Weatherford International PLC (WFRD) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2007 Weatherford International earnings conference call. My name is Clarrisa, and I will be your coordinator for today. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Bernard Duroc-Danner, Chairman and CEO. Please proceed, sir.

Good morning. Good morning, everyone. As usual, Andy and I will read preferred comments. We will try to do this as quickly as we can to move onto Q&A.

Andy?

Good morning. For our fourth quarter of 2007, we report fully diluted earnings per share of $0.99. Our team's performance in Q4 was exceptional. Our North American team successfully navigated disappointing levels of the Canadian market activity in a flattish US market. International operations excelled.

Before delving into our results, I have one housekeeping item. Our results of operations exclude costs associated with the process of exiting from sanctioned countries. This amounts to $0.02 on a fully diluted EPS basis.

EPS comparison. At $0.99 earnings per share grew 15% sequentially from $0.86 in Q3. The field contributed $0.12 of incremental EBIT, while nonoperational items took back $0.02 with R&D, corporate, other and interest expense all up over Q3 levels. This was offset by $0.03 of benefit from a lower tax rate compared to Q3.

Operating performance. On a consolidated basis, revenue grew $220 million sequentially or 11%. This represents our largest sequential revenue increase in the current upcycle. Full-year 2007 revenue is up 19% over '06 against a 2% increase in average rig count globally.

North America, which accounted for 48% of total revenue, grew by $60 million. Average rig count for the quarter improved by 12 rigs or less than 1% in North America compared to Q3. Canadian rig count was up 3% sequentially or 10 rigs, but down 19% compared to year ago levels. On a full-year basis, North America revenue is up $265 million or 7% compared to 2006 against a flat rig count.

US revenue grew at better than two times the rig count on a percentage basis. US topline performance more than offset the 15% year-on-year slide in Canadian revenue as a result of the 27% drop in Canadian rig count.

International revenue grew $160 million sequentially or 16%. By a wide margin, this is our strongest sequential improvement during the current upcycle. Middle East, North Africa, Asia led the way again in dollar growth with Latin America and CIS also posting strong gains. International revenue for 2007 is up more than $988 million or 34% compared to 2006, accounting for 79% of Companywide growth over '06. On the same basis, Eastern Hemisphere revenue is up $832 million or 38%, accounting for two-thirds of our revenue growth in 2007.

Two important points on our 2007 international revenue and EBITDA growth. Over a year ago, we guided to expect 40% topline growth in the East and 25% growth in Latin America. Our actual results were 38% and 22% respectively. These results were against the backdrop of an 8% rig count increase in the East and a 10% uptick in Latin America rig count. Revenue per rig in our international markets was up 24% year on year with a 28% increase in the East. This marks the sixth time in eight years that our revenue per rig has grown more than 20% year on year.

Coupled with market expectations of a 9% increase in international rig count in 2008, this performance may prove helpful in assessing our ability to achieve our 2008 international growth targets.

Second, actual EBIT exceeded our guided targets. We've suggested to you that 30% incremental margins are on our international businesss would be a useful estimate. We achieved 33% incrementals on average in 2007.

Consolidated EBIT before corporate and R&D was $543 million for the quarter, up $51 million sequentially, with operating margins at 24.8%. Eastern Hemisphere incrementals of 35% were better than predicted. Latin America incrementals were extremely strong at 42% due in part to the absence of equipment move costs incurred in Q3. North American margins declined as the impact of a weak Canadian market was exacerbated by ramp-up costs for the winter drilling season, severance charges and a less favorable job mix.

Operating margins in the East increased 150 basis points to 25.3%. These were the highest margins reported out of the East in the last eight quarters. North American margins fell to 24.3% on the back of the dip in Canada.

Geographic performance. Financial performance within our four geographic regions was as follows.

North America, revenue grew $60 million or 6% on an 1% improvement in rig count. EBIT was down $8 million to $256 million. Revenue across almost all product lines grew. Artificial lift, completion, well construction, drilling services and wireline accounted for approximately 85% of the topline growth.

Middle East, North Africa, Asia, 24% of total revenue. Revenue rose $82 million or 18% to a new historical high. EBIT was $132 million, up $28 million. This is all also a high watermark. Margins rose 170 basis points to 24.5% on incrementals of 34%.

Countries that showed particular strength included Oman, Saudi, Egypt, China, Malaysia and Indonesia. Directional and underbalanced wireline, completion, lift and re-entry posted the strongest sequential improvements.

Europe, CIS, West Africa, 16% of revenue. Revenue grew $36 million or 12%. EBIT was $91 million, up $13 million. Margins grew to 26.4%, a 120 basis point improvement on incrementals of 37%.

Russia and the Caspian posted their strongest sequential performance of 2007, while Central and Eastern Europe also generated substantial improvements. Western Europe was weak due principally to a 17% reduction in platform drilling and the departure of five mobile units during the quarter. The strongest gainers by productline were directional and underbalanced, wireline, lift, re-entry and drilling tools.

Latin America at 12% of revenue. Revenue rose $42 million or 20%. EBIT was $63 million, up $18 million with margins at 24.8%. Brazil, Argentina, Venezuela and Colombia all delivered substantial growth. Directional and underbalanced, lift, completion, well construction and drilling tools were among the business lines that performed well.

Cash and capital. Cash flow. During Q4 we generated EBITDA of $639 million with D&A running at $167 million. Operating working capital consumed $84 million of cash. At the end of the quarter, we stood at 123 days of working capital, an improvement of 14 days from the end of Q3. After deducting interest expense and cash taxes, operating cash flow was $455 million for the quarter, an increase of $187 million over Q3 and our highest levels during 2007.

Capital expenditures were $521 million for the quarter, net of lost and whole revenue. Spending this quarter included approximately $90 million of prepayments for future deliveries. Total CapEx spending for the year net of lost and whole revenue was $1.6 billion, including $100 million of prepayments. Approximately 80% of our gross spending during '07 went to markets outside of North America and 70% was spent on building out four of our youngest product service offerings.

Capital structure. As of year-end, our ratio of net debt to net capitalization stood at 33.2% with total net debt at $3.7 billion. Cash balances totaled $171 million at quarter end.

Guidance. Bernard will cover our operational outlook in his comments. I have the following updates for you on 2008 nonoperational items and housekeeping.

Equity and earnings. As with this quarter, we will report the results of equity investments in the regions where the investments are managed.

Corporate expense, $120 million. R&D expense, $195 million. Net interest expense, $220 million. CapEx, $1.8 billion. D&A, $750 million. Tax rate, 22%, but you should expect variances from quarter to quarter. Share count, we exited the quarter at 339.7 million basic shares outstanding and 348.6 million fully diluted shares.

I will now hand the call over to Bernard.

Thank you. By any standards Q4 was a strong quarter, entirely driven by international operations. International top-line growth and EBIT incrementals were excellent. We posted $0.99, which equates to about 15% improvement in earnings sequentially and 30% increase year on year.

'06 on '07 the earnings increase averaged 32%. Topline grew in the quarter by $220 million or 11% sequentially. International topline grew by $160 million or 16% sequentially with every single international region performing well.

North American topline grew a more modest $60 million or 6%. On an '06 to '07 comparison, international revenues are up close to $1 billion, accounting for about 80% of the Company's year-on-year growth. Operating income grew by $51 million. Operating income incrementals were very strong internationally, $59 million or 37% Q3 on Q4.

EBIT margins rose in every international region. International EBIT margins eclipsed the North American regions for the first time in many years.

By contrast North American operations had negative incrementals, reflecting a combination of very poor Canadian sequential results and a quarterly shift in product service mix.

Follows more color on Q4 performance, the Canadian market was essentially flat Q4 on Q3, albeit 19% below an already very weak Q4 of '06 level.

Throughout the quarter, activity and client mood remained very subdued. Shutdown early in December for the long Christmas holiday break burdened the quarter's operating results. In prior years we had worked through the holidays.

The quarter also had a full 90-day impact, what amounts to about a 10% lower pricing structure reached at different times during Q3.

From an operating standpoint, we tried hard to increase productivity without hampering our ability to respond to potential upward moves in market activity. The US did well topline-wise, posting another quarter of good sequential growth in spite of flat market conditions. The growth was broad-based with particularly strong performance in completion, artificial lift and underbalanced. There is no consistent direction of pricing trends up or down in the US market.

Notwithstanding good topline growth, the US quarter's operating profit was burdened by a combination of heavy maintenance costs and product mix, albeit most of the reasons the quarter's detrimentals rest with Canada, not the US.

Year-on-year comparison shows good performance in spite of Canada. North America managed to grow 10% in Q4 '07 compared to Q4 '06 and 7% '07 versus '06. These are modest numbers but commendable if one remembers a concurrent decline in Canadian activity in our prior very high Canadian presence as a percentage of North America, a legacy of opportunity and acquisition.

While we reference Canada's percentage of our geographic mix, companywide has been cut roughly in half since Precision acquisition. US is to be credited for shouldering strong growth, while Canada was shrinking hard. Canada is to be credited for managing its cost structure and revenue generation capabilities the best it could in a very poor market environment.

Latin America was up $42 million with EBIT incrementals of 42% sequentially. Best performance came out of Brazil, Colombia, Argentina and Venezuela. Latin America is gearing up for a step-up in business volume in '08 and '09. The primary drivers will be Brazil, Mexico and Venezuela. The prognosis for Latin America is very strong.

In the quarter artificial lift, completion, underbalanced were the product lines of strongest growth, coincidentally the same high performers as in NAM.

Latin America grew year on year by 21.1% and by 21.5% on a '06 to '07 basis. As I explained later in the comments, on an apple-to-apple basis, Latin America did better than that '06 on '07.

The Eastern Hemisphere, as Andy mentioned, was very strong across the board. Topline increased by $118 million. The sequential 15.4 growth rate was split evenly between 11.6 performance out of Europe, West Africa, CIS and almost an 18% performance out of Middle East, North Africa and Asia. Obviously Middle East and North Africa was the Company's highest performer.

Incremental EBIT were almost identical at 34.4 in Middle East, while Europe, West Africa and CIS delivered 36.5. Product line growth was broad-based with no exception. Wireline, completion and directional were the fastest-growing product lines.

Country-wise growth was also broad-based with well over 10 countries achieving comparable performance. Perhaps Russia and Saudi Arabia stand out as particularly strong.

Eastern Hemisphere year-on-year growth was 37.9%, while '06 on '07 growth was 38.2% -- probably our industry's highest growth rate.

As a last comment on the Eastern Hemisphere, the quarter did not benefit from any of the forthcoming large project management works.

Setting the geographic aside, I will take you through the quarterly performance of our 10 service product lines. Product lines are ranked in size from largest to smallest. Artificial lift, $404 million. Drilling services, $339 million. A well construction of $332 million. Drilling tools, $241 million. Completion, $226 million. Wireline, $188 million. Re-entry fishing, $169 million. Chemical and stimulation, $130 million. Integrated drilling, $101 million. And pipeline, $63 million.

All product lines grew. The highest combined dollar and percentage growth rates were experienced by wireline, artificial lift, re-entry and completion. Wirelines growth was entirely open hole. Re-entry was heavily tied to multilaterals. Completion was balanced between packers and sand control. Artificial lift was pretty much across the board, including lift optimization.

Looking out on a forward-looking basis, directional and underbalanced, what we call drilling services, is now our second-largest product line. Notwithstanding an excellent performance by lift this quarter, we do expect directional and underbalanced to be our largest product line sometime in '08 or '09.

Completion is neck and neck with drilling tools and in our judgment will soon overtake that old Weatherford core to become our fourth-largest product line. Wireline is also likely to overtake drilling tools and rival completion in fourth place.

Much of our growth results from intensive periods of ceding and technology testing with clients country by country. Once a particular technology is approved, commercializations can start with the support of our infrastructure. Growth occurs a few quarters later.

This process, which involves time and investment, is at the core of our organic growth as is the commitment to technology. Technology is central to our identity and strategy, and that has been the case for the past five years. We have acquired over the past five years well over $750 million of intellectual property in early stages of development.

We have grown R&D, which is spreading to $200 million, at the same rate as the Company's topline roughly. We continue to invest between 100 to $200 million per year. It depends on acquiring new intellectual property. In effect, at this stage Weatherford invests between 300 and $400 million per annum on new technology development.

Important events and acquisition activity. Two important events to report that we negotiated during the quarter and completed and closed in the first two weeks of January.

One, we agreed to enter into a long-term joint venture with Qatar Petroleum Company for the use of our directional wireline tubular running services and fishing re-entry product lines.

Two, we sold to Borets our ESP product line. The consideration was a combination of Borets stock and cash. The combined ESP product lines will be marketed outside of the former Soviet Union as Borets Weatherford.

As an ancillary comment, we're very happy with the performance and management of Borets.

In addition, we spent in the quarter about $50 million on four small acquisitions. The acquired assets companies were essentially technology and/or engineering deals. The largest was Aquatic, a Russian engineering organization dedicated to offshore applications. Aquatic will cede our new infrastructure in Russia.

Forward views. First, NAM. In the trailing 12 months, Canada's oilfield has enjoyed just about everything that can go bad. North Americans are our lowest gas price and unfavorable change in tax regime, a rise in the foreign exchange value of the Canadian currency, a 30% drop in activity and a concerted drive to lower oilfield service prices. Pretty bad.

It has been a rough ride for Canada and for Weatherford, the most exposed large service company for that market. With hydrocarbon pricing of $80 oil and $7.00 gas, the Canadian market has stabilized. I feel it is ready for recovery, perhaps in late '08 or early '09, and we believe led by the heavy oil segment.

There are substantial capital programs, close to $80 billion, that have been announced on and around Western Canada's heavy oil. Today in Alberta there are 13 in situ thermal projects and three service mines producing 1.2 million barrels a day of heavy oil. By 2015 at latest an additional 10 new in situ projects will be in operation for a doubling of the number of fields. Canada's heavy oil segment will lead the recovery in Western Canada with a slow, powerful and secular growth move.

Two, we remain constructive on the US market and our own position there. We have not changed our position or prognosis in 18 months when we expressed a then unpopular view that the US was entering a plateau or a long period of no slow growth. The productivity limitation of the US reservoir base and its technology requirement support a long-term scenario of low single digit growth for the market, particularly for gas, tight gas and CBM. It's not high growth, but it's low single digit growth.

Separate and distinct from gas is also a healthy prognosis for deepwater and, of course, lower 48 oil. In addition, and Weatherford-specific, we expect further US organic growth in a number of product lines specifically directional, underbalanced, wireline, ESP sand control and chemicals. All that proprietary technology was growing the small marketshares. This is essentially what will drive our US growth throughout 2008.

Setting aside prospects for North America, long-term growth is all international. In both the Eastern Hemisphere and Latin America, growth rates will be strong, and the growth process will be long. Longer, in fact, than any relevant timeframe for forecasting purposes. It is a necessary derivative of the condition of our reservoir base. Today's level of activity whether drilling, rigless or production in international basins are not enough to rest long-term accelerating decline rates, let alone grow production rates in harmony with underlying demographic trends.

Furthermore, there is not take a conceivable three-year thrust or the equivalent that could create a tsunami of excess production and capacity. It is not real. It is not possible. Our industry has the urgent and serious need for a five to seven-year buildup in activity, coupled with accelerating development and use of technology. We are in the long secular phase. Nothing else will work.

At Weatherford the year 2007 closed with 38.2% growth '07 to '06 in the Eastern Hemisphere. I think you know this already. We expect the Eastern Hemisphere to grow a similar 40% in '08 on '07. Furthermore, we believe it is likely '09 on '08 will match the same sort of performance.

Latin America close with 21.5% growth '06 on '07. Adjusting for the sale of our Mexico rig operations in late '06, the growth rate actually was comfortably above 25%. Latin America is expected to grow at least 25% '08 on '07 and at a similar rate in '09. Latin America has some upside above these thresholds.

In the Eastern Hemisphere, we expect North Africa, Russia, Middle East, Qatar, Africa, China and Central Europe to show the greatest growth year on year. Latin America we expect Mexico, Venezuela, Brazil and Argentina to show the greatest growth year on year. We are zeroing in on countries as opposed to regions. Algeria, Angola, India, Libya, Mexico, Qatar, Russia, Saudi and Venezuela will have the largest growth year on year. These will grow by at least $100 million in '08 and/or a multiple of that number.

Given the above prognosis, we're engaged in an intense process of recruitment and training. We hired 2400 employees net of attrition in Q4. This process will continue at a similar rate in the next 12 months.

Taking an overall view of '08, we are likely to invest about $1.8 billion in CapEx, and we are already well advanced in planning and supply chain actions for '08 CapEx.

Financing organic growth is the priority at Weatherford. We estimate an after-tax return on organic growth of between 25 and 30% per annum. This is in spite of an increase in intensity of CapEx spend per dollar organic growth reflecting materials cost pressure, but even more so increasing technological complexity of tool and equipment design.

In summary, we have completed the '07 growth plan and delivered on our commitments just as we did in '06. We are focusing on 2008's operational performance, while we're in the early stages of preparing for 2009. We have consistently believed that what is unfolding in the oilfield service and equipment markets is a very long secular growth trend that mirrors acceleration in the decline rates, non-OECD demography and GNP per capita wealth effects.

Although we were wrong in calling for an early turnaround in Canada, we hope for a reversal of trends in that region within the next 12 months driven by heavy oil. We remain constructive on our prognosis in the US, and finally we feel very confident in our multiyear growth prognosis for the international market and more specifically our share in them.

I will now turn the call back to the operator for questions. Operator, please.

(OPERATOR INSTRUCTIONS). Bill Herbert, Simmons.

Bernard and Andy, what stood out to me for the quarter was not only the exceptional international revenue growth, but the fact that the margins were as buoyant as they were. I mean they really jumped in most of your regions.

And so what I would like to know is one, what caused that? Was it mix, pricing, both or what have you? And then moreover, as you continue your expansion internationally and your headcount expansion, your equipment expansion, your infrastructure expansion, can those margins be maintained at the incrementals that we witnessed in the fourth quarter?

I think you have two forces in play. Mix is not one of them. Absorption and pricing. Absorption is easy to understand. We grew by about close to $1 billion overall internationally, a little over $800 million in the Eastern Hemisphere. In the process of doing that, the cost of infrastructure to support that incremental $800 million is already in place. So you have an obvious absorption. The price is more of a rifle shot thing. You have to look at contracts by contracts, renewals and also incremental contracts.

To my knowledge, I do not know of a single instance where either renewals or new contracts where the pricing structure which was anything but higher. So that sort of rolls through.

Can they be maintained? Yes. You should always have some measure of tolerance for the -- you can always have some noise in one particular quarter because things are not linear. But over a three or four quarter basis, which is much more relevant economically, you should see the margins in the Eastern Hemisphere and in Latin America sustain themselves and have some upside still.

Okay. And in a similar fashion, North America alternatively the merchants were weaker than what we thought, and I think you explained as to why, mostly Canada. I think if my numbers are right here, year-over-year margin compression in North America in '07 was something along the lines of 250 bips or thereabouts. And I'm wondering, as we go into '08 assuming a stagnant drilling environment where we are really not likely to witness any significant growth, why are not margins going to be as compressed with respect to the rate of change in 2008 going down by a couple hundred basis points again in 2008 as they did in '07?

That is a very debatable question. We feed your thinking with a few thoughts.

One, pricing in the US, we took a look at it with Andy as carefully as one can for the past few days. We do it as a matter of course, but more specifically in detail. There is really no evidence, except one product line that you will are familiar with and I will not belabor the point, pressure pumping, but there is no evidence of any pricing declines. In fact, depending on the district, depending on pricing, depending on the product line, you have as many pricing increases modest as you have pricing erosion modest.

So there is no -- I would report it if I had any. There is no instance that I can report of any deterioration on the pricing side. I will not say that there is improvement on the pricing side, although it is possible because I think that is a bit speculative.

So I have no worries on the pricing side in the US today. In Canada it has stabilized, so we have no further decline in Canada to my knowledge. And we had a lot in Q2 and Q3. Q4 we did not have anything, except we had the full impacts of it. That is a pricing question.

If you analyze the margin situation in Q4 in NAM with great access to numbers than you have, basically you know this already, Canada was god awful. And it is not a reflection of the quality of operations there. Not at all. Actually operations are very good, at least we think so in Canada. It really has to do with extraordinarily inefficient process underway.

On the one hand, the clients try to avoid getting involved in anything that could not be deferred. So the activity was essentially on either workover or sort of simple undertakings. They cut loose people early in the quarter. At the same time, we are supposed to gear up for the seasonal high in the quarter in Q1. It is horribly inefficient, horribly inefficient. I don't see that as being reflective of 2008, I really don't.

So I think simply, if you don't believe that there is any up in the volume in Canada coming out of heavy oil, which I was wrong. I thought Canada would do better in Q4 than it did. I could not say it's because of the change in royalty tax regime, but I was wrong. When I'm wrong, I'm wrong. So that is why I'm not going to get too aggressive on the turn in Canada. It becomes too much wishful thinking.

So if you dismiss what I've said about heavy oil in '08 and then we say it is '09, for example, which is fine, I don't know, I still think simply because it was so inefficient in Q4, I still think that you will see margin improves in Canada period.

Okay. So I guess to cut through it, it looks like you generated something along the lines of 25.7% operating margins for 2007 in North America. And again, everybody has their own assumptions. We are assuming a relatively flattish environment year-over-year. In that environment, would you expect margins to be somewhat flat year over year or lower or higher?

Andy, you might want to answer that question.

Yes, Bill, what we are looking at right now is and again two points you hit on were utilization and mix, which are obviously important factors, and I will not sit down and tell you that we are run perfectly. We are obviously not. We have plenty of room for improvement, and believe me, the list is long in terms of the things we are working on to improve operational efficiencies in North America, more so in the US than Canada. Because Canada has already had its medicine, if you will.

Those things have an upward bias on margins. So I would expect that it is not unreasonable for us internally -- you guys make your own call on it obviously, but anything up to 100 basis points of margin expansion in North America full-year on full-year.

Alright, and I got two quick ones here for you. First of all, how should we think about modeling Borets going forward? You have got I guess higher ownership percentage in the Company. You did not have any equity income contribution in the fourth quarter. How should we think about '08?

And then lastly, on taxes I was curious to see your tax rate guidance for '08. I think you said 22%. And if North America continues to be relatively anemic with international growing, why is the tax rate going to move higher than it was in the fourth quarter?

Two things. I will do the Borets deal. If you think about that on what we, if you remember what we had talked to you about in terms of '08 accretion on everything, now obviously we have a higher share there. But if you think about $0.10 relative to that investment, you are in the ballpark. And on the taxes, remember that those are a function of two things. Your geographic earnings mix, as well as multiple structures that you have in place in order to be able to be efficient with respect to taxes.

At certain times, and there are not always convenient, those structures may mature, and the benefit may mature under it. And it is at that time that you are required to take the benefit. The 22% may prove conservative in terms of being too high, but we will see because I would rather not tell you guys to undershoot the mark there.

Okay.

It is a source of frustration that we cannot be accurate on the tax rate, but it is something that gets finalized at the 11th hour, and we have very little control over it.

Jim Crandell, Lehman Brothers.

Bernard, a tsunami of excess production and capacity? You're getting very colorful in your comments.

I thought you might like that.

A couple of questions. First of all, Bernard, could you talk to your IPM efforts and how that will contribute to growth in '08 and '09. But moreover, how aggressive are you here, and is there a risk for companies in general of taking on too much risk in certain areas, either in pricing versus the competition or just in terms of the contracts?

The IPM that we have started impacting Weatherford topline and the rest of it in the second half of year and not before. Andy will -- there is sort of a sequence. They do not all start at the same time.

I think it is fair to say that on and around Q1 of next year, yes, Q1 of next year, pretty much everything that we have booked up should be turning. So that is one thing. Albeit we will be booking other IPM between now and then. That is one thing.

Second, and incidentally, Jim, there is often some slack on that because they tend to be large projects. Sometimes the client is not ready for you. So you sometimes slacken off by 30, 60, 90 days even if you are on time. So you have to take these IPM things with a grain of salt in terms of startup dates. They last a very long time, at least in our case. For the most part, they are anywhere from three to six-year type projects.

Now with respect to how aggressive we are, I don't think we are. I think we are very selective. We are very careful not to get involved things where the return on time is not as good as it should be or the return on money. We are careful also not to take on projects where perhaps there's a great deal of pride involved in winning the project on the part of our larger competitors. Where pride is involved, typically it is sort of hard to compete.

So we stay away from these. It does mean that we don't end up having as many press releases as perhaps we would like to, but we stay away from them.

With respect to pricing, because I think we are quite selective in what we get involved in, and there are places where we either have something particularly interesting to offer in terms of technology or infrastructure, I have not seen any evidence yet, Jim, of pricing being an issue versus just a normal business. I really have not.

Okay. Second question. Bernard, could you speak to the performance and technology development of some of your key product lines internationally and particularly where do you stand now with LWD, rotary steerables, managed pressure drilling in terms of technology development and how those are being received by the international client base?

Good god, good god. That is a bit too long. But in general I think there are some cases where we are doing very well. They are never across the board. I cannot go out and say that, well, our LWD does well across the board. There are certain parts of the world where it has done very well. Other parts of the world where I think it is lacking. Same for RSS, same for CPD, our control pressure drilling, which is the more global name for underbalanced, etc.

Your question reminds me a little bit the question one is asked sometimes about, what are you going to do because XYZ country is not very active this year? And the answer is, well, there are another 20 or 30 or 40 countries of which probably half of them are very active this year.

Well, in the case of technologies, it is a bit the same answer, which is that we have made lots of progress. Our RSS, LWD, CPD, expandables, etc., etc., etc. are in many different markets, but there are even more markets where we have not. And I view that both as a stimulus or stimuli to work harder and to push harder. Also it is very encouraging. Because as long as that is the case, I can sit here and tell you that our growth rates are going to be higher than the market because we remain immature.

The day I tell you, Jim, it is universal, our LWD system has gotten the proper marketshare everywhere and so on and so on is doing great, that will be good. At the same time, it will mean that we have matured and that the growth rates are flat. We are not there yet by any means, by any means at all.

So progress, lots of areas where we have not made progress. Lots of work to be done. I think many years of doubling up on work to support the growth ahead of us.

Also Jim, if you want to follow up after the call, I can give you five or 10 instances of I guess firsts for us in the quarter on and around MPD or wireline and/or directional. But I --

We could even e-mail it and (multiple speakers)

Andy, just one more, one last question for you. How much approximately did Canada cost you in cents per share per quarter, and given the seasonal strength here in the March quarter, how much could it contribute in the March quarter versus December?

So how much did Canada cost sequentially?

Yes.

That would be at about $0.03 to $0.04.

It is closer to $0.04 than $0.03.

And how much do you think it could contribute in a range looking out to the first quarter versus the fourth quarter?

Tell me what you think the rig count will be.

Where it is today.

If we average --

525 to 550 rigs.

We should be able to contribute quite nicely, really quite nicely, Jim. Quite nicely is a metric.

Then you would be able to make that up and probably pick up another $0.07 to $0.08?

Be careful though, Jim, if the weather is -- this is silly, but I have to remind you of this. If the weather in March gets mild early, that makes a big difference. I mean I have no particular respect for what I just said. I feel like a weatherman. But it is what it is. If it is milder in early March, the quarter is different.

Yes, you're saying makeup look $0.03 plus another $0.07 to $0.08 in Canada?

I would say another $0.07 to $0.08, yes. So you could easily have a $55 million swing. Think of it that way, but you need a full March.

And last quarter, Andy, based on what you see now, assuming a flattish rig count in the US, would you expect your US operations to be up quarter to quarter in the first quarter?

Not meaningfully.

Typically it is not seasonally.

But you think it could be flat to slightly up?

Yes, I would probably be disappointed if it is not at least flat.

Alan Laws, Merrill Lynch.

Surprisingly I am not going to ask you about Canada today, Bernard. So you will like that.

Your predecessor drilled that well already.

I think yes, I think we have definitely covered Canada. On the international, though, you continue to put up pretty impressive results versus your peers, and you have stuck with your 40% Eastern Hemisphere growth forecast for each of the next two years while others are kind of moderating or trying to talk down people's growth expectations, in particular Schlumberger's comments last week.

I was wondering if you are concerned with the lack of near-term growth in, for lack of a better term, platform assets or rigs, in which to sell the services or the conduit for the services out there. Does that figure into your thinking on growth?

Do you mean rigs in general, or do you mean offshore rigs or --?

Either like land or offshore.

The '08 assessment is simply based on the work we have. So the issue on '08 for me and for Andy is simply execution, which is not a small issue. It is always a big issue. It is not easy.

Your execution or your customer's execution?

Actually both. Both. That is a very good point. I was mentioning it early on in IPM. Sometimes a client is not ready for you. And so it can vary a great deal, but presumably we put in some measure of slack in our assessment in order to address that because this is not a new issue. It is an old issue. Okay?

So execution is really what determines '08. '09, it is a bit premature to sort of be discussing '09. What we see as possible for us in '09 is very, very similar to a situation we were in in the early days of '07 while we were working on '08. Very similar. And the quantity of rigs issues that you bring up, the spread we have on '09 appears to be something on the order of 60, 40 or two-thirds or one-third of land versus on water, and that is going to move around.

No, I do not see that as being at least for us an issue. But then again, we are not that big. So, in the sense to feed our growth still still in '09, it is just not a huge number versus the sort of source of quantity of growth that maybe some of our larger peers need. So that explains why it is not -- it does not strike us as a very big concern.

If you put a confidence interval around that growth assessment, is that like plus or minus 5, or is it plus or minus 2 given what --?

You mean, percentagewise?

Yes.

In '08 it is what it is. I mean plus or minus if we screw up an operation that is it. There is no sort of I need to get the business type of risk. In '09 it is early, it is early. So I know in '09 I suppose I say plus or minus 5 because it is early. But then again, it is no different than I would have said in early '06 or early '07 looking as to the following year.

Okay. Thanks. One other question I had was, you had further transactions in Russia in the fourth quarter. Can you talk a little bit about your evolving Russian strategy? In particular, what I was interested in was your aggressive bidding on the 10 land rig package in the quarter. You certainly I guess became a four-letter word for a few of the land drilling contractors.

I think that is a term of endearment.

It is.

Indeed. First, we are -- Russia was traditionally for us an area not of strength but of weakness. We were by focus very strong in the Middle East and North Africa. I think you know this. In Asia but or in the North Sea, but we're not strong in Russia.

So there was a lot of very quiet organic building going on at Weatherford two years ago, building up the organization, building up the talent base and some element of infrastructure. Since then we have grown quite a bit. At year-end the last time I checked for the former Soviet Union, we had something on the order of 2500 employees, of which say they are I think more than -- well more than half are in Russia themselves, so we have come a long way.

We have done that essentially organically. There has been no real acquisitions of any substance in Russia other than Borets, of course, which is not consolidated. You cannot require things in Russia to the best of my knowledge anymore. I think some of our larger peers are quite I think not only lucky but in shrewd in doing what they did many years ago, building a great infrastructure in Russia and acquiring things when one could.

So what one buys is small. Indeed, in the fourth quarter, we bought (inaudible) called Aquatic, but that is nothing more but a very, I think in my mind, a very high-quality engineering shop. That is basically all it is. And we critically need it in order to accelerate our R&D effort in Russia because we're setting up some R&D facilities in Russia.

So we came from nothing. We were late. We did a lot of organic work. We have obviously been gaining some traction, and we will get more traction, but it is primarily organic. It is not of acquisitive. I don't know how you do it from an acquisitive standpoint.

Not counting the issue that you bring up on 10-K, we do not announce contracts. So this one was -- we used to. We don't anymore. This one was announced by the client. You're absolutely right. In the 10-K case, there was a 10 rig package. It's actually three different types of rigs. And, of course, there's the plumbing and services that comes with it. Plumbing services meaning all the various tools and services that are needed in order to drill the wells.

I don't think we were particularly aggressive, although if the view as our competitors express it was that we were, so be it. It was not particularly aggressive for what it is worth.

And add also to that the fact that we're interested in these things, not at all because of the rigs. Peace to the rigs. The rigs are useful. But simply whenever the rig can be joined to the rest of the drilling system, meaning all the products and services that are required to get the job done. When you can do something either integrated or simply you are responsible on a sort of traditional way for all of the components of the drilling program, that really gets our attention. And this is going to be the case for 10-K.

Excellent. I will turn it back. Thanks for the answers.

Kurt Hallead, RBC Capital Markets.

I just wanted -- you provide a lot of detail on this, and I apologize if you're going to reiterate some of it. But I'm just really trying to connect the dots here on how someone like the size of a Schlumberger and the positioning they have kind of looking at 20% kind of growth rates and you guys are looking at almost twice that. I guess I can assume that part of it is coming from a smaller base.

But I was wondering if you might be able to give us a little bit more color as to exactly how you guys at Weatherford are able to make those significant differential growth rates year on year when a lot of the other players you compete with are kind of looking at half that?

It is really not a question of us being either better or better or anything else. Not at all. In fact, I think in many respects we look up to our larger competitor. That is one.

Two, you have said it already. I am going to disappoint you because I'm just going to give you the answer you already know.

We work from a much smaller base. And the world is a big place. There are many, many, many markets in which we have very little, which is great. And so although what we have is legacy one or two or three service lines, nothing else.

So we said this like three years ago, and it is just the same thing, which is for as long as we are immature in our penetration, for as long as the market grows, of course, because it makes it much easier in the process, and if you give us time to get things done because we cannot really grow much faster than we are for all sorts of people and logistic reasons. For god sakes, we have hired 2400 people this quarter, and in the prior quarter, I forget the number, but it was under 2000. These are very big numbers. Very hard to get done. Very hard to train. We do it as best we can.

So if we are -- so we can't go any faster. So that is essentially going to play out over the next few years still, and you should expect us to have higher growth rates than the leader in the industry. And eventually we will become so large ourselves, our growth rates will go down, and some other sort of younger version of Weatherford will come up and do the same thing to us that we seem to be doing to our larger peers. This is the nature of life. So this is sort of the simplistic way I can explain it.

Yes, no, it obviously has got to be more than that. So what is it about your toolbox, or what is it about what the customers are demanding that has kind of given you this opportunity?

Well, specifically there are some areas where we do very well. Anything that is high-pressure, high-temperature we seem to be doing extremely well. Anything that is horizontal, anything that is extended reach, we do extraordinarily well both on drilling and on production. Anything that involves some of the newer technologies that the industry wants, whether it is RSS or expandables or things like that we do very, very well.

CPD, which is a combination of underbalanced and managed pressure drilling, also we seem to have a competitive advantage. And these are very young processes. These are (inaudible) learning how to use them whether for lack of reservoir damage issues or for drilling hazard mitigation, and on both grounds we appear to be very well positioned. So we do have excellent traction there. Beyond my philosophical comments, which obviously you thought but not enough.

Just think about it in very, very simple terms. Think about some of these younger product lines where we might have operations in 10, 20, maybe 30 of the 100 countries that we're in today. And so ceding these opportunities in new countries in a very focused way, not getting too distracted and trying to do too many things, makes a big difference. And what is an accelerator of that growth is putting more scale on operations that we ceded in late '05, '06 and this year. And those are all going to benefit your growth and our growth in '08 and '09.

And then you guys referenced obviously deepwater as a driver. How do we assess your opportunity with all the new deepwater rigs coming in over the course of the next couple of years? (multiple speakers) -- what kind of share, how do we think about your share or your opportunities? Can you help us out with that?

Yes, well, I mean it is two things. I would just remind you that if it is true, that we do a particularly well an extended reach and the high-pressure, high-temperature flight wells, obviously it is a natural for us. And I am sure I am glad you asked that question because for the most part people do think about the deepwater. We do not advertise it very much.

But if you remember what I've just said, you can see that, number one, why we would fit. In terms of what deepwater will do to us the next two or three years, I think we typically look at an incremental of $1 billion worth of revenues coming out of deepwater whenever actually the work starts, which in the case of deepwater, it tends to be always a little bit late. But that is sort of how we bracket it internally.

Okay. That is good.

Ole Slorer, Morgan Stanley.

Bernard, what is going on here? This is the first time in like eight quarters I have not heard you talk about startup costs.

I was waiting for your question.

Even your largest competitor had startup costs on the front page. Your margins seem to be gaining real traction internationally. Is there sort of a crossover point here in your organization where you're getting this more leverage without having to put down quite the same efforts to get it?

Well, there is a little bit of that, but more seriously we had I am happy to confirm to you startup costs and so forth. And with our startup costs, I think no doubt the numbers would be higher.

I think also we will have startup costs pretty much every quarter. In '08 I can almost guarantee it.

I think when we started to really try to grow the international market three years ago, the ratio of startup costs to the existing level of profitability was sort of tough. Now the ratio of startup costs to the level of profitability is actually easier to manage. That is the only way to call it. The other way to describe it is to say that absorption has helped a great deal and will help a great deal more over the next eight quarters. But you will have continuously startup costs.

You know, we just hired 2400 people as I mentioned in the prior question. That in and of itself is a startup costs because they are not useful people day one; they are useful people day 180. Sometimes day 350. In the meantime, just pay for it. That is your startup cost. (inaudible) things moving around and all the inefficiencies that come with it.

But it is now being applied against a base of business internationally of roughly $4 billion and some change with decent margins, easier to absorb. But you will continue to have startup costs I'm happy to confirm.

Thanks for confirming that. I was a little bit worried.

I thought you might be.

Your margins internationally are higher than what they are in North America in every single region. Did you really expect this to happen? I mean arguably because North America has come down a little harder than expected.

Yes, that is correct. I think Canada -- I think point taken. I did not expect, and I was wrong, that Canada in Q4, this Q4, would be the way it was. Perhaps I did not anticipate the changes in royalty regime. Fine. But notwithstanding that, I was wrong. And, therefore, I would not have expected the margins in NAM to be hit the way they were hit, and therefore, I would not have expected the international side to cross the way it did and as early as it did.

I have to congratulate you on the accuracy of your international guidance that you gave almost two years ago. But if you go back to when you first gave that guidance of 40% and 25%, could you just benchmark a little bit where you have done better than what you thought you would and where you have underperformed relative to the expectations? Are there any particular product lines or regions?

I will give you -- probably that will be too (inaudible) try to do both. It will surprise you. I think we have from where we were and what we expected, I think we've overperformed in the Soviet Union, former Soviet Union. I think Russia we have overperformed, albeit I understand we came from very little. But notwithstanding that we overperformed. And I may surprise you by saying we underperformed in North Africa and even in the Middle East.

Now how can that the possible? They are high performers. But many things we worked on have been extraordinarily slow and difficult to translate into the sorts of things you want to see, which is topline and margin. Things take time.

So paradoxically because Middle East and North Africa are our strongest area where I think it is clear, that is the one that disappointed us the most. Not management's fault I might add at all. It is the nature of the beast.

Conversely, the former Soviet Union, my hat is off to them. They did far more than I thought they could do.

Product service line, sort of the ones that have disappointed, I'm trying to think. I think wireline had a slow start.

I trust by Canada.

But I mean just internationally. I really never forget Canada, but they had a slow start, true. It is little bit the nature of beast. I don't really know the other ones. They sort of -- the deltas vis-a-vis our expectations are not that great. It is not worth mentioning.

Impressive. Thank you very much.

Geoff Kieburtz, Citigroup.

A couple of things. Could you quantify the severance charges you mentioned in North America?

Andy, can you do that?

$3 million.

Okay. Ongoing or over?

We shall see in Canada as to how things go in Q1. We are not after headcount reductions. We want our employees. We just want to get as much possible out of everybody as efficiently as possible, both people and equipment. If we don't see Canada firming up, then we have to obviously take a look at how we sit relative to rig count. And if things look different at the end of Q1, looking out into Q2 and Q3, you know that is always a place that you have to look if you want to manage yourself well.

US, we're definitely not looking to cut headcount. Again, when you get the feeling of the types of things that are being worked on in the US, it is more a matter of where can we be more aggressive on pricing to the upside, how can we utilize things better, and how can we improve supply chain? The discussions are not about our people are not working hard. They are working hard, and I think they are quite fully utilized.

Okay. I think you have answered this question already, but you mentioned, Bernard, that the project management works that you have in hand largely start up in the second half of '08 and back to the discussion on startup costs. I think I heard you say that there are startup costs, there will be startup costs, and therefore, we should not expect that there is going to be a significant change in those startup costs even as you approach the startup of these project management works. Is that correct?

Yes, absent a particularly difficult situation, which we don't have today and we don't anticipate, that is correct.

Okay. Alright. In terms of CapEx, are we right to take the $1.8 billion that you talked about for '08 and compare it to the 1.6 that you had in '07 net of lost and whole? Is that the right way to think about it?

I think that is right. I think that is right.

And can you tell us a little bit more about that CapEx? How does the mix of growth versus maintenance change? Are there particular areas and lines of business that are getting either significantly greater share or significantly less share?

Sure. I think Andy covered in his comments the regional allocations. First, distinguish in simple terms between maintenance and growth. Numbers are not a bit more detailed than that, but for the sake of discussion, think of maintenance around $400 million, $425 million, maybe $450 million, something like that. I think 450 is more conservative. And so you back out 450 from 1.8 and whatever number that is. Okay. That is number one.

Next thing you want to ask yourself is, again, simplistic but it is close to being accurate. In today's mix and in today's cost of materials, etc., mix I mean, mix of products and service lines for '08 and also for '09, what sort of growth do you anticipate? I would take about $0.65 impact, meaning $0.65 of CapEx, for $1.00 of topline give and take with a 30% incremental, something like that.

If you crunch those numbers, it will give you something on the order of something like a couple of billion dollars of topline growth or something like that. That is what the growth CapEx will see.

Now I'm being simplistic here, but you can look at reams of our spreadsheets which we also have, and it is not going to be any different plus or minus a few dollars. So that is sort of the overall forces in motion.

As to where are the CapEx dollars going to go, really I would say hugely biased was the drilling side of the business. Very little on the production side of the business. Not yet on the production business.

This is heavily all the usual suspects on the drilling side. Go down and part lines, they are all there. Not one versus the other, just all the drilling, all the drilling side. I think as you go into 2010, 2011, that may change a little bit.

Another thing that we have seen is obviously with a number of people bringing in training facilities, new facilities to accommodate growth out beyond '09 that are better being put up and the costs associated with that, there is a good chunk of CapEx that goes towards continuing to build out -- Bernard mentioned R&D facility in Russia. Training facilities, manufacturing facilities and what not. And those are very much leadtime investments that don't generate revenue today, but it influences that ratio.

The only thing about this -- he is completely right. The one thing I would add to that is that those types of CapEx, they ride more than one year. Put another way, you have a certain slight provision in '08. You have got paid for something in '07, and you will pay for something in '09. They are not one-year type things.

You know, in your guidance, you mentioned net interest expense for '08 of $220 million I think. It seems to imply that there is not expected to be any material cash build over the course of the year. Is that correct?

I actually modeled it with flat debt levels. Flat on Q4 is what we look at as you all know. We don't typically build up a lot of cash. Cash that we do build up oftentimes is used for buybacks.

So that is how we should think about it. That cash will go to buybacks?

You can go to one or the other; reduced net interest expense or reduced share account.

Okay. And I guess the last question is in your list of specific countries that are going to drive growth, it's kind of a two-part question. You had mentioned before I think that you expected Algeria and Libya both to be in excess of $1 billion revenue generators. I think 2010, is that correct?

Actually Algeria is a good bet. Libya, in my opinion, is a bigger ratio as their comment is $1 billion, but it is hopeful. So I think I know what the source of that information is, and god bless him.

My particular viewpoint is the number of Algeria (inaudible) Libya, $1 billion, just is a little bit racy. $0.5 billion would be good enough. But please go on with your question.

Well, it was just that in your list, Angola India came in between Algeria and Libya. I just --

You mean in terms of ranking?

Yes.

It was alphabetical the best I can recall.

Purely alphabetical, okay.

Sorry.

Alright. No, I just wanted to make sure.

But I'm glad you asked that question because I think I'm aware of the comment of $1 billion on Libya, and I think it will make our Libyan friends proud. However, that one is a little bit high. I think we would be very content with one-half that number.

On the other hand, the Algerian number, which is also very aggressive, I think is not unreasonable.

Mike Urban, Deutsche Bank.

I think the one market we have not spent a ton of time on has been Latin America. And Bernard, you again stuck to the guidance that you have had out there for awhile but did mention some upside. Is that kind of additional upside in the countries and product lines that you mentioned, or are there some things in other countries or PSLs where maybe things just have not developed yet? I was just interested in a little more color on that.

I think there is upside in Latin America. I think the upside is in the countries that I mentioned. And this is something we would rather just deliver rather than having it sort of stacked up with everything else in your assessment.

But I will leave it at that. I don't want to say more until the year progresses. But I think Weatherford will do very well in Latin America. Very well.

And is the concern there just the usual shenanigans that go on in that market, just be it project delays or geopolitical --?

No, no, no, I think it is just simply that perhaps it is my call that we have -- most people I think will tell you that we set out our targets that tend to be viewed as too high and aggressive and so on and so on. We do listen to the comments that come back to us.

So this is one instance where I think that we have reasons to be -- to feel very -- to feel optimistic about Latin America. But there is no mileage to sort of try to put paper and a pencil to it and have numbers move up. Let's give it a few more quarters and see how it progresses.

Michael, the other thing to think about is, if you noticed, the incremental margins were incredibly strong in Latin America year on year. There is a -- I would say that the Latin American management has an intense focus on returns and margins. And there is always obviously a relationship between how aggressively do you want to grow at the top line and what that is going to cost you in terms of return and risk.

And we have the opportunities there to grow more quickly if we wish, but they might not be the returns or risks that we think are reasonable to undertake to get that. Now that may change because opportunities change in terms of the risk profile. But they are not things that we know of that we have in hand today, and so they are not things we're going to bank on or think that you should bank on.

So you have a more positive sentiment on one side, and another word on the other side, a reminder that returns do matter.

I have no problem with the results. They have been great. I'm just trying to understand how you are thinking about things.

So would your comments on that market be similar to the others in terms of the growth expectations that you have, or is what you have contractually and if you do better --?

No, yes, yes, yes, yes. I think the numbers on Latin America in '08 and the indication in '09 are just as strong and just as reliable as the one on the Eastern Hemisphere and subject to the same execution risk. There is no difference there.

Okay.

And I think we have -- we are I think run out of time now. So we will thank everyone in the audience and probably close the call now. Thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.