Welcome to the Smith International first quarter 2009 investor relations conference call. (Operator Instructions) I will now turn the call over to Mr. John Yearwood.

Welcome to the Smith International first quarter 2009 investor conference call. I will be talking today, along with Margaret Dorman, Executive Vice President and Chief Financial Officer, and Chris Rivers, President and CEO of M-I SWACO. This morning I will start the conference call with some opening comments, followed by Chris and then Margaret. I anticipate that we will speak for about 30 minutes and then we will have another half an hour for your questions. So that everyone has a chance to ask questions, please ask no more than two questions at one time. If time permits, you can re-queue and ask more questions later in the call. Now, let's talk about Smith's first quarter 2009 results. Smith consolidated revenues of $2.41 billion grew 2% year-on-year, primarily as a result of the W-H Energy acquisition in the third quarter of 2008. On a pro forma basis, year-on-year revenues declined 7% comparing very favorably to the 16% reduction in the average M-I SWACO rig count over the same period. Sequentially, Q1 2009 revenues declined 21% in line with the 20% reduction in the active worldwide M-I SWACO drilling rig count. Three-quarters of the sequential revenue decline came from the United States, due to a lower demand for line pipe and other tubular products, reduced sales from the Wilson upstream sector, and overall sharp decline in business volume and pricing concessions across the oilfield related product and service offerings. Geographically, Latin America had an excellent quarter with revenues up 8% sequentially and 22% year-on-year driven by significant growth from our fluids and drilling businesses in both Mexico and Brazil. All other geographical regions posted sequential and, with the exception of Middle East Asia, year-on-year revenue declines with the Eastern Hemisphere down 13% and 4% respectively, primarily as a result of lower…

I will discuss M-I SWACO's overall performance and then comment on the deepwater market, our premium products and our segments. First quarter revenues for M-I SWACO were $1 billion $159 million, approximately 11% lower than the fourth quarter of 2008 and 6% lower than last year's first quarter. We were about 15% lower than our peak revenues of $1 billion $364 million in the third quarter of last year. The M-I SWACO global rig count declined by 20% from the fourth quarter average and 16% from last year's quarter, obviously, the driver was North America where the rig count fell by 34% sequentially, almost totally due to the land count. Deepwater rigs were the same as the fourth quarter but shelf rigs fell by 14 rigs or 23%. Total offshore revenues for M-I SWACO were $582 million for the first quarter. This is a decrease of 4% from the prior quarter. Our revenues were equally split between offshore and onshore this quarter due to lower land revenue in North America, 74% of our revenues were outside of North America up slightly due to the market contraction on U.S. land. Our South American revenue grew by 13% sequentially and 23% from last year due to market share growth in both Mexico and Brazil. Eastern Hemisphere revenues declined 12% sequentially mainly due to lower activity levels in Russia and the Caspian. North American revenues fell by 21% sequentially and 15% from last year due to the previously mentioned land and shelf rig reductions. I will now address our product segments. M-I SWACO drilling solution's revenues were $768 million down 10% sequentially and 6% compared to 2008. Environmental solutions revenues were $223 million down 14% sequentially and 11% compared to last year. Wellbore productivity revenue fell 13% sequentially but rose 8% compared to…

As outlined in this morning's release, we reported earnings of $97 million on revenues of $2.4 billion for the first quarter of 2009. After adjusting for $35 million of severance and facility closure costs, first quarter operating earnings totaled $0.52 per diluted share. Consolidated revenues fell 21% from the fourth quarter's level mirroring the 955 rig reduction in the M-I count. Excluding the impact of the three non-core W-H businesses sold in early January, revenues for our oilfield related operations declined 16% sequentially sustained by the higher relative international and offshore exposure of the M-I business, while the North American focus distribution operations experienced a 28% reduction in sales volume. Operating profit fell sharply as we were unable to reduce costs at the same rate as the volume decline. Pricing, although moderate, also contributed to the downward pressure on earnings. Operating margins for our oilfield related businesses held fairly well considering the severe volume reduction. Net of the first quarter charge, sequential decremental margins for the oilfield operations were and acceptable 36%. In the distribution operations, we lost $0.16 of EBIT on every revenue dollar reflecting volume and softer line pipe product pricing associated with lower capital project demand. As anticipated, the lion's share of the EBIT and margin compression experienced during the quarter was driven by volume reductions in the U.S. market resulting from the 36% in activity levels. As with most of our service company peers, the oilfield product lines experienced a degree of U.S. pricing erosion in the quarter, which contributed to 150 basis points of the margin compression in the oilfield related operations. The U.S. pricing weakness was much more pronounced in the Smith Oilfield line primarily coil tubing, wire line and directional than our fluid operation. Pricing internationally has held up well in the first…

(Operator Instructions) Our first call comes from Robin Shoemaker – Citigroup.

Margaret and John, I just wanted to go back to some of your thoughts at the beginning of the year where you were anticipating that you wouldn't lose a lot of pricing to downturn and mostly volume related, and clearly you have a little bit of different product clines here with the acquisition of W-H. But in your fluids and drill bit business, it sounds like the downturn here clearly is somewhat at odds with prior downturns with regard to pricing deterioration there and I just wonder if you could just generally comment on that.

Robin, a great question, I don't know that our mindset has changed a lot. I think that the fluid business from a pricing perspective has hung in very well. I think the drill bit area from a pricing perspective has also performed very well. As we said, this has largely been volume. We have seen some pricing pressure largely in the Smith Oilfield business, cold tubing wire line directional, but I don't know that things have unfolded a lot differently. But clearly we're seeing pricing pressure and I think some of that pricing pressure is probably mounting as the rigs continue to fall. John, do you want to add anything?

Yes, you'll see most of the pricing pressure I think come through in the second quarter, Robin, but I wasn't around with Smith in the previous down cycle of '01 or '98/'99, but I echo what Margaret is saying. The businesses seem to, the fluids and bits seem to have held up very similar now as in the past.

Okay, just one other question then, the deepwater segment, you mentioned you expect seven new rigs to enter the market. What is your share of those seven new rigs as you know it now?

For the new rigs entering both the international market and the Gulf of Mexico, just to answer the question from a worldwide perspective, we would expect to maintain or even increase our share as we go forward.

Okay, so for those rigs that we're talking about you would know now.

Mostly, yes, there's a couple that are still to be determined but mostly we know, yes.

Our next question comes from Dan Boyd - Goldman Sachs.

It sounded like you alluded to expectations of a bottom in U.S. land results in 2Q, did I hear that correctly?

I said that.

And is that a comment on activity or just margins or both?

No, that was the comments on regular activity. We expect to see the bottom somewhere near June or July.

Okay, and then in the press release you noted that oilfield segment revenue declined 22% sequentially if you adjusted for the non-core divestitures. Can you give us that same number for North American as a total for the company?

Sure, Dan, we have that rule I'll provide that to you offline.

Okay and then just one unrelated follow up. Can you talk about any market share gains that you might be seeing in Latin America?

Market share gains what I would say probably M-I SWACO had some good gains in Q1, I would say, with the deepwater activity and some premium fluid sales with Mexico and Brazil. For all other segments, I would say it's relatively flat. I haven't noticed any significant increase or decrease. Mainly M-I SWACO would have improved.

Okay and then is that something you expect or are seeing momentum in that business where you should continue to gain share?

Well, I see that M-I SWACO has a very strong position in the deepwater market in Latin American and around the world and as more and more of those rigs come out, I believe that we'll see our customers using more and more of M-I SWACO technology, both for fluids and for solid transport production global assurance. So, yes, I would expect and also M-I SWACO has an incredible portfolio of new technology in the pipeline that will be aggressively marketed to our customers in '09 and '10. So it wouldn't surprise me for M-I SWACO to continue to increase market share.

Our next question comes from Jim Crandell - Barclay's Capital.

John, could you talk about goals and progress that Pathfinder in 2009 related to tool development, sensor development, and international expansion?

Okay, Jim, so some of our key goals for Pathfinder this year are to develop and commercialize different sizes for our rotary steerable tool and, also, a larger size on our density imaging tools. So, those are in progress and continuing. Our international expansion, we are in one new country as we speak in the Middle East where we're doing some field trials with a large customer, and so that carries on as planned. The other countries where we're preparing to do work are still on track, so overall we're progressing as well as I thought we would progress. Now, you always have to remember that the international market is not as quick as getting on the rigs in the Haynesville or the Marseilles. It does take a little bit longer, but I'm comfortable with what we're doing so far.

Okay. And my second question, John, is can you give some color on the bit business as far as changes in mix of sales, one, diamond versus fleet cone, two, sales versus rental, and three, overall commentary on sort of the percentage of bits that now seem to be going into rotary steerables?

I don't think we've seen much of a shift in the last quarter between diamond and PDC and cone. Over time in our trickle we are seeing movement towards the PDC bit that market or that percentage over time is increasing, and we expect that to continue to increase and with it the rental business. We would see that over time going up. There was no material shift I believe between Q1 of this year and sequentially Q4, around 50, yes? And then when you say what was the percentage of bits with rotary steerable? Jim, what we look at is what is the best drilling assembly for the particular application that our customer has? So, we spend a lot of time and we will increase that time and effort with our clients to look at the offset wells, look at the stability of the drill string, and how it performed on those offset wells and work with our customers to have the best configuration. Sometimes, I'll be honest, we may run our part of our string with a competitors bit. Now, most of the time we would like to use our own, but if the best result is that we simulate with i-DRILL and IDEA as a competitors bit, we'll run it. I'm comfortable that we have a relatively large or a good market share with our competitor's rotary steerable, but don't just look at that combination. You have to look at the performance of the drill string in its entirety, especially as these wells become more complicated and extended reaches and laterals become longer.

But, John, if I could just ask one follow up, you would not agree then with certain of your competitor's assertions that they have very high market shares where they run rotary steerables jobs with using their own bits?

No, I have heard those comments, and our database doesn't necessarily match that. We run our bits with everybody's rotary steerables, and some of our peers or competitors do try to package the bits with their rotary steerables and I can understand that. But our clients want to use what's best for the well. They're not going to run the risk of using a lower performing bit to drill a well just because someone says I'll sell you both. And we see our customers push back on many occasions and say no, we want to use the right bit for the application. And in fact, we've even had cases where I know of where a customer has said well if you don't want to use the Smith bit take your rotary steerable and we'll put someone else out here.

Our next question comes from Dan Pickering - Tudor Pickering Holt & Company.

My first question, I guess is for you Margaret, given the cost cutting efforts that we saw during the first, or that you did during the first quarter. How much did we see in the Q1 results? How many kind of fixed costs dollars have come out? How much more do you hope to get out by the end of the year?

As I talked about in my comments, Dan, I think this is an ongoing process. Certainly, we have reduced our staffing levels in North America pretty substantially in the quarter. I think that that'll be ongoing. I think really to answer your question is how much of the benefit have we seen in the margin line? I would say that you'll see the majority of that benefit in the second quarter.

Okay.

My sense is most of the staffing reductions came later in the first quarter and you didn't see a significant amount of benefits, so I think that you'll probably see a better benefit in the second quarter and I think you'll see that translate into the decrementals.

Okay. So the kind of 36% that we saw in the oilfield may moderate somewhat given the cost reductions or do cost and price kind of battle each other out here?

Yes, I think that's our sense is that the decrementals are better first to second as you benefit from those cost initiatives.

Okay, fantastic and then I guess, John, the question for you as you look at the combination of all the things that are happening out there, the price pressure, but cost reductions, mix. When you put all that together I know that we heard in the M-I business activity should bottom, but I mean do margins continue to compress here as we move though the year or do we kind of bottom in Q2 with activity?

Well, two part answer to your question. Yes, margins will definitely compress in Q2 versus Q1. The average U.S. rig count will probably drop another 30% versus Q1.

Right.

So, a volume drop of that amount over such a short period of time will definitely have an impact on margin compression. Now, will Q2 be the worst of that compression? It will all depend, Dan, in my opinion, on really the rig activity in Q3 and Q4. I said in our press release, I really don't see any uptick in U.S. land drilling activity until we see a recovery on gas prices, natural gas prices in the U.S. If it stays below $4 for MMBTU, I really don't see it recovering. So, will there be further compression in Q3? There could be, I'm hoping not but it will all depend on the price of natural gas.

Our next question comes from Brad Handler – Credit Suisse.

Could you please tell us a little more about what you sold the non-core W-H businesses?

Okay, Brad, what it was is that when we did the W-H acquisition, they had about 13 companies there in the group and there were three companies that were involved in the provision of materials, products for the U.S. primarily the U.S. land drilling environment. So these companies were operating out of Midland, Texas, Lufkin, Texas, or South Texas, and they would provide products like potassium chloride, oil-based mud rentals, pecan shells for loss circulation, so a variety of drilling fluids products relatively for the lower end drilling environment for U.S. land. Their customer base was not just M-I SWACO, it was all of the drilling fluids companies really in the U.S., or a large number of them. And we just didn't see that business model or those products really being part of our portfolio going forward. So, we negotiated with some of the previous owners and they acquired those three businesses.

And, Margaret, you may have said this in your comments, but I'm just not sure if I caught it. So, if you take out those pieces from the fourth quarter results, the sequential decrementals in oilfields were 50%. Did I hear that right?

That is correct. Yes, if you take that out, it was 50%.

And then an unrelated question, turning to your working capital commentary, so maybe just a little bit more there please, Margaret. Would you point to Venezuela as really being, is the point here we just didn't get the money in from Venezuela, therefore, the receivables were higher, or was it a broader based challenge that you are dealing with?

I think, as I alluded to in my comments, you have seen a slowing in collections, not just in Latin America. I think that's where it was more pronounced, but you've seen a slowing in collections across the customer base. And I will tell you this, the first quarter is typically a little slower collection quarter if you go back and look historically. So we're not concerned in any way. One of the big culprits was Venezuela, and as I noted, we have seen a significant pick up in collections in Venezuela in April. I would tell you we've probably received 15%-ish of the outstanding receivables at the end of March and to date in April. So we think we were a little disappointed with the collections, but we don't see any structural issue with collections. We think it's just a timing issue.

And our overall receivable balance did come down about $165 million in the quarter. I guess we were just hoping for it to come down a little bit more, but our expectation is that there are no issues there and it should come down very nicely in Q2, hopefully.

Our next question comes from Kurt Hallead – RBC Capital Markets.

John, I was wondering if you could provide us some additional color to kind of walk around the globe. Clearly U.S. markets, North American, have difficulties, Brazil, Mexico are going to have relatively good years. Can you just update us what's changed over the course of the last couple of months with respect to some of the other geographical areas, and what you see now as kind of stabilized and what you see as potentially being better than expected heading into the second half of the year?

I'll make some comments and if I miss anything, Chris, please add in there. So around the globe what I've seen over the last couple of months is that Russia drilling activity seems to have stabilized. Looking at the M-I SWACO rig count, I think it's just a little over 300 and it's held there for awhile. We're cautiously optimistic that that will stay that way this year. Other than Russia, we saw declines in the Caspian, especially in Kazakhstan during the quarter. And then Egypt had some reductions, Argentina, Colombia, those were the main areas I can think of, Saudi Arabia, of course, with Saudi Aramco dropping a few rigs. I would expect that there will be during the Q2 some rigs coming off in certain countries around the world. But I don't see the non-U.S. Canadian rig activity market deteriorating significantly during the year. I believe we're probably in most markets outside the U.S. and Canada is probably fairly stable, at least for the next few quarters for the rest of this year. I don't see any pickup in those countries, but I also don't really see too much of a further decline going forward for '09.

When you think about the pricing impacts, as you guys had referenced already in your prepared commentary, Margaret, maybe provide some additional color on this would be helpful. Relative to prior cycle periods, do you think the pricing impact will be more muted or about the same as what we've seen say in the '98, '99 in 2001 periods?

Kurt, I think that we've given some indication of what we've seen in the first quarter, our expectation that pricing will probably see more erosion in the second quarter. But I think it's hard for any of us to give any guidance on pricing until we have a little better visibility on where activity bottoms and when that occurs.

Our next question comes from Ole Slorer – Morgan Stanley.

Wonder whether you can talk a little bit about the opportunity of international shale? I mean you talked about Haynesville that you're optimizing Pathfinder and having some good results. Is it too early to talk about international shale opportunities or is this something that you're working on?

You mean you're talking specifically all or about our Pathfinder business?

Yes, talking specifically about the drilling part of the business. You can also address other opportunities that you might have if there is anything that you think could be meaningful looking at Eastern European in particular.

I'm not going to go through on a country by country basis because I don't want do alert our competitive position, but we are definitely aggressively pursuing in certain selected markets the introduction of our Pathfinder suite of tools. The ones that we have today that we know can result and provide performance drilling together with our bits technology and our other elements of the drilling assembly. So we're aggressively approaching that. We have a couple of teams that are setup exclusively to do that and we're moving forward.

Is this a 2010 story or a 2011 story or could it be sooner?

I expect every quarter, every other quarter to be giving you examples of performance achievements that we have made in the international market. Now, I don't envisage from one quarter to the other a big uptick because it takes time. You've got to get your tools in there and your people and so forth, but my hope is that sequentially quarter-after-quarter our presence internationally will grow and it will be reflected in our margins and our overall performance.

As a follow-up question to that, you have the two major service companies both highlight packaged or bundled services as a key aspect to their both international and domestic growth strategy and one of them does not have bits so it doesn't really apply to that part. So, can you talk a little bit about how your view your position competitively compared with people who can integrate?

Yes. Our customers like to use the word bundle services because for them that means bigger discounts. We do respond to that because, especially in a downturn like today, some customers will try to get larger discounts so they advocate combining different products. However, what our approach is, it's much more an optimized offering in a sense that we will combine a turbine with a base, for example, in Saudi Arabia with Saudi Aramco where we see it's going to give better drilling performance. In Haynesville, we will put together our particular even wall motor with our Pathfinder suite, again for performance. So, yes, we will respond to a bundled services request, but our focus and push is on optimum and optimized offerings and bundled services does not mean optimized performance, it really just means bigger discounts for the customers. I can see if I'm a company that has 10 or 15 different product lines, sure I want to try and bring through as many of them as possible, and certain customers at certain times will entertain that, but they're also looking for performance at the same time. And we're focusing more on using our products and services in a synergistic way to create better drilling performance for our clients.

Our next question comes from Bill Herbert - Simmons & Company.

John, if you could elaborate just a little bit more on international pricing. It seems as if the rhetoric on the part of some of the larger IOCs is pretty strident with regarding to the pricing deflation they're trying to prosecute. I mean BP's has been public about trying to reduce cost by 15% to 40%. Chevron is trying to take pricing down 25% over the next two years back to '06, '07 levels. Is there rhetoric outpacing reality with regard to pricing deflation in general internationally, is question one.

I think one thing is they say pricing, but it's really their total cost or their cost to drill a well. I'm sure that those numbers that they're throwing out are based on their projections for oil price or gas price going forward and where it makes sense for them economically to continue to drill. We definitely are not, we do not have products and services that fall in or would result in pricing discounts that some of these guys are talking about 40%, 50%, that's clearly not the case. Now, if you're an operator with a rig and you can cut the rig cost by 50% on a day rate and then you can cut your OCTG and your marine transportation and all of these other costs by a large amount, then maybe their overall costs do come down, not to the numbers they're saying, but 30% or 40% by their overall costs. For us, their numbers are clearly much, much higher than the levels of discounts that we have been giving.

And with regard to the level of discounts that you been giving, what have those been?

Well, Bill, it ranges from which product or service you're doing, on the drill bit it's not a large number. Chris, do you want to comment?

I think it's important to note that we're a customer as well, so we've demanded similar concessions from our supply chain as well. So, there's clearly an effect where $137 crude had an impact on our costs and their costs, and as the price of crude has come down and the price of other commodities, they've expected to see a decrease and likewise we've expected to see a decrease. I mean the range is actually enormous if you look at the whole portfolio of products and services that we provide. We have been, in my mind, just as aggressive as any IOC in demanding concessions from our supply chain too.

I guess where I'm going with this is, as the year unfolds and, John as you sort of expressed, I think with sort of commendable candor, that while you don't necessarily say the international rig count and free fall, you also don't see a dramatic revival on the horizon in the near-term, neither do we. So, as you enter into 2010 with a relatively stagnant drilling environment outside of North America your international margins in 2010, do you expect those to be lower year-over-year?

We don't know really there, Bill. One thing that we as a service company and we always do is that we spend a lot of effort developing new technology and new ways to save costs for our customers and increase our margins. So, what we're focusing on aggressively, again, is to introduce these new offerings to our customers. Now, whether our margins are higher or not next year, to be honest is really dependent on volume of activity and how far down the levels go. So, I don't really want to answer that question because we really don't have the visibility over that.

Okay, and with regard to a relatively specific prophecy of yours, I guess calling for a bottoming in the U.S. land rig count this summer.

I think Chris can manage that.

And, Chris, that's premise on what exactly.

That's premised on our view of the price of natural gas and the fact that it can't go much lower than that, frankly.

So, if the rig count is moving, if it bottoms this summer, that's predicated on gas prices moving higher?

Predicated on them moving lower from where they are today.

But relatively stable.

Stable, yes.

Okay, go it. Last question for you, Chris, you mentioned that you expect there were 85 deepwater rigs outside of North America, 16 to be added between now and year end. You mentioned that you were on 19 in the U.S. How many of those international rigs were you on in the first quarter?

It was roughly the same percentage as our share in the Gulf of Mexico.

Our next question comes from Geoff Kieburtz - Weeden & Co.

I'm just going to, I guess, ask a confirmation question here. You emphasized your lack of visibility on the North American market but said, I believe, that you expect fundamentals to improve in the second half of the year. Is that correct?

That's correct, and what I'm talking about really is the fact the decline rates in the U.S., the lower drilling activity, some with all the stimulus package spending that's going on by the administration, maybe some uptick in manufacturing as inventories get worked off. So, we're kind of talking about those more macro issues.

Okay, and given what's going on with your cost cutting efforts and what you see going on in terms of pricing trends, if the rig count does bottom in June, July, I guess its Chris's projection, do your margins start going up on a flat rig count?

Well, Margaret, do you want to?

Geoff, I think we have a number of views as to when and where activity starts to recovery. I just don't think that we're in any position to provide guidance. I think if we were in a position to provide guidance we would have put that in the press release. So I know that people are keenly interested in margins and where to margins go and when do they start recovering, but we're really honestly not in a position to make that projection at this point.

Okay, and then on the international side I think you talked about pricing, you talked about your outlook for the overall level of activity, but as you pointed out there is an increasing number of deepwater rigs coming into the market over the remainder of the year. Would that mix benefit lift your international margins if all the other aspects of your projection were to hold true?

Certainly, we see the deepwater rigs coming in in our significant share we see that as beneficial to the margins. Now, whether that move moves the needle overall would be the question, but certainly we see the M-I business mix highly international highly deepwater oriented to be a positive in the year. And I think that's why they held in much better in the first quarter than the rest of the Smith operations.

And the last question on working capital, you talked about deterioration in the ratios in the first quarter but I wasn't quite clear whether you expected further deterioration in the ratios.

I do not. I think that there's considerable amount of focus, as I said in the earlier question. The first quarter is typically a little bit slower collection quarter, but we don't see any structural issues. We think that the collection will see good improvements in the DSOs in the second quarter.

So working capital should be a source of cash in ballpark.

We talked about on last quarter's call cash generation in '09 of somewhere in the $900 million range, I think that still holds.

I think we're almost at time there. [John], maybe a couple more questions if they're quick.

Our next question comes from Michael LaMotte – JP Morgan.

Margaret, the inventory numbers didn't really come down. I'm wondering if that's related to distribution or with the decline in sort of the more rig count oriented businesses even steeper than you had anticipated and will inventories be a source of cash in Q2, Q3.

Yes, I really thought that the receivables would be a little bit better in the first quarter but I think inventory was about where we had anticipated. We'll see the inventory levels continue to come down. You don't turn around a ship in a quarter, so I think that was about where we had expected them to be and we would expect to see further reductions in the second and third quarter.

Okay and then how should we think about Canada? I mean normally there's what $0.03 to $0.05 of decrement Q1 to Q2 related to Canada. Is that about the same this year do you think?

The crystal ball isn't working today but I would say that typically we've seen anywhere between a $0.03 to $0.05 earnings deterioration out of the breakup. So I think that certainly we would expect to lose $0.03, $0.04 I would think out of Canada.

Okay, so if we think about the 700 basis point decrement from Q4 to Q1 not being as bad Q1 to Q2, would that be including that impact of Canada as well.

I think what we were talking about were decremental margins and, yes, that would include Canada.

Last one for me, how often do you have to do a goodwill impairment test?

We have looked at that on a quarterly basis, but you are required to look at that on an annual basis and we do that in the first quarter of each year and that exercise was completed in the first quarter.

We'll take one more, [John], if you have.

Our final question comes from Pierre Conner – Capital One.

My question for Chris around the margin, specifically on M-I and if there's anything we should be thinking of relative to the startup of additional deepwater projects that will vary or is it just an increase in activity. In other words, were there additional training, hiring for Mud engineers or large volumes of mud brought out that kind of thing.

No.

So it should be fairly steady relative proportionately to your share of what you get started on.

That's correct. Our infrastructure and fee-full for the projects that are upcoming are largely in place so, no, I wouldn't anticipate anything of that nature occurring as we go forward.

Are the inventory turns in M-I faster or any different, for Margaret, too than the rest of the business in terms of getting some cost reductions in your inputs there? Do they flow through about the same speed?

I would say that the fastest turns would be in the distribution operations, but I think if you look M-I, M-I and Smith Oilfield would be relatively comparable and I think you'll see those start working off over the next quarter or so.

And follow up on speaking of Wilson margins, Margaret, you mentioned pricing in your oilfield segment, but would the margin [inaudible] there primarily volume and not so much pricing, and then if cost reduction comes through can we narrow it down there to say that we could see some expansion in margin, in adjusted distribution I'm talking.

I think if you look at the distribution operations, Pierre that is the most North American focus of the businesses. So, as John alluded to, our suspicion is that you will see the U.S. recount probably fall another 30% first quarter to second quarter. So that will adversely impact the volumes in the distribution operation. If you look at the first quarter, which I think is your question, that was largely volume associated, but there, as we alluded to in our comments, there were some pricing deterioration on the line side.

I think that wraps it up, [John].

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