Good morning. My name is Lori, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weatherford International First Quarter 2015 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] We ask that you please limit yourself to one question and one follow-up, then reenter the queue for any additional questions that you may have. As a reminder, ladies and gentlemen, today’s call is being recorded. Thank you. I would now like to turn the conference over to Ms. Karen David-Green, Vice President, Investor Relations and Corporate Communications. Ms. David-Green, you may begin.

Thank you, Lori, and good morning, everyone. With me on today’s call we have Bernard Duroc-Danner, Chairman, President and Chief Executive Officer; and Krishna Shivram, Executive Vice President and Chief Financial Officer. Before we start our comments, I would like to remind our audience that some of today’s comments may include forward-looking statements and non-GAAP financial measures. Please refer to our first quarter press release for the customary caution on forward-looking statements and a reconciliation of non-GAAP to GAAP financial measures. I’d like to also announce that we are hosting this call from Geneva. And now, I’d like to hand the call over to Krishna.

Thank you, Karen, and good morning, everyone. I would like to start by commenting on our first quarter results. Loss per share before charges and credits was $0.04. Revenue of $2.79 billion for the quarter decreased 25% sequentially and 22% year on year. Excluding the impact of the divestitures of 2014 the revenue declined by 23% sequentially and 16% year on year. Operating income margins, before R&D and corporate expenses, declined 626 basis points sequentially and by 264 basis points to 8.5%. Total sequential decrementals were an excellent 33.5% compared with 49% in the first quarter of 2009. North America bore the brunt of the down cycle, with decrementals of 48.8%, with international operations performing strongly with decrementals of only 9.7%, while the land drilling rigs business swung to a profit in the first quarter versus a small loss in the fourth quarter of last year. Let me now detailed the results by reporting segment. North America revenue of $1.2 billion reduced 34% sequentially and 28% year-on-year, with margins entering negative territory at minus 0.8% as the vertical drop in land rig count, combined with an early break up in Canada, was further aggravated by pricing declines across all service and product lines, with pressure pumping suffering the most. While our cost reduction efforts were aggressive, they could not keep pace with the drop in revenue. International revenue of $1.4 billion declined by 17% and 13% sequentially and year-on-year, respectively. Despite the reduction in revenue, international margins were up 120 basis points sequentially and 301 basis points year-on-year to reach 16.6% in the first quarter, bucking the trend in the face of a cyclical downturn. Let me now examine the international results by region. Latin America revenue of $486 million declined 27% sequentially, but only by 5% year-on-year. The sequential…

Thank you, Krishna, and good morning, everyone. Since this is on Q1, Q1 earnings per share is a loss of $0.04. The $0.04 loss includes $0.03 of non-operating penalty from taxes and booked foreign exchange losses and $0.01 of corporate additional expenses. As Krishna mentioned, operations delivered results at breakeven. Revenues dropped sequentially by 25%. Decrementals operating income on revenues were held at 33.5%. Free cash flow came ahead of our expectations. The geography fully explains the quarter. International did very well by any standards. NAM was miserable. Our international segment held up very well despite the market declines. Our international margins actually rose sequentially. Revenues dropped 301 million, or 17.3%. Operating income held up remarkably well, dropping only 29 million or a very muted 9.7 decrementals. Incremental margins rose sequentially Q4 on Q1. Year-on-year operating income is actually higher than Q1 of 2014. It isn’t that we are not affected by market declines. Depending on the country, underlying market activity plummeted by anywhere from 10% to 30%, while pricing concessions average overall high single-digit and seasonal trends made the declines that much worse. Q1 is normally the weakest international quarter. Foreign exchange factors also added a further depressant effect. Consider the direction of the euro, rubel, kroner as well as the currencies of Canada, Brazil, Australia, Argentina, etcetera, and even the U.K. pound. This is a broad movement. All went down vis-à-vis the U.S. dollar by anywhere from 10% to 40% and that isn’t counting debased currencies such as Venezuela’s. So performance for our international segment was very deserving across the board and, more importantly, it is one that will be sustained in quarters ahead. The explanation for the performance is simple: it is all about discipline and discernment on business sort. It is also about people selection. It…

[Operator Instructions] Your first question is from Jim Crandell of Cowen Securities. Your line is open.

Okay. Thank you. Good morning, everyone.

Good morning, Jim.

Bernard that was an excellent rundown. Krishna, too. And I may be – I may have missed these comments, but essentially you’re talking both in North America and internationally your base plan is for no improvement in activity. And your results will improve in the second half in all regions, mainly as a result of cost reductions. Where – can you give us, as you enter 2016, what you would think would be a run rate for margins and profitability going into the year? So as you are poised then to benefit from increased revenues, we can better estimate sort of profit potential going forward.

So, Jim, we are comfortable to say that the exit rate for North America by year-end will be mid to high single digits, given our cost reduction plans and our expectations for activities. So that will be our exit rate in Q4. And internationally, we’re looking at high teens at the very least, if not approaching 20% operating margins, going into 2016.

Okay. My follow-up is could you talk a little bit about the differences in North American product lines? I think if you looked at your different product lines in the past, we’ve had losses in pressure pumping, fairly low profitability in formation evaluation, and then stellar profitability in everything else. Do you still have huge differences in profitability in different product lines or have the good ones come down meaningfully at this point?

A little bit of both. If you look at the performance, you’ll find that TRS cementation, our liner hangers are done at absolutely excellent margins. You’ll find that rental tools or drilling tools and stimulation have been devastated, stimulation being the worst, clearly. You will find that lift was resilient, albeit lift and completion both in Q1 took on some serious manufacturing unfavorable variances. There’s no way around it, Jim. We slammed the brakes towards the end of December, early January on a very heavy supply chain. 90 days to shut things down volume wise, creates really some very, very serious unfavorable variances. They will not last. If you exclude that actually analytically, the performance of completion liquid would have been very, very much what you would expect. Formation evaluation was also on the sort of on the red side of the ledger, not in terms of losses, in terms of being the ones that did not do well because they were not that profitable to begin with. So let me summarize. Anything that has to do with well construction did very, very well. Lift and completion did honorably, but not as well as they would have done simply because of manufacturing, especially the manufacturing slowdown, which is so drastic. And FE and rental tools and stim, stim being the worst by far, did miserably. So in many ways, other than manufacturing issues which are predictable, it is what you would’ve expected.

Okay, good. Thank you.

Your next question comes from the line of Bill Herbert of Simmons & Company. Your line is open.

Thank you. Good morning or good afternoon for you guys. Well done, by the way. I thought it was a pretty commendable quarter given the backdrop.

Thank you, Bill.

Bernard, if you could elaborate a little bit with regard to the international margin roadmap. And I guess the biggest challenge here for me is just looking at what to expect for a normalized MENA margin, given that we are coming from such a sort of oppressed level. What should we expect for a normalized margin for MENA and really the roadmap for international margins in general for the balance of this year, please?

MENA is 2015, end of 2016 process. It will take that much time I think to get where I think we can go. MENA closed the year in 2014 essentially high single digits at the operating income level, and we expect it to -- between then and Q4 this year to be mid-teens. 500 basis point improvement essentially, gradually throughout the quarters. I will remind you, you know this. Before we got in a period I think of self-construction, etcetera, MENA had margins on average of 25% of the operating income line. Now, in an environment like this one perhaps it wouldn’t have that because it is affected too, by the environment, but I don’t think 15% as an exit rate in 2016 would be what -- even if the market continued the way it is today, I don’t think this is what we would expect for MENA in 2016. It will continue to progress. Don’t want to give you an indication yet on the rate of progression in 2016, it will be getting ahead of ourselves, but I do think the mid-teens for MENA as an exit rate is a reasonable assumption. And assume it is today essentially a low teens.

Right. So broadly speaking, even with the advent or the continuation of pricing pressure internationally, margin resilience for international is expected to continue and MENA expected to normalize higher due to years of underperformance?

That’s right. There’s a number of markets, in which we were suppressed and I’m not sure I want to elaborate to you the details of where we were suppressed, but it’s not only in MENA. It’s the same phenomenon in SSA. Some of the key markets in SSA, such as Angola. These markets are ones we are not suppressed anymore. There is a – we talk about a reboot or restart. There is a reason for that. At the same time, we try not to make the mistakes we made in the past. I talk about better discernment. It’s a polite way of saying that we’re not going to mess up and take contracts and get involved in businesses that we shouldn’t be in, very disciplined. So a combination of the absence of negative and also being able to compete in the markets where we used to be able to compete, and we actually were pretty good at it. It’s a combination of both and makes for essentially rebuilding our presence. And truly that’s all it is. That’s why we are a little bit different than others.

Got it. And in a similar vein, how should we think about the margin roadmap for land rigs, please?

So the land rig business, Bill, has been rebooted under new management and the new management has shaken the product line from top to bottom. It’s much more efficiently run today, and we expect that given that the international land rig count is under pressure both from pricing perspective and also from land rig count perspective, we think that we’ll have to exercise extreme cost management to stay at the mid single digit margins. And that’s our goal is right through this year, despite pressures to reduce pricing and lower rig count, we will expect to maintain at least a mid-single-digit margins through the year.

Very good. Thank you, sir.

Thank you.

Your next question comes from the line of Jim Wicklund of Credit Suisse. Your line is open.

Hey, guys.

Hi, Jim.

Congrats on a good relative performance and good job I think on addressing the free cash flows you took early. My first question, Bernard, a while back when you were starting with the divestiture program you considered getting rid of pressure pumping. Considering how much money it’s going to lose this year, I know you guys have said that you need to keep it for the validity of your completion tool business. Have you rethought that in this market?

Well, I think, we haven’t made a decision yet. I think, I will just say that the pressure pumping business needs to be consolidated and we will not be the ones to do the consolidation. I can tell you that much.

That’s a good thing, that’s a good thing.

But it needs to be consolidated and I think just need to have agents of consolidation. Maybe there are agents of consolidation in the marketplace. Again, it will not be us.

Thank you. That answers my question. My follow-up, you said that the changes that have to happen must be structural and your focus you said was on the efficiency of our support structure. Okay, Halliburton went through Battle Red and Frac to the Future. Schlumberger is going through a transformational effort and all these seem to be efforts to fix or improve the efficiency of your underlying business, not kind of inventing a new tool. How is your jihad on this efficiency of our support structure different or the same from what the other guys have gone through?

Jim, it’s actually quite simple to understand. Weatherford historically has been a collection of acquisitions, and they were partly integrated. Some businesses were fully integrated, some were partly integrated. So each business had its own support structure, its own way of collecting information in every function, whether it’s finance or HR or IT or legal, and etcetera. What we are doing now is basically completing the integration process, simplifying the work, standardizing everything we do so we need less people to do it. And you speak the same language in every business, in every geography as we go forward. This process is still underway. It’s halfway through and there’s plenty more to come in terms of structural efficiency, so we are just working our way through that.

The other way to look at it, Jim, which is wholly consistent with what Krishna said, is to say we are immature and we are maturing. Saying we are immature is a polite way of saying, we are more inefficient than the two other companies that you mentioned. Put another way, it’s easier for us to make progress on the overhead and support that is for these companies. They are better managed, but we’re younger. We understand that; we’re just taking action to try to mature. That’s what Krishna was explaining.

Okay, thank you very much -- and you are doing a good job growing up. Thanks guys. I appreciate it.

Your next question is from James West of Evercore ISI. Your line is open.

Good morning, guys, or good afternoon.

Hi, James.

Just on the headcount reductions that are pretty large and pretty large in North America, how do you think about maintaining flexibility to ramp back up if indeed this cycle does come back quicker than maybe Street consensus is suggesting right now?

Well, we are not alone in these cost-reduction efforts. As a percentage of head count reduction in North America, James, it’s very similar to what the other companies are doing. So arguably there’s going to be a lot of people available in the market. The main thing is to keep in touch with customers and their needs and when they start back up, and planning that recovery in advance. And we believe we have a sales force and a management structure to do exactly that. So if you maintain daily contact or weekly contact with customers and you can foresee what’s coming up, you can react faster. That’s basically it; there’s no silver bullet here, but we think we will have the capability to bounce back if the need arises.

And in the facility closures, those are going to be permanent, not just kind of near-term?

Yeah, they are permanent, Jim, but we have -- we are long facilities. You don’t have to worry about that. I think the question concerning the human resources is a very legitimate question and, as Krishna says, an industry issue at the end of the day. But facilities were long facilities, you don’t have to worry about that.

And arguably, James, if and when North America rebounds, there will be, of course, a permanent loss of people from the industry as a whole.

Absolutely.

And there will be a shortage of people first before there is a shortage of equipment and that will be the constraint, so...

But I will say again, this whole business about overhead and support functions being semi-fixed as opposed to variable, the key is when the turn comes that the number of these people does not increase in sync with the directs, such as the leverage. This is a different sort of -- it’s a different answer than what you are asking and the question you are asking, but that is also terribly important for us.

Of course, because you’re going to have much more earnings leverage coming out of this.

Precisely. That we never had in the past. We’ve never had in the past.

Right, right. One last follow-up for me. On the Zubair payments, Krishna, can you remind us the timing of those payments and if those are set in stone?

Yes, in fact we just signed the settlement agreement with our customer. Basically there are three sites, James; Zubair, Hammar, and Rafidiya. There are three physical sites. We really loosely refer to the whole thing as the Zubair contracts, but in fact underneath that contract there are three sites. And each of the sites has to achieve three milestones, so there’s nine milestones to go. There are three mechanical completion milestones, three RFC or ready for commissioning milestones, and three PAC or performance acceptance certification milestones. Of the nine, three milestones, the first milestone, the mechanical completion milestone, for each of the sites is expected to be fulfilled in the second quarter, which will trigger payments to us. And that’s why we will be cash positive on Zubair in the second quarter itself. The RFC deadlines that we expect, based on our current schedule, we expect to hit them in the third quarter. And the PAC, two of the sites we will hit in the third quarter and one site early fourth quarter. So we will have triggering payments in the third quarter and fourth quarter concurrent with hitting those milestones as well. We are comfortable to say that given the current schedule and the payment agreement terms that we have just signed with Eni, we should be cash positive on Zubair in each quarter of the year going forward.

Okay.

So that will be cash neutral by year-end for sure.

Perfect, great. Thanks, guys.

Thanks James.

Your next question is from Ole Slorer of Morgan Stanley. Your line is open.

Yeah thanks. First of all, just a general question, Bernard. How have your conversations with your key international and OC customers changed lately in light of certain consolidations that are going on amongst two of your three main competitors?

Well I think you know the answer to that question, which is, I think everybody has become more interesting to the NOCs, including us, simply because it’s human nature. You don’t like domination, you don’t like duopolies. It is as simple as that. So it’s also true for us that we have become more interesting, so yes.

Any more specifics you can provide, or should we leave it at that?

Well I think I would rather leave it at that. I think the consolidation opens up opportunities for a number of companies. It is also true that our opportunities have to be matched with our resources, our quality of performance, technology, et cetera, et cetera, so we don’t take this as a low-hanging fruit. We just have to work for it. There’s a few markets which we focus on. Some of those markets may be helped by the consolidation, true, but then again I think we don’t view this as a walk in the park at all. Even though the client will tend to pull you in as opposed to your being -- trying to push your way in, which is true.

A clarification. International margins, did you mean that year-over-year 2015 over 2014 they should be similar, or sequentially from the first quarter similar, or both?

We said it would be similar to the first quarter going forward -- similar or slightly better is our forecast right now. So year-over-year it will be better by between 200 to 300, 400 basis points year-over-year, but it will be flat to slightly better versus the first quarter.

I think the idea is that for the international segment, operating income should be roughly similar Q1 on Q2. Don’t – with lower revenues, yes. They will be roughly similar Q1 on Q2 international; some up, some down so very comparable. We do not know, because this is hard to know with precision, whether it will be a few million up, a few million down, but essentially flat, what you call flattish. So in essence, Q1 would be the low point, the international profitability performance. And then in the second half of the year, looking at the detail of what we’ve done, on the cost side the detail also of some of the markets where we have specific self-help, it is not unreasonable to expect the international margins in Q3 and Q4 – even though we don’t expect any market improvements at all. As I said, markets will remain weak for the whole and for the balance of the year with some particular pockets of weaknesses, like Asia for example. We do expect the international margins, overall, to be better in Q3 and Q4 than Q1 which will be similar to Q2. That’s what we are saying.

I think that stops me. That’s two questions, but congrats on having LatAm be your biggest profit center. That’s a welcome change from a few years ago.

Thank you, it is.

It is most welcome.

Your next question comes from the line of Scott Gruber of Citigroup. Your line is open.

Thanks. Staying on the topic of industry consolidation, Bernard, how are you thinking about managing your international footprint today? Is the share gain opportunity impacting planning decisions today? Are you willing to carry some excess people and capacity to --?

It’s a good question. The answer is, yes; in moderation, yes. I think on the facility, I said before we are long facilities so we have really no issues of investigating in bricks and mortar. But your question is on point. We are careful about not taking any, I think, undo decisions on curtailing certain infrastructure which we believe might be helpful in all probability in quarters ahead. So we’re not curtailing infrastructure internationally, precisely because of opportunities that are likely. On the people side, very selective. I think it is more for us to do with the – we try to upgrade our talent bench. Trying to upgrade it internally, improving our HR capabilities. The manner in which we recognize talents internally and promote them and so forth is something that we have always done, but I’m not sure we did it as well as our peers do it. So we have a few things we can learn from our peers and we are doing that in place. It is also true that we may add some talents from the outside. So I think, to answer your question there, we are likely to be keeping some talents that we would otherwise then go into the international markets, true. We are likely also to bring in some talents from the outside the international markets for that same reason, which is to upgrade our capabilities from a people standpoint. So all this is true. It is not big numbers, Scott. We’re talking about really it’s in the 10s of people, maybe in the 20s of people, that sort of number. It’s not a big number. And these are talents that have technical capabilities, sometimes sales capabilities, all of the – this sort of talent.

Got it. And an unrelated follow-up. Are you in the process or are you planning to retire Frac capacity in the U.S.? If you could provide some details around order of magnitude of your --.

Yes. I think not so much retiring, Scott. I think we are, what? You call it -- maybe stacking is what you mean by retiring, so that’s probably a polite way of saying it. I think by the end of Q2 we are very likely to have half of our fleet stacked, pressure pumping, simply because it is not economic to take on work at certain prices. End of story.

But nothing getting scrapped completely? That capacity can come back?

No, no. It’s actually quite -- unfortunately, or fortunately depending on your viewpoint, our equipment base is actually quite recent, as in anywhere from five to eight years. So, no; the answer is no -- and well-maintained, so the answer is no. We would stack it and stack it properly. We wouldn’t scrap it. There’s no reason for that.

Okay. The stack [indiscernible].

Yes.

Your next question comes from the line of Byron Pope of TPH. Your line is open.

Good afternoon. I have a couple of quick questions on Latin America. I think I heard you say that Argentina and Brazil are now your two largest markets within the Latin America region, and I’m curious as to whether they crossed that threshold in Q1. And then second question is, as we think about the $800 million of backlog that you have in Brazil, clearly that is over a multiyear period, but how to -- I think about that as being well construction-related. So how should we think about the progression of those contracts ramping up, given the current stagnation in deepwater drilling activity in Brazil?

I think, first of all, let’s deal with Brazil first because of the backlog. You should think about the backlog as being one that will be delivered over the next 2.5 years, three at the most. So you are talking about $250 million per annum, something like that. The big chunk of the backlog has to do with managed pressure drilling and that technology is being installed on rigs that are being operated and owned by Petrobras. So as a consequence, it is a very, very structured program, very -- with lots of long-term planning and so forth to make sure that everything is installed at the right time, at the right spec, et cetera. So that is just very much a manufacturing and an installation perk shop that follows between now and the end of, say, 2017. The pecking order in Latin America is rather remarkable. You really don’t -- I mean it’s remarkable when you look at the numbers. Mexico was by far, by far the leader. So if you think of the market in Latin America as being made up of many, many different countries, but about five large markets, you know what they are Argentina, Brazil, Colombia, Venezuela, and Mexico, right?

Right.

Well, Mexico was by far the largest. Mexico is the smallest of the five today, which is quite an extraordinary change from number one to number five out of five. Argentina and Brazil I think are already in number one, number two spot in Q4. They became the more so number one, number two in Q1. And then the rest of the pecking order is essentially Colombia, Venezuela, and then Mexico is last.

Okay, that’s helpful. Then just one quick unrelated follow-up as it relates to the core businesses. Krishna, you typically give the margins for the core service and products. Going forward will that no longer be the case? I heard you give the overall core margin, but just curious as to how you guys are going to precede going forward with that?

So Byron, yes, now our regional results reflect the total of the core businesses. And clearly now, going forward, our investors, external world has a clear idea of our core margins. We don’t see the need to break it down any further between product lines for competitive reasons. I think in this market we feel that is appropriate. So, yes, we will soon give you the total core margins; they will be evident in our results, but we won’t break it down further by product line going forward.

We might provide stimulation, though.

Yes, stimulation would be – we did speak about indirectly by talking about the margins with and without stimulation.

Because it is so different.

It is different, yes.

It is so terribly different.

So for example, this quarter the margins without stimulation were 12.1% versus almost 9% of the overall core business.

Because again the economics are so terribly different for us in stimulation.

Thank you.

I think that – thank you, Byron. I think that concludes our call since we are just passing the hour, the half-hour but one hour of the call. Thank you very much for your time and attention. We’ll just close the call now.