Oil States International Inc (OIS) 2012 Q4 法說會逐字稿

Welcome to the Oil States International fourth quarter earnings conference call. My name is John, and I will 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, manager of Investor Relations. Ms. Gill, you may begin.

Thanks, John. Welcome to Oil States' fourth quarter 2012 earnings conference call. Our call today will be led 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 that our remarks today contain information other than historical information, please note that 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. Good morning to all of you, and thanks for joining our call today. 2012 marked a second consecutive record year, with earnings growing 39% over that reported in 2011. We set many records across the Company and in each division. In the Accommodation segment we reported the seventh consecutive year of record earnings, and organically expanded our room count by 14% year-over-year. In Offshore Products, we reported a second consecutive year of record earnings, coupled with strong year-end backlog levels. In our Completion Services business we performed a record number of completion jobs, and reported our second consecutive year of record earnings. In our Tubular Services segment we shipped a record amount of OCTG tonnage, up 23% year-over-year.

Overall, 2012 was a year of many achievements, and I am pleased with our ability to deliver these results in a year that offered some challenges, particularly as the year progressed. The fourth quarter slowed somewhat for our businesses, which are driven by the North American rig count. In our Well Site Services segment, revenue and EBITDA were down 5% and 9% respectively, due to the 5% sequential rig count decline in the fourth quarter. Our US Accommodations also declined sequentially, while our Tubular Services segment was more resilient due to deepwater OCTG sales. Our Offshore Products segment posted record results in the fourth quarter of 2012, but came in light relative to our quarterly guidance, due to sales mix and year-end inventory adjustments.

Backlog in our Offshore Products segment remains at strong levels, totaling $561 million at December 31, 2012, but did decline $36 million from September 30, 2012 levels. Given the active bidding and quoting activity that we see currently, particularly for subsea pipeline and floating production facility products, the outlook for Offshore Products in the coming year is robust. 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 will give you our thoughts on the current market outlook.

Thank you, Cindy. I want to point out a change in our nomenclature. Going forward, we will refer to our Rental Tools business as Completion Services. We believe this reference more appropriately describes the efforts of our more than 2,000 employees working in the business, many of whom are field technicians, and their efforts to help customers complete complex, horizontal wells. This business line reporting is otherwise unchanged, and remains a component of our Well Site Services segment.

During the fourth quarter of 2012, we reported operating income of $156 million on revenues of $1.1 billion. Our net income for the fourth quarter of 2012 totaled $99 million or $1.78 per diluted share. The comparable fourth quarter 2011 results were $153 million of operating income on revenues of $996 million. Fourth quarter 2011 net income totaled $94 million or $1.72 per diluted share. The year-over-year increases in profitability resulted from organic investments in the Accommodation segment, increased sales of deepwater capital equipment, and increased shipments of OCTG in our Tubular Services segment. Relative to our guidance, we reported operating performance in line with guidance for most of the segments, with modestly softer results than expected from our Offshore Products segment. In Offshore Products, we had some shipments slip into 2013, and margins were negatively impacted by the inventory write-off in the amount of $2.5 million. It's worthy to note, though, that despite being lower than my guidance, Offshore Products had a record quarter, both in terms of revenues and EBITDA.

We reported higher depreciation, interest and tax expenses than previously projected. Depreciation was higher due to strong CapEx spending in Q4, along with several projects that moved out of construction and progress during the quarter. Interest expense was higher than forecast, due to the Tempress acquisition and our senior notes offering, both of which closed in December subsequent to our third quarter earnings conference call. Taxes were higher than forecast due to the treatment of some foreign-sourced income, which negatively impacted the quarterly effective tax rate. During the fourth quarter of 2012 we reported strong cash flow from operations of $192 million, which included $8 million of cash flow generated from working capital reductions. We invested a total of $205 million during the quarter, including $156 million in capital expenditures and $52.5 million for the previously-announced Tempress Technologies acquisition, which forms part of our Completion Services business line. Our capital expenditures during the quarter primarily consisted of ongoing expansion of our Accommodations business in Australia, Canada, and the US, the addition of proprietary Completion Services equipment deployed in the active US shale plays, and facility and equipment investments in our Offshore Products segment.

During the fourth quarter of 2012, we completed a $400 million senior notes offering. The notes were issued at par, yielding 5.125%, with maturity in January 2023. The net proceeds from the offering were used to repay borrowings outstanding under our US revolving credit facility, as well as for general corporate purposes. During the quarter, we have purchased 225,796 shares of common stock at an average price of $67.52, for a total cost of $15.2 million. As of December 31, 2012, we had approximately $185 million remaining under our authorized share repurchase program, which expires in September of 2014. With our strong operating cash flow, we were able to readily fund our investment opportunities, and our balance sheet remains in a strong position. Our net debt at the end of the fourth quarter totaled $1.1 billion, our debt-to-cap ratio was 35%, and our trailing leverage ratio was 1.4 times. As of December 31, 2012, we had ample liquidity, with approximately $973 million of combined availability under our credit facilities, along with $253 million in cash.

In terms of our first quarter 2013 guidance, we expect depreciation and amortization expense to total $69 million, and net interest expense to approximate $20 million, due to the full-quarter interest expense associated with our 2023 senior notes. Diluted shares are expected to total $55.3 million in the first quarter of 2013, and we currently forecast our 2013 effective tax rate at 28.7%. Our full-year 2013 CapEx is expected to range from $550 million to $600 million, which includes approximately $250 million of carryover spending from 2012 primarily related to various accommodation expansions and upgrades. Approximately 60% of the 2013 CapEx budget will be directed toward our Accommodation segment, 20% toward the Well Site Services segment, and 20% is expected to be invested in our Offshore Products segment. At this time, I'd like to turn the call back over to Cindy, who will review the activities in each of our business segments.

Thanks, Bradley. I will lead off with some highlight comments on our Accommodation segment, where on a sequential basis our revenues increased 2% to $277 million, primarily due to the greater number of average rooms available. However, EBITDA decreased 3% quarter-over-quarter to $119 million, due to softening occupancy in the US shale plays, and holiday occupancy declines at our lodges in the Canadian oil sands. This lower occupancy and RevPAR was partially offset by contracted room additions in both Canada and Australia. We added an average of 734 lodge and village rooms during the fourth quarter of 2012, bringing the total to 19,378 average rooms in the quarter. For the full-year 2012 we added 2,429 rooms, a 14% organic growth rate, the majority of which were added in support of long-term, which are generally three to five years, customer contracts. During the fourth quarter we announced the opening of our Three Rivers Lodge supporting the Eagle Ford region in Texas, and expect to have all 270 rooms available by the end of the first quarter of 2013.

In our Offshore Products segment, we generated $237 million of revenues and $40 million of EBITDA in the fourth quarter. Sequentially, EBITDA increased 27%, primarily due to higher connector product shipments that were realized during the quarter. EBITDA margins for the fourth quarter were 18%, excluding $2.5 million of inventory write-offs taken at year-end. We booked over $200 million in new orders during the fourth quarter of 2012, and reported backlog of $561 million at December 31, 2012, slightly down from September 30, 2012, due to record fourth-quarter sales and typically slower award activity during the fourth quarter. Noteworthy, backlog additions in the quarter included floating production facility products for Brazil, the UK, and the Gulf of Mexico, along with connector product orders from Brazil and deck equipment orders from China.

Our Well Site Services segment was negatively affected by declining US drilling and completion activity in the fourth quarter. This softness was more weighted to our drilling services operations, which we guided you to in connection with our third quarter earnings conference call. Revenues from our Completion Services business were flat quarter-over-quarter at $131 million, but EBITDA decreased 3% to $44 million when compared to the third quarter of 2012. The number of rental tool tickets issued during the fourth quarter decreased 6% sequentially, but revenue per ticket improved 6% when compared with the third quarter of 2012, due to the mix of services provided.

During the quarter, we acquired Tempress Technologies, which designs, develops and markets a suite of highly specialized, hydraulically actuated tools, utilized during downhole completion activities. Tempress's patented tools and specialized services facilitate completions of extended horizontal wells, and will serve to further differentiate our Completion Services business across the active resource basins. During the fourth quarter of 2012, Tubular Services generated revenues of $455 million compared to $436 million in the third quarter of 2012, largely due to an increase in offshore Gulf of Mexico deliveries.

Tonnage shipped was flat sequentially. EBITDA increased 65% quarter-over-quarter totaling $19 million, due to the unfavorable $7.5 million non-cash accrual adjustment for customer credit and return to inventory taken in the third quarter. Gross margin as a percent of revenues were 5.1% compared to 3.6% in the third quarter of 2012, or 5.3% in the third quarter when you exclude the non-cash adjustment. The Company's OCTG inventory decreased by $73 million sequentially to $450 million as of December 31, 2012, primarily due to a deepwater Gulf of Mexico shipment made during the fourth quarter of 2012.

I'd like to transition a bit, and give your thoughts as to our outlook in the first quarter of 2013. We continue to see incremental room demand in our major markets in the Accommodation segment. In 2013, room count additions will be predominantly associated with SAGD-related activity in the Canadian oil sands, and mining-related accommodations in Australia. In the first quarter of 2013 we expect our average available rooms to grow 4% sequentially, totaling approximately 20,000 rooms available. Accommodation's revenues are expected to improve sequentially, and total $295 million to $305 million in the first quarter of 2013, as we realize the full quarter impact of rooms added in late 2012. EBITDA margins should be in the range of 44% to 45%, which is seasonally higher than our long-term margin guidance. I am pleased to report that we are currently 84% committed in our major lodges and villages for 2013.

We continue to see strong bidding and quoting activity in our Offshore Products segment. The global outlook, particularly for subsea pipeline and floating production facility products, is robust, and coupled with our healthy backlog levels, provides good revenue visibility for 2013. As we had guided on last quarter's call, connector product sales accelerated in the fourth quarter. As a result, first-quarter revenues are projected to return to a more normalized level and total $195 million to $205 million. EBITDA margins will be dependent upon our revenue mix, but are projected to be within our long-term guidance range of 18% to 20%.

Certain operators curtailed their spending during the fourth quarter, and laid down rigs as their 2012 budgets were exhausted. Fortunately, our ability to leverage our proprietary equipment and services has afforded some mitigation of the recent weakness in overall US completion activity. Our Completion Services business is expected to experience some continued softness in the first quarter of 2013, but activity should improve later in the year.

In December we had a total of seven drilling rigs stacked, primarily in the Permian Basin. We have had two of these rigs return to work, but customer interest is choppy and modest pricing pressure exists. Accordingly, first-quarter revenues for our Well Site Services segment are expected to range between $100 million and $175 million, with EBITDA margins of 30% to 32%. The continued influx of OCTG supply from both domestic and international mills, combined with a declining US rig count have caused industry inventory levels, as measured on a month-of-supply basis, to total approximately 5.4 months supply on the ground. As a result of these market conditions, pricing for OCTG declined throughout 2012. One bright spot has been the return of OCTG demand from deepwater Gulf of Mexico drilling and completion activity. With growing industry inventory on the ground, and new domestic mill capacity announcements, we expect pricing to remain soft in 2013.

We expect our Tubular Services segment to generate revenues of between $375 million and $390 million in the first quarter of 2013, with gross margins ranging from 5% to 5.5%. As of December 31, 2012, approximately 87% of our tubular inventory was committed to customer orders.

In summary, our fourth quarter and full-year 2012 results were very strong on a year-over-year basis, and set many records. Our medium-term outlook remains fairly positive, and we continue to seek room count expansion opportunities in our Accommodation segment, which are supported by long-term customer contracts. With robust activity and a strong backlog, we are well-positioned to experience a strong year in our Offshore Products segment. We remain disciplined in our allocation of capital, and are focused on achieving the best return on investment for our shareholders. 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 Collin Gerry from Raymond James. Please go ahead.

Good morning, and congratulations on a great year.

Thanks, Collin.

Cindy, I wanted to ask a little bit on the guidance on the accommodation side, I think I heard this correctly, but I think the implication for revenues in Q1 is a pretty nice bump, roughly 8%, if I did my math correctly. Would you say most of that is going to be on the traditional lodge side, or kind of a more fully allocated quarter for your new Eagle Ford operations and some of the more mobile camp stuff that you're doing?

Collin, this is Bradley. I would say that it is more a seasonal lift from the mobile camp business, particularly in Canada. You pointed out the addition of a more fully deployed set of rooms at Three Rivers and the Eagle Ford, but it's primarily the seasonal lift in the mobile camp business.

And just to tag onto that, if you heard our guidance, we are projecting our room count to be up sequentially, and if you just look at end-of-year room count versus fourth-quarter average, we've already got kind of a 2% embedded bump there. But what we are experiencing is room count adds, but there's also some utilization softness that we saw in Q4, particularly kind of in that met coal region in Australia, but on balance, Australia was up sequentially, and so there's pretty good trends there. But there's kind of three factors to consider. One is the room count adds, possible softening -- slight softening I'm going to call it, of utilization of existing facilities, and then as Bradley said, on top of that is the seasonal lift that we see. And that improves not only top line but, you heard our guidance, improves margins as well.

Understood. Switching gears to the, I guess, Completion Services business, as we call it now. A fairly decent-sized acquisition for Tempress there in the quarter. I guess part one of that question is how much of a revenue contribution did Tempress have? But more importantly you've kind of guided to a little bit of softness, and we're kind of following the rig count here but, you know, this seems to be a division that you guys have meaningfully outperformed the peers, and I'm just curious to what degree future capital, both organically but more importantly from an M&A perspective, is going to continue to go into this division, because it seems like it's quite a differentiator?

I will start off and see if Bradley has any incremental comments. We really do like this business. We've been very kind of true to our product line and our technology. We have done a lot of consolidating acquisitions, but our real goal is to step out the technology, and that's what the Tempress acquisition was all about, quite frankly. If you look at the history of what we have done over the last seven years, have had very much a technology focus oriented toward the products that are really necessary to advance our customers' efforts in the field. You know, we can talk about having high-end proprietary equipment all day long, but I think performance in 2012, quite frankly, is evidence of that fact. So much of what happened to North American companies were more in the commoditized product lines, which we have some of, but we really try to stay on the high end of technology. Again, I look at 2012's performance, or out-performance as you characterized it, as really associated with the embedded strategy and the technology that we have. Again, that was what Tempress was all about. Bradley, do you have anything to tag into that?

No, I think that's right. I think our margin performance, as you pointed out, relative to North American-leveraged companies, not only where it actually peaked I guess in third or fourth -- third quarter, and maintained a very strong margin in the fourth quarter, and that is the technologies, the footprint of being able to move efficiently through the shift in activity from the dry gas markets to the oilier markets. I would say generally the vast majority of that has been -- has worked through the course of the year, and right now we are in a very strong position. We have seen good results out of our Bakken Rockies division, the South Texas, West Texas region has done well, and the gas markets are pretty challenging right now. But through all of that, we've been able to move our people and equipment around very efficiently, and it's really kudos to the team who worked through that pretty volatile market in 2012, and I think we are well-positioned for 2013. In respect to your specific comment on Tempress revenues, they range about $11 million or $12 million.

Perfect. All right, I'll turn it back. Thanks again.

Thank you, Collin.

Our next question comes from Jim Wicklund from Credit Suisse. Please go ahead.

Good morning.

Good morning, Jim.

Just to clear the air on the issue, there's been an awful lot of activists involved in the offshore drillers. There's a lot of talk of MLPs, specifically with you guys. There's talk about -- some people about MLPs are reaching the accommodation business. Can you address the likelihood, the issues, the probabilities? Can we get that off the table?

Sure, I will tackle that first and ask Cindy to chime in as well. The way we've tried to run the business over the last 12 years has been to do what is right for the business, to try and look into what the opportunities are by each business line, how can we grow strategically, how can we build a business model that has some sustainable competitive advantages. As we mentioned in the early part of the prepared comments, accommodations has had seven years of growth, largely organic, augmented by the entry into Australia with the MAC acquisition. So what we've tried to do in accommodations is grow that business, and we've grown it very successfully over the last few years. In and of itself, that business has not -- because of the growth and the redeployment of capital, has not been cash flow positive, because we've been growing the room count by 30%, or in this case 14% last year, and so a distribution-type model we think makes more sense for a more mature business. As we look out over the next three to five years, while '13 will be a period of slightly slower growth because of the headwinds we have from a macroeconomic sense, we still think there's strong growth in the accommodations business over the next three to five years.

We think that from an operational standpoint is -- the right thing to do is to use the leverage capability and the cash flows of the total Company to augment the growth and capture more market in the accommodations business than I think it would've been able to do on its own, or will be able to do on its own. That being said, Cindy has always from the top-down expressed the fact that we're going to do whatever's best for the shareholders. We have in the past, going back to when there was an income trust structure available in Canada, evaluated different financial structures to see if that would create long-term value for our shareholders. We're very fortunate we didn't do the income structure back in Canada, because it was shortly thereafter dissolved. When we have been presented with or have discovered different structures that might work for any of the businesses, but specifically accommodations, we've investigated those. To the extent that we have investigated the restructure, or the MLP structure, there has not been a clear-cut pathway that makes sense for that business to move into that structure. There are tax limitations, there are cash flow limitations in terms of where the earnings are relative to where that structure might exist, so it's something that we investigate when we see an opportunity. We have not seen one that is apparent to us that works for that business.

Bradley, thank you very much, that is very helpful. My follow-up question, in subsea products your book-to-bill went below one. The outlook, Cindy, you said still looks positive. The Gulf of Mexico, which has typically been your backyard, it sounds like you're much more global now, so I'm going to assume that's going to make business a little bit more lumpy, but is there any reason to believe that business won't continue to grow at a decent clip?

There's absolutely no reason, Jim, and the one thing I might counter just a bit was the comment that the Gulf of Mexico has been more of our backyard. I consider us a very global company, and have been in this business line for the last 10 years. The backlog content ebbs and flows simply because of the regions that our customers are making investments. Everybody was slow, obviously, in the era of the global financial crisis coupled with the Macondo well blowout, and subsequent -- immediately subsequent to that, I would say, we did get a lot of awards in the Gulf of Mexico, Jack/St. Malo, Big Foot, Mars V, everybody in the industry did, because that was basically the first market to come out of those two fairly draconian events. It's no secret that Brazil has a tremendous amount of opportunity. I asked my people to look at our year-end backlog, and just for perspective, about 16% of our end-of-year backlog was tied to projects in Brazil. There's also quite a lot of bidding and quoting activity in Southeast Asia, Australia, we've gotten some good content even in the North Sea. And West Africa, I've always called it somewhat the sleeping giant, but there seems to be signals that we're -- some of the work is going to materialize there as well.

But, you know, a lot for us right now is this transition where a lot of our customers are spending their development capital on subsea projects and floating production facilities, particularly FPSOs and TLPs, so not surprisingly we are focused on those. I always call that kind of backlog award a big shot in arm, meaning they don't come every month. They don't come every quarter. And they are in addition to kind of that baseline amount of awards that we get, and book into backlog every quarter, and so our quarterly backlog tends to always be lumpy because of that, i.e. a big FPSO or TLP award is going to normally accelerate our bookings in a given quarter. And so the fact that we were -- I think it was, Bradley, I'm looking at him, a [0.86] book-to-bill ratio or thereabout.

That is right.

It really means nothing other than the number of awards that came into the quarter, when you look at the global outlook. Again, we are relatively bullish on that. The timing is always a question on these major projects. But again, I think we are in a very good shape here.

Okay, guys, thank you very much.

Thanks, Jim.

Our next question comes from Jeff Tillery from Tudor, Pickering, Holt. Please go ahead.

Hi, good morning.

Hi, Jeff.

Cindy, you gave a room count growth number for the first quarter. Could you give us a feel for just the range of room count growth embedded in the $550 million to $600 million CapEx budget for the full year?

Well, it's highly dependent on customer contracts. Cindy made a reference that a lot of it will be in the in situ region of Canada. My guidance would be that we'd have somewhere around 1,200 to 1,500 room -- total room ads in 2013. Mostly focused, again, probably two-thirds in the in situ region of Canada, one-third in Australia. We have one project that's underway in Canada right now. I'm hopeful that we will get the contract signed for another location in the in situ region in Canada opening later, very back-end weighted in 2013. The Australian opportunity, as Cindy referred to, is in the mining region. But at the end of the day, we have budgeted some CapEx for those rooms in that $550 million to $600 million range, but it's highly dependent on the customer signing the contract. This is an out-of-market environment where we are looking to do a lot of speculative room additions, so that will ultimately be dependent on whether or not the commitments from the customers come through.

That's helpful. In the Completion Services segment, so rental tickets were down, and it seems like about -- the level of completion activity was down in the fourth quarter. Do you see completion activity up in the first quarter, or is that going to -- is that more like in the second quarter before you see the ticket count start to grow again?

I would generally characterize the first quarter as just kind of slogging through some nominal amount of rig count improvement. We're in kind of the mid -- I think the last weekly rig count I saw was 1,762, so -- and we are kind of adding three rigs a week. I just call it kind of slogging through the quarter, but nonetheless slowly improving, and I think our outlook for improvement looks a little better as we head into Q2 in the back half of the year. It's just -- I think people were looking for some snapback in activity in Q1, and we nor anyone else has really seen that. And when you have that, you're not going to get pricing leverage. If the next question is, what are you seeing in pricing, I would say it's more of the same.

But not eroding, is that fair?

Not in our Completion Services business, so -- I think I may have said on the call, may not have, there's nominal pricing pressure for the rigs in the Permian Basin.

Sure. All right. Thank you very much.

Thanks, Jeff.

Our next question comes from Blake Hutchinson from Howard Weil. Please go ahead.

Good morning.

Hi, Blake.

Just to kind of get a better feel for some of the near-term dynamics in accommodations. The 20,000 room count you cite for first quarter, is that more or less of -- does that more or less represent all the contracts you have in hand at present?

I'm not sure exactly what you mean by that. As of -- we obviously put rooms out during the quarter, so our end-of-year room count is higher than the average. So there's some what I will call built-in growth, but just having a full-quarter contribution from those. You mentioned contracts, I think we said on the call that our contracted percentage for 2013 was 84%, if I'm tying together those two thoughts properly for you.

I guess a better question would be then, what's that -- what's the room count that 84% is based off of, would be the better question?

It's all the rooms that are --

Lodge and village.

Lodge and village rooms that are built or being built right now.

And I guess that was my question, is that 20,000?

No, we have more than that.

Okay, so there's some -- there is visible room count growth, without signing new contracts, that is in hand for beyond 1Q?

Right.

Okay, got you. And then just getting a feel for, you know, you had mentioned that -- in the last conference call that due to some customer activity in Canada and a little bit of leakage in the met coal side, that RevPAR would be coming down. Do we face just a little bit more of a headwind in Q1, and then the feeling is we kind of flatten out from there?

Q1 right now looks like it will be fairly comparable to Q4, where we have not gotten a quick start to the Canadian business. It's been a little bit softer coming out of the holiday. Australia has generally stabilized, really just have one village that is having some occupancy weakness due to a mine closure down there. But other than that, I would say the trend is getting to a stabilized point. We may see slightly softer RevPAR, as we always do in the second quarter, as Canada comes out of the winter activity season, but generally things are stabilizing comparable from a RevPAR perspective from Q4.

Okay. That sounds good. And then just finally, thoughts on early-year revenue guidance for Offshore Products, is there any kind of seasonality to that, or is it just the $240 million to $250 million guidance for 4Q was an abnormally large number? This is kind of more comfortably what we should be thinking in terms of run rate?

We think it is right now, Blake. Realize what we do is just look at our backlog, we've got a -- that's a very good indicator of revenues, as we always talk about, and depending upon the status of the individual projects and backlog, that is specifically how we forecast on a quarterly basis. In addition to that, we have specialized large OD conductor casing connectors that we put out on a routine basis that will be up or down, depending on our customers' needs and their drilling activity, and all we were telling you is Q4 was going to be high and augmented by a higher level of those high-end conductor casing connector projects tied to drilling activity. It was an absolute record quarter for the business, but yes, we were a little bit light because some of those, I can -- it came out of Southeast Asia, just, or maybe it's the UK, but just a little bit slow on getting out. Absolutely nothing negative in the business, but I've always cautioned you to look quarter by quarter, because backlog awards are going to vary depending upon the size of the award and the cycles that the customers are in, and the same thing is true of revenues. But again, we gave you the best idea for the quarter revenue progression that we have today.

Great. Appreciate the time. I will turn it back.

Thanks, Blake.

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

Good morning, everybody.

Good morning, Jeff.

If we could talk anecdotally about what the body language looks like for accommodations clients on the mining side down in Australia, and now that met coal prices have stabilized a little bit, have we seen any change, or would you characterize any change in their body language over the course of the last three months or so?

I think there certainly has been what I termed the other day as kind of green shoots. There's definitely some news coming out of China. I mean ultimately, the vast majority of our existing, and even in the near-term perspective, room additions in Australia are going to be tied to met coal, which is ultimately tied to -- what is China going to do? A lot of the growth opportunities that we were looking at last summer, once the uncertainty around China's growth rate going forward came into question, kind of July/August timeframe, a lot of those growth opportunities got pushed to the right. Not all, but most. What we have seen in the last two or three months, to your question, has been there seems to be a little bit -- some growing certainty about what's happening in China. Not unanimous positive news, but generally starting to see some positive news.

I think generally the body language of our customers will be once they see some greater certainty on where China is going to end up, and the demand therefrom, that we will start to see, hopefully, some of those shake loose. Now, when that happens, and then when do the contract discussions kick back off again, leads us to the question of is that is a '13 or '14 event? But generally, I would say that the posturing has gotten a little bit better. It hasn't really manifested itself into on-the-ground activity yet or contracting activity yet, but generally I think the posture has been a little bit better.

Okay. Very helpful. And then switching over to the tubulars business, I'm not sure if you commented on where industry inventory levels are on the ground today, and could you characterize how some of the guys that you deal with who import pipe are behaving from a pricing perspective?

I will try to tackle that for you. We just got the most recent OCTG situation report that came out kind of with their 2012 annual data, and their end-of-year inventory statistics, and we were ranging somewhere around 5.4-month supply, with a reduction in some imports in the fourth quarter, that's more like 5 months supply on the ground right now. Their actual consumption statistics were at 6.8 million tons for 2012, which was -- I'm sorry, 6.5 million tons for 2012, which was up about 8% year-over-year. I thought it was interesting, when you look at our tonnage shift we were up 23% year-over-year, so we far out-performed overall industry consumption. Their outlook is pretty reasonable for 2013 at 6.8 million tons of consumption, that will be up about 5% year-over-year 2013 to 2012. So again, the consumption and the volume statistics for the industry and for us stand-alone look pretty darn good.

Now, you kind of look at that and say, well gee, why did prices erode as much as they did during 2012, and why did you guide to soft -- continued soft prices in 2013? It all comes down to capacity. As anybody that follows the industry knows, there's a tremendous amount of domestic capacity adds that are planned, some of which were put in place in 2012, more that's coming in 2013 and 2014. Tenaris just announced a new mill, I think you will realize, that they're going to locate in Bay City, Texas. So a lot of capacity coming on that has put some downward pressing on price. So you kind of have a little conflicting things there. One is improved consumption data '11 to '12, and a pretty good outlook '12 to '13, but more and more capacity coming on. Again, fourth-quarter imports were actually down just a bit, but according to Department of Commerce data they are snapping right back in Q1.

So all those dynamics have led to a soft price environment. But nonetheless, I would say a pretty stable and balanced market that -- you know, we did fairly well in 2012, I would say. Certainly outperformed the industry. So if things stay, 2013 should be pretty reasonable as well. Just my only caveat, the pricing could continue to be soft.

Thank you for the time. I will turn it back.

Thanks, Jeff.

Thanks, Jeff.

Our next question comes from Travis Bartlett from Simmons & Company. Please go ahead.

Hey, good morning, everyone.

Hi, Travis.

I had a couple quick questions. First one, can you reiterate the Well Site Service revenue guidance? I think you said it was $170 million to $175 million, but can you just verify whether that's correct?

Yes, the guidance is $170 million to $175 million for the first quarter of 2013.

Okay, perfect.

Total Well Site Services, right.

Right. On land drilling, how many of your rigs are capable of drilling horizontally at this point? And then do you see the shift to more horizontal work leading to further utilization in fracking challenges for your fleet in 2013?

I will be happy to take that. You know, I think most everybody knows we got a small, limited fleet of drilling rigs, it's a small component of what we do. Two major markets, the Permian Basin and the Rocky Mount region. We have 25 rigs in the Permian. It's actually, surprisingly, the Permian market that has been adversely impacted kind of with the slowdown. While there is a very strong movement to horizontal work, there's also a lot of vertical work that remained in the Permian Basin market. We had guided to seven rigs going down by the end of the year, and that's exactly what happened. The ones that went down are our smaller mechanical rigs that are always a little more difficult to market.

You asked a question of how many can drill horizontal, I'm going to say there is roughly nine rigs that -- depending upon, again, the TBD that we are talking about, that can work on horizontal applications. But the rigs that went down, one of them mechanical, they are the smaller rigs that we have. I think they will go back to work, but they will go back to work slowly, and I think more of what we are talking about with these specific rigs probably had to do with crude price differentials that existed in Q4 as much as anything. I will acknowledge the shift to horizontal drilling, but I will also tell you that a lot of these vertical wells don't demand that type of rig, nor the cost that goes with it.

Okay. Thanks. That's helpful. And then last one for me on accommodations, are there any efforts underway, whether it be through permits or actual construction, to build lodges in markets outside of Australia or Canada, or are there any other markets that you are looking at where you see potential to create a presence?

Well, there absolutely are markets that we are looking at and just, you know, if you think about what drives our business, concentrated areas of development. Whether that is, you know, SAGD-type activity, mining in the Canadian oil sands, in the case of Australia met coal, iron ore, LNG, all of those things are prospective for us. What we typically do is start early marketing efforts in any of these regions of interest, as I would call them, and start looking for land access, with permit land banking and doing the permitting process. We need to do that, obviously, ahead of the kick-off of the these developments, but to answer your question, yes, there's other markets that we are looking at.

Okay. Thank you. That's it for me. I will turn it back.

Thanks.

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

Good morning, everyone.

Good morning.

I had just a few questions left. Cindy, I thought I heard you say in the Q&A that Australia was up sequentially in Q4. I wanted to confirm, was that correct? And if so, was that revenues or RevPAR that you were referring to?

Well, honestly, I tend to focus a lot on EBITDA. Generally thinking in my brain, subject to somebody checking me, that they were both up sequentially. Again, what we had in the fourth quarter, that's probably three dynamics. Number one, we added a decent amount of rooms during the fourth quarter. As Bradley and I both mentioned, there's a few of our -- realize, we were running full out in most of our lodges and villages last year from a utilization standpoint. With the overhang from met coal pricing, there was utilization that declined a bit in some of our existing facilities. Again, most of those are pursuant to take-or-pay contracts, where you are going to have guaranteed room rentals, and you have contract minimums in place for the food services and management aspect of the contract. So even though it's a modest softening, I have to acknowledge there was some. It was more than fully offset by room count adds and, of course, there's some holiday impacts as well, but those were the dynamics. But yes, we were sequentially up Q4 to Q3.

That's helpful. And then just to stick with Australia for one more, at times there has been optimism that the nascent LNG-related support business that you all have there would be able to support growth. I didn't hear that reference today. I was curious if you might refer to what the opportunities are for those two coastal -- near-coastal villages?

Well, Karratha just opened in July, and that's on the northwest coast of Australia, serving both LNG operations as well as iron ore exports. We are just getting underway there. We're just finishing up, quite frankly, the facility itself this quarter. Once we get the facility fully operational, we have the permit in place to increase it. We will just have to see how our presence in the market develops. Currently, we do not have that in the 2013 plans, but it's possible.

The other LNG-exposed location is Calliope, and Calliope has 300 rooms. It's done spectacularly since we opened it in the fourth quarter of 2011, and the occupancy has been good, pricing has been good. The issue there is that we have 300 rooms, and we are permitted for 300 rooms. We are in the process of trying to get that permit expanded so that we could increase the room count there, but we do not have that permit in hand. We have the land, we own the land, but we don't have a permit for more rooms than we have today. So right now we don't have any LNG expansion plans for either village in 2013. There is the possibility in both markets, but right now there -- we have not currently budgeted it.

Yes, a lot of that, of course, is tied to -- these are very early-stage developments. We set these facilities up and try to time our permit so that we can scale them up as demand dictates. In other words, you don't want to deploy all the capital day one and suffer under-utilization as these projects mature.

And maybe just the last one. Does the addition of 1,200 to 1,500 rooms, and some of those were probably funded in part by the CapEx budget in 2012, does adding 1,200 to 1,500 rooms fully spend the announced 2013 CapEx budget? I was unclear on that.

Yes.

Okay, well, thank you guys. I appreciate the answers.

Thanks so much.

Your next question comes from William Conroy from MLV. Please go ahead.

Good morning. Thanks very much for taking my question.

Hi, Bill.

Hi, Bill.

Cindy, I was hoping you could just give us a little bit more detail on the Offshore Products business. I think you had mentioned subsea was one of the areas of strength. Is that the repair business, is that PLEMs and PLETs, and could you also speak to your continuing activity on BOP stacks?

Yes, I will try to make sure I catch all of those, but generally subsea for us is PLEMs, PLETs, pilot connectors, jumpers, pipeline and manifolds, tie-in sleds. But the way you think about it, or I think about it, we work a lot with the end customer as well as installation contractors to do the specialized equipment subsea, and generally for us it is going somewhere from the subsea bed up to a floating production facility, as an example. We are also very strong on export pipelines, but those are generally the types of products that we are talking about that really facilitate many of the installation contractors that we work with.

I think your second question is, what do we do on BOP stacks? We don't now, nor have we ever, manufactured subsea BOP stacks. We have developed an expertise over the last many years in doing what we call stack-up and integration work. A lot of that started probably 10 or 20 years ago, where a lot of our customers wanted to mix manufactured components around a BOP. They didn't want to standardize on one OEM's equipment, and so development expertise there. And also when the market got really active, they didn't like the delivery times of the OEMs, and so they asked us to do that work, and we've got a lot of people that are very talented. But again, it's what we call stack-up and integration work.

I think you know that our proprietary FlexJoint is basically the connection apparatus at the top of the subsea stack going into the riser system, and so we always have a component that is part of that. That component is not a pressure control device at all. But again, with our legacy and our history, and experience around BOP stacks, we have also done a lot of inspection and repair work in various countries around the globe in the past years. I would say that has moderated clearly, post-Macondo, because of all of the issues around repairing the stacks. If that fully answers your question?

That's great. And just maybe one more quick one on the accommodation side. In the Q1 guidance, is there anything unusual in the other accommodations revenue, or the non-lodge non-room revenue?

Well, you bring up a good point. Not in the current guidance for Q1 '13, but it is noteworthy to remind everyone that in the first quarter of 2012 we had the contract settlement in that non-lodge and village revenue that was $18.3 million in revenue, and $17.9 million of EBITDA related to a contract settlement in the US.

Thanks very much. Appreciate it.

Thanks, Bill.

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

Thanks. Good morning.

Good morning, Joe.

Just a couple quick ones for me. The accommodations contract covered the 84% in '13. I was just curious if you had a '14 number at this juncture?

It's 58%.

58%, okay. And then just on the tubular volumes in the quarter, you referenced Gulf of Mexico deepwater coming back a little bit. I was just curious what percentage of your aggregate volumes in the fourth quarter were coming from Gulf of Mexico?

I'm sorry, I haven't done the math on that one, Joe, to be honest with you. I mean, we know when we are carrying deepwater strength, and when we are going out, but I just haven't done the math.

Okay, fair enough. I appreciate it. I will turn it back.

Thanks, Joe.

Our next question comes from Rob Norfleet from BB&T Capital Markets. Please go ahead.

Good morning.

Good morning, Rob.

Just a quick question, most of mine have been answered. When you look at some of the oil sands projects, given where oil differentials are right now, what are you hearing from customers in terms of these SAGD projects potentially getting deferred or pushed to the right? Secondly, could you just talk about, in terms of the accommodations from an opportunity standpoint, is most of that obviously coming from Brownfield expansions, or how much of that is actually from Greenfields? Thank you.

I will try to answer the first question, I think I was thinking of the answer, I don't know I heard the second part so Bradley could do that. But the first part, clearly, WCS has been under pressure. Here again, we are experiencing this across North America, where inadequate take-away capacity is penalizing some of our customer success. I think the good news in the Canadian oil sands is that largely our customers have been very successful in terms of getting their production ramped up. We all know the saga around take-away capacity, particularly that surrounds the Keystone pipeline. The differentials were severe, I would characterize in late Q3 and into Q4. They've narrowed just a bit, simply because our customers are incredibly nimble about finding ways to get this product to market, whether that is through rail, through barge, through reversing pipelines. And I will tell you, those differentials narrowed a bit, so we are a little better today than we were in Q3 and Q4.

It is pretty hard for me to say that there is a hard and fast differential that stops activity, but my perception is that people are still feeling -- I don't know if the word is confident. Maybe the word is secure in the thought that Keystone will get approved, and that these differentials will alleviate. I think the real bottleneck, major bottleneck, hits around 2015, but all of this is dependent on what happens with Keystone, and so it is an issue. It has moderated from where we were before. I think this whole overhang is pushing people more towards SAGD, and causing deferrals of the major mining sanctions. We saw that last year, and we see it continue. So I would be wrong if I didn't tell you that watching the decision on Keystone is significant to most of our customers in the Canadian oil sands. But in the short-term, they are finding alternative means to get that product and get a reasonable price for it, but it's a building issue.

In terms of whether the room additions are Brownfield or Greenfield, right now the plan is that they are all Greenfields.

Okay, great. That's very helpful. Thank you.

Our last question comes from Michael LaMotte from Guggenheim. Please go ahead.

Thanks and good morning. Cindy, if I could just follow up quickly on the tubular services, and the notion of cross-currents in terms of onshore pricing pressures and the positive effects of mix in the Gulf of Mexico, as you pointed out, those trends were with us from the 2011 to 2012 years, and EBITDA in tubular services grew almost $20 million as a consequence of the volumes and the mix. Just wondering, as the rig count stabilizes this year, are we going to feel potentially the same impact of mix with growth in the Gulf of Mexico this year?

Well, I think -- I will take a stab at it, Michael, and let Cindy chime in. If you look at our revenues realized per ton sold in 2012, and compare that to the third-party data on composite OCTG prices, you can see the impact of our mix. Our revenue per ton in 2012 was in each quarter above $2,000 a ton, and I think that the composite pricing started off close to that, but then ended the year probably closer to 17, in the 17 -- somewhere between $1,700 and $1,800 a ton, if I recall correctly. So I think that our mix will continue to benefit us, i.e. I think we will remain above the composite third-party pricing that's published, but I do think that we will not be -- we will still fall prey to the fact that pricing is down. So I don't know if that's what you are looking for, but I think our revenue per ton will be down year-over-year.

As Cindy mentioned, we do have 87% of our inventory committed. We don't see a precipitous drop in pricing in 2013, more of the slow, steady bleed that we saw in '12. But -- so I don't see kind of a percentage margin, gross margin impact. That's apparent in our guidance of 5% to 5.5% gross margins in the first quarter. So ultimately, EBITDA in tubulars will likely be down year-over-year in '13 versus '12. That being said, so will our inventory investments. We will turn our inventory, we will get our inventory to the new price deck, and as a result, I expect the cash flow from tubulars to be quite strong this year, as we reduce that working capital investment.

That's helpful, Bradley, thanks. If I could get two quick updates, one on where you stand with the facility in Brazil, when the construction of that will finish up and, two, if you could just comment on just the M&A environment for Completion Services?

Well, we closed on the new Mackay property in the second half of last year. We have stabilized the ground, we are working on design plans. I will say, and I probably will be too naive here, but I will say it will take us most of 2013 to do the construction of the Mackay facility. We also closed during the fourth quarter on a property in Santa Cruz, which will be a second property for us in Brazil for the Offshore Products segment. Again, that property is being developed, and will take most of '13 to do so.

Okay, thanks. And then are there other Tempresses out there? What is the (multiple speakers)?

I missed the M&A question.

Yes.

On the M&A side, we've stayed -- I think the important take-away is the strategy remains the same. We will be looking for technology additions, both in Completion Services and Offshore Products. Most of our efforts in Accommodations have been primarily geographic expansion-focused, and that is specifically looking for entry points into South America. Early efforts on that were not as productive as we had hoped, but as I have said several times in conferences and elsewhere, that's a market that's going to develop over the next several years, and it's -- I hope I can caution investors that it's not as important the speed with which we hit in, but the right entry point, and so that's something that will develop over time. There have been a handful of potentially consolidation-type plays in the Accommodation space across our existing markets. We have looked at a couple of those. None of those have been particularly attractive to us, but will -- that's also a possibility.

Great. Thank you all.

Thanks, Michael.

Well, I think that's probably the end of the questions. We appreciate everyone's time. I know it's a busy season. We look forward to talking to you as the quarter progresses, and we'll talk to you about the first quarter in April.

Thanks to all of you. We appreciate your time, your interest, your following, and we look forward to seeing you in the near future. All the best.

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