Weatherford International PLC (WFRD) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the Q3 2004 Weatherford International earnings conference call. (OPERATOR INSTRUCTIONS). I would now like to turn the presentation over to your host for today's call, Mr. Duroc-Danner. Please proceed, sir.

Good morning. We will do what we normally do which is Lisa will read our comments. I will read mine and we'll take questions. Lisa?

Good morning. This morning we reported diluted earnings per share from continuing operations of 49 cents. The 49 cents compares to 40 cents last quarter, excluding last quarter's gain on our sale of Universal stock, and it compares to 34 cents for the same period last year.

On a Company-wide basis revenues increased 52 million over the prior quarter. Eastern Hemisphere revenues improved 20 million, or 7 percent. North American revenues grew 30 million, with a 17 million increase in the U.S., and a seasonally lead 13 million increase in Canada. Latin American revenues were essentially flat. They were up $2 million.

The following is a more in-depth geographic discussion of the increased revenues. As I mentioned, Eastern Hemisphere revenues increased 20 million. This was nearly all volume driven, though pricing continues to move up with new tenders. Europe/West Africa and Asia both had 12 percent sequential growth. The North Sea contributed $8 million in spite of the negative impact of a $3 million decline in Norway revenues due to the strike.

North America. 13 million of the 30 million increase was the seasonal recovery in Canada. The recovery was in the Production Systems division, not Drilling Services. Drilling Services revenues in Canada were only up slightly as they were negatively impacted by the wet weather.

The $17 million increase in the U.S. revenues reflects the benefits of $5 million from pricing and $12 million from volume. The pricing is a result of the success of our price increase instituted in July. As a reminder, it typically takes 60 to 90 days for the price increase to move through the billing cycle. And we normally expect to realize two-thirds of any price increase.

The July increase was 6 percent. We realized two-thirds, or 4 percent of the increase -- 4 percent as expected. The benefit was for approximately half of the quarter, so there's only a 2 percent benefit in the third quarter's results. Another 2 percent benefit will be realized in the fourth quarter.

The U.S. volume increase of 12 million was in spite of a loss of revenues directly attributable to the hurricanes in the Gulf of Mexico. We estimate the loss of revenues in the Gulf at $9 million for the quarter. Furthermore, there was a fire at one of our manufacturing plants in Louisiana that caused a production curtailment. This negatively impacted our results, though not substantially.

In summary, 47 of the $52 million revenue increase was activity and marketshare driven, $5 million was pricing. Of the 47 million in activity gains 13 million was the seasonal recovery in Canada.

Operating income increased 21 percent sequentially. Our consolidated incremental operating income margin was a healthy 36 percent, despite higher corporate expenses and lower equity and earnings. This strong showing was due to the excellent divisional incremental operating profit margin of 45 percent.

Return on capital employed increased 119 basis points this quarter, and that is 172 basis point improvement year-to-date.

Now let me touch briefly on the divisions. Drilling Services, revenues were 6 percent higher as compared to the prior quarter. Eastern Hemisphere revenues increased $8 million or 4 percent. Latin American increased $6 million, 16 percent. U.S. revenues increased 11 million or 7 percent. Canada revenues were 1 million higher than the second quarter.

On a product line basis and ranked by size the revenues broke down as follows. Well Construction, 36 percent; Drilling Tools, 24 percent; Drilling Methods, 21 percent, and Intervention Services, 19 percent.

Incremental operating profit margin was 43 percent for this division. Furthermore EBIT margins at 21.7 percent were up 120 basis points sequentially and 310 basis points year-to-date. Divisional return on capital employed improved 340 basis points year-to-date.

Production Systems. From a geographic perspective, Eastern Hemisphere increased by 15 percent or $12 million, led by improvements in Europe/West Africa. Latin American revenues declined $3 million. And the U.S. revenues improved 5 percent or $6 million. And Canadian revenues improved 15 percent or 12 million sequentially. Third-quarter revenues by product line were Lift, 52 percent; Completion, 34 percent; and Production Optimization, 14 percent.

This division had very strong incremental operating income margins, it was 47 percent. EBIT margins in this division improved 290 basis points sequentially and 200 basis points year-to-date. Production Systems' return on capital employed improved 140 basis points year-to-date.

On the cost savings side this quarter exceeded expectations. This quarter we realized incremental savings of $2.9 million. The savings were primarily from incremental manufacturing that was moved out of the United States to Latin America and Asia. Fourth quarter revised incremental targeted savings are expected to be $3 million.

The above improvements were offset by lower equity and earnings and higher corporate SG&A. Higher corporate SG&A is primarily a function of the Sarbanes-Oxley 404 project. Corporate SG&A is expected to stay at this level in the fourth quarter and into 2005. Lower equity in earnings is due to our reduced ownership of Universal, resulting from our sale of 3 million shares of Universal common stock at the end of the second quarter. Other expense was essentially flat with the prior quarter at a $1 million loss.

We have provided in the press release selected balance sheet information, but I would like to highlight the following. We continue to improve our working capital. Days working capital decreased 5 days this quarter, and furthermore it has decreased 16 days as compared to the same period last year.

Capital expenditures. Net of loss and hold (ph) were approximately 66 million for the quarter, or 190 million year-to-date. Capital expenditures for the year will approximate $260 million.

This quarter we generated 133 million of cash. Net debt to capitalization inclusive of our zero coupon convertibles declined to 300 -- declined 330 basis points to 30.9 percent.

Before I turn the call over to Bernard, I would like to comment on our expectations for the fourth quarter. Our fourth quarter should continue to show very strong operating results. We estimate earnings for the fourth quarter to be 52 to 54 cents per diluted share. And we expect the deltas to be from the following regions. Approximately 3 cents contribution from the United States, and this is a combination of the full quarter benefit of the price move and less of an impact from the hurricane. So we do still have some work that is being delayed.

There will be a 1 cent positive impact from Canada, as our Drilling Services division was negatively impacted in the third quarter from the wet weather. An incremental negative impact from Norway of 2 to 3 cents, depending on the length of the strike. At the exit of the quarter we were losing over $1 million of operating income per month due to the expansion of the scope of the strike. If this continues through the end of the fourth quarter, we would lose 2 to 3 cents per share sequentially, close to 3 cents if it continues all the way through the fourth quarter.

Eastern Hemisphere, excluding Norway, should contribute an incremental 2 to 3 cents positive. Revenue gains in the Middle East, North Africa and Caspian regions will be offset in part by the seasonal decline in the North Sea.

Now at this point I would like to turn it over to Bernard.

Q3 was a very good quarter, a strong acceleration of earnings, and such in spite of unexpected problems. We had a bevy of exogenous problems in Q3, and I think they're well advertised -- the Gulf, Norway, Canada, and civil unrest in Nigeria. Some of our other problems were not as well advertised, primarily a fire at what is our largest (indiscernible) manufacturing plant in Houma, Louisiana. (indiscernible) August.

In spite of this, our revenues grew sequentially by 52 million, and it was primarily volume led and across all geographic markets. Our margins grew sequentially by 160 basis points. Our earnings grew sequentially by 23 percentage points. Return on capital employed rose sequentially by 120 basis points. Cash generated in the quarter was 133 million. Revenues per employee, which is a key productivity measurement, grew sequentially 5.1 percent to a 179,000 (indiscernible) $77. This is the 12th consecutive quarter of employee productivity growth. These are all good numbers.

Another solid quarterly performance should not be surprising, and certainly should not be considered a peak. The oil and gas industry and Weatherford are in the beginning of a multiyear expansion phase. Looking at this industry through a cyclical lens is missing the underlying engine of growth. Activity move is secular and multiyear. Activity increase will be extended in time, but strong. Growth is likely to be rigless as much as traditional rig related. In this environment Weatherford intends to deliver superior financial results, coupled increased returns. And this on the back of technology and infrastructure investments we have already made.

Q3. I don't want to repeat what Lisa has just presented. Q3 obviously showed a strong 7 percent topline growth in the Eastern Hemisphere, followed by 6 for the U.S. They're both remarkable in that Norway, Nigeria on the one hand and the Gulf on the other natively impacted their respective regions by a combined 12 million in deferred volume, which is a lot for a quarter.

Eastern Hemisphere gains were essentially volume. The U.S. was one-third pricing, two-thirds volume. Latin America was up, but marginally. And Canada was up seasonally, but as anticipated, less than expected because of the weather. The Drilling Segment in particular, which is the one that shows the most volatility in Canada, was essentially flat Q2 on Q3.

Not a lot to say about the products and service lines. All of the group -- all of them grew in both divisions. I suppose that in the Drilling division one would say that Drilling Methods and Well Construction took a back seat to Drilling Tools and Intervention Services. Within Drilling Tools the proprietary line of drilling tools is doing particularly well.

Production divisions, all product service lines, whether Lift, Completion or Flush Optimization were up quarter on quarter by an identical 8 to 9 percent. So essentially the quarter showed progress on all fronts. It is hard to differentiate much between regions or product service lines, beyond the publicized Gulf, Norway, Canada, etc.

Outlook. For us there are two factors that determine our outlook. One is the direction of the Company. The second is our assessment of regional markets. The Company's direction has been and will remain intensely organic in its focus. We have committed our organic resources to technology, Eastern Hemisphere infrastructure, supply chain management. It's not going to change.

Our doubling of R&D over the past four years is well known. We intend to keep an 80 to $90 million R&D commitment, and will be unrelenting in our technology thrust. Over the past 24 months we have increased the size and scope of our service infrastructure in Eastern Hemisphere, starting with a large cross-section of the Caspian, Middle East, North Africa and Africa.

For example, over 24 of our facilities in Middle East, North Africa, Caspian and central markets are either new or more than doubled in size. We are essentially done in that part of the hemisphere. We're focusing now on the scope and scale of the Asian and Russian infrastructures.

Eastern Hemisphere is already our largest (indiscernible) market, with 38 percent of our consolidated revenues. The intent is to provide the infrastructure backbone for substantially a larger level of business volume over a 2005 to 2007 time frame. And frankly I stop at 7 because it becomes academic, but you can extend the time frame. Eastern Hemisphere business volume growth is expected to be for Weatherford as much rigless as traditional rig related.

Supply chain management has yielded year-to-date through Q3 about 100 basis points in margin improvements Company-wide. These are earnings in return improvements that are clearly harder to gain than pricing moves, but conversely they are more reliable and secular in nature. Furthermore, they are accumulative with pricing. Obviously not a substitute. Our emphasis on technology, Eastern Hemisphere and supply chain remains our direction in '05. It will not change.

Targeting our directions to topline and margin and outlook into 2005, a couple comments. As an initial marker we calibrate worldwide average rig activity in '05 to grow about 5 percent on Q3 2004 levels. Now listen to me clear. This is 2005 compared to our most recent quarter growth rate, not 2004 and 2005 year-on-year growth rate. That 5 percent assessment is a conservative view.

Second point, with that said, we expect Weatherford to grow at 50 percent, 50, greater rate than the underlying rig activity, which is the 5 percent above. Specifically, I'm thinking of the starting base, our most recent quarter, Q3 '04, we expect underlying rig activity in '05 to show a 2 to 4 percent volume increase in the U.S., a 15 to 20 percent volume increase in Canada which is essentially a catch-up for the suppressed levels of Q3 2004, but beyond our prognosis is flat.

A similar 2 to 4 percent volume increase in Latin America, quite differentiated by country, and a 7 to 9 percent volume increase in the Eastern Hemisphere. The North Sea, UK, Norway, Holland, Denmark, which is obviously in the Eastern Hemisphere, will match the rest of the hemisphere's growth, albeit in the case of North Sea from a cyclically depressed level. Overall this translates into an '05 volume increase as evidenced by rig activity over Q3 '04 of about 5, 5 to 6 percent. That is our best assessment. It is a conservative assessment.

As stated above, Weatherford expects to exceed market growth by 50 percent, and therefore just arithmetic would expect '05 volume increase at Weatherford of circa 8 percent over Q3 2004 levels.

Volume increases that are rig related or rigless yield incremental cash flow. Our current operating income, that is EBIT, margin Company-wide is about 14 -- 14 -- percent. And from operations, excluding corporate overhead, it is about 16 percent. That is operating income margin.

We calibrate incremental EBIT on incremental revenues at 25 percent to year '05. This is a function of further supply chain gains in '05 that we expect, net of governance overhead inflation. Two, a gradual change of the mix towards higher technology content product service lines. And three, known pricing groups.

Supply chain and technology lead needs a drive to improve margins. Supply chain is a continued thrust in manufacturing. There's logistics, procurement and systems. We described it a culture change at Weatherford. The change in mix has to do with the emergence of products and service lines that either have been reengineered, such as Tubular Services and Liner Hangers and Well Construction, or that commercialized new technology whether broad-based, such as under balanced, (indiscernible) expandable, structure (ph) optimization, or with the more narrow spectrum, such as thru-tubing, multilaterals, extended reach drilling tools, etc.

Pricing. We tried to always be aggressive on pricing. In fact, as Lisa mentioned we have progress to report on both U.S. and international pricing. In international markets recent pricing moves have been a contract by contract, a country by country phenomenon, but with what appears to be a 5 to 10 percent upward trend. In the U.S. the initial 6 percent list price increase initiated in June -- June, July -- June actually, has yielded as expected 4 percent in realized pricing, a 2 percent impact in Q3, and the other 2 percent will impact Q4. It is possible that pricing in both international and U.S. markets have further upside.

We would caution though against baking any further pricing upside yet in our numbers until evidenced by the marking case. In other words, we would rather show them to you rather than you anticipate them, just in case.

In the same speculative realm it is also possible that some of our very cyclically depressed markets turn more positive in '05 than expected. We essentially have got (indiscernible) comment. As a reminder Weatherford cares a great deal about the North Sea and Gulf of Mexico. For historical and Product Service reasons both offshore markets were disproportionately important to Weatherford.

In late '01 the North Sea and the Gulf of Mexico represented over 25 percent -- 25 percent of Weatherford's revenues. Both markets (indiscernible) represent a little over 16 -- 16.5 or so actually -- of Weatherford's revenues in Q3. Actually up a little bit. It was 16 percent in Q2. So clawing our way back.

When the June decline came, Weatherford was by far the most exposed oil field service company in the MidCap, Large Caps space. Since '01, both North Sea and Gulf of Mexico experienced a volume contraction of 35 and (indiscernible) respectively. I think you all know this. Concurrently pricing, particularly in the Gulf -- U.S. Gulf and Gulf Coast markets showed a severe erosion peak to trough, somewhere in excess of 25 percent.

At this point the North Sea has begun to recover. The Gulf is still looking working off the bottom. The prognosis appears squarely better than the North Sea. We have been early bores on the North Sea so we are -- we are completely consistent. This is reliable and should carry through the next three, possibly five years.

The North Sea, starting with the UK and Holland. It should be substantially stronger in '05 and '06. Norway will follow with a lag. Now Norway has been through a nasty strike. However, beyond the strike there is much to catch-up in Norway. And I would also take stock of the fact that the Norwegian government just put forth a set of changes in tax laws with respect to the EMP (ph) sector which are a real positive. And small streams make big rivers. This will help also. Both increase the scope and the scale of what will happen in Norway after the strike obviously.

A combination of factors is coalescing to turn those markets. You know this also. Under investments and from current production declines by the operators in those markets, a change of operator which has been slow and messy, it is still underway. Under utilized and available infrastructure pipelines, for example, and encouraging governmental policies. I just mentioned Norwegian, which is as recent as this morning -- but the UK in the recent months, etc.

As referenced in Q3, Weatherford's combined North Sea revenues, UK, Norway, Holland, Denmark were 77 million, 77 or 10 percent of the Company's revenues. Still on the percentage basis a fraction of what it was.

Prognosis for the Gulf unfortunately remains much more speculative. Separate and distinct from the aftermath of the hurricanes, the Gulf remains tough, setting aside the deepwater segment, which that one is vibrant and prosperous. There are glimmers of hope. Some activity increase appears possible in the next few quarters. It is centered -- well, centered primarily, but not only, around the intermediate and deep zones of the shelf. It is speculative though, and at this point we don't want to say much more about it, except to say that we should have further visibility for this market by Q2 of next year. We certainly hope the visibility is positive, because it will make a big difference at Weatherford.

Product line segmentation in '05, '06, we expect the following segments to materially outpace market activity and corporate-wide growth. Well, on the balance and managed pressure drilling, mud cap drilling process, they are all related. Well Construction on solid expandables.

A new line for proprietary drilling tools that are addressing drilling housing mitigation -- extended reach, differential sticking (ph), etc. That is actually also a byproduct of our engineering and R&D over the past three years, coming on the market.

(indiscernible) Provisional lift optimization. (indiscernible) monitoring. Field optimization or brown field. I think underbalances and all the related processes is expected to have the highest growth rate, follow by Well Construction and Proprietary Drilling Tools. This is on the drilling side. And when it comes to underbalances at this point the backlog of projects are substantial.

The growth rates at Proprietary Drilling Tools are accelerating. Well Construction, which is the Drilling division's largest core, is also showing strength. And Well Construction, probably the most significant story I can add is that in '06 there are substantial gains to be had in the deepwater market share, U.S. and international. And it is likely to be enhanced in '05 and in '06 -- through '05 and '06. And this is likely to be enhanced in late '05 and more likely in '06 by the emergence of solid expandables. Although it is too early to calibrate solids, the fact is that solids should get commercial traction in late '05, and as such, pull through the Well Construction line further into '06 and into '07.

In the Production division, production optimization is expected to have the highest growth rate. Production optimization addresses a wide range of field applications from critical subsea deepwater wells to elephant brown fields rehabilitation -- the three broad. Such optimization emerges monitoring technology, software for down hole management, software for production facilities management, and hardware for lift completion and well intervention.

As a business, it is a direct and urgent derivative of aging reservoirs. The largest field applications for production optimization, the way Weatherford defines it, should come in Latin America, Russian and Asian markets. It should blossom in the next five years. Yes, growth in the production division will be overwhelmingly rigless. And it has also been a long work in process for Weatherford.

Technology. We stand our commitment to raise the technology content of our products and services across the board. Our progress has been and remains twofold, advancing our core technology beyond the present generation of tools. Core products and service lines account for two-thirds of R&D spending. That means we spent two-thirds on our historical core in R&D. This is a fact that is often omitted or misunderstood. And we also seek to nurture, develop, commercialize sub (ph) change technologies, but they have to be a natural fit extensions of our core.

Two updates. I shall go through quickly. Fiber optics, R&D working, focusing on subsea applications making good progress in the finalizing work on the drilling location third generation systems. We did some prototype testing on EM steering (ph) systems. We are on the balance applications. Much work going on in software for underbalanced reservoir selection.

The R&D focus, as we highlighted on the expandables, have shifted squarely back to solids, away from expandable sand screen. Expandable Sand Screens is I think is not as much an R&U (ph) report as a market report. Installed is 300 systems during the quarter in West Africa. Backlog is rising in that product line. I think there's no change in our assessment. We expect to have recovered these products' 2002 volume as we enter '05.

Overall, the outlook. The outlook for wholesale service as an industry in our minds is strong and is entering the secular phase. This isn't the first time market prognosis has been constructed. What is different this time is how sustainable and longer-term the rise in activity needs to be. There's also different this time is the importance of rigless activity component of overall '05, '07 growth. That is not to take away the importance of rig activity. It is in addition to, it is not a substitute for. I think this needs to be understood.

We interpret all of the above as a corollary to the growing difficulty with which our client can secure desired rates production growth. This isn't a short-term issue. Reservoir productivity difficulties will get worse in '06 and beyond. Decline rates are accelerating. Actually it is probably the most meaningful event that is going on. Far more meaningful than where the commodity (indiscernible) are trading.

This suggests the following. Beyond '05 rig activity will flatten out in North America. Earnings on return to North America from '05 thereon will be earned by share technology and pricing. North America could benefit from further consolidation. The international market will blossom in '05 , '07 as our clients make a push to secure production growth rates.

Within the international markets, Eastern Hemisphere should stand out as the strongest market overall. The North Sea is beginning a multiyear recovery phase. The Gulf, the Gulf of Mexico remains a wild card. The region needs to be more constructed in '05, but that is speculative. Technology intensity of products and services will mirror the acceleration of decline rates. Technologies that improve reservoir field productivity will do increasingly well as '05, '07 unfolds. Rigless volume and earnings growth will become increasingly important in '05 and '07 as an adjunct to rig related volume and earnings growth.

And as a closing comment, the next several years we at Weatherford see strong organic topline growth. And we see a couple of increased returns, and again on the back of the technology and footprint investments already made. And mercifully for you in the audience, I will stop now and turn it back for questions.

Operator, you might want to open the question-and-answer period.

(OPERATOR INSTRUCTIONS) . Anthony Newman (ph) with Banc of America Securities.

This is Jim Wicklund. The incremental margins that Lisa mentioned in the mid-40s for the quarter, and your guidance going forward (indiscernible) EBIT margins were 25 percent. Are you being -- are you sandbagging us, or can you describe what the reason for that is?

I'm being conservative. You know how things are. Just when you think you don't have any more problems, the problem start occurring. So I think 25 percent is a good number. Clearly we've done better than that, I understand. Maybe if we had a few more quarters like this, unlike the prior ones, I would start projecting higher numbers. I just being conservative. I can't analytically sort of convince you either way.

Okay. Second question if I could. One of the a larger oil field service companies at an analyst meeting last month noted that while the growth in activity is going to be in the Eastern Hemisphere, the next five years the bulk of profitability will be in the Western Hemisphere. And that is more their focus, if you will, optimizing that profitability while focusing on growth. But there seems to be a little bit of difference in outlooks as to focus. Can you talk about your profitability regionally and growth and why the view is different?

First of all I think four hemispheres our important and all profitability is welcome. So it is not so much that one is better than the other generically. I think the second thing is that for us I think the Eastern Hemisphere tends to be higher margin, higher returns. Now is it like dramatically higher, it depends what you are comparing with what with what period of time. But sustainably so it is higher returns and higher margins. Which means by the way the West has an opportunity in terms of rationalizing and moving pricing up and things like that. So you have maybe a delta, a bigger delta you can try to earn on the West.

Which brings me to my third point, notwithstanding you can have a bigger delta to earn on the West, because you got some catch up to do, the fact is, Jim, you notice, probably as well if not better than I do, it is the reservoirs. The reservoirs are better. It is a fact of life. I wish it wasn't the case because it would make my operating life much easier. But the fact of life is the reservoirs are the (indiscernible) in Deepwater, heavy oil, pockets in Venezuela and Mexico, with a few exceptions. Line them up. Stack them up. And it is what it is. The reservoirs in the East are better than the West.

So while you say the reservoirs do not equate to profitability in margins. There isn't a straight line, it is true. When the reservoirs are better, I mean in flow, your production rates -- and you do need a lot of it. We don't need a little, we need a lot. Probability is that clients are going to be more generous.

I agree.

That's all it is really. I would say that the argument that there is more delta to be had out of the West because the returns on the margin is as high for us, I think is a very legitimate point to make. So I would say we can catch up in the West, but the growth is in the East. Still our margins to return are better in the East.

Bernard, thank you. Obviously a very good quarter.

Terry Darling of Goldman Sachs.

Congratulations as well here. Lisa, I wanted to come back and understand the guidance on 4Q variances, and sort of tie this in with understanding a few things on Q3. The 3 cents sequential EPS improvement in Q4 versus Q3, I'm trying to understand that one.

I think you said 9 million of revenue loss from the U.S. Gulf. I presume that is pure -- your costs are relatively fixed there, so that would've gone right to the bottom line. That would suggest a 4, 4.5 cent loss from the Gulf alone in the third quarter, assuming that the U.S. tax rate is close to the total, and maybe that is where I'm missing it. But if you look then at the sequential pickup, including the Gulf coming back and the pickup in pricing sequentially, it would suggest the U.S. ought to be up 7 cents sequentially in Q4. What am I missing there?

The 9 million does not -- did not drop directly to the bottom line. Actually our margins were very -- fairly consistent. There was a bit of the 6 (ph) that did not -- that was not absorbed. It was fairly consistent in the Gulf in the third quarter compared to the second quarter. So you're correct on the pricing though. You will have the same impact coming in from pricing. So you're at 3 cents. It could be up to 4 cents in the U.S., but not -- probably your number was more 7 -- not that high.

The other thing is other than the perennial we are being conservative in response. The other response also -- and you want us to be conservative (indiscernible). The other response is that you may not get all the 9 million back all in Q4. There is some stuff that is going to be pushed back into Q1. Why? Well, a lot of capital is not back on again, a fair amount of -- in some pockets of the Gulf there is some amount of disorganization. There are some leads and lags.

So we did do expect stuff to be pushed out into January, February, etc. So it is a combination of all three, with the point made by Lisa, yes, we are be conservative. And again I think you want us to be that way. And the third thing is simply that you don't account for the entire 9.

Also I wanted to follow-up on the outlook for pricing in the U.S. specifically. And historically a rising rig count environment has been far more conducive obviously to pushing prices than a flattish rig count -- you're talking up 2 to 4 percent. Is that enough upward movement in the rig count to see another round of price increases as we move into 2005?

A very good question, Terry, and of course my assessment of the market base is worth the paper it is printed on, because we are I think -- I think in this industry one has to be -- one has to describe oneself as blind as a bat. But with that said, in the 2 to 4 percent rig increase environment, you probably have room for one other price increase. Beyond that you're stretching the laws of economics. It's true. Your point is true. You may be able to get another round of price increase, but why would you get two or three, it's hard. There is no doubt about it. Now my assessment on rig activity just in Canada may be off. And then that's a different story. Remember that not only is the assessment I think a cautious one, but it is just very hard to know.

Lastly, you had talked about growth in Latin America varying significantly between countries. I am wondering if you collaborate on where you see the growth in '05? And specifically where are your feelings right now on the Mexican outlook?

Mexico is really a funding issue, which is -- it is more like a refining issue. What is a refinery? Something that transforms crude into products. Capital markets need to help Mexico a little bit on funding so that the various social infrastructure, etc. programs in Mexico continue to move forward throughout -- a large allocation of national resources get committed to PENEX (ph), etc. In other words, I think it is a funding issue which should be resolved. So although there is a bit of a hiatus in Mexico which is likely, the hiatus should be followed by some -- another good growth move.

Brazil definitely for us is a strong market in '05. There's no doubt. That is a reflection of Weatherford, it is not necessarily a reflection of everyone else. You look around Columbia, Argentina, Ecuador, there's no a lot to be said either way. I think these markets are okay.

Venezuela it is the great unknown now. Venezuela has got great reservoirs. Obviously the political issue is what it is. Meaning it is not so much whether people like or don't like the people in government, the question is will the conditions under which you participate in that market, are they likely to be reliable or are they likely to change? That could change on a dime.

And the recent change in the taxation of the heavy oil side of Venezuela I think is likely to slow down the enthusiasm across the board, and not only the oil, but across the board on the reservoir development by foreign capital in Venezuela. Anytime this happens in a country, it does this. So flip it with what is going on in Norway, where it notwithstanding the strike, they have actually made the tax structure in Norway attractive, and you get the reverse effect.

So it is hard for me -- I have great expectations always for Venezuela, partly because I know the country well. But I never bake them in anything that I'm trying to calibrate because I am always wrong if I do. And so I would have to be at a little bit more cautious on that as well. And what does that leave you with? Constructive on Mexico, could be some delays, positive on Brazil. The rest is good. It's just not extravagant.

That's helpful. And then in Brazil product lines driving your outlook there?

Drilling, drilling, drilling, drilling. With also some of the (indiscernible) completion and flash sand control technology also, which comes out of production. But essentially drilling. Well Construction, Drilling Tools, Underbalanced and seligen (ph) completion, and sand control systems. Yes.

I appreciate the commentary around kind of the risk/reward in Mexico and Venezuela. But it sounds like you are basically assuming those markets are flat in '05?

Again I am being cautious. Yes, I am.

(inaudible).

That's correct.

Kevin Wood with Susquehanna.

I've got two unrelated business strategy questions. First, Bernard, could you please comment on your pressure pumping business? Specifically, could you tell us the size of this business, job capability, number of crews, etc.? And could you describe the outlook? It this a growth platform for you guys? Because obviously you've got some very large players in this base, and I like to now just how Weatherford plans to compete.

It is actually very marginal. We have a pressure pumping business we started about 2.5 years ago. The reason was that -- well, a number of reasons. One is that clients encouraged us. Second, we tied it to the production optimization work we do, which is taking old fields and maintaining the fields entirely differently from the way they have been maintained.

So we wanted to develop a skill set inside the Company on and around a competency we didn't have, which is pressure pumping. So clients encouraged us. At the same time we wanted the (indiscernible) skill set, so we did. And we did it in the United States because that is where the clients encouraged us the most. And the start up occurred last year and this year. Like all start ups, it is never easy. Certainly isn't when you start out the business on optimum economics at all.

Today I think -- the number escapes me, but we should be perhaps (indiscernible) next 60,000 horsepower. It is very marginal. In a few areas of the U.S. it is doing operationally well. The bench is developing nicely. And that is really sort of all.

I am well aware of who is in the business. I understand. But for me it is more a question of developing a competency. And I hate to rely on anyone else. It is very hard for us to rely on the other companies you mentioned, very difficult because we don't seem to play very well in the same sandbox. So when you need that skill set, and you can't really have access to it that comfortably, you just develop it yourself. And we did. And we're very content with the skill set we have. And that is really all. From a financial standpoint, it is just not that material.

What is your spend in this group? Or maybe your total investment in pressure pumping and what you're putting to the group here annually?

What have we spent on it, I actually don't know. Maybe Lisa can tell you off line.

Sure.

It is not the -- probably the most critical issue on my list, except the operational quality of it. I want it to do well. That is very high on my list. And it has, but in terms of the exact spending that we have done to date, it is about 60,000 horsepower. Surely you can find out. It is pretty straightforward.

Right.

On the dollar per horsepower. It is brand new equipment. And returns are good. I mean if you look at for what it is, value to equipment, the returns you are getting are vastly above our cost of capital. So I guess one answer is to say, gee whiz, you can put brand new equipment (indiscernible) pricing structure in that business and you get great returns. That is a fact. Now it is a small fact at Weatherford. It is not a big fact. If you're more interested in a competency, not having to rely on the kindness of strangers than I am on really on just a scale -- and this is not a crusade.

Okay. Is it fair to say that you're going to stay focused on the land side, or are you even looking at the offshore piece?

No, not interested in the offshore piece.

Okay.

We have some specific interests that are very specific, very geographic. And they have always been there. We do things for a reason.

Second question involves daily directional drilling business. Several of your competitors in this space are developing, or they're ready have, and placed some rotary steerable tools. This is eroding some of the market share for conventional directional drilling. What is your view on rotary steerables? Is this a threat to you guys, and just what do you plan to do about it?

It is not a threat, because we're not in the business. But one, to our interest in directional (indiscernible) has always been as an extension of underbalanced. So what we have spent all of our engineering and R&D energies on is developing (indiscernible) if you will, guidance systems, which what we think we are at the forefront of the industry. It is purely because it is a support to underbalanced. So I think the issue of rotary steerable systems is an issue that you should ask the people who have a significant stake in the directional business than we do who don't have that technology, but not us.

Yes, but some of your competitors, and to throw a big name out there, Halliburton, they're pushing their rotary steerable into the underbalanced side of this business. And just curious what your thoughts are?

You may not understand it. The issue in underbalanced is the ability to steer. The issue in underbalanced is not whether you want to use the last of a base motor or a rotary steerable system. That is sort of irrelevant. You can use either one depending on the well bore, and (indiscernible) they're widely available. We've done most of our work on directional in alliance with one or the other of the Big Three. It is not -- I don't know what to say. It is not really an issue for us.

I just was driving home the point that the speed with which this is cutting down the drilling time is being pushed into many parts of the industry. And they're moving it into the underbalanced piece. And I thought that that may have been considered a threat to you.

Why do you drill underbalanced? Do you think?

Obviously the speed.

No.

Well, that has been for some of the conventional underbalanced (multiple speakers).

No that is the original -- the origin of the business. So you drill in hard rock formations fast.

Right.

You drill underbalanced for two reasons beyond -- speed was just the original -- why you blew air down a well bore, to go fast. You drill because you've got problems when you drill. You've got zones that are, say for example, depleted. And you will have a loss of drilling fluid differentials ticking, so you use underbalanced as a drilling solution to do away with drilling hazards. Now rotary steerable systems are a mud loader or a straight hole, it doesn't make any difference. You have that problem. So you use it as a drilling solution.

Second, and really the biggest by far, is formation damage. And if it wasn't for formation damage, if I think underbalanced is just a drilling hazard mitigation technology then I would say it is probably like drilling the casing, an important thing, but not as important. It is a reservoir bit, which is why rotary steerable systems are welcome. And incidentally there is about 15 or 20 on the market from all kinds of little shops in Houston.

I think firms are -- all the oilfield service are being -- I think all the large firms including ourselves are being offered rotary steerable systems by the bucket on a daily basis. We welcome it. It is a good thing for us. So that is why really I think you -- there are enough things we have to worry about without us having to worry about things that actually are good things. Rotary steerable systems, if I could, I would have it on every single directional job, because it helps keep control of the well bore. Therefore, all things being equal, the well bore is going to be better. Therefore it is better for the underbalanced. Not an issue.

Jim Crandell with Lehman Brothers.

A couple of questions. First of all, you said that you're looking to grow 50 percent faster than the rig count, I guess using Q3 as a base. Given your comments that you expect rigless growth up faster, should we think about your forecast as being the market itself growing faster than 5 percent because of greater rigless growth. You growing at a 50 percent premium to that number, and then adding on our own assumption for pricing on top of that?

You must be an analyst, Jim. I'm sure you're right. I'm sure you're right. Every time I do these things I think I can only dig a hole for myself I'll never come out of. I think what is important to what we said is as follows. All joking aside. Our view of sort of the increases in rig count is obviously cautious. You make what you will of it.

Clearly we think that Eastern Hemisphere rigs are going to grow more percentage-wise than the West, but overall it is not a high number. That is fact number one. Whatever number that is, it doesn't matter. That's not high number. Okay. Two, we think that -- this is an '05 statement -- we are likely to grow roughly speaking 50 percent more than rig activity. Okay. Actually we believe that. Then comes the statement on rigless. You know rigless is really a long-term statement. It is not an '05 statement particularly. It is a long-term statement. It is beginning to explain, because we don't normally explain ourselves real well, what we're trying to do in some of the segments of our businesses. We always ride rig activity. And we thrive in rig activity. We welcome rig activity.

But the fact is there is other business to be generated. And that other business should give long legs to the expansion in our industry. And that business is what we called rigless. And what is rigless? Essentially the business of taking field -- elephant fields or giant fields or big fields that are old. And clients don't do generically a great job on maintenance of those fields. They just don't. And be able to offer a technology integration and dedication to that market. You can call it brown field or you can call it whatever you want. It strikes us as being a long-term fabulous business. Razor blade business, if you will. But it is not an '05 statement. It is an indication of direction. Have I helped you?

(inaudible). Lisa, if you looked at the third quarter and took into account changes from the four items you cited, it's the cumulative impact in the third quarter of the Norway strike of the disruptions in Nigeria, their hurricane in the Gulf of Mexico, and if Canada would have had let's say normal weather, what do you think the revenue with EPS cumulative impact of those four items would be?

From revenue, it was about 12 million. On an EPS basis, you're looking at about 4 to 5 cents.

Okay. Good. That's helpful. Another question. Lisa, what would be your thinking CapEx '05 versus '04 at this point?

That will depend on growth. When we look at the CapEx, we have a maintenance amount that is base, and that runs about 140 to 150 million each year. And then the rest is definitely growth-driven, which depending on what we're investing in, you tend to have 35 to 45 cents of spend for growth. Now, that number does include working capital. So depending on our outlook and on the growth, the CapEx will be in the mid 200's. But it is definitely going to be a function of our growth and the investment that we're making for 2006 or the latter half of 2005.

We do a lot of work, Jim, on looking at the capital intensity of organic growth, and so much of what we're doing is that. And of course it depends on the mix. Sometimes we grow here, we grow there, because different businesses have different mixes of capital requirements. And doing the best we can. I think Lisa came up after too many spreadsheets. We're talking on the order of 30 cents, 35 cents on the dollar of CapEx to sustain a clean, organic growth dollar of top line, is that about right?

Yes.

Then you just add the working capital component, which again it depends where, where you get it, because in some parts of the world, working capital seems to be higher than others. It really is sort of the receivables sort of -- the way different clients like to pay, not whether they will pay -- but there are some clients on a very specific governmental schedule, NOCs, for example. And so it tends to be higher or lower, even though they tend to be very safe. So we put the two of them together, and that's how we come up with a ratio, which is the derivative of the organic growth rate.

Okay. And then Bernard, last question. How much has your underbalanced drilling growth been limited by capacity constraints? It seems with activity exploding in the Middle East and that's the area that is most conducive let's say to underbalanced drilling, that you would likely be able to do even more than you're doing now. And secondly, could you just address -- I hear a lot of positive things about underbalanced drilling spreading in the Asia-Pacific areas as sort of the next big area of growth. And comment on that.

Well, first, yes, I think less capacity is a problem as in equipment. We can get equipment. We can get tools made. I think the biggest limitations is -- and it will sound mundane, but it is really people, and people are at a premium. People with operating experience, often they come from the directional world incidentally, are the best ones to train in on the balance. That's actually a real limiting factor for us.

And the -- this is true that the quantity of business we have -- and underbalanced that I mentioned and managed pressure drilling and mud cap drilling, because they're all if you will (indiscernible) of underbalanced. All businesses are arising very rapidly. And our ability to staff up responsibly is really strained. There is a balance between what you want to do, because the more you do do vary your earnings, etc., etc., and the more you're spreading the process around the industry, at the same time the amount of risk you want to take client perspective, I mean there is (indiscernible) balance.

And I would add something else also which I mentioned in the last conference call. We get asked from time to time these sort of questions about what about this competitor and that competitor and so forth. And which are questions that typically one asks hoping to get the hormones of the person you asked the question up in some way. In underbalanced it is wasted, because our biggest concern today, it won't be always that way, but today, is that in the growth process that the people who participate in the growth process, our competitors if you will, do a proper job. That is not our biggest concern. And also -- sort of also balance the operating constraints with the speed of the market's growth, that they don't take too much risk. We don't want the process to fail because of operating weaknesses. That is our biggest fear. And so we welcome large competitors because they tend to be good operators. And that actually is more important to us than anything else. So we have constraints, Jim.

Maybe, Bernard, given your sort of long cycle view here, it seems to me it is not inconceivable that you could be looking at underbalanced and its derivatives being $1 billion business for Weatherford in three years, assuming your sort of 425ish today, and if the business were to keep growing at 35 percent a year over that time period?

You know I can't say yes to this. You will put it in print and I will live to regret it. What I will say is that it is our view that underbalanced is a family of processes eventually -- and that is a keyword -- well be a bigger business in the industry since we talked about directional before than the directional business is today.

Now the keyword is eventually. How long is eventually? Well, as long as operations take. Now the directional business is what -- what is the size of directional business in all of its forms -- I say directional in the tools, the steering, how big is it, Jim, today? 3 billion, 4 billion, something like that?

(indiscernible).

That's what people say it is. And so without counting beans eventually, eventually, again the keyword is eventually, underbalanced in all of its forms will be a business that will rival directional. It is a drilling method like directional. It is a very, very opportunistic drilling method with directional, without a doubt.

Certainly the number one growth business today in the oilfield. And, Bernard, that's all I had. Thank you very much.

Arun Jayaram with Credit Suisse First Boston.

Congratulations on the results. I have got a question for you. We have seen some substantial increases on the rig side in North Sea day rates and activity, as you look into '05. You mentioned that in Q3 you generated 77 million of revenue from that area. I was just trying to calibrate how much upside you think you have relative to more normalized levels of -- in the North Sea, Norway? And how that 77 million would compare to more of a peakish number looking at Weatherford maybe in 2001 or so?

First thing that comes to mind is that you got a 20 to 40 percent move off (ph) in those markets. But I would have to scrub the numbers harder. Just -- North Sea moves -- doesn't move in an erratic erotic way. It moves sort of in a half a way down or up. And when it starts moving up, you see the rig counts moving up, you see the platforms -- you don't see the platforms moving up. The platform work moving up, etc. And then you have new regions that open up for exploration. And you have got all kinds of different works that get started up.

I think that the 20 to 40 percent number probably is on the low side. But it takes -- it doesn't happen all in two quarters, not the Gulf of Mexico. It happens in 2, 3 years, not in 2, 3 quarters. But, yes, 24 percent is on the low side. I have to factor in -- the reason why I'm hesitating as opposed to just giving you historical numbers is because so much as happened in our market. Some areas of Holland, some areas of Norway, some areas of the UK, and some of the old areas of the UK are all -- they are all are going to play a different role than they did in '01 and before. So I think 24 percent is a safe number, but I think is higher than that. And I wish I could give you a higher number, but I can't responsibly on the phone right now.

That's helpful. You also mentioned that it looks like the ESS product line is back on track. Are you getting any pull through from your arrangement with Slumber J (ph)?

Not in a dollar and cents type of way, nor did I expect any. I think -- in the near term. I think -- they, like you would expect, they have a powerful reach. And there are a number of instances where they are tendering, and they are tendering with an ESS spec in it, for which I am very grateful, to where could we have participated in it? There are business businesses we're not in that they are in, and where they can spec that also. So I think it is probably going to be helpful in '05. So the answer is, yes, certainly. I'm not -- it is a small thing, a small thing for then and a small thing for us also at the end of the day.

And last question, Lisa, there was I think a $3.5 million increase in sequential corporate expenses. How much of that was Sarbanes-Oxley? And it sounds like that is going to be a little bit more permanent in nature? Is that right -- that increase?

It was about -- it was about 2.5 million of that was Sarbanes-Oxley more -- obviously most labor-intensive and time intensive from both internal and external resources at this point. It will go down somewhat in next year, but I'm forecasting -- I don't want to be too aggressive on it, because I don't think anyone can positively say the amount of work that will not be needed next year. There will be some documentation that doesn't need to be done. So I would estimate that corporate will run about 15 million a quarter next year.

What she's really saying is that we're really know what else 404 is going to require next year because it has been an evolving thing for everyone. So she's being cautious.

Michael Lamotte with J.P. Morgan.

Let me offer my congratulations as well. Quickly on North American price or U.S. pricing rather. Can you give us certainly indexed metric as to where we are now versus the peak in '01? How far off?

The thing is that the peak in '01 for us you really have to -- there are two issues. There is land market and there is a Gulf of Mexico market. And the land market -- you probably are what -- I would say 10ish percentage points under your peak -- under. The Gulf of Mexico you are 25 percent under your peak in products and services. And so the Gulf of Mexico will not come back unless activity comes back. The land will continue to claw (ph) itself.

That actually sort of leads into my next question which is with all of the excitement now on the deepwater and certainly the rate improvements that we have seen, it looks like the volume of business in the deepwater Gulf is going to be better next year. Do you see potentially that mix shift being an accelerator or major factor in terms of incremental margins next year?

Highly possible. I just don't know yet. Entirely possible. I know exactly what you're referring to.

I was going to say you must be a little bit more -- .

I just don't -- it is easy -- it is easy to get terribly exhilarated about all the good things that could happen. The minute you do that they don't happen. So I -- just wait and see. But I know exactly what you're referring to.

I appreciate your cautious optimism. Lastly, on the technology side, obviously heavy oil is -- and I'm speaking -- thinking more along the nonconventional resource development over the next few years -- heavy oil is something that you all are active in.

Yes, we are.

And have I think -- as I think about nonconventional resources in general, you probably have more exposure to them than the average company. Are there other areas of technology within that sort of nonconventional category that are appealing to you from an organic standpoint as you --?

Are we developing technologies that have an impact on unconventional or --?

Yes, that as nonconventional resources development expands over the next few years that you could push into and --?

You know, once you're done with heavy oil and coalbed methane gas you sort of -- and heavy oil is a broad family of plays, you sort of gotten pretty much everything. I will say that -- that may not be the question you are asking.

I was going to say I guess more in terms of the technology suite addressing -- ?

Yes, most definitely. There are applications that are very promising applications, particular derivatives of underbalanced in heavy oils. And there are also processes that are under development in artificial lifts that relate to making a big difference in nonconventional. And there are also processes under way in the whole business of optimizing wells that are being produced. And when you look at nonconventional it is a very, very big application there.

There's also some -- a number of technologies, both software and hardware, that are about to be commercialized that also have a very big bearing on it. I normally joke on heavy oil that getting the kind of earnings out that is very viscous. It takes a long time. But it is definitely a very powerful secular play. We are very secular. That is actually fits with us, very secular in our thinking anyway. Not that we don't like cyclical, but we're so -- the degree it makes sense that we are, as involved in it as we are. But yes, there's a number of other technologies. Again, -- .

They are pretty much tangential to what it is you're doing already?

Very much so. Very much so. Very much so.

Thanks, that is it for me.

I think probably for the sake of time, if there is still, I think one last question because we're way past the hour. We don't what to keep people on the phone. Operator, if there is still one question, we will take it, if not, that's probably it.

There is a question from the line of Geoff Kieburtz with Smith Barney.

You made multiple references to rigless, and I would just like to come back to that for a second. Can you tell us how much of your revenue today is coming from what you considered to be rigless operations?

It is hard to tell. And I mean the reference I made to rigless is -- I want to make sure I am understood -- is a long-term reference. I am not making a play for '05 or anything else like that. But having said that, what is rigless -- everything is rig related obviously. But there are some segments that are genuinely also rigless. And that would -- I would have to say that two-thirds -- two-thirds of the production division, perhaps 70 percent, would be rigless. Meaning they have products and services that are truly razor blade. Given the North field they would go in and basically maintain it for you, without changing the architecture of the well bore.

That is actually -- definitions are never exactly right, particularly in our industry, as you know. But without changing the architecture of the well bore, what can you do to a field to make it produce more and recover more? Well, obviously by changing the architecture of the well bore you can do a lot more, but also by not changing it you can do a lot more, and it is not being done. It simply is not being done, not being very well done.

There's a whole class of business which is -- surrounds the notion of taking an oil field and just producing it better without changing the architecture of the well bore. And that would basically concern I think involve in full two-thirds or 70 percent of production division, and I would say roughly about 20 percent, 25 percent which is the intervention side of the drilling division. Best I can tell. It is a bit artificial what I've said, but it is true.

And then given the distinction between rigless and rig related that you've made, do you believe that the activity levels, when you think about your growth comments earlier, is there reason to believe that the rigless activity is going to grow at a significantly different rate than the rig activity?

In my heart I think it will grow at a fast -- at a higher rate than rig activity. But you know --.

But only modestly? So you're really making the distinction between sort of the secular, there's going to be more focus on brown field reservoir management.

Yes, I think -- I think that is right. What we're saying really is that rig related growth, we're cautious obviously on it. There needs to be actually more rig related growth than what we highlighted. I think our clients are also too cautious. That is one thing. And that is one thing we intend to harvest to the maximum.

The only thing that we're saying is that there is another business, which to the degree the oil field service companies are cable of doing it are defining for the client, Which is the tired and the old which desperately need to produce better. If only because the industry desperately needs to produce more. And that is a business which you know -- it depends how well we do our job. It is more how well we and the few other companies that can play in that business -- how well we do our job -- not in next year, but the next five years, the next three years. It depends how well we do our job will define how big of a business, and therefore growth, there really is. It is more that than will the client call us up and say, hey, come on, let's do some rigless work here? It doesn't quite work that way.

It is more of an issue of what you can propose to the client as opposed to a client just tendering out, okay, today we're going to tender out some rigless work. It is really more of a, look what we can do for you, than can you tell me how much it costs if you do X, Y and Z?

In many respects the rigless I think -- first, it is an opportunity for the client. Second, business has been, in terms of client thinking about it, dormant forever. There is definitely a lot you can do from just a production rate and just from optimizing (indiscernible). A lot you can do. It is not the only thing you can, nor is it the only thing you will do, that's for sure. There's a lot you can do. The question is do you have the products and service line capabilities to be able to offer something to the client and harvest a growth which basically hasn't existed in the past. It is a new pocket of business.

Are there any -- as you think about that opportunity are there any structural reasons, or because of the way you're addressing that opportunity to believe that the profitability of the rigless business is going to be systematically better or worse than the rig related businesses?

We don't know yet. The truth is we don't know. We don't know either way. We don't know either way. I think it will depend greatly on where and for whom. There is no reason why it should be higher. There is no reason why it should be lower either, frankly. It is good oil field service business. It is very large. There is a laundry list which is intimidating of brown field work one could do, depending on the products and services that you can bring to the table and the technology you can bring to the table. And that doesn't exclude all the other rig related work at all. They are complementary. One is not a substitute for the other.

Second topic. You do mention a couple of times that market share gains. I just wondered if you had any particular lines of businesses or business that you -- I believe you have made meaningful market share gains either over the quarter or over the last year?

I think Well Construction we have. I think Proprietary Dealing Tools we have. I don't think we have in Completion. I think we have in Lift. Sort of it. So I would say Well Construction, Tubular Running Services, Liner Hangers and Cementation. That is all tools. I'm talking services. And it is not cementation as in pressure pumping the cement.

And I think drilling tools, the proprietary ones, the ones that addresses problems -- drilling housing mitigation, if you will, definitely. Underbalance is not a market share gain. It is a process that is gaining ground. I'm not sure it is eliminating anything. We are just drilling more wells that aren't underbalanced. I'm not sure who you're eliminating. I suppose you're eliminating over balance. That is hardly what I'm thinking out.

And Lift, most definitely. Lift as in optimizing, and just not selling the tools only but the actual going in and trying to optimize what is today is very humble, just a few wells or part of a field -- definitely gotten some market share attraction there, because of the software selling the hardware. It is the razor selling the razor blade.

and the last question, you do comment on the -- I think you have said this before, but I just wondered if your thinking had advanced at all on the potential benefits in North America of further consolidation? Do you have anything specific in mind either by line or --?

I think what I wrote that I thought it was a pious thought. I'm not sure I will get anything for saying it. It is true. The whole thing -- the whole notion is this. North America of a very, very important market. North America is a very old market. In an old market you tend to want to have more and more efficient providers of services and products, because on average clients are going to be less and less generous. Is that not the case? That's all it is, just logic. Do I have anything in mind? Not really. It is a bit of a pious thought.

I guess there is one other question. As you look across your businesses geographically and by line of business, are you today encountering any significant capacity constraints? I think you did mentioned earlier the difficulty of getting good people for underbalanced drilling operations. So maybe with the exception of that, are you running into capacity constraints anywhere else?

I'm thinking through right now. We have done a lot of work on the manufacturing side and on the infrastructure side, meaning service locations -- large service locations. Not really, but the minute I say this I immediately tend to think, what am I missing?

You can't -- I mean very high -- it is very difficult to grow things organically at a very, very high rate of growth. It's just the people side is always a problem when you do that. When you acquire companies you pick up the people with it, that does tend to help. So there's something generically difficult about organic in that regard, but no, I think for the time being, no.

Great. Thanks very much.

You're welcome. I think that is it probably, operator. I think that concludes our conference call. And of course whoever is left on -- in the audience, Lisa and I are here if you need to ask further questions. Thank you very much.

Ladies and gentlemen, we thank you for your participation in today's conference. And this concludes your presentation. You may now disconnect.