Expro Group Holdings NV (XPRO) 2014 Q4 法說會逐字稿

Good morning and welcome to the Frank's International fourth-quarter FY14 earnings call. My name is Brandon and I'll be your operator for today.

(Operator Instructions)

Please note that this conference is being recorded. I will now turn it over to Thomas Dunavant. You may begin, sir,

Good morning, everyone, and welcome to Frank's International's conference call to discuss fourth-quarter and full-year 2014 earnings. I am Thomas Dunavant, Manager of Finance and Investment Relations. Joining me on our call today are Keith Mosing, Executive Chairman; Gary Luquette, President and Chief Executive Officer; John Walker, Executive Vice President of Operations; and Jeff Bird, Executive Vice President and CFO.

Before we begin commenting on fourth-quarter and full-year 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 and answers are subject to risk and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. As such, statements speak as of today's date or of 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 materially differ from those set forth in any forward-looking statement. 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.

Also you may access both the fourth-quarter and full-year 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 fourth-quarter and full-year 2014 earnings release, which was issued by the Company today and is available on our website.

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

Thank you, Thomas. Frank's has been run by the Mosing family since it was founded in 1938. My grandfather, my dad, and then I built a foundation that has allowed us to be a leader in our industry. We have grown from a one casing crew Company to a Corporation with our third consecutive year of $1 billion-plus in revenue.

During the initial public offering, I mentioned how being a public Company would allow us to retain current employees and track new employees that could help the Company continue to grow, innovate, and exceed the expectations of our customer. As I thought about succession planning and who would lead the Company after me, I was drawn to the experience of Gary Luquette.

Soon after our IPO, we asked Gary Luquette to join our Board. He has 35 years of experience in the industry and was a customer of Frank's while at Chevron. He recognizes and understands the value that Frank's offers to our customers. After serving on our Board for the last year, the topic was discussed about him taking the role of Chief Executive Officer.

That brings us to today, where I have the honor to introduce Gary Luquette, who officially became Frank's International's President and CEO last month. I will now serve as Executive Chairman. This will allow Gary to lead the business of our Company, while I continue to be involved in the establishment of our strategic direction.

Lastly, we recently had a Bill Berry to our Board. Bill brings over 30 years of experience with Conoco Phillips. He is a great addition and I will look forward to his contributions to the Board.

With that, I'll turn the call over to Gary.

Thank you, Keith. It's an honor to serve as CEO of the Company with such a rich history of providing outstanding service to its customers. I have known Frank's for a long time and their reputation in the energy business is second to none.

When I joined the Board, I was eager to help the Company make the transition to a public Company. Then when Keith approached me about the opportunity to become CEO, I was excited to jump into action and lead the Company and grow value for our customers, our shareholders, and employees.

I want to thank Keith for placing his trust in me. I want to ensure him, the Mosing family, and all of Frank's employees worldwide, and our shareholders that I will endeavor to do my best to protect the great brand that has been established. As we look for opportunities to grow through innovation and help our customers improve the cost and the integrity of their wells, we will remain focused on ensuring that everyone stays safe, while focusing on efficient and effective execution of the tasks at hand.

2014 was another record year for Frank's. We delivered over $1 billion in revenue, a 7% increase over the prior year. Our adjusted EBITDA was $450 million, a 3% increase over 2013, and our adjusted EBITDA margin was 39%. John Walker and Jeff Bird will provide a more detailed review of our quarter four and 2014 results following my remarks.

Note, with the arrival of Jeff Bird, John Sinders will continue in his prior role of Executive Vice President of Administration. He will have responsibility for Corporate development, Corporate strategy, investor relations, and other administrative functions.

Continuing on, I want to focus on what lies ahead. We are facing a lot of uncertainty given the current commodity price environment. Exploration and production companies are having to reduce capital investments, which in turn, is lowering rig count. Companies are faced with obvious trade-offs between investment and returning cash to the shareholders and still others have obligations to lenders that will impact their activity levels.

We are monitoring all of this. While were not immune, we believe we are well-positioned. We have a very strong balance sheet with essentially no debt.

We have the ability to reduce our capital needs and operating expenses as activities slows. We have positive cash generation that will allow us to invest while maintaining our dividend and retaining the capacity to move on acquisitions if the right opportunity presents itself.

We expect our revenues to be impacted some by reduced activity and rate reductions and we're taking steps to mitigate those impacts through capital and operating cost reductions. We are already seeing reduced activity levels in some regions. The broader US land market has last more than 500 rigs than the beginning of the year. This drop is forecasted to continue and we don't know where the bottom will be.

Internationally, we are starting to see signs of slowing but more gradual than the US land. We would expect this gradual trend to continue over the next few quarters. If there is a bright spot, it's in the global offshore markets, both internationally, and in particular, the deepwater US Gulf. A combination of term rig contacts, lease obligations, and longer-term project cycles are sustaining activity levels at present.

As a result, and our US offshore and international markets, we anticipate less of an immediate impact. The Gulf of Mexico is still very active, with 45 floating rigs working right now, which is actually a significant increase year-over-year. This time last year there were 38 floating rigs working. Eventually, we expect activity in all of our markets to slow down from current levels through the remainder of the year.

We also expect and have already received requests from customers for pricing discounts. We are evaluating these requests and working with our customers to reach agreement. In some cases, agreements can include volume commitments or introduction of new technology that can lower the overall cost of the well, all of which can offset rate reduction impacts to us.

During the slowdown, we want to use this opportunity to make Frank's a stronger Company. As previously mentioned, we have a very strong balance sheet. This is an environment that will stress many companies financially.

For Frank's, there is little risk of us being unable to pay our dividends. In fact, we see this as a potential opportunity to utilize our strong balance sheet to pursue acquisitions that align with our growth aspirations.

While our blue-chip customers will be forced to review costs just like everyone else, we believe they have the size and the experience to weather this slowdown. We know that these customers will continue to need our services and we hope to strengthen our relationship with them, as we jointly pursue ways to reduce the cost and improve the integrity of their wells.

This slowdown also gives us an opportunity to look internally. Just prior to me joining the team, Jeff Bird joined us as CFO. We both bring external experience and ideas that will lead to process improvements and execution opportunities that will make us a better Company. These ideas, combined with changes underway, will enable us to use this period of lower activity to make the Company stronger and better prepared to ramp up activity once commodity prices improve.

You may recall that we have only been operating as a single entity since 2011, when Frank's International and Frank's Casing Crews emerged. Since that time, everyone has been working towards a consistent approach in conducting our business. We are in the process of identifying saving opportunities, but are also adding some costs in selective areas to ensure we remain fully compliant as a public entity and are positioned for growth in the future.

We are not announcing any specific cost-savings targets today, but as the year progresses, and we get the new Organization in place and fully functioning, we will be in better position to share details with you. Our business model is predicated on the opportunity to provide value to our customers. We help exploration and production companies address their most complex wells.

Today, we are seeing more complex situations as wells get deeper, metallurgy is more exotic, lateral sections are longer, and wells have multiple completions and more technology added to the casing string. All of this allows us to demonstrate our value to the customers. We are not always the lowest priced, but we believe we provide the lowest total cost of ownership.

Improving the cost of our wells is about more than just the cost to drill. Factors, including the reliability of the well and well integrity, must be considered as those can add costs later in the well's lifecycle through replacement or well intervention work.

In closing, I want to reiterate that we are in sound financial shape, taking definitive steps to ensure we not only survive the downturn but prosper in it, and that we will be positioned to ramp up quickly and effectively once prices rebound. I will now turn the call over to John Walker and Jeff Bird for their comments before providing my closing remarks.

Thank you, Gary. We are very pleased with our fourth-quarter and full-year results.

First, safety is our number one core value. In 2014, our total recordable incident rate, or TRIR, was 1.27, and our loss time incident rate, or LTIR, was 0.36. 2013 and 2014 have proven to be two of our safest years.

Our key initiatives relating to leadership programs, no harm plans, and innovation of new technology has contributed to this reduction from prior years. We look for 2015 to be another year of safe performance, as we focus on ensuring the safety of everyone.

We continue to introduce new technology that aims to improve efficiency, increased safety, and reduce the overall cost of wells to our customers. One recent introduced technology is our new break out device. Over time, completion tubulars might have to be replaced. In some scenarios, completions left in wells for years in high temperature environments can require as much as twice the original makeup torque break out.

Conventional power tongs can crush the pipe at high breakout torques, where the breakout device can accomplish this task without any damage. This device can reduce the time to complete the job. It can yield substantial cost savings to our customers by salvaging tubulars that would have otherwise incurred extensive recuts of threads or be lost altogether due to being crushed. Congratulations to our technology group and all of our operations people for continuing to find ways to meet and exceed the needs of our customers and their most complex issues.

As I review 2014 results, I will provide comments about 2015. I will not provide specific guidance for 2015. Instead, I will frame the opportunities that will drive revenue through the year and into 2016 and beyond.

While, as Gary mentioned, there are lot of uncertainties in the market, we continue to focus on the long-term drivers of the business and how we can be the provider of choice for our customers' most complex wells. Looking at our business segment results, our international services revenue for external sales in the fourth quarter increased 2% sequentially and 19% year-over-year, to $146 million. For 2014, revenue increased 13% year-over-year to $537 million. Adjusted EBITDA for international services in the fourth quarter was $66 million, or 45% of external sales. For the full year, adjusted EBITDA was $231 million, or 43% of external sales.

Let me provide more detail around our successes in 2014 and the opportunities in 2015. 2014, all of our international regions had grown year-over-year revenue growth, except Latin America. Latin America was negatively impacted by declining business in Venezuela and Brazil. Results were further impacted by bad debt expense and currency devaluation. In 2015, we expect positive contributions from new opportunities in Mexico from IPM work, and continued success from the introduction of new casing running technology, or CRTs, in several countries.

Forest revenue growth in 2014 was helped from hammer work, where we secured in [Sakhalin] Island and our initiative to increase market share in Australia. Malaysia and Indonesia remain our largest revenue-generating locations in the region. Activity in the region remains healthy, as we have several existing long-stem contracts and continue to pursue market share gains.

The Middle East was part of our market share increase initiative in 2014. We succeeded with the increase in revenue from the contracts from our Harmonic Isolation Tool and Cutting Bed Impellers. These downhill tools will be used in both on and offshore applications and will continue to provide a revenue stream in 2015. In addition, we started on several complex wells in 2014 and several more are scheduled for 2015 in the region.

West Africa had tremendous revenue growth for us in 2014. Growth in the region came not only from Angola and Nigeria, which were the two largest revenue-generating countries within the region, but also from other countries that have recently seen increases in offshore activity. Continued revenue will come from the new contracts that started in 2014 and will continue into 2015 and beyond. As an example, one of these contracts is for the development work on five deepwater offshore rigs for a period of three years, with a two-year extension option.

Europe, which is primarily work in the North Sea, had revenue growth driven by increased work with existing customers, including a project with one customer to complete multiple wells with our Fluid Grip Technology and our Collar Support System, or CLS, during the year. We also had success securing work for several new customers in the region. Looking ahead, these continue to be opportunities, so we will likely be impacted by weaker currency in the region and increased competition.

Canada year-over-year revenue increase benefited from off-shore work in Eastern Canada that began in 2013 and continued for the full year of 2014. In addition, CRTs were introduced in the region, providing increased revenue opportunities.

Overall, 2014 was a good year for international services segment. We had success increasing our market share, we introduced new technology to existing customers, and we added a new facility in Dubai. We look to position ourselves for new and increased activity, particularly in the Eastern Hemisphere, for the coming years.

Moving to our US services, fourth-quarter revenue for external sales increased 5% sequentially and 4% year-over-year to $118 million. For the full year, revenue was $440 million, up 1% year-over-year. Adjusted EBITDA for US services in the fourth quarter was $48 million, or 41% of external sales. For 2014, US services adjusted EBITDA was $181 million, or 41% of external sales.

Within our US services segment, our Gulf of Mexico fourth-quarter revenue was up 9% sequentially and essentially flat year-over-year, at $71 million. For the full year, it was up 4% to $271 million. The Gulf of Mexico rebounded well in the fourth quarter, after the impacts of loop currents in the third quarter. For those on the line that are unfamiliar with the loop currents, these transitory currents in the Gulf of Mexico make installation and drilling services come to a halt because of the strong currents.

2014 was an extraordinarily bad year for loop currents. For the full year, the region had an increase of six floating rigs, starting the year at 38, remaining at 38 until mid-year, and then ending at 44 as newbuilds began to enter the region. Current rig count remains in the 40s, as activity remains healthy.

Revenue for the land service portion of our US services segment increased 1% sequentially and 10% year-over-year to $47 million. 2014 revenue was down 3% year-over-year. Our US land business rebounded well in 2014 after we had changed the Management structure and revised our pricing strategy at the beginning of the year.

Some of our market share losses that we experienced in 2013 and the beginning of 2014, we recovered as we grew sequentially in the second, third, and fourth quarters. Of course, 2015 will be a challenging year as the rig count has already declined substantially and is predicted to continue to decline in the near-term. Long-term, we believe we can position ourselves well within this market. In the short-term, we will evaluate our cost structure, including rationalization of locations, and potentially looking for acquisition opportunities.

Lastly, tubular sales revenue for external sales in the fourth quarter was $55 million. This was up 35% sequentially and 19% year-over-year. For the full year, tubular sales revenue was $176 million, up 5% year-over-year. Adjusted EBITDA for tubular sales in the fourth quarter was $10 million, or 19% of external sales.

For the full year, adjusted EBITDA was $38 million, or 22% of external sales. In 2014, we added a new leader of tubular sales to help us strategically focus on growth opportunities in this market. Like with the US land business, this will help drive new initiatives that should lead to strong growth in coming years.

We continue to work with our customers to reduce deferred revenue, allowing us to deliver existing inventory that has already been paid for. In addition, we are improving our Management inventory systems to reduce the overall inventory levels held by the Company, while still being able to provide our customers the products they need in a timely manner. These initiatives, which will be ongoing over the next few years, will further strengthen our balance sheet and improve our cash flow.

With that, let me turn it over to Jeff Bird to review our financial results for the quarter and outlook for the year.

Thank you, John. I'm excited about joining Frank's.

During my first 90 days at the Company, I've enjoyed meeting and beginning to work with the people here. We will continue to build on the foundation the finance team has started to establish over the last year. We will build out a world-class finance team to serve the needs of being a public Company, and as important, being a value-added business partner.

We've already begun to identify productivity improvement opportunities that will result in more efficient use of our inventories, lower day sales outstanding and accounts receivable, and reduce costs through focused productivity projects. We will share more with you in the coming quarters around these projects.

Now turning to our results for the fourth quarter and full year. Fourth-quarter revenue for the quarter was $319 million, an 8% increase sequentially and 13% increase year-over-year. For the full year, revenue was $1.153 billion, up 7% versus 2013. Net income for the fourth quarter was $51 million, with net income attributable to Frank's International NV of $35 million, or $0.22 per share.

Diluted net income, which includes $4.7 million in assumed tax impact of conversion of preferred shares, was $46.8 million, or $0.22 per diluted share. For the full year, net income was $229 million, with net income attributable to Frank's International NV of $159 million, or $1.03 per share. Diluted net income, which includes $15.4 million in assumed tax impact to conversion of preferred shares, was $214 million, or $1.03 per diluted share. A full reconciliation of our EPS calculations is in our press release.

Fourth-quarter tax rate was 32%, higher than previous quarters and full-year 2014, primarily due to a higher proportion of total income earned in the US. Full-year tax rate was 25%. Fourth-quarter and full-year EPS were impacted by the devaluation of the Venezuela bolivar. This reflects a change in translation from the official rate of VEF6.3 per US dollar to the SICAD II exchange rate of VEF50 per US dollar.

This change in exchange rate impacts our operating and net income, however, the loss is excluded from our adjusted EBITDA calculation. The net impact to fourth-quarter and full-year results is $13 million, or $0.06 per diluted share. We continue to operate in Venezuela, but are monitoring the political and economic environments with an aim to manage our exposure going forward.

Our adjusted EBITDA for the fourth quarter was $124 million, or 39% of revenue. For 2014, our adjusted EBITDA was $450 million, or 39% of revenue. On December 31, we had $489 million in cash and less than $1 million in debt on our balance sheet. In 2014, our CapEx spend was $173 million. We spent $119 million on equipment and $54 million on new facilities related to assets and other PP&E.

We expect 2015 CapEx spending to be down $23 million, or 13%, from 2014 to $150 million. We anticipate equipment rental capital spend to be $70 million, down over 40% from 2014. This amount is less than the last three years where we have increased investment building our capital equipment base worldwide. This level of spend will allow us to continue to invest in technology that will position us well for a ramp up in work following the slowdown.

The remainder of our capital spend will be allocated to facilities and other PP&E. We are reviewing all non-equipment capital needs and have already deferred projects to future years that we did not deem absolutely necessary in 2015. We will continue to review our capital spend and update you as we progress throughout the year.

Diluted share count is expected to be 209 million for 2015. We expect our 2015 effective tax rate to be approximately 25%.

As we have discussed previously, our diluted EPS calculation includes an assumed additional tax expense upon the conversion of our preferred stock. There is approximately 5% of additional income tax assumed for diluted net income for financial reporting purposes. This is due to our upsea structure. Please feel free to reach out to us if you have questions about modeling.

Lastly, our Board of Directors declared a dividend of $0.15 per common share subject to applicable Dutch dividend withholding taxes, for the record date of March 6, with payment on March 18, 2015. This is unchanged from the previous quarter.

I will now turn the call back over to Gary for some final comments before we open up the call to Q&A.

Thank you, Jeff. 2015 is going to be a challenging year for all in the oil and gas industry. Our opportunities are created by the activities of E&P companies, which are impacted by the outlook of commodity prices.

However, we see no need to panic. The world will continue to need oil and gas. As populations increase and nations become more developed, the demand for energy will also increase.

Longer-term, we are bullish on our future and our ability to grow revenues profitably. In a short term, although the outlook isn't as promising, there are some things that we can do to prepare for a brighter future. Our balance sheet gives us the opportunity to maintain a longer-term view on the industry and the ability to invest through the cycle.

Although we will not be providing guidance for the year or the quarter, I want to assure you that we will not be sitting idle. We will continue to be opportunistic, both in improving our internal capabilities, as well as looking to capture additional market share where advisable. We look forward to updating you on our progress throughout the year and I personally look forward to meeting many of you over the coming year.

Thank you for your time and now we will turn the call over to your questions.

(Operator Instructions)

Kurt Hallead, RBC Capital Markets.

I had a quick question relating to the offshore markets. Obviously, yesterday there was an offshore driller that announced that some of their customers were seeking to cancel contracts. I know you have quite a bit of exposure and last year was a good growth market for you on that dynamic. I was just wondering, trying to calibrate our views with yours and see how you're risk assessing the offshore market globally for 2015?

Good morning, Kurt. This is John Walker speaking.

In regard to the overall market conditions, with respect to international, we are seeing a slight softening within the market. But to the earlier comments, we believe that we are well-positioned within the segments that we operate in, being the complex wells and specifically the deepwater applications.

You saw the tail end of last year, quite a few exploration wells that came up there that were dry hole in nature. However, the projects that we have focused our efforts on have tended to be in the appraisal and the development phases. As I'm sure that you're aware, as the developing phases are sanctioned, it's a more of a long-term outlook. So we are seeing a slight softening, but not at the levels, of course, that we are seeing in the US side of the business, with the US land side.

The Gulf of Mexico is still a very decent bright spot for us, again, levered to the deepwater complex well side of it. Overall, we do understand that there's a transitioning happening at this time, but we're still very optimistic on the future.

Great. Okay, that's great. Thank you.

Michael LaMotte, Guggenheim.

I was hoping, with the changes in the business model for addressing the US onshore market over the last 12 months, I was hoping that you could talk about how the current environment might impact that effort? And whether or not the business model would change again in terms of the aggressiveness with which you would go after share or even look to do M&A in that market in particular?

Michael, this is Gary Luquette. Let me make a cut at that and then we'll see if John Walker wants to add anything.

Certainly, we're going to adjust the timing of some of our plans, but longer-term, our plans are still very appropriate, that is to grow market share in the onshore US land business. Clearly, we were underrepresented. Much of our efforts in the early part of 2014 is the reason why we were pretty much quarter-to-quarter and year-to-year able to sustain our revenues despite a falling market.

So right now gives us an opportunity to reassess our plans and to improve that repositioning plan. And as I mentioned in my opening remarks, to move on any acquisition opportunities, assuming those fit well with the strategic plan. But longer-term, our strategy, we think it's still sound. It's just maybe tweaking a bit on timing.

Yes. Okay.

Michael, one thing to add to Gary's comments there. Something to be clear on. As far as our concentration of market share, we're obviously see a significant decline in the unconventional side of the business. But we did not have a large concentration of market share in the broader picture of the US land business, we were building that out. So it's allowed us an opportunity to look at the overall business and reorganize it appropriately as it affects us directly.

Yes. I'm curious, just from an organic standpoint, as a follow-up question, as operators in this environment look to get their own cost structure in line, the value proposition that you bring in a market that has historically been very relationship-driven. As operators become more cost-conscious and certainly more safety conscious, if the organic opportunities for market share gain can come not necessarily just through discounts or aggressive pricing tactics, but really the value sell, if you will?

To highlight also, if you recall that our customer base tends to be more in the blue-chip side of the business, and of course they actually fare better during this downturn period. But to the point that I was talking about earlier, about the concentration that we have, we're reviewing all of our site locations and some of the stores, we will look at potentially consolidating.

We will try and lower our costs and aligned with how we see the contraction in the market. But we still have some great opportunity out there because the sweet spots of the market, where obviously the focus will be for us, is where there is additional market penetration for us.

All right. Gary, John, thanks.

Robin Shoemaker, KeyBanc Capital Markets

In terms of the offshore markets again, where you have one major competitor, I wonder if you could describe for us the -- you talked about your getting pricing pressures -- or pressures for pricing discounts in all of your businesses. I assume that is in that arena as well.

Just in terms of past experience, since Frank's is a relatively new public Company, we don't have data for 2008 and 2009, when we did see a big drop-off in the market. What was the experience then in terms of the pricing pressures on casing running services. And should we think about -- how should we think about potential margin pressures in this cycle in that key area where you principally have one competitor?

Good morning, Robin, it's John Walker. You talked about during the last downturn, during the last downturn of course, it is a little bit of an apple and an orange, because we were previously multiple entities and now were one Frank's. An important factor from 2008 to now is that the deepwater activity was not as prominent during the last downturn.

With our technology and the uptake of the technology, yes we're working with our customers to reach agreements on the pricing discounts. But ultimately to Gary's earlier point, it's about reduction in well construction costs and the total cost of the ownership of the tubulars for well integrity and production life. So we are talking to our customers about the value that we create in that arena. It's been well received and some of those pricing impacts that we work with our customers on are being offset against their technology uptick.

I see. Okay, thank you. Just one other question.

You also brought up your balance sheet and potential acquisitions. We've heard some companies say in this very early phases of the downturn that it's a bit too early for the best acquisition opportunities, that those will come later in the cycle as the downturn progresses. How do you view the timing now versus what might later this year or early 2016 or are you really focused on timing at all?

Robin, this is Gary. I would say this is an ever-present part of our portfolio is to look for acquisition opportunities. Sometimes they present themselves, irrespective of where we are in the market, but clearly as time passes and if prices stay in the ranges that they are now, you will see additional stress being placed on the markets.

My comments would be, it depends. In certain sectors, obviously in US land, as both John and I have highlighted in our opening remarks, the acute contraction that we're seeing in US land is going to introduce a lot of stress into that market. And clearly we are aware of that and we are in position to take advantage of that, assuming that strategically aligns with our plans.

So it depends on how the market is moving and what the balance sheets look like for the asset holders of today as to timing. But it's something that we are aware of, it's part of our ongoing business analysis process, and we'll just keep a close eye on it.

Okay. Thanks a lot.

(Operator Instructions)

Angie Sedita, UBS.

Just to go a little bit further on the acquisition side, I was going to ask why are you focused on US land, but it clearly sounds as if that's where you think there might be some opportunities given the stress in the market. So maybe you could talk about that a little bit more, and if you are interested in similar product lines that you are already in or could you be looking at something that you're currently not already in or something that's an adjunct? And are you also still looking for acquisitions potentially in new geomarkets offshore?

Wow. There's a lot to the question, Angie, and I don't want to get into too much detail for fear that maybe some of our competitors are listening in.

But one of the things that strategically we announced in previous quarters was our desire to grow market share on US land and that was a portfolio move for us. In other words, we saw ourselves as underrepresented relative to our capabilities and it provided somewhat of a hedge against our very, very significant deepwater offshore business.

I would suggest to you that I wouldn't turn my nose up to a great opportunity to further improve our deepwater offshore position, but our strategy to grow market share onshore is still sound. We think longer term, for those of us that have been in this industry as long as Keith and I have, price cycles, we are very experienced through the cycles and we know what goes up, comes down about what goes down, goes back up.

So we still see the opportunity to grow market share and the unconventional space is going to be very active at some point in the future. And we want to have a reasonable market share in that space as part of our portfolio diversification. Clearly, there's going to be a lot of stress in that space, just because of the nature of the operators and the leverage that they were carrying. This probably will represent the most robust opportunity set for adding to the portfolio, but we have to be very selective with this.

As these shale plays have played out, the sweet spots have been identified. These are the areas that will be most active and areas that will become active the soonest as prices recover. It's not a strategy that says all shales are equal. It's going to be a very focused and targeted acquisition activity level for us in areas where we think we can grow share in the right spots and be one of the earlier companies to get back at it.

Right. That's helpful. Therefore, over the long-term, have you actually thought through in your mind's eye of a strategic level of market share that you would like to have in the US land, given the diversification you are seeking your portfolio?

We have some ideas. I'm not going to quantify that, but we certainly have some ideas as to what we feel would be a good position to move to. That's probably not the end game, but it represents a nice portfolio shift for us. And it allows us to continue to execute with excellence versus getting into something too big too quickly and then having some execution issues.

Finally, going back to the offshore market, if you look back historically, whether it's the growth of the ultra-deepwater rig count, where you obviously have more exposure as well as deepwater, if you look at the growth of the rig count or even the decline of the rig count, have you looked back at how your revenues correlate? The point being is that of course in the Gulf of Mexico, we're seeing ultra-deepwater rigs being released as they roll off of contract.

We're seeing of course some cancellations, so net-net, we could actually see the ultra-deepwater rig count declining at least in 2015, even with the newbuilds. Can you talk through thoughts on your correlation of revenue with that rig count? Does it correlate with that rig count or can you be over and above that given your services and your value-add?

What you are seeing -- at least, this is our perspective -- what you're seeing with some of the announcements, the recent announcements concerning cancelled contracts. We think a lot of that represented the potential for growth in that sector. Some of these companies that were going to look at growth are now trying to tap the brakes a bit because of cash flow concerns and capital reduction concerns.

What we are seeing, though, is that there is an underlying base activity level that is sustaining itself. This is driven by, as John Walker said in some of his comments, delineation and development drilling by the operators. These are activities that are governed by lease terms.

You either drill -- you either continue to move towards first oil or you lose these leases. Of course they have lease bonus, they have some cost from expiration, so they're very committed on these deepwater wells that constitute eventually large major capital projects.

Those cycles, the operators, the blue-chip operators can invest and should invest through the cycle and those areas, we are seeing that prop up the deepwater offshore market. As we've mentioned in previous calls and in our opening remarks today, we feel we have a superior offering in the deepwater market. This is where Frank's has differentiated itself. We have the ability to handle heavier loads for some of these deep complex wells.

We have the technology that a lot of these operators recognize as premium services. As a counter to some of the price discounts, this is where John Walker was pointing towards, our ability to upsell new technology or to upsell equipment that is not subject to some of the more traditional discounts that are coming from your more typical casing running tools and services.

So although there is pressure, we are dealing with that pressure through volume offsets. If you want a rate reduction, Mr. Operator, let's talk about extending our contracts or giving us a volume commitment in order to earn those discounts. Or in some cases we're able to introduce new tools and technologies that they enjoy because they look at it as lowering the total overall cost of the well versus just the services itself.

Got it. Thanks. I'll turn it over, guys.

Ian Macpherson, Simmons.

I perfectly understand your reluctance to guide on the year, but just for Q1, since we're through February now, and clearly apart from land, you've conveyed pretty stable trends. The Gulf of Mexico is clearly up activity-wise versus last year and the decline in international has been relatively orderly so far.

So given that offshore is 85% of your business, I wonder is it really the volatility of land that explains it your reluctance to guide the quarter? Or are these directional indicators for offshore just not a bankable indicator for your billable business in Q1 at this point or is it just some combination of the two? Thank you.

This is Jeff Bird. Obviously, as you point out, due to the uncertainty, we are very reluctant to provide revenue or EBITDA guidance equity. We do remain pretty optimistic. The current and anticipated activity levels in Q1 are probably going to be in line with Q1 2014. We do have seasonality and slowdown that normally sequentially happens from Q4 to Q1, but year-over-year, we expect those top lines to be in line.

I'll let John comment a little bit more on the regional splits there.

Extrapolating out on that, obviously it goes without saying that the US land side of the business is going to be -- there is some contraction there. That is offset with, for example, our plan from -- without going into too much detail about the Middle East where we set some plans in place in the second half of 2014. We're seeing some strong nice growth opportunities in the Middle East that part of the market, North Africa. Also, we talked about in Australia.

When you put the mix all together, the tubular side of it, the tubular sales side of the business, as well, is also seeing a nice portion of growth, all levered to the offshore side of the business. When you put that mix all together, to Jeff's point, the Q1 revenue should be in line with what we saw last year. Taken into account from a sequential basis of declines, the seasonality and slowdown in activity, which is traditional within the industry.

Very good. Thanks, John.

Follow-up question, unrelated. Can you update us on what you are seeing from other competitors apart from Weatherford, in terms of market share success or lack thereof, compared to what you were expecting maybe a year ago from the smaller players offshore?

This is Thomas, Ian. We're really not in a position to talk about the competitive environment or specific responses from our competitors.

All right. Thank you.

Jeff Tillery, Tudor, Pickering, Holt.

I was wondering if you could talk about -- one of the things -- it's been probed on some of the other questions -- it's relatively easy to track offshore rig commitments. It's much tougher to understand and track the nuance of what this rates are doing, are they actually drilling wells or is it more intervention type work? Could you just talk through, as you look at your opportunity set, do you see well construction activity in the deepwater being consistent with what we'd observe from just tracking deepwater rig activities? Or how do you see that?

Jeff, to the point that we talked about earlier on, the way that the activity is rolling out right now is on the appraisal development side. If you look at the middle to the second part of last year, there was a flurry of activity in the northwest African plays, of course ongoing in the Gulf of Mexico, so there has been some contraction in that side of it.

But that's definitely been offset by appraisal activity, and to Gary's point about the longer-term execution plans of these subsea developments in the complex wells in the deepwater. Obviously, the equatorial margin in west Africa has been a bright spot, as well, and continues with the recent announcements of discoveries there, so hopefully that has given you a little bit of color on how we see it.

It is. Thank you. Then as you talk about price concessions, I have two questions.

One, is that on just new contracts or is it revisiting existing contracts in place? And then two, as you think about the technology and volume uplift that you may trade-off for price, should we think about margins are still being able to stay within a few hundred basis point of where they are? Or is there risk greater than that?

This is Jeff. If you think about it from a margin standpoint, obviously, you should expect EBITDA to be down with the price discounts that we are seeing. We are evaluating cost savings opportunities right now and we're doing that across all regions.

Obviously, we're first evaluating the low-hanging fruit. We're looking at over time, we're looking at contractors and things like that. Then we are going beyond that from a more strategic standpoint, but just not ready to comment right now. Margins will be down and we're doing what good businesses do, quite frankly, when that happens and we're going to address our cost situation.

All right. Thank you.

Ken Sill, Global Hunter Securities.

(Operator Instructions)

Welcome to our crazy world of being a public Company. I wanted to talk about the strategic vision a little bit and maybe try to get a little bit more nuance on that. You guys are in an enviable position with a clean balance sheet and a lot of cash. You've talked about North American onshore could be an opportunity area, given it's the most stressed area.

On the strategic vision side, you could add new product lines, you could grow what you're doing, how do you look at it from 30,000-foot level about what part of the onshore shale, or whatever you want to call it, shale markets, do you want to be involved in? Is it on the completion side? I'm assuming you guys don't want to go out and buy drilling rigs. But just where in the lifecycle of this business do you see your place or do you even have it that nuanced?

Ken, this is Gary, and then I will invite others assembled here today to add a little color. We know what we are good at, so one of the opportunities in the to two- to four- to five-year opportunities is to exploit what we're really good at. That would infer that opportunities to gain market share in the tubular running business, both on the completion side, as well as on the drilling and the case goal side. Clearly, that is our sweet spot, that's what we're good at, and that's how we differentiate ourselves.

However, if you take a longer-term view, which we are doing now, to try to understand where the oil field of the future is going, both onshore and offshore, where we have a tremendous position, we are also trying to think through what the drilling rigs that are going to be used for the oil field of the future, exactly how they are going to be configured. Clearly they are moving towards more mechanized and automated systems and we understand that we've got to reposition ourselves in that sector in order to be able to intersect it in the five into 10-year plateau.

That may lead to new product and service lines for us. Clearly, it's not a real short-term play for us, but it's something that we are thinking about today and evaluating our objective would be to intersect that and not find ourselves flat-footed when that transition occurs for automated and mechanized drilling rig.

Ken, if I could just -- this is John Walker -- I just want to add a little bit of color to that. To your point at the beginning, welcome to being a public Company, but the important factor, of course, is that we've been a global organization for over 30 years and 70-plus years in the tubular running side, so very mature in that area.

My point that I want to get across is that allows us a wider breadth of opportunity on a global basis, because we do have infrastructure in all the major oil field centers of the world. As the US dollar continues to strengthen, the opportunities and valuations obviously become more attractive to us. The opportunities are wide for us right now and with the strength of the balance sheet, to Jeff's point, we are very optimistic and excited about the future. I hope that answers your question, Ken.

I appreciate the answer. That's good.

Then I had just one more question from a very high level and that's, obviously, the drop in oil prices is changing the economic realities of developing oil and gas around the world. We could see cost coming down a lot in the deepwater side because of the rig supply situation. Do you guys have a feel for where you think oil prices need to be to see deepwater activity rebound from here? Or what price do you think you need to see for activity to remain at least relatively level on the development side?

Ken, this is Gary. That's obviously not a question that we can answer but probably your contacts in the operator community may have a more informed view on that. What I will say, having spent 35 years in this industry, is that these downturns and these periods of lower commodity prices have a way of really having a healthy effect longer-term on the supply chain and on development cost.

Heretofore, let's say, 12 months ago, if you take the deepwater, might have needed anywhere from $60 to $80 a barrel to be commercial, what history has told us is those costs will significantly drop as the supply chain rationalizes itself and a lower commodity price. So what those actual trip points or hurdle rates are, we'll leave it to others to answer, but history informs us that things are going to get a lot more economic as costs rationalize due to low commodity prices.

All right. Thank you. That's a valuable perspective.

I'll turn it over to other people. Thanks.

We will now turn it back to Gary for closing remarks.

Thank you. I want to thank those on the line, especially those of you that presented questions to us. Thank you for doing that.

Maybe just to close and to maybe summarize, we've talked a number of times about the excellent financial position we're in and that cannot be over emphasized. We are extremely proud of how the Mosings have run their business and the conservative nature of managing their balance sheet.

It is in fact for times like this that we do this. We are going to use this lull in activity to retool our capabilities, such that when it does come back, which it will, we are going to be better prepared to ramp up. Our objective would be to be a very early mover in terms of capturing market opportunities as the market improves.

We've talked about low commodity prices placing some stress on certain companies that have not been as prudent as we have in managing their balance sheet and have a lot of leverage and we're a good position to move on them. But I want to emphasize it will be for the right opportunities that fit our strategic opportunity set.

Lastly, I'll just wrap up by again thanking you and telling all of you I look forward to meeting many of you personally in the coming few months. With that, we will wrap up

Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.