Oil States International Inc (OIS) 2013 Q3 法說會逐字稿

Welcome to the Oil States International third-quarter 2013 earnings conference call. My name is Rhoda, and I will be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded.

I will now turn the call over to Patricia Gil. Patricia, you may begin.

Thank you, Rhoda.

Welcome to Oil States' third-quarter 2013 earnings conference call. Our call today will be led by Cindy Taylor, Oil State's 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 to contain information other than historical information, please note that we are relying on the Safe Harbor protections afforded by federal law. Any such marks 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, everyone, and thank you for joining our call this morning.

Our results for the third quarter of 2013 improved sequentially due to record quarterly results in our offshore products and well site services segments. We also realized sequential growth in Accommodations revenue and EBITDA, despite unfavorable movement in Canadian and Australian foreign currency exchange rates. During the third quarter of 2013, we sold our tubular services segment for $600 million in cash and used $160 million of the net proceeds to repay amounts outstanding under our US term loan.

In connection with this debt extinguishment, we wrote off $3.3 million or $0.04 per diluted share after tax of previously incurred debt issuance costs. The historical results for the tubular services segment, as well as the gain realized on the sale of the business, have all been presented as discontinued operations for all periods reported.

Our Accommodation segment reported improved results on a sequential basis, primarily due to additional rooms added in Canada and Australia, along with increased Canadian mobile camp activity. The continued weakening of the Canadian and Australian dollars relative to the US dollar, which declined an average of 2% and 8% respectively, negatively impacted the translation of our foreign Accommodations revenues and profits in the third quarter.

However, the negative currency impact was partially offset by the opening of our Boggabri Village, located in New South Wales, Australia, which added 436 rooms late in the quarter but ahead of schedule. We reported record results from our offshore products business during the third quarter and enjoyed strong demand for our proprietary equipment and our completion services business.

Offshore products generated record revenues and EBITDA in the third quarter, while maintaining a book-to-bill ratio of greater than one time. EBITDA margins in the offshore product segment for the quarter were also strong at 19%. Backlog totaled $569 million at the end of the quarter. In our well site services segment, revenues and EBITDA were up sequentially 5% and 12% respectively, largely due to the 9% quarter over quarter increase in job tickets and sequentially improved EBITDA margins in the completion start of this business.

At this time, Bradley will take you through more details of our consolidated results and financial position, and then I will provide a detailed discussion of our business segment, as well as give you our thoughts on the current market outlook. Lastly, I will conclude our prepared remarks with an update on our proposed spinoff of the Accommodations business.

Thank you, Cindy.

During the third quarter of 2013, we reported operating income of $122 million on revenues of $684 million. Our net income from continuing operations for the third quarter of 2013 totaled $77 million or $1.38 per diluted share. This included $0.08 of after-tax expenses related to the proposed spinoff -- the spinoff transaction, as well as debt extinguishment costs related to the synergist divestiture. Excluding these items, the third-quarter EBITDA results would have been $198 million and net income from continuing operations would have totaled $81 million or $1.46 per diluted share.

The second quarter 2013 results were $111 million of operating income on revenues of $635 million. Net income from continuing operations in the second quarter 2013 was $67 million or $1.20 per diluted share.

The quarter-over-quarter increase in profitability was the result of record revenues and EBITDA from the completion services business and the offshore product segment, coupled with improved results due to room additions in our Canadian lodges and Australian villages. These sequential improvements were partially offset by the weakening Canadian and Australian currencies, which negatively impacted the translation of foreign accommodations revenues and profits, coupled with lower occupancy levels in Australia.

With the repayment of the US term loan and the increase in cash on the balance sheet from the sale of the tubulars business, our net debt at the end of the second quarter declined 75% sequentially to $231 million. Our net debt to cap ratio was 8%, and our trailing leverage ratio is 1.3 times.

As of September 30, 2013, we have liquidity of approximately $997 million available under our credit facilities and $776 million in cash. During the third quarter of 2013, we reported strong cash flow from operations of $137 million and we invested $115 million in capital expenditures, primarily related to the ongoing expansion of our Accommodations business in Canada, Australia, and the US, in addition to incremental proprietary completion of services equipment deployed to service the active US shale plays.

In terms of our fourth-quarter 2013 guidance, we expect depreciation and amortization expenses to total $72 million, net interest expense to approximate $17 million. We expect our 2013 effective tax rate to average 26.8% in the fourth quarter.

The company currently plans to spend $500 million to $550 million in capital expenditures for the full year 2013, which is lower than our prior estimate of $550 million to $600 million, as the timing of several capital projects in the Accommodations in offshore product segments have slipped into 2014.

At this time, Cindy will begin a discussion of our segments.

Thank you, Bradley.

I'll start off with Accommodations. Sequentially, our Accommodation segment revenues increased slightly by 1% to $246 million and EBITDA increased 6% quarter over quarter to $102 million, primarily due to additional lodge rooms added in Canada and village rooms added in Australia, as well as better Canadian mobile camp utilization as operations recovered from the effects of breakup.

Our lodge and village revenue was up 1% sequentially with the opening of Boggabri Village, and additional rooms at Anzac and Beaver River, partially offset by continued softness and occupancy at certain Australian villages, along with the weaker Canadian and Australian currencies. On a constant currency basis, lodge and village revenues would have increased approximately 4% quarter over quarter, with RevPAR flat.

Segment EBITDA would have increased approximately 7% quarter over quarter on this basis. During the third quarter of 2013, our average available rooms totaled 20,788 rooms, a sequential increase of 587 rooms with a RevPAR of $105 or approximately $108 on a constant currency basis. Accommodations revenues are expected to range between $265 million and $270 million as a result of better utilization of our Canadian mobile camps as winter activity begins, along with a full quarters impact from rooms added in the third quarter. At this point, we are not forecasting any material improvements in our Australian village occupancy levels.

As a result, EBITDA margins are expected to continue to range from 40% to 42% during the fourth quarter. In our offshore product segment, we generated $242 million of revenue and $46 million of EBITDA during the third quarter. Sequentially, revenues and EBITDA increased 19% and 10% respectfully with EBITDA margins averaging 19%.

During the quarter, we recorded $14.8 million of pass-through revenues on a large, deep water equipment project and otherwise enjoy the revenue mix that favored our subsea equipment and fixed platform product. We realized strong order flow during the quarter and booked over $250 million in new orders.

Reporting backlog at September 30, 2013 totaled $569 million with a book-to-bill ratio of over 1 time for the quarter and year-to-date periods in 2013. Noteworthy backlog additions in the third quarter included tendon connector products for a TLP, casing connector products destined for areas like Denmark, China, and Indonesia, along with deck equipment orders.

For the fourth quarter, we anticipate a higher level of specialty and standard casing and connector product sales, along with drilling and fixed platform product sales such that revenues are projected to range between $230 million and $240 million. EBITDA margins will depend upon our actual revenue mix, project execution, and overhead absorption during the quarter, but are forecasted to be in the range of 18% to 19%.

Our well site services segment generated revenues and EBITDA of $196 million and $64 million respectfully in the third quarter of 2013. These results compared to revenues and EBITDA of $186 million and $57 million respectively in the second quarter of 2013, which included a charge of $3 million related to an increase in an acquisition related contingent liability and a $1.6 million out of period revenue accrual reversal.

Excluding these nonrecurring items from the second quarter, revenue and EBITDA for the third quarter both increased 4% quarter over quarter. EBITDA margins for the segment remain strong at 33% and fell within our prior guided range.

Despite the essentially flat sequential US rig count, this segment grew revenues and profits, primarily due to greater service intensity in the active shale basins, particularly in the Rockies and Gulf region, along with improved activity levels in Canada following spring breakup which was partially offset by lower activity in the North East coupled with weaker drilling services margins.

In our completion services business, the number of tickets issued during the third quarter increased 9% sequentially while revenue per ticket decreased 2% when compared with the second quarter of 2013, as a result of equipment and service mix. In our drilling business, we experienced some downtime between customer contracts early in the fourth quarter due to permitting delays in the Rockies resulting from the government shutdown.

As of today, a total of six of our drilling rigs remain stacked, primarily in the Permian Basin. We estimate that fourth-quarter revenues for our well site services segment will range between $188 million and $197 million, depending upon the extent of holiday downtime, with EBITDA margins of 31% to 33%.

Before I conclude our prepared comments, I'd like to provide you an update regarding the planned spinoff of our Accommodations business. We made good progress on the spinoff transactions during the third quarter. In August, we filed a private letter ruling request with the US Internal Revenue Service regarding the planned spinoff of our Accommodations business.

This business will initially be spun off as a C Corp, which offers a faster path to separation and is expected to be tax-free to our shareholders. We also made substantial progress during the quarter on the initial draft of our form 10, which we expect to file with the SEC next week. We expect the review process with the SEC to take until March of 2014 to complete, which will include an audit of the standalone 2013 financial statement of the accommodations business.

In addition, we have begun the additional work necessary to refine our analysis of a potential reelection, which is being evaluated for the Accommodations business. We expect this work to be completed in the first quarter of 2014.

Expected to be done by first quarter of 2014. (multiple speakers)

Our focus over the next few months will be on identifying our management team, directors, and separate company financial structures. We are currently recruiting executive and management roles for both Oil States and the accommodations business as well as assessing potential candidates for the accommodations board of directors. It will be a busy few months working on the spin transaction, but we continue to believe that the spinoff of accommodations will enhance shareholder value for our investors.

In closing, each of our three business segments reported sequential operational improvements during the third quarter. We continue to focus on our business plan this quarter with solid execution and a continued focus on technology in our high-end product and service line. With the completion of the sale of our tubular services business, we are well-positioned to return capital to shareholders and take additional strategic steps to further enhance shareholder value.

That completes our prepared comments. Rhoda, would you open up the call for questions and answers at this time, please?

(Operator Instructions)

Sean Meakim, Barclays.

Hello, good morning Cindy and Bradley.

Good morning.

I was hoping that with some of the other announcements that have come through in the oil sands, we could just touch on kind of the opportunities for some bigger room count additions in 2014 and 2015? So Fort Hills, Shell had an announcement as well this morning and just kind of want to see what your thoughts are there.

You know, kind of coming into the fourth quarter, we're obviously going through our budget preparation and plans at this point in time. Just on a high-level basis, we have expected more of our growth in 2014 to the weighted to Canada, obviously, as opposed to Australia given what's going on in the market down there. We were, obviously, very pleased to see the formal announcement from Suncor and Total on the Fort Hills project this morning. I think everybody knows that this is one of the larger growth projects in the region that we felt like would be sanctioned. But of course, it has been delayed for some period of time, so validation of the investment decision was certainly welcome news this morning. Both clients are good customers of ours and we have been an obvious ongoing discussions with them. We do anticipate and have told you previously what we expect that their overall room count needs will be split between rooms that are provided internally by them and ones that will be outsourced.

I think we are in a very good position to supply them not only with existing rooms that we have deployed to accommodate some of their early works needs, which in all likelihood would help us solidify our utilization in existing facilities. But also, of course, we are eager to bid on their expanded needs as well. And so, overall, I'd just tell you that I think we are in a very strong position with them. But, of course, that work is exciting to everyone in the region, and it will be competitively bid.

But on balance, that is certainly very good news. I think you've seen on a lot of the customers in the region are really enjoying success. The production's growing. There's a lot of emphasis around SAGD developments as well that will help us realize good utilization and growth, I think, in our smaller lodge facilities as well. Again, more positive outlook overall for room count growth in Canada, but it does need to be bid and obviously, we would have to be successful for that.

If I look at Australia, I think I guided you in my comments earlier that the met coal market is almost somewhat bouncing along the bottom. We haven't seen material price improvements and it's hard to envision we're going to have much of that in 2014. Absent getting kind of that full-year contribution for the rooms that we are deploying this year, we're just not forecasting a lot of growth in 2014 as it relates to Australia. Again, we took a lot of care to try to get you to focus on the currency movements in the quarter. We did have fairly material impact particularly within an 8% sequential decline in Australia. If you stand back and look at the Aussie results, they actually performed well on a sequential basis. And of course, realize this is a separate full Australian dollar operation. We are not moving money out of the country, so other than kind of translation impacts, right now the currency moves don't have any real permanent or lasting impact.

Very helpful. Thanks for all the color. I guess one follow-up to that. In the press release, you talked about contracts rolling over in Canada to lower pricing and Australia, you know, falling occupancy. Could you just help us frame a little bit percentage of contracts rolling over in 2014 or what the magnitude is of the pricing rollover on the Australian side? Are we seeing anything in terms the extent of which we are on minimums or below minimums for occupancy on some of those contracts?

The comment as it relates to Canada has already happened. We have contracts in Canada that have been since the second quarter of this year, so second and third quarter so far, that had pricing step downs given the volume of work that the client had provided us under a take and pay contract. So that's not a contract rollover. That was just a contracted term. We have said that occupancy levels, as Cindy alluded to, remained challenged in Australia. I think they will continue to be challenging over the next I'd say 6 to 9 to 12 months given where met coal prices are. But as we go closer to the end of the year, will be able to give firmer guidance in terms of 2014 outlook.

Okay, great. Thanks a lot, guys.

Thanks, Sean.

(Operator Instructions)

Jeff Tillery, Tudor Pickering.

Hi, good morning.

Hi, Jeff.

The bookings in the offshore products business has spent most of the last year, kind of $200 million each quarter. Obviously, this quarter was a step up. How do you think about, quarter to quarter it's going to vary, but do you think we stepped up to a range where we can think about $220 million to $250 million is the range going forward?

You know, Jeff, as I've told you guys before, it really all depends on the size of the projects. I've kind of told you, we have what almost feels like somewhat of recurring base of revenues right now that we've seen in earlier quarters. I did highlight, or attempted to in my comments, that we were aided with some content on a TLP order. Again, I kind of call those the shots in the arm that can leverage your bookings and, therefore, your backlog up in a given quarter. There are a lot of things in the bidding and quote stage. Several of those have been delayed this year, so they're pushing forward into early 2014. I'd love to tell you that it is sustained at a higher level, but as you know, there's kind of a lot of lumpiness to it depending upon these large project awards.

There's quite a lot, of course, in Brazil. But I think everybody knows that Brazil, a lot of those things have shifted out. They've been fairly public about that. And ongoing orders in areas like West Africa, Southeast Asia, Gulf of Mexico, I think that kind of what you have seen in the earlier three quarters is feeling, again, at these industry levels as more of a baseline and then the higher bookings come when we get some of the larger project awards.

Okay. So that base level is kind of maybe not quite the full $200 million each of the quarters, but it's somewhere near that? And anything of the project nature would be kind of positive lumps on top of that?

That is essentially what we have experienced, I think, this year, yes.

And the Q4 shipments and that business is certainly a positive surprise. Do you think the Q3, Q4 levels are representative of what we see on average for next year?

I mean, again, it's a lot of mixed attendant things, but I will kind of refocus you back to the big picture that for these large projects, we do book on a percentage of completion basis. We have done so successfully for many years and that does have the tendency to have more normal recurring revenues than someone who books on a lump sum, completed contract basis.

So yes, I feel pretty good about that. I did highlight for you on the call, we have planned shipments of some large OD casing and connector services business. Those are more ship and bill type deliveries. As long as those ship, we feel pretty good about the guided range that we gave you. I did intentionally highlight a higher level of pass-through revenues that we had in the third quarter just so that you could put Q4 in perspective of Q3 without that pass-through content.

The last question I had. Completion services revenue margins continue to be quite strong. Doesn't seem like there's anything unusual going on there in the quarter. Anything worth calling out that was unusual that would've caused margin strength, or is this just representative of the market right now?

I do think we're doing a real good job of execution. I'm going to give Chris Cragg and his team a lot of credit on that. The other details of my comments, we had volume increases, i.e. tickets of about 9% but we actually had about 2% pricing declines. Some of that is pricing declines on our non proprietary equipment in selected markets and some of is mix. When you are as broad-based as we are, it's kind of hard to pinpoint what is what, right?

When you step back, it is basically this quarter, that sequential growth is activity based. And again, goes along with the theory of what we're -- the multi pad drilling, the longer laterals, the number of zones completed as drivers for activity. But again, there's not much in the way of pricing improvement. In fact, a little bit of modes erosion for us in the quarter. That's the best picture I can give you.

All right. Thank you very much.

Thanks, Jeff.

Stephen Gengaro, Sterne Agee.

Good morning. Two quick questions. First, on the share repurchase side. You obviously announced the repurchase program when you sold the tubular business. You also have a lot of cash, and your cash generation looks good. How should we think about the repurchase program going forward? And are there any restrictions around it as far as the spin is concerned and the timing?

I will start that, and I'm going to look to Bradley to kind of expand on my comments to the extent that I miss anything there. Just realize in the third quarter, we felt like we were somewhat, well not somewhat, legally, we were blocked from doing much share repurchase activity because of our knowledge of the pending sale of our tubular services business, which we did not complete until I think it was September 6. So that left a fairly narrow window to execute repurchase activity following the closing of that sale of the Sooner business.

Then I will also tell you, you know, just from a historical standpoint, our stock responded positively following the sale, so that's just a view of the feelings that we had here. Clearly, I think you all know we are focused on generating strong returns on invested capital out of cash on your balance sheet is not helpful to that. We did have a loss of earnings for tubular. That is a lot of the logic for why we stepped up and enhanced that share repurchase program to have the capacity available. We obviously have been in quiet period for earnings, so other than any 10b-5 activity we couldn't be buying right now anyway.

But I think the messaging is that, yes, we have strong cash flow. Our net debt to cap is 8%. We've got a lot of cash on the balance sheet. We believe in the value of the company. And so, again, we plan to -- we don't like the mechanically executed repurchase programs. We prefer to use our judgment, decision-making, be opportunistic, and we're going to continue to do that, but we obviously ramped up the level of that program for a reason.

Okay. That's helpful. And as far as any restrictions regarding the span in timing?

No, there wouldn't be any restrictions other than the normal blackout periods related to full-year earnings which would start January 1. But, no, and kind of normal run-of-the-mill volume restrictions.

Okay. Thank you. And then on the accommodations side, Cindy, you've been pretty sticky over the years with the EBITDA margin expectations. Is there anything that changes that given what you're seeing in Australia near term, or do you think you're contracted status and the potential growth in Australia -- excuse me, Canada, should keep us in that range?

We'll definitely firm of our guidance on 2014 on the next conference call, but I would say, initially, the margin performance in Australia, despite having some occupancy issues at a couple locations that we discussed, the margins actually were quite good.

The operating model of our accommodations business, the daily costs are very variable. Our team does a really good job when we see lower levels of occupancy in a facility of managing the staff and labor costs as well as the food and utility costs. So the margin performance, obviously, losing the high margin performance of accommodations to some degree next year will hurt the overall margins for the segment, but I think right now the long-term guidance stands.

Okay. Very good. Thank you.

Thanks, Stephen.

Jim Wicklund, Credit Suisse.

Hello, guys.

Hi, Jim.

A question you had mentioned $14.8 million of pass-through items in subsea and offshore?

Yes.

Is that going to continue? I know you gave guidance on margins for the fourth quarter, so I'm assuming you'll continue to have pass-through items. Is that a project that goes away in 2014, I would think, that negatively impacted your margins?

Actually, that project is already on the dock to be loaded out for Gulf of Mexico projects. Most of that impact hit Q3.

Okay. I noticed your tax rate in the quarter, and for the fourth quarter, is lower than it has been the first of the year. And since you got tubular, it's now below the line. Is that geographic mix or is that structure? Is there anything I should pay attention to?

It's absolutely geographic mix. It won't shock you to know that the US is the highest corporate tax rate in the world, and the tubular business was all US. So what that reflects is that you are going back to a greater mix of lower international tax rates. So as long as the business stays status quo from a mix standpoint, that's the kind of tax rate you are going to envision. I think Bradley gave you a precise guidance in his comments.

Incredibly precise, Bradley. (laughter)

It is as precise of a tax estimate as we can give.

I was impressed. I was impressed. You invested $150 million in CapEx in continuing operations expanding accommodations in US shale equipment. Can you give us a breakdown how much of that was accommodations and how much was everything else?

Bradley has got his, as you know, that favorite book that's about an inch thick (multiple speakers).

We spent about $74 million in accommodations in third-quarter, $32 million in well site services which was mostly completion services, and then the balance was in offshore products.

Okay. Last question if I could. Both FMC and Cameron have talked about how tree orders next year are going to be down, but more so, Cameron talked about how their V&M engineered valve business had seen lower orders, and Jack said that the three-year surge in spending for some of this stuff was kind of ebbing.

We get the impression that you are going to see a little bit less on the order rate for deepwater subsea equipment in 2014. Do you see that? I know the orders have been running fairly steady, but through 2014, do you expect them to be steady or will you be impacted by what those guys warned about?

You know, I think everybody knows. I'll say it for clarity for anybody new. We don't supply subsea trees ourselves. Clearly, they are incredibly integral to subsea development, but I'll also tell you to some degree, they made lead subsea development, meaning then you all have to have the interconnects back from the subsea wellhead to the, either shore, in the case of an export line or the FPSO in the case of something that's floating on the water.

Most of our content is more around export lines, interconnects to wells coming online as well as all of the flow lines that go up to the host facility. So I'm looking at my bidding and quoting activity, what's outstanding, I don't see a negative trend for the products that we offer and for our bookings in 2014.

Okay. Thank you very much.

Thank you. Good talking to you.

Chuck Minervino.

Hi, good morning.

Hi, Chuck.

A couple questions. Number one, on the mobile camp business, I guess there is some transitory issues in the quarter in Canada from the wet weather, but also maybe there's some, also some structural with the competition in that market. I was wondering if you could touch on the mobile camp outlook for 4Q and how you are thinking about that business over the next 12 months?

Well, the mobile camp business in Canada, and I assume your question is just Canada, in the third quarter, the wet weather and we had a couple projects because of the wet weather not get started in the timeframe that we were expecting, so we are hoping for a lift in mobile camp business in Canada in the fourth quarter, as you'd expect. But also because some of the projects we were hoping that would get kicked off in Q3 didn't.

As it relates to 2014, I think we'll punt that until we have a little better view on how the winter shapes up and a little bit better idea. That bidding activity for our mobile camp business is usually late November, early December, depending on how the weather turns out, as to getting a really firm picture on how the Canadian winter drilling season is going to look. So we'll give you an update as soon as we have a little better insight. At this point, it would be too early.

Okay. And then I guess the second question. I think you mentioned in the earlier remarks that you might be able to pick up some early demand for Fort Hills through some of your maybe existing facilities. I'm assuming maybe that's a Beaver River or Athabasca Lodge.

Exactly.

I don't know if you're able to do this or not, but can you give us any sort of idea what kind of capacity you have at those facilities that's currently available that can be like that market opportunity on your existing site that you can kind of pick up maybe -- I don't know if we are talking in 4Q or if we are talking and 2014, but allow us to maybe quantify that a little bit?

We'd rather not. I don't even have at the tip of my fingers, occupancy today at those levels. But as you know, those are the kinds of facilities that I think really optimize our activity. We built Beaver River and Athabasca probably back in 2006 timeframe and we're all the way into 2013. We support a multitude of clients, and it's not as if you have one major contract necessarily rolling off with a single customer. We have many.

That's why we would like to give you the summary data of overall committed rooms 2013/2014 to kind of give you a visibility and a feel for that. But at any one point in time, we may have multiple rooms or contracts rolling over, particularly in those two facilities.

Okay. And is the idea there that we -- that that early potential Fort Hills development, understanding that this was just announced today, is something that we can maybe see as early as early 2014, or would it be more of a later 2014 idea?

A lot of it depends on the activity of the customers, but Fort Hills has been on the drawing boards for quite some time. I feel fairly sure that they will try to move fairly quickly now that they've gotten the final investment approval to do so.

Again, just based on history, there's always some quick need for early works in the area. It would be very atypical for there not to be some level of demand for existing rooms where there is availability. And that would be likely in the first half of 2014. And then the longer-term incremental growth needs are likely to come after that.

Okay, great. And then just one last one. You typically in your investor presentations kind of update us on percent contracted rooms for 2014. I don't know if there's any update to that or anything new that you can give us for that?

There's really not a material update. I can just give you the most recent statistics. Of course, we are moving close to the end of 2013, so that percentage is in the 90% range. 2014 is right at 70%. And I'd say that's kind of a typical level of percentage at this stage of maturity in the year.

Great. Thank you.

Thank you.

Michael LaMotte, Guggenheim.

Cindy, if I could ask a high-level question on accommodations. We're all trying to figure out what 2014 looks like in Canada and Australia. But if I think about the fact that that business will be separated next year and then moving towards, hopefully, a first-quarter 2015 REIT conversion, one of the reasons you've talked about doing the separation is to give that business the potential opportunity to diversify into other business lines, other industries. I'm just wondering as you go through the 2014 planning process for CapEx for accommodations if it is too early to start thinking about diversification, or is that something we could actually see as a source of incremental room growth next year?

It's too early for me to comment on this call. In fact, we are having an offsite strategy meeting starting on Monday to discuss things like that in addition to our outlook, our budget planning. So we've got a lot we are doing. We have got a great business with a strong installed base. We are focused on execution and profitability on what we've we got. We will deploy growth capital where it make sense to do so.

We are not going to go crazy in new markets and change the profile of our company, but we do think there is potentially some attractive opportunities.

We are in the assessment stage, kind of the evaluation stage and the prioritization of what markets we want to take our people's time to focus on quite frankly. So I think it's a bit premature for us to give you any commentary on that and I think you have to focus on our core competency, enhance our utilization, sustain our rates and our margins, and execute on the spend. That is our focus right now through the second quarter of next year, but you can never stop your strategic planning, and we will not do so.

Okay. That's great color on the prioritization. Thank you. And if I can ask you to just expand upon what's happening in the Permian. It has just been a lot of chatter amongst the E&P companies. An opportunity there, and I know you're building up there, obviously, the rigs and well site services in particular is strong in that market. Any thoughts on what types of growth we could see and where it's likely to be a focus next year?

I'm going to say as it relates to the Permian, I'd rather you get that from our customers. There is a broad range, as you know, of projections in the Permian from ultimate recovery to production capabilities and capacities and the extent of activity. I don't think I am in the best position. I think our customers are in a much better position to help you there.

What I have seen from talking to the range of customers I have, there's just a pretty broad runway in terms of upside and downside on that market. But nonetheless, it is obviously an exciting market, a growing market. I was just a meeting yesterday and somebody projected, I will call, insane rig count growth in the market. (laughter) I hope it happens. It didn't come from my mouth.

Okay. Bradley, just a couple of quick cleanups for you. Depreciation expense, we went up here in the third quarter, we are going down again in the fourth. Any particular reason there?

We went down in the third quarter. That was exchange rate. That obviously changes that, primarily, obviously in accommodations. And then in the fourth quarter, we are adding some equipment. We'll start to have the full depreciation of things like Boggabri and some of the additions we did at Anzac and at Beaver River during the third quarter. Nothing material in terms of odd things happening in depreciation, by any means.

Okay. And then lastly on exit rate for the room counts, in Canada and Australia?

We are projecting to add -- get up to about 21,000 rooms for the quarter. Maybe we might do a little bit better for the fourth quarter. And we'll also be -- which will imply a lower RevPAR for the fourth quarter. Again, we're going to have the full quarter impact of primarily the lower Australian exchange rates. Now if we get an uptick and rates recover we will benefit from that, but right now, looking for a little bit over 21,000 rooms and a RevPAR that will be lower sequentially third quarter to fourth quarter.

All right, good. Thank you all.

Thank you, Michael.

John Daniel, Simmons and Company.

Thank you. Bradley, I don't know if you guys covered this or not, I apologize. But in terms of just room count growth for next year, specifically are there enough projects on the board today where you can see similar room count growth in 2014 as 2013?

Yes. Year-end to year-end? Yes. As was kind of alluded to earlier in response to a question, if we're fortunate enough to get -- and that will largely be dependent on winning some work on Fort Hills. We'll have some singles and doubles, if you will, in terms of opportunities and adding to existing locations. And again, it's mostly going to be Canada. We don't see a lot of growth opportunities in Australia right now, absent being able to execute on our longer-term goal of getting some iron ore exposure in WA. So net-net, I think year-end to year-end, that certainly possible. I don't see a lot more than that though, at this point.

Okay. And then just a follow-up to Stephen's question on the buyback. I understand limitations and all of that, but can you say if you been able to buy any shares in October?

As you know, we don't buy during quiet periods when we are making that decision ourselves. The only way we could do that is to have entered into a 10b-5 program as a Company.

Okay, but you guys don't have the 10b-5 in place, do you?

We have not executed under one, no.

Okay, that's all. Alright, thanks, guys.

Thanks, John.

Kurt Hallead, RBC Capital Markets.

Good morning. I guess I'll start off as well, just to stay on the general theme about room count growth dynamics. Wondering if you can give us an update on if there's been any changes to what you would consider a long-term growth opportunities for room count? I think you guys have outlined something along the lines of a couple thousand rooms per year on average over three, four, five-year periods, whatever it might've been. Just looking for an update on your perspective there.

You know, this morning feels better than it has maybe a quarter ago just because Fort Hills has been announced and we have been waiting on that announcement for quite some time. There's just so many different factors that influence my thinking there.

I am still fairly bullish on Canada, the Canadian Oil Sands. We saw nice movement on the WCS to WTI/Brent differentials early in the year. They've widened again, partially because our customers are successful and they're getting their production up. There's a lot of refinery maintenance going on. I think that has an impact. I always think that we'll deal with the transportation logistics around the Canadian Oil Sands, but certainly our government is not helping that with the Keystone XL pipeline, but there are other avenues that are being addressed there, but I still think there is always a little overhang. Again, I can't say that I am a raging bull on the Canadian Oil Sands, but I have a positive outlook.

Australia has been tempered for us just because met coal, well, large commodity price pressures, but particularly met coal price pressures this year. Still bullish on it, but there is a macro out there that has impact on our customers' activity levels.

That's the best answer I can give you. We are in a great position with the asset deployed. I think the quality of service, our capital structure around the accommodations business, our fully integrated approach to react positively when the market does come, but with a macro overhang that we see right now, we have got to adjust to that. I think we still feel good about the long-term, but 2013 has tempered our expectations just a bit for the near-term.

Okay. Thanks, Cindy. Then in terms of the completion. a combination here, you talk about greater service intensity, especially in the Rockies and Gulf Coast, with completion tickets up 9% sequentially. Can you just give us a little bit of a feel or color around what degree -- where are we in terms of increased service intensity as it relates to your businesses? And where do you think we can, when you think about completion dynamics on a year-on-year basis, what kind of growth in completion tickets do you think we might be able to look for in 2014?

A lot of this has to do with the geology and away the plays develop. One of the initial early very positive impacts for us were the extent of the laterals and the number of stages completed in the Bakken region. We've seen expansion in the Eagle Ford as an example, but not to the degree of what we previously and currently witness in the Bakken. I think the Permian is still at early stages around that, but I always think of -- the best way I can think of it is wells completed, extent of the horizontal footage, and number of zones. That's going to be the driver of the activity.

There is some new shale plays developing, which are positive, but I have always -- we've got a chart, we quantify well intensity as best we can measure it. In our industrial presentation it's been growing at a rapid rate. I think we're going to continue to see growth but at a lower overall rate of growth. Still growth, but a lower -- I just don't know that we can do too much more with current technology in terms of the extent of the laterals and the number of stages.

I'm just chiming in with everybody else what our customers are looking for is reservoir optimization, so a lot of what they're doing is not necessarily extending the number -- the footage drilled or the number of zones. They're looking at placement, targeting, and recovery optimization. Obviously, for us to be competitive, our technology has to keep up with those trends.

Okay. Great. Thank you very much.

Thanks, Kurt.

Jim Wicklund, Credit Suisse.

Hello, guys. This is actually Jonathan. Just quickly, nitty-gritty. RevPAR in 2014, Bradley, historically I think you guys may have commented kind of $108 is a good, warm area to be. Given where we are now, in 2013, is that still kind of good guidepost?

Well, I think we'll have to firm that up as we get closer to year-end, but I think that what has happened since we gave that guidance is that the currency is, generally and specifically Australia, has weakened. And so I'm reticent to affirm that until we get a little better insight and get a little closer to year-end and see where the currencies are and what we think we can do operationally in both places.

Okay. Thanks, Bradley.

Thanks, Jonathan.

And we have no further questions at this time.

Thank you so much. Thanks to everybody who tuned into the call. I know it's a very busy earnings day today. We appreciate your support and your following of the company and look forward to talking to each of you over the next quarter. Have a good remainder of the week.

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