Halliburton Company (HAL) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Halliburton's Fourth Quarter 2011 Earnings Release Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host today, Kelly Youngblood, Senior Director, Investor Relations. Please begin.

Good morning, and welcome to the Halliburton Fourth Quarter 2011 Conference Call. Today's call is being webcast, and a replay will be available on Halliburton's website for 7 days. The press release announcing the fourth quarter results is available on the Halliburton website. Joining me today are Dave Lesar, CEO; Mark McCollum, CFO; and Tim Probert, President, Strategy and Corporate Development. I would like to remind our audience that some of today's comments may include forward-looking statements, reflecting Halliburton's views about future events and their potential impact on performance. These matters involve risks and uncertainties that could impact operations and financial results and cause our actual results to materially differ from our forward-looking statements. These risks are discussed in Halliburton's Form 10-K for the year ended December 31, 2010, Form 10-Q for the quarter ended September 30, 2011 and recent current reports on Form 8-K. Our comments include non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures is included in the press release, announcing the fourth quarter results, which, as I have mentioned, can be found on our website. We'll welcome questions after we complete our prepared remarks. Dave?

Thank you, Kelly, and good morning to everyone. Before discussing our fourth quarter results, let me begin with a few of our key accomplishments in 2011. First, I'm very proud to say that this was a record year for our company, with revenues of $24.8 billion, operating income of $4.7 billion and with growth, margins and returns that led our peer group. To put this in perspective, our business has nearly doubled in size over the last 5 years, primarily from organic growth. From a division perspective, we achieved record revenues in both our Completion and Production and Drilling and Evaluation divisions, and I want to thank all our employees for their help in making it happen. The cornerstones of our strategy remain unchanged and include maintaining leadership in unconventional plays, participating in the deepwater expansion and impacting the decline curve in mature fields. This year, we commercialized key technologies consistent with these growth themes, and Tim will discuss them later. As the industry leader in unconventional shale plays, we performed the first shale fracs in numerous countries around the globe, including Argentina, Mexico, Saudi Arabia, Australia and Poland. We are now starting to invest more heavily in building out our pressure pumping footprint in the international marketplace. We are also continuing to invest in our deepwater business and have secured key contract wins in East Africa, Vietnam, Malaysia, Australia, China, Brazil and other markets and are building infrastructure to support this work. In addition, it's important to note that our service quality continues to be recognized by our customers, as Tim will also discuss. We believe this improving market position and service quality reputation will benefit us as new build deepwater rigs are scheduled to arrive in the coming years. Our customers are looking for deepwater alternatives that have the capability and technology, and increasingly, that company is Halliburton. And lastly, we continue to build our capabilities in servicing mature fields and supported that effort with some critical acquisitions in specialty chemicals and artificial lift in 2011 that enabled us to broaden the scope of our mature field offerings to our customers. The most significant of these was Multi-Chem. We expect that synergies and sales, manufacturing and distribution will enable us to deliver additional value to our customers and shareholders as we expand the global footprint of this product line. I'm very pleased with our results in the fourth quarter as we set new company records in both our North America and international operations. Revenues of $7.1 billion represents the highest quarterly revenue in the company's history, with North America, Latin America and the Middle East/Asia regions all achieving new record levels. Operating income of $1.4 billion was also a company record and was driven by strong performance in North America and the Latin America regions, where we had year-over-year revenue growth of 56% and 46%, respectively. Let me start by providing some commentary on North America. The shift from natural gas to liquids-rich plays continues and was quite apparent in the fourth quarter. The U.S. rig count grew 3% sequentially, with oil-directed rigs up 8% and natural gas rigs down 2%. The shift toward oil and liquids-rich plays are a direct result of the stability of higher -- of oil prices and higher operator returns for these resources. Completing these wells requires higher levels of service intensity due to advanced fluid and completion technologies and creates an additional opportunity for us to otherwise differentiate ourselves from the competition. We have highlighted for some time the dramatic impact that oil-directed horizontal activities has had on the North America market. For instance, in addition to natural gas rigs targeting liquids-rich plays, the oil rig count now represents more than 60% of the total in North America, a level we have not seen in decades. Our customers' sources of revenue has also shifted dramatically toward oil, with the sale of U.S. oil and liquids representing approximately 70% of total upstream revenue today. This compares with an approximate 50-50 split just 5 years ago. And our customer mix continues to shift toward IOCs, NOCs and large independents, who tend to have a more stable spending pattern and more sophisticated supply chain management and away from those customers who might be more financially challenged in the current market. We are also seeing a trend toward higher average footage drilled per well, up to approximately 7,000 feet from 5,000 feet just 5 years ago. And finally, today, reserve development demands 4x as much horsepower per rig as compared to 2004. So clearly, there's been a dramatic shift over the past several years, and all of this bodes well for a continuation of high demand in the North America unconventional markets. So what will that market look like going forward? The last time the breakeven price for oil development was so far below prevailing oil prices was back in the early '80s, when the rig count was more than double what it is today. And despite the vast amount of work we've done in North America in recent years, there's only been a modest increase in net oil production, as new supplies are barely offsetting declines for mature North America basins. As a result, we expect continued liquids-driven activity growth in the coming years, as our customers invest in their resources and optimize their development technologies, and we plan to continue to expand our capability and drive efficiency through technology and logistical improvements to enable this growth. Now looking at the results for the fourth quarter. Our North America revenue grew sequentially by 6% versus a 3% rig count due to strong activity in the Eagle Ford, Permian Basin, Marcellus, Gulf of Mexico and Canada. Despite this strong revenue growth, operating income declined slightly from the third quarter. And let me go over those reasons. First, our recent acquisitions and the associated M&A costs that went with them had an impact of approximately one margin point on our North America margins in the fourth quarter. Second, as you know, the Rockies and the Bakken are 2 areas where we have a particularly high market share, and both markets experienced some seasonal impacts yielding inefficiencies, particularly with our commuter crews. The third quarter is historically our most profitable quarter each year in these 2 particular areas, and this year was no different. The impact of the holidays was more pronounced this year in these areas, as customers chose not to compete -- to complete wells through the Christmas holidays. Thirdly, cost inflation continues to have a negative impact. There is a delay between vendor price increases and when we are able to pass through these increases to our customers. In the natural gas basins, this is becoming more difficult, and we plan to go back to our vendors for price relief in some areas. This will take some time. Fourth, logistics and proppant supply. While we have a very sophisticated logistics group, there are times when issues arrive that are not within our control. We experienced logistical and proppant supply disruptions in several areas in the fourth quarter, and this impacted the Bakken, Rockies, South Texas and the Permian, all of which had a negative impact on margins. And finally, we experienced inefficiencies associated with frac fleet relocations to address the challenges the industry is facing in 2012, and I'll say more about that in a few minutes. Also, spot natural gas prices are down 33% in the last 50 days due to the resiliency of natural gas production in a mild winter. In response, we have seen the U.S. natural gas rig count decline 9% over that same period of time, and this change is clearly impacting the industry as we move into 2012, as service companies' resources relocate to the oil basins. Now we've talked in the past about how we believe it is important to have a balanced portfolio of business in both dry natural gas basins and liquids plays because a large number of our customers have operations in both. Our strategy was to support these customers in the natural gas basins with a hyper-efficiency business model that went beyond just 24-hour operations. We stayed with these customers in the natural gas basins even as other competitors left to chase work in the oil plays. This strategy has worked well and deepened our relationship with these customers. Our understanding with them was that in return for staying with them in the natural gas basins, we would get their work in the liquids-rich plays as equipment became available. This strategy is now playing out to our advantage. As natural gas prices are falling to the sub-250 level, we are proactively working with these customers to now serve them in the oil plays as they shift their capital spend to liquids and away from natural gas. We have moved or are in the process of moving 8 frac fleets from primarily natural gas plays to liquids plays. This requires redeployment of people and equipment. It disrupts a very efficient operation, and as well, it is requiring us to make adjustments to our supply chain. It's important to understand that these fleets that are moving are not looking for work but in each case now are committed to an existing customer or one who we could not serve before and, in each case, has or will deplace a competitor in the liquids plays. So while beneficial to us in the long run, these moves do not come out and do not come about without a short-term impact on our margins. First, we lose the productivity of these hyper-efficient 24-hour crews as they move away from locations with a solid infrastructure and a higher level of expertise. Then when they start in a new location, they're not as efficient as they get used to new operating procedures and how the reservoir responds. And finally, there's a doubling up on some costs, as we generally have to use commuter crews while a local crew is changed -- is trained in the new operation. So we believe that these pressures that come from this on revenues and margins will be limited. The additional benefit we get from these moves is that even more of our revenue will be generated in the liquids plays, while we still have the ability to increase prices, which will help to offset inflation pressure. Furthermore, the shift to the oil basins requires more expensive materials, particularly gels and proppants, which are already in tight supply. Additionally, we believe that the movement of service capacity out of the natural gas basins will eventually help remove the overhang in natural gas supply. So with great success, we dealt with a number of these significant logistical challenges in 2011, and we see them being able to accommodate the tremendous growth that we see as we move into 2011, even though it's created some near-term uncertainty and pressure on margins. The concern about what will happen in the dry gas basins is a real one. However, there are customers who will continue to drill in these basins, as they have a low-cost gas basis, a hedge bought before the collapse of pricing or contracts to send their natural gas to markets where the pricing is better. These are our customers, and they will continue to need our services in the natural gas areas. And in most cases, we have a long-term contract with them that value the efficiencies we bring, so they can continue to make money even at lower prices. We have not yet exhausted the demand for fleets that we can relocate to those customers who want our services in the liquids basins, and we will continue to do that as necessary. We have established a great position in the U.S. market. And in these uncertain times, I believe that will pay off big for us. As we look at the market dynamics today and even apply a downside scenario to how it might play out, based on frac equipment adds as well as reduced gas drilling, which would accelerate the equilibrium in the market for pumping, it is clear to us that the strength of liquids demand will provide a cushion to equipment coming out of the dry gas basins. We also believe that there will be a net overall increase in rig count in 2012. Meaning that in our view, the increase in liquids-directed rigs will more than offset the decline in natural gas rigs. We believe a much more pessimistic scenario is currently priced into our stock, and we do not see that happening. In the Gulf of Mexico, we continue to see a gradual increase in activity levels with our fourth quarter revenue surprisingly now exceeding pre-moratorium levels. We believe we will see an increase in the level of permit approvals in 2012, leading to additional deepwater rigs arriving over the next several quarters. Margins for the Gulf are expected to improve but not to pre-moratorium levels until later this year or into next year as our customers adapt to new regulations. So while we expect some inefficiency and, therefore, a downward pressure on margins in the near term due to the shift in our geographic and commodity mix that I just discussed, we believe that the idea that North American margins will collapse is a ridiculous one. We believe increased activity from our customers due to support of liquid prices, good access to capital and continued increases in service intensity are very supportive of a healthy market in 2012. Keep in mind, we have also been spending money on improving our cost structure, as we outlined in our Analyst Day, to stay ahead of the competition. And finally, we remain focused on providing superior service to ensure that we are the provider of choice and to maximize the value for our customers. So overall, we are very optimistic about 2012 and fully expect that North America revenue and operating income will increase over 2011, although we could see margins normalize somewhat through 2012, and we'll have a better view of this absolutely as the year goes on. Now let's turn to our international results. Latin America had another outstanding quarter, posting sequential revenue growth of 9% compared to a rig count decline of 1%, and their operating income grew 24%. Mexico led the growth with higher drilling activity, consulting services and software sales. Also contributing to the stellar quarter was Colombia, with higher drilling activity, and Brazil. Compared to the fourth quarter of 2010, these 3 countries combined and grew an impressive 50% year-over-year. Our Eastern Hemisphere experienced 11% sequential revenue growth compared to a rig count growth of 3%, while operating margin improved to 13%, driven by year-end sales of software, completion tools and other equipment. Also contributing to the strong quarter were improved results in Iraq, Algeria and East Africa. We continue to show progress in the markets that have been negatively impacting our margins over the past few quarters. For instance, in Iraq, we are running 5 rigs today, 2 more than at the end of the third quarter. We expect to add additional drilling and workover rigs in 2012, which will enable us to be profitable as activity levels increase. Overall, we remain enthusiastic about the future of our Iraq operations despite the challenges we went through in 2011. Libya's production is coming back online, and although we have performed some minor work in the country, we are still awaiting well-defined operational plans from our customers. In Sub-Saharan Africa, we continue to see improvements in Angola and Nigeria. And while startup costs have negatively impacted operating margins in East Africa, we saw overall sequential improvement in this market. And lastly, we've been taking action over the past few quarters to improve profitability in our Europe/Africa/CIS region, and we've made substantial progress in our restructuring efforts and believe we are now well positioned to deliver improved profitability in these markets in 2012. We have been consistent in our outlook for our international operations. We anticipate international pricing will continue to remain competitive, particular in regard to larger projects. In 2012, we expect to see a gradual improvement, resulting from new rigs entering the market and increased customer budgets, which we believe will be skewed toward deepwater and international unconventional projects. With tight supply and demand fundamentals for oil and international natural gas prices that are often well above North America prices, we believe the drivers of the sustained activity in the Eastern Hemisphere are sound. So in summary, we expect to see our Eastern Hemisphere margins progress through 2012, with a full year average in the mid-teens, as new projects ramp up, new technology’s introduced and the negative impact of the areas we've mentioned previously continue to abate, which means that we should have Eastern Hemisphere margins in the mid- to upper teens by the end of the year. We believe that our growth prospects are so strong across all of our businesses that we are increasing our capital spending to the range of $3.5 billion to $4 billion in 2012. However, we do not expect to increase our pressure pumping horsepower additions beyond the 2011 levels, and we plan to spend -- to send more of this horsepower into our international markets. But we will, of course, maintain our ability to flex the capital as the year goes forward. So 2011 was a very successful year for the company with revenue growth of 38% and operating income growth of 57%. We saw record activity levels, and we will continue to expand on our market position. I believe we will continue to build on this success, which should put us in the unique position to continue to achieve our objectives of superior growth, margins and returns versus our competitors. I'll let Mark give you a little bit more detail.

Thanks, Dave, and good morning, everyone. Let me provide you with our fourth quarter financial highlights. Our revenue in the fourth quarter was $7.1 billion, up 8% sequentially from the third quarter. Total operating income for the fourth quarter was $1.4 billion, up 7% from the previous quarter. Our results in the fourth quarter included a $24 million charge in Corporate and Other related to an environmental matter. As a reminder, our third quarter results included an asset impairment charge of $25 million in the U.K. sector of the North Sea. Now going forward, I'll be comparing our fourth quarter results sequentially to the third quarter of 2011, excluding the impact of these charges. North America revenue grew 6%, while operating income declined 1% compared to the previous quarter. As Dave mentioned, the impact of seasonality, cost inflation and recent acquisitions negatively impacted our North America margins during the quarter. As a reminder, we historically see our first quarter results affected by weather-related seasonality in the Rockies and the Northeast U.S., where we have a high percentage of 24-hour crews, and it's typical to see a sequential revenue and margin decline in the first quarter. In addition, we're expecting some short-term inefficiencies as a result of rigs and equipment moving from natural gas to oil-directed basins. We're anticipating these issues will result in a sequential margin decline of approximately 100 basis points in the first quarter for North America. Internationally, revenue and operating income grew 11% and 37%, respectively, driven by activity improvements across all our regions and seasonal increases in softwares, completion tools and direct equipment sales at the end of the year. Our international margins improved to 15.2%. About half of the margin increase resulted from our seasonal increase in software and direct sales. The other half of the margin increase was driven by activity improvement in our other operations. Now for the first quarter of 2012, we're anticipating the typical sequential decline in international revenue and margins due to the absence of these year-end seasonal activities, as well as the typical weather-related weakness in the North Sea and Eurasia. As a reminder, this international activity decline has historically impacted our first quarter results by approximately $0.10 per share after tax, and we have no reason to believe it will be materially different in 2012. Now I'll highlight the segment results. Completion and Production revenue increased $303 million or 8% due to activity growth in North America, and operating income was essentially flat as improved international profitability offset a slight decline in North America. Looking at Completion and Production on a geographic basis, North America revenue increased by 7% from higher U.S. land, offshore and Canadian activity. Operating income declined by 2%, primarily due to the holiday downtime, cost inflation, acquisition impacts and fleet moves that Dave described earlier. In Latin America, Completion and Production posted a 5% sequential increase in revenue, while operating income grew by 19% as a result of increased stimulation work in Mexico and higher cementing activity in Colombia and Mexico. In Europe/Africa/CIS, Completion and Production revenue and operating income increased 15% and 10%, respectively, due to improved vessel utilization in the North Sea, increased cementing work in Angola and higher stimulation activity and completion tools sales in Algeria and Nigeria. In Middle East/Asia, Completion and Production revenue and operating income increased by 8% and 4%, respectively, due to increased work in Iraq, improved stimulation activity in Australia and increased direct sales within the region. In our Drilling and Evaluation division, revenue increased $213 million or 8%, and operating income was up 30% due to the year-end seasonality of higher software and direct sales, as well as higher activity levels in Mexico, Iraq, Colombia, Brazil and East Africa. In North America, Drilling and Evaluation's revenue and operating income were up 4% and 2%, respectively, due to higher wireline and drill bits activity in both the U.S. land and the Gulf of Mexico, as well as increased software sales in the U.S. and Canada. Drilling and Evaluation's Latin America revenue and operating income increased by 11% and 27%, respectively, primarily due to higher activity levels in Mexico and increased testing and subsea work in Brazil. We also benefited from strong project management activity in Mexico on the Alliance 2 and Remolino projects. In the Europe/Africa/CIS region, Drilling and Evaluation revenue and operating income were up 5% and 27%, respectively, due to increased wireline and directional drilling activity across the region, along with the seasonal year-end increase in software sales. Drilling and Evaluation's Middle East/Asia revenue was up 17%, and operating income was almost 1.5x greater than prior quarter levels due to increased direct sales in Asia and higher drilling activity in Iraq. Now let me address some additional financial items. Our Corporate and Other expense included approximately $23 million for continued investment in our initiative to reinvent our service delivery platform in North America and to reposition our supply chain, manufacturing and technology infrastructure to better support our projected international growth. These activities will continue in 2012, and we anticipate the impact of these investments will be approximately $0.02 to $0.03 per share, after tax, in the first quarter. In total, we anticipate that corporate expenses will range between $95 million and $105 million per quarter during 2012. In November 2011, we issued $1 billion of senior notes. This new debt issuance will increase our interest expense by approximately $10 million per quarter, and we're projecting overall interest expense for 2012 to be approximately $75 million per quarter. Our effective tax rate was 33% for the fourth quarter and 32% for the full year. Looking forward, we currently expect the 2012 effective tax rate will be approximately 33% to 34%. And finally, we expect depreciation and amortization to be approximately $1.6 billion during 2012. Tim?

Thanks, Mark, and good morning, everyone. I wanted to provide some additional detail on the accomplishments that Dave alluded to and some of the technologies which not only have made a substantial contribution to our success in 2011 but will, we believe, underpin our focus areas for growth in unconventional, deepwater and mature assets in 2012. In the North America unconventional market, we've made great progress in deploying elements of our frac-of-the-future strategic initiative. We're rolling out our first series of Q10 pumps that have demonstrated significant reliability and maintenance advantages in field testing over our current fleet, already generally considered to be the best in the industry. Aggressive deployment of SandCastle storage and advanced dry polymer blenders in 2011 is expected to also provide ongoing improvements in capital efficiency and environmental performance. We've been particularly pleased with the performance of our GEM wireline analysis tool, which offers rapid evaluation of complex petrophysical properties, called "Shale Expert." It's been widely used in unconventional fields in the U.S. and internationally. We introduced our new RapidFrac sliding sleeve system that provides our customers with a dramatic increase in efficiency for the completion of horizontal unconventional reservoirs. We were also the first to deliver a cemented version of this technology. We realized a 10% reduction in crew size this year, and we expect ongoing improvements as we increase remote job monitoring and complete the deployment of our field mobility program, which will deliver enhanced operations and logistics efficiency. So in total, we believe our frac-of-the-future initiative will make us the most cost-effective service provider in the industry. We expect it to be fully rolled out in North America by the end of 2012 and will serve as a platform for our investment in international unconventional growth too. We continue to feel positive about international unconventionals. Customer consulting agreements have given us an opportunity to screen some 150 worldwide unconventional basins and 60 in detail. We are very encouraged by the properties we see in many of these basins and are responding accordingly with capital investment. Drilling on LWD technology deployment moved rapidly in 2011. Geosteering activity to optimally place wellbores in reservoir sections was up 75% year-on-year, driven by unconventional and deepwater activity. Much of this was based on our award-winning ADR deep-reading resistivity technology. Sampling technology while drilling has had a special emphasis for us. Our recent GeoTap IDS run offshore was used to gather over 50 pressure and multiple-reservoir fluid samples during drilling operations; an industry first. This allowed the customer to save over 80 hours of rig time and eliminated the need for a competitor's wireline run. We also set numerous records in high-pressure, high-temperature applications in 2011, both for our wireline and drilling technologies. And we continue to see new wins based on this differentiated technology, as our customers increasingly exploit deeply buried reservoirs. The exciting worldwide launch of DecisionSpace Desktop in 2011 was very well received in the market and contributed to a record profit year for Landmark. Over 1,600 individual licenses were established in the first year, and 46 of our 50 largest customers have either migrated or are in the process of migrating their data to the DecisionSpace platform. Integrated Project Management activities are on a steep upward trajectory. Despite a slow start in Iraq, revenues for our Project Management segment nearly doubled from 2010. We see this as a major growth platform, and the pipeline in 2012 is strengthening notably in mature assets. So while we've been pleased with the growth of the technology portfolio and its ability to underpin our top line and margin growth in 2012, we're also very focused on execution and service quality. We're pleased with our performance this year. For example, Sperry drilling and wireline rates of nonproductive time continue to strengthen by 24% and 26%, respectively, from 2009 to 2011. And we continue to receive positive customer feedback, including a top performance review from a European IOC for formation evaluation. The combination of fit-for-purpose technology with excellent execution provides us a strong foundation for 2012 growth. Dave?

Thanks, Tim. So obviously, a lot of moving parts this quarter. Let me summarize what I think should be the takeaways. One, we do not believe that there will be a collapse in margins in pressure pumping in the U.S. Therefore, our revenues and operating income are expected to increase in 2012 in North America. We expect our revenue growth will be in excess of the rig count growth in both the Eastern and Western Hemispheres. We expect our deepwater revenue growth will be in excess of the deepwater rig count growth, while we continue to earn from our customers kudos for our distinctive service quality. And although it will have a short-term impact on our margins, we are proactively moving equipment from dry gas basins to liquids plays, and this equipment is immediately displacing competition. We expect our Eastern Hemisphere margins to return to the mid- to high teens by the end of 2012, as we gain traction on new projects and growing our revenue faster than rig count. And lastly, our positive view of the market supports a capital spending of $3.5 billion to $4 billion. But let me reiterate, pressure pumping horsepower additions are not expected to increase over 2011, and we believe more of those will go to the international markets. So let's turn it over to questions at this point.

[Operator Instructions] Our first question comes from James West with Barclays Capital.

A quick question on -- so your North American margins, you mentioned another 100 basis points down in 1Q. Do you expect a -- further, I know you don't expect a collapse but a further deterioration as we go into 2Q, 3Q, or is that where we start to stabilize out? And I guess a follow-up to that is kind of what should normalized margins be in North America?

I think the answer is at this point, James, that it's too early to tell. Obviously, we said in our comments, we look at the gas market's changes right now with some level of concern. But for the time being, most of those rigs are shifting from dry gas to liquids-rich basins. And as long as the rigs continue to shift, then we should be able to shift equipment. And while there might be some temporary margin impact, we should be able to get back to some level of normalized margins once the cost blip passes. But right now, I think it's still a little bit too early to tell.

Okay. And then can you just, Mark, remind us what kind of contract coverage you have for the pressure pumping equipment you have in North America today and then for the incremental capacity you have coming in this year?

Yes, James, this is Dave. All of our equipment that we have out there today and all that we anticipate bringing out in 2012 is already allocated to a specific set of customers. So none of it will be sort of in the open speculative market.

Our next question comes from Brad Handler with Crédit Suisse. Brad Handler - Crédit Suisse AG, Research Division: I guess I'll stick with North America as well, please. If the -- is there -- and ultimately that sense of where margins can go, if you're positioning assets more in liquids markets, what does -- what implications does that have on 24/7 operations once they're -- once you're doing what you think they should be doing? And maybe just conceptually then, if you have more pricing leverage than you've had in the last 6 months, just talk to us a little bit about where you think sort of the margins can -- let's strip out a couple of things, if you will, but can margins get back to above levels were you saw, say, in the third quarter?

Well, I think, obviously, as we -- as they shift into the oil basins, the opportunity to go toward 24-hour operations improves. Right now, activity is still fairly robust in those markets, and there's a clear shortage of people and equipment, as well as some of the supply chain issues that we find. And based on all the reports that we get from our guys in the field, we're continuing to get some pricing improvements in those oil- or liquids-rich basins. The problem, I think, that we face as we look forward is what will inflation do? As Dave commented, we're going to have continued challenges with logistics, with the supply chain moving proppants and gels and other things into those basins because they're in short supply. And we're fighting back inflation as hard as we can. Most of the price increases that I think that we're being able to achieve right now are serving to basically offset that inflation. We're going to have to work hard, as Dave commented, to really push back and see if we can get some relief from some of our suppliers as things soften in the gas basins. But we'll have to continue to work to make sure that we can get all of that passed through with the price increases that we get. So I think, as I've said, it's a little early to comment as to how much we can move pricing on a net basis, nor -- I just can't speculate at this point whether we'll be able to go back and get them back above those levels that we had in Q3 or even higher. Brad Handler - Crédit Suisse AG, Research Division: Understood, and I appreciate the color. As a follow-up, related -- coming back to pricing but maybe touching on a couple of things slightly differently, can you comment on price -- your pricing realizations recently in natural -- in dry gas basins? And then actually, can you give us some color on nonfrac-ing pricing in the U.S. as well?

This is Tim. Clearly, in the dry gas basins, there has been significantly more pressure than there has in liquids basins. I think that one of the things I tried to sort of outline for you here just on the call is a few of the key technologies, which are giving us an opportunity to extract some pricing realization pretty much across the board from drilling evaluation through to -- Drilling and Evaluation through to Completion. So there's leverage, I think, in North America to do that. That's the technology side. And as Dave and others have alluded to, we're also working hard on the cost efficiency side, investing substantially into an effort to lower our cost of delivery. So I think we've got a couple of tools in our chest here to -- in our war chest here to ensure that we minimize the impact of the transfer from dry gas to liquids basins, and then once there, have the tools to make sure that we get value for what we're delivering. Brad Handler - Crédit Suisse AG, Research Division: Fair enough. But absent the -- and I'll let others go. Absent the technology opportunity set, in nonfrac-ing-related activity, say, in -- also in liquids-rich basins, for example, are you seeing -- whether it is in coiled tubing or whether it's in your drilling suite, are you seeing pricing opportunities like-for-like products today?

There are some pricing opportunities. I think completions would be a bright spot. Obviously, with the introduction of RapidFrac, I would say that. And to use a negative example, obviously, as you move out of some of the deeper, hotter dry gas basins like the Haynesville, where high-temperature, high-pressure tools have been under great demand, there's less demand for those in liquids-rich basins. So there's a couple of pluses and minuses for you.

Our next question comes from Jim Crandell with Dahlman Rose. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: Another question on North America. David, seems like one of the reasons for your success in North America is that you've been able to get your customers to take at least 4 other product lines for new frac spreads when you contract with them for frac equipment. Your competition says this will change when things come back into balance. Do you see it changing? Or do you think this can be a somewhat permanent feature of the business?

No, I think it's a -- I think it's more of a permanent feature of where we see the market. We were able to use the leverage of the frac fleet and still continue to use the leverage of the frac fleet -- don't get us wrong that we lost it, it's still there -- to bring some of our other product lines along. What we've been able to do is prove to our customers that by integrating those products together, with a frac, either through an integrated completion or integrated drilling, that there's actually a benefit to doing that. And therefore, our customer gets a well down faster, cheaper, more efficiently or more quickly. So I don't see the world going back to that because I think we've been at this long enough to prove the benefit of that strategy out. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: And my follow-up is an international question. And in your opinion, will increased demand alone start to be the catalyst that gets pricing to improve on large tenders? Or will it take a change in mindset by at least one of the major companies in the business?

I guess our planning assumption at this point is it's going to take an increase in demand overall. I mean, I think that, clearly, there are situations where service quality and technology can come to bear, that might help us in pricing. But our planning assumption is that the competition -- our competition is continuing to price very, very aggressively to prop up their share positions. And so we're continuing to battle hard on that front, and that means that it's in our -- it's our responsibility to execute well and to continue to roll out technologies to make sure that we can improve our margins and improve our returns over time, at least for the foreseeable future. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: Got it. Okay, Mark, just one more quick one. Your international contracts, if you have a-year-or-2 contracts for your frac equipment, do they have a clause which allows the customers to suggest a lower price to you or to ask for a lower price and you then consider it?

No. They typically don't have a clause that allows them to consider a lower price. A number of them have clauses that allow them to step away from the contractual arrangement after some period of time, and there are usually some penalties and make-wholes that are associated with that. What we're seeing in a number -- as Dave alluded to, when they begin to shift equipment, there also is a discussion of them shifting the arrangements to continue to work with them as the rigs move to the liquids-rich basins.

Our next question comes from Bill Herbert with Simmons & Company. William A. Herbert - Simmons & Company International, Research Division: With regard to your Eastern Hemisphere margins or international in general, if we're looking at a $0.10 hit quarter-on-quarter Q1, due to reasons that you mentioned, which are largely seasonal, are we looking then for the balance of the year in order to hit your mid-teens target on the Eastern Hemisphere front for the year up 200 or 300 basis points per quarter as 2012 unfolds at least?

I don't want to set specific expectations on that, but yes, I mean, I think when you do the math, that's generally how it's going to need to work. William A. Herbert - Simmons & Company International, Research Division: Okay. And then with regard to your deployment of pressure pumping internationally and that's going to outpace the deployment of the domestic -- of assets -- of frac-ing assets in North America, is there -- or so is that international deployment, is it at this juncture trying to capture growth option value? Or is it specifically correlated with project ramps, which you've been contracted for or you're in sort of a specific dialogue with customers?

No, I think, Bill, it's really the latter. I think the -- if you look at the spaces that we enumerated, where we've done shale fracs last year, those -- you got to think of those as really exploration plays still. But we are having enough discussions with enough customers in those geographies to indicate to us that the demand will be there for that equipment. And similar to what we saw in the U.S., the demand for additional horsepower to do these shale fracs is there. So typically, where the investment is going is to augment the horsepower that we already have in place in these countries to basically take advantage of and have adequate horsepower on standby to be able to do the larger shale fracs versus maybe conventional work we've done there in the past.

Hi, Bill. This is Mark. I want to just make sure we correct a statement that you said. We weren't saying in our comments that we're sending more horsepower to international than we are into North America in 2012. We're just sending more than we -- to international than we sent in 2011. Higher percentage, okay? William A. Herbert - Simmons & Company International, Research Division: Yes, good. And then one more for me. Mark, I'm not sure if you addressed this with regard to your guidance, but corporate expense for 2012, how should we think about that?

Well, we should run probably in total about $95 million to $105 million per quarter. And we did say in the first quarter, yes, there's going to be $0.02 to $0.03 of -- on an after-tax basis of cost that will be for these corporate initiatives, and that it probably will run in about the $0.02 range for the remainder of the year on an individual quarter. So that's a large part of why the corporate expenses have stepped up on a year-over-year basis.

Our next question comes from Waqar Syed with Goldman Sachs.

I just want to follow up on the international shales as well. A year ago, when I've asked you a question about how many rigs may be working in international shale, I think at that time, the number was maybe in the 10 to 15 kind of range. How has that number changed now in the last 12 months? And where do you expect that number to go in the coming 12 months?

Waqar, this is Tim, and I'll use an example to sort of maybe help with that, Latin America, which has got quite a lot of opportunities in the combination of Mexico, Colombia and Argentina. And it seems to us that the opportunity continues to grow. In 2012, it sort of feels to us like there's somewhere between 75 and 100 wells which will be drilled for shale activities in Latin America. And just if we put that in perspective with respect to a Haynesville, for example, which is just sort of about 99 rigs or thereabouts at the moment, I mean, clearly, if you divide that -- or multiply that 99 rigs by 3 or, let's say, 4 to 6 wells per year, we're dealing with a significantly smaller opportunity today. But the opportunity is growing and, as David alluded to, we're in the sort of primarily exploration appraisal phase, low horsepower requirements, primarily vertical, now shifting to horizontal, where horsepower requirements are doubling, as well as an increase in activity. So we think 2012 is a pretty good transition year for unconventionals, and we'll see the most significant uptake in '13 and '14.

Okay. And now this is just Latin America. How about some of the other markets, Europe or Asia?

Well, yes, obviously, similar pictures there, too. We're just using Latin America as an example for you, and there are emerging opportunities around the globe. As I alluded to earlier, we’ve had the opportunity to do some basin evaluation work of some 60 basins in detail, and those evaluations are not escaping our customers either. So we're going to see a very positive trend here.

Okay. Now would it be fair to say that when pressure pumping trucks were traditionally being employed internationally for, let's say, cementing and maybe acidization [ph] jobs, as they shift to fracturing, the revenue potential per crew could increase maybe 10 to 15x, is that fair to say? Or 10x or so?

It's not math that I've necessarily done, Waqar. I don’t know that we could say right now. There clearly is a substantial revenue pop. I mean, the difference normally in a horizontal well in the U.S. that's frac-ed versus a conventional well’s almost 2x. So yes, you think about the entire revenue opportunity, it's going to step up quite dramatically if that becomes the norm outside the U.S. as well.

Our next question comes from Angie Sedita with UBS.

Dave or Tim, in the liquid basins on pressure pumping, can you give us an idea today of what you're seeing in wait time for frac crews today versus 3 months ago, versus 6 months ago?

Obviously, we're dealing specifically with the liquids-rich basins here just to sort of to -- obviously, dry gas is different. But I think that we can -- based on the reports from our field guys, we're still very heavily booked through Q1, which is pretty much as far as we ever look out. So that, to us, is a good indication.

Okay. And then given that you're mobilizing equipment from your gas basins into the liquid basins, I assume others are doing the same. Could we reach a balanced market in the liquids basins earlier than originally expected?

I think, as Dave alluded to, we continue to expect to see an increase in rig count. And as you have noted yourself, probably our customer base is striving to balance their dry gas and liquids-rich exposure, and we're seeing a significant shift, if you like, from their dry gas element of their portfolio to the liquids element of their portfolio. So it's not just a function of individual customers stopping activity. It's the transference of activity. And also, we tend to get higher service intensity in liquids-rich basins, which, obviously, is beneficial in terms of the overall revenue picture.

Very, very helpful. And finally, just you talked about mobilization and you were talking -- speaking earlier about the cost and logistic issues, and it seems like you're still getting your head around will that continue through Q1 and into Q2 and the time horizon. But at least on the mobilizing of 8 crews from the gassy plays to the liquid plays, when will that be completed by? And from what regions are you moving equipment from? And what regions are you moving it to?

Well, that will be completed this quarter.

Okay. And then to what region?

Into the -- primarily into the Rockies, the Niobrara, the Bakken, the liquids part of the Marcellus and a couple of other areas that maybe haven't hit the radar screen yet.

Our final question comes from David Anderson with JPMorgan. John David Anderson - JP Morgan Chase & Co, Research Division: Can I just get a little clarity on your capacity additions in North America on pressure pumping? You're just growing at a slower pace in '12, is that -- or is it going to be flat versus '11?

Well, the amount of horsepower that we will be producing is going to be flat on a year-over-year basis. There'll be more going into international than we did in 2011, which then means that there will be a fewer amount of horsepower going into North America. The numbers go up on a year-over-year basis because of the manufacturing of the Q10 pump, which is in full production as we speak, and then as well as the addition of other kit to go along with that, the replacement of blenders and the SandCastle and other equipment, that's part and parcel to our frac-of-the-future strategy. John David Anderson - JP Morgan Chase & Co, Research Division: Now should we interpret this as your views that the market is getting closer to being in balance? Or is this just -- or is this somewhat of a reaction to what's happening in natural gas? How should we interpret that?

I think one of the things that we should respond to there is the fact that, particularly with the Q10 pump and some of our other capital investments that Mark mentioned here, the SandCastle's ADP blenders, et cetera, much more efficient set of assets. And the Q10 pump, in particular, is going to be very substantially more efficient than the current fleet. So we just -- we'll not need to put as many assets into the marketplace to cover the same territory. John David Anderson - JP Morgan Chase & Co, Research Division: Okay. And I guess one last question. People have been asking about artificial lift for the last 5 years, and you finally do an acquisition on Global Oilfield Services. Can you talk a little bit about it? Does this fully address your needs in artificial lift? And can you talk a little bit about kind of the strengths of this business and where you think you need to build out more?

We certainly have talked about artificial lift for a long time, specifically ESPs. And Global is an opportunity for us to enter that segment, for us to extract knowledge and continue to build that business. It's a relatively small business today and one which we have a long horizon on to build its capability and expand it into other areas of artificial lift, but pleased to have it under our belt.

Okay. Thanks, everybody, for your participation. And Sean, you can go ahead and close out the call.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference. You may now disconnect. Good day.