Weatherford International PLC (WFRD) 2012 Q1 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 first-quarter 2012 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions). As a reminder, ladies and gentlemen, today's call is being recorded. Thank you.

I would now like to turn the conference over to Mr. Bernard Duroc-Danner, Chairman, President, and Chief Executive Officer. Sir, you may begin your conference.

Thank you. Good morning, everyone. John will read his prepared comments and I will do the same, as usual.

Thank you, Bernard, and good morning, everyone. Before my prepared comments, I would like to remind listeners that this call contains forward-looking statements within the meaning of applicable securities laws and also includes non-GAAP financial measures. A detailed disclaimer related to our forward-looking statements is included in our press release, which has been filed with the SEC and is available on our website at weatherford.com or upon request.

Similarly, a reconciliation of excluded items and non-GAAP financial measures is included in our press release and also on our website. Finally, in order to allow more callers to ask questions, I ask each caller in the Q&A to limit their questions to one initial question and one follow-up question.

In the first quarter 2012 we generated net income of $123 million, or $0.16 per diluted share. On a non-GAAP basis, first-quarter net income is $190 million or $0.25 per fully diluted share compared to non-GAAP net income for the fourth quarter 2011 of $159 million, as detailed in the non-GAAP reconciliation table in our earnings release.

First-quarter net income was unfavorably impacted by certain excluded items highlighted in a press release, totaling $67 million on after-tax basis. The excluded items for the first quarter were primarily composed of $25 million net of tax for severance, substantially related to executive officers, and $40 million of discrete tax items.

Discrete tax items are primarily changes in estimates and uncertain tax positions that are not directly related to current year operating results. Due to the nature of these items, they cannot be accurately forecasted and are not considered when we provide guidance on our full-year effective tax rate. In order to provide greater transparency to our income tax numbers and increase clarity to our operating results, beginning with this quarter we will break out discrete tax items separately and include these items in our reconciliation of GAAP to non-GAAP financial measures schedule, which is the next-to-last page of our earnings release. This will allow you to clearly see our operating results on a normalized basis and the taxes related to our current operations. You will also be able to easily track our progress toward our tax guidance in the current year and track future year reductions in our effective tax rate on a truly comparable basis.

First quarter revenues of $3.599 billion were 3% lower sequentially but 26% higher than the same period last year. North America revenue was up 29% versus the first quarter of 2011 and up 3% sequentially. International revenues were up 23% versus the same quarter of 2011 and down 8% sequentially.

Artificial Lift, Wireline, and Completions posted strong sequential growth in North America, but these increases were more than offset by declines in Stimulation, Drilling Tools, and Fishing, which were penalized by declines in natural gas plays in North America. Seasonal declines in Russia, North Sea, and China, as well as budgetary cycles in Latin America were the primary factors impacting international sequential revenues.

Segment operating income of $554 million improved 57% over first quarter 2011, while declining $57 million or 9% sequentially. Segment operating income margins of 15% improved 3% over first quarter 2011 while declining 2% sequentially. North America revenues increased 29% year over year and 3% sequentially, with operating margins for the quarter declining 200 basis points sequentially to 21%.

International revenues increased 23% year over year and declined 8% sequentially, with operating margins declining 80 basis points sequentially to 11%.

Corporate, general, and administrative expense of $64 million increased $7 million compared to the prior quarter, primarily attributable to additional professional service fees incurred in the first quarter. The record high level of corporate costs in Q1 will decline to an average below $55 million per quarter for the remainder of 2012.

During the first quarter 2012 we generated EBITDA, defined as non-GAAP operating income plus depreciation and amortization, of $729 million, with depreciation and amortization of $301 million compared to EBITDA of $779 million and depreciation and amortization of $289 million in the prior quarter. Capital expenditures were $483 million for the quarter, net of $30 million lost in whole revenue or approximately 13% of revenue.

Full-year 2012 CapEx is projected at about $1.7 billion. Actual CapEx in the second half of the year will be driven by how we see our incremental growth developing in 2013.

Net debt for the quarter increased $317 million, primarily due to increases in capital expenditures and working capital metrics for accounts receivable and inventory. Days sales outstanding increased from 78 days in Q4 to 84 days in Q1, and days sales in inventory increased 6 days from last quarter to 83 days.

These increases are a typical phenomenon in the first quarter. We plan to improve on these capital metrics in 2012 and 2013, as we focus on process improvements in both areas and target 76 days and 75 days for receivables and inventory, respectively, by the end of 2012.

We expect to close on the disposition of non-core portion of our operations in Q2, representing revenues of about $30 million per quarter and operating margin of about $8 million a quarter. Total consideration of about $160 million will be 50% in the form of common shares and 50% in preferred shares, which are equivalent to a debenture of the acquiring company. While this disposition will not have an immediate cash impact, we expect to monetize the preferred shares within about 18 months, generating about $80 million of cash.

We estimate we will recognize a gain in Q2 of approximately $60 million, which will be an excluded item for purposes of reporting our Q2 non-GAAP earnings per share. We expect 1 or 2 more dispositions this year or into early 2013.

Subject to the risks and uncertainties regarding forward-looking statements highlighted in our press release and public filings, we expect North America should decline with the traditional Canadian breakup season. However, the Eastern Hemisphere and Latin America should make up for the decline in Q2.

We expect Q2 to be about flat with Q1 at the operating EBIT line. Q2 nonoperating costs are projected at about $53 million for corporate, general, and administrative costs; depreciation and amortization at $305 million; interest at $127 million, which includes an additional $0.02 per share per quarter of interest from our recent debt offering; and R&D levels at similar to Q1.

While the Q1 effective tax rate as shown on the non-GAAP reconciliation schedule included in our earnings release is 33.4%, for full year 2012 I continue to estimate an annual effective tax rate of approximately 35%, although the actual rate without excluded items may vary from quarter to quarter. This should yield non-GAAP quarter numbers without excluded items in the range of $0.24 to $0.26 per fully diluted share.

We are making progress on the remediation of the tax material weakness, but I want to remind everyone, we cannot resolve this issue before we complete our year-end reporting for 2012. Finally, so you can mark your calendars early, our second quarter earnings call is scheduled for Wednesday, July 25, at 7 AM Central Daylight Time.

I'll now call turn the call over to Bernard.

Thank you, John. As expected, the first quarter experienced seasonal declines from Q4 in both international and United States EBIT. Q1 always has seasonal declines, except for Canada, which bucks the trend.

We had two additional factors this quarter. On the negative, winter breakup was early, minimizing Canada's positive effect, while the United States came in a little short for non-seasonal reasons.

On the positive, Middle East/Asia-Pacific improved its margins by just under 300 basis points as it gradually works itself back to a more normal level of profitability. Revenue sequentially declined by 3%; revenues year on year grew by a strong 26%.

Specifically, Q4 and Q1 comments -- the US had modest seasonal decline that was made worse by weakness in pressure pumping and a couple of other product lines, Drilling Tools and Fishing, as they transitioned away from gas fields. Canada had a good quarter; it wasn't as strong as we had anticipated, largely because of the shorter winter season and early breakup.

NAM revenues are marginally up; NAM margins declined by 200 basis points, from 22.5% to 20.5%. Latin America, North Sea, Russia, and Europe all experienced normal seasonal swings, and they were as expected. Middle East, and North Africa, and Asia-Pacific started a slow and gradual recovery, with both operating income and margin improvements over Q4. This is in spite of typical seasonal declines in pockets of Asia.

All in, international was well behaved. International revenues fell 8% sequentially, but margins only declined 80 basis points despite seasonal, weather, and budgetary factors. Year-on-year comparisons are particularly meaningful in the case of first quarters. Q1 2012 on Q1 2011 shows strong increases in operating profit Company-wide on 26% revenue growth. North America is up $76 million with the essentially flat margins; international is up $125 million, a 600 basis point margin improvement.

First quarter's non-operating or corporate numbers were marked by a very large increase in overhead associated with the quarter's intense work on accounting for income taxes. The expenses crested almost $0.01 above an already very high Q4 and about $20 million, or a couple of pennies higher than the normal course of business. As John has addressed, corporate expenses will decline in both absolute and relative terms in the next 2 quarters.

Forward views, the prognosis is positive across the board. This does include North America. We remain constructive on North America, both top line and margins. We know this is a minority view. It reflects our specific circumstances. We believe Canada will have a good year, with the market predominantly oil-based, and for us, a naturally high market share in Canada, we expect to do well as the year progresses.

The US now is a strongly bifurcated market, with oil rising from strength to strength and gas in the full and sharp retrenchment. We have built a core position on and around the oil plays. As a result, we expect our US business to be resilient and show year-on-year growth for both top-line and operating profit. Margins will rise in second half of 2012 from where they are in Q1.

The comments above are essentially the same we've made in the past few months. We remain of the view that notwithstanding a sharp drop in gas-related activity, the oil and hybrid market segments and our product mix focus should secure constructive 2012 in North America.

To provide some context, in Q1 Stimulation accounted for about 10% of North America EBIT, while lift accounted for over 25%. We do not see much further downside for our North American Stimulation product line. By contrast, we see gradual volume in both pricing and absorption-led margin improvements in lift for the balance of the year. Stimulation is unlikely to deteriorate.

Lift should improve materially, and as it is, it weighs more than twice as much. Our North America product line and product offering is much more about Lift, Completion, Well Construction, and Formation Evaluation than Stimulation.

Latin America should have a good year, grounded on continuous progress in Mexico, Colombia, Brazil, and the foreign segment of Venezuela. We have a solid backlog of business and improved pricing. Execution will be the determining factor for financial performance. There's no change for our outlook here The events in Argentina do not dent our perspective.

The European, African, and former Soviet Union has two levels of prognosis. The European region expects solid growth, revenues, and margins, centered primarily around the UK, Central Europe, and Caspian. Sub-Sahara Africa also expects solid and performance improvements and geographically broad-based.

Russia should go further. We expect stronger growth and margin improvements in Russia. Russian progression is fueled by particularly strong backlog in Drilling, Formation Evaluation, Completion, and Well Construction. Again, this is the same constructive outlook we have had for some time. Here also, there are no changes, just a greater sense of reliability.

Middle East/North Africa, Asia Pacific is the obvious turnaround, at least for the Middle East and North Africa segment. We expect MENA to improve in the second half of 2012 from both a top-line and margin standpoint. We believe most unfavorable contracts will be completed by end of the first half of 2012, while most contracts in Saudi, Kuwait, Iraq, etc., will be successfully initiated.

This suggests an improved level of profitability for the second half of the year. Iraq in particular will evolve into an operation of improving profits as the year unfolds. Iraq used to be a country of high profitability for us. It should return to reasonable profitability and return economics commensurate with the risk and difficulties undertaken.

We do not anticipate an improvement and North Africa, Libya/Algeria, until late in the year, or perhaps 2013. But the prior factors should be enough to fuel a significant improvement in MENA's financial performance.

Asia entered the year with a very strong backlog in China and Australia, to name its two largest markets. By year end China will be our largest operation in Asia and a great success story. We expect Asia to show good improvements in all the financial metrics for the year. Q1 is traditionally its seasonal low.

Our international outlook for 2012 has been constructive; in all our recent public commentary, it has been a lonely position until now. Today we feel even more confident. We expect the year will show continuous improvements in international volumes and margins. The second half of the year should be markedly stronger, adding up for the year to about a 20% top-line growth and roughly a doubling of operating income versus 2011.

Finally, we incurred heavy expenses at corporate in Q1. We expect Q2 to show somewhat lower levels and decline from there. The rising interest expense, though, will offset the decline in corporate overhead. To add long-term liquidity, we have converted short-term borrowings into 10-and 30-year notes. This is high quality long-term capital that the interest rate arbitrage adds close to $0.02 a quarter in interest costs.

All in, we expect 2012 to be a year of strong operating performance and a year of financial progression on all markers. We expect strong top-line growth and gradually improved margins throughout the year. North America should hold its own and remain positive in revenue, EBIT, and margin trends. But clearly, the international segment should drive the numbers.

We'll also show progress on returns as Weatherford seeks to secure a higher yield on its capital. We're not only a growth machine; we're also focused on returns. Both pursuits can be compatible and even symbiotic.

Capital-wise, we expect to commit our internally generated cash to funding what we anticipate will be 15% to 20% top-line growth, 2011 on 2012. We target our capital intensity to about $0.65 to $0.70 of incremental CapEx and working capital per $1 of revenue growth.

Given the incremental margins that we've set as a yardstick, our returns should improve throughout this year and next. Improving our returns and managing our capital more efficiently are strategic imperatives of this Company.

We expect to achieve this without losing the traditional growth and entrepreneurial strengths we are known for. On markers of capital efficiency, CapEx, that will be both maintenance and growth combined, should remain in the range of 10% to 15% of revenues. It averaged 11% in 2011. Our target for year-end DSO and DSI are respectively 76 and 75 or better.

And assuming a comparable level of organic growth, that is organic revenue growth, in 2013 as we expect in 2012, we should have solid free cash flow in 2013 in excess of internal growth needs. Delevering will be the likely use of proceeds then.

The sale of non-core assets, which John has reported on, will continue. We will pace it depending on underlying valuation trends to realize maximum value over time. We will proceed afoot with disciplined divestments through 2012 and 2013.

Lastly, and consistent with John's comments, in Q2 North America should decline with the traditional Canadian breakup The Eastern Hemisphere and Latin America should make the decline. We expect Q2 to be about flat on Q1 at the operating EBIT line.

Assuming a 35% tax rate and John's various corporate numbers, Q2 should be therefore in a $0.24 to $0.26 range, or essentially flat to marginally higher than Q1.

With that, I will return the call for the Q&A session, please.

(Operator Instructions). Jim Crandell, Dahlman Rose.

Thank you. Bernard, I thought your comments about China that you made, that it will be the biggest country in Asia Pacific at the end of 2012, to be very interesting. To what extent does this reflect a rapid expansion of the shale play and China? And to what extent is this a Weatherford capitalizing on the market issue?

It is a combination of two things. On the one hand, it is Weatherford being successful at selling what can be best described as technology products in China for the development of unconventionals, shales in particular.

Yes.

It is also a success we've had in the drilling segment of the business, in particular, drilling for heavy oil. We have an integrated project that has been very successful, which is likely to double in size. And that will drive the numbers also.

Okay. Secondly, Bernard, with your comments about first quarter in the US being the low, I think, for pressure pumping, and I believe, also, the low for your US revenues and profitability overall. Specifically on pressure pumping, does this mainly reflect the contract status of your pressure pumping business, as it seems many of your peers are looking at declines from today's levels?

I can't speak for my peers, but in our case, the product line is important. 10% of operating income is not a small number. On the other hand, it's not that large. And given the status of where the equipment is, where the equipment is going, we don't see, when it comes to that particular product line, any -- in absolute terms, absolute numbers -- any deterioration likely in Q2 and Q3.

So our Stimulation actually dropped in percentage of the whole, that's entirely possible. In absolute numbers the operating profit should not. This should be the low for the year for us, best we can tell.

And you have a lot of your equipment under take-or-pay contracts in the Stimulation business?

You know, we have -- I would say we have probably about half of it, but even that number is not terribly, terribly reliable, because I don't actually remember.

I think that the contracts that we have are contracts that are typically -- have a life of about 18 months or 24 months. They are reasonable in all respects, both from a client perspective and from our perspective.

We are content with what we have. This is not a core business for us, but it is a business that has good returns, and I think it is a business which I wish I could -- best we can tell, should have a reasonable outlook for the balance of the year.

Okay, just a final question, Bernard. To reflect your greater optimism, it's say, about Russia, when we published our last survey, we were looking at only really a high single-digit improvement from the Russian company as an E&P spending, yet it seems to have done materially better than that, with a number of companies increasing their budgets.

Do you think that's just due to the increases in cash flow that these companies have gotten from better oil prices, or a combination of improvements and economics? But we seem to have seen a sort of a quantum improvement in the outlook for Russian exploration and production spending over the past 3, 4 months.

Well, there's a number of things. First, remember that Russia is, of oilfield service, essentially an oil market. Gazprom does most of this work itself. So this is an oil play to extend the price of oil -- stays anywhere from $80 to $120. I am referring to Brent now, not West Texas. Russia will do well; that is one.

Two, before the election, there was a change in the tax laws for the 60/66 rule, whereupon the upstream exports were favored versus the downstream exports. As a consequence, a number of fields that were deemed marginal have now become, in terms of economics, attractive for our clients.

So you have two phenomena underway. On the one hand, you continue to have the search for new reservoirs North and East. When I say North, I don't mean Arctic; Arctic will come later. But North and East. Examples of reservoirs in the East would be anywhere from Vankor to VCNG, respectively, for Rosneft and TNK. And then you have the pursuit of all the reservoirs, tired oil or tight oil, which was passed in prior spec holes in Westerns Siberia, in the Volga Urals and in Timan-Pechora.

The combination of both means that the clients are, first, are moving the volume activity up; two, are using a greater intensity of horizontal processes and multi-completion processes. And three, there is more and more sidetracking of existing well bores as they seek to further drain some of the older zones. So all of that makes, for a company like us, a very good market.

I will finally say that I think TNK acquisition is maybe four years, just about four years behind us. And it is a testimony. That acquisition was well integrated, and it appears to be well managed and has been really the infrastructure fuel that has helped us in Russia.

Okay, great. Thank you, Bernard.

Bill Herbert, Simmons & Company.

Thanks. Good morning. Bernard, to clarify a couple of issues here, because you were speaking more quickly than I could write or process, first, I think you mentioned that international top-line growth is 20% year over year for 2012?

That is -- I used the word about roughly before, just to be careful, because this hard to know with precision, but that's about right, yes.

Okay, good. And then secondly, with regard to your international margins, certainly the conceptual roadmap that you framed is plausible. I'm curious as to what your expectations are with regard to as you exit this year, where would you expect to be from a margin standpoint internationally? High teens?

Internationally in the last quarter, we'll be somewhere in the high teens, yes, that's correct.

Okay. And then with, I would expect, the most dramatic improvement being witnessed in the second quarter, and then steady improvement Q3 and Q4 overall.

I think you'll see some good improvements in Q2. I think -- yes -- I don't want to -- yes, Bill, you are right. I think Q3 will go up also quite a bit, best we can tell.

Mostly because of MENA?

Yes, that is correct.

Okay. And then last one for me is Canada with regard to the roadmap for, I guess, both breakup and also second half. So is the narrative is that we started breakup earlier, and thus the quarter-on-quarter revenue decline is still going to be significant, but perhaps not as seasonally penal as it typically is? And one, is that correct? And then two, the roadmap for expected recovery in the second half of this year do you expect to be as normally vigorous as it is, better, or worse?

Your first assumption is fair, meaning that the breakup in the second quarter won't be as severe of a decline as it could have otherwise been, based on the fact that Q1 wasn't as strong as it could have been, again, for the same reason. The second half of the moon, you're absolutely right, is fair.

The progression in the course of the year for Canada, Q2 and Q3, Q3 and Q4, strike us as reasonable. It's not -- I don't think it's going to be a barn burner, but constructive, reasonable -- those types of numbers. That's best we can tell.

All right. Thanks very much.

Angie Sedita, UBS.

Bernard, there's been a lot of chatter from your peers about international pricing and potential positive change in sentiment. Can you give us some color on what you're seeing in the market? And have you actually seen any actual price increases in your markets outside of Kuwait and Latin America, which I believe had already been strong?

First, yes, we have seen these instances of higher pricing, and it's reasonably broad based. Second, remember that we really compete with Schlumberger, Halliburton, and Baker only on about a -- call it a third of what we do.

So really, the other two-thirds of -- there's a couple of instances where we may have to compete with one of them, depending on the particular product line. For the most part, we compete with other people. And as a consequence, the pricing trends that we may see will be a little bit, maybe a little bit -- well, they'll be consistent, perhaps, but a little bit different than what the other three companies may report. So just remember this.

But my assessment, Angie, on the pricing side internationally, is that there have been incidences of price increases. There are instances of pricing increases. It is broad-based. It has really to do with the fact that the business volume is becoming good; that there isn't any sort of stock of capacity of tools and people that are lingering out there, hoping to find work. It can happen in a particular country, but it's not true overall at all.

So there is reasonable tightness of both equipment and people. Business volumes are good, and the prices are getting better as the market responds, as it always does, to reasonably-priced oil. One might say even oil is a little bit high. So the market is responding.

International markets are always slow to respond. They always sort of frustrate capital markets, but they do respond. And then it sort of comes as a surprise that they are responding, and then therefore they are creating the conditions for pricing increases by various contractors. And that's that. And that's what you should expect.

What you should expect are the international business to drive the numbers for a number of companies in the oilfield service industry, us in particular. And pricing will be one of the elements, not the only one -- there's also absorption that comes with volume, which is also a powerful force.

Right. No, that is fair enough on the cost side, and good color. So is your thought that pricing continues to have a steady progression throughout 2012, or what do you think?

I think so, Angie, I think so. I think so. It depends on the product lines. It depends on the country. I think whatever has the highest technology content will tend to be better priced. I think what also attracts a lot of attention will tend to be not as well priced.

I think contracts have a lot of publicity around them, and they very often tend to be deepwater contracts, tend not to be terribly well priced, I think partly because of the human factor, which is the competitive nature of things.

But other than those examples, I think yes, I think there are legs to pricing, definitely -- in these types of markets, again, broad based.

Perfect. Perfect, thanks. And then one quickie for John. Thinking through 2013 on the tax rate, could we be at the 30% level or even potentially the high 20%s, potentially? And is 25% achievable long-term, or is that still unclear?

Angie, for me it is still early days, but I think directionally, you're absolutely right, that 2013 directionally we should continue to see our effective tax rate decline. I may be able to give better clarity on that next quarter, when I have a little more seasoning behind me, but I think you're absolutely right from a directional standpoint.

And longer-term, I think the 25% number that you put out there is a good goal for us to work toward. That will depend on the mix of where we earn our income. It needs to be levered much more toward the international side of the business for us to continue to progress toward that level, but that will be a multi-year progression for us. It's not something that will be able to achieve in the short or medium term, but it's definitely a goal that I have on my white board.

Perfect, perfect. Thanks, guys. I'll turn it over.

(Operator Instructions). James West, Barclays.

Bernard, you've been making definitely strong statements about international during this call and in previous calls and statements, of course, that we agree with. I'm curious, as you think about the numbers you put out, 20% top-line growth internationally, I think you said a doubling of operating income, and correct me if I'm wrong on those numbers.

But what do you see as the biggest risk to achieving that type of growth? Is it places like North Africa, which it seems like you are not actually counting on North Africa? Or at this point, given that we're in late April, you have great visibility on the rest of the year?

Well, first of all, the numbers are correct, so you had them right. Again, they are our estimate, so it will be a bit more, it will be a bit less, but it should be in the range.

No, North Africa has nothing to do with this. We're very cautious on North Africa, and generally, we try to be quite cautious in our assessments. So North Africa is not considered here.

The biggest risk is really execution, which is a function of the quality of the training of our people and supply chain. The business, in terms of having the contracts and the volume of business and the assignments, whether it is products, or services, or bundling our integration -- no, that is in hand. I don't see that as a risk.

Really, it is down to execution, as I said, the training of people, the supply chain; I suppose, also, acts of God. But that is about -- that's it. Those are the risks to deliver what I think will be a good performance for the international segment, and I think the beginning of a number of years of good performance in the international segment. These international cycles are not short.

Okay.

They're interrupted by major disruptions in the world, but -- if there are any -- but they are not short.

Sure. Okay, good to hear. And then just one follow-up for me. With respect to the North Africa, Algeria at one time was a pretty good market for you. It seems like the prognosis there is not great, at least for this year. Could you give us a quick update of what you are seeing in that market?

Not a lot. We're seeing some continuing inertia. Certainly good intentions, but I don't see any -- for us at least, I don't see any reasonable timeframe for things to turn volume-wise, activity-wise, this year. Things are very, very slow. So that's why I set it aside.

Libya is a different kettle of fish. Libya is a function of the country getting organized. That's an entirely different story. But Algeria is just domestic inertia.

Okay, got you. Okay, thanks, Bernard.

Joe Hill, Tudor, Pickering, Holt.

Bernard, I'm going to ask you a little bit more of a qualitative question here. When you determine your budget for international, is that really driven by bottoms-up forecasting, or top-down?

Bottoms up, really, and it is continuously reviewed. There is -- companies run themselves differently, depending on the style. Here there is a very large corporate -- there are some high corporate expenses, but the corporate organization is not a very large organization. The great symbiosis is between the people who call themselves corporate and the operations, which means we live together, which means that the numbers not only roll continuously bottoms-up, but actually we have direct personal visibility of them or what is going on on the ground. So no, it has been grounded on reality; on continuously updated reality.

Okay. And then thinking about the 20% top-line guidance, can you give us a sense as to how much of that is backlog-driven and thus has a very high degree of visibility relative to, maybe, some assumptions about pricing improvement?

No, no, there's no assumptions about -- it's -- we are in late April. A company like -- in our business, we -- given the lead times and supply chain implications of things, you should have some visibility for what is going to happen in your international markets now and year end. So I would have to say just about -- the vast majority of it is just grounded on contractual facts.

Okay, that's great insight. And then switching gears to North America really quickly, can you give me some sense as to why Drilling Tools, which I believe for you guys is primarily pipe and BHA-type equipment, and Fishing are sensitive to the migration to oil basins?

First, you're right. But it's not only pipe and the bottom haul assembly, it's also some pressure control equipment. But you're absolutely right.

I think it's just serendipity. In this case, negative serendipity, meaning there's a few incidences where we happen to be on plays that basically got curtailed, shut down, and you couldn't move fast enough to oil and liquid plays. In these particular product lines, you'll find the numbers will turn around in Q2. It's all it is.

Okay, so it could be more idiosyncratic than indicative of the market for those businesses.

Oh, completely. And please -- please read it that way, because it would be incorrect if you did it any other way. Idiosyncratic is a better word than negative serendipity, yes.

Okay. I'll turn it over. Thank you very much.

Thanks.

Robin Shoemaker, Citigroup.

Just a clarification. In previous quarters, you disclosed revenues by product line, and now you've lumped them together. Is that going to be your practice going forward?

Maybe John will want to add to it; I'll just give you one first answer. The only reason that this was done is because this is the way it is reporting. In other words, those product lines -- in terms of product line management, which is different than regional management and country management, that's the way the product lines are being run from an organization standpoint. And I'll turn it to John, who is going to add to this.

Robin, I can add a few additional comments to that. What I tried to do was to align our reporting with how we look at our product lines internally, and we view our product lines under these two umbrellas. We thought that that actually aligned what we would report better with how we look at things, as well as -- similar to the way our peers report product lines.

Okay. Understood, thank you. So what I was really interested in was Artificial Lift, which over recent quarters had shown a nice revenue progression. And I was wondering if you could describe the outlook here, Bernard -- also, just in terms of the various Lift technologies that you're involved in, and what seems to have the most traction in the marketplace between the various forms of lift that you compete in.

The outlook for the balance of the year is consistent, whether North America or international, which is both volume growth, absorption growth, margin pickup, and also pricing. And I can't give you a sense of the latter, because it depends on what part of the world, and also you have to be careful. These are backlog-led businesses, so they tend to go through the P&L with something on the order of a 6-month lag from the time you increase pricing.

But I do think it's safe in my telling you that there are volume increases that are coming in the next quarters, through the first half of 2013. There is absorption benefits that come with it, both supply chain and also as a service location, and then there is pricing. So it is an improving set of economics.

I'll give you another indication of where we are today, which I don't normally give out, but this will be for North America, as I just don't have it offhand for the rest of the world. The margins of Artificial Lift are roughly consistent with the margins of the overall North American margins today. But now they will cross that and go beyond, okay?

Robin, I can add additional point of color for you, if that helps. Artificial Lift for Q1 was about -- a little over 19% of our total revenues compared to the prior quarter, when it was down at 17% and some change.

And the Artificial Lift product line has an objective of their own, which I would not represent as the objective of the Company as a whole, because I think it depends how things pan out, but they would like for it to represent 25% of the Company as a whole. It is entirely possible, but it depends how fast, how well the other products and service lines perform.

With respect to your other questions on technologies and so forth, well, there are 5 forms of lift, and they don't really compete with one another. They do at the margin. There are zones in which they can compete. They typically have their own applications. And there's also opportunities for cross-breeding, of putting two forms of lift together and hoping to get the best of both.

But to simplify the answer, given this is a conference call and there isn't that much time, I would say, Robin, the one segment that shows probably the strongest growth is Production Optimization, which is the ability to for us to run the artificial lift system; to run a field on artificial lift; to run it in a remote control sort of way; minimize power consumption; minimize maintenance and repair costs, or rather extend the life of the pump; and maximize, which is probably the most important, maximize the fluid uptake. That is showing the most -- I think the fastest growth in overall in the Artificial Lift realm.

Okay, and is that principally an ESP or a rod lift technology?

No, no, that is -- I would have to say that we have about 350,000 wells worldwide that we either monitor, which is the lowest form, I think, of service we can offer, all the way up to about 125,000, 150,000, I forget, wells where we actually perform artificial lift optimization, which is what I am describing.

Those wells may very well be ESP, versus rod lift, versus PCP, versus hydraulic lift, versus gas lift. It depends on the field. I don't think the pump cares. In other words, the pump can be optimized under any circumstances. The field can be optimized under any circumstances. It doesn't matter what form of lift you utilize. Under all circumstances, you gain.

I would have to say in the forms of lift that we optimize, probably, my number is going to be wrong, but I would have to say that ESPs which we don't participate in directly and we probably don't want to participate in directly, that form of lift probably represents about 20%, 25% of what we do with artificial lift optimization, maybe more.

Okay, thank you.

Kurt Hallead, RBC Capital Markets.

I guess my follow-up questions are along the lines of -- you guys have gone a long way to provide us with a lot of detailed information and general guidance points for the remainder of the year, so I do appreciate that. Might as well just take it the full distance here.

When you look at your different geographic regions internationally, you just had -- the best way to say it, off the charts growth in Latin America, if we did the math correctly. Over 60% year-on-year growth in the first quarter versus a year ago. That's almost 2.5 to 3 times what your peer group have done.

Can you shed some color on that, please? Because just given the magnitude of the growth and the magnitude of the growth differential, just really -- where's it coming from? I know you mentioned Brazil, Colombia, Mexico, et cetera. What is the source? What are the product lines? And does it look like you will put up another 40% growth year in Latin America this year?

Well, Kurt, probably the easiest will be for me to give credit and pay homage to our regional management in Latin America. I will also say that I will remind you that the gentleman who is our Chief Operating Officer and good friend and partner for me -- Latin America was his baby until about two, three years ago, where he picked up the Western Hemisphere, and ultimately, all of Weatherford. So I could pay homage to my friend Peter, also.

But beyond doing that, I would say that one tends to focus a lot on the Brazilian market, as in deepwater, and that is where much of the attention is on. And that's very important.

However, when you look at Latin America, you step back -- what is Latin America? It is an oil play, more than anything else. And there is gas, but it is an oil play. Where do we do the best? On an oil play.

It's an unconventional play. There's a lot of heavy oil. Remember, unconventional is not only shales. I'm quite familiar with the Argentine shale play, etc., but fundamentally, today, Latin America is a heavy oil play. What do we do well in? Heavy oil, always.

And then the third thing is much of it is on land. Yes, I know, there is -- again, as I said, there is deepwater and the pre-salt plays in Brazil. I'm clear. And you can mention a few other offshore plays here and there, but fundamentally, Latin America is a land play. Where do we do the best? On land.

It is not surprising that I just finished saying that we were doing very, very well in Russia, and so forth and so on, in terms of prognosis. And of course, we've done well in Latin America, given the type of market it is. And that is not taking away from any of the compliments that I tried to extend to some of my colleagues.

I will say, lastly, that Latin America has done well because we have a very broad infrastructure in Latin America. We don't depend on any one particular market. When I say broad, I don't only mean we are very present, as you know, in Mexico, in Venezuela, in Brazil, in Colombia, in Argentina, all those markets. We're also present in some of the smaller markets that are highly profitable, like Peru, and Ecuador, and Bolivia, for example. And tomorrow, the likes of some of the other smaller markets that we'll open in Latin America, like Uruguay..

Okay? So it is all of that, I think, that has met good performance. But the net-net, other than saying thank you to our management, the real, I think, important point is that it is a market that is very much the sort of market in which you should expect us to do well.

That is a fair answer. Now getting back to the crux of the original question, which was do you see Latin America revenue growth again in the 40% range in 2012? And then, how would you see the other two regions panning out?

I know you gave us the overall growth number, but once again, might as well take it over the goal line here and complete the process. So Latin America may be close to 40%, what do you see the other two regions growing at?

No, actually, Latin America will take a breather in 2012. And put it another way, I don't see Latin America growing a lot more than the overall average. I don't. I feel Latin America should be closer to 20%.

I think, actually, that Latin America will have even more of a spring, because 20% growth is nothing to be ashamed of. And the biggest spring in 2013, insofar as some of its markets will really, really, really expand in 2013. Give you an example of Mexico. So 2012 -- you should look at Latin America more than 20% sort of number, top line. So you will not be able to ask me the same question in three or four quarters on why it did so extravagantly well.

And then the other two areas, you would say, would be at that 20% range as well, so none would really be --?

Unfortunately, it makes for a not terribly exciting sort of differentiation, but that is correct. At least that is roughly how we see it.

All right. That's good. That's really all I had. Thanks.

Scott Gruber, Bernstein.

Thanks. Quick question on the pending disposition. It generates good margins. In which geomarket is that reported?

A lot of it is in the European market -- not only, but you should assume predominantly in the European -- the North Sea product line -- service line, rather. The subsea, it's a subsea/North Sea service line, one which had no great, I think -- very good, but no great direct future within Weatherford. That is not our direction.

Right. I'm just wondering about the margin progression, then, in that geo-market. You're still confident that you can overcome the margin hit?

Yes. The assessment we gave you had these numbers taken out.

Yes, that's correct.

Because this acquisition has been worked on for the past four months. This divestiture, I'm sorry, not acquisition, divestiture. So this is something we could see coming.

Got it. And then turning back to China, given the growth in that market, looking at their hydrocarbon development plans, they are guiding right now for about 0.7 bcf a day of shale gas production by 2015, which is quite small relative to what we do in the US. So is it correct to assume that the heavy oil work will constitute the vast majority of your growth in that market over the next few years?

The next few years, I think, it will be more balanced. Over the next let's call it 12 to 18 months, heavy oil will be the most important part of the growth, but there will be also present on or around some of the earlier developments of shale plays, primarily for Chinese clients.

Got it. And then if we exclude Iraq from the Middle East/Asia geomarket margins, is the Chinese work accretive to regional margins?

Yes.

Yes, of course.

Yes, it is, Scott.

Of course, yes, yes.

Okay. That's all for me, thanks.

Mike Urban, Deutsche Bank.

Shifting back to North America for a second, you talked about Stimulation about 10% of North America EBIT. Of the businesses that hurt you in the gas to oil shift, which I think in addition to Stimulation, you said Drilling Tools and Fishing, and sounds like those will recover. What did that represent in terms of the contribution in the quarter? I'm just trying to handicap what is stabilized here versus what might recover.

Look, I'm going to say something, and then John will correct me. I would say that if you looked at -- there is two things in the United States. There was a little bit of seasonality; there always is, but not much, in Q1 for the United States. I would say that the shortfall in what we expected, I would say Simulation represented about 60% of it, and the other two combined, about 40% of the shortfall.

Okay.

That is directionally correct.

That is helpful. And on the asset sales, you talked about the one that is going to close here in Q2, and then maybe a couple more. In total, does that get you to the roughly $500 million number that you had targeted previously? And if not, is that still the long-term target, or are you now seeing some of these businesses improve a little bit, and maybe you want to keep them?

Look, I think that the service business we're selling will bring in, at least on equity and debenture, a little bit under $200 million. I think the other two -- I have a pretty good idea what we hope to get for them if the other two were to sell, and we're very careful to get proper valuation, so we're very disciplined about that.

Again, so I mentioned, it depends on the underlying valuation tone. If the other two sell, I would say that this three of them combined would exceed the $500 million mark. So I don't think there's anything terribly daunting about $500 million mark.

What is more daunting is to get proper valuation for things and just getting it done. I think at the end we'll sell -- probably we would divest for quite a bit more than just $500 million worth of proceeds, but it will take time, Michael. Let's be patient.

That's helpful. The rest of my questions were answered. Thank you.

Operator, will just have one last question, because I think we're taking too much time.

Bernd Pomrehn, MainFirst.

Thank you for taking my question. Bernard, in February you mentioned that for North America you are expecting an incremental EBIT margin of north of 30%. Are you currently in the position to update this guidance for 2012? Thank you.

I think I will probably turn that question, it's a purely financial question, to John. I have a view on this, but I will let John probably answer it.

And the question was the North America EBIT margin, and incremental on the revenue?

Incremental EBIT margin.

Incrementals on revenue in North America is in line with what we would see across the Company for top-line growth in North America year on year.

For top-line growth. Yes, and the incremental EBIT margin for the North American business in 2012, for the year 2012?

Full-year 2012 we see as flattish to up at the EBIT margin level, so holding its own, with a potential uptick and maybe some upside there.

Okay, thank you.

That concludes our conference call. Thank you very much for attendance.

Ladies and gentlemen, this does conclude today's conference. Thank you all for joining, and you may now disconnect.