Good morning. My name is Laurie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weatherford International Third Quarter 2015 Earnings Conference Call. [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 Karen David-Green, Vice President, Investor Relations and Corporate Communications. Ms. David Green, you may begin your conference.

Thank you, Lori, and good morning, everyone. With me on today's call from Houston, 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'd 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 third quarter press release for the customary caution on forward-looking statements and a reconciliation of GAAP to non-GAAP financial measures. And now I'd like to hand over the call to Krishna.

Thank you, Karen, and good morning, everyone. Today, I'm going to focus most of my comments on the cash flow and the balance sheet, including debt and debt covenant. I will start with a brief recap of our operating performance in the third quarter. Sequential incrementals were 2% and year-over-year decrementals were 29%, which are not only excellent, but also leagues ahead of the decrementals registered in 2009. On a full 9-months basis, year-to-date decrementals were a best-in-class 28% and easily beat our larger peers whose decrementals range between 31% and 41%. These low decrementals are a testament to the effectiveness of the cost management efforts made by the company this year in response to the down cycle. Loss per share for the quarter before charges and credit was $0.05. Revenue of $2.24 billion for the quarter decreased 6% sequentially and 42% year-on-year. Operating income margins before R&D and corporate expenses improved by 47 basis points sequentially to 5.4%. On an overall basis, sequential improvements in our North American operations and our international Land Drilling Rigs business more than offset a decline in our international performance. Below operating margins, both our R&D and corporate costs show sequential declines reflecting cost-reduction steps that were taken. Going forward, both R&D and corporate costs will continue to trend down from third quarter levels. Foreign exchange losses consumed $0.02 of EPS, and asset write-offs in Sub-Sahara Africa of $0.01 completely offset a gain of $0.03 on repurchasing long-dated bonds that were quoting well below par during the third quarter. In addition, this repurchase will reduce annual interest cost by $15 million in 2016 and beyond. The tax benefit recorded in third quarter reflected the tax benefit on the losses in the U.S. primarily, which are recoverable, partly offset by tax provisions internationally, where we…

Thank you, Krishna, and good morning, everyone. Q3 earnings per share is a loss of $0.05. Taxes reflect the fact that operating losses were in the U.S., which are efficiently tax affected. We took $0.02 of foreign exchange losses and $0.03 on bond repurchases, and we took about $0.01 write-off in SSA. As a synthesis, operation delivered results consistent with $0.05 loss. It is difficult to describe a quarter in which we remain unprofitable though successful, but it was. We're making operational progress, and this isn't a random event. We see similar sort of operational performance in Q4 and thereon. I'll focus my comments today on 3 issues: The operating underpinnings of the Q3 results, forward views for Q4 and our direction. First, operational underpinnings of Q3. North America, NAM, reported significantly stronger numbers in Q2. There were 3 factors behind the performance: Cost, share gains and Canada. Cost cuts. We were early and we went deep, and we did not pause in our efforts. We're transforming the U.S. cost structure. It goes beyond aggressively cutting direct cost with declining volume. We also addressed equally aggressively the support structure. We delayered the organization, rationalized facilities infrastructure, upgraded the talent bench both internally and through outside hires. It is still a work in process, but through year-to-date, a considerable change in operating economics has been achieved. The quarter's results in the midst of a miserable market was a clear demonstration of what could be achieved with relentless operating focus. NAM is ahead of our international operations efficiency, the international segments will catch up very quickly with NAM. Measurable share gains in our core product lines. We had the most gain in Drilling Services, Completion and Artificial Lift, no particular basin is to be credited. Depending on the product line, it was…

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

First question is kind of a comment, Bernard, and maybe you can -- you'll add that I'm just going to make a comment and then a question both about North America. I guess, my comment is that the businesses that really gained share have either been through a change of ownership recently, as in the case of artificial lift or companies going through a merger in the case of Baker Hughes, Halliburton and was curious as to your thoughts on how that's maybe contributing to your share gains? And then my question on North America is, if you could at least give some kind of guidance. How much of the North American losses are in frac?

Okay. Let me -- I think on the first question, I -- we -- there isn't evidence of any particular share gains on any of our larger peers. You have anecdotal evidence here and there, but I wouldn't say there's a pattern at all, not today. I mean, most of the share gains in our product lines have to do with particular technology offerings and/or product introduction and/or ability to be very efficient. And so it's not -- there isn't a particular story there on one player or another losing market share in any other particular product line, not today. This is just observation. With respect to where the losses are, I think it's fair to say that if we didn't have the pressure pumping in the United States, I think North America would be breakeven or profitable without a doubt. I think if we also didn't have rental tools, it would actually be nicely profitable. So there, you have your answer.

Wow, okay. You gave a good rundown on the fourth quarter. If we continue in sort of flattish oil price environment, Bernard, how would you see the trends in quarter 1 and quarter 2 in operating results both in North America and international?

It's complicated because you have seasonality, of course. If you adjust the seasonality, our view is really that the market low will be, as I try to convey, between Q4 and Q1. This is the activity low. Now you got to adjust the seasonality. For example, Russia and Asia goes down in the Q1, as you know, as does part of the North Sea, whereas in Canada, it goes up, however, anemically in Q1. You have seasonality. But our view is that, from an operating income, from an earnings perspective, I think the company's performance will be similar to what it has been in Q3 with 2 sort of adjustments to think about, one is rigs. These numbers may go down and then back up again. That is one factor. It is not immaterial, but it's not the core either, but it is a number. The other numbers to watch, of course, is if -- what happens on the foreign exchange losses and if we do or don't have gains on further bond purchases. These sort of things, that will impact the earnings. But I think from an operating income standpoint, although we expect operating income to be marginally lower in NAM, we don't expect it to be any lower internationally in Q4, in fact, a little bit up. In Q1, I would say that probably international will be down versus Q4 simply because of seasonality. NAM, hard to tell Q1. I don't expect anything dramatic in Q1 because in Q1, Canada will help a bit more in Q1; U.S., a bit less because seasonality works the other way in the U.S. Nothing dramatic out of NAM in Q4, Q1. International, better in Q4. International, possibly could seasonality, a bit weaker in Q1. And from Q2, we think international actually starts to heal based on cost efficiencies and particular gains. And there are some regions that will shine. We expect MENA to shine actually in Q1, will be sort of the standout region, et cetera, because there are different factors at play there. Sorry for the long answer.

No, that's fine. And final question, if I could, for Krishna. Krishna, what would -- if there is a downgrade of your debt by the rating agencies, what would that mean for Weatherford?

Jim, that would really have no discernible impact on Weatherford. First of all, there will be no loss of access to the debt markets in any way because the CP market and the revolver are interchangeable, and the revolver backs up the CP in any case, so there will be no loss of access. As I said before in our prepared comments, we have $1.7 billion of liquidity available at the end of September, and we expect that amount of liquidity to keep growing over time as we generate more free cash flow, so no loss of access. In terms of cost, our cost of borrowing may go up slightly, and our analysis tells us that it's probably going to increase our interest cost next year by $11 million for the full year versus this year. But then again, you'll see from our buybacks or bonds in Q3, as also -- we did the same in Q1, we bought back some bonds in Q1 of this year. The savings in interest that we generated out of those buybacks are in excess of $25 million so far. So really, the overall cost impact is not going to be material, if anything, there's a cost benefit because of the buybacks going forward. So really, no impact there. As far as company business is concerned, we don't have a single instance that we know of at all where our customers demand a certain credit rating to qualify for contracts. This is not a question that's asked on any tender or any contract anywhere in the world. So really, there's no major impact of any sort that we can see if a downgrade does occur. We are talking to the rating agencies regularly, and we'll see where that goes.

Your next question is from Ole Slorer of Morgan Stanley.

So just going forward a little bit, it sounds as if what you're guiding is a rebalancing of the very strong Latin American margins down a little bit and more of an even performance between those in Eastern Hemisphere. Is that the way to read it?

I think it's very fair, Ole. On the Eastern Hemisphere, I would suggest that you average both Q3 and Q4 to get the right picture. Not that Q3 was very, very bad, but I think Q4 may be a little bit better than -- good business moved from one to the other. You should really average them both to get the picture, but I do think what you said is correct.

And when it comes to the reduction in CapEx next year, just to get some more clarity, was that because of a reduction in investments in rentals and pressure pumping predominantly? Or what are the biggest deltas in terms of taking it down that much?

No, it isn't. We're not spending any money on pressure pumping and bare minimum in Drilling Tools, so that's not so much that, that will likely continue, no. I think Krishna will comment on it. I would just say that we have taken stock methodically of the abundance of tools and equipment we have company-wide worldwide. We also improved dramatically the visibility, because you can't move and use things, unless they are very visible, measurable and, therefore, movable. And we also changed the culture, from the culture of holding onto equipment, hoping for a better day versus the efficient allocation of resources, so equipment and tools move. All that got done. We now have a pretty good picture of what we have and what we could use and for how long. And I think decisions on CapEx come from that particular analysis. Krishna, you may want to comment also.

Secondly, I would say we had quite an overhang of CapEx orders coming from '14 into '15. If you look at our CapEx in the first half of '15, they really represented orders that were issued out of Weatherford at a time when the prognosis was much more rosy of the business. If you look at the orders that are outstanding to-date, CapEx orders, and if you just carry that forward into next year, it's quite easy to see that we can reduce the CapEx to $400 million. In fact, that run rate is being achieved in Q4 this year already pretty much. And secondly, yes, exactly as Bernard said, we have enough CapEx to manage at least a 25% to 30% growth in physical activity from where we are now with no problems whatsoever without adding to any growth CapEx as a company. We just need maintenance CapEx. So this is what I meant by saying we can subsist on a maintenance CapEx diet for quite a long time going into the future. It represents the overspending of several years in the past.

And just to understand the nature of the maintenance CapEx, how much of that is tied to, let's say, lost-in-hole drilling equipment or other sort of businesses that are being reimbursed by your customers versus things you need to do on your own?

Well, I mean, the -- if we were including the lost-in-hole, now I can't give you a number how much of the $400 million we're guiding to next year is lost-in-hole at this point. But this year's CapEx includes normal replacement, and next year's CapEx will do the same. I mean, the answer maybe, Ole, is simply that $400 million is net of lost-in-hole, which are basically refunded by the client. It is easier to understand.

Okay, okay. And finally, on the Middle East improvement, how much of that is because of loss-making contracts that are coming to an end and how much was it because...

That's a good question. The -- on 2 separate tracks, when we finished cleaning up all the administrative problem that we've had, the next step was taking stock of the fact the company was very inefficient because of distractions. They had also entered a number of bad contracts also because of distraction. Now what we see on the bad contracts? I think with Zubair, which no offense to the people working on Zubair who will have to finish it, was a terrible contract. That is the last contract of any -- period, I won't even qualify it, in the Middle East, right? And that contract is coming to an end operationally. Okay. The progress you're seeing is essentially the slow but methodical quarter-by-quarter climb from reentering markets, reintroducing product lines, using our infrastructure that remained intact throughout the decline in the various markets of the Middle East. It's not only Saudi Arabia and Abu Dhabi. All the other countries I mentioned, Kuwait, Oman, Qatar, Egypt, Algeria, which we almost exited not that long ago, is rebuilding step by step. That's really the factor that's driving it. With the end of Zubair, there are no other sort of bad contracts from these terrible years '12 and '13 -- '11, '12 and '13 for us to digest, finish it.

Your next question comes from the line of Jim Wicklund of Crédit Suisse.

Bernard, last year, you won this big contract in Brazil, and Brazil has been just a basket case for business and investors. You got Well Construction and managed pressure drilling down there. Rumors are that Petrobras is going to cut another 10 rigs, who knows. Can you talk about that? That's been one of your good markets. Can you talk about the risk you see in Brazil over the next year or 2 and the impact to Weatherford?

It's not a risk, it's a reality. It's the reality, Jim. I'll make it simple for you. We're supposed to quadruple our presence in -- I'll just focus on MPD and the rest is very similar. Let's just call it going from 3 strings to 12 strings over from 3 strings to 6 strings. End of story. That's it. And this has happened this year. In other words, the growth is not there. And so as you can imagine, there was some measure of gearing up of infrastructure and everything else, which is a classic problem for oil field service companies, we had to manage it down. Now mind you, going from 3 to 6 is better than going 3 to 0, I'm very clear. But going to 3 to 6 and 3 to 12 are 2 entirely different things. The rigs were canceled. It's a simple as that.

Okay. And if rigs get canceled, do we go from 6 to 3 to 0?

No, I think we're actually sustainable. No, that is sustainable. I'll give you the end result. It's bad enough.

Okay. My follow-up, if I could. Q1, Q4, somewhere in there will be the fundamental bottom. But you're still cutting people, and the decision was made in September to cut another 3,000 people. That would make me wonder what the trajectory is of the recovery following the bottom in Q1. Can you talk about that for both Weatherford and the industry?

Yes. Well, look, the 14,000 actually, as we speak today, although we've acted only on a little bit over 12,000, already the balance has been named, so we actually -- it's already identified, and we'll probably end up a little bit higher than 14,000 by year-end. So I do think that the reduction in employment exercise is coming to an end. I think what you'll see forward are surgical actions in particular locations, particular product lines, and you see us also focusing a lot on the supply chain. But from a procurement standpoint, where -- there's a lot that we are doing that we never did, at least not as well, and also on the manufacturing side on the rationalizing manufacturing side. That will be less, I think, spectacular in terms of numbers that we announced, but much -- very powerful and very surgical. Also, you should see us in terms of employment, expanding our talent bench in certain product lines and, on the contrary, going the opposite direction in other product lines. Understanding we don't see growth at all for the sake of growth. I mean, what we really want, what we want to focus on quarter-after-quarter is not -- you'll do what you want, not so much for revenue growth, although you may get that, too, should focus on what we're trying to get done in the operating income level, at the debt reduction level and at the cash flow level. So it's profitability cash flow that we're interested in now, next year and for the foreseeable future. It isn't necessarily the top line. Or put another way, we wanted to grow aggressively certain product lines. We may not care that much about whether it translates in overall growth of the company. We may pull back from some, but push much harder on others.

And well, Jim, I just want to add something. We are aggressively working on rationalizing our support structure. The remaining headcount reductions are going to be focused on support. We spoke a lot about our support ratio. We want to bring it to the mid-30s percent, right? We're still at 41.5%, so that does not affect our ability to ramp up when activity picks up. It affects how we support that activity, how we can stretch the resources to support the high level of activity and become more efficient. I think [indiscernible] It's not a comment. The extra headcount reduction is not a comment on -- that activity is going to plummet or anything like that. It is more rationalization of our internal support.

And Jim, focus on one last number. We are 41.5% support ratio, and we're trying to get to 35%. Bear in mind, 18 months ago, we're at 60%.

That's right.

And bear in mind also...

You have to make an improvement that's going to focus, I know?

Yes, yes. And bear in mind, it's very, very hard to improve your support ratio when direct are coming down so sharply. Much easier to improve your support ratio when direct are expanding with volume. So doing it in a depression is extraordinarily hard. It's also easier from a -- well, pain is easier for everybody to take on in a depression, but it's actually mathematically much harder to get done for obvious reasons.

Your next question is from James West of Evercore ISI.

My first question was really on MENA. You talked about a lot of contract wins, Bernard, in MENA and reentering some markets or reintroducing some product lines. Are you having to give up significant pricing to get back in? Or is this more of a, "Hey, we're going from 3 to 2 and we want you back" or "Hey, Weatherford, thank you for coming back." I mean, what's driving the market share gains there?

What's driving it I think is the latter point, which is we have a very large infrastructure that has been underutilized. Our client knows this. We have quite large market shares and a number of product lines. The clients remember this also. It's not so much that we're the new kid on the block. We're actually a player who has not come back and could reassume the position it once held for many, many years. So in terms of client understanding who we are and what we're trying are to do, it's easier than if it was a new entry. That's number one. Two, pricing is, of course. Pricing in general in MENA has dropped, not remotely as much as everywhere else. Of course, not. But we -- I wouldn't -- none of the contracts, and understand, James, none of the contracts are major contracts, we just have a lot of them and there's progress everywhere and they are stepping stones. To my knowledge, none of the ones that we have incrementally in all those markets have been at a variance to where our pricing is right now in the marketplace. And of course, we have to meet pricing. I don't think there's a variance to it. This is not actually either pressed upon us or a particularly difficult issue to overcome. Understand also because we have the infrastructure in place, everything else, plus the incremental operating economics are very quickly good because we don't have set up a shop. One of the things Weatherford has -- it has, and I think you know this, it has a vast infrastructure internationally, which is part of the reason why we spent so much CapEx in the years past. There are other reasons, too, which I think we discussed earlier on. But this infrastructure can be put to good use. And what it requires, particularly internationally, is volume. And we're getting some volume now in MENA, and therefore the economics will improve, simply because economies of scale.

Okay, okay. That makes perfect sense. And then, Bernard, you talked about the North Sea and Caspian being up in the fourth quarter, which typically, I would think about as a seasonally weak quarter for those areas of the world given the weather issues you faced. Is there risk to that call? Or these mainly kind of product sales-type actions that are going to happen regardless of adverse weather conditions?

Okay. If weather is terrible, it's only in North Sea, it's also in the Caspian, specifically Azerbaijan. So if weather is terrible in both places, more terrible than normally it should be, of course, things always will be delayed. That's absolutely true. I don't think the whole quarter is based on this business moving from Q3 to Q4, it's just that it's incrementally improved Q4 and incrementally weak in Q3. That's all. That's the margin. In the case of North Sea, you're talking about a series of service business actually going from 1 string to 5 strings. This is one. It's in Well Construction and involves a number of services inclusive of managed special drilling. From 1 to 5, they're supposed to be in Q3, and they're in Q4, and they're happening as we speak, all right? In case of Azerbaijan, it's very much the same thing. Client adjourned a number of drilling and I think remediation assignments from Q3 to Q4. I don't think oil had anything to do with it. It's just client decision. That is also happening as a matter of course. So I really hope the whole Eastern Hemisphere will rise or fall based on the movement of these contracts. I do think that it is happening as we speak, notwithstanding weather who could disrupt operations, and I think it's just notable because it'll make Q4 the way Q3 should've been and maybe vice versa. Okay?

Okay. Got it. And if I could slip one last one for Krishna. The $400 million in maintenance CapEx, is that inclusive of land rigs? And if you have the number for land rigs, could you share it with us?

Yes, and it does include land rigs. And from a rig business perspective, what our mandate to the business guys is to run the business profitably through the year and to be cash positive right through the year, and that we have achieved this year. It will continue into next year as well. Now obviously, the rig utilization rate is more challenged today than it was a year ago, so it's quite easy to manage the maintenance CapEx going forward and be cash positive for the year.

If I may add something there, we don't take contracts, particularly when it involves moving rigs unless the contract says years, so we won't take it for short periods of time, goes in markets in which we have concentration of rigs already and has mobilization or compensation, which is enough that we have no cash out-of-pocket to finance. So we're rather stringent about it, which also explains why rigs are not a consumer of cash. It's purposeful.

Sorry, Jim, I'm not going to give you a number on the call, but it's going to be cash positive for the year, the business. That's the mandate then. They will stay that, right.

Okay. And do you still have, I guess -- sorry, I want to slip one more in here. Is there still the potential to IPO that business over the next, I'm just going to call it, year or so when the market comes back? I mean, are you still thinking that way about the land rig business?

James, we are. I think obviously the market has to be there. I'm talking about the oil and, therefore, financial markets, otherwise we're wasting our time. Remember, we set up rigs in a separate entity. They have their own audit going back 3 years from our auditors, KPMG. They have their own information system segregated, their own accounting system segregated, and their own management, all the way up to a leader, and so it is -- and they have their own balance sheet, if you will, if you want to peel it out, it's ready. Now the fact it's ready is, of course, good. When will it be actually acted upon, it's really not us. It's purely activity, oil, et cetera. So the answer is, yes, absolutely. Whether it's in 1 year or 2 years, I don't know, but it is ready, yes.

Your next question is from Angie Sedita of UBS.

I certainly echo the sentiments of others and it doesn't need to be said again. But on the cash flow, when you talk about Zubair, could you talk a little bit more granular about where you stand in the project, thoughts on timing in 2016 and what's left on the performance targets, what you've completed so far and what remains? And then also, on your cash flow target for 2016, does that include any recoveries from the extra claims and the change orders?

Right. So Angie, first of all, Zubair is a term for 6 basically trains that we have to deliver to the customer, and all -- each of the 6 trains is identical. Out of the 6 trains, we finished the mechanical completion for 5 of the 6 trains and handed it over to the customer. And the 6th is -- mechanical completion is estimated before the end of the year. On the next 2 deadlines, milestones, which is ready for completion, RFC and then PSE, which is the final deadline, for the first 5 trains, we expect RFC to be completed again before the end of the year for the first 5 trains, with PAC early January of 2016. There's very little work to be done between RFC and PAC, it's just running the facility for 30 days effectively. And for the last site, the 6th site, we expect RFC and PAC in Q1. There are milestone payments associated with achieving these milestones, and these factor into the detailed cash flow projections that I spoke about earlier in my prepared comments. Now we have been conservative and assumed some sort of settlement with our customer on the claims we've had, which are in arbitration today. We are discussing with them actively on and out of court, if you will, settlement. We don't know what that number is going to be, it's still being negotiated back and forth. But there will be a positive injection into cash flow. Now I've been conservative to say that year-over-year, from '15 to '16, Zubair will be $200 million differential cash flow positive in '16. That's the conservative number. I'm very comfortable with it based on the milestone dates and the likely outcome of the settlement discussions.

Okay, okay. That's really very, very helpful. And then separately or going directionally elsewhere on the U.S. end pricing. Can you talk about -- obviously pressure pumping is ugly on the pricing side? But as far as pricing in your other segments in Q3, your product lines Artificial Lift, completion, what are you seeing there? Can you talk about the other product lines across the spectrum?

I think the short answer, Angie, is that although you had instances going both ways, for the most part, excluding pressure pumping and rentals, by the way, I think pricing essentially flattened, bottomed across-the-board. There are a few trends here and there, but on balance that's correct. If you want something on the positive side, as evidenced in Artificial Lift, on the one hand, we ourselves coming to the end of selling inventories, which were, from a cost perspective, at a higher cost structure than we are able to manufacture today. So that is one issue which is positive for us, meaning that everything to be equal, you end up having higher margins on the same sale, we expect that to start occurring in Q1, not in Q4 but in Q1. At the same time, there's evidence of the client destocking, in other words, that they finish their destocking program. On Artificial Lift, meaning they used up the equipment, by and large. I know there are exceptions, Angie, but by and large, they used up the equipment, pumps and pumping units and all manners of tools that are involved in the Artificial Lift process, as evidenced that, on average, our clients have finished their destocking. So put all that together, which is from a cost perspective, you have improvements just naturally from our side simply from having liquidated by year-end the higher cost inventory, which we're forcing on the market out of the discipline, and at the same time, clients having to buy more because their own inventory has been liquidated. I would say actually that is already occurring right now, so I would say, certainly by year-end, possibly already by Q4. So that sort of factor which is significant for us. But overall, I don't -- pricing, with the exception of pressure pumping and perhaps rental tools, but pressure pumping even more so, I think the rest of pricing in -- at least as we can observe in North America, is sitting on the low. It is not weakening further at least from our observation.

Your next question is from Sean Meakim from JPMorgan.

So just in a similar vein, you know we talk a lot about the smaller competitors in pressure pumping and their cash flow stress, and if we look at some of those other product lines you were just going through, like lifts, rentals, things like that, are you seeing smaller folks exit the market? Is the competitive landscape shifting at all as you go through the downturn?

It's really -- I think it's a legitimate -- all questions are legitimate, but it's particularly legitimate questions for rentals and pressure pumping. So yes, we see small players that are either going out of business or have come down such to such a low level of utilization, that it's just about the same thing. Do not hold much hope though because the barriers to entry in both of those product lines are so low. We do not subscribe to the notion that the equipment that is stacked does not come back, doesn't agree with that at all. True, equipment that is stacked, whether it's rental equipment or pressure pumping, where there's even a bigger problem, will require some refurbishment. Refurbishment is a fraction of the replacement cost. And then one of the problems of those 2 businesses, and clearly, we're the ones we are deemphasizing because again, we're not interested particularly in size but just in profitability and cash contribution now and later. One of the bigger problem with those product lines is the barrier to entry is so low. Now you can excel at it from an efficiency standpoint and there are some technologies that are helpful, but by and large, it's got very low barriers to entry, and that's not going to change. So I don't see -- although there are smaller players that are being pushed out and so forth, they will be coming back. I don't doubt that, or under different ownership. This does not apply to Artificial Lift. Artificial Lift is not at all that case, that's entirely different.

That's very helpful. And then just on international, where do you think we are in terms of the cycle for pricing pressure? How should we think about how it could look this downturn relative to the prior one?

So let's be careful, that international, first of all, is a lot of different regions. And the other thing I would say is, segregate also -- what markets in terms of the types of environment you're drilling in. I mean, deepwater is going to be different from offshore is going to be different from land. The land got hit, got hit early and got hit bad. I think land in general, with maybe exceptions in Latin America from a pricing standpoint, is essentially done. I think the pain that's coming internationally will be primarily in deepwater. Deepwater economics, I'm told by a number of clients in simplistic terms, doesn't work below $70 Brent. Now it's really simplistic here. Obviously, if it doesn't, it just doesn't work. And so that all -- expect exploration in deepwater to be hit bad and therefore pricing, clearly will deteriorate there for whomever is playing in those markets, and all of us are to varying degrees. Land, I don't -- other than Latin America, in simplistic terms, I think you're done on pricing by and large, there may be some pockets of weakness is still in Latin America, I don't believe that many. And I don't have -- and actually offshore as in shaft and so forth, not that different I think from land also. It's really deepwater and exploration I think where the bulk of those volume declines -- unless oil corrects quickly, volume declines and/or therefore pricing associated whatever is left in terms of the business will be the harshest to go through now. And I don't make what I'm about to say into a badge of honor, but this isn't a market exploration we don't play. And the deepwater we do play but it's not our strongest at all, never was. We know -- as you know, we are land people and, to a degree, shaft people.

Your next question is from Kurt Hallead of RBC Capital Markets.

You guys went through a lot of good stuff in detail here. I'm just wondering on the free cash flow dynamic, if you can parse out a bit more on working capital and maybe refresh some of the targets you might have for receivables and inventory, et cetera?

Well, every quarter this year, we have generated positive cash flow from working capital, and it will not change in Q4. Q4 is usually a pretty decent quarter for customer protections with third. So DSO, we expect will certainly reduce from Q3 to Q4 as it did during Q3 as well with the focus we are putting on it. Inventory continues to go down with the focus we're putting on it. I think Bernard talked about Artificial Lift destocking on our side. That has been a real focus for us, as of the other product lines completions included. So inventory should reduce nicely, impact over the next 2 or 3 quarters, I would say, continuously until we hit some activity inflection at some point in '16. Those are the 2 big movers of working capital. I think there's no reason for us to believe that we cannot continue to generate working capital now. If the activity at revenue level flatten, then yes, I mean, at some point, the working level will start to flatten as well. But then earnings will increase dramatically with incrementals that will help us quite a lot, given the fact as I mentioned earlier. So they will balance off against each other.

Okay, that's great. I appreciate that explanation. And then the comments you made about maintenance CapEx and levels of maintenance CapEx needed and the duration of which you can operate effectively, is that the game plan for 2016 to operate at maintenance CapEx? Or is that just a reference point in a very extreme situation?

No, it's a game plan. And it's not only the game plan for '16, it's also the game plan at this very moment we are looking at '17. It's just based on how much excess equipment we have around the world across all product lines. So you would have to see an incredible activity increase to mop that up quicker than 2017. So it is not a reference point it is a game plan, and it's a very achievable Kurt.

Okay. And then one last thing then as it relates to the comments you made about the debt and the covenants and everything else, I just want to make sure I understood the point you're trying to make. In your minds based on your financial position and the conversations you may be having with some of the creditors, you're of the viewpoint that your rating or your debt should remain unchanged. Is that how I should understand your comments?

I think the rating agencies will take a view on the sector as a whole. And if they take a draconian view of the sector, I think every company in the sector will be re-rated. And we are just investment-grade today, so I would not hold my breath and say we're going to retain that for the longest time. If they change the ratings on all the companies within the sector, certainly, we will be affected by it. But the impact of that will not be material at all on Weatherford, as I explained earlier. So it doesn't really -- it doesn't affect us dramatically. The covenants -- in terms of covenants, by the way, I went through the entire calculation and quite a lot of detail, Kurt, because if you just take a facile calculation from our 10-Q balance sheet, you could reach very quickly very wrong conclusions. And I just wanted to make sure people understood that the covenant is a defined -- it's a definition, it's a negotiated term in our contract, and that's what I was trying to explain, something that is not obvious from our 10-Q filing. And by the way, the covenant is only on the revolver. It is not on any of our public debt, which is the bulk of the debt, anyway.

Great. Well, thank you all very much for joining us today. We'll conclude the call at this time. Laurie, if you could provide the replay information.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.