Expro Group Holdings N.V. (XPRO) Q1 2014 Earnings Report, Transcript and Summary

Good morning. My name is Wanda, and I will be your conference operator today. At this time, I would like to welcome everyone to the Frank's International First Quarter 2014 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to Mr. Thomas Dunavant. Please go ahead, sir

Good morning, everyone, and welcome to Frank's International's conference call to discuss first quarter results. I am Thomas Dunavant, Manager of Finance and Investor Relations. Joining me on the call are Keith Mosing, Chairman, President and Chief Executive Officer; John Sinders, Executive Vice President of Administration; John Walker, Executive Vice President of Operations; and Mark Margavio, Chief Financial Officer. Keith will begin today's call with highlights. John Sinders will provide a review of our strategy and outlook. John Walker will provide an overview of our operations and Mark will follow with more detailed financial discussion of the quarter. Keith will then wrap up with some closing comments. Before we begin commenting on our first quarter results, there are a few legal items that we would like to cover. First, remarks and answers to questions by company representatives on today's call may refer to or contain forward-looking statements. Such remarks or answers are subject to risk and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. And such statements speak as of today's date or if different, as of the date specified. The company assumes no responsibility to update any forward-looking statements as of any future date. The company has included in its SEC filings, cautionary language identifying important factors that could cause actual results to be materially different from those set forth in any forward-looking statements. A more complete discussion on these risks is included in the company's SEC filings, which may be accessed on the SEC's website or on our website at www.franksinternational.com. Also, you may access both the first quarter earnings press release and a replay of this call on our website. Please note that any non-GAAP financial measures discussed during this call are defined and reconciled to the most directly comparable GAAP financial measure in the first quarter 2014 earnings release, which was issued by the company yesterday and is available on our website. I will now turn the call over to Keith for his comments.

Thank you, Thomas. We're pleased with our results. For the first quarter, we were in line with our guidance and we are reiterating our full year outlook. The management team will update you in a minute on details of the quarter. We continue to have opportunities for growth as our customers drill deeper and more complex wells around the world. Internationally our Services segment is growing with a strong rig count increase in Africa and new opportunities in the Eastern Hemisphere. There are opportunities for us to increase market share in several regions, including the North Sea, Middle East and Far East. And in the U.S., the Gulf of Mexico continues to provide strong growth. Regardless of concerns about rig oversupply and day rate softening, deepwater rig count is continuing to grow. We believe there will be 45 floaters in the Gulf by the end of the year. The U.S. land business has been a focal point for us, and John Walker has put a lot of attention towards this segment. We're always evaluating our U.S. land business to ensure we have the right strategy. We want to be sure that we satisfy the needs of our customers. Our Tubular Sales segment continues to grow and has opportunity for more growth as we increase our international sales. We have a team working on our inventory and order management to improve our working capital and returns in this segment. When I am talking to our employees, I'm constantly emphasizing that our company stays at the forefront of technology and development and remains the leader in well construction and tubular services. Our proprietary equipment and patents allow us to provide outstanding service to our customers. Their needs are always changing as they drill deeper and into new formations. We must innovate to meet their demands. Our Frank's International team has great people. We design and manufacture our proprietary equipment and highly skilled employees, who use this equipment to provide the best possible service to our customers. But unless we continuously innovate, we could become like other great companies that have failed by not adapting. I call this the Kodak affect. Lastly at Frank's, in addition to our focus on proprietary technology, we value safety and customer service. I will now turn it over to John Sinders and the rest of the management team before providing my closing comments.

Thanks, Keith. John and Mark will cover our results in more detail in a minute, however, I want to provide you with an update on our outlook for the year, as well as our growth strategy. We are maintaining our guidance that we first discussed on last quarter's call. To remind you, we expect both our International Services segment and the offshore portion of our U.S. segment to grow at least at 10% for the full year. This growth is broadly in line with the growth in rig count. We expect the land portion of our U.S. Services segment to be down slightly year-over-year as increasing competition and our decision to maintain pricing are leading to further market share declines. John Walker will provide an update on this segment shortly. Our Tubular Sales segment, we expect revenue to be up at least 4% for the year. We expect our EBITDA margin to be around 40% for the quarter and the year. For our second quarter, we expect revenue to be between $270 million and $280 million, and again, an adjusted EBITDA margin of 40%. Lastly, our CapEx spend in Q1 was $37 million. Our budget for the year is $250 million and this is split between $140 million for rental equipment and $110 million for facilities. When we think about growth, we think about our opportunities for both organic and inorganic growth. Organically, we see an opportunity to continue to grow our Tubular Service business globally. In certain regions, such as the deepwater Gulf of Mexico and West Africa, we believe our business will continue to grow with the secular growth rate in rigs. We are focusing on more tubular completions however, and we believe our superior technological advantage will allow us to gain market share. For other regions, such as the North Sea, Far East and Middle East, we believe there is an opportunity to also gain market share. Acquisitions have always been a part of our business strategy. With acquisitions, as we have said before, we're primarily focused on new products and technology within well construction and tubular services. These products and technologies will enhance our portfolio and allow us to compete for jobs that we were previously not well positioned to win. The size of any acquisition can vary. And we are always looking at opportunities. If and when we find an opportunity, we assess the target based on its return on invested capital and cash flow accretion. Because of the nature of the opportunities we're seeking, they generally have margin similar to ours. However, regardless of margins, we will ensure that any acquisition is accretive over a relatively short period of time. We don't have established timelines to complete acquisitions, but we continue to review a number of different sized opportunities. Two other areas that we continue to focus on internally will help reduce our working capital needs. We're focused on evaluating our pipe inventory, and this includes reviewing the existing inventory, as well as understanding the needs of our customers as we order new pipe for future products. Additionally, we continue to work on better equipment tracking, which should lead to better equipment utilization. Any improvement in equipment utilization will increase revenue and should reduce our CapEx. I'll now turn the call over to John Walker for an update on our operational results.

Thank you, John. As Keith mentioned, we are pleased with our results for this quarter. We continue to look for ways to improve our operations and ensure that each segment receives the proper focus. To this end, I recently appointed a Head of U.S. Land Operations, which was previously managed by multiple Vice Presidents. This new management structure increases our focus as we continue to improve our results in the region. In general, but especially in high operating areas, we continue to observe customers awarding contracts based on overall efficiency, value addition and technological differentiations. This benefits us and our value proposition of offering efficient and safe services with our proprietary equipment and experienced, well-trained crews. Turning now to the business segment results. Our International Services revenue for external sales increased 7% year-over-year to $119 million. West Africa continues to be our strongest region while we have also had strong results growth in Middle East and Far East regions. This growth is offset by declines in Latin America and Canada on a year-over-year basis. The Far East and Middle East areas are areas of focus for us as we continue to look for opportunities to grow our business in the Eastern Hemisphere. In the Far East, we have recently had success with new business contracts in Australia and New Zealand, 2 countries where we previously had very little exposure. In addition, we recently commenced a multiyear service contract for an NOC in Malaysia. Declines in Latin America are due to previously discussed declines in business with several customers in the region, while Canada was impacted, not only by typical weather delays, but nonproductive time on a key rig in Eastern Canada. Adjusted EBITDA margin for the International Services in the first quarter was 43% of external sales. Moving to U.S. Services. Revenue for external sales increased 6% year-over-year to $104 million. Within our U.S. Services segment, our Gulf of Mexico business grew 17% in the first quarter of 2014 year-over-year. The land portion of our U.S. Services segment, as expected, remains very competitive and declined 9% versus the same time period in 2013. Our Gulf of Mexico business continues to be well positioned as new rigs enter the region. Drilling activity on deepwater rigs with deep wells targeting Miocene and Lower Tertiary formations are providing us opportunities for growth. We have, however, witnessed delays in drilling campaigns due to non-casing-related issues, including BOP testing, downhole issues and startup delays on new rigs as they enter the Gulf. Nonetheless, we have not changed our outlook. Any continued delays would postpone our revenue recognition but would not eliminate the opportunity. For the U.S. land business, we were certainly impacted by the weather during the first quarter like our peers. Better weather and increasing rig count are a positive for us as we continue to focus our sales efforts on safety and well integrity. Adjusted EBITDA margin for the U.S. Services in the first quarter was 40% for external sales. Margin for this segment was lower primarily due to lower utilization, attributable to downhole problems and other rig-related issues we previously mentioned. Growth in our U.S. land business and continued growth in the Gulf of Mexico will help to absorb some of these costs. Lastly, Tubular Sales revenue for external sales in the first quarter was $42 million, an increase of 72% year-over-year. The increase in revenue was driven by more pipe sales in deepwater markets globally. Our deferred revenue balance sheet was flat sequentially at $63 million. We continue to work with our customers to understand their project schedules to know when -- if inventory will be released. In addition, we're working with our auditors to change the terms of our contracts going forward to allow more visibility and to our bill-and-hold inventory. Adjusted EBITDA margin for Tubular Sales in the first quarter was 22% of external sales. With that, I will hand over to Mark Margavio for our financial results for the quarter.

Thank you, John. Here is a brief overview of the quarter's results. Total revenue for the quarter was $264 million, a 14% increase year-over-year. Net income from the quarter was $60 million with net income attributable to Frank's International N.V. of $42 million or $0.27 per share. Diluted net income which includes $3.9 million and assumed tax impact of conversion of preferred shares was $56 million or $0.27 per diluted share. We estimate our effective tax rate for 2014 to be between 20% and 25%. A full reconciliation of our EPS are in our press release. Our adjusted EBITDA for the quarter was $102 million or 39% of revenue. On March 31, we had $428 million in cash and essentially no debt on our balance sheet. Lastly, we expect our Board of Directors to declare a dividend of $0.075 per common share, subject to applicable Dutch dividend withholding taxes, at a board meeting on May 14 for the record date of May 30 with payment on June 20, 2014. I will now turn the call back over to Keith for some final comments before we open up the call to Q&A.

Thank you. As we said before, we're very happy with the progress we're making as a public company. There are processes that we need to improve and opportunities for us to be a better company. But the core of the business remains strong. Thank you for your continued interest and support of Frank's International. I will now turn it over for your questions.

[Operator Instructions] First question comes from the line of Blake Hutchinson with Howard Weil.

A lot of talk in the release and in your introduction here about some of the pickups, early pickups in your business opportunities in the Middle East and Far East. I wanted to understand, as these opportunities accrue, kind of where you are on the infrastructure side and what you still kind of need to do, what you feel you need to do from an organizational standpoint to address these and what will be going on over the course of the year to do so?

Blake, it's John Walker here. We actually have a mature infrastructure in both the Middle East and in the Far East. We've been in those regions for over 2 decades. And as far as the planned, our primary focus, of course, would be on the challenging deeper wells and the deeper waters, of course, in the jackup business. That sector is not there but the deep wells are still there. An important fact to focus on in those areas is the chrome tubular side of the business, there's a lot of developments occurring in both of those areas that require specialized alloys to install into the wellbore at the production and completion phase of the operation. Approximately 1/3 of our patents actually are covered in array and we actually have completely unique differentiation. I think you'd heard on previous calls that I talked about Azerbaijan and the Tetra Technology that we have there. We see that type of technology spreading throughout both regions.

Okay. So when you talk about these opportunities, you're not talking necessarily about new opportunities. It's just the growth in the opportunities set that fits your value-added products/services much better here.

Yes. It would be an increase in market share penetration. And it's a good question you raised because again, it's not linked to rig count. It might be on platforms with intervention and work over work. So we'll work towards -- we will articulate that better to you in the future. At this time, the focus is to deliver the service to the client.

Great. And with regard to the Tubular Services guidance, I know it's become a little more precise, kind of at least 4% year-over-year growth. And understanding that the 2 businesses aren't necessarily related. I mean, is this due to the fact that you've got just a better understanding of kind of your clients' completion-based activities and timing this year? And can we take that as, also kind of having a heightened degree of what we'll see for the rest of the year in the Deepwater Gulf from a service standpoint as well? Just kind of an overall better understanding of timing.

Sure. Could you shape that question a little bit because you started off with Tubular Services...

Yes. No, again, and it may -- the answer maybe has, really has just nothing -- one has nothing to do with the other. But you've become more precise in your Tubular Service business guidance. Does that indicate that as a franchise, you feel at this point, you just have a better understanding of when the completion activity in the Gulf is going to take place? And so, we can have a greater degree of confidence even in your Gulf of Mexico services guidance?

Sure. From an SP&A financial planning and analysis perspective, we definitely have matured in that area where we now, as a management team, get into more granular detail as to well construction architecture and timeframe of delivery. That's only going to assist us in having a more effective guidance going forward. As far as the Tubular Sales side, it's relative to the sector of the market there that is the Deepwater and conductor installation. So it's relative to the jackup market, as well as the Deepwater market because the type of tubular and the connectors that are on there, we actually own our own connector line, as well as fabricate third-party connector lines onto the Tubular Sales side. So it's a wide array of business. It's something that is a focus for us as an organization, continue to make it more efficient.

Your next question comes from the line of Robin Shoemaker with Citi.

So I was wondering if you could give us a little color on the land casing running services market beyond which you've already given. In terms of, we're seeing an increase in the rig count this year, the horizontal rig count in particular. And it would seem to be a good kind of indicator of demand for casing running services in onshore. And yet, there's changes in the dynamics, as you pointed out, which lead you to believe that your revenues will be slightly down this year. So is there something happening in the competitive matrix here where I believe something where drilling contractors are running casing themselves or new players entering the market that will, perhaps, give us a backdrop to what's occurring there?

Sure, Robin. It's, again, John Walker. As I pointed earlier, we, as a management team, look to the U.S. land business. We've been in there for 75 years and we'll continue to look at that business model going forward. We've appointed a Head of U.S. Land, whereas previously, it was a multiple Vice Presidents. So the enhancement of that would be equipment utilization, headcount, cross-over utilization. So that's going to help our EBITDA margin going forward. As far as the competitive nature, there are certain sectors of it, such a large and diverse market with 6 basins that we have set up as far as our districts. And certain districts are actually up, certain districts are flat and then certain districts are materially down. Overall, the result as you know is 9% year-over-year. But it's not a systemic concern for us. It's a fact of getting the sales focus into the right basins, making sure where our value is with the right client. And to answer your question related to the drilling contractor running their own casing, we don't see that as a systemic degradation of the service for ourselves. It will certainly be another competitor in a certain sector of the business. But it's not of material concern for us.

Okay. And just maybe related to that, in your prepared remarks, you talked about an initiative at Frank's to increase equipment utilization. And I just wonder if that applies here to this land market as well, or you're addressing the whole of the company. And how much, kind of just a general sense of what could be gained that's relatively achievable on equipment utilization?

John Sinders. It's too early now to actually quantify the gains. But what we're doing is we're looking at our equipment utilization overall throughout the whole company and we're really trying to fine-tune and enhance our utilization. We want to make sure that we don't have equipment sitting in one part of the world idle when it can be used elsewhere. And so this would apply to land, too. We think that we're going to get some benefits out of that. I'd say, it's difficult to estimate what it could be. But certainly, it'll sharpen our CapEx going forward and reduce our CapEx somewhat.

Your next question comes from Ian Macpherson with Simmons.

I wanted to check with you on your comment about the expectation for the Deepwater Gulf of Mexico rig count to be at 45 rigs at the end of this year and compare that to where you see it today. Because I mean if you look at the ODS count, there are 36 working rigs, more like 45 contracted rigs today. I think that bigger number includes some that are probably still steaming over to the Gulf and haven't been accepted yet. So we know there are a lot of rollovers throughout the year across the TransOcean and Insco and Noble fleets that probably have uncertain utilization prospects throughout the year. What is your view on the net increase from where we stand today until the end of the year for the Gulf of Mexico deepwater?

So we canvas around our clients' E&Ps, and we've also, like yourselves, been looking at market analysis and data. And we see the average being at 37 as of the first quarter. And as we mentioned, it had gone up to a figure of the 44, 45. So we see a net gain there of 7 to 8 rigs. As we mentioned on the call or the early part of the call, that there may be some delays as those rigs come in, not necessarily out of the shipyards, but just on startup as they enter into the first wells that we -- that's being taken into consideration in the guidance.

We're looking at an average of 42 and that's based on our conversations with the operators and what they're talking about currently. But as John said, one of the things we have seen on a couple of rigs is one, a delay just as they get used to the equipment on it, that's a newer rig. We've seen some BOP certification issues that have delayed things a bit. So we've seen a few delays. What that's going to run out through the year or not is too -- it's too early to tell. But right now, we're looking at an average of 42.

Okay. The full year average?

Yes.

Okay. All right. My follow-up question is really we've seen this -- there's been this downward trend in your U.S. margins for a few quarters in a row. Historically, they look like 45% to 50% margins. This quarter, they were 40%. And I know, I mean, it sounds like you've been willing to cede market share onshore to protect your pricing and margin. So having said that, it's a little bit hard for me to reconcile why the margins are still going down as significantly as they have. Can you provide a little more color on that and tell us what needs to happen going forward to arrest that trend?

Yes, this is a simple one actually. In the Gulf of Mexico, what you saw for the first quarter is several rigs had, the operator had downhole problems. When they have downhole problems, it essentially links into the drilling curve or conversely, decreases our utilization. Similarly with the rig that was -- where they were getting used to the equipment and working out the kinks with that, I mean, it does the same thing. So anytime you have a problem on a rig in the Gulf, where we don't have -- we don't typically have standby rates. Sometimes we do, but we don't typically. What it does? It decreases our margin. I mean, one of these rigs, we have a significant amount of revenue that we were planning on recognizing and it slipped. So that is solely what caused the decline in our margin.

Got it. And you expect that to be improved going forward back into sort of the low to mid 40s in order to improve your...

Absolutely, it's purely a delay. But what happens is it's -- I mean, that's all it is, it's a delay. So we should see it pick back up. And these are averages, too. I mean, you could even see it spike a little bit.

Your next question comes from the line of Sean Meakim with Barclays.

[indiscernible]

Sean, could you get closer to your line, we can't hear you.

So I just want to talk a little bit about on the cash on the balance sheet. M&A has been a focus and we've talked about since the IPO and I know you guys are looking at things all the time. To the extent that whatever reason in the marketplace, things don't materialize, whether it's valuation or other reasons, do you reach a certain point at which, if you're not able to execute on M&A, that you decide to make a change in terms of returning cash to shareholders, in terms of -- I know increases in the dividend are part of the plan, but maybe even a special dividend, are there -- is there a point which you may decide to make a change there?

I mean, all those things, they're under advisory. We're not going to keep cash just to hold cash that we don't need. Just as you'd imagine, this a very shareholder-driven company. So we have to talk about special dividends, we have talked about increases in dividends. So when we get to the point where we feel like we have cash that we're just not going to utilize, we're going to give it back to you all.

Okay, great. And then shifting gears a little bit, there's been a lot of focus obviously on the Deepwater for good reason. But can we talk a little bit about what you're seeing in the shallow end of the market? Opportunities for some of these deeper wells that are getting drilled, the use of high-spec jackups. Is there more opportunity for you guys to take some share in that into the market as well?

Yes. Sean, it's John Walker here. Absolutely, that's been demonstrated in the North Sea most recently, where they --- some of the harsh environment jackups have come into the market and we've been in a position where we've technically secured the business. We see that going to be a continuation going forward so that the large volume of new jackups are coming out. A lot of similarities with the efficiency movements on the rig floor at well center. It's about well center efficiencies, it's about well integrity, of course. And we have a lot of different technology that can just make the wells more efficient. And that they're driving down cost in that sector of the market. It's a great opportunity for us.

Sean, when you look at it -- what we really do is complex well construction. And so any place that you have deeper wells, more hostile environments, that is where our equipment is unparalleled and where we have a proprietary advantage. But water tapped is secondary.

Your next question comes from the line of Jeff Tillery with Tudor, Pickering, Holt.

Want to follow up of on some of the line of questioning around the U.S. land business. Just as I think about kind of the ways that you seek to differentiate yourselves, I mean, is it -- do we see the basin focus change internally? Is it the way you market yourselves or just kind of changing customer mix? And then along those lines as well, the guidance of U.S. land being down slightly year-over-year would take a pretty meaningful ramp as we step through the remaining of the year. So just want to hear how you guys are thinking about that build.

Sure. I mean, the way we market ourselves is we follow our customers, we're a customer-centric country -- company. And so when our customers need us onshore, we're there. We certainly work better, I think, and our margins work -- we can get our margins better in places that are more oily. But it's also customers that are more focused on safety and efficiency, that type of thing. So you're going to find different types of customers in offshore. And the operators that are looking for the belt suspenders and having it done quickly, efficiently and really focus on well integrity, they're going to use us, but we're going to cost a bit more. Coming up for later in the year, we think -- this quarter we had a couple of surprises. We had 1 client pull out substantially of the onshore area. And so that was a little surprising to us. And we had another one where we lost a few rigs but we've been told we're going to get those back. But as you know our clients tend to be the large IOCs in the majors. But as we look forward for the rest of the year, we think we will pick back up a little bit of what we lost this quarter. But it's very hard in the onshore side of the market to predict because it is as well-to-well as anything that you're going to find. But it is a core part of our business, it's something we've been in forever, and it's something we're going to stay in.

And the second question just around the capital spend, pretty small fraction of the overall planned budget spent in the first quarter. Is there kind of big slugs we need to look for in the course of the year or is the bias for the company to underspend its budget?

I think we're going to do okay on the equipment side of the budget. On the real estate facility side of the budget, we've had a little bit of a slowdown just because some of that's permitting issues and we've got some other things that have just slowed us down a bit. And it wouldn't shock us at all for a part of that to go into next year. But it's too early to really make that call, so we wanted to leave it unchanged.

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

If onshore is going to decline a little bit this year and overall revenues are going to be up somewhere around 10%, should we look for offshore to grow low single -- low double-digits this year?

That's our hope. That's our plan.

Have you guys come up with a way to help us better model revenue growth for the company?

Jim, the biggest problem is, and if I can figure out a way to do this for you, I'm going to make also Keith Mosing pretty happy, is to figure out when our clients, our ultimate customers, are not going to have problems on their wells. Because remember, we're a service company and there's just no way around that. Internationally, we have a lot more visibility because you tend to have term contracts. And so there, we don't have the variation we do in the Gulf. But in the Gulf, we do. And there's just no way to get around that. Sometimes the drilling curves are going to be faster than anticipated, sometimes they're going to be slower. And what we do is we sit down with our customers, see what they're going to do for the year, then we look at other customers where we think they're going to do things. And that's when how we plot out our budget. But each month that goes by, we check it and see and there are unforeseen circumstances and that's what happened here. So that's real hard for us to give it to you, other than what we're doing. And it will vary and there's nothing we can do about that.

Okay. If I could follow up, we had talked a little bit about that, the near-term outlook for rigs in the Gulf of Mexico, it's become clear now that rates for deepwater rigs are declining. And groups like Seadrill are talking about how some older offshore deepwater rigs could get retired over the next several years. What's your guys' next 3-year outlook for the offshore Deepwater market?

I mean it's continued to stay positive in the areas we're looking at. 3 years is a hard outlook to have. We really look '14 and '15 more, but it's continued positive. So I know where Seadrill is coming from in what they say and it wouldn't surprise me to see some rigs either change or go into a different type of activity just because they're being obsoleted. But on the Deepwater and on the deep wells, it's -- we're just not seeing a change. So we continue to be optimistic.

Okay. And last question, if I could, I think it's a little bit hilarious that we're criticizing domestic onshore with 40% EBITDA margins. But let me ask the question anyway. How long do you think it will take to get U.S. fixed?

We don't think it's broken.

I understand and that's my comment on margin. But 9% down year-over-year, you're holding lines on margins, which we like to see. Nobody likes price wars. And that's why my fix was kind of in quotes, which you can't do over the phone. But I'm just wondering, when do you think -- let me put it in a different way, when do you think your onshore U.S. market will begin to improve?

I would think that you probably need, I don't know, maybe another 100 to 200 rigs to tighten it up enough. And what you certainly -- and what would really help us -- as you know the majors ebb and flow into this area. They came in and several years ago, they came in strong and that's very good for us. And then they've been pulling out a bit. They'll come back in the game and when they do, that's good for us, too. So that's kind of what really pushes us, the people that really have a keen focus on safety and well construction and well efficiency, that's what picks it up for us. The other thing that picks it up obviously is you could get to just a tighter competitive market. So for a tighter competitive market, we think a couple hundred more rigs. But more likely, what's going to do it would be finding the larger companies come into the market and come back into the market. But again, we don't think it's broken. I mean, our crews are fully utilized and crews that work onshore can work offshore, too. So it's -- I don't know what else to say.

I've noticed that Chevron and Exxon have both talked about expanding their rig count and, of course, Shell had to write off the Harrison Ranch. Are you -- do you expect to see a shift in dynamic? Do you expect to see the IOCs increase their exposure in the U.S. through this year and next, onshore?

In the U.S. offshore or you're talking about land, Jim?

Onshore.

Yes, it's a mixed bag there again. We're seeing in certain areas that there is definitely some opportunities for us with the larger majors. But the short term is there's been an exodus there of the majors into smaller independents. And as we focus on safety and well integrity, as John has mentioned, that becomes a challenge in the market there. But we see this as cyclic. We've been doing this for a long time and it's about just making sure that we can hunker down a little bit and get utilization numbers up and there's going to be opportunities in the future. We've been here before.

Jim, the change that John just did, we're adding, centralizing our management there, that is part of what we've talked about on prior calls. Making sure that we're out talking to higher management at the operators and explaining to them that when you're looking at safety, in particular, we're completely different than the other choices they have. They can go with somebody like us where they're going to have a much safer, it's a bigger company, we back what we say we do, or they can assume the risk themselves. So as they're managing their own drilling risk and completion risk, they have to think about who they're using. And that's what we're trying to get through to them now.

Your next question comes from the line of Joe Gibney with Capital One.

Just have one question, was curious on U.S. onshore, if we could strip out the weather impacts in the quarter, maybe what a ballpark percentage revenue decline would have been, I know it's 15% in aggregate, but maybe what it would've been x weather impacts quarter-over-quarter?

It really wasn't that big deal for us. I don't have a number. I mean, it wasn't something that was that measured. The biggest problems we had were like I said, there were 2 main clients, a major that pulled back substantially and another where we lost several rigs that I think we're going to -- where we think we're going to pick back up.

Okay. So weather fairly de minimis in aggregate then?

Yes.

Your next question comes from the line of Daniel Burke with Johnson Rice.

Just one clarifier. Latin America has been in a tough market for the industry. When you mentioned the declines in Latin America, were those declines year-over-year? Or are you still also seeing sequential declines? Just trying to figure out when that Latin American business sort of stabilizes for you all, in the context of the year-on-year international growth -- revenue growth target?

Yes, I think we're -- I think it's mostly stabilized. I mean, if anything, we think that, not this year, but going forward, you should see upside. I mean, Latin America has been a tough market overall. I think it's been tough for everybody. And I think we've managed our risk there much better than a lot of the other -- a lot of our peers. But certainly, at some point in time, Brazil is going to have to relook at their drilling programs. Petrobras is going to have to change, Mexico is going to come on. So long term, we're optimistic. Short term, we think we sort of bottomed out.

Okay, great. That's helpful. And then, last one for me, highlighting the North Sea, Middle East and Far East, it was helpful to get the indications of the specific contract wins in the Far East and the indication on the North Sea harsh environment market. Anything to point to in the Middle East, either in terms of contract wins or potential opportunities out there?

There are several opportunities ongoing right now, but related specifically to Q1. The Middle East, Saudi, it continues to be a good market for us and we're making some great inroads there. We've been in that market 20-plus years. There's some great technical challenges occurring there. Also as it stabilizes, the opportunities with the deep gas, high pressure, high temperature is very similar to the Gulf in the sense of the HPHT chrome environment, challenging wells with the pressures. And again, that's when the differentiating technology comes into play. So some of them are looking forward to. Something I wanted to add to this, as everyone is talking about well construction costs, escalating E&Ps, looking at ways of efficiently reducing cost. I want to point everyone to the recent developments in Angola in Block 32 where we had an E&P that got the -- just finalized the sanction approval for the go-ahead on the exploration and development of that campaign. And we were, again, part of the service company group that managed to justify the well construction cost reduction due to efficiencies and the execution, different types of technology continued overall reduce the well installation cost.

Your next question comes from the line of Waqar Syed of Goldman Sachs.

I just want to get your revenue spoiler [ph] to the IOCs versus independents versus NOCs. Do you have the breakdown?

We don't disclose that.

Okay. But it seems from your talk that the IOCs, you're pretty substantially [indiscernible] to the IOCs. And as we [indiscernible] budgets that have come in from the oil and gas industry, it seems that the IOCs are the most aggressive in cutting the capital spending for this year. I think it's down like 5% or so. So I'm trying to reconcile that with the 10% kind of revenue growth numbers that you have.

Our revenue growth numbers are very granular. And they include IOCs, large independents and NOCs. But that's why when you talk about the trends, I mean, I see the trends, we read your research, we read everybody else's, but it doesn't necessarily translate into what we're doing because what we're is doing based on what our customers are asking us to do. So I guess, we're probably getting the higher percentage of the IOCs that maybe somebody else is, if you're looking at it being down. But overall, that's what I can tell you. We're very granular, we -- it's based on clients and we've got growth across the board, all 3 categories.

Okay. And so far, in your planning, I mean, as you look back last year and as you look into this year, what the IOCs have been telling you, has the plan has been -- has actually been running in line with the plans? Or are you doing better or worse?

It's been running in line. I mean, you get some guys coming in quicker, some a little later. But it runs in line. The one thing I think that sometimes analysts don't understand is that these things are not precise because you're drilling wells and so they can either come and go in different levels and at different times. So it doesn't happen just like clockwork. I mean, but it doesn't mean plans changed, it just means things get pushed back or accelerated.

I absolutely understand that. And to that point, one of the things that you mentioned about the Deepwater, that wells had problem and things get delayed. But that's something that we've been seeing on a regular basis, wells do have problems and rigs get delayed as well and are now having a lot of unplanned downtime. So as you provide this guidance, how much room do you provide for things like that to happen?

I mean, we look at the drilling curves that are given to us and different companies are different. Some companies actually have planned downtime in their curves, some don't. And so we try to take that into account. This particular quarter just happened to be one of those odd quarters where we had more than we thought. But we do take that into account. But again, it's an estimate because these are pretty complex wells.

Right. And I think that's the reason why there is going to be most likely lot more issues. And given your very high exposure to the market, if there is a rig down or a well down, there's a very high chance that you guys are going to be affected with that, is that fair?

No. The thing is that could be positive or negative, all depends exactly when the sequence happens. If our equipment's on the rig at the time and then there's an operational problem, then there is no effect on us. And all around the world, it has permutations from region to region.

And also guys, they also beat their drilling curves. So you really -- it really isn't a negative bias. It actually -- this particular quarter was, but there are quarters where actually is the opposite where we have a positive bias. And so that's the best way to say it because we factor it in, too, when we look at our equipment utilization and how we allow equipment in what we do. So but it isn't it generally a negative bias. And you can't really plot it that way or otherwise, you're going to have a surprise on the upside.

Your next question comes from the line of Ole Slorer with Morgan Stanley.

In respect to West Africa a little bit again. You mentioned that, that was a pretty robust market for you. And the Tenaris call, I just finished, they highlighted I think 74% revenue growth in Sub-Sahara Africa last year and continuing strong this year. But we're hearing that, and at the same time, we're seeing companies like Seadrill Pacific Drilling have issues getting final sign-offs on their rigs going into Nigeria and this potentially holding up the drilling program. So could I have your view of the dynamics that you're seeing, in particularly in Nigeria and Angola between what appears to be a standoff at the moment between governments and big oil companies? And really silver lining that we discussed that $4 billion reduction on Block 32?

Yes, Ole. It's John Walker here. Good question and it comes back to right across West Africa and East Africa, it all depends on how the production sharing agreement, the PSA is structured. We deeply get involved in that aspect of evaluation as well to see where an E&P is going to the government there and there's incentives to explore, appraise and develop from a royalty basis or the sooner the better for cash flow. So there's a flurry of activity in some of the countries as a result of the PSA structures and establish and understanding the structures, as well as understanding the well complexities allows us to position ourselves, specifically related to Nigeria and the political situation that's going on at the moment. There's a pause within the E&P sector and also a sanctioning pause because of the elections that are coming up imminently. So we've taken that into our guidance and we've been working in Nigeria for 20-plus years. We understand the market, it is dynamic and changing. We are well positioned with the E&Ps and the majors and we don't see any pricing pressure there or market degradation from our perspective. We've been very successful on up and down North and South Africa and up to the Northwest. And we see that continuing through '14 and '15.

So given your experience in Nigeria, I mean, there hasn't been a new rig signed off since May 2012. And there seems to be quite a backlog now of projects that still needs the final signature.

Yes.

And you are involved in quite a few of those, with your equipment already installed onboard at rigs. So how are you thinking about that in terms of your revenue expectations out of West Africa this year?

Sure. As they've been installed in that area, so there's been a huge activity upsurge in other parts of West Africa. So it's about maintaining the infrastructure that we've got and waiting for the pause to relax because it will happen. We've been in situations with the governments up and down Africa across or international where, as the elections come closer to it, there's a pause of investment and we're seeing this in Nigeria right now. And as it gets closer and then once the election passes, then we're going to see a lot of these projects get sanctioned and will proceed. Saying that, the tenders for these project went out several months, if not several quarters ago, and we know what we've secured and we know what we're on standby for and we know we're currently – is outstanding so we have a lot of visibility in that market.

I should of course know this, but what is the timing around the Nigerian election?

I'm not a politician, I don't know that off the top of my head. But I do keep a close eye on it. And I think we believe a lot in Jonathan being the President there. You'd have to research that yourself.

And there are no further questions.

Okay. This is Keith Mosing. I just want to thank everybody. We feel like we've made great progress so we've only been taking the public side since last August. And we're real pleased, I think we're honing our management skills on the inside, still delivering customer service like we always have. Like Mr. Walker was just saying, we've been in a lot of these areas, not just 2 decades, but 3. And the land market is something that we count for over 75 years, we're very familiar with it. There's always going to be ups and downs in this business. But I think the main thing is we're getting better and better and better at what we do. And I'm just real pleased with our progress and I can just say that we want to thank you for your support. We're really, really happy with our progress.

Thank you, ladies and gentlemen. This does conclude the conference call for today. We thank you for your participation and we ask that you please disconnect your lines.