Oil States International Inc (OIS) 2014 Q2 法說會逐字稿

Welcome to the Oil States International, Inc. second-quarter 2014 earnings conference call. My name is Angela 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 Gill. Patricia, you may begin.

Thank you. Welcome to Oil States' second-quarter 2014 earnings conference call. Our call today will be led by Cindy Taylor, Oil States' President and Chief Executive Officer, and Lloyd Hajdik, 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 thank you for joining our earnings conference call today.

During the second quarter we accomplished a major strategic initiative by completing the spinoff of our Accommodation segment into a separate publicly-traded company, Civeo Corporation. Today Oil States is a technology-focused pure play energy services company. And I am excited about future growth opportunities for our business segments.

Our second-quarter results were burdened with significant spinoff-related charges. But our continuing operations from our Well Site Services and Offshore Products segments were strong overall, with meaningful sequential improvement in both segments.

Leading our results for the quarter, our Offshore Products segment reported record revenues and EBITDA of $251 million and $56 million, respectively, with an EBITDA margin percentage of 22.4%. Order flow was also strong, resulting in a book to bill ratio of 1.1 times. Backlog reached a new record level and totaled $599 million as of June 30.

In our Well Site Services segment we reported sequential improvements in quarterly revenue and EBITDA, as activity in the United States accelerated during the quarter, partially offset by seasonal declines in Canada. Completion services jobs performed increased 5% quarter-over-quarter. And utilization of our land drilling rigs averaged 91% up, from average utilization of 81% in the first quarter.

At this time, Lloyd will take you through more details of our consolidated results and financial position. And then I will provide a detailed discussion of each of our business segments and give you our thoughts on the current market outlook.

Thank you, Cindy. Second-quarter 2014 results included charges related to the spinoff of Civeo Corporation, which was completed on May 30, 2014. We want to remind listeners that the historical results for Civeo in our previously owned Tubular Services segment have been reported as discontinued operations for all periods reported through their respective transaction closing dates -- May 30 for Civeo and September 6, 2013 for Tubular's.

For the second quarter of 2014 discontinued operations for Civeo included the allocation of certain transition costs, a portion of the interest expense associated with the Company's senior notes, and the write-off of deferred financing costs associated with the Canadian portion of the terminated credit facility.

During the second quarter we generated revenues of $460 million and reported net income from continuing operations of $47.6 million or $0.88 per diluted share, excluding the spinoff related charges totaling $110 million, or $1.33 per diluted share. Adjusted EBITDA for the quarter ended June 30, 2014 $109 million, excluding $9.6 million of spinoff-related charges.

In detail, these spinoff-related charges included $100.4 million, or $1.22 per diluted share, from a loss incurred on debt extinguishment associated with the repurchase of our senior notes completed in connection with the spinoff, as the fair market value exceeded the carrying value of the senior notes. In addition, we wrote off the unamortized debt issuance cost related to the senior notes and a previous credit facility which was terminated. Further, as I mentioned, we incurred $9.6 million, or $0.11 per diluted share, of transaction and related costs incurred in connection with the spinoff.

For comparison, in the first quarter of 2014, we generated revenues of $405 million, and reported net income from continuing operations of $35.6 million, or $0.66 per diluted share, excluding spinoff-related transaction costs of $1.4 million, or $0.02 per diluted share. On a quarter-over-quarter basis, revenues increased 13%. And excluding spinoff-related charges from both quarters of 2014, adjusted EBITDA would have increased 17% as a result of continuing strong demand for our completion services business offerings, higher utilization of land drilling rigs, and increased sales of production facility and subsea products in the Offshore Products segment.

In connection with spinoff restructuring efforts, on May 28, 2014, we entered into a new $600 million five-year revolving credit facility with a syndicate of banks. As of June 30 we had $182 million outstanding under the revolving credit facility. Further, we had total liquidity of approximately $451 million, comprised of $386 million available under our revolver after the reduction of standby letters of credit of $32 million, and $65 million of cash on hand. The new facility provides for an accordion feature of up to $150 million with additional lender commitments.

Our gross and net debt levels at June 30, 2014 totaled $189 million and $124 million, respectively, representing a net debt to book capitalization ratio of approximately 9%. And at June 30, our leverage ratio, using adjusted EBITDA, was 0.5 times.

During the second quarter of 2014 we invested $43.3 million in capital expenditures for our continuing operations. Spending primarily related to the addition of incremental completion services equipment deployed to service the active US shale plays, and ongoing facility expansions in the Offshore Products segment.

In the second quarter, we repurchase $2.7 million or 28,000 shares of our common stock under our authorized share repurchase program at an average price of $94.92 per share, which was pre-spin stock price. In July, we repurchase an additional 221,000 shares of our common stock, totaling $13.8 million at an average price of $62.19 per share. We currently have $219 million remaining under our share repurchase authorization which is scheduled to expire on September 1, 2014.

In terms of our third quarter 2014 consolidated guidance, we expect depreciation and amortization expense to approximate $31 million, net interest expense to approximate $1.7 million, and corporate costs to approximate $14.5 million. Our 2014 consolidated effective tax rate for continuing operations is expected to average approximately 35% for the full year, as a greater proportion of our earnings from our two business segments will come from our domestic operations.

The Company currently plans to spend approximately $200 million to $250 in capital expenditures during the full year 2014, primarily related to the addition of incremental completion services equipment and ongoing facility expansion in the Offshore Products segment. This is lower than our prior CapEx guidance of $275 million for the full year, due to the spend associated with the expansions of our Offshore Products facilities, a portion of which is expected to carry over into 2015.

At this time, I'd like to turn the call over to Cindy who will address activities in our business segments. Cindy?

Thanks. I'll lead off with our Offshore Products segment.

In this segment, we generated $251 million of revenues and $56 million of EBITDA during the second quarter, both of which were above the high end of our guided range, and represented quarterly records for the segment.

We achieved EBITDA margins of 22% in the second quarter, largely due to a good product mix, favoring production facility and subsea equipment, along with an increase in service work and improved cost absorption and facility utilization. We realized strong order flow during the quarter and booked $277 million in new orders. Backlog at June 30, 2014 reached a new record level, totaling $599 million.

To provide additional color, backlog additions during the second quarter included subsea connector products destined for Brazil, TLP equipment for both the Gulf of Mexico and Southeast Asia, cranes for Southeast Asia, and proprietary Merlin connectors destined for the Caspian Sea.

Despite just completing a record quarter, we believe that the third quarter's revenue will increase further and range between $250 million and $260 million due to higher activity levels in production facility of subsea equipment, connector products, and continued strong demand for service work. EBITDA margins, as always, will depend upon our actual revenue mix, project execution success, and overhead absorption.

Over the last four quarters our guidance for EBITDA margins has been in a range of 18% to 21%. However, given strong performance in the last two quarters, we are raising our EBITDA margin guidance for the third quarter to range between 20% and 22%, as revenues forecasted for the third quarter are expected to provide continued cost absorption and strong levels of facility utilization.

In our Well Site Services segment, we generated an 8% sequential increase in revenues during the second quarter, which totaled $209 million compared to revenues of $193 million in the first quarter of 2014. Activity in the US onshore markets continued to strengthen during the second quarter. EBITDA increased 6% sequentially and totaled $67 million. These sequential improvement for both revenues and EBITDA were largely due to increased land rig utilization, which averaged 91% for the quarter and a 5% quarter-over-quarter increase in the number of completion services jobs performed.

These results were impacted by Canadian spring break up, which experienced sequential declines, periodic sand shortages and logistical challenges faced by some of the pressure pumping companies that we work with. EBITDA margins were 32% during the second quarter, coming in at the low end of our guided range.

We continue to believe that North American onshore activity, well completions and service intensity will continue to rise throughout the second half of this year, absent a significant commodity price decline. We estimate that third-quarter revenues for our Well Site Services segment will range between $210 million and $220 million, with EBITDA margins of 32% to 34%. Embedded in this guidance is the expectation of continued strengthening in the completion services markets we serve, somewhat offset by slightly lower expected contributions from our drilling business, given some permitting delays currently being experienced by some of our drilling rig customers.

In closing, with the completion of a major strategic initiative, having successfully spun our Accommodation segment, Oil States is positioned very well to capture our share of the continued growth in both the onshore shale play market as well as the deepwater capital equipment market. We are very excited about the future of our Company and the opportunities that we see in the markets we serve.

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

(Operator Instructions)

Stephen Gengaro, Sterne Agee and Leach go ahead.

Thanks and good morning. The thing I wanted to ask about, Cindy, was, when I think about the job ticket numbers and how the margins play out within Well Site -- there's two parts to the question. One is, how big of an impact is the drag from Canada first quarter to second quarter? And then, second, how is the overall pricing outlook for those services right now?

Stephen, that's a great question. We spent a lot of time dissecting our results between the US operations which is, of course, the majority, but our Canadian results and international results, as well. The sequential impact -- and I'm going to focus on EBITDA this morning -- but the sequential impact on Canada was about $1.7 million Q1 to Q2. Which, if I did the math correctly, the margin impact on the EBITDA margin percentage was 1.1%. So, I think that gives you a feel for the impact on the quarter.

And I think the second part of your question had to do with pricing? Is that right?

Yes.

Our story, we've always tried to focus on activity enhancements, volume improvements. To some degree mix will always have an impact. As far as pure pricing, we're really not pushing pricing significantly.

But, again, we didn't really come down on a pricing basis like some of the North American peers did last year. Our margins remain at very high levels relative to the market peers. And so, again, there could be some mix of benefit, but we're really focused more on high-end equipment, such that overall we think pricing can improve. But it's not pure price book increases, if that's what you're asking about.

Okay. Thank you. And then just one follow-up. I think Lloyd mentioned the outstanding repurchase authorization. I think you said it expires September 14.

September 1 of this year, Stephen -- correct.

Would you expect to work through that by then?

I'd say we're opportunistic depending on the market, Stephen.

Okay. Thank you.

It looks like the market may be creating some opportunities right now.

That was my sense. That's why I asked the question. Thank you.

Jim Wicklund, Credit Suisse

Good morning, all, it's actually Jonathan. Cindy, my question you answered more or less about sustainability of the Offshore Products margins. Has the -- You mentioned mix and some of the products that were added. Has something changed as it relates to the go forward?

For us, we've been trying to get the message out that we have a decent portfolio of proprietary products in the market that are leveraged to loading production facilities, subsea pipelines, and the like. Again, a lot of things are in play here. As I mentioned in the color added on the backlog development, we are seeing TLP orders, as an example. The connector products destined for Brazil had to do with subsea pipelines. Again, our proprietary Merlin connector going to be Caspian.

The message there is, that's a favorable mix. And, so, that's playing into our revenue stream, number one. We certainly saw sequential improvements in our gross margin in the second quarter. The backlog being at record levels coupled with what we believe is a good mix sets is a pretty well to expand that EBITDA margin guidance.

There's always the caveat of getting things out on time, executing well. But we are incredibly focused on that.

For those of you that have been our shareholders for a long time and followed this for a long time, all of you know that we've had an intense focus and goal of getting these EBITDA margin percentages north of 20%. And I'm very pleased to say that we've now had two quarters achieving that goal. And, so, I think it would be wrong of me to put out cautionary guidance at the historically guided range when two quarters have demonstrated our ability to do it.

Absolutely. Cindy, dovetailing off that, you mentioned quality connectors in the release that closed late last year. Are there new products that Oil States is introducing to the market that are helping lead to additional growth going forward?

We're always rolling out, I will say, expanded technology on the margin. But a lot of this has to do with higher pressure, higher temperature, expanded capabilities of some of our base product lines. But, again, understand that our strategy has been to add in areas that we think can enhance our overall operations. Those being similar to the QCS acquisition, the Acute acquisition, the Piper Valve acquisition. And, again, I think that the improvement in the top line and the margin is validation that the strategy is working.

And then just one last quick one. On the completion tools that you replaced orders, are those pretty short lead time items that would show up in the second half of the year?

This is an ongoing process for us. We've been very attentive to the specific equipment demands in the regions that we operate in. Where we're seeing shortages we're trying to attack those rather quickly. We have some equipment coming in the second quarter

But, yes, we will continue to be proactive and try to get this equipment on the ground so that we're not turning down jobs. At the lead time, I generally ballpark six months lead time for some of the more complex equipment.

Great. Thank you, all.

Jim Rollyson, Raymond James

Good morning, everyone. Cindy, now that you have completed the Civeo spinoff -- congratulates on that, first of all -- and you got this nice clean streamlined company, and you think about getting back into growth mode like you've done before, is it more a strategy of continuing to focus on add-ins to what you're doing, like especially on the Offshore Products side and maybe on the Well Site Services? Or are there any other markets that you have interest in getting into down the road? Just curious your big picture thoughts on how you growth this going forward outside of just organically.

We've immediately commenced work on our next five-year strategic plan. And, interestingly enough, I call it just execution, small tuck-in acquisitions. We actually get very good five-year growth from that based on the market dynamics that we see today that translate into an attractive share price appreciation over that period.

My however is, I feel like we're in a great place because we're a much more focused pure play company. I think it does open the landscape up for some interesting opportunities that might allow us to grow the Company even at a greater degree than what would be otherwise indicated by the historical tuck-in acquisitions and, of course, organic growth, which we're focused on right now with the expansions in Brazil and in the UK.

But I generally look back and say we don't have to do transactions to make this Company work and make the stock price work. However, with the increased pure play focus that we have, I think we are going to see some attractive opportunities. Maybe the other thing -- and I think now that you can see what recurring operations look like and the cash flow profile of the Company, I think you can see that it's a pretty attractive opportunity step for us.

So, pretty much opportunistic, driven on the bigger M&A opportunities, correct?

Absolutely. I'm from the old school that think acquisitions ought to be accretive. So, we've always been selective. We've done a lot of things but we've always been selective in terms of the ones that we do.

And then just one follow-up maybe along the lines of what Jonathan was asking. You clearly laid out your view on the margin side of Offshore Products. Can you talk about how you see -- there's been a lot of talk about offshore spending and what direction that's going here of late. Yes, you've managed to keep your book to bill north of 1 times. Maybe what visibility you have and how comfortable you are on maintaining the revenue side of that equation.

It's going to come down to backlog development. And I have said all year long that my goal was to keep backlog north of 1 time. We have been successful doing so today. We've got a good quoting book ahead of us. So, I see no reason that that's going to deteriorate in the near term -- i.e., the booking rate.

And, so this should keep us bouncing along at record levels of backlog. There's certainly a lot in the organization that wanted one more million dollars of a backlog to get over the 600 mark this quarter. It just didn't quite happen.

The one comment I'd have for you, there's a laser focus right now that everybody has on leading rig day rates, floaters and jackups. And I've always been and still believe that a lot of that has to do with supply-demand dynamics, where rig supply has just gotten ahead of demand and putting downward pressure on rates. From our perspective, particularly with a portfolio that is more focused on production and facility, floating production facilities, subsea equipment, as well as, I'll call them, downhole consumables -- i.e., the Merlin connectors used on large OD casing conductors -- our outlook is very positive. And it's not tied to new rig construction, to a large degree. So, we feel pretty confident at this phase.

Now, I will also tell you it's a quarter-by-quarter, six month-by-six month exercise that we have to go through. And a lot of times these large projects do get deferred. Rarely, particularly on the production side, do they go away. All of our customers are challenged with getting their production up. And so rarely do they go away.

We did have a lot of project deferrals last year but, nonetheless, exited the year 2013 with strong backlog levels. But, of course, that gave us pretty good confidence in making the statement that we should be able to sustain that book to bill north of 1 this year. And I think it's playing out pretty much according to expectation.

Great. Thanks for your thoughts, Cindy.

Blake Hutchinson, Howard Weil.

Good morning. Maybe the way to just follow-on to that line of questioning, I know over the course of the year probably one of your least favorite questions has been drilling-based order flow. As we look at the strong order intake for Q2, can you give us some broad strokes what might have been derived from the more drilling compartmented portion of your business? And maybe give us some insight even further than that to what would be considered new build rig derived.

Again, I draw a distinct differentiation. When you say drilling, there's two things -- what is a downhole consumable in the drilling process -- which we love because they're not life-of-field type investments, quite frankly -- and what is rig equipment. In my investor base, it's laser focused on the differentiation between equipment going on new build rigs given the current oversupply of rigs, and what is more production infrastructure-related.

I have not done the math so I'm going to just as you to bear with me when I give a swag on what might be drilling equipment-oriented. It might be in the 10% range, if that's helpful. And generally speaking, it has to do some valve technology going on drilling risers. And certainly if there is a new build rig, our drilling riser flex joint, which is the proprietary, is on about every floating drilling rig in the world. But given the breadth of our product line we are not overly dependent upon new rig orders to sustain our activity level.

That's exactly what I was looking for. I appreciate that. And then switching over to some of your comments on the completion services side, you alluded to this. And maybe it's because we hold that segment to such a high standard, but the relationship between job count and revenue per job -- maybe this is reading too much into it -- your equipment is spending perhaps more time on location, especially your proprietary equipment, as the job gets more intense. Did you, in any widespread fashion, run into what you would deem capacity limitations more quickly than you would have thought?

We always are going to have isolated regions where we have to turn down a job, if that's the question. But, again, we try to be on top of that and anticipate it such that that does not occur.

I'm going to tell you I don't think it is broad-based. And for us, again, the job tickets being up 5%, I venture to tell you the US side was of a bit higher. It was reduced by spring break up in Canada. So, job count's not going to tell the whole story between the two.

It was a good quarter. If I look at our sequential performance, Well Site Services was up about 8% sequentially. I've looked at all of the North American peers, generally, and I think that is in a good position on a top-line performance relative to those peers.

I will say -- could it have been better? -- sure. We're leading to increased top line. That's embedded in our guidance. But part of that is because we have witnessed logistical challenge, some of which has come out on conference calls by the pressure pumping companies and, again, sand shortages, logistical challenges, water. There's several issues out there. But I'll just say, on the margin, that has impact on us.

We always say our equipment is the entry point of a pressure pumping job, so if that pressure pumping job is delayed, some of our equipment or the job we expected to go out on gets deferred. They happen, but they get deferred. And, so, again on the margin, I think we're going to see our top line go up sequentially.

Great. So, maybe a little bit more of their downtime for the interim period becomes your down time than any limitation on capacity

Yes. And, again, the jobs don't go away. They're just deferred.

Right. Thanks for the time. I'll turn it back.

Jeff Tillery, Tudor Pickering and Holt.

Hi, good morning. One of the things we're seeing pretty widespread adoption of is frac intensity, it's been growing pretty significantly but it seems to have taken a step function change over the last six months. As we think about the impact of the completion services business, what does that mean for you guys? If a Bakken well goes from 30 stages to 50 what does that mean for you guys?

Chris just gave me two thumbs meaning that's a good thing. As we've said, and, again, we try to put in the investor presentation that are revenue has grown has significantly outperformed the rig count. And I've always said that a measure of that is the lateral or horizontal footage drilled and the number of stages completed. And so if we, in fact, have that increase, that's going to be very favorable to our top line.

Is that just the tool on site longer? Do you have anything that charges by the stage? I'm just trying to think through mechanically how that flows through.

It's a combination, but a lot of it is days on location. And think about a really high end job. Number one, it's going to command a higher pressure, higher temperature equipment. Think of that as being a multi-pad type activity.

You're not going to do all of the trans-in, trans-out. You're going to leave that piece of equipment on location. So a lot of it is just increased days on location. And it becomes mix because that's our higher-end equipment, as well.

And I think that's probably -- it's hard to say, there are a few things that are priced on a job basis. But I think the bigger thing is it lends itself to a higher-end operator. We don't have as much competition from some of the smaller startups in those types of activities.

That's very helpful. And then, as you think about capital structure going forward, obviously half a turn of debt is low, with the portfolio of the new Oil States. What's a high end you're comfortable with? I'm just trying to think through, as the next few years play out, what is a reasonable high end to think about for debt level going to?

It's always hard to say what is the maximum you would ever undertake. But, again, the cash flow profile of this business is very comfortable. The fact that we have backlog gives us good visibility in Offshore Products, generally for a year. You normally see if there's a market hiccup or so, we have a year visibility before we are impacted by that.

But I'll just prefer to say we're really looking towards more a targeted debt to cap range of 30%. That doesn't mean I wouldn't feel comfortable going higher than that, depending upon the terms and conditions of the lending that is out there. But I think it would be a mistake to have no mix of debt versus equity, and so we're more looking at a targeted range long term in that 30% range.

Okay. Thank you very much.

Kurt Hallead, RBC.

Good morning. I continue to be curious, and it dovetails on one of the earlier questions, you talked about stages being a good thing for your Well Site Services business. And you had some proprietary completion services technology that you're employing in the field. Can you give us some general sense of maybe an update on how we should be thinking about the prospective pricing power opportunities in the US lands business and US completion business, given that it looks like the frac services business is starting to accelerate in and of itself, and the prospects for pricing power in that segment are increasing. And bottom line is that will (inaudible) positive leading indicator and what kind of magnitude of pricing power could we ultimately expect out of that business?

I go back, Kurt -- expanding activity's great, mix will improve us. Obviously if it gets really tight on equipment, and we have the fairway to increase in pricing, we will. But I just caution everybody, a lot of the sequential margin improvement for these peers is because the pricing collapsed last year. Ours did not.

And so I always look at it in that vein. Do I think we can get pricing if we go from 20 stages to 50 stages and we have an improving -- absolutely. We know we can. But we're really not forecasting that and that's not embedded in our guidance range that we gave you for Q3. I don't know if that's helpful, but we really not trying to be a snap back story here.

A good way to look at that is through the cycle pricing. If you look at our historical margins in Well Site Services over the last three or four years, they've averaged in the low to mid 30%s. And now our guidance is 32% to 34%. We haven't seen the volatility in our margins similar to what the pressure pumpers have had.

Got it. That's great. That's perfect for me. Thanks a lot.

Jeff Spittel, Clarkson Capital Markets

Thanks, good morning, everybody. Cindy, maybe if you could walk us through how you think about devoting incremental growth capital to the completions business. Is that more a function of looking at things on a case-by-case basis in the equipment availability within your fleet, or is it also combined with proactively looking at the pressure pumpers starting to add a little capacity on the horsepower side?

Yes, we have all of our market dynamics there, including, of course, a lot of customer conversations, trying to understand what their needs are going to be. But I think we've got, with our breadth of operations and our boots on the ground, so to speak, we have a pretty good idea of what we need to be bringing in equipment-wise.

We will take indications from pressure pumpers but, honestly, with the rate of expansion that they experienced that caused a significant price weakening in 2013, I'm glad I didn't follow exactly what they did.

That's what I was looking for. That's good news. And then maybe shifting to Offshore Products. It sounded from the last couple like the mix of potential awards that are out there in the pipeline, still plenty of larger projects, TLPs. Does it still look like there's a pretty good mix of potential proprietary awards in the pipeline over the next few quarters?

Absolutely. If you wanted expansion around that, I've said before, these are fairly broad based. And I hope you got it from the color we added. We had good content orders in Brazil. We had them in Southeast Asia, Gulf of Mexico. We didn't per se announce any in West Africa, but we are seeing bidding and quoting activity there, as well, as are many players in the space.

All right. I appreciate the color. Thanks.

Stephen Gengaro, Sterne, Agee and Leach

Thanks. Cindy, I wanted to just follow-up because you've gotten from me and others the pricing question on completion. I look back -- your incremental margins in Well Site Services over the years, they look very healthy, in general. And I think I'm looking at something 30%-plus. Is that a realistic expectation?

Absolutely. You had seen obviously the sequential impact for us this quarter masks some of the Canadian spring break up. But if you look over the course of history, absolutely, those are very reasonable incrementals, if not higher.

Okay. Thank you. I just wanted to calculate the earnings leverage. It's still pretty significant even without, quote/unquote, significant price moves

Yes, I'm glad you pointed that out. You're absolutely correct.

Okay. Thank you.

(Operator Instructions)

John Daniel, Simmons & Company

Cindy, can you provide some additional color on the land drilling utilization assumptions you're expecting for Q3?

I'm not trying to be alarmist in any way but for us, particularly with some of these smaller operators, both in the Permian and in the Rocky Mountain region, they're having some permitting delay. We call it gap in the schedule, not anything else. But you're going to lose a week or two here or there until those issues are resolved.

We had a really good second quarter, both in terms of utilization, efficiency, cost management, and control. And we're just going to say on the margin we're probably going to be down modestly in Q3 because of a few gaps. We watch it day by day and there are certain rigs that are down for isolated periods of time. I don't have a projected utilization statistic for you, but think somewhere obviously mid 80%s would be my guess.

Okay. And will that have an impact on the implied day rates, the revenue per day, coming down too?

I don't think so. A lot of the day rate impacts right now are, are you doing footage, are you doing day work, and what's the transient modes in and out, as you know. You know the business well, John.

Okay, just checking. Last one is on the share buyback program, and I apologize if someone asked this and I wasn't paying attention, but I think you said it expires on September 1.

I'll just caveat. We've got a board meeting in August.

Okay. All right. That's all I got. Thank you very much for your time.

Blake Hutchinson, Howard Weil.

Good morning, again. Sorry to re-queue but this will free up some time in the afternoon for Patricia and Lloyd.

They'll appreciate that.

Absolutely. Can you reset for us, just to help us from a franchise perspective, what your mix Gulf of Mexico versus rest of the world is in offshore? And I ask that partially really from a tax perspective is that radically different? I'm trying to get around point of sale, point of derivation, and tie it back to the tax rate guidance.

We really don't even follow internally that spread because it varies. It's project dependent. I'm more interested in where is the project, where is the equipment destined. Those are two very different issues from where is it manufactured and produced. Which, that's going to attract the taxation question.

So, you really have the demand driver and then you have the manufacturing location. As Lloyd has given you good guidance, first of all, we spun off Canada, we spun off Australia. If you look at 2012 and 2013, I don't have the effective tax rates in front of me, but let's say they were high 20%-ish, that is because of the weighting of those foreign operations. I think everybody knows US tax rates are about the highest in the developed world and we're going to be your US-focused.

First of all, Well Site Services, is weighted towards the US activity. And then from a manufacturing standpoints in Offshore Products, I'd say our major manufacturing locations are the United states, the UK and Singapore, although we have pipeline contribution elsewhere. But that weighting towards the US is going up.

Right. And if the guidance is almost at statutory US, then most of the Offshore Products we could probably consider US. And I ask, the whole point was to get to -- your cash on hand is mainly US domiciled and we should expect most of the free cash generated to be similar?

Actually, the cash on hand that we have here is mostly outside the US. And on the tax rate, the way I look at the 35% is in the US you obviously have the marginal tax rate plus state taxes, that actually takes you above 35%. So, there's some of the benefit from the foreign operations that's bringing it down. So, the blended rate around 35% has above the state taxes and slightly below with foreign taxes.

Great. That's helpful. Sorry to belabor the call, but have a good afternoon.

We have no further questions at this time.

Fantastic, Angela. Appreciate you hosting the call. And thanks to everybody for joining us today. We look forward to continued activity with you as we progress forward. We're very pleased. I think our 10-Q will be filed today, as far as I know. The beauty of that, I think, it again gives good visibility of continuing operations and a clean balance sheet that will help you model going forward. And, so, thanks again for following the Company and we look forward to future meetings with you.

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