Oil States International Inc (OIS) 2012 Q2 法說會逐字稿

Welcome to the Oil States International Inc Second-Quarter 2012 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 Oil States' Second-Quarter 2012 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 protections 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. During the second quarter of 2012, Oil States generated strong earnings of $2.01 per diluted share on $1.1 billion in revenues and $111 million of net income. I am happy to report that our second-quarter results increased year-over-year for all of our business segments, and either met or exceeded our prior guidance for the second quarter 2012.

Occupancy levels at our major Oil sands lodges and Australia villages remained very high during the quarter, and provided strong RevPAR levels for our Accommodations segment. Growth in our Accommodations business continues to be supported by organic room count expansions in all of our major Accommodations markets. In this segment, customer contracts provide us with longer-term revenue visibility.

In our Offshore Products segments, backlog and margins improved to new record levels, with backlog totaling $562 million at June 30, 2012. We continue to see strong bidding and quoting activity, particularly for our subsea pipeline and floating productions facility products on a worldwide basis.

Our Well Site Services and Tubular Services businesses performed well during the second quarter, despite regional volatility created by softening commodity prices. Activity and demand remain strong for our high-end completion services, particularly in the Bakken, Eagle Ford and Permian Basin markets, partially offsetting activity declines in the Marcellus, Barnett and Haynesville regions. Our Tubular Services segment reported a new quarterly record for tonnage shipped, which was up 12% sequentially.

Customer demand for OCTG remains robust and we continue to see strong activity, particularly in the Permian Basin and offshore Gulf of Mexico. At this time, Bradley will take you through more 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 second quarter of 2012, we reported operating income of $169 million on revenues of $1.1 billion. Our net income for the second quarter 2012 totaled $111 million, or $2.01 per diluted share, which included a pre-tax gain of $2.5 million, or $0.03 per diluted share after tax, which related to insurance proceeds received during the second quarter in excess of net book value for a land drilling rig that was lost in a fire in the first quarter 2012.

The comparable second-quarter 2011 results were $115 million of operating income on revenues of $820 million. Second-quarter 2011 net income totaled $74 million, or $1.34 per diluted share. The year-over-year increases in profitability resulted in organic growth initiatives in the Accommodations segment and the Well Site Services segment, increased sales of deepwater capital equipment, higher US land drilling and completion activity and resurgence in exploration and production activity in the US Gulf of Mexico.

During the second quarter, we reported cash flow from operations of $184 million, which included $11 million of cash flow generated from working capital reductions. During the quarter we spent $99 million in capital expenditures, primarily related to ongoing expansions of our Accommodations business. The addition of rental equipment deployed to service the active US shale plays and for facility and equipment expansions in our Offshore Products segment.

Our net debt at the end of second quarter totalled $1 billion and our debt-cap ratio approximated 34%. As of June 30, 2012, the company had $767 million in combined availability under our credit facilities along with $114 million in cash. In May 2012, we announced the redemption of our 2.375% contingent convertible senior notes.

Subsequent to the end of the second quarter 2012, the outstanding principal amount of $175 million was paid in cash, funded by amounts available under our existing US credit facility, with remaining conversion value paid in shares of Oil States' common stock. Additional information regarding this settlement of the convertible notes is detailed in our Form 10-Q that we plan to file later today. In terms of third-quarter 2012 guidance, we expect depreciation and amortization expense to total $58 million and net interest expense to approximate $17 million.

Diluted shares are expected to total 55 million shares in the third quarter 2012, and we currently expect our third-quarter 2012 effective tax rate to approximate 28.5%. We currently plan to spend between $670 million in capital expenditures during the calendar year 2012, with approximately 70% directed toward organic expansions in our accommodation segment. At this time I would like to turn the discussion back over to Cindy, who will review the activities in each of our business segments.

Thanks, Bradley. I'd like lead off with our largest segment in the Accommodations area. Here, occupancy levels at our major Oil Sands lodges and Australian villages continued at very strong levels during the second quarter of 2012. Accommodations revenues increased 29% year-over-year and EBITDA increased 37% year-over-year, primarily due to the 29% increase in average available rooms due to contributions from our new lodge and village investments made in 2011 and early 2012.

On a sequential basis, our Accommodations revenues decreased 14%, primarily due to the seasonal reduction of Canadian mobile camp activity, resulting from the effects of spring break up, along with the $18 million favorable US mobile camp contract settlement reported in the first quarter, which did not repeat in the second quarter. RevPAR remained at strong levels of $123 due to continued high occupancy levels at our major lodges and villages.

In our Offshore Products segment, we generated $192 million of revenue and $41 million of EBITDA in the second quarter. EBITDA grew 14% sequentially due to increased sales of deepwater capital equipment and better cost absorption in our manufacturing facilities. Segmental EBITDA margins set a new quarterly record of 21.4%, reflecting continued strong industry demand for our higher-margin proprietary products and services along with good project execution.

We booked over $220 million of new orders during the second quarter of 2012, and achieved a new record backlog level of $562 million at June 30, 2012. During the quarter, we booked significant backlog additions that included our key connectors, deck equipment and drilling product orders. Our Well Site Services segment generated revenues of $177 million and EBITDA of $59 million in the second quarter of 2012, compared to $183 million and $59 million, respectively, in the first quarter of 2012.

Second-quarter 2012 results included a pre-tax gain of $2.5 million related to insurance proceeds from a drilling rig lost in the first quarter of 2012. Revenues from our Rental Tools business decreased 8%, and EBITDA decreased 10% when compared to the first quarter of 2012. Though second-quarter activity remained particularly strong in the Bakken, Eagle Ford and Permian Basin regions, we experienced sequential declines in dry gas basins such as the Marcellus, Haynesville and Barnett shales due to continued low natural gas prices resulting in lower activity and pricing in those regions.

Revenues from our land drilling rigs increased 9% on a sequential basis due to higher day rates and better utilization. During the second quarter of 2012, Tubular Services generated revenues of $462 million, compared to revenues of $428 million in the first quarter of 2012. EBITDA increased 6% sequentially to $25 million. OCTG shipments increased 12% sequentially to a new quarterly record of 230,000 tons. Gross margin as a percent of revenues was 6.3% during the second quarter of 2012.

The company's OCTG inventory increased $4 million sequentially to $477 million as of June 30, 2012, supported by strong customer demand, particularly in the Permian Basin and offshore Gulf of Mexico. Now, I'll transition and just give you a feel for our outlook as we move into the third quarter of 2012.

In our Accommodations segment, we continue to see ongoing customer demand for additional room count expansions in Australia, Canada and the United States. Operations at Karratha Village, our first facility located on the northwest shelf of Australia, commenced at the beginning of July. All of Karratha's 208 rooms are expected to be operational by mid-third quarter.

We are pleased to announce that we are now fully permitted in Texas for our US Accommodations business and have begun deploying rooms at our new Three Rivers, Texas, location in July. We should be fully operational at Three Rivers in the fourth quarter.

In the third quarter of 2012, we expect our average available rooms to grow to approximately 18,600 total rooms available. Accommodations revenues are expected to total $260 million to $265 million in the third quarter of 2012 and EBITDA margins are expected to be within our long-term margin guidance range of 42% to 43%.

In Offshore Products, bidding and quoting activity remains robust, particularly for subsea pipeline and floating production facility products on a global basis. We booked over $220 million in new orders during the second quarter, representing a book-to-bill ratio of 1.2 times. This activity, coupled with our high backlog levels, provides good revenue visibility for the remainder of this year and into 2013.

Our recently announced acquisition of Piper Valve Systems will further leverage our technology and capabilities within our Offshore Products segment and is expected to generate $19 million of revenues in the second half of 2012. Third quarter revenues for this segment are projected to total $205 million to $215 million with EBITDA margins ranging between 18% and 20%, which will be dependent upon our mix of revenues.

As it relates to Well Site Services, activity levels in liquids-rich drilling areas such as the Bakken, Eagle Ford and Permian Basin remain fairly robust, while the persistently low price of natural gas continues to negatively impact dry gas drilling activity in the United States. Our broad coverage of the active oil and gas regions causes us to believe that our Rental Tool revenues will reflect overall US drilling and completion activity trends with particular leverage to high-end multi-stage completions. However, pricing pressures in certain regions is likely to persist.

Third-quarter revenues for our Well Site Services segment are expected to range between $170 million and $175 million, with EBITDA margins of 32% to 33%. We expect third-quarter utilization for our land rigs to remain at high levels.

The OCTG market remains healthy with a supply/demand balance of less than 4.5 months supply of inventory on the ground. Distributor and mill pricing remains competitive, with about 50% of market demand currently supplied by imports. Prices have declined modestly as the mills focus on retaining market share in anticipation of OCTG mill capacity expansion.

Recent indications and orders from our customers suggest continued strong activity, particularly in the Permian Basin and offshore Gulf of Mexico. We expect our Tubular Services segment to generate revenues of between $440 million and $460 million in the third quarter of 2012, with gross margins ranging from 6% to 6.5%. As of June 30, 2012, approximately 87% of our Tubular inventory was committed to customer orders.

In summary, our second-quarter results were very strong year-over-year and met or exceeded our prior guidance in all segments. Our outlook remains positive and is supported by ongoing customer conversations, planned organic growth and record deepwater capital equipment backlog. That completes our prepared remarks. John, would you open up the call for questions and answers at this time, please?

(Operator Instructions)

Marshall Adkins, Raymond James.

So you seem to be bucking the trend here in the drilling side and the sooner pipe side, I guess I'm a little surprised at your optimism looking out to the next quarter for those. Everyone else seems to be -- both in this quarter and next quarter, things aren't looking as good as it seems to be for you. Help me understand what's going on. Why is your business holding up so well?

I'll start with Tubulars. Obviously this is a little more significant to us than the drilling rigs that we have. Both the first quarter and the second quarter our tonnage shipped and therefore our performance has fairly significantly exceeded the rig count movement during that period of time. I kind of sat back and attribute it to several things, but we have particular strength, relative strength, I would say, in the Permian Basin which has been very strong in the first half, and our outlook remains strong there. We also are getting contributions.

We're not at peak levels in the Gulf of Mexico by any means, but it's certainly improving. We're coming off a low, if not almost nonexistent, base of activity there. And again, Gulf of Mexico, in addition to these highly complex land completions, play very well into more of a premium product range which we do supply. We also have realized with certain customers market share gains over the first half of this year, and we look at the inventory we're holding and we're about 87% committed. Most of what we do is pursuant to customer conversations and specific orders. Our visibility we feel pretty good about the numbers that we've given you as to outlook for the third quarter.

If I look at our drilling rigs, I realize there is a little bit of bucking the trend in the sense that we have improved utilization and improved day rates. I'll also mention, though that we're really kind of in two markets with two-thirds of the rigs in the Permian Basin and about one-third broadly in that Rocky Mountain region. We've got some very active strong customers, and part -- even our Permian rigs, which, historically, are always spot based rigs, we put six on a one year contract, kind of in return for doing some upgrades work for those rigs to make them suitable for a very significant customer that we have out there. Those actions and commitments that we made have really firmed up utilization and firmed up day rates.

Now, the balance of the rigs -- there's a couple in the Rockies that are on terms contracts, but a lot of the other ones are clearly on spot. I think it's the fact that we're in a couple of strong, yet narrow, markets and we are a highly efficient, low-cost provider of the equipment that we have in the market. There's not a whole lot of logic to substituting a bigger, over-powered rig at a higher day rate in replacement for our work. We feel pretty good, thus far anyway, on our activity on those drilling rigs as well.

Great. Great color. The share gains that you're getting on the pipe side, is it just because you guys have a better reputation on the premium side or is there something else going on?

I think it's a combination a lot of things, Marshall, none the least of which is the long-standing reputation we have in this business. We're 75 years of working in the business. Having key mill relationships cannot be understated as well to afford ourselves the premium product that we have. We've also committed capital in many areas on the ground where we actually have some fantastic storage facilities and handling equipment, threading, et cetera., on the ground in these basins where a lot of our competitors have really not done that. Then we've done some other things, obviously, in terms of systems activity that really do help us, help our customers manage their product over the long-term, so I think it's kind of a combination of all those things.

Great job. Thanks.

Stephen Gengaro, Sterne Agee.

Two questions. First, Cindy, you've stuck to your guns on the 18% to 20% margins in Offshore Products and you've had four very good quarters in a row here. Is the mix changing at all in the third quarter? Is the absorption changing, or is it just you want to see more before you get a little more aggressive?

Well, I'll be honest, it's a little of both. But we look at mix primarily and we have a broad range of products. Some -- a lot of what we do is on percentage of completion and, therefore, you get that smoothing, if you will, of margins. Other things are delivered when -- are booked when shipped and we have some booked when shipped products that we are targeting for delivery in the third quarter that move that average margin down just a little bit.

Obviously nothing negative whatsoever. It's just a mix-oriented issue. But to your latter comment, we've moved up significantly, and I'm a realist. You're not going to always hit improving peak margins sequentially every quarter. We wish we could do that. It's not reality, so I like to kind of keep you in that long-term margin guidance band, not only for Offshore Products but for our Accommodations. Then if we see a real sustained change, of course, we'll adjust that long-term band.

Is -- but is the -- it sounds like the calorie content in the backlog, though, is as this secular deepwater trend plays out, is, in general, improving?

Yes, we remain very comfortable and confident in our backlog mix.

Great, and my second question; on the Accommodation side, any updates on either your room count expectations and/or any of these projects which are -- been hanging out there for a while?

Sure. Well, probably the most material contract we're working on is the imperial extension at Wapasu, that the notice for that not moving forward remains September 30, 2012. As you recall, the initial contract ran from the first, into the first quarter of 2010, through the end of the first quarter of 2013. Those conversations continue. Nothing negative. We're just working through the discussions with the customer and, ultimately, we continue to be optimistic that we'll get that extension. We did put 200 rooms out to work at Karratha on July 1. We're excited about that. The opportunities to add rooms in Australia still looks strong. The focus still remains on Brownfield expansion in the Bowen basin, which is Cleveland met coal region.

In Canada, we added -- continue to add a few rooms in the second quarter to existing locations. We're working on a few smaller Greenfield opportunities, but ultimately the next big phase of expansion in Canada is going to be dependent on Suncor and Total and what they do with their three projects, and those, it's unclear. I think, ultimately, we're -- they're going to need rooms over the next 3 to 5 years in a significant fashion. But as we have said along this year, the timing of that hasn't been what we initially thought. Because we thought we would have heard something in February, and we haven't so far. I think ultimately we'll be successful. We're a very strong player in the market but there's been a little slower to come to fruition.

I might tag in to what Bradley has talked about. We're obviously all watching the new growth projects in Canada and, of course, Suncor came out recently with not only their earnings but their outlook, and they've got some new leadership. They're heavily focused on generating returns on invested capital. They're not wanting to push these projects simultaneously too quickly for fear that they create their own inflation. However, it sounds like these projects are still moving forward and they have publicly stated that they plan to present all of these three major projects to their Board of Directors for sanctioning in 2013. Nothing has really changed but they're not doing anything to try to accelerate those projects at this stage. Again, it's a cost-control focus that they have, and obviously they're trying to generate improved returns on invested capital by doing so. I think that's probably the fullest update that we have on that point for you.

That's very helpful. Thank you.

Kurt Holland, RBC.

Just a quick follow-up there on Steven's question. Could you just remind us what the potential room growth opportunities would be for those projects you mentioned there for Suncor?

Well, they're very substantial and it varies depending upon the way that they bid, but there's really three major projects. Suncor will operate two, Total will operate the third. But I think in all cases each of those projects is estimated to need anywhere from 3,000 to 5,000 rooms, so they are substantial.

Okay. And then could you provide us an update on the, I think you referenced before, about 3,000 room growth for this year and that you're, I think a little under halfway through that in the first six months of the year. Could you give us an update on your expectations on that room growth rate in the back half of the year?

We kind of commented all along. Australia growth is going to be, as Bradley said, Brownfield growth, meaning room adds to existing facilities generally with existing customers. It's not the press release type of room count growth, but it's kind of steady as she goes. It has always been planned to be back end loaded, largely because of the wet season that we encountered, generally in the first quarter, although it has extended some into the second quarter as well. I just say generally speaking, we feel like we remain on track as long as it will drive, then we can actually get some incremental rooms installed.

In Canada, we had I think it was roughly 650 rooms quote unquote in the bag, if you will, because those were the first half expansions of Beaver River, Athabasca and Henday. The latter half has been largely dependent upon timing of the Suncor and Total work which, I say, if anything, yes, that has delayed a bit and it will have some impact on our thinking potentially. However, we're not necessarily getting the timing on those specific lodges and village room. We have seen fairly robust demand for the sag D type areas, which command our mobile camp assets. We're already looking at a lot of activity associated with that going into the winter season in support of our customers' activities there.

Okay, great. And then just a follow-up I had on Offshore Products. You referenced the significant backlog that you have there and interest inquiries and bidding activity and so on. I just wonder if you might be able to provide a little bit additional color on the subsea pipeline front. Is that all predominantly -- is that Gulf of Mexico or is that geographically dispersed.

Right now, it is dispersed, but right now there is a material concentration I would say in Brazil.

Okay. And then on floating production, as well, is that similar -- primarily being driven by Brazil at this point?

Brazil, but then there's other areas in Southeast Asia and Australia that are interesting to us. West Africa is there, but it's lagged just a little to the other rigs -- regions just a little bit.

Okay.

And then there's also a project in the North Sea that we're working on.

Great. All right great. That's it for me. Thanks.

John Daniel, Simmons.

Hey, guys, great quarter again.

Thanks, John.

Cindy, do you have for -- or better said, how do you measure theoretical revenue capacity for Offshore Products? And what would that capacity be today?

I'm not -- I don't have an answer for you at this stage. I'd really have to think that through, The complexity there is, if we look at capacity, we still got some available capacity in Houston and Houma. We're very full in Arlington, the UK, Singapore. We've got some extraordinarily full in Brazil but we're going to be expanding there as you know. But what that doesn't necessarily contemplate is adding a whole new shift to what we're currently doing.

There is some theoretical capacity. It's very much labor-dependent and we have high-skilled labor so that's just not an easy number to pull off the chart. I can only tell you that we are being, in my view, very -- not to mention the other thing you do is outpour some of your work into the supply chain when it's not your key technology to alleviate space for your key technology. We've also been very active in terms of entering into international joint-ventures, which also help us quite a lot there. It's a long winded way of saying I'm not going to answer your question other than I think we have been very responsive to our customers and responsive to demand for us to-date and we intend to continue to do that so that the -- what we never want to do is tell our customers that we can't deliver to their needs on time. So --

Okay, well it was worth a shot. I don't know if you can answer this one or not, but when you look at the Texas market for Accommodations, how big do you think that opportunity is?

We don't necessarily want to be all things to all people. We're looking at potentially three locations to support the market in Texas. As we mentioned, the Three Rivers site has roughly, I think 300 rooms. That would be a likely size for the other two targets that we are evaluating.

Okay. And would those rooms be sold to just one customer or would it be open to others?

The whole idea all along has been to open them up to multiple parties. In certain towns or geographic areas there may be concentrations, but a lot of times it may be a major EMP player and their contractors.

Okay. Last one for me I'll turn it back over. Any preliminary thoughts on '13 CapEx?

We think it's a little too early for that, John. We'd like to get at least started through the budgeting process and get a little better visibility on some of these major Accommodations expansions. As you know, that generally has been about two-thirds to 75% of our CapEx, and so timing needs to be worked out a little more fully. If we get some better indications, we might be in a position to give you something preliminary at the next conference call. If not then, we'll firm that up as we move towards December.

Okay. Fair enough. Thanks for your time.

John Lawrence, Tudor, Pickering,

Hey, good morning, guys. Great quarter.

Thanks, John.

Thanks, John.

Nice uplift in RevPAR this quarter, up 10% year-over-year. How should we think about RevPARs going forward? Is it mostly going to be occupancy gains or is there some pricing in there as well?

I think that $123 for the second quarter is really strong. What we basically saw -- the swing factor in Q2 RevPAR has historically been Canadian occupancy. The Canadian lodges generally do have strong full-year occupancy, but it's really strong in Q1, particularly at Conklin. Usually it -- it slipped a little bit, and we just haven't seen that. We are running at basically full-tilt, really across all the major lodges and villages. I think the risk is more occupancy goes from essentially full to really strong, rather than it actually going the other direction.

Should we assume some rate increase as well?

It's really more mix right now. There's certain, for instance, Karratha. Those rates are more expensive. It's a more expensive place to operate. Calliope, the initial contracts were shorter-term, so the rates were reflective of that as opposed to longer-term rates. Right now it's more mix than it really is pricing.

Okay, got it. Thanks. And then just one more. There's been a bit of noise around [unit] issues in Australia. Are the issues affecting your Accommodations business at all there?

No.

The short answer's no. And this isn't the first time that we've had the grumblings out there that we did it -- we've had it almost continually since we bought the business. We've had a couple of customers that have cut some marginal-type activity. We don't know if that's because of the minor, because of the negotiations, but it really had a real impact to us because we're more focused on the higher metallurgical coal mining and development, so it's unlikely to slow. We really haven't seen that and just about all the reports that come out from any of the material agencies that track the mining sectors continue to have a very robust outlook.

Great. Good to hear. Thanks a lot guys.

Jeff Spittel, Global Hunter Securities.

I guess if we can touch a little bit on the outlook for Rental Tools and the sustainability of margins, would it be fair to say because of your broad geographic orientation and basin footprint that there isn't a lot of cost inefficiency or mobilization of equipment that needs to be done there? The second element of that is just your exposure to the high end of the completions market and the uptick in raw horsepower in activity there?

I'll lead off and let Cindy tag in. We do touch much of the basins. I think a lot of the equipment has been moved around over the last, really, three quarters, looking back. But we're still moving personnel around so there is some inefficiencies. We've got groups that have lived in and around, let's say the Haynesville area, as an example, but obviously the activity right now is not in that region. And they're on a rotational basis working out of one of our other districts. That probably causes a little bit of cost inefficiencies but that's been going on for some time now. I don't see that really being a huge incremental or different factor impacting the outlook. It is listed in our guidance. It's probably about 50 basis points of decline sequentially in Rental Tool margin Q2 to Q3.

We're still seeing some competition and pricing pressure in certain markets. Gas markets are rough. The Marcellus had a rough quarter sequentially Q1 to Q2. Not unexpected, but fairly shocking. As a result, the outlook is pretty good. Our focus on higher-end equipment helps mitigate some of the margin pressure that you're seeing in some of the more competitive markets where equipment-on-equipment over capacity has caused some material pricing decline.

Got you. Okay. And then shifting over to Offshore Products, we've seen some encouraging signs in terms of subsea capital equipment order flow from some of the other guys in the tree market. Is it fair to say with the visibility that you see out there that there potentially leases an acceleration as people move forward on some of these development projects across multiple regions in quoting activity for you over the next 12 to 18 months?

If I understood your question correctly, I guess I would say a couple of things. The trees can be obviously a leading indicator for subsea activity because those trees have to be connected into a host facility or into a pipeline, and that's a large area that we participate in. Clearly that, and I don't know whether I would say that bidding and quoting is accelerating, although it was deferred for so long that, yes, there is a very healthy level of activity. I think everybody knows a lot that resides with Petrobras. But there is a step change in terms of bidding and quoting activity on the subsea side coming out of Brazil.

Excellent steps. Congrats on another great quarter guys.

Blake Hutchinson, Howard Weil.

Starting off in taking a look at -- back at RevPAR, implicit in your guidance for Q3 given that we should have a rebound and the Canadian business and there's room count growth and then major lodges is that maybe -- I guess you're saying that your RevPAR is going to probably drop by 7%-or so, is that in your assumption? And just to clarify, at this point in the quarter has that high capacity utilization eased to the point that you actually think you'll experience that type of decline in RevPAR?

We do have a RevPAR decline sequentially, yes. Some of that is -- there's been -- let me answer the last question first. The occupancy levels in July have not dropped off.

Okay.

But there's really only one way they can go, and it's down, unfortunately. We've been running, as I've tried to imply, at fairly full occupancy levels. There's also been a fair amount of volatility in the Australian dollar. It's rebounded here the last couple of weeks but that didn't help in the second quarter by any means. Really, RevPAR was strong in second quarter in spite of some weakness in the off sea dollar, which didn't help. I think we've been a little bit conservative on our off sea dollar outlook in the guidance. Occupancy is hard to imagine is the source of upside. Off sea dollar staying where it is could be -- that's kind of how I'd look at the outlook in terms of what could go right and what could go wrong.

Okay, and then kind of underlying RevPAR; when we do eventually come back to earth in terms of occupancy levels, is the natural underlying rate improved as well, where the $100 to $115 that we ran out for a couple years is, is solidly towards the higher end?

I think that's certainly possible. Yes, I do.

Okay.

I mean, some of it is going to be mix. I have mean we -- the rates on Calliope and Karratha are going to be strong. Ultimately that will be 7% of Australia's rooms right now, getting close to 10%. We are trying to be diligent about our rate structure, and our pricing model is consistent. If customers will give us longer-term contracts, they get longer-term rates.

If they're shorter-term contracts they get closer to spot rate. A little bit of it will be mix and obviously at the end of the day, rate is completely dependent on achieving our -- a targeted return. If we're deploying more capital, an example in Karratha where it is more expensive, the rates are higher, implicitly, because we're focused on making that return.

So underlying that should be a positive trend sequentially on RevPAR even if we do, again, come back to earth. At what point in your negotiations uncurl, can we clarify, are their -- is their rate for the extension already built-in and do we have to think about eventually that rate moving down a bit and impacting RevPAR at some point in '13?

The rates are already set in the extension. They do allow for a modest rate decline in the extension period. I can't remember off the top of my head. I think it's 3% -- 3% to 5% over the two years extension. As I've modelled it out, I don't think it impacts overall RevPAR, so I think that there will be gains elsewhere that officially offset it.

Great. That's it. That's very good color. Quickly on Offshore Products, a bigger picture question. In the past, as we hit more of an FPSO versus TLP cycle, you've pointed towards somewhere in the range of $10 million to $25 million content opportunity per FPSO. Over time here, has that grown or has your experience been towards the higher end or beyond the high end of that number and that's just the success we're seeing in some of these backlog editions and bookings per quarter?

A lot of it -- yes, it's been trending up a bit more in the $20 million to $30 million range, but a lot of that has to do with the configuration of the specific FPSO, the number of import lines and export lines. Again, we have a lot of the key connection technology that allows us a floating production facility to secure itself to the sea bed and integrate all the lines. Design configuration has a lot to do with it. But clearly it is on the increase, based upon the type of work and fields that we are supporting.

And just one final one. We've talked a lot about absorption and mix in the business. Is it -- does looking forward at these levels of capacity -- does pricing start to play a part here more in what you can do in terms of margins or is it fairly static pricing model?

I'll take that one. I would say that it's more of a static pricing model and in up-cycle we don't usually look to move prices unless what's impacting us is the input prices. Forging, in particular. But on the flip side, we also don't cut pricing significantly if we're at low activity levels. Our components while -- our content of $20 million to $30 million on a net per FPSO on average are $50 million to $70 million on a TLC, and that's really just for the riser components and the merlins and flex joints. That's a lot to us, it's not a big piece to the overall project cost. We don't really look to gouge people on the upside, and we don't really expect to cut prices on the downside.

Great, thanks a lot. That's very helpful. I'll turn it back.

(Operator Instructions)

Daniel Burke, Johnson Rice.

I just had two small questions left. Bradley, I think you'd mentioned working a few smaller Greenfield OPS I believe in the Canadian market. I was wondering if you could maybe loosely qualify what scale those might represent? If the way to think about them is in the mobile camp bucket or small scale lodge is a more adequate representation of what those might be?

It's a lodge. McConnell is related to lodges. That's what the comment was related to lodges, and we're looking at one that is about 300 rooms, and there are a couple others that are more in the preliminary stages that I'm going to pass on quantifying at this point. As Cindy mentioned, we have been making good progress in the Sag T region. We saw it in -- we do use mobile camp access in the region generally and we've been making good progress.

It had a good first quarter. The mobile camp business was down sequentially in the second quarter, but I thought performed very well in Canada. The margins in the second quarter were much-improved. I think the team up there has done a very good job of reorganizing the business and the results have improved back to where we used to see them.

Okay. That's helpful color. Last one for me. CapEx clearly is back-half weighted. Should we think of remaining CapEx as evenly distributed over the last couple quarters or is it going to continue to crest into the Q4 time frame?

My best guess right now, Daniel, is that it's equally weighted. It's going to be lumpy, but I think the lumps will even out and my best guess is -- you'd model, if we're at $200 million year-to-date, what's that make it, $225 million -- $200 million to $225 million per quarter for those back two quarters.

Okay, great. Thanks, Bradley, that's all I had left.

Okay, and that was our last question. I'll turn it back to Oil States for closing remarks.

Right. Thanks to all of you. I know this has just been an incredibly busy time for all of you, and we appreciate your following and your time today and look forward to catching up with you as we move into the third quarter. Thanks so much.

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