Expro Group Holdings NV (XPRO) 2014 Q1 法說會逐字稿

Good morning. My name is Wanda and I will be your conference operator today.

At this time, I would like to welcome everyone to the Frank's International first-quarter 2014 earnings 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).

I would now like to turn the call over to Mr. Thomas Dunavant. Please go ahead, sir.

Good morning, everyone, and welcome to Frank's International's conference call to discuss first quarter results. I am Thomas Dunavant, Manager of Finance and Investor Relations. Joining me on the call are Keith Mosing, Chairman, President, and Chief Executive Officer; John Sinders, Executive Vice President of Administration, John Walker, Executive Vice President of Operations and Mark Margavio Chief Financial Officer.

Keith will begin today's call with highlights. John Sinders will provide a review of our strategy and outlook. John Walker will provide an overview of our operations and Mark will follow with more detailed financial discussion of the quarter. Keith will then wrap up with some closing comments. Before we begin commenting on our first quarter results there are a few legal items that we would like to cover.

First, remarks and answers to questions by company representatives on today's call may refer to or contain forward-looking statements. Such remarks or answers are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such statements speak as of today's date or, if different, as of the date specified. The Company assumes no responsibility to update any forward-looking statements as of any future date.

The Company has included in its SEC filings cautionary language identifying important factors that could cause actual results to be materially different from those set forth in any forward-looking statements. A more complete discussion of these risks is included in the Company's SEC filings which may be accessed on the SEC's website or on our website at www.franksinternational.com. You may access both the first quarter earnings press release and a replay of this call on our website.

Please note that any non-GAAP financial measures discussed during this call are defined and reconciled to the most directly comparable GAAP financial measure in the first quarter 2014 earnings release, which was issued by the Company yesterday and is available on our website.

I will now turn the call over to Keith for his comments.

Thank you, Thomas.

We are pleased with our results. For the first quarter we were in line with our guidance and we are reiterating our full-year outlook. The management team will update you in a minute on details of the quarter. We continue to have opportunities for growth as our customers drill deeper and more complex wells around the world. Internationally, our services segment is growing with a strong rig count increase in Africa and new opportunities in the Eastern hemisphere.

There are opportunities for us to increase market share in several regions, including the North Sea, Middle East, and Far East. In the US, the Gulf of Mexico continues to provide strong growth. Regardless of concerns about rig oversupply and day rate softening, deep-water rig count has continued to grow. We believe there will be 45 floaters in the Gulf by the end of the year.

The US land business has been a focal point for us and John Walker has put a lot of attention towards this segment. We are always evaluating our US land business to ensure we have the right strategy. We want to be sure that we satisfy the needs of our customers.

Our tubular sales segment continues to grow and has opportunity for more growth as we increase our international sales. We have a team working on our inventory and order management to improve our working capital and returns in this segment. When I am talking to our employees I am constantly emphasizing that our company stays at the forefront of technology development and remains the leader in well construction and tubular services.

Our proprietary equipment and patents allow us to provide outstanding service to our customers. Their needs are always changing as they drill deeper and into new formations. We must innovate to meet their demands. Our Frank's International team has great people who design and manufacture our proprietary equipment and highly skilled employees who use this equipment to provide the best possible service to our customers.

But unless we continuously innovate, we could become like other great companies that have failed by not adapting. I call this the Kodak effect. Lastly, at Frank's in addition to our focus on proprietary technology, we value safety and customer service. I will now turn it over to John Sinders and the rest of the management team before providing my closing comments.

Thanks, Keith. John and Mark cover our results in more detail in a minute. However, I want to provide you with an update on our outlook for the year, as well as our growth strategy. We are maintaining our guidance that we first discussed on last quarter's call. To remind you, we expect both our international services segment and the offshore portion of our US segment to grow at least to 10% for the full year. This growth is broadly in line with the growth in rig count.

We expect the land portion of our US service segment to be down slightly year over year as increasing competition and our decision to maintain pricing are leading to further market share declines. John Walker will provide an update on this segment shortly. Our tubular sales segment, we expect revenue to be up at least 4% for the year. We expect our EBITDA margin to be around 40% for the quarter and the year. For our second quarter, we expect revenue to be between $270 million and $280 million and again an adjusted EBITDA margin of 40%. Lastly, our CapEx spend in Q1 was $37 million. Our budget for the year is $250 million and this is split between $140 million for rental equipment and $110 million for facilities.

When we think about growth, we think about our opportunities for both organic and inorganic growth. Organically we see an opportunity to continue to grow our tubular service business globally. In certain regions such as the deep-water Gulf of Mexico and West Africa, we believe our business will continue to grow with the secular growth rate in rigs. We are focusing on more tubular completions, however and we believe our superior technological advantage will allow us to gain market share.

For other regions, such as the North Sea, Far East and Middle East, we believe there is an opportunity to also gain market share. Acquisitions have always been a part of our business strategy. With acquisitions, as we have said before, we are primarily focused on new products and technology within well construction and tubular services. These products and technologies will enhance our portfolio and allow us to compete for jobs that we were previously not well positioned to win.

The size of any acquisition can vary and we are always looking at opportunities. If and when we find an opportunity, we assess the target based on its return on invested capital and cash flow accretion. Because of the nature of the opportunities we're seeking, they generally have margins similar to ours. However, regardless of margins we will ensure that any acquisition is accretive over a relatively short period of time. We don't have established timelines to complete acquisitions, but we continue to review a number of differing sized opportunities.

Two other areas that we continue to focus on internally will help produce our work and capital needs. We are focused on evaluating our pipe inventory, and this includes reviewing the existing inventory, as well as understanding the needs of our customers as we order new pipe for future products. Additionally, we continue to work on better equipment tracking, which should lead to better equipment utilization. Any improvement in equipment utilization will increase revenue and should reduce our CapEx.

I'll now turn the call over to John Walker for an update on our operational results.

Thank you, John.

As Keith mentioned, we are pleased with our results for this quarter. We continue to look for ways to improve our operations and ensure that each segment receives the proper focus. To this end, I recently appointed a head of US land operations, which was previously managed by multiple Vice Presidents. This new management structure increases our focus as we continue to improve our results in the region.

In general, but especially in high operating areas, we continue to observe customers awarding contracts based on overall efficiency, value addition, and technological differentiations. This benefits us in our value proposition of offering efficient and safe services with our proprietary equipment and experienced, well trained crews.

Turning now to the business segment results, our international services revenue for external sales increased 7% year over year to $119 million. West Africa continues to be our strongest region while we have also had strong results growth in Middle East and Far East regions. This growth is offset by declines in Latin America and Canada on a year-over-year basis.

The Far East and Middle East areas are areas of focus for us as we continue to look for opportunities to grow our business in the Eastern hemisphere. In the Far East, we have recently had success with our new business contracts in Australia and New Zealand, two counties where we previously had very little exposure.

In addition, we recently commenced a multi-year service contract for an NOC in Malaysia. Declines in Latin America are due to previously discussed declines in business with several customers in the region while Canada was impacted not only by typical weather delays, but non-productive time on a key rig in Eastern Canada.

Adjusted EBITDA margin for the international services in the first quarter was 43% of external sales. Moving to US services, revenue for external sales increased 6% year-over-year to $104 million. Within our US services segment, our Gulf of Mexico business grew 17% in the first quarter of 2014 year-over-year. The land portion of our US services segment, as expected, remains very competitive and declined 9% versus the same time period in 2013.

Our Gulf of Mexico business continues to be well positioned as new rigs enter the region. Drilling activity on deep-water rigs with deep wells targeting miocene and lower tertiary formations are providing us opportunities for growth. We have, however, witnessed delays in drilling campaigns due to non-casing related issues including BOP testing, down hole issues, and startup delays on new rigs as they enter the Gulf. Nonetheless, we have not changed our outlook. Any continued delays would postpone our revenue recognition, but would not eliminate the opportunity.

For the US land business we were certainly impacted by the weather during the first quarter like our peers. Better weather and increasing rig count are a positive for us as we continue to focus our sales efforts on safety and well integrity. Adjusted EBITDA margin for the US services in the first quarter was 40% for external sales. Margin for the segment was lower primarily due to lower utilization attributable to download problems and other rig-related issues we previously mentioned. Growth in our US land business and continued growth in the Gulf of Mexico will help to absorb some of these costs.

Lastly, tubular sales revenue for external sales in the first quarter was $42 million, an increase of 72% year-over-year. The increase in revenue was driven by more pipe sales in deep-water markets globally. Our deferred revenue balance sheet was flat sequentially at $63 million. We continue to work with our customers to understand their project schedules to know when this inventory will be released.

In addition, we're working with our auditors to change the terms of our contracts going forward to allow more visibility into our bill and hold inventory. Adjusted EBITDA margin for tubular sales in the first quarter was 22% of external sales.

With that, I will hand over to Mark Margavio for our financial results for the quarter.

Thank you, John.

Here is a brief overview of the quarter's results. Total revenue for the quarter was $264 million, a 14% increase year-over-year. Net income from the quarter was $60 million with net income attributable to Frank's International NV of $42 million or $0.27 per share. Diluted net income which includes $3.9 million in assumed tax impact of conversion of preferred shares, was $56 million or $0.27 per diluted share. We estimate our effective tax rate for 2014 to be between 20% and 25%.

A full reconciliation of our EPS are in our press release. Our adjusted EBITDA for the quarter was $102 million or 39% of revenue. On March 31 we had $428 million in cash and essentially no debt on our balance sheet. Lastly, we expect our Board of Directors to declare a dividend $0.075 cents per common share subject to applicable dutch dividend withholding taxes at a board meeting on May 14 for the record date of May 30 with payment on June 20, 2014. I will now turn the call back over to Keith for some final comments before we open up the call to Q&A.

Thank you.

As we said before, we're very happy with the progress we are making as a public company. There are processes that we need to improve and opportunities for us to be a better company, but the core of the business remains strong. Thank you for your continued interest and support of Frank's International.

I will now turn it over for your questions.

(Operator Instructions). The first question comes from the line of Blake Hutchinson with Howard Wiel.

Good morning, guys.

Good morning.

A lot of talk in the release and in your introduction here about some of the pickups, early pickups in your business opportunities in the Middle East and Far East. I wanted to understand, as these opportunities accrue, where you are on the infrastructure side and what you still need to do, what you feel you need to do from an organizational standpoint to address these and what will be going on over the course of the year to do so?

Good morning, Blake. It's John Walker here. We actually have a mature infrastructure in both the Middle East and in the Far East. We have been in those regions for over two decades. As far as the plans, our primary focus, of course, would be in the challenging deeper wells and the deeper waters, of course, in the jack-up business. That sector is not there. But the deep wells are still there.

An important fact to focus on in those areas is the chrome tubular side of the business. There is a lot of developments occurring in both of those areas that require specialized alloys to install into the well bore at the production and completion phase of the operation. Approximately a third of our patents are covered in that array and we actually have completely unique differentiation. I think you've heard on previous calls that I talked about Azerbaijan, the technology that we have there. We see that type of technology spreading throughout both regions.

Okay. So when you talk about these opportunities, you're not talking necessarily about new opportunities? It's just growth in the opportunity set that fits your value-added products slash services much better here?

Yes. It would be an increase in market share penetration. And it's a good question you raise because, again, it's not linked to rig count. It might be on platforms with intervention and work-over work. So we'll work towards being able to articulate that better to you in the future. At this time the focus is to deliver the service to the client.

Great. And with regard to the tubular services guidance, I notice it's become a little more precise, at least 4% year-over-year growth. And understanding that the two businesses aren't necessarily related, is this due to the fact that you've got a better understanding of your clients' completion-based activities and timing this year and can we take that as also having a heightened degree of what we will see for the rest of the year in the deep-water Gulf from a service standpoint as well? An overall better understanding of timing?

Sure. Can you shape that question a little bit because you started off with tubular services --

I know. Again, the answer may be it really has nothing -- one has nothing to do with the other. But you have become more precise in your tubular service business guidance. Does that indicate that as a franchise you feel at this point you have a better understanding of when the completion activity in the Gulf is going to take place? And so we can have a greater degree of confidence in your -- even in your Gulf of Mexico services guidance?

Sure. From an SP&A financial planning and analysis perspective, we definitely have matured in that area where we now, as a management team, get into more granular detail as to well construction architecture and time-frame of delivery. That's only going to assist us in having more effective guidance going forward. As far as the tubular sales side, it's relative to the sector of the market; the deep-water and conductor installation. So it's relative to the Jack-up market as well as the deep-water market because the type of tubular and the connectors that are on there -- we own our own connector line as well as fabricate third party connector lines onto the tubular sales side. It's a wide array of business. It's something that is a focus for us as an organization of continuing to make it more efficient.

Okay. I appreciate the time, guys. I'll turn it back.

Thank you.

Your next question comes from the line of Robin Shoemaker with Citi.

Good morning. I was wondering if you could give us a little color on the land casing running services market, beyond which you have already given, in terms of, we are seeing an increase in the rig count this year, the horizontal rig count in particular. It would seem to be a good kind of indicator of demand for casing running services in on-shore, yet there is some changes in the dynamics, as you've pointed out, which lead you to believe that your revenues will be slightly down this year. So is there something happening in the competitive matrix here where I believe -- something where drilling contractors are running casing themselves or new players entering the market that will perhaps give us a backdrop to what's occurring there?

Sure, Robin. It's again John Walker. At a point earlier, we as a management team looked at the USA land business. We've been in it for 75 years and we will continue to look at that business model going forward. We have appointed a head of US land whereas previously it was multiple Vice Presidents. So the enhancement of that would be equipment utilization and headcount cross-over utilization. So that's going to help our EBITDA margin going forward.

As far as the competitive nature, there are certain sectors of it, such a large and diverse market, with six basins that we have set up as far as our districts. And certain districts are actually up, certain districts are flat and then certain districts are materially down. Overall, the result, as you know, is 9% year-over-year. But it's not a systemic concern for us. It's a fact of getting the sales focus into the right basins, making sure where our value is with the right client. And to answer your question related to the drilling contractor running on casing, we don't see that as a systemic degradation of the service for ourselves. It will certainly be another competitor in a certain sector of the business, but it's not of material concern to us.

Okay. And related to that, in your prepared remarks you talked about an initiative at Frank's to increase equipment utilization. I just wonder if that applies here to this land market as well, or you're addressing the whole of the company? And how much, just a general sense of what could be gained, that's relatively achievable on equipment utilization?

Hi. John Sinders. It's too early now to actually quantify the gains. But what we're doing is looking at our equipment utilization overall throughout the whole company and we're really trying to fine-tune and enhance our utilization. We going to make sure that we don't have equipment sitting in one part of the world idle when it can be used elsewhere. So this would apply to land, too. We think that we are going to get some benefits out of that. Like I say, it's difficult to estimate what it could be, but certainly it will sharpen our CapEx going forward and reduce our CapEx somewhat.

Okay. Appreciate it. Thank you.

Thank you.

Your next question comes from Ian MacPherson with Simmons.

Hi. Thanks. I wanted to check with you on your comment about the expectation for the deep-water Gulf of Mexico rig count to be at 45 rigs at the end of this year and compare that to where you see it today. Because if you look at the ODS count, there are 36 working rigs, more like 45 contracted rigs today. I think that bigger number includes some that are probably still steaming over to the Gulf and haven't been accepted yet. We know there are a lot of rollovers throughout the year across the Transocean and Ensco and Noble fleets that probably have uncertain utilization prospects throughout the year. What is your view on the net increase from where we stand today through the end of the year for the Gulf of Mexico deep-water?

We canvas randomly our clients, the EMPs and we've also, like yourselves, we have been looking at the market analysis and data and we see the average being at 37 as of the first quarter.

Okay.

And as we mentioned, it going up to a figure of the 44, 45. So we'd see a net gain there of 7 to 8 rigs. As we mentioned on the call, or the early part of the call, that there may be some delays as those rigs come in. Not necessarily out of the shipyards, but just on startup as they enter into the first wells. That has been taken into consideration in the guidance.

We are looking at an average of 42. That's based on our conversations with the operators and what they're talking about currently. But as John said, one of the things we have seen on a couple of rigs is, one, a delay, as they get used to the equipment on it, it's a newer rig. We have seen some BOP certification issues that have delayed things a bit. We have seen a few delays. Whether that's going to run out through the year or not, it's too early to tell. But right now, we're looking at an average of 42.

A full year average?

Yes.

My follow-up question is we have seen this -- there has been this downward trend in your US margins for a few quarters in a row. Historically, they look like 45% to 50% margins. This quarter they were 40%. It sounds like you have been willing to cede market share on-shore to protect your pricing and margins. Having said that, it's a little bit hard for me to reconcile why the margins are still going down as significantly as they have. Can you provide a little more color on that and tell us what needs to happen going forward to arrest that trend?

This is a simple one, actually. In the Gulf of Mexico, what you saw for the first quarter is several rigs had -- the operator had down hole problems. When they have down hole problems it essentially lengthens the drilling curve or, conversely, decreases our utilization. Similarly, with a rig that was -- where they were getting used to the equipment and working out the kinks with that, I mean, it does the same thing. So any time you have a problem on a rig in the Gulf where we don't typically have stand-by rigs -- sometimes we do, but we don't typically -- what it does, it decreases our margin. I mean, one of these rigs we had a significant amount of revenue that we were planning on recognizing and it slipped. So that is solely what caused the decline in our margin.

Got it. Thanks. And you expect that to be improved going forward back into sort of the low to mid 40s?

Oh, absolutely. Purely a delay, but what happens is, I mean, that's all it is, it's a delay. So we should see it pick back up. And these are averages, too. I mean, you could even see it spike a little bit.

Got it. Thanks.

Sure.

Your next question comes from the line of Sean Meakim with Barclays.

Hey. Good morning, guys.

Good morning, Sean.

Howdy.

(technical difficulties).

Sean, could you get closer to your line? We can't hear you.

Can you hear me now?

Yes. Perfect.

Sorry about that. I wanted to talk a little bit about the cash on the balance sheet. M&A has been a focus, something we talked about since the IPO. I know you guys are looking at things all the time. To the extent that, for whatever reason in the marketplace, things don't materialize, whether it's valuation or other reasons, do you reach a certain point at which, if you are not able to execute on M&A that you decide to make a change in terms of returning cash to shareholders? I know increases in the dividend are a part of the plan, but maybe a special dividend. Is there a point at which you may decide to make a change there?

I mean, all those things are under advisement. We are not going to keep cash just to hold cash that we don't need. As you'd imagine, this is a very shareholder-driven company. So we have talked about special dividends. We have talked about increases in dividends. So when we get to the point where we feel like we have cash that we're just not going to utilize, we are going to give it back to you all.

Okay. Great. And then shifting gears a little bit, there has been a lot of focus obviously on the deep-water, for good reason. But can we talk a little bit about what you are seeing in the shallow end of the market? You know, opportunities for some of these deeper wells that are getting drilled, the use of high spec jack-ups. Is there more opportunity for you guys to take some share in that end of the market as well?

Yes. Sean, this is John Walker here. Absolutely. That has been demonstrated in the North Sea most recently where some of the harsh environment jack-ups have come into the market and we have been in a position where we have technically secured the business. We see that going to be a continuation going forward so that the large volume of new jack-ups are coming out, a lot of similarities with the efficiency movement on the rig float at well center. It's about well center efficiencies. It's about well integrity, of course. We have a lot of different technology that can make the wells more efficient and they'll drive down costs and in that section of the market, it's a great opportunity for us.

Sean, when you look at it, what we really do is complex well construction. So any place that you have deeper wells, more hostile environments, that is where our equipment is unparalleled and where we have a proprietary advantage. The (inaudible) is secondary.

Thanks a lot. I appreciate it.

Thank you.

Your next question comes from the line of Jeff Tillery with Tudor, Pickering, Holt.

Hi. Good morning.

Good morning.

A follow-up on some of the line of questioning around the US land business. As I think about the ways that you seek to differentiate yourself, do we see the basin focus change internally? Is it the way you market yourself or just kind of changing customer mix? Along those lines as well, the guidance of US land being down slightly year-over-year, will it take a pretty meaningful ramp the remainder of the year? I just want to hear how you guys are thinking about that build.

Sure. The way we market ourselves is we follow our customers. We are a customer-centric company. So when our customers need us on-shore, we're there. We certainly work better, I think and our margins work -- we can get our margins better in places that are more oily. But it's also customers that are more focused on safety and efficiency, that type of thing. So you are going to find different types of customers in on-shore. The operators that are looking for the belt suspenders and having it done quickly, efficiently and really focus on well integrity, they are going to use us, but we are going to cost a bit more.

Coming up from later in the year, we think this quarter we had a couple of surprises. We had one client pull out substantially of the on-shore area. That was a little surprising to us. We had another one where we lost a few rigs, but we've been told we are going to get those back. As you know, our clients tend to be the large IOCs in the majors. As we look forward for the rest of the year, we think we will pick back up a little bit of what we lost this quarter. It's very in the on-shore side of the market to predict because it is as well to well as anything you are going to find. But it is a core part of our business, it's something we have been in forever and it's something we are going to stay in.

The second question, around the capital spend, a pretty small fraction of the overall budget spent in the first quarter. Is there big slugs we need to look for through the course of the year or is the bias for the company to under-spend its budget.

I think we are going do okay on the equipment side of the budget. On the real estate and facility side of the budget we have had a little bit of a slowdown just because we have had some permitting issues and we have some other things that have just slowed us down a bit. It wouldn't shock us at all for part of that to go into next year, but it's too early to really make that call so we wanted to leave it unchanged.

Okay. Great. Thank you very much.

Your next question comes from the line of Jim Wicklund with Credit Suisse.

Good morning. If on-shore is going to decline a little bit this year and overall revenues are going to be up somewhere around 10% should we look for off-shore to grow low-double digits this year?

That's our hope.

Have you guys come up with a way to help us better model revenue growth for the company?

You know, Jim, the biggest problem is, and if I can figure out a way to do this for you, I am going to make also Keith Mosing pretty happy, is to figure out when our clients, our ultimate customers are not going to have problems on their wells. Because remember we are a service company and there is just no way around that. Internationally we have a lot more visibility because you tend to have term contracts. There we don't have the variation we do in the Gulf. But in the Gulf we do. There is just no way to get around that.

Sometimes the drilling curves are going to be faster than anticipated, sometimes they are going to be slower. What we do is we sit down with our customers, see what they are going to do for the year. Then we look at other customers, where we think they are going to do things, and that's how we plot out our budget. But each month that goes by we check it and see and there are unforeseen circumstances and that's what happened here. That's real hard for us to give it to you other than what we're doing and it will vary and there is nothing we can do about that.

Okay. If I could follow up, we had talked about a little bit about that, the near-term outlook for rigs in the Gulf of Mexico. It's become clear now that rates for deep-water rigs are declining and groups like Seadrill are talking about how some older off-shore deep-water rigs could get retired over the next several years. What is your guys' next three year outlook for the off-shore deep-water market.

It's continued to stay positive in the areas we're looking at. Three years is a hard outlook to have. We really look 2014 and 2015 more, but it's continued positive. I know where Seadrill is coming from in what they say and it wouldn't surprise me to see some rigs either change or go into a different type of activity just because they are being obsoleted. But on the deep-water and on the deep wells, we are just not seeing a change. We continue to be optimistic.

Okay. And last question, if I could. I think it's a little bit hilarious that we are criticizing domestic on-shore with 40% EBITDA margins. Let me ask the question anyway. How long do you think it will take to get US fixed?

You know, we don't think it's broken.

I understand and that's my comment on margins. But 9% down year-over-year, you are holding lines on margins, which we like to see. Nobody likes to see price wars. That's why my fixed was kind of in quotes, which you can't do over the phone. But I am just wondering when do you think -- let me put it a different way. When do you think your on-shore US market will begin to improve?

You know, I would think that you probably need, I don't know, probably another 100 or 200 rigs to tighten it up enough.

Okay.

And what you certainly -- what would really help us is, as you know, the majors ebb and flow into this area. They came in and several years ago they came in strong and that's very good for us. Then they have been pulling out a bit. They will come back in again. And when they do, that's good for us, too. So that's kind of what really pushes us. The people that really have a keen focus on safety and well construction and well efficiency, that's what picks it up for us. The other thing that picks it up, obviously, is you could get to just a tighter competitive market. So for a tighter competitive market we think a couple hundred more rigs. More likely what's going to do it would be finding larger companies come into the market and come back into the market. But again, we don't think it's broken. Our crews are fully utilized and crews that work on-shore can work off-shore too. I don't know what else to say.

I have noticed that had Chevron and Exxon have both talked about expanding their rig count. Of course, Shell had to write off the Harrison ranch. Are you expecting to see a shift in dynamics? Do you expect to see the IOCs increase their exposure in the US through this year and next on-shore.

In the US off-shore, or are you talking about --

Onshore. Onshore.

It's a mixed bag there, again. We are seeing in certain areas that there is definitely some opportunities for us with the larger majors. But the short-term is there has been an exodus there of the majors to smaller independents. As we focus on safety and well integrity, as John has mentioned, that becomes a challenge in the market there. But we see this is cyclic. We have been doing this for a long time and it's about just making sure that we can hunker down a little bit and get utilization numbers up and there is going to be opportunities in the future --

You know, Jim --

that were there before.

The changes that John just did, with adding -- centralizing our management there, that is part of what we talked about on prior calls, making sure that we're out talking to higher management at the operators and explaining to them that when you are looking at safety, in particular, we are completely different than the other choices they have. They can go with somebody like us where they're going to have a much safer, it's a bigger company -- we back what we say we do -- or they can assume the risks themselves. So as they're managing their own drilling risk and completion risk, they have to think about who they are using. And that's what we're trying to get through to them now.

Good point. Thank you, gentlemen.

Thanks, Jim.

Your next question comes from the line of Joe Gibney with Capital One.

Thanks. Good morning. Just had one question. Was curious on US on-shore, if we could strip out the weather impacts in the quarter, maybe what a ballpark percentage revenue decline would have been? I know it's 15% in aggregate, but what it would have been ex-weather impacts quarter-over-quarter?

It really wasn't that big of a deal for us. I don't have a number. It wasn't something that was that measured. The biggest problems we had were, like I said, there were two clients; a major that pulled back substantially and another where we lost several rigs that we think we are going to pick back up.

So weather fairly de minimis in aggregate then?

Yes.

Your next question comes from the line of Daniel Burke with Johnson Rice.

Good morning, guys. One clarifier, Latin America has been a tough market for the industry. When you mentioned the declines in Latin America, were those declines year-over-year or are you still also seeing sequential declines? Trying to figure out when that Latin America business stabilizes for you all in the context of the year-on-year international revenue growth target.

I think it's supposed to stabilize. If anything, we think that not this year, but going forward, you should see upside. Latin America has been a tough market overall. I think it's been tough for everybody. I think we have managed our risks there much better than a lot of our peers. Certainly at some point in time, Brazil is going to have to re-look at their drilling programs. Petrabras is going to have to change. Mexico is going to come on. So long-term we're optimistic. Short term we think we sort of bottomed out.

Okay. Great. That's helpful. Last one for me. Highlighting the North Sea, Middle East and Far East, it was helpful to get the indications of the specific contract wins in the Far East and the indication on the North Sea harsh environment market. Anything to point to into the Middle East either in terms of contract wins or potential opportunities out there?

There are several opportunities ongoing right now, related specifically to Q1. The Middle East, Saudi, it continues to be a good market for us and we are making some great inroads there. We have been in that market, you know, 20 plus years. There is some great technical challenges occurring there. Also, as Egypt stabilizes, the opportunities with the deep gas, high-pressure, high-temperature is very similar to the Gulf in sense of the HPHT chrome environment challenge in wells with the pressures. Again, that's when the differentiating technology comes into play. So something I'm looking forward to.

Something I want to add to this, as everyone is talking about well construction costs escalating and ENPs, looking at ways of efficiently reducing cost, I want to point everyone to the recent developments in Angola in block 32 where we had an ENP that just finalized the sanction approval for the go-ahead on their exploration and development of that campaign. We were, again, a part of the service company group that managed to justify the well construction cost reduction due to efficiencies in the execution. Different types of technology can overall reduce the well installation cost.

Great. Thank you, John, for the color. That's helpful.

Thanks, Daniel.

Your next question comes from the line of Waqar Syed with Goldman Sachs.

Thank you for taking my call. I just want to get your revenue exposure to the IOCs versus independents versus NOCs. Do you have that break down?

We don't disclose that.

Okay. But it seems from your talk that the IOCs, you have pretty substantial exposure to the IOCs. As we [monitor] the budgets that have come in from the oil and gas industry, it seems that the IOCs are the most aggressive in cutting their capital spending for this year. I think it's down 5% or so. I'm trying to reconcile that with the 10% revenue growth numbers that you have.

Our revenue growth numbers are very granular and they include IOCs, large independents and NOCs. That's why when you talk about the trends, I mean, I see the trends. We read your research. We read everybody else's. But it doesn't necessarily translate into what we're doing because what we're doing is based on what our customers are asking us to do. I guess we are probably getting a higher percentage of the IOCs than maybe somebody else is if you are looking at it being down. Overall that's what I can tell you. We are very granular. It's based on clients and we have got growth across the board, all three categories.

So far in your planning, as you look back last year and as you look into this year, what the IOCs have been telling you, has the plan been -- has it actually been running in line with the plan? Are you doing better or worse?

Running in line. I mean, you get some guys coming in quicker, some a little later, but it runs in line.

Okay. Great. Thank you.

The one thing I think that sometimes analysts don't understand is that these things are not precise because you're drilling wells. So they can either come and go in different levels and at different times. It doesn't happen just like clockwork, but it doesn't mean plans change. It just means things get pushed back or accelerated.

Absolutely. I understand that. To that point, one of the things that you mentioned about the deep-water that the wells had problems and things get delayed, that's something we have been seeing on a regular basis. Wells do have problems and rigs get delayed as well and end up having a lot of unplanned downtime. So as you provide this guidance, how much room do you provide for things like that to happen?

We look at the drilling curves that are given to us and different companies are different. Some companies actually have planned downtime in their curves, some don't. So we try to take that into account. This particular quarter just happened to be one of those odd quarters where we had more than we thought, but we do take that into account. Again it's an estimate because these are very complex wells.

Right. And I think that's the reason why there is going to be most likely a lot more issues and given your way high exposure to that market, if there is a rig down or a well down, there is a very high chance that you guys are going to be affected with that. Is that fair?

The thing is that could be positive and negative. It all depends exactly when the sequence happens. If our equipment is on the rig at the time and then there is an operational problem, then there is no effect on us. All around the world it has different permutations from region to region.

They also beat their drilling curves. So it really isn't a negative bias. It actually -- this particular quarter was. But there are quarters where it actually is the opposite, where we have a positive bias. So that's the best way to say it. We factor it in, too, when we look at our equipment utilization and how we allow equipment and what we do. But it isn't generally a negative bias.

Great. Thank you.

You can't really plot it that way or otherwise you are going to have a surprise on the upside.

Sure. Thank you, sir.

Sure.

Your next question comes from the line of Ole Slorer with Morgan Stanley.

Thanks a lot. Back to West Africa a little bit again. You mentioned that was a robust market for you and the [Fenarys] call I just finished highlighted I think 74% revenue growth in Sub-Sahara Africa last year and continuing strong this year. We are hearing that and at the same time we are seeing companies like Seadrill, Pacific Drilling have issues getting final sign offs on their rigs going into Nigeria and potentially holding up drilling programs. Could I have your view on the dynamics that you are seeing, particularly in Nigeria and Angola between what appears to be a stand-off at the moment between the governments and big oil companies, and the silver lining, that we just got that $4 billion reduction on block 32.

Yes. It's John Walker here. Good question. It comes back to right across West Africa and East Africa, it all depends on how the production sharing agreement, the PSA, is structured. You know, we deeply get involved in that aspect of evaluation as well to see where an ENP is going to the government there and there is incentives to explore, appraise and develop from a royalty basis, the sooner the better, for cash flow. So there is a flurry of activity in some of the countries as a result of the PSA structures. And establishing and understanding those structures as well as understanding the well complexities allows us to position ourselves.

Specifically related to Nigeria and their political situation that's going on at the moment, there is a pause within the ENP sector and also a sanctioning pause because of the elections that are coming up imminently. So we have taken that into our guidance and we have been working in Nigeria 20 plus years. We understand the market. It is dynamic and changing. We are well positioned with the ENPs and the majors and we don't see any pricing pressure there or market degradation from our perspective. We have been very successful up and down South Africa and up to the northwest and we see that continuing through 2014 and 2015.

So, John, given your experience in Nigeria, there hasn't been any new are rigs signed off since May 2012 and there seems to be quite a backlog now of projects that still needs a final signature.

Yes.

And you are involved in quite a few of those with your equipment already installed on board the rigs. So how are you thinking about that in terms of your revenue expectations out of West Africa this year?

Sure. There has been a stall in that area so there has been a huge activity upsurge in other parts of West Africa. It's about maintaining the infrastructure that we've got and waiting for the pause to relax, because it will happen. We have been in situations with the government up and down African coast international where as the elections come closer to it, there is a pause of investment and we are seeing this in Nigeria right now.

As it gets closer and once the election passes we are going to see a lot of these projects get sanctioned and we'll proceed. Saying that, the tenders for these projects went out several months if not, you know, several quarters ago and we know what we've secured and what we're on stand-by for and we know what is currently outstanding. So we have a lot of visibility in that market.

I should know this, but what is the timing around the Nigerian election?

You know, I'm not a politician. I don't know that off the top of my head. But I do keep a close eye on it and I think we are -- with Goodluck Jonathan being the President there, you'd have to research that yourself. I really don't know.

I will look for that. Thanks a lot for clarifying.

Thanks.

There are no further questions.

This is Keith Mosing. I just want to thank everybody. We feel like we've made great progress. We have only been taking the public side since last August and we're real pleased. I think we are honing our management skills on the inside. We are still delivering customer service like we always have. Like Mr. Walker was just saying, we have been in a lot of these areas not just two decades, but three and the land market is something that we've handled for over 75 years. We are very familiar with it. There is always going to be ups and downs in this business. I think the main thing is we are getting better and better and better at what we do. I am just real pleased with our progress. I'd say that we want to thank you for your support. We are really, really happy with our progress.

Thank you, ladies and gentlemen. This does conclude the conference call for today. We thank you for your participation and we ask that you please disconnect your lines.