Weatherford International PLC (WFRD) 2010 Q4 法說會逐字稿

Good morning, my name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Weatherford International fourth-quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions). Thank you. I would now like to turn the conference over to Mr. Bernard Duroc-Danner, Chairman, President and Chief Executive Officer. Please go ahead, sir.

Good morning. I'll turn it first to Andy for prepared comments, then I'll have my own prepared comments afterwards, as usual. Andy?

Good morning. For the final quarter of 2010, we report EPS of $0.21 before excluded items. This is a $0.03 improvement over last quarter, but below our $0.23 guidance. The reported number excludes the following items, which add up to a $210 million after-tax loss -- a book tax expense of $158 million, primarily as a result of a tax restructuring to migrate our Latin American legal entities out from under our US holding structure. Of this amount, $54 million was a cash expense. We expect this move to further strengthen the efficiency of our global tax planning efforts.

$34 million after-tax charge for tender premiums on the extinguishment of a portion of our senior notes due in 2012 and 2013. Recall that this tender, completed in October, straddled Q3 and Q4.

A $21 million after-tax reserve taken against accounts receivable balances in Venezuela. While we believe we are contractually entitled to the full dollar amount of our invoices and are working with our customers to recover these amounts, this decision was taken in the context of the country's economic prognosis.

$12 million in after-tax severance costs related to restructuring initiatives and a non-cash after-tax benefit of $15 million related to the settlement of the TNK put. We settled the put in November for $47 million in cash, which was $15 million lower than the fair value at which the liability was recorded in September of this year. We incurred no net costs related to our sanctioned country and FCPA matters this quarter. A reconciliation of all these items can be found on our website at Weatherford.com.

As compared to Q3, the field contributed $0.05 sequential step-up in earnings with international operations flat and North America accounting for the entire increase. Included in these results are $50 million, or $0.05 of write-offs globally, principally on inventory. This number was more significant than prior years, in part due to our supply chain initiatives, which involved rationalizing facilities.

Increased interest expense reduced EPS by $0.02 sequentially, and part as a result of the tendered bonds remaining outstanding for a portion of the quarter. Taxes came in at 16.2% compared to 16.7% in Q3.

On a consolidated basis, revenue increased $367 million sequentially, or 14%, and advanced $475 million, or 20% compared to the same quarter of last year. North America revenue climbed 14% sequentially and 70% compared to Q4 2009. Artificial Lift, Drilling Services and Stimulation and Chemicals posted strong results for the quarter. Oil-directed and liquid-rich plays continued to drive activity levels higher, while reduced Gulf of Mexico operations continued to weigh negatively.

Eastern Hemisphere revenue increased $107 million sequentially, or 10% compared to a 1% increase in rig count. Compared to the same quarter of last year, revenue increased $134 million, or 13%. Algeria, Iraq and the UK had strong incremental performances as well assignments and mobilizations marked tangible progress in Algeria.

By country, improvements were the most widespread we've seen since late 2008, suggesting the very beginnings of a reawakening in this hemisphere. Drilling Services, Integrated Drilling and Completions were the top performers on a product-line basis. Latin America revenue increased 31%, or $106 million on a sequential basis and declined 28% compared to Q4 2009. This increase is more modest than it sounds, though still marks the beginning of a steady improvement, as last quarter's revenues were adjusted down by $55 million, due to the events in Mexico.

Colombia continued to stand out in terms of incremental growth and Brazil completed deployment on the bulk of recently awarded contracts which are expected to contribute notably to Q1 results.

Consolidated EBIT before corporate and R&D was $420 million, up $49 million sequentially with operating margins at 14.5%. This is a 20-basis-point decline compared to Q3.

Compared to Q4 2009, consolidated EBIT before corporate and R&D was up $198 million, or 89%. In North America, operating income of $252 million stepped up 25% sequentially and margins climbed 180 basis points.

Eastern Hemisphere operating income was down $15 million sequentially with margins down 220 basis points as asset write-offs, heavy rains in Australia and mobilization expense in MENAA temporarily hampered profitability. Europe/West Africa/FSU operating income was flat sequentially with margins down 70 basis points. Middle East/Asia-Pac operating income declined $15 million, or 22% with margins down 340 basis points. Latin America profitability increased $12 million and margins were relatively flat versus Q3.

During Q4 we generated EBITDA of $591 million with D&A at $272 million. Capital expenditures were $209 million for the quarter net of $50 million of lost-in-hole revenue.

Free cash flow from operations was strong this quarter and was deployed on several significant items -- $47 million for settlement of the TNK put, $43 million paid in bond tender premiums and $38 million deployed on acquisitions. These total approximately $130 million and caused net debt to increase $23 million during the quarter.

DSOs finished the year at 81 days, a 12-day improvement compared to the end of 2009 and one day lower than our targeted performance for 2010. Days working capital declined to 120 days from 139 in Q4 of 2009. This has been an area of intense focus for us, and we are very proud of the team's results.

For the full year 2010, we generated free cash flow, defined as changes in net debt, of $115 million. At quarter end, our ratio of net debt to net capitalization stood at 38.9% with total net debt at $6.3 billion. At December 31, 2010 we had cash and amounts available under our committed credit facilities of $2.1 billion.

Guidance for 2011 includes the following below-the-line items -- D&A, $1.15 billion; corporate expenses, $170 million; R&D expense, $255 million; net interest expense, $450 million; other expense, $40 million; minority interest expense, $20 million; capital expenditures, up 40% at $1.4 billion; and a tax rate of 20%.

Finally, we expect Q1 earnings per share of $0.27.

Thank you, Andy. Looking at Q4, we had areas of satisfaction and areas of disappointment this quarter. We had satisfaction in growth and capital efficiency. Top-line growth was excellent, an area of over-performance. The fourth quarter showed very strong revenue growth at $2.9 billion, which is the highest quarterly revenues in our Company's history.

Furthermore, the 14.5% Q3 on Q4 percentage increase is also the highest quarterly growth rate in the Company's history. The growth was organic, not acquired revenues, and consistent with our historical record. The growth was evenly split between North America and international at roughly the same rate.

In spite of over $360 million of organic growth to finance, we generated in the quarter about $110 million of free cash flow from operations. As Andy pointed out, use of proceeds went to finance acquisitions, the closing of the TNK put and refinancing costs associated with our bond tenders. Capital discipline in operations remains a priority.

We were also disappointed in margin expansion. Incremental margins were seriously held back by asset write-offs, particularly in the Eastern Hemisphere. Write-offs amounted to over $0.05, almost entirely inventory related, and made more material by our supply chain initiatives rationalizing facilities.

In addition, Australia and, most specifically, Queensland, torrential rains and related shutdowns suppressed margins by about $0.01. Australia is historically our largest operation in Asia-Pacific, typically about 20% larger than the next runner-up in that part of the world, which is China.

A third factor holding back margins in the Eastern Hemisphere are continued delays in finalizing mobilization of a number of operations, primarily Algeria, Bangladesh, Iraq, Libya and Turkmenistan. We are seeing progress now being made in the course of Q1.

Geographically, NAM again [lead] much of the quarter. Both the US and Canada were very strong. NAM showed the best incrementals at just under 33% and a 180-basis point improvement quarter on quarter, which is better than expected. Margins have room for further improvement in NAM. NAM's peak EBIT margins were close to 30% versus the Q4 levels of 20%. We do not, in NAM, have the stimulation intensity of our peers. Improvements are therefore more gradual in price and volume; it takes more time.

In Latin America, Colombia stood out with the highest quarterly growth rate, complemented by improvements in other countries, including Mexico. Russia was flattish, settling in its seasonal decline, while North Sea carried most of the quarterly growth.

MENAA and Asia-Pacific was driven essentially by MENAA with broad-based growth in Algeria, Iraq, Libya, Oman, Saudi and Qatar, offset by severe conditions in Australia.

Following is a product line summary for the quarter in millions of dollars; I'll go quickly there -- Drilling Services, $482 million; Artificial Lift, $471 million; Chemical and Stimulation, $396 million; Well Construction, $363 million; Integrated Drilling, $357 million; Completion Systems, $235 million; Drilling Tools, $212 million; Re-entry and Fishing, $165 million; Wireline, $159 million; and, finally, Pipeline, $61 million.

Forward views -- North America -- in US land, activity will flatten out. We don't expect the market to provide significant volume gains. There is likely to be substitution of conventional gas segments and further strengths in oil and gas of condensate shales. Given our specific business mix, which is a little different than our peers', we do expect further gains in volume and pricing. They will be selective, depending on the product line. We believe that, even though the offshore ban is lifted, we will see subdued offshore drilling activity in the US through the near-term. In other words, the US Gulf of Mexico will not do well in 2011.

Canada has a distinctly positive outlook insofar as the oil segment is a far greater percentage of the overall market. Heavy oil activity has been suppressed over the past few years, and there is catch-up activity underway. Expect Canada as a whole to be particularly well-behaved. Volumes will strengthen in 2011 and even more so in 2012. Canadian shale plays will be very important, but not until 2012. There's an infrastructure buildup that is needed to turn the Canadian market into essentially an oil play until then.

International -- our assessment of the international outlook for 2011 is now squarely positive. What I mean is that both the quantum of market growth and our own market share carry a higher degree of certainty. The market will strengthen as 2011 progresses. This will lead from 2012 thereon to a period reminiscent of 2005 through 2007.

In Latin America, Brazil, Colombia, Argentina and Peru should have robust growth in 2011. Based on existing contractual commitments, Brazil and Colombia should top the list in growth rates. Prognosis for Mexico is cautiously positive. We expect a slow recovery, but a recovery nonetheless. The offshore segment in the southern market of Villahermosa should be the first to gradually strengthen.

Eastern Hemisphere will be driven predominantly by oil, traditional light oil plays and widespread heavy oil development. There will be the normal seasonal pull-back in Russia, North Sea and China, but the base will pick up rapidly throughout the year. Russia should have a double-digit outlook in 2011, both volume and price. Activity gains will be side tracking and production related as well as development drilling and further exploration drilling.

The North Sea and East Africa should show strength in the year. The North Sea, in particular, should be strong.

Central Asia will reboot some of its activity in the course of the year with India, Bangladesh and Turkmenistan particularly constructive in outlook.

We expect MENAA -- Middle East/North Africa -- to strengthen throughout the year. It will be a slow process but should be a powerful upward surge into 2012. We already have contractual commitments and have initiated start-ups in Algeria, Bangladesh, Iraq, Kuwait, Libya, Oman and Turkmenistan. Most likely, we have more to come.

Our final growth rate for 2011 will depend on the efficacy of mobilization and the timing of planned start-ups, but the outlook looks the most constructive it has been since Q3 of 2008.

Financial synthesis -- the emphasis on more efficient use of capital, whether working capital or CapEx, will continue with the same drive. We have as an internal target to end the year, the year 2011, at a debt-to-capitalization ratio at or below 35%.

With respect to earnings performance, our assessment of 2011 remains unchanged at about $1.30, reflecting a 20% top-line growth and 35% incrementals year-on-year. We expect a balanced top-line progression across all regions, NAM and international.

With respect to margins, we expect NAM to continue with some gradual progression. International should show considerable improvements. International margin improvements are expected to be driven by fixed cost absorption and the gradual conversion of start-up costs into operating businesses.

With that, I will turn back the call to the operator for Q&A session. Operator, please?

(Operator instructions) Ole Slorer, Morgan Stanley.

Thank you very much, Bernard. Could you give us a little bit of a flavor where you're talking about a gathering of the momentum of the recovery in 2011? Clearly, you had very strong sequential revenue growth in the fourth quarter. So are we talking about or of a margin leverage here, or could this quantify a little bit your optimism on revenues relative to bottom-line leverage?

The comment is both a comment on market and also on what I think we may capture within that market. The comment on market is both a tone comment, better tone; it is also a specific comment. Insofar as the number of very specific inquiries, tenders, our projects that are coming up pretty much all over the world -- there are differences depending on the region -- is about as strong as I've seen it in two years.

The comment on our own ability to capture some of it is just specific country by country. The most important comment of the two is the one the market overall.

So would you say there has been less a radical change in the type of conversations that you're having with your average international customer, and was this to do with the year-end budgeting season or has it been a gradual? Could you give a little bit more on just, when you go into the offices now of one of your major customers, how, if at all, has the conversation changed as of late?

I think probably the rhythm of the quarterly earnings makes it sound a bit more radical than it really is. There has been a gradual build-up in client optimism, client -- I would say, stability in thinking as opposed to changing their minds. So the tone has gradually improved. And the improvement in the tone has led to specific inquiries and specific projects and specific tenders and specific awards. It's a continuous process. I wouldn't call it radical; I would just say that it's a little bit windows daybreak stuff, really. You see it coming up, and you see a bit of light. At some point, it is daybreak. It's a continuous function off a discrete one.

Here's a little bit of the same thing, which is that now we've reached a level, I think, in client drive and determination to where what was a better tone is becoming specific operating projects and specific commitments and so forth. So it's not radical. It is a -- I think it is the normal evolution of a gestation time. But now we move to the action, the action phase.

Just on the North America, a little different -- you highlighted that you have a different mix than your main competitors; therefore, you see the outlook a little differently. Can you qualify that a little bit? Are you talking about your geographic difference in North America with Canada versus the US, or are you talking about your product line differences with more Artificial Lift relative to pressure pumping? Could you just be a little bit more specific exactly on that comment?

It is exactly what you said. First, we, for historical reasons, tend to be more Canadian than our peers. The balance between US and Canada is a little bit different than our peers'. Fact number two, and this, I think, is well-known, although we have a stimulation business which is a good stimulation business, it is not comparable in size and intensity to the ones of our peers. So, therefore, the evolution of -- on our prognosis in the US market and Canadian market is a little bit different. It beats at the drums of all the other product lines.

And so into 2011, I think you are likely to see, for us, a continued progression in all the other product lines versus volume and pricing independently on what happens in the balance of supply and demand in the shale market. And, yes, indeed; Artificial Lift is our largest product line. In the United States, for example, it's also, I think, reasonably well-known that about 25% of everything we sell in the United States is Artificial Lift, as it has always been the case.

So yes; it stands to reason that our prognosis there would be a little bit different. And indeed, it has been a bit -- although the results have been good in North America, it has been a bit slower in terms of progression in price and volume. That's simply because of the rhythm of evolution in this product line is not quite as vertical and violent as it has been in the stimulation market.

Okay, very good, Bernard, thank you very much.

Bill Herbert, Simmons & Co.

So, Bernard, one of the things that struck me with regard to your commentary was the fact that, if I heard you correctly, you called for a gradual improvement in MENAA, and yet top line was up 13% quarter on quarter in the fourth quarter. Are we being a little bit subdued with regard to the outlook for MENAA, or how should I take your commentary?

Probably nothing more than I'm -- I think it's -- we are being subdued or we're being careful. Often, in the fourth quarter, you do have -- in MENAA, in particular -- delivery of products that tends to make the number a little bit higher. But having said this, I think in general we tend to be more careful, if only because in the past three or four quarters our clients have been slow.

Okay, and then I guess this is a question for both you and Andy, and that is a combination of what I would call the asset right-sizing, if you will, in the fourth quarter, moreover with your having significant revenue growth generated in the fourth, improving visibility, thus likely continued traction for 2011. Andy and Bernard, how should we think about the margin progression as 2011 unfolds for Eastern Hemisphere?

Look, I'll give you one answer; I'll let Andy provide his answer. We should expect in the Eastern Hemisphere incrementals on and around about 35%. Now, will they be smooth? Well, as you might have noticed, Bill, things have not been smooth. So I -- we're not going to promise that they will be smooth from there on. We will try to.

But in general, that's what the economics of the fixed variable cost structure and volume absorption and sort of the tapering off of the mobilization costs in the numerator, while the denominator of the base of business is increasing. What all of this suggests is that 35% should be about right. Now I'll turn it to Andy if he wants to add to this.

Yes; Bill, so look, the seasonality we have to just give a little respect to for the first quarter.

Okay.

In Russia --

North Sea, actually --

-- North Sea and the continued challenges in Australia, which much of that weather stuff has continued through January. So I think those will hamper the overall incremental margins that you see in Q1. But the way we see things is, then, that sets up for strong incrementals sequentially in each of Q2 through Q4.

My comment, Bill, was actually a yearly comment. I wasn't trying to slice it in quarters. But when the year is over -- now, a year is a long time -- if the incrementals in the Eastern Hemisphere were less than the 35%, then I think the word disappointed would be right. That was a yearly comment.

Okay, great. And then, finally, to the riddle known as Mexico, on the one hand you've got yourselves and Tenaris, who are long-standing Mexican hands, if you will, waxing more optimistic about the outlook for Mexico in 2011 than some of your more prominent peers. What is the disconnect here? Why do you feel better about Mexico, and seemingly a number of other parties are much more discomfited over the outlook here?

First of all, I think probably one would say that Tenaris, which is Tamsa in Veracruz, yes, they're the most constructive. At least, they have been; maybe they will change their minds. We sort of stand a little bit in the middle. We're not a raging bull. It's just a -- I use the word cautiously optimistic; that's the first thing.

But then I'll stand by my words. Probably it's a combination of things, Bill. One has to look at the basis from which we are sort of rebooting in Mexico. It's a very low basis. It's a little bit like looking at a US market like over a year, a year and a half ago or whenever we hit the low point, and being sort of cautiously optimistic about the outlook when the price of hydrocarbons was materially higher. It's got a little bit of the same phenomenon. So it stands to reason that it ought to be better. That's one.

Two, those are specific circumstances. Existing circumstances, I think that much of the budgetary, let's call it adjustment that our client had to go through is just about finished. It's a matter of weeks. In other words, the constraints they were under is just about sponged up. In other words, they have gone through the belt tightening that was required by the congressional authorities. So you've got a budgetary turnaround; that's factor number two.

Factor number three -- there is a genuinely, best I can tell, great interest with our client in that country to reform, bring in some foreign interests in some contractual forms, not necessarily the traditional ones, and that also is constructive. So you through the fact that we are coming -- well, then, in fact coming from a very low base, item one, so that you almost have to be better. Item two, the issues of overspending that plagued them is pretty much behind them. Item three, the intent is to do things a little bit maybe with more creativity.

And the fact, lastly, that decline rates remain what they are, whether you are looking at the southern basin or the northern basin, whether from Burgos, Chicontepec, Villahermosa or Veracruz, or whether you're looking at Cantarell and KMZ in the offshore in the deep water plays -- all of this, the intent is definitely to be more active. You put all of that together, and where do we end up? We end up being cautiously optimistic, which I think is the right position to have.

Yes, and you also failed to mention one thing, which is $90 oil that also helps, too.

It does. It does, of course. As a backdrop, it does, obviously. (multiple speakers) The volume pursuit even more critical.

But with regard to distilling this into top line, I think you guys peaked out Q4 2008 or 2009, actually, at about $450 million a quarter in terms of top line. And then I think you were treading water at about $100 million a quarter in Q3. What do you think we should expect for 2011, Andy, in terms of top line out of Mexico?

Circa $600 million.

Okay.

I think it's safe, and I think the upside to that is maybe at $700 million, but we'll see.

Okay, thanks very much, guys.

Brad Handler, Credit Suisse.

Could you -- I guess I was trying to sort out from your commentary, so maybe I'll ask you to retrace a bit. But could you update us on the status of several of those projects that I think we heard about in the last quarter call as well, as being start-up initiatives. So I couldn't tell if there was some disappointment that some of those hadn't progressed more in the fourth quarter. But there's no change in outlook, and so you are still optimistic that those translate to revenues very shortly. But if you could just sit on a couple and maybe, yes, gauge if some are moving more slowly than others or something.

Yes, probably what I will do, Brad, because this being a limited-time call, I'll probably focus on the largest one, at the end of the day -- not because it's necessarily the happier story, but it's the largest one. So, let's not escape it -- that would be Algeria. As a reminder, in Algeria, after some delays because our client went through a reorganization, a number of different integrated project contracts were signed with four large companies. We were one of the four.

Happily, we had the largest commitments, which was five, five strings. Our peers had four, three and two, if I recall correctly. Now, the five strings -- of the five strings, four of the five have been in-country -- my goodness, they have been in-country since Q3. And so you can understand the mobilization burden with the equipment and the people and everything else. It's not only rigs, it's everything else. So this is the whole gamut of integration, and it's destined for a gas field called Berkin, which is a high-pressure, high-temperature field. So it has a lot of equipment.

And so all the equipment and the organization was there, and we didn't have the ability to deploy a single one on well sites. Why? Let's just call it client delays and the like, and leave it at that. I will add that this is not specific to Weatherford, but it is, actually, it is a general situation. I will say that, given the fact that we have the largest contract, having five and our peers having four, three and two, and given the fact that we are the smaller of the four, we have the biggest contract with the smallest of the four. So you can understand it has the biggest effect on us.

We made some progress in Q4, but not in a commercial sense, in the sense that we didn't have anything deployed. We made some progress in working through all the organizational issues with our clients, and now I think, Brad, to give you a sense of progression, I would say that by the end of the first quarter it is likely, if not -- it is probable, it is likely, it is planned that four of the four or three of the four will be turning with the full equipment components also turning with it, the fifth one being in-country also in Q1.

So, put another way, I don't think we have any commercial, as in booking of business progress in Q4. We have operational progress, and I can now tell you with some degree of certainty, I hope, that by the end of Q1 we'll have three of the four that are in-country turning, probably four of the four. That gives you a sense of progression.

There are similar sorts of things like that in the other projects, some better, some not so good. But for the sake of saving time, given the fact that they are limited, there's only one hour of time available, I'll leave it at Algeria. We can give you more off-line.

That's great, no thank you, that's very helpful. Maybe an unrelated follow-up -- as it relates to some of your cost savings initiatives, maybe you can give us a broader update for targets, or I guess I'll call them sort of permanent cost savings as a function of your manufacturing initiatives and some of the personnel, severance, the reallocation, some of the -- that's resulting in some of the asset write-downs. You know what I think what I'm speaking to. If you can update maybe, Andy, broadly on sort of how your targets have evolved and maybe how to think about that structurally for 2011 and beyond?

Yes; Brad, as we look at the operations, clearly we have made the decision to hold onto and maintain our cost structure in the international markets since the end of 2008. We think right now that that looks like -- that that was a good thing to do, as we look at the operating leverage within the Company.

While we are always looking for ways to be more efficient, and I'm talking here operations ex-supply chain, we are not looking at a -- from that side of a cost-cutting exercise; we are looking at how to deploy that and use it to grow more quickly and more efficiently. So the absorption effect is there.

On the supply chain side, one of the things that have hampered the financial performance throughout 2009 and 2010 was under-absorption on the manufacturing side. These swings, to give you a sense of it, in high-volume times -- think back to 2007-2008, when those are positive variances, meaning contributing to and you're over-absorbed on your costs, it has a meaningful boost and improvement to a significant portion of your business.

We've had the opposite effect in terms of under-absorption, and it has been material. So I think that what you will see there in the absorption and the contribution to margins is a meaningful source of supporting our 35% incrementals as we look through 2011.

I understand; but if I may, let me just try again. I thought there was an initiative announced a few quarters ago as it related to where manufacturing locations would be placed and how to sort of -- I guess it is how to manage the supply chain. There were some back-office initiatives as well. And that's sort of where my question was more directed. I don't know if there -- there were some targets, I think, even at that time. I didn't know if there was an update on that (multiple speakers).

I think, okay, the other -- I think Brad is right. I think it got embedded in the overall supply chain initiative. Probably the other way to express it when it comes to the supply chain, Brad, is that, on average, we have run in 2010 -- and my numbers are going to be maybe -- they may not be accurate, but they are close -- somewhere between $50 million to $75 million of unfavorable absorption numbers. So $50 million to $75 million, I can't remember, it's somewhere in between for the whole year.

And we run a lot of manufacturing, and I think in the course of the year 2010 we have closed down some facilities, we've moved some assets, which is not healthy absorption phenomenon, either -- not so much the actual closure, but just the -- just the work involved in moving things around is not one that is particularly helpful when you're trying to optimize. The thought process in 2011, and I think it's reasonable, is that at a minimum we absorb completely, meaning there is no unfavorable absorption. Part of it has to do -- part of it has to do with volume, but part of it has to do with the productivity of the supply chain.

And then the thought for the following year is that the over-absorption swings to produce as much as we under-absorbed, meaning that in 2012 we would be looking at a 50% to 75% over-absorbed number. So where we were 50% to 75% under-absorbed in 2010, we are expecting to be neither over- nor under-absorbed in 2011, and we are planning to be over-absorbed by $50 million to $75 million in 2012. These are simplistic numbers. I'm probably off to a degree, but I -- give you some sense of metrics that might be helpful.

Yes, I think that's helpful color. Great, thanks a lot, I'll turn it back.

Kurt Hallead, RBC Capital Markets.

Very constructive outlook, I appreciate the color. Bernard and Andy, as you map out 2011 and get a peek out into 2012, obviously there's always going to be areas that are -- situations that are unforeseen that kind of throw a wrench in the plan. How have you guys risk-assessed your outlook for 2011? If you could walk through varying regions, where do you think there is some risk to your outlook, and where do you think there is some greater opportunity than what you are currently looking for? And, maybe, we could start with Latin America, and then specifically go talk about Russia, and finishing up with Iraq, if you may.

I would say, actually, that Latin America and Russia are probably the ones that are the least likely to surprise or disappoint. You'll say, how do I know there won't be some catastrophic events? No, I don't know that, neither does anyone else. But based on contractual information, meaning contracts that we have in hand and are executing, whether in Brazil, in Argentina, in Peru, in Colombia, the modest turn in Mexico; then you turn to Russia, which is a contractual commitment -- and in my prepared comments, I tried to convey that what we see as being constructive is both the production phase, the development drilling phase and the exploration phase in Russia. I see those two markets as being about as reliable as anything you can have in my industry.

I would add also the North Sea now as another market which looks also sufficiently broad-based and solid in outlook that it would really take an actual catastrophe like we had in Australia to change the outlook in 2011. And probably the outlook in those markets and our own position there is a little better than we presented, to give us some measure of cushion for the other ones where I am more cautious. I am obviously more cautious in the Middle East, as one of your peers pointed out a few questions ago. Why? Because some of the markets that are moving in the Middle East, be it Algeria or be it Iraq, are markets which are giant markets, particularly Iraq, but they're not markets where either security is something one can easily get comfortable with, and/or where the development is highly predictable.

And I would add that the other markets, such as Saudi Arabia and the Emirates, Abu Dhabi and so forth, are more subdued in outlooks, probably as a reflection of the fact that markets like Iraq and Algeria are so stout. So in those markets, you have to be treated with the respect they deserve because they are giant markets. At the same time, one has to be cautious simply because of the operating challenge.

So I would say the Middle East in general, which will have ultimately a very large impact not only on the industry but on Weatherford also -- always has historically; it's one of our areas of great strength -- is a market that one ought to look at carefully in 2011, simply because the countries that are moving it are not -- they are not current. They are not in a situation to be terribly predictable. That sort of sums up my views.

Okay, and the pricing improvement you referenced in Russia -- it's my general understanding that has all been agreed to as per the end of November, so that's pretty much locked and ready to go?

Yes, it is.

Okay, and then from a product line standpoint, once again focusing specifically in Russia, what product lines had the best upside in pricing going into 2011?

For competitive reasons I wouldn't want to tell you this, Kurt. I'd rather have that commentary off-line, if you don't mind.

Okay, fair enough, thank you.

Angie Sedita, UBS.

You have a pretty impressive move in your CapEx in 2011 over 2010, up 40%. Can you give us some color there on what regions that CapEx will go to -- product lines, etc.?

It's international, really, overwhelmingly, and it's going to be -- no surprises there. It's going to be disproportionately places like Latin America, Russia and, I would say, the Middle East. I've just finished saying that I'm cautious on the Middle East. If you looked at the CapEx commitments, you'd see a little bit of a different view, which simply means that we are just being careful not to overpromise, over-commit in a part of the world where it can be, sometimes, slow. But the capital investment does reflect a commitment to the Middle East above and beyond what we did in 2010. So Latin America, Russia and the Middle East.

Okay, for a product line (multiple speakers) --

Our product very broad (multiple speakers). [Iran] is not only drilling. It was traditionally only drilling, but actually it's very broad with some significant capital investments also on the intervention and the production side of the business.

Okay, fair enough. And then, pretty impressive move in revenues in Latin America, and you mentioned some contract awards in both Brazil and Colombia. Could you give us some color there and expectations for potentially additional awards? When would you expect to hit your run rate on those contracts that have already been awarded?

On the last question, I think by midyear we will be at our run rate, meaning, let's say, the end of Q2. It's a bit simplistic of an answer, but it's close enough on Brazil and Colombia. In Brazil, it's very broad-based. It goes from your traditional drilling product line such as liner hangers and tubular running services and directional, all the way through to the production side. I think I mentioned at another time that, not just a few weeks ago, I commissioned a brand-new Artificial Lift manufacturing facility just outside of Rio de Janeiro, very large and brand-new. And that facility is entirely booked up, and not only for the Brazilian business, but a big chunk of it is the Brazilian market.

This facility is -- and it is a rather large facility. So it is very broad-based in the case of Brazil. It is, of course, offshore. There is some land market also, but it is predominantly offshore.

With respect to Colombia, Colombia is far more drilling in terms of exposure. It is your traditional integrated projects with strings, together with all the other products and service lines all the way through the completion and stimulation phases in that market. So that's -- those are the differences between the two markets.

There will be further -- well, we hope there will be further contractual commitments in both markets, but those commitments would basically impact the second half of this year. The existing contractual commitments are the ones that are building up volume the first half of this year.

Okay, good color, thank you. And then, finally, on Iraq, similar kind of commentary to your pace of revenue growth in 2011, when you would expect to hit your run rates based on current awards, also any color on margin expectations as we go through the year. And are you seeing any additional awards specifically in discrete sales, etc.?

We are. We are seeing a lot of direct awards and direct sales. There are the contracts that make the news, and there are -- there's the rest. And so we are getting a lot of direct awards both in the south and in the north. We are going to move from the 8 to 9 strings that we are right now to about a 12-string level. In the course of this year, I would say that we probably will reach the first level, having all the contracts that we presently have executed on -- we'll reach that first level of maturity sometime in, I would say, late Q2 or early Q3.

In Iraq, there will be further contracts given out, I suspect, simply because this is a market which is moving very rapidly. In fact, the market is moving at times faster than the operating infrastructure would allow it to move. It's a very, very fast unfolding situation. Margins in Iraq, Angie, for us are really quite good. You have to set the mobilization expenses aside, but you can isolate that quite well, but you have to be honest with yourself. And then, when you look at the overall business, the margins are really quite good. And once the mobilization expenses are fully absorbed, which in our case they will be, certainly by Q2 or by the end of Q2, I think you'll find that Iraq is a good market.

Understanding also that we have been very careful in the contractual commitments that we have taken on. There are many, many contractual commitments available in Iraq. I'm not suggesting you can pick and choose; no, it's very competitive. But there are battles you may wish to fight and battles you may not wish to fight. So we have been very careful. Remember, Angie, we've been the first ones back in Iraq back in 2006, so this is a market and an operation that we tend to know reasonably well.

And then the discrete sales -- are you seeing that with the NOCs, or are you seeing it with the IOCs, as far as additional awards?

Really IOCs, IOCs predominantly, although some of the IOCs in Iraq are NOCs -- I-NOCs, too many acronyms. Remember, some of the players are not the IOCs that you typically know. Some of the players would be NOCs in their home countries, but they are playing there in the international arena. But these are the types of clients that are providing discrete sales. This is not really SOC, MOC or subsidiaries of the National Iraqi Oil Company. It is not.

All right, fair enough, great, thank you for the color.

Marshall Adkins, Raymond James.

Andy, could you walk me through in a little more detail the inventory write-offs? What products were they in? And give us a more detail on the regions.

Yes. So, as Bernard mentioned, of the $50 million of asset write-offs, or $0.05, about $30 million of that fell in the East. A tiny piece fell in Latin America, and the balance, or a bit less than $20 million, fell into North America. Where we see this is, so just think easily about what product lines of ours carry inventory. It's the product-based businesses -- Artificial Lift, Completions and a component of Well Construction.

So if we had to break down, mainly Artificial Lift? Does that make sense?

No, no; more in Completion and Well Construction.

Officially, it would not have been more than 20%-25% of it.

Along those lines, a lot of your competitors that sell products have extreme seasonality, and they are all looking for a down quarter next quarter. It seems to me like you are not looking for as big of a seasonal impact, maybe, as your peers. Is that a fair assumption? Should we be looking for a significant downturn in Q1, due to seasonality in the product sales?

Nothing beyond what is already covered in our guidance. But I would remind you that we don't have a lot of -- software sales are not a large component at year-end for us, like they might be for some of our peers.

I would say one thing, Marshall, which is not seasonal per se, but it's climatic; Australia was what it was. Australia will continue to be equally bad for us in Q1. And so that's that. Australia obviously will dry up just as soon as it stops raining, and that market will turn. That would be probably the only thing in Q1 that would be sort of similar to Q4.

Was that full Q4, or didn't it kind of hit in December?

It hit, really, in late November and in December; it did. So the impact was a little -- I'd call it $0.01. It was a little under $0.01. I expect that in Q1 it will be a little above $0.01. These are -- Marshall, they are too fine of a distinction to be worthy of your time.

It is true that, as I mentioned in my comments, Australia is our largest geographic market, just before China in Asia-Pacific, and we are very big in the CBM play in Queensland. It shouldn't be a surprise to anyone, simply because we tend to be very large in all land unconventionals. Not only -- not on heavy oil, of course, CBM and shale. This is true around the world. This is one of our specialties, land unconventionals. So this is normal that Queensland is one of our plays.

Having said this, it will not go on forever. The rains will subside and so forth.

All right, thank you all.

Stephen Gengaro, Jefferies.

Following up on the prior question, when we look at the first-quarter numbers that you provided, how would you walk through the pluses and minuses? I imagine North America is a positive, but can you sort of put a little more detail around that?

Yes. I don't want to get too specific on each of those pieces, Stephen, but look, North America [on] Canadian seasonality up, and also sequential improvement in the United States. We expect an improvement at the operating income line in terms of the dollars there in Latin America. And in the east, I think that the things you have going against you, again, are China/Australia, which Bernard just spoke about; North Sea, Norway in particular, and Russia.

Seasonality.

Seasonality only. And so the question is, can the remaining operations make up for that again, without the inventory write-offs? Yes, we think they can. But I think that a good effort at the operating income line in the Eastern Hemisphere from Q4 to Q1 is flat to slightly up.

Okay -- no, that actually makes sense. And then just the other question I would ask is, as it pertains to the North American markets, and maybe the world, too, but particularly North America, are there any product lines or anything that you would like to add? Are there any things out there that excite you at this point from a product line perspective that maybe Weatherford doesn't have right now?

We wouldn't want to add any product lines, Stephen, particularly. The only one that is glaring by its absence is bit. And in all due respect, in a prior life I was responsible at the end of the day for bit ending up at Grant Prideco, [should end up the] National Oilwell today. This is not something that we view as necessary. Let me be very direct in my answer.

So I think we do not have any particular interest in any new product lines. We always have an interest in depending what we have in our existing product lines; this is a different story. But I don't see the need to add product lines. We are happy with the breadth we have, which, absent bit and also seismic, is about as broad as anyone could possibly want. So I'd rather do what we do better and deepen also our exposure to the product lines that we presently have organically, or there are some acquisitions, of course. We are very content with that.

Robin Shoemaker, Citi Investments.

Bernard, I wanted to ask you -- we are hearing a lot about in the US the laterals are getting longer, more frac stages per well, more oil, less gas. I wanted to ask you how you, Weatherford specifically, in terms of new incubating technologies, or recently launched technologies, captures that trend in the market, given your small footprint in pressure pumping. And I noticed a recent article in one of your publications about the application of rotary-steerables in the shale plays. So could you update us on that?

Too long of an answer would be deserved. I would say, first of all, that it is true; we have a smaller footprint in stimulation, materially smaller. It is also true that, by luck or by craft, we've deployed that footprint entirely not only on shales -- there is nothing on dry gas -- but also on wet gas or gas with condensate plays. We have almost exclusive presence there and nowhere else. This is just one.

Second, yes, we have the full complement of product line as applicable to the shales, and only the long laterals and so forth, from the directional through micro-seismic. And in a different setting, I would argue we probably have the industry's best. And I will refrain from saying that now, because this is not the place or the time. But there are some developments on and around directional that would be particularly useful for those plays.

I'm grateful for the question, Robin. But again, for competitive reasons, I'd rather not discuss it in a public setting.

Okay, well, look at the international shale plays. You've mentioned your Australian business. But we keep hearing about other either shale plays, tight sands, coalbed. Where are you most optimistic that the international market will develop into a meaningful opportunity for Weatherford?

Let me just say, I think it's a very important thing insofar as it's gotten the attention of IOCs. I think, second, there will be a lot of geophysical poking around, if that is a proper term, of shales around the world by the same IOCs. I think what will result from the poking around will probably be encouraging.

But I do think that the next issue is the political issue of how you put up with the infrastructure required for shale development, quantities not only of proppants and sand, but quantities of water and the enormous footprint that is implied. Okay? So net-that, when you put everything together -- and Robin, this is, again, a question deserving much more time -- I would look at Asia as more potential for developments in shale, rather than central Europe near term. I'm not suggesting that central Europe won't happen, no, no, no; I think it will. I just think that the infrastructure implications will be such that it will take quite a bit longer. Having been myself of European extraction, I have a sense of how difficult sometimes things can be in those particular markets.

So I think shale is terribly important internationally, absolutely, lots and lots of work being done on the coring side, if you want, if you will, on and around those sides. And I think that at the end of the day it becomes something important for all of us. I would look at Asia probably as the place which would have the first meaningful impact on and around international shales.

Okay, very good, thanks very much.

Thank you, Robin, and thank you, everyone, for listening. And we will now turn down the conference call. Thank you. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you all for participating, and you may now disconnect.