Weatherford International plc (WFRD) Q2 2011 Earnings Report, Transcript and Summary

Good morning. My name is (Ashley) and I will be your conference operator today. At this time, I would like to welcome everyone to the Weatherford International Second Quarter 2011 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) As a reminder ladies and gentlemen, today’s call is being recorded. Thank you. I would now like to turn the conference over to Mr. Bernard Duroc-Danner, Chairman, President and Chief Executive Officer. Sir, you may begin your conference. Bernard Duroc-Danner – Chairman, President and Chief Executive Officer: Thank you. Good morning everyone. Andy will read his prepared comments and I will follow-up with the same. Andrew Becnel – Chief Financial Officer: Good morning. For the second quarter of 2011, we report non-GAAP EPS of $0.17 before excluded items. This is a $0.07 improvement over the prior quarter and at the high end of our guidance. Items excluded were $16 million after-tax or $0.02 made up a $13 million of after-tax severance and exit changes and approximately $3 million of after-tax expenses related to investigations. A reconciliation of these items can be found on our website at weatherford.com. Sequentially, the field accounted for the entire earnings uplift growing the operating income line by approximately $68 million or $0.07. An $8 million improvement and below the line cost was offset by an increase in the effective tax rate, which came in at 27.2%. On a consolidated basis, revenue increased $196 million sequentially or 7% and advanced $615 million or 25% compared to Q2, 2010. Consolidated EBIT before corporate and R&D was $421 million with operating margins at 13.8%, a 140 basis point improvement compared to Q1. Incremental margins were 34.8% companywide. Operating profit in our international markets improved $108 million sequentially as revenue grew 14% or $212 million. Margins expanded 580 basis points to 10.4% on incrementals of 51%. This international performance was partially offset by North America’s $16 million revenue decline and $40 million retreat in operating income as strong growth in U.S. revenue and steadily expanding margins were overwhelmed by the impact of Canadian breakup. The strongest regional performance came from Europe, West Africa, FSU, where operating income let $55 million on $82 million of revenue growth. Incremental margins were 67% as the winter seasonality in the North Sea, Russia, and Caspian abated and we experienced higher demand for drilling services, completion systems, and stimulation in chemicals as well as improved utilization in integrated drilling in Russia. In the Middle East, North Africa, Asia-Pacific region, revenue grew $42 million or 7% with the resulting $23 million uplift in operating income. Incrementals were 55%. Improvements in Asia-Pacific, particularly Australia and China helped to offset the impact of a full quarter of reduced activity due to political unrest in the Middle East and North Africa. By product line, well construction, integrated drilling, and artificial lift posted strong performances. Latin America added $30 million sequentially at the operating income line on $88 million of revenue growth. Incrementals were 34%. Argentina, Columbia, and Venezuela posted strong sequential performances. Drilling services, stimulation in chemicals, and artificial lift benefited from improved demand. During Q2, we generated EBITDA of $598 million with D&A running at $282 million. Capital expenditures were $364 million for the quarter net of $23 million of lost and whole revenue. Net debt increased approximately $145 million this quarter to $7.0 billion. Operating working capital increased $193 million. As of quarter end, the ratio of net debt to net capitalization stood at 41.5%. In July, we successfully renegotiated our revolving credit facility. Capacity was increased to $2.25 billion and maturity was extended to July 2016, while reducing fees and improving pricing terms. For the third quarter, we expect earnings per share of $0.24 to $0.26 before any excluded items. We expect seasonal recovery in Canada coupled with otherwise steady improvement in the U.S. and international markets. I will now hand the call over to Bernard. Bernard Duroc-Danner – Chairman, President and Chief Executive Officer: Thank you, Andy. I followed my own comments on Q2. Quarterly revenues reached new historical peak of $3.1 billion. Year-on-year growth was up 25%, while sequential growth is up 7%. It was achieved in spite of the Canadian breakup, which Weatherford is always the large financial event. We are, by far, the most Canadian of our peers. As a reminder for legacy reasons, Canada is still our second largest country by revenues. The international segment earned the quarter with sequential of $108 million improvement in operating income and 14% quarter-on-quarter growth in revenues. International margin recovered 580 basis points sequentially to 10.4%, as a result of 51% overall incremental. International performance is broad based. It was strongest in Russia, Caspian, North Sea, UK in particular, Australia and then China for Eastern Hemisphere. Columbia and Argentina for Latin America. The two highest performers company-wide were Russia and Columbia. MENA recovered some. It was held back in part by North Africa. Operating margins continue to be burdened by operating losses in Libya. The other factor is volume metric. The region is set up for materially higher business volume. Pricing, and by pricing I mean international pricing, was not a factor in Q2. Pricing will become a factor in forward quarters. The Canadian breakup and its key decrementals weighed on NAM results. The U.S. operations showed strong revenue growth. It grew at significantly more than twice the rate of the rig count and then higher margins, but the U.S. could not overwhelm, Canada is seasonal impact. What follows is a synthesis of how I see or we see 2011 unfolding. We expect 2011 closer to a 25% to top line growth on 2010, which is a little higher than 20% originally anticipated. The full year revenue growth should be stronger in North America than in the international segment, which is fairly obvious, at midyear North America shows a 50% year-on-year versus a modest 8% for international. International segment though, will have a strong second half finish to 2011. North America will strengthen further in the second half of ‘11 and it will be reflection of our position on and around wet shales, oil and heavy oil. We are, above all, a mature play and unconventional company, starting with oil, heavy oil, CBM, tight gas, shales and tight oil. This is a function of our proprietary formation evaluation, zonal isolation open-hole, closed-loop drilling, artificial lift, production monitoring and optimization capabilities. The second factor will be the rise of Canada as the North American play after years of lagging the U.S. And finally when it comes in North America, the catch up in volume and pricing of a number of product lines, whether supply/demand curve that causing the sweet spot, where we have particular strengths. This would include, front and center, artificial lift, managed pressure drilling, open-hole completion, directional, and formation evaluation. Positive pricing trends in North America will accelerate in the second half of 2011. The outlook for our international segments whether Latin America or Eastern Hemisphere has strengthened in the number of markets. Latin America’s second half '11 performance should be driven by Columbia, Brazil and Argentina, Columbia being the fastest growing in the region. Brazil will be scaling up with the execution of contracts. We expect the 2012 growth to accelerate driven again by Columbia, Brazil and Argentina. Argentina has performed particularly well. Mexico should also do better. We would anticipate our Mexican operation to improve in 2012 both land and offshore, including the deepwater segment. In fact, Latin America as a whole should grow in 2012 at a materially higher rate than in 2011. In Eastern Hemisphere, we expect a strong performance in the second half of this year from the North Sea, Continental Europe, Russia, MENA and much of the Asia Pacific. Australia and China will be the two solid performers in Asia. Few comments on MENA and Russia, MENA will improve in the second half and even more so in 2012. The major movers for us will be Saudi Arabia, Iraq and Kuwait. These three markets and our operational there will have the greatest impact on the region. Should we execute well in these markets, MENA will return to the pivotal role it traditionally played in Weatherford. North Africa has been the weaker link for MENA. In North Africa, Algeria and Libya are obviously the critical markets. Their prognosis is different. Libya is on hold and it saw some losses as we await the end of hostilities and a political solution. Algeria, on the other hand, is evolving positively. It is slow, but it is constructive. We are making progress on the ground operationally while the market is gradually improving. We expect late in the year and/or early 2012, a marked acceleration in client contracting activity in Algeria. And indeed, we expect Algeria to join Saudi Arabia, Iraq and Kuwait as the driving force in 2012 for MENA. In Russia, we anticipate the beginning of a multi-year cycle of expansion. It will be driven by the redevelopment of many of the existing oil producing reservoirs, using a different approach, having gradual opening to drilling of Eastern Siberia’s new reservoirs. Russia is the second largest oil flow market after the U.S. What happens there matters to Weatherford, particularly with the infrastructure and presence we have built in that market. As a synthesis, we side with those who view North America as a stronger for longer play. We are totally constructive on the North American outlook, particularly for the oil and liquid plays. With respect to the international markets, we see a much stronger prognosis than is presently recognized in both hemispheres. There is macroeconomic risk and many national imbalances are source of instability and potential economical reversal and all could be abruptly adjourned in the event of a deterioration in economic conditions. But assuming as the economists like to say, ceteris paribus, which means all things remain equal. We are very encouraged by both the near and long-term prognosis for oil and gas. There are strong secular forces to support that view. Calculating top line to profitability, we are planning on gradually higher North American margins for the balance of the year. Internationally, we look for continued margin improvements in the second half of the year with an exit rate considerably better than 2010’s 11% margin. With that, I will turn the call over to the operator for questions please.

(Operator Instructions) Our first question comes from the line of Jim Crandell with Dahlman Rose. Jim Crandell – Dahlman Rose: Good morning Bernard.

Good morning. Jim Crandell – Dahlman Rose: First question is going from a 20% increase in revenue to a 25% increase in revenue is a fairly big jump and just on my estimates for the second half, it would imply an incremental $300 million. Besides North America, where would you say, you have become more optimistic over the last three months that drives this higher revenue growth?

The Eastern Hemisphere, Jim. Jim Crandell – Dahlman Rose: Specifically countries?

I think it’s reasonably widespread. So, I’d say Europe, Russia, Middle East and Asia. I think if you exclude sub-Saharan Africa, we don’t see particularly strong growth in second half. It’s pretty much the entire hemisphere, spread around. Jim Crandell – Dahlman Rose: So, you think over the past three months that things look like they will unfold better in the second half than which you thought three months ago in the East?

Top-line wise, yes. Jim Crandell – Dahlman Rose: Okay. Could you talk in a little bit more detail, Bernard, how you expect some of the Persian Gulf countries to evolve here in coming quarters, and particularly, the speed at which Saudi, Kuwait and Abu Dhabi are going to contribute to your business here in the next two or three quarters?

I think in the case of Saudi and Kuwait the expansion which will occur will be mobilized and organized in the next six months. I think it will impact either Q1 or Q2. In fact, they will impact both because it’s normally spread of more than one quarter, as the volume ultimately translates into top-line. With respect to Iraq, it’s continuous. They can be lumpy depending on when contracts start and when mobilization is completed, but it’s continuous through the second half of this year and the first half of next year. In the intermediate run, it is not unreasonable to expect Iraq to be the largest player in the Persian Gulf. Jim Crandell – Dahlman Rose: Okay. Bernard, to what extent in the quarter just completed and looking at the second half are the cost reductions that you and Peter have effected in the Easter Hemisphere a contributing factor behind your improved earnings outlook?

I think everything helped. I think upgrading the quality of our skills, where needed is as important as lowering some of the overhead expenses. So, every bit helped. I will not credit – I won’t credit anything in particular, so I would just leave it at that. Jim Crandell – Dahlman Rose: Okay. And last question, Bernard, artificial lift in North America, I believe you’ve had two rounds of price increases, have you seen now the sort of complete impacts of the first round and I am assuming that you haven’t seen any impact on the second round of increases and that should be incremental here going forward?

It’s easy. We haven’t seen in the P&L yet and it’s not significantly the first impact. So, it always takes a little bit longer than is assumed. So, we expect to see the first impact in Q3 and Q4, and presumably the other ways of price increases in Q4 and in Q1. Jim Crandell – Dahlman Rose: Got it. Okay, thanks Bernard.

Thank you.

Our next question comes from the line of Brad Handler with Credit Suisse. Brad Handler – Credit Suisse: Thanks. Good morning.

Good morning Brad.

Good morning Brad. Brad Handler – Credit Suisse: Can you guys please just step through a couple of pieces of your guidance for us, just to flush it out a little bit? So, for example, maybe you can share your assumptions for Canada in the third quarter with respect to revenue recovery?

Sure, Brad. I think that let’s just talk about North America as a whole. I think if we think in the area of revenues up 10% sequentially, maybe a little bit north of there, the drop obviously was severe from Q1 to Q2 as it always is for us. Typically, we get back about 50% to 60% of that revenue drop sequentially going from Q2 to Q3. And I would expect obviously coupled to be – and the incremental margins to be more robust than you might expect somewhere in the 40% to 45% area for North America sequentially. Brad Handler – Credit Suisse: Got it. Thanks. And then I guess I’ll just stick with the same theme, the prognosis for stronger Eastern Hemisphere, it sounds like it is quite broad. What are the incremental margins outlook for the second half of the year conceptually to your own to put yourself on the spot I suppose?

Yeah, if you’ll be kind enough to let me focus on Q3, so we don’t get too far ahead of ourselves here. I think that on the revenue growth side something between 5% and 7% and incrementals in that 35% plus range going from Q2 to Q3 internationally. Brad Handler – Credit Suisse: Okay. All right that works. Thank you. I appreciate that color. Maybe last one for me, any updates on your CapEx plans for 2011?

No, I think, Brad it remains where it stands. We will make plan shortly for what needs to happen a little bit later on as in Q4 and Q1 looking into 2012. But for the balance of the year, I think it remains where it stands. Brad Handler – Credit Suisse: Does the allocation or has the allocation shifted at all even within your ‘11 spending just based on your apparent….

Yeah. And Brad, it’s a good question and yes it has. It did shift about two, three months ago. So, it’s not a recent phenomenon. Yes, we are spending a bit more in North America as you would expect. So, I would say right now, it’s probably a one-third, two-third. One-third, North America, two-thirds rest of the world, and this is rough, but you are close to reality. Brad Handler – Credit Suisse: That works. I will turn it back. Thanks guys.

Thanks.

Thanks Brad.

Our next question comes from the line of Will Herbert with Simmons & Company. Will Herbert – Simmons & Company: Thanks. Good morning.

Good morning Will. Will Herbert – Simmons & Company: Yeah. Andy, just sticking with North America for a sec, applaud the relatively conservative guidance, but if you have a similar relationship with regard to U.S. revenues versus land rig count, which is I mean, the land rig count is already up 4% quarter-on-quarter, and we are only July 26 here, and Canada is snapping back pretty hard as it typically does especially following a pretty severe breakup, 10% revenue growth quarter-on-quarter, that doesn’t strike you as conservative?

I think that’s what we’d like to stick with, Bill. Will Herbert – Simmons & Company: Okay.

And I think maybe as opposed to thinking how high the incrementals maybe again it’s something tempering our thoughts on how robust those incrementals can be and we are not talking about 50% and north of that. We think our Canadian operations, it was a brutal spring breakup from a weather perspective, but we think our Canadian operations did a very good job with respect to I’d just say tactics in terms of scheduling work. I think they did a good job of managing the cost structure. We have done that better last two years that we have in the past. Will Herbert – Simmons & Company: Okay.

So, I think if they performed a bit better and as masked by I’d say it’s up for weather that was experienced up there. So, I think there is a little bit less for us to get back from an operational leverage perspective than sometime there is. Will Herbert – Simmons & Company: Okay. And secondly with regards to the roadmap for international margin improvement second half of this year, 10.5% round numbers second quarter targeting substantially better than 11% for the fourth quarter should we get the bulk of that in the third quarter based upon the seasonal tailwinds that you are going to have in Northern Europe.

I think well it’s likely to be restaged in Q3. You get some in Q3 and some in Q4. We are not suggesting it will happen in Q4. It will be staged essentially because it will come out of different parts of Eastern Hemisphere and Latin America, some rising and some on the contrary settling down temporarily for few months, seasonality and things like that. Will Herbert – Simmons & Company: Okay. Last question I have is back to your comment, Bernard, with regard to the North American outlook, and I think justifiably talking about a series of product lines, which have yet to really inflect and should be coming down the road, especially lift. One thing that I’m sort of curious about is the revenue per well opportunity on this backlog of new generation wells that are building, costing call it $5 million to $10 million per well to drill and complete versus what used to be $1 million well to drill and complete. Have you thought about the revenue per well differential if you will on this new generation well that's being drilled today versus what used to be the case?

Yes, I will. It’s a complicated question because it depends as in everything else in our business, it depends on the well, it depends on the reservoir, it depends on the location. But maybe what follows will be helpful, roughly 25% what North America sells top line is artificial lift for U.S. Will Herbert – Simmons & Company: Okay.

So you can derive the numbers. What we are noticing is that on not only on the wet shales, but also what we call tight oil and also tired oil, being developed with different approaches using the lesson learnt from the experience of shales. When noticing that the billings and the equipment specification of artificial lift is more than two times, while it normal is. And which you have to think of, when you look at the artificial lift business as you got capital good segment and you got maintenance segment. Obviously a new well, cost of capital goods, the minute it goes in the wellbore, it starts a maintenance cycle. So, it's razor and razor blade, if you will. Definitely the capital goods segment or the artificial lift business is going to see, and I think it's beginning to happen now, you can see it; is going to see more than doubling of its size. And then there will be tail effect, which is slower to come through the P&L through the maintenance cycle is very powerful as it spreads throughout the entire market of wells that we are maintaining throughout North America. So, that’s probably as granular as I can get on the issue, but definitely there is artificial lift aspect to what’s going on. I would also add one last point, which is, we tend to be in North America not only because of the artificial lift, but in general we tend to be later cycle. In another words a lot of what we see in terms of volume in pricing is very often two or three or four quarters after the first wave of other product lines benefit. Will Herbert – Simmons & Company: That’s helpful. Thank you.

Our next question comes from the line of Ole Slorer with Morgan Stanley. Ole Slorer – Morgan Stanley: Thank you very much. Bernard, could you comment a little bit on the US, specifically not Canada. How far of sort of historic peak margins are you running at right now in the US?

It’s running approximately 10 percentage point below our peak margins. Peak margins is defined by a peak that we have a couple of quarters which was higher than the yearly peak, a few years ago. It’s about 10 percentage point below. Ole Slorer – Morgan Stanley: Okay, so your old margins will (indiscernible) annual about 28% to32%.

30% to zero, and then so what I’m trying to say is that, our US is bumping around 20% right now. Ole Slorer – Morgan Stanley: And which product line – I know that artificial lift was late in terms of realizing margin improvement, it was may be earlier in the pricing cycle, but it’s big backlog business, so, timing there. Is artificial list still, it sounds like a familiar question, still the lagging component? What sort of visibility do you have based on current pricing and facing of this business relative to say what you are executing from backlog? Can you describe that a little bit?

Artificial lift like completion, but more so than completion is not late. It just happens actually at this stage. Typically supply chains of players in artificial list needs to be filled up. Then you reach a point where there is simply not, no ease of delivery, and the barriers to entry in our business are high. And so, there is a response to the pricing curve. And also artificial lift tends to occur not only when the well is drilled and completed, sometimes it tends to occur a month or three months or six months after the well is drilled and completed. After the natural flow it becomes extinct and you move to artificial lift requirement. So, all of these made for later cycle play. And a later cycle play doesn’t mean a late cycle play. It just takes a little bit longer to blossom. This is historically always the fact. That’s number one. So, how much visibility do we have? It is a backlog business, so we have quite a bit of visibility on the volume on the type of volume, meaning the type of equipment and specification which is why I answered the question of your colleague earlier on the intensity of use of artificial lift, it has quite a bit of visibility on the pricing which is within the backlog. Ole Slorer – Morgan Stanley: And what is the pricing right now relative to the backlog?

You mean how much of the backlog is priced at a higher price? Ole Slorer – Morgan Stanley: Where is the new business right now, how much profitable is that relative to what you executed in the second quarter?

It’s more profitable. Ole Slorer – Morgan Stanley: Is it a step change or is it?

Let’s just find out. Ole Slorer – Morgan Stanley: Imagine if it’s 10 percentage points below on the US business, so this business should be more than that. I was trying to sort of get some kind of feel for the magnitude.

Let’s find out. Let the passing of time find out. I’m not going to give you an answer right now. Ole Slorer – Morgan Stanley: Okay, okay, sorry, if you are looking out.

If you were keen – I meant let’s talk about in three months and so forth, so I meant only – I’m not looking at the document. Ole Slorer – Morgan Stanley: Let us try to get down to your third part of guidance, which I find refreshingly conservative. Andrew, question for you, you've burned cash this quarter and increased net debt. Could you kind of consolidate that with the goal of reducing working capital and becoming more efficient and CapEx?

Yes, Ole, the CapEx outlook hasn’t changed. We spent about $700 million halfway through the year and the guidance remains at $1.6 billion. Really if you look at it on receivables and payables, basically balanced out our growth within inventory. Our DSOs improved by two days this quarter, but still we are about 12 days away from our DSO goal for the year. And inventory has built as you would expect it to for things like artificial lift and completions where we see strong ramps in activity and it’s our built in our well construction business where we have high demand for some of our newer technologies and then there is other bits and pieces of the things. Remember we are quite vertically integrated with respect to building many of our own kits that we put out there on a service model. So, we, in fairness with a more robust revenue outlook and activity outlook for the balance of the year and what we see coming up it’s while we drive hard on operations on managing that inventory number and trying to get more efficient there with our capital all the way around, not just on inventory. We do need to allow them to have the capital they need to grow. Ole Slorer – Morgan Stanley: Absolutely. Could you update us on the current metrics for how we should think about working capital intensivity on incremental revenue? Is it $0.30 on the $1 still or?

No. $0.15 to $0.20 is what we would expect it to roll into for the year. Ole Slorer – Morgan Stanley: Okay, very good. Thank you very much.

Our next question comes from the line of Angie Sedita with UBS. Angie Sedita – UBS: Hasn’t been said, but nice quarter.

Thank you, Angie.

Thank you, Angie. Angie Sedita – UBS: Bernard, regarding your comments on international margin guidance for Q4 2011, your commentary is that it will be meaningfully higher than 11% trying to defer that, does that imply that we could actually see margins in Q4 in the high-teens?

I don’t know, Angie. I don’t know. I can see the trend, but beyond that I wouldn’t put any specific number on it, I’d be afraid to. So, I can see the trend, it’s positive volume, it’s positive in terms of execution quality and it just might get positive in terms of pricing. So, I don’t want to give you the same answer I gave earlier which is let time answer, but I would just say that I hate to put a number on that because I’ll be wrong. Angie Sedita – UBS: Okay, okay, fair enough. And then if you look at MENA margins in Q3 that’s coming quarter, 5.5% in Q2, could we be obviously as you still with Libya, North Africa, could we be at low double-digits in Q3 in MENA or is that a stretch?

MENA margins are very low, Angie. Angie Sedita – UBS: Yeah.

They are very low, but in large part the reason you mentioned, it’s not natural for MENA to be that low. On the other hand, MENA will be – I talk about volumetric issues. MENA has quite a bit of business which is booked and which is a good thing. MENA will be mobilizing, organizing, and so forth and so on, which you’ll hear it so often that you’re probably tired of hearing it. It’s very seldom and efficient way to maximize earnings and so forth. So, you have to take that into consideration also. I’ll leave it at that. I don't disagree with you, but it is not naturally low level of margins for MENA where we are right now that we are all very clear of. Angie Sedita – UBS: Right. So, as far as the progression of margins, MENA will be the slowest for the remainder of the year based on what we see today?

It will be – it will progress. It will progress. Yes, it will be slower than its colleagues in European, Russian, Caspian play. And yes also it actually will be slower than Asia. Be mindful of one thing, I maybe wrong on this, Angie, if I am wrong you will correct me, but I think our peers tend to put North Africa in the European FSU as a sort of sub – what we call sub-Saharan Africa, what they call Africa, sort of region. So, the MENA, Asia-Pacific is just the Persian Gulf and Asia. We, on the contrary for historical reasons, have North Africa within the MENA, MENA and Asia-Pacific region. So, in a way for us the handicap having a limping North Africa is on the one side of the reporting as opposed to the other for our peers, that’s all. I may be right on this and if I am maybe I want to think about it when you look at margins. Angie Sedita – UBS: No, yeah, no, you are, everybody else reports it differently. And then separately, final question, both on asset sales and the revolver, update on the asset sales. Could we see something potentially in 2011? Are you still aiming for potentially a $500 million to $1 billion in asset sales? And also you raised the revolver, why was it raised? It’s a fairly large revolver. Is that for M&A or potential FCPA fines? Could you give us a little color there?

The letters are easy. The revolver is coming due. So, as a point of normal management, we’ve renegotiated a new revolver, it’s a better one. The terms are better in all respects. It’s also a larger one. So, no other reason that liquidity is always good. There is no designated use of proceeds what so ever including the two categories that you mentioned. So, none what so ever is just good execution on the financial side. With respect to the sales of assets, I don’t think we will have anything sold this year. It’s a bit too quickly for us. It is organized methodical and also I’d say reasonably a low profile process. Remember that what we are selling will be essentially the few non-oil and gas assets we have and few oil and gas assets that what we would believe that there will be more valuable than some else’s had. There is no what we do. So, these assets will come on the market at the right time. They will be auctioned. If they auction is successful well we will part with them. And if the auction is not satisfactory, we won’t. We will be very relaxed Angie. It will take place between now and I’d say at the end of next year. Yes, I do say we will net in the range of $0.5 billion to $1 billion is very reasonable, yes. Angie Sedita – UBS: Okay, great. Thank you.

Our next question comes from the line of Robert MacKenzie with FBR Capital Markets. Robert MacKenzie – FBR Capital Markets: Thank you. Good quarter, guys. I wanted to ask a couple more questions on lift from a little bit different perspective I guess. In the second quarter, how would you describe the trajectory of growth in lift volumes, Bernard? And as part of that, what do you guys think is kind of the normal lag between when a well is drilled and when the lift is actually installed, specifically in the U.S. right now?

First of all in second quarter remember this volume was skewed because of Canada, that’s number one. The number two, with respect to the lag its anything from 30 days or meaning as the well flows then you will have to testing the well as need then you will proceed with the installation immediately of lift and typically some production optimization, software and hardware or we have to waiting in some anywhere from 6 to 12 months before you will put in artificial lift system on it. So, that’s your range and it really depends on the plane 100% on the plane. Robert MacKenzie – FBR Capital Markets: Okay. In terms of the coming back to the trajectory part of my question, if ignore Canada, what would you say the U.S. trajectory of lift volumes look like April, May, June?

It looks healthy. But the rate at which should I think it operated was lower than the rates, which we booked business. Robert MacKenzie – FBR Capital Markets: Great. Okay. Fair enough. And then kind of the next leg, if you will, some quarters and months out, international lift, internationally, typically, raw lift has not been as big; it's really been more of an ESP market; but the signs are very clear at this point that unconventional resources in international markets are going to be more relevant a year or two from now. What do you guys think of strategically in terms of how you position yourself to maximize your share of the lift market internationally as unconventionals grow there?

Well, first of all remember that internationally we play not only in rod life, but in progressive cavity lift and gas lift and hydraulic lift. Remember also that we are I think by far, and I don't think anyone would begrudge us that, but the largest production optimization in lift company worldwide. I think the number of wells that today oil or liquid oil because I add the gas segments is a much bigger number that on production optimization organized and managed by Weatherford exceeds 100,000 wells worldwide and its not all in North America. That’s number one. Number two, remember also that although we do not consolidate, we play in the ESP market through our ownership in Borets, which is the largest Russian ESP supplier. So, setting that a side, I will say that without the doubt the more unconventional you go in oil and the more the developments of the ideas and the approaches of the United States on and around the shale spread to the rest of the world, including applications of the same approach and technologies in place that are not shale, but are simply a oil formation that could benefit from being redeveloped. All of these developments are very, very bullish from a secular standpoint for artificial lift and production optimization, particularly of the kinds that we seem to excel in. I think it’s good for ESPs also. It’s particularly good for the other forms of lift. I think are more design and more economic for the type of flow and the type of depth and the type of downhole conditions that you have in the shales and shale look alike in terms of technology type of wells. Sorry, for the long answer. Robert MacKenzie – FBR Capital Markets: That’s very helpful. Thank you. I guess the final line of questioning I have was, coming back to some comments you made earlier about the split between the cap goods portion of it and the maintenance aspect of it. Can you give us some more color as to how we should think about the size, the timing and how long that tail of maintenance last? In the sense how do we think about modeling based on the proliferation of wells, how long often do they need to be worked over?

It’s hard to give you the answer, particularly on a conference call, that’s sensible. But I’ll try nonetheless. The capital goods, as I call it, is immediate or maybe it’s within three to six months at the most it’s within a year. I would say most of it is within zero to six months. That’s clear. It’s also clear that as a type of wells being drilled either for the shales that are wet or for the – what we refer to as tight oil or shale oil plays and/or tight oil which gets redeveloped using different approaches, I think all of that creates a big lump of expansion on or around the capital goods segment. The maintenance, what you might want to think of is use of the number of about a year, that number is wrong, but I mean think about a year after the first installation, so the maintenance cycle for that particular well to be alive. In other words the first intervention for –you call it workover, it's not really workover, it's just production management and you go back in and you would change components of the tools etcetera, etcetera. So I would say that every year, as the capital goods segment expands, you've got a tail effect a year later on the maintenance side which builds up. These artificial systems are maintained continuously for the entire life of the well bore, definitely like a razor blade, the bid goes back. Robert MacKenzie – FBR Capital Markets: Thanks very much. I appreciate it.

Our next question comes from the line of James West with Barclays Capital. James West – Barclays Capital: Good morning guys. Bernard, you mentioned in your commentary that international pricing would become a more of a factor over the next several quarters. I was curious about the magnitude of pricing gains that perhaps have been achieved so far that are on contract that will start in the near-term. Then where you think the market you and your competitors are bidding for jobs that perhaps haven’t been awarded but could see even better pricing gains?

Difficult just to give numbers on future pricing and even on pricing that have been booked in international markets for competitive reasons James. I will say this as I look at some of the things that have aided us in the past and we may not be the only ones in this situation. I would say that the level of pricing declines that we experienced in international markets certainly would be a big factor. And so, widely that happens that's a different discussions, and perhaps we didn't cover ourselves with glory and how we managed the decline in terms of pricing. So, that’s a management lesson to be learnt there. But aside from that, it also means that there is quite a lot of historical attitude to get pricing back. James, the level of pricing deterioration that occurred and we're still sort of going through that backlog now, although I don't think it will last terribly long, we're still up. It's pretty remarkable in all my years. So just take the past in this case as an indication, but in a more constructive way of what the future could hold in for us in terms of pricing, perhaps the industry in general in the international markets. James West – Barclays Capital: How far below do you think market pricing you are or were during the downturn then?

I don’t know. James it's an impossible question to answer, too complicated, too many product lines, too many contracts. I just look at the overall effect and it’s – you can’t generalize that. And you just can't print something on that and say, well, they were X percent, look because it’s not something that’s – I think that's granular. But just know that the level of pricing deterioration was such that there is just a lot to recover and I'll leave it at that. James West – Barclays Capital: Okay, understood. Just on North America, given the weakness you saw in Canada in the quarter, heavy incrementals or good incrementals as you come off into the third quarter. Should we think about fourth quarter North American margins, perhaps in the 25% plus range?

I think that that would be aggressive James for where we’re coming from and I know at this point seasonality in the winter times, not clear where the folks who work through the holidays this winter. So I think that’s a bit aggressive and optimistic. James West – Barclays Capital: Okay, fair enough. Thanks guys.

And our next question comes from the line of Joe Hill with Tudor, Pickering, Holt & Company. Joe Hill – Tudor, Pickering, Holt & Company: Good morning. It was a pretty good quarter guys. Looking at a very strong performance in the Europe, West Africa FSU market just trying to delve a little deeper into that, Bernard you mentioned Russia, obviously you've touched on your ownership in Borets. Was the ESP business in Russia a very strong contributor to that performance?

No. Joe Hill – Tudor, Pickering, Holt & Company: No.

It was a good contributor, in terms of delta, no. Joe Hill – Tudor, Pickering, Holt & Company: Okay. What about the businesses you acquired from TNK?

That’s the big chunk of what we have. So you just described much of our Russian region. Yes, of course. They’re well integrated. They are performing well. So, obviously, the credit ought to go to the performance of the region in large measure to Russia, not entirely, not measure to Russia. Therefore so the assets that we acquired and that we integrated well two years ago now. Joe Hill – Tudor, Pickering, Holt & Company: Okay. And then I think you guys had said Canada was likely to be a nickel hit from Q1 to Q2. It sounded like based on the qualitative commentary that it was a bit worst than that?

Nickel is right in the range. Joe Hill – Tudor, Pickering, Holt & Company: Okay, okay. And then you guys have talked a little bit about Algeria accelerating into year end with maybe Sonatrach doing a bit better. And I think Bernard you had said in the prior call that you were hopeful that you'd be up to three strings working by June. Can you give us an update on what that acceleration means in the context to your prior commentary?

The acceleration I was referring to is what I suspect will be the beginning of a number of different tenders and contracting opportunities that would open up in Algeria. Really, those opportunities sort of occurred six to nine months ago. I do think you have the penalty, if you will, for the relative chaos that’s surrounding Algeria from all sides. I think Tunisia, think Libya and of course, Egypt fell that way that resulted in delays and decision-making and so forth. I think that by the end of the year or it could be in Q1, I mean these things are split, you will have in our judgment a sizable expansion in the amount of business volume being led out by Algeria’s market as a whole. With respect to our operating capabilities in Algeria we should have touchwood in the matter of literally days would have all five strings operating, hopefully well.

Joe, let me correct something, the nickel was the net impact in North America approximately, it was really $0.04, but the Canadian impact itself was circa $0.10 down. Joe Hill – Tudor, Pickering, Holt & Company: Okay, that’s very helpful. Thanks Andy. And finally just to follow-up with the last question here, I noticed you guys cited Venezuela as being a relatively strong performer this quarter. Obviously, the outlook for the country’s leadership there is a little bit in doubt. Are we able to maintain that strength of performance in the short run or do you think that’s going to tail off?

I don’t think the performance was a big deal either way. I think in Andy comments, I think it tries to provide just as many countries that had a positive impact as possible. I wouldn’t single out one in particular, except it was a major one and that wasn’t the case in Venezuela. With respect to political situation in Venezuela, gosh, it’s very hard to speculate on the medical condition of the leader, let alone the implications if his medical condition is not a good one. So, we’ll take it quarter-by-quarter. We keep Venezuela at a reasonably modest size. It’s a very important market in terms of reservoirs. So we’re very aware of this. It is also a market which has more and more returning foreign presence, you'll probably have to wonder why, because lack of alternatives, so you have a number of different companies going back, Russian companies of course, there are also some large IOCs going back. So, I think it behooves us to stay active in the Venezuela, but in a cautious way. Joe Hill – Tudor, Pickering, Holt & Company: Okay, fair enough. Thanks guys.

And our next question comes from the line of Mike Urban with Deutsche Bank. Mike Urban – Deutsche Bank: Good morning. Bernard, you've said a number of times that you are clearly pretty heavily under absorbed in MENA. What's the extent of that? How much would you say you are under absorbed in the region? Maybe another way to look at it is, how much would the revenue need to grow to get you to grow into your cost structure in the region?

I think if we grew by 10% to 20% volumetric-wise it would be enormously helpful. I think also that’s item one. I think we summarize the MENA problems into three buckets if you will. One is pricing, that’s going to work itself out, two, volumetric which means that we will be happier with 10% to 20% volume growth. Its simplistic, because it depends on the product lines and service line, but let’s stick with that, and three, I think it’s fair to say that traditionally Weatherford has been very largely in MENA and very largely within MENA in the NA in the word MENA, which is North Africa. So, we have undoubtedly probably being hit the hardest with the events in North Africa, Egypt, Tunisia, and Libya, and even though it’s not a North Africa even which was a very high margin business for us. So, I’m not complaining, it is what it is and it will heal, but that’s the third factor. Mike Urban – Deutsche Bank: Okay, very helpful. And then it sounds like you are seeing pretty broad-based improvement in the Eastern Hemisphere, I guess, the with the exception of Sub-Sahara Africa, you mentioned not a big region for you historically, but if you could update us on what’s going on there both in general and specific to Weatherford?

I think SSA will have a bigger prognosis in 2012 coming out of a far more market than historically the Continent had. I think the opening of different markets in Eastern Africa, which really are brand new, if you think about it, you’ve gone to Kenya and places like that, all the way down to Mozambique, is very promising. I think on the Western side of the market. I think you’ll find the former French colonies and Angola, all the way down to the South, also a very promising 2012. It’s just that they just won’t do very much more than we can say at least for us in the balance of the year. That’s all. Don’t read more into it, Michael. Mike Urban – Deutsche Bank: Thank you. And then last question is some lucky had a good quarter in the UK, North Seas, what is the prognosis there given some of the tax changes. Sounds like if anything it would be a 2012 event, but I would be interested in your take on that one.

The U.K. has granularly functioned the same way which is, business conditions improve and then the U.K. treasury slams the industry with taxes, business conditions deteriorate. This time, it seems to be a little bit different. Business conditions improved and indeed, right on time the U.K. Treasury slammed the industry with numbers of different taxes. I do think that in spite of that activity and plans we are still looking very robust for the second half of the year in 2012, and of course, second quarter activity was very robust. But then some of the changes that were made or givebacks if you will, and they’re pretty arcane, Michael, the taxes changes that were given back by the U.K. treasury – so please don’t ask me to explain it, I will have a hard time. I tried to understand it, it wasn’t easy. But as our clients are telling us, the givebacks in terms of taxes by the UK Treasury have been very well received and it seems now that activity in the UK second half and also next year is really looking very bullish. Norway is more sort of predictable, reasonably subdued in single-digits. UK will be more I think not much delta in terms of volume. Mike Urban – Deutsche Bank: That’s all from me. Thank you.

This is the last question. There is no other conference call immediately after us. So operator just one last question, please?

Our last question comes from the line of Robin Shoemaker with Citi. Robin Shoemaker – Citi: Yes, thank you Bernard. Yesterday, one of your competitors talked to us about the international market and indicated that there was a potential to renegotiate some contract terms on existing contracts as one way of improving international margins apart from, of course, pushing for higher pricing on new contracts. And I just wanted to ask you, if that is an opportunity or you see that as potential opportunity even in a small way to improve your existing international margins?

Robin, yes it is, double-edged. When you do that typically you try and have some more time, and you typically don’t get as much as if you just wait for the expiration of the contract and then you basically go back to market terms. I mean, there is nothing new under the sun. The client will listen to your pain and your frustration, and to be fair, doesn’t have to really move because a contract is a contract, but will with a quid pro quo, and a quid pro quo, Robin, centrally that we extend the contract by X amount of time. So, that’s the choice you have to make as whether the immediate benefit is worth the more mediocre outlook longer term. Robin Shoemaker – Citi: I see, okay. It’s interesting. The other thing I wanted to ask you is quite a bit of discussion here recently in this call this quarter about the emergence of international shale plays. And I just wanted to ask you broadly how you approach that opportunity with your existing suite of businesses or whether in the international shale arena there is potential for Weatherford to be involved in providing hydraulic fracturing services in markets where those would be part of the service?

But remember, that although we only have one-fourth or one-fifth in terms of amount of horsepower per share, per share of stock market share of stimulation capacity in North America, we are very active in the hydraulic stimulation market. It is a business, which has low barriers to entry, so you can expand it reasonably readily and easily. In the international market, we are focused on a number of discrete plays, which I will just name a few right now, but others that I just would like to just not to mention, but we’re focused on Argentina, we’re focused on Continental Europe, we’re focused on Russia, we’re focused on China. And in those markets, we seek to offer a broad suite of capabilities ranging from formation evaluation, where we feel we have formation evaluation capabilities that no one else has, either individually or collectively, open hole isolation technology, which again we consider to be one of the best in the industries, that’s item two, and of course artificial lift and production optimization, and underneath all of this, of course, hydraulic fracing. So, yes the international play is one that we are very focused on and it’s one which is going to be a little bit different in each country, I mentioned a few countries, there are others. I would say that for a supplier like us, you have to pick your battle and you have to be both aggressive and watch execution very carefully. Robin Shoemaker – Citi: Right, okay. All right, well, thanks very much Bernard.

Thank you. Bernard Duroc-Danner – Chairman, President and Chief Executive Officer: This concludes our call. Thank you very much. There is another call after us. So, we’d like to leave the opportunity to all the audience to switch to the other call. Thank you again.

Thank you ladies and gentlemen. This does conclude today’s conference call. You may now disconnect.