Welcome to the Exterran Holdings, Inc. and Exterran Partners, L.P. first quarter 2008 earnings conference call. (Operator Instructions) Earlier Exterran Holdings and Exterran Partners released their financial results for the first quarter ended March 31, 2008. If you have not received a copy you can find the information on the companies’ website at www.Exterran.com. During this call the companies will discuss some non-GAAP measures in reviewing their performance such as EBITDA as adjusted, EBITDA as further adjusted, gross margins, gross margin as adjusted and distributable cash flow. You will find a reconciliation of these measures to GAAP measures in the summary pages of the earnings release. I want to remind listeners that the news release issued this morning by Exterran Holdings and Exterran Partners, the companies’ prepared remarks from this conference call and the related question-and-answer session will include forward-looking statements. These forward-looking statements include projections and expectations of the companies’ performance and represent the companies’ current beliefs. Various factors could cause results to differ materially from those projected in the forward-looking statements. Information concerning the risk factors, challenges and uncertainties which could cause actual results to differ materially from those in the forward-looking statements can be found in the companies’ press release as well as in the companies’ annual reports on Form 10-K for the year ended December 31, 2007 and those set forth from time to time in Exterran Holdings and Exterran Partners’ filings with the Securities and Exchange Commission which are currently available at www.Exterran.com. Except as required by law the companies expressly disclaim any intention or obligation to revise or update any forward-looking statements whether as a result of new information, future events or otherwise. Your host for this morning’s call is Steve Snider, President and Chief Executive Officer of Exterran Holdings and also President and Chief Executive Officer and Chairman of Exterran Partners. I would now like to turn the call over to Steve Snider.

Welcome to the first quarter 2008 earnings call for Exterran Holdings and Exterran Partners. Joining me today are Michael Anderson, the Chief Financial Officer of Exterran Holdings; Brian Matusek, the Chief Operating Officer of Exterran Holdings; and Daniel Schlanger, the Chief Financial Officer of Exterran Partners. During today’s call we’ll refer to Exterran Holdings as Exterran and to Exterran Partners as either Exterran Partners or EXLP. Because we consolidated EXLP’s financial results and positions into Exterran the discussion of Exterran will include EXLP unless otherwise noted. I’d like to start off today’s call with an update of four key points that I made to conclude our last call almost 10 weeks ago. As a reminder I talked about our optimism around our North American business, our MLP and drop down strategy, our exciting international business and the fact that we are proceeding well in integration of the merger. Now let me cover each of these points. First I noted that the North America compression market was growing and that we had the size, position and capability to recapture our market share and restart our growth trend. We still believe all of this to be true. Although merger integration challenges have led to worse than expected first quarter performance in our North America business we are addressing these issues and expect to deliver improvements in revenues and margins in this business but it is like to take most of 2008 to sort through. To this end in recent weeks we added key management team members to our North American organization bringing valuable additional resources and experience to help us complete the integration of our field operations, continue our Service Excellence initiative and resume growth in our North American business. With this change we now have a very strong North America management…

I’m sure that by now you’ve all had a chance to look at our press release that we issued earlier this morning. As is typical during my discussion I will review the first quarter financial performance for both Exterran Holdings and Exterran Partners and also discuss our earnings outlook for the second quarter and for full year 2008. Of course due to the August, 2007 merger our year-over-year comparisons are still not especially meaningful and as a result most of my comparisons this quarter will be against the fourth quarter as well as the guidance that was provided during our last earnings call. If we look at our North American contract operations business revenue was $199 million in the first quarter. That was a little below our expectations and was down about $4 million sequentially from the fourth quarter. As Steve mentioned we saw greater than expected operating horsepower declines in North America. In first quarter gross margin percentage in the North American contract operations segment of about 56% was below our guidance where we expected first quarter margins to be slightly higher than the fourth quarter margins that we had turned in that were about 57%. As Steve mentioned we’re certainly disappointed with the performance and believe that we are aggressively attacking the issues. Our international contract operations revenue was $120 million in the quarter. That was a bit higher than our guidance range as we started up over 40,000 horsepower in the quarter and it was slightly ahead of schedule. International contract operations gross margin was approximately 67% in the quarter. That’s up from about 64% in the fourth quarter and it’s also a little bit higher than our guidance. Our international contract operations business continues to perform extremely well and we’re very excited about the prospects for…

(Operator Instructions) Your first question comes from Kevin Pollard – JP Morgan. Kevin Pollard – JP Morgan: I was hoping you could maybe give us a little more color on what changed with regard to the costs. I know you’ve got a lot of cost pressures in the field in the North American business and the margins didn’t increase slightly like you thought. I was wondering specifically what kind of costs, where you’re seeing the costs. Is it diesel or lube oil or sea plumbing? What seems to be driving that the most versus your prior expectations?

Your guess is good, Kevin, you got the big three right off the top. Labor costs obviously continue to be an issue for everyone in this industry but in addition lube oil costs are beginning to creep up as you can appreciate with the price of oil so is diesel fuel for our vehicles and some of that tends to mask some of the cost reductions we’ve gotten through the synergies we’ve taken out for the merger. We’ve had cost pressure that continues on cost of our components and maintenance of our equipment continues to be higher than we had anticipated. That’s one of the projects we’re working on. Kevin Pollard – JP Morgan: As we balance these rising costs with your desire at least in the short term to not try and really push pricing, can you talk about how you think about balancing keeping pricing at the current levels versus passing some of these costs on to some of your customers? Have you seen some of your smaller competitors start trying to pass these costs on that might give you a little cover to work with there?

So far we haven’t seen anybody trying to pass the costs on which keeps the pressure on us of course and with some declining horsepower it just doesn’t seem like the time to go back to our customers with a change in the cost of the service that we’re providing. I would like to be able to recapture let’s say some of the costs that are particularly oil price related at some point in time as Exterran but I think it’s going to be late in the year before we’re ready to go talk to customers about our lube oil costs and our fuel costs. They have the same pressures so they’ll understand but I think we need to get more stability in North America first. Kevin Pollard – JP Morgan: Your guidance for slightly lower revenue in North America kind of suggests that you’re expecting lower utilization or lower average working horsepower, is that a function of the exit rate in Q1 or do you think you’re still going to see further declines in utilization there before it stabilizes?

A lot of that is the exit rate in Q1 coming into a full quarter of fruition. With 97,000 horsepower coming out of North America throughout the quarter some of that will be an entire quarter in the second quarter then you’ll see a reduction. Balanced out with some equipment going back to work in Q2 I think that our plan is for Q2 to have a much reduced erosion in the fleeting Q2 on our way to turning it around for the last half of the year as Michael said in his comments. Kevin Pollard – JP Morgan: Michael could you give us any more color on the size of the new facility at EXLP?

At this point we’ve provided some guidance that we expected the drop down to be a little bit bigger than the last, but we wanted to work within our existing credit facility. We think that’s the best way to go about doing that but the size of the transaction right now is basically still in negotiation between the two parties. Other than providing a little bit of color in what I just did we’re not going to provide more specific guidance about the size. Kevin Pollard – JP Morgan: Is it more than just the accordion feature you had on the existing facility?

No.

Your next question comes from Mike Urban – Deutsche Bank. Michael Urban – Deutsche Bank Securities: Sticking with the US for a little while, clearly some further erosion in the first quarter and then too soon to talk about anything showing up in the numbers across the board, with the initiatives you put in place so far is there anecdotal evidence that suggests you’re having an impact in terms of either getting customers back, keeping existing customers who might have been jumping during the merger process? Anything that’s feeling your optimism I guess that you’ll get this fixed?

Mike, I’m a little stung by the bit of optimism that I showed last quarter and then got surprised. It’s easy to see that new contract backlog is building in North America but we don’t see quite often and get surprised by our releases of equipment that offset that. That’s why we’ve guided for lower erosion in the second quarter and then build up in the second half of the year. We think we have the team in place. The first quarter was definitely confused in operations in the field by the ERP conversion which drew a lot of attention back internally trying to get that in place and now that’s been implemented and functioning well so hopefully we can get this turned around in the second quarter and prepare ourselves for a good second half. Does that answer your question? Michael Urban – Deutsche Bank Securities: Yes, yes it does. On the demand side clearly a lot of increased interest in more drilling activity, most of that being unconventional. Obviously there’s a lag before that hits your business. Would you see that positively impacting business? Is that part of the second half optimism or is that almost entirely driven by what you’re trying to do with your existing customer base?

It’s really more drive by what we’re trying to do with our existing base because we have continuous demand for unconventional growth plays that have been going on for quite a while. There are more coming no doubt and hopefully we’ll see a ramp up in the fall when some of the new plays begin to evolve a little bit more and some of the increased drilling programs evolve. But right now I think the focus on this is execution for Exterran.

Your next question comes from Bill Herbert –Simmons & Company. William Herbert - Simmons & Company International: Couple questions to follow on, on the rather oblique guidance for the drop down, I guess you guys have been consistently saying up until today that the next drop down was going to be considerably smaller than the last one. Now we’re saying it’s going to be a bit larger?

No, the only drop down that we did, Bill, was $230 million and that was in the universal [inaudible] William Herbert - Simmons & Company International: 270,000 horsepower

Yes. William Herbert - Simmons & Company International: My understanding was because of the catharsis in the credit markets that you guys were likely to do something smaller. Now that you have procured this facility, if you will, it sounds like you’re going to do something a bit bigger than that first one?

I think we were always pretty consistent with doing something bigger than that drop down and I think as we looked at the credit markets, obviously they’re more difficult than they were last summer and so sizing how much bigger it was I think perhaps that has come down a little bit. If you look at what is available under our facility, just to spell it out, credit availability under the existing revolver about $98 million and then accordion feature to expand that of about $135 million. We’re saying that we’re going to work within that framework of those debt resources. William Herbert - Simmons & Company International: So you haven’t necessarily established a new facility for EXLP?

We’ve basically added on through an accordion through the existing facility. William Herbert - Simmons & Company International: To ramp it up to $450 right?

We’ve added on to it, yes. William Herbert - Simmons & Company International: Not to belabor the point but I will, we expect then that the drop down is going to be greater than the 270,000 horsepower and greater than the $230 million?

All of that is subject to negotiation and that is between partners and EXH and it is probably too preliminary for me to say exactly what it’s going to be because I[‘m not going to be the one that’s going to be able to drive everything without the partner’s board. So that is up for negotiation and debate. That’s exactly what it’s going to be. William Herbert - Simmons & Company International: Secondly, Steve sort of shifting gears here a little bit, last call you framed the international opportunity and sort of evaluating 20 separate projects split evenly between Latin America and Eastern Hemisphere with total revenue potential of about $10 million per month. I think that’s what you said. Can you update us as to the opportunity landscape on that front?

I’ll give you half an update, I also said at the same call that we aren’t going to update that number, that that was a one-time indicator. Keeping that too fresh would be too difficult and also I think descriptive for some of the competition there. But by way of explaining maybe some progress we made since that call, it was only a few weeks ago I think, we have captured one of the projects, we have lost one of the projects and one of the projects has decided to re-bid the entire job and look at it again for equipment reasons. The projects are moving along, some are wins, some are losses, some are ties and in addition we have now put some new projects into the batch so we’ve continued to go out and find more opportunities. I guess the best way to describe it is we have a pretty full plate of international opportunities that are all in various stages of activity and unfortunately we don’t have anything really dramatic to announce at this conference call but we are close to several opportunities that hopefully by the time we get back here we can talk about more fully. William Herbert - Simmons & Company International: Last one with regard to North American margins, at least in my notes here I had sort of an expectation of a year-end exit range in the low 60% range for North America. Do you think that’s too aggressive now or do you think that’s realistic?

I think that we’ve pledged to slowly but surely improve margins over 2008 and they’ll be certainly better than they are at this point in time. I don’t think that at this point I’m ready to go to what the end of the year margins are going to be. We’ve got to let this new operating team get their feet on the ground and see what they can accomplish this quarter and maybe next quarter we can do a better job. William Herbert - Simmons & Company International: Michael, with regard to the overall MLP financing market which has been challenging for the past few months, do you see light at the end of the tunnel with respect to things becoming a little bit more accessible?

I do, I think the market is getting better and I also think that with Exterran Partners and Exterran as a parent and the way we finance things, I think we’ve got flexibility to pick our timing and our size and make sure that something’s going to be successful. So I think we’ve certainly accomplished I think something notable on the debt side and being prepared to do that and I think we feel pretty good about the equity side at this point as well.

Your next question comes from Robert Christiansen – Buckingham Research. Robert Christiansen – Buckingham Research: On the domestic margins, how much of that loss this quarter in margins domestically may have been related to project excellence? It was always my impression that you were servicing, expensing more for a while here to establish superior run rates so that your customers might be induced to continue to want to outsource. Can you divine how much the costs might have been related to that program?

If I tried to give you the costs they wouldn’t be divining. I think it’s so blended in US operations that it’s hard to discern how much of it is lube oil, how much of it labor, how much of it is parts, how much of it increased maintenance on equipment as a part of our move to Service Excellence. There is no doubt it has some impact on our operating costs and continues to have some impact on our operating costs as we spend more money upgrading units in hopes that we will be able to reduce operating costs in the future. We get much more disciplined on doing preventive maintenance as opposed to repairs. I can’t tell you at this point in time how much of that is on our cost structure that’s bothering our cost structure but I think all that needs to come into balance and I think we have some plans in place to do that, it’s just again, will take some time to do. Robert Christiansen – Buckingham Research: How much of the decline in horsepower was of a sale nature, of the smaller horsepower that you’ve been doing for a while and seems logical and how much might have related to impairment? I guess I’m working backwards to how much you might have lost in terms of market share absent that for competitive reasons.

The guys are looking through their books, but for Q1 there wasn’t a lot of horsepower that was purchased I don’t think. We had about 35,000 horsepower that was sold during the quarter. Robert Christiansen – Buckingham Research: And then you had some impaired, right?

Actually the impaired. Robert Christiansen – Buckingham Research: How much market share you might have lost for competitive reasons? I guess market share losses. Has it been competitive out there from who? Private firms that.

It has been competitive out there. We certainly have got the customers’ attention with the merger and they are obviously concerned when number one and number two come together. In addition to that or because of that I suspect some of the customers have opted to buy a little bit of equipment. We think that’s pretty well behind us but when they did, back many, many months ago deliveries were long and it’s now being delivered some of which has offset a little bit of our equipment and our competition has been doing a very good job of going to our customers and suggesting that they give somebody else a try. So there’s been little bits of erosion from a number of places but the difference in that 97,000 versus, and take away what was sold out of the fleet, is really utilization erosion which is why we’re down another percentage point in North America. Robert Christiansen – Buckingham Research: How much was compression in the fabrication backlog? I’m trying to look for it here in the press release.

If you break out the backlog, just round numbers, about half of the backlog is related to bilelli and then if you look at the rest of the backlog about 60% or so is compression, the rest is production and processing equipment. Robert Christiansen – Buckingham Research: Of that compression how much was US and how much might have been going to international? My point is, is the fabrication requests right now more from international or is it more from the domestic market?

It is a little bit more international. Robert Christiansen – Buckingham Research: Than it had been?

Yes, a little bit more than 50/50. I think it’s more like a 60/40 mix. Robert Christiansen – Buckingham Research: A final if I may, electric compression as opposed to using a Caterpillar gas fired engine are you involved in that? Because this Marcella Shale Play a number of the producers have said, hey it’s cold territory, it’s cheap electricity, they are tending to think about electric compression there. Are you engaged in that?

Electric compression, for the reasons you’ve just talked about, is not common in our business and the reason it’s not common is that most of our producers aren’t close to a power supply. Where they are, it is fairly common and we do build electric drive compressors for the customers that have that I guess luxury, we’ll call it and we’ll be happy to do that again for folks in the Marcella Shale or wherever else they are. It’s not a mystery to us. We certainly build a lot of it over our lifetime, not a big deal. Robert Christiansen – Buckingham Research: Do you have a local presence in Appalachia?

Absolutely. We’ve been in Appalachia for 30 years so we’re one of the larger players in that basin and have been there, as I said, a long time. Robert Christiansen – Buckingham Research: So that could be exciting a couple years from now?

It better be, yes.

Your next question comes from Sharon Lui – Wachovia. Sharon Lui – Wachovia Securities: In terms of the drop downs are you guys still aiming to finance the 60% equity, 40% debt?

Ultimately that is generally the ballpark of what we want to try to aim for a capital structure. Sharon Lui – Wachovia Securities: Your outlook for Q2 does that also apply to the partnership in terms of margin and utilization?

Obviously the utilization numbers are going to be quite different because they don’t have nearly the idle fleet that is up at Exterran with 91% utilization. So I don’t think that that’s going to be the same. If you look at EXLP generally from a horsepower standpoint it’s done a little bit better. Part of that has been customer mix, part of that has been the fact that new customers tend to gravitate towards the MLP as opposed to Exterran. Sharon Lui – Wachovia Securities: Directionally, the utilization I think you had expected Q2 to be down and do you expect utilization to be down at the partnership for the second quarter?

What we really talked about was working horsepower. The utilization numbers are a little bit harder to forecast because I don’t know what the equipment availability is going to be but we said that in the second quarter for all of Exterran we expect working horsepower to be down a little bit and I think that is probably a safe assumption with regard to the partnership but if you look at the track record the partnership has tended to do a little bit better than the overall company for the reasons that I mentioned. Sharon Lui – Wachovia Securities: In terms of distribution increases you guys had a very nice coverage ratio this quarter is the distribution policy going to be increasing the distribution concurrent with potential drop downs?

I think at this point of the game with regard to the partnership so much of the distributions are based upon drop downs and increase. We’ve really based future distribution increases in conjunction with those drop downs. That’s what’s going to be able to drive it but certainly being consistent with what we’ve said from the get go we believe that this is a tight business that can also have organic distribution increases with the growth of the business. It just happens to be something that Exterran is not doing a great job of with regard to general horsepower growth but as we mentioned we believe we’re going to get that turned around and back to doing what we did historically.

Your next question comes from Geoff Kieburtz – Citigroup. Geoff Kieburtz – Citigroup: I want to a comment you made Steve that a lot of the erosion in domestic utilization was not because new contracts weren’t coming in but the returns were surprising you. If we go beyond just the first quarter and look maybe over the last year or so is there a pattern to what’s behind those surprise returns?

To some extent there’s a pattern. There are areas where our field service has lagged a bit and we’ve been surprised to get returns and surprised by the field service lag. In some areas it’s been more customer driven from the perspective of they now had all of their equipment tied up with Exterran where they used to have two competitors so they would invite somebody else in to participate. So I think we’re sorting through all of those issues, Geoff. It’s kind of a blend of things and it’s by customer, by geography and everyone’s got a different story. Geoff Kieburtz – Citigroup: But in general those returns have then been replaced by a competitor?

In general that’s correct. Some of those returns however have just been end of well life or replaced by a purchased unit when the production has stabilized and they’ve elected to go with permanent compression. It’s a normal blend, I guess. Geoff Kieburtz – Citigroup: Your comment about being reluctant to push through some of the cost increases you’ve experienced, it seems like it changed from historically that the economics in this business that customers do a lot of this themselves that are exposed all those same cost increases and historically the contract compression spending remained pretty stable margins. What’s changed? Is it really the merger and the after affects of the merger or is there something else changing out there?

It’s the after affects of the merger, Geoff, in that as we’re losing horsepower in the US this does not seem like the time to be back raising a price to a customer when we’re trying to prove out our business model and trying to gain market share. As I said that’s a later in the year issue. Once we’ve proven ourselves and we’re regaining the position we had a while back, which we will, then we can go back I think and make a pretty good case on the cost increases because they know exactly what the costs are. And the fact that none of our competitors seem to be doing that either at this point in time does kind of limit us. Geoff Kieburtz – Citigroup: I forget who made the comment, but I think Michael you said that new customers tend to gravitate toward the LP. Why is that?

Just the Omnibus Agreement. If there is a brand new customer in essence to the Exterran family, it goes to the MLP. Geoff Kieburtz – Citigroup: So it’s internally driven as opposed to externally driven?

That’s basically the agreement between the parties and the Omnibus Agreement.

Your next question is a follow-up from Robert Christiansen – Buckingham Research. Robert Christiansen – Buckingham Research: You referred to I guess bidding for major oil companies. Does that include national oil companies? The reference to major oil companies means big private companies.

No, good catch. What we talk about there is more international oil companies, is what we refer to as majors. The national oil companies have been our customers for quite some time but we’re not beginning to see more activity with the international oil companies. Robert Christiansen – Buckingham Research: In Russia, you know they have this rule I guess, I don’t know where it is, but in terms of limitations, but the gas flaring has been an issue. Are you a solution there? Are you seeing inquiries there for stripping out liquids and preventing gas flaring? Are you involved in that?

That’s been part of our business model for a while as the world has been eliminating systematically flaring and also as the price of oil has come up, the liquids entrained in the gas have become more valuable. So both the compression to take the gas that couldn’t be flared before and either re-inject it or move it off to market and the processing equipment to strip whatever liquids might be in that gas for local markets, that’s all part of the infrastructure build in international in particular that we’ve been referring to that is so robust right now and is driving so much of the activity that we’re seeing. Robert Christiansen – Buckingham Research: I’m well aware of that but specific to Russia where there is still a very big presence and domicile if you will by Gazprom. Could you consider doing work for Gazprom? Is that a possibility given the nationalization approach over there?

We have been selling equipment in Russia for the last six, seven, eight years I guess and I would think that probably the majority of the compression in our size has been captured by our company over the years and we have worked for Gazprom plus a lot of their sister companies. To date we have sold equipment in country, we have not elected to contract equipment there. We have been building and selling and working with the Russians for quite a while. I would say that we don’t know exactly when they come to us and say they need compression what’s behind it all but it’s got to be a combination of market drive in that part of the world coming from Russian gas as well as flare elimination. Robert Christiansen – Buckingham Research: Should we look at a weaker dollar, Steve that has transpired here in the past six months as good for business for your company? Because you’re assembling things that you buy in US dollars and fabricate US dollars and then they’re pushed out and sold which you have dollars backing it? Is that something to think about?

Yes, it certainly helps us a little bit as opposed to maybe a European competitor that might be able to bid in an area like Russia. Other than that most of the world’s compressor supply is coming from US or Canadian companies so it probably helps us a little bit vis-a-vis the Canadians and the Europeans.

You have a follow-up question from Kevin Pollard – JP Morgan. Kevin Pollard – JP Morgan: On the international backlog you talked about of $60 million per year, when would the expected timetable for all of that revenue to be or for those projects to be started up and that revenue to be realized?

That’s all going to be revenue that comes on slowly but surely quarter-by-quarter over the next three or four quarters. Some of that will not be started up into 2009 but you’ll see little bits of it coming in every quarter as we report and then we’ll be talking about the change in the backlog or what the current backlog is every quarter so you get a feel for how much is coming after that and try to keep you posted on our activities that way.

I’d now like to turn the conference back over to Steve Snider for any additional or closing remarks.

In closing I definitely want to acknowledge the extraordinary efforts of our employees all over the world. We’re really proud of the accomplishments we’ve made in the last eight and a half months since the close of the merger and the talented team we have in this company is working hard and I am really looking forward to reporting our future success. It’s not to say we’re happy about some of the issues that we focused on today but we do believe we’re approaching the merger integration and improved service delivery model in North America in the right way for our long term success. We are frustrated that our North America performance has been below our own expectations to date and we are committed to turning things around in North America if you haven’t got that idea yet. I’m really confident we’re making progress in that area and we’ll be reporting better things to you in the future. Despite the challenges in North America we have a tremendous amount of good things going on today inside Exterran. We’re in the midst of an unprecedented amount of global energy infrastructure build out, some of which we just got done talking about and we believe we’ll provide growth opportunities for Exterran over the coming decade. We pulled together two strong companies to make one great company and we are the global market leader in many of our segments. We believe we have one of the best management and operational teams in the industry and we have an extensive service network which we believe can provide superior customer service at attractive returns for us. We have a strong and low cost capital base that should give us a competitive advantage in an asset sensitive industry like we’re in. With all these factors we are really excited about the future and remain confident that we’ll be successful as we go forward. So with those comments I want to thank you for joining us for today’s call and we’ll be back with you at the end of the second quarter. Thanks everybody.