pretty stretched, but is that -- what would you do if a couple of these large projects hit right away? Is there constraints there or are you well equipped?

Well, I'll speak to the market separately. As it relates to Australia, recall that we added roughly 2,000 rooms in 2011, so the planned 1,500 rooms is not a stretch and we believe we can do that for the most part internally. We have some outside suppliers that we have used to support our Queensland operations to a limited degree last year, and we also identified an Asian supplier to help us with our needs on the Northwest shelf. So I feel as it relates to Australia, our capacity is in good shape, and we could leverage that if growth dictates that via these other third party providers that have supported us in the past.

As it relates to Canada, we've got two manufacturing facilities in the Edmonton area that are operating at good utilization levels or will be throughout 2012, in our opinion. Part of the strategy of adding that new manufacturing facility in Johnstown, Colorado, of course, is to penetrate further the US shale play market, but it also gives us an added alternative manufacturing source to support our Canadian based operations on a very cost effective basis, even delivered into location. So I think that, again, we've expanded our capacity in both markets in 2011, particularly with the addition of this new plant in Colorado. So we definitely think we can respond to activity increases should they materialize.

Great. That's very helpful. Thank you.

Thanks, Stephen.

Our next question comes from Joe Gibney from Capital One. Please go ahead.

Thanks. Good morning.

Good morning, Joe.

Just one quick question, I was curious what the room break out was, Canada and Australia out of the 1,769 you provided on lodge and villages?

Sure. We were a little less than 10,000 in Canada. The exact number was 9,967 in Canada. That's average for the fourth quarter of 2011, and 7,102 rooms in Australia.

That's helpful, thanks. And Cindy, I was wondering if you could just talk a little bit on your revenue per ticket within rental is a pretty sizeable uptick this quarter. I was wondering -- you referenced mix, you referenced incremental equipment. Can you just give a little incremental color on sort of factors at play that happened fourth quarter? I mean, it's moved up nicely throughout the year, just more of the sizeable uptick this particular quarter; was it more equipment mix, was it more basin mix, just curious of what occurred here in the fourth quarter?

Well, I think it's just a little bit of both, but certainly as we noted in our prepared comments, the greater intensity of the activity in the shale play favors our proprietary equipment, particularly our isolation tools and services that are very integral to a pressure pumping and a multi-stage frac job, and so that's a driver. If you could have the information and model on number of zones completed, that would be a major driver for our revenue and our profitability. But that's kind of the best answer that we have is a movement towards our higher end, more proprietary equipment and an increase in the number of stages completed in the marketplace. And we have deployed just some incremental new technology as well that's beginning to contribute to our results.

All right, fair enough, thank you. Appreciate it. I'll turn it back.

Thanks, Joe.

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

Cindy and Bradley, it's actually [Jonathan]. How are you?

Hi, Jonathan, it's good to talk to you.

Just wanted to piggyback actually on that last question. A lot of the large diversified players are talking about labor issues in North America. Is that something you are experiencing in getting engineers?

Well, I think as its always been the case, we're in a cyclical business and our labor pool definitely gets stretched a bit when we have busy times, but we've been at kind of the 2,000 rig count level for a while now and we've had to adapt in past cycles and this one is no different, but we're clearly focused on attracting new workers, training those workers and retaining the ones that we have. Our people are, of course, as an industry, it's a very mobile workforce. So when we see declines in areas like Tyler and Shreveport, North Louisiana, a lot of times they are picking up and they're doing jobs in the Eagle Ford, the Bakken, the Marcellus, and that's just going to continue I think at this stage. But I don't see anything outside the norm if you will and just recognize most of these trends were ongoing during 201, and again, the rig count is actually down modestly from a higher level than it was but our people work hard. They work long -- travel time, time away from their family, and overtime and we're doing the best we can to manage that, and so I'd say we're not different than the major service companies in that regard.

And one last one if I may. One thing I didn't hear you mention was international expansions on the accommodation front outside of Canada, Australia, and the mobile units in North America. Any update there that you care to share?

No, we really don't have an update. Just know that it is part of our strategic plan. There are areas that we are looking to try to expand our global footprint, and clearly we will update you when we have something more tangible in place.

Okay, that's it for me. Thank you very much.

Thank you.

Thanks, Jonathan.

Our next question comes from Scott Burk from Canaccord. Please go ahead.

Hi, good morning, Cindy and Bradley. How are you?

Good. How are you doing?

So just wanted to ask a couple questions about accommodation. First of all what percentage of revenue is coming from US shale plays now within the accommodation division?

It's stayed fairly consistent. I haven't looked on a revenue basis but the EBITDA coming out of the lodge and villages has generally constituted about 85% of the total. So 15% from US and Canadian mobile camps.

Okay, terrific. And where do you see the most potential if you look out say past 2012, where do you see the most potential for continued growth? Is there more opportunity in Australia? I'm just wondering, you look at forecasts of Canadian oil sand production and it looks like it starts to plateau in 2015. I'm just wondering if longer term the growth is going to come more from Australia and the US shales?

Well, I think they are both very good markets. They have been historically and I think they will be prospectively. At times we do look back and if you look at just the huge wealth of projects in Australia, it feels like very tangible, visible growth. So I'd have to probably agree with you and say, yes. I mean, you've got four major LNG facilities that are being built on Curtis Island in the Gladstone region. There's going to be a lot of colting gas, exploration development, pipeline construction, you're going to need expanded rail, port facilities, all of the same is really true. On the Northwest shelf, these are new markets as you know that we are targeting. We opened our first facility in the Gladstone region in the fourth quarter last year, and we hope to open our first facility on the Northwest shelf in the second quarter.

Those are new markets. These are on the heals of a very strong outlook for growth and are based -- metallurgical coal basins, which again as Bradley elaborated, expansions of existing facilities, existing customers. There's also a lot of potential new investment coming into the coal mining region as well. So it's kind of -- you kind of draw a five-year trajectory of growth, and it does look exceedingly promising in Australia. Now, my history has always been in Canada. To your point, we used to follow a lot of manpower curves that are provided by the government 5 or 10 years ago, and you'd always see a fall off 2 or 3 years out. The reality is it's never occurred because there's more and more activity that is moving into the Canadian oil sands, so I'm not sure that even though you're seeing some forecasts that show a plateauing that if that will actually be realized. Time will tell.

Okay, terrific point. And then as you're talking to these LNG customers in Australia, is there any kind of fear developing that we see a kind of global shale revolution impacting gas prices worldwide and not just in the US, and maybe some concerns about the viability of those projects longer term?

I think all I've heard is full speed ahead.

Okay.

Ye, I think at least -- and we're not experts in this by any means, but the prospective US shale plays impacting global LNG I think is several years off.

Yes. And then one final question about the -- a little more color on the CapEx spend. When you build a room, how long before -- between the CapEx spend when you actually start realizing revenue from that room?

Well, the CapEx for a given room kind of comes in three components. You've got the actual manufacturing of the room, you've got the transportation, you've got the install or the site work. So it comes about a third a third a third and they are probably ratably over somewhere between three and six months depending on how big the expansion is; and quite frankly, how big the central facility costs are associated with this. I mean, if we're building a brand new village, you can't have any room turnover to a third party until we've got the kitchen, diner, rec room in place. If we've got a lodge or a village that has a suitably large enough central facility to add another 100 or 200 rooms, they could come on quicker.

I see. All right. Thank you.

You bet.

Our next question comes from Bill Sanchez from Howard Weil. Please go ahead.

Thanks, good morning.

Good morning.

Hi, Bill.

Bradley, as we think about the offshore products business from a revenue perspective full year, I know historically, you've kind of guided at 75% to 80% of backlog kind of turns in a given year. Is that still fair given the composition you see to the backlog here as we end 2011?

Yes, I'd actually -- even a little bit better than that. We'll file our 10K hopefully today, if not shortly; and as of the end of the year, it was actually 85%.

85% that you'd expect, okay. Thank you. And, Bradley, are you able to just outline on the specialty connector deliveries, that slip from third to fourth quarter out of Asia-Pac, how much in revenue was that contributed for the fourth quarter?

There was about, I want to say $10 million or $12 million, but let me pull that up. I want to say it was about, I'm sorry, it was about $10 million or $12 million.

Okay, $10 million or $12 million. I was just curious on that number just given the guidance that you gave the 170 to 180 and just see how an apples-to-apples comparison that would be, so I appreciate that. I guess just one other question for you, Bradley, as far as the tax guidance, I know you gave the first quarter, just curious is the 28.6% probably a good rate to assume for the full year 2012?

It is for right now. We'll certainly update every quarter but that is our current guidance for the full year effective rate.

Okay.

Basically, we had higher than expected US State income taxes that we realized that had an impact on the overall effective rate in 2011. You only have the ability then to make that adjustment to fourth quarter earnings, which as a result caused the higher rate of a little over 31% in the fourth quarter. Longer term I think the 28.6%, given the mix of where the income is coming from, domestically, internationally, that should be pretty good.

Okay. I guess if I could ask one more and just as it relates to the new facility in Colorado here. I think Cindy you mentioned 2,500 modular units a year with a second quarter 2012 start up. How do we think about a split there between what's manufactured if you will on a permanent lodging side versus maybe a mobile production if you will as we think about looking at the total number of room counts or lodge counts that you report as well?

Well, so 2,500 units has to do more with the box and what goes into that box varies than what we need to run through the facility. In the near term, one of the things is that facility can capture immediately is insourcing the Mountain West expansion. Those Mountain West units don't have the same permitting that the open camps do in the US shale plays, and so we'd say -- I would not say no difficulties, but fewer difficulties deploying those units and so in 2011, we outsourced all the manufacturing of those units to third parties.

The near term opportunity for us is to insource. That obviously cuts out the third party margin and gives us better deliverability and certainty of deliverability to our customers. And so that's what we'll be looking to do. Assuming we can get through the permitting issues which I'm cautiously optimistic we will be able to do in Texas and North Dakota, that will be the next focus. I think to Cindy's point, that's the offensive move as it relates to the Colorado facility. The defensive move is if we start to be impacted by labor shortages and labor inflation in Canada, we believe that should we face that type of inflation in Canada, we can deliver rooms out of Colorado to the oil sands cost effectively.

Makes sense. That sounds like it's going to be a nice deal for you all. I appreciate the time.

Thanks a lot.

Thanks, Bill.

Our next question comes from Cole Sullivan from Jefferies & Company. Please go ahead.

Hi, nice quarter. I just had a question on the mobile camp business in the US. As you guys are expanding more into that, how do you see the margins comparing with the Canadian and Australian businesses, and then also are you seeing contract term -- lengthening of contract terms, that sort of thing?

The margins are generally comparable from activity to activity, so that mix is fine. We do have I'd say generally they're kind of nine months to a year contracts predominantly in the Bakken and predominantly associated with the major EMP/Independents that are working in the area. If we have kind of more of an open camp concept, we typically are not going to have much in the way of contracts other than maybe a month or two at a time; and therefore, we typically plan utilization in kind of the 60% to 65% level for those types of facilities. But again, the returns are commensurate and they're interesting opportunities for us. We'll just do the best that we can and I view it as additive; but as Bradley is pointing out, the major driver for our business continues to be the major lodges in Canada and the villages in Australia.

Okay. Just had one follow-up on the rental tools business. Looks like a lot of guys have been impacted by timing issues in Q4 as assets were moving around on the pressure pumping side, and I guess that would continue to happen in the first quarter. Looks like you weren't impacted by that, and you had talked about your office locations and everything helping out and that. Do you see any more impacts from that? Because it should continue to accelerate out of the gas plays, and do you see any timing issues not so much on the pricing side but more on the timing side?

Well, Cindy alluded to it either in our comments or in answer to another question. We face that pretty much through 2011. I mean, we saw the Barnett rig count go down fairly significantly. We saw Haynesville rig count and so we were moving people and equipment around all year long, and I would say it was fairly seamless to the outside investor. We've heard the comments from our peers and our competitors about fourth quarter and assuming it goes into first quarter, so I think we've added in a margin of a little bit of conservatism in our guidance for Q1 in case we see that impact. But thus far, our team has done a really good job and our personnel have done a good job of rotating in and out of these markets and moving the equipment efficiently, so I'm cautiously optimistic that we can continue to do that, but there is a little bit of conservatism in our guidance to manage through that.

Okay, it makes sense. I'll turn it back. Thanks.

Thanks, Cole.

Our next question comes from Jim Casagrande from Bridgehampton Capital. Please go ahead.

Hello and good morning.

Good morning.

Hi, Jim.

Two quick questions. The first one, you know, the $600 million to $700 million in CapEx for next year, could you give an estimate of what percentage or what kind of maintenance CapEx might be? I assume the majority of that number is a lot of expansion?

We typically point to depreciation, and full-year depreciation guidance is around $210 million to $220 million. So that would be a good maintenance number.

Got it. Okay, and then my second question was somewhat addressed I guess two questions ago; but just on a fundamental basis, talking about the US shale opportunity and accommodations, maybe it's my misperception but outside of the Bakken shale play, some of these areas where the drilling is occurring seem a little bit less remote than what you used to in Canada and Australia. So do you think if they're potentially, let's say, more competition from local accommodations, and how does that kind of impact what you would look at as your returns on investment?

Sure, Jim. We look at I would have said -- probably agreed with you three years ago on that comment. We've had one-off type operations, we've had a camp working in the Fayetteville for probably five years that make a lot of sense for the operator, but they are isolated opportunities which really change the landscape is of course, the Bakken and now the Eagle Ford. These are very large geographic regions. They're very spread out and generally dominated for very small towns that are in the regions. So the towns actually cannot generally accommodate the influx of workers that are coming into the region; and if they do, a lot of times it puts such a strain on the local economies from inflation -- both wage inflation, housing inflation that is the net negative overall, and so we've always provided a very good buffer that allows for the local communities to benefit but not putting too many strains on their local businesses and services. We're hearing about potential opportunities in the Permian, particularly as you move a little further west, and we've evaluated and will continue to do on kind of the Marcellus and the Utica as well.

Okay. Great. And just one quick follow-up. The Carrizo, Texas acquisition 60 beds, do you think that over the next year there's more either buildouts or let's say, acquisitions of that size or are there some larger hundred plus, several hundred opportunities?

It could be a little of both, realizing that the Carrizo operation, we bought it because it's an operating facility on the ground, but it's also got room to grow and permits in place, and so that's really the strategy around acquiring that operation.

Okay, great. Thank you.

We have no further questions at this time. Do you have any closing remarks?

No, fantastic. I appreciate it. I know you all have a very busy week this week and ahead of you, so we always appreciate your following and giving us your time. Have a wonderful weekend. Thanks.

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