Yes, thank you, Christine. Good morning and welcome to the Smith International fourth quarter 2007 investor conference call. I am Doug Rock, Chairman and CEO of Smith and speaking today are Don McKenzie, who is President of M-I SWACO; and Margaret Dorman, our Senior Vice President and Chief Financial Officer of Smith. This morning Margaret, Don, and I will talk for about 30 minutes and then we will have another half hour to answer your questions. So, that everyone has a chance to ask questions, please ask no more than two questions at time. As time permits, you can re-queue and ask more questions later in the call. Now, let's talk about Smith's fourth quarter 2007 results. Fourth quarter 2007 earnings per share grew 17% year-on-year. Once again, revenues, particularly Eastern Hemisphere and Latin America continue to grow at a brisk pace. Company-wide, fourth quarter 2007 revenues were up 15% year-on-year and 2% sequentially. But looking at the Oilfield segment revenues, which excludes our distribution business, revenues were up 5% sequentially and 19% year-on-year. Oilfield segment Eastern Hemisphere and Latin American fourth quarter 2007 revenues combined were up 7% sequentially and 28% year-on-year. Eastern Hemisphere revenues were up 9% on a sequential quarter basis. However, our central operating issue is margins, which Company-wide were flat year-on-year and down 10 basis points sequentially. We had two major problems in the fourth quarter, which dampened margins. One problem was Smith Services and one with M-I SWACO. The larger of the two problems was with Smith Services, which saw sizable decline in higher margin business in the U.S. Gulf Coast due to the fall of jack-up rig business. According to ODS-Petrodata, average jack-up activity in the U.S. Gulf dropped 19% between third quarter 2007 and fourth quarter, and it’s down 28% year-on-year. This…

Thank you, Doug. Good morning. I am going to discuss M-I SWACO. First, I will make some overall comments addressed the deepwater market, new technologies, and the individual business segment. Fourth quarter revenues for M-I SWACO were $1.1903 billion approximately 7% higher than the third quarter of 2007 and 21.5% higher than the fourth quarter of 2006. This is our fourth billion dollar quarter and revenues have now increased 21 consecutive quarters. Rig activity as measured by the M-I Global rig count increased 1% from the third quarter to average 4,436 rigs. The worldwide rig count increased 5% in Q4 as compared to the fourth quarter of ‘06. Eastern Hemisphere revenues grew 10% sequentially and now account for 58.4% of total M-I SWACO revenue. Latin America revenue grew 2.8% sequentially and now accounts for 13.5% of total M-I SWACO revenue. North American revenue grew by 3.8% in the quarter and North American revenue now accounts for 28.1% of the total revenue. Total offshore revenue for M-I SWACO was $577.8 million in the fourth quarter. This is an increase of 8% from the prior quarter. Now, let’s look at deepwater. The average number of rigs operating in the U.S. deepwater market increased 1% in the fourth quarter. Rig count engaged in drilling and completion of operations averaged 34.1 units. The increase of 0.3 rigs from the third quarter was primarily due to the late quarter mobilizations into the Gulf of Mexico from South America. Of the 34.1 rigs, 28 were engaged in drawing operations, while 6.1 rigs were engaged in workover and completion operations. M-I SWACO serviced an average of 18 of the 34.1 rigs as compared to 17.8 rigs in the third quarter and generated revenues of $68 million. This is an increase of $14.1 million from our U.S. deepwater…

Good morning everyone. Thanks Don. As we noted in our release results for the December quarter were on the lower ends of our expectations. Our Oilfield revenues improved 5% over the September 2007 quarter, and related after tax earnings grew 2% despite the fact that offshore activity levels were down 5% sequentially and overall global growing market was flat. Lower revenue volumes and then inclusion of cost to relocate, our U.S. distribution center resulted in lower distribution segment earnings influencing to some extent the consolidated earnings reported for the period. Sequential earnings growth in the Oilfield segment was limited impacted by the loss of higher margin U.S. Gulf Coast revenues in Smith Services and to a lesser extent lower profitability levels in Mexico driven in part by the severe flooding experience in Villahermosa last quarter. Despite reporting flat period-to-period consolidated earnings, we did have a number of positives in the period, continued expansion in our Eastern Hemisphere business, strong results from the drill bit operations, and sizeable free cash flow generation, just to mention a few. I will finish up my prepared comments this morning outlining the quarter’s financial details in more depth. To summarize, Smith reported net income of $167 million on revenues of $2.3 billion, which translates into year-on-year earnings growth of 17%. Oilfield segment revenues totaled $1.77 billion for the fourth quarter, $85 million or 5% higher on a sequential quarter basis. The period-to-period revenue improvement was reported in the M-I SWACO operations influenced by $43 million in growth in offshore revenue volumes, driven by increased customer spending in the North Sea, Middle East, and the U.S. deepwater market. Additionally, the really bright spot for the quarter was the former Soviet Union. The FSU region grew 28% on a sequential quarter basis and 52% year-on-year, impacted by…

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Ken Sill from Credit Suisse. Please go ahead.

Yes. Good morning.

Good morning, Ken.

I want to dig a little deeper into your comments on pricing and expenses in North America. I mean, you are guiding to the rig count being down a little bit. Is that translating into any decrease in the rate of cost inflation in North America?

Obviously, with the rig count down that put some pressures there and as I mentioned our revenue per employee was relatively flat where it would have been going up. So, we are trying to get that more into balance. But we think we are getting… I think you would have to talk product-by-product. We see better margins on the bits. They are being more tested on the tubular business. But overall, as Margaret mentioned, I think the margins are holding up.

But on the cost side of things, obviously, oil prices which affect you guys. What have you guys seen on the cost side? Are the pressures getting a little bit easier in North America versus international, are they still--?

Not really because the majority of our costs are people related. And the people costs are going up… people and people related costs are almost 60% of our costs. There… those are still going up in the 4% kind of range on the worldwide basis.

Okay. So, that hasn’t really changed at all.

Right. That’s changed, not at all.

Okay. And then finally, just related… how do you see the U.S. and Canadian rig account playing out over the course. Is are you calling down North America, with U.S. starting out pretty much flat with where we were, you could kind calling for midyear downturn in the U.S. or--?

Not necessarily downturn, but if it stays relatively flat toward where it is now and Canada doesn’t come back to the extent that did last year. I think the comparisons right now for the first quarter will be reasonably flat, but then I think as we get to the bottom part of the year, the backend, we see it being somewhat negative. We are talking negative in a couple percentage kind of the range not usually, but really enough to bring worldwide average rig count improvement just across 2%. Because the majority rigs in the world are in North America because of all of our land drilling. So, it’s a disproportion amount of the rig count compared with spending.

Okay. Thank you.

You are welcome.

The next question comes from Jim Crandell from Lehman Brothers. Please go ahead.

Good morning, Doug and Margaret.

Good morning, Jim.

And Don. Doug, that three of your major competitors have all estimated topline growth for international in 2008. You want to take a shot at what you think your international revenue could grow ’08 versus ’07.

Well, let me give you some numbers. I think the Weatherford’08 versus ’07 was around 34%, we were at 32%. Halliburton if I get the numbers correctly was at 25%, I believe. Schlumberger was in the 30% range. I wouldn’t give you an exact number. But I would say that we would certainly grow on the upper end. I think Baker’s numbers are probably a little bit lower than some of those. Well, they don’t announce until tomorrow. So, my guess is when we are done, we will be in the upper range of that whatever occurs in 2007. We think spending will be up in Latin America and Eastern Hemisphere in the 15% range, and we should certainly grow north of that.

Okay. So, you think in ’08 that your growth will be in the higher end of the oil service companies on international revenue?

That’s correct. And both in 2007 versus 2006 and the fourth quarter, it was. It is in the higher end. So, it’s just a continuation of where we are.

Okay. Doug, so what extent that does M-I and maybe… will M-I benefit from the large IPMs being… that are going out now by Pemex for 2008.

Jim, this is Don McKenzie. We… I think in the third quarter, we announced that we had a substantial number of contracts that were both with Pemex and IPM in Mexico. And we participate in virtually all of the IPM contracts from fluids and drilling waste management perspective around the world, both in Mexico and Saudi Arabia, Russia, and whatnot so. That is a good piece of business for us and we have got a very good working relationship with Schlumberger.

Although, it’s large, it’s still not a largest single customer where the large integrated oil companies and national oil companies our largest customers. So, it’s maybe in the 5% range and revenues may little bit less right now.

Don, you mentioned about your good relationship with Schlumberger and on their contact. Are you also the fluid supplier for the big Halliburton and IPM contract?

Not at all. No, they typically would bring their fluids company with it, Jim.

Okay.

That’s what we would like to be.

Lastly, Doug, could you talk to acquisition strategy and here a lot of your competitors, they are saying they expect private equity will be less of a competitor here going forward, perhaps because of the democrats taking control there might be a less favorable acquisition environment going forward. Is this something that moved up pretty significantly on your radar screen for ’08?

No. Because we are typically doing more bulk on type acquisitions, which are technology based and they are typically the ones that we are looking at ate more Eastern Hemisphere and Latin America where business is strong. I wouldn’t preclude they are being certain assets in North America that if we could get them at a good value. But we don’t really see the technologies that we are looking for there. So, unlike the items that are read by the competitors, we don’t see a major change. We still have a good deal flow, but we don’t think the current requirement has enhanced the prices at all for what we are looking at.

Okay. Good. Thank you.

You are welcome.

The next question comes from Dan Pickering from Tudor Pickering Holt. Please go ahead.

Good morning.

Good morning, Dan.

Doug, you mentioned incremental margins would expand, but slower than they have in the past. As I look at kind of reported results here, your incremental for the Company on average have been any where from kind of 20%... 22%, to 25% 26% 27% we are going to be at the low-end of that range as we step into 2008? Just as you see the mix et cetera.

Dan, we have talked about the fact that year-over-year Oilfield saw a 100 basis points of margin growth. So, I think, what we are trying to lay out on the table is the fact that we expect to see margin growth in the Oilfield unit ’07 to ’08. My guess is maybe it’s half of that, but we still expect to see margin growth at Oilfield units.

Yes, what we are saying is that in the prior five years we are averaging in the 200 basis points plus. So, it’s not going to be in that range until we get North America to reaccelerate. But I think calling it within so many basis points right now is difficult. So, we will give you that range.

That’s helpful. And then as we look at use of cash, you talked about acquisitions. One thing you could easily acquire is, I guess, is Smith’s stock. I did market… I didn’t hear any discussion of share repurchases in this quarter. Strong balance sheet, lots of dollars. Does the stock come back into play here?

I would say based on today, it comes back into play again quite strongly, as the value is getting better and better unfortunately for our shareholders. Yes it’s much more attractive right now.

Okay, thank you.

The next question comes from Doug Becker from Banc of America Securities. Please go ahead.

Thanks. Doug, I don’t want to put the cart before the horse here but I was wondering if you can at least try and frame what type of potential growth Smith has, into 2009 from all these offshore rigs, really into the market and maybe more simply… is it reasonable to say that we see earnings accelerate in 2009 or earnings growth accelerate in 2009 versus 2008?

Well, I will give you the numbers and then you can… everybody’s got the date on the rig. Typically, we are talking with all Smith products, the $4 million to $5 million per quarter for each offshore rig that we get, and we have a little bit better than 50% of the world markets. So, as these come in you can model that and make some assumptions, the margins are better than in… in our other product lines, so we don’t give that out specifically. So, I mean as… as we go forward I think you can put that in and figure out.

Fair enough. And then Margaret maybe you could go into a little more detail about, I guess, maybe I will call them some of the recoveries that we will see in the first quarter versus fourth quarter. I guess, specifically the weather and some of the start up costs. Do we see most of that improvement in the first quarter?

Yes. I think that as Doug noted we would expect… we would expect the first quarter profitability level to be above what we saw in the fourth quarter. I think that’s… yes we won’t go into a lot of factors driving that but certainly we would expect the business environment to be a little better. Some of the recurring costs that we saw in the fourth quarter we wouldn’t expect to see that in the first. So yes, we would expect to see a little better earnings in the first quarter.

Yes. From both the Wilson numbers we gave you, which is a start-up for the new distribution center and… from the Mexico end are some of the start up. The Mexico situation won’t be fully corrected in the first quarter but we do see some improvement there. So, by and large we expect to see as Margaret mentioned improved margins in the first quarter.

Okay. Thank you.

The next question comes from Robin Shoemaker from Bear Stearns. Please go ahead.

Thanks Doug. Just on your comments about international revenue growth there was not quite clear what you were saying but you had about 31% revenue growth, non-North America in ’07, and you were saying you see something like spending at 15%, you will do a little better than that in ’08. So, does that get us to something… 15% to 20% type revenue growth non-North America? Was that what you are--?

You are trying to pin me down to exact number. I mean over the years, we have grown, if you look originally on the whole 10… 10% to15%, greater than the average rig count. Now, the average rig count’s only growing 2%, and the spending is much more intense outside the U.S. So, I mean, it’s going to be a very solid growth rate and you can compare what we are at the fourth quarter. Year-over-year we are up, 28.2% and that, that certainly carries over into the first quarter and beyond.

Okay.

It’s a reasonably strong comparison with all of the spending.

Yes. Right. Do you have any specific comments on your outlook for Canada? Your revenues were down in ’07, but less than the rig count was down and it seems like the winter drilling season is reasonably strong but, what’s your… your Canadian outlook?

The Canadian outlook is, is… is down on the rig count, but when you see the rig count go down initially it tends to be the shallower wells in Southern Alberta. So, the rig count spending is not proportionate to the rig count drop initially. What hurts us is when they stop drilling the deeper wells such as the in the Northern British Columbia, in summer we see going down this year. And that starts to affect us more because it’s a much higher number of products were. We actually look at the first quarter as being reasonably positive right now, with the number of rigs around with M-I and the rig count exceeding 500. And they were conservative, but we expected one after the break up where it comes back will be under… under next year. So, that’s why we have outperformed in terms of revenues to rig count.

The other thing that is happening in the first quarter is, that the weather up in Alberta right now is very, very cold. There is not a lot of snow on the ground, and so we are expecting a lot harder freeze, and if you recall last year at about mid-February there was a lot of road bans on, and consequently spring break ups occurred much earlier than usual, and with this cold weather we think that at least we can go till the second or third week in March.

Okay. Okay. Great. Thank you.

You are welcome.

The next question comes from Kurt Hallead from RBC Capital Markets. Please go ahead.

Hey good morning.

Good morning.

Good morning, Kurt.

Doug. Reference here in… in your press release about the jack-up market in the Gulf of Mexico and the first time I have seen that reference from you guys I can’t remember when. A lot of the focus has been on the deepwater market and subsequent to it, you also referenced tubulars. Are they pretty much joined at the hip, the reference to jack-ups then and the tubulars or is there something else about the jack-up market and your exposure to the jack-up market that--?

Yes, because of the number of rigs, the tube… the premium tubulars really weren’t hurt as much by the jack-up market as much as the rental tools which includes the downhole tools like the Rheiner Reimar [ph] Group which are originally high margin for us. But in terms of the tubulars… we saw premium tubulars, we saw more of an effect in the Rocky Mountains where they were recounted and flattened out. They weren’t using the uptake on this May drill collars and heavy weight drill pipe on the premium side of the tubulars. But as I mentioned the jack-up rig count was down on average, 10 rigs or 19%, Quarter 3 to Quarter 4 of 2007 and that was unexpected for it to drop that much and that was why we had the unexpected effect there for our Smith Services Group.

Okay.

Not as much on the tubular side.

Okay. And then your reference to the average revenue for offshore rig, so that’s obviously there is a blend between jack-up and deepwater there right?

That means more towards the semisubmersibles and the floaters, less so on the jack-up side, maybe a little less than half of that.

Okay. And then the reference to 50% share of the deepwater market. Would you say in aggregate 50% share of the jack-up market too?

Not in the U.S., but as the jack-ups are moving out of the U.S. and into the Middle East and into Mexico, I think we are getting close to that. Don, do you want to comment on?

Yes, Kurt, as the rigs leave the Gulf of Mexico, the jack-up rigs, our share on jack-up rigs in the Gulf of Mexico is not very high. But as they move to the West Coast of Africa, the Middle East, or to Asia-Pacific, our share is much higher. So, it certainly depends on which operator they are going to go to that we were reasonably expect to pickup, close to 50% of that.

And, of course, typically, when they move they have to go in for refurbishment and then you have got mobilization time. So, we are typically looking at six to nine months lag before we see startup.

Okay. And then you reference here on the startup cost in Mexico. Once again you guys have… as you reference is pretty exceptional international growth and I… once again is there something specific that’s going on in Mexico that’s been a dingy on startup because I haven’t heard you guys talk about that?

Yes. We have got 11 new contracts, I believe three of more with IPM last year and a lot of them are just starting now. So, I would say a massive startup. And I think that Schlumberger commented on the same thing in their conference call.

Exactly. A lot of new people mobilizing a lot of equipment and expenses associated with that as well as, Kurt, the floods that have occurred in Villahermosa.

Yes, that’s why I used the phrase, not to startup, but the learning curve.

Got it. All right. Thanks a lot.

Yes. You are welcome, Kurt.

The next question comes from Scott Gill from Simmons & Company. Please go ahead.

Yes. Thank you. Good morning.

Good morning, Scott.

Hello, Scott.

Just a quick question on the earnings guidance here for Q1 versus Q4. In the past, we have seen a seasonal uplift. But given kind of current market dynamics and the fact that Canada is not as big, should we expect to see kind of a similar $0.05 uptick in earnings for Q1 versus Q4 like we did last year?

Well, we are not giving any guidance specifically by quarter. I think the important thing that Don mentioned was the 60% of the new rigs coming in are in the second half. So, we certainly see more of an acceleration of that guidance in the second half, but I don’t want to get in quarter-to-quarter. You guys got to do some of your own work.

Yes. But within that guidance, I mean what’s kind of driving at least the comments that you said it’s going to be improved. What’s kind of behind all that?

The fact that we will have better margins that will have better revenues. The fact that Canada will be improved for the first… I mean the general drilling environment.

Okay. And then lastly, not a lot of commentary on the distribution segment, but just looks like not withstanding kind of a very solid return on capital employee business that margins seem to be kind of stuck in a 4% to 4.5% maybe 5% range. Is that the way we should look at that business on a go forward basis?

I think over the near-term, yes.

Okay. Thank you.

Though, I think you will see some improvement from where we were, just because of the startup cost and some additional volumes that are coming in. So, we will get some improvement there, but not exceptionally outside where we are, but some improvement.

All right. Thank you.

The next question is comes from Geoff Kieburtz from Citigroup. Please go ahead.

Good morning.

Good morning, Geoff.

I am sorry. I missed you made a comment about a price list increase. And I missed the details. Would you mind kind of going over through that again?

Geoff, I just commented that we continue to be focused on pricing and it’s evidence by the new price list. We issued a new U.S. price list in the Smith Technology Group last week, and it covers up both three-cone as well as diamond bit. On an average, the gross price increases somewhere in the 7% to 7.5% range.

And can you give us an idea of how pricing has changed over the past year on a net basis?

I think what I commented is if you look at the Oilfield segment…

For bits, we are talking about bits.

Certainly. Pricing on the bits is a net positive, no doubt about it.

In the range of 7% and 7.5%?

Well, again, we are talking gross versus net. But we are really focused on is the net margin improvement, the EBIT margin expansion, but…

But we can tell you if the inflationary costs are up 4% on people, little bit more on materials 5% and we have higher margins. Certainly, the pricing is north of 5%.

Got you. You are yielding two-thirds and three quarters--?

Any margins above inflation. Correct.

All right. And do you feel good about being able to sustain that kind of yield on the list price increase?

Yes, mainly because of technology and performance. I mean, most of diamond bits in North America really performance based where you are essentially billing on footage. And as we have come out with newer products both on the diamond and three-cone I think, we are getting more on performance. So, yes, I feel pretty good about that.

Is there any other product lines where you are able to get meaningful net price improvement?

Yes Geoff, when we take a look at… in the Eastern Hemisphere with M-I SWACO, we are actually rolling over a lot of contracts. There were surprising improvements in net pricing. We would like everybody else in North America, there is some concern about what’s happening with pricing. But 50% of our business in North America is set for the year and in terms of… other words there are some contracts with different pricing associated with those contracts. And this is the other 50% that there. There’s certainly a little bit of a concern over the commodity price going up. But at the end of the day, year-on-year, for total M-I SWACO, we should be up.

Yes, I mean, on a positive point, we are one of the few companies where you haven’t seen net pricing deteriorate. I guess Margaret mentioned in the Oilfield Group actually improve year-over-year. So, it will work. We are pleased with that aspect.

Okay. But with an overall Oilfield margin improvement in the… range of 50 basis points, it sounds like, you are not… you must have some cost inflation there that’s eating up a lot of that?

It’s just a matter of getting the net price. I don’t think costs are going to go up relative to pricing much differently than I see here.

Okay.

But net I think… if you look at, I think about 50% of our business in North America on M-I size contract is over 70% outside. We get some pricing in those contracts and the rate of new product adoption goes up. But I mean we can't call pricing within 50 basis points for 2008. I mean I would happy if I could call it within a 100 or so.

All right.

So, I wouldn’t take that as a given number. I think if competition goes along with price increases, if we get some more volumes, it could be to the north side of that. If the rig count drops off even further, there could be more pressure on the downside. We are just trying to give you a range.

Can I just ask you one last kind of just conceptual question, Doug? It’s unusual for Smith to miss, you know earnings to the extent that it happened this time and has your view on the oilfield cycle changed materially over the last three months?

The view of the cycle hasn’t changed. What our view has been is that the first half of 2008, will probably be the weakest in terms of rig count additions and new business are what we’ve seen over the last five and a half years, starting with the first quarter 2003. But we think that will re-accelerate. I think what’s happened is that the average increase in the North American rig count year-over-year for a five year period was 23%. Now that moderated to 8% in 2007 over 2006 and now turns negative in our mind in 2008 over 2007. So, it’s really sometime to restart up the North America while the non-North America keeps growing. So, I think it is a unique period of time but even in the seven year quarter cycles we saw in the late 70’s early 80’s, we saw some flatter spots. Now if our earnings can go up 16% to 19% in 2008 over 2007 on what’s a flat spot, I mean, I’m going to be delighted and I think that’s going to happen.

Okay. Thank you.

So, it hasn’t changed, it’s just a slower growth period right now.

Thank very much.

The next question comes from Michael LaMotte from JP Morgan. Please go ahead.

Thanks. Good morning.

Yes. Good morning Michael.

Doug, I want to follow-up not to beat the margin’s side too much but it does strike me that from the revenue discussion on the year and the EPS guidance that you provided that you’re not expecting much margin expansion. And when I think about a positive mix shift and MI towards the back half of the year and 7% price increases, year-on-year and there doesn’t seem to be a lot of that in your EPS guidance, I guess. And Margaret’s comments were precautious in terms of sort of the risks in penetration of the price increases. Are there competitive dynamics on there? I know from the last… for example are you seeing margin pressure from competitors bundling or anything that would lead to sort of more cautious bottom lining?

I think conceptually we are probably protecting against the downside in North America, not knowing where that’s going to come out, not knowing where our gas prices are going to be at the end of the winter. So, essentially, we just see, good business outside, but we don’t know exactly what’s going to happen in North America and we were as surprised by the extent of the revenue loss in the Gulf with the jack-up in Smith Services and some of the softness in the tubular. So, we are with you. We are surprised by that. Had we known that earlier, we would have adjusted the year-end guidance.

Okay. That’s fair. And then, secondly you mentioned that you were reducing outsourcing of some of the parts. Is that a function of de-bottlenecking in your own operating efficiencies?

No, it’s not bottlenecking. It’s actually a function of volume where we have sufficient inventory to cover demand and mainly in the North America, and in the U.S. where we had been farming out a reasonably high percentage of tools, not wanting to put in the capacity.

Okay.

And now the capacity demand is such that we can bring those in and keep our employees busy but yet have a much lower cost because we can do it internally. So that has a little bit of affect. The reason I brought it up on the revenue per employee because when you prime it out it’s not your employees but its higher costs so when you bring it in you don’t reduce your employees as much but you improve your margins.

Right.

Otherwise it would be a margin help to us.

Okay so, we should think about that as perhaps a little softer volumes in North America but more than offset by the pick up overseas.

Well, I don’t know softer volumes as you know, you need to build up when you know you have a stock kind of business, you need to build up a safety stock for inventory. So, essentially when you flatten out, you don’t need to build that up. So, it’s probably more of a reduction than any build up and more of just a continuation of the current consumption level.

Okay.

But it reduces the build up need.

Okay great, thanks very much.

You’re welcome.

The next question comes from Mike Urban from Deutsche Bank. Please go ahead.

Thanks, good morning.

Good morning Mike.

Good morning Mike.

Doug, I want to talk about your outlook for North America a little bit. I completely understand kind of the short-term view makes sense. I maybe just reading this wrong but it seem like your longer term view is not quite as bullish as it’s been in the past; one is that correct? And two; is there anything fundamentally you see different in terms of your customers or the industry’s ability to kind of mitigate the client rates or productivity or something like that that’s really changed that long-term fundamental view on North America?

No. My long-term view is still very solid. We’re going to have a sizable pick up in North America. I just can’t tell you if it’s the end of 2008, which I don’t believe it is. Whether it’s 2009 or whether it goes to 2010 and it’s going to depend on gas pricing. I mean, favorable things as I see the imports of LNG going down significantly, in October I think we had the lowest LNG imports in the U.S. in any month in four years because on a Btu basis the rest of the world sees it more comparatively with the oil prices and it’s selling at half the Btu cost. I think that’s favorable. I think the uptake of natural gas in Canada for the oil sands with reduced deliverability, which I think you are going to start seeing in the second half of 2008. I think this is all very favorable, I can’t just call the timing and maybe that’s something for you guys to do, so we are a little bit on the negative side but looking on to 2010, beyond that I think the North American markets are going to… are going to be very healthy and we are going to be quite sure on gas at some point.

So, no change there to see…

No change. In fact the longer we wait and the higher we get to depletion the more the things going to take off but that adds to the cycles of boom and bust.

Okay. The rest of my questions are answered. Thank you.

You are welcome.

Thank you.

The next question comes from Bill Sanchez from Howard Weil. Please go ahead.

Good morning.

Good morning, Bill.

Last quarter, my recollection was that there was a talk of as much as $60 million in kind of worldwide deepwater revenue that wasn’t recognized within M-I but half split in the Gulf of Mexico and half internationally, and I was just listening to Don’s comments, it sounds like on the outlook off shore international this quarter was that we were down again in revenue sequentially and I would have thought perhaps we would have seen some pick up there. You talked about deferrals again. Are we going to be capturing some sort of catch up here as we look to ’08, when we think about the offshore international revenues in M-I?

Bill, I think that probably the offshore in M-I, that’s hold it about like exactly if you recall last quarter, the offshore revenues for M-I were down $60 million. We felt like we would recover about $45 million of that from the third to the fourth quarter and offshore revenue volumes for M-I were at $43 million from the September to the December quarter, so I think the offshore business went about as we would have expected… in the fourth quarter in line with the kind of guidance we gave last quarter.

Okay. And even the Offshore International this quarter, Margaret given that…

Yes.

It was down sequentially and there was talk of deferrals there again I guess the project?

There were a couple… there was some completions in Egypt, in Malaysia and off the coast of Equatorial Guinea. We talked last quarter about the Gulf of Mexico being stronger in the fourth quarter and that actually occurred. We see with the number of rigs under contract right now and with the number of rigs that are going to be working in the first quarter of 2008 the West can be pretty healthy for us, so we are pretty pleased where we are at in the international and the Gulf of Mexico deepwater.

Okay. I may have missed it… if you are sort of the… I think in the last quarter you added 600 people for the Company as a whole. Can you give that number for the fourth quarter? And what’s the expectation for ’08 versus ’07, Doug from a headcount perspective?

Yes. We did give that number. It was a little over 600. So, we added someplace around 2,400 for the year. That will slowdown considerably, but we will… for the growth in the international need to continue to hire there. You would see us rehiring at a rate of a half to a third of what we have been doing in the past.

Thank you.

You are welcome.

The next question is a follow-up from Dan Pickering from Tudor Pickering Holt. Please go ahead. Mr. Pickering, please go ahead with your question.

Thank you. Margaret, if you could take just a couple of minutes and you talked about tubulars a couple of times as it related to the Smith Services business. Can you help us to understand roughly in ’07 how big a business that was and just so we can kind of think about how to play with that for 2008?

But Dan, there’s a couple of components. If you look at it, there’s… we talk about tubulars we are talking about drill pipe, tubular rental, collars, heavy weight, but the lower margin end of that would be the drill pipe business. The drill pipe in the quarter was 20% of the revenues in Smith Services, that gives you some kind of magnitude. If you throw in the higher margin of the heavy weight, the collars that’s roughly 35%, 40% of that business. Again, very good margins, very good returns. Can I help you?

The problem wasn’t the drill pipe, the drill pipe… when we say premium tubulars, we exclude the drill pipe.

Correct.

We rented the collars and the heavy weight, which is the higher margin business.

Right. And just to make sure, I understand the numbers, 20% of the division drill pipe another 20% to 25% is premium.

Yes, in that range.

Okay.

Rough estimates, yes.

All right. And as we look at your competitors in that business, should we think about your performance in ’08 inline with how we are modeling a Grand Prideco for instance in those two different segments?

No. I don’t think so. Because a lot of what we do is replacements and inspections and onesy, twosy’s where I think a high percentage of what they do are larger orders and rig upside. I wouldn’t look at it in the same context.

Okay. Doug, so you would expect your business to actually do better. We are looking Grand Prideco down. You are looking at--?

Yes. Probably our drill pipe… it’s hard to say right now. Maybe more inline, but that’s our very lower margin. But we just handle it on a commission. So, it’s very low margin. Any other we wouldn’t expect it to be that far off. A lot of it goes internationally and it’s like single strings of pipe and things. It’s not large orders. Replacements, refurbishments, reworking, reconnecting, chasing threads and boxes and pins.

Okay. Great. Thank you.

Your next question comes from Brad Handler from Wachovia Capital. Please go ahead.

My questions have been answered. Thank you very much.

You are welcome, Brad.

The next question comes from Jim Crandell from Lehman Brothers. Please go ahead.

Don, I had a follow-up on the Pemex IPM contracts. I get the impression from Schlumberger that the most recent IPM awarded carried lower margins for them due to competition from Halliburton and Weatherford in bidding on the contracts. Do your latest contracts with them carry lower margins than the early ones you won with them going back?

I don’t know what the Schlumberger margins would be. But ours are inline with the earlier contract.

Okay.

There wasn't startup of that Jim. And that's going to work itself out in the first quarter and certainly in the second, we expect we are doing very well in Mexico.

Okay. Doug, a question on distribution. NLV says they are going move toward 50-50 where their distribution business being 50% international, 50% U.S. How serious consideration have you given or will you give in terms of trying push more aggressively [Technical Difficultly] profit margin would be able to approach there?

I would hope so.

Okay. Great. Thanks.

You are welcome.

At this time, there are no additional questions. Please go ahead with any additional comments.

Yes. Thank you very much for joining us for our fourth quarter 2007 results and I look forward to speaking with you at the end of this quarter. Good bye.

Thank you for participating in the Smith International fourth quarter 2007 investor conference call. This concludes our conference for today. You may all disconnect at this time.