John T. Gremp - Chairman, President & CEO Maryann T. Seaman - CFO & EVP Douglas J. Pferdehirt - President & COO James Davis - Supervisor, Investor Relations.

James West - Evercore ISI David Anderson - Barclays Capital, Inc. Ole Slorer - Morgan Stanley Bill Herbert - Simmons & Company William Sanchez - Scotia Howard Weil Byron Pope - Tudor, Pickering, Holt & Co. Securities, Inc. Scott Gruber - Citigroup Inc.

James Wicklund - Credit Suisse Securities Mark Brown - Seaport Global Securities Robin Shoemaker - KeyBanc Capital Markets Inc. Judson Bailey - Wells Fargo Securities.

Welcome to the Q3 2015 Earnings Analyst Call. My name is Cory, and I’ll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I’ll now turn the call over to James Davis. Mr. Davis, you may begin..

Thank you, Cory. Good morning and welcome to FMC Technologies' third quarter 2015 earnings conference call. Our news release and financial statements issued yesterday can be found on our Web site. I’d like to caution you with respect to any forward-looking statements made during this call.

Although these forward-looking statements are based on our current expectations, beliefs and assumptions regarding future developments and business conditions, they are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements.

Known material factors that could cause our actual results to differ from our projected results are described in our 10-K, 10-Q and other filings with the SEC. We wish to caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof.

We undertake no obligation to publicly update or revise any of our forward-looking statements after the date they were made, whether as a result of new information, future events or otherwise. I’ll now turn the call over to John Gremp, FMC Technologies' Chairman and CEO..

Good morning. Welcome to our third quarter 2015 conference call. With me today are Maryann Seaman, our Chief Financial Officer and Doug Pferdehirt, our President and Chief Operating Officer. I'll discuss highlights from the quarter, Maryann will provide specifics on our financial performance, and then we'll open up the call for your questions.

Earnings were $0.61 per diluted share for the quarter, excluding the impairment charges of $60.2 million and total company restructuring charges of $18 million. Total company quarterly revenue was $1.5 billion, and operating profit was $224 million, again, excluding the impairment and business restructuring charges.

Quarterly revenue for Subsea Technologies was $1.1 billion, with margins of 16.9%, excluding the Subsea business restructuring charges. Our focus on execution and the strength of our backlog continues to drive our strong margins. For the full year, we still expect Subsea margins excluding the restructuring charges of around 15%.

Our quarterly Subsea Technologies inbound orders totaled more than $1 billion for the second quarter in a row, bringing our year-to-date total to $2.6 billion. Improved deepwater project economics are imperative to ensure that this critical resource is available to meet the world’s future hydrocarbon demand.

Our focus on improved execution, standardization, innovative technology, and the vendor based integrated business models were both significantly and sustainably reduced cost and improve returns for deepwater developments. We recently announced awards for Statoil’s Johan Sverdrup project in Norway and Shell’s Appomattox project in the Gulf of Mexico.

In the case of both of these awards we collaborated closely with our customers to identify the most cost effective solutions to improve project economics.

Given the award to achieve this quarter, the anticipated smaller orders next quarter and sustaining a strong level of Subsea services activity, we have further confidence to achieve our targeted full-year inbound guidance of at least $3 billion of inbound orders in 2015.

Based on the number of named future Subsea projects, and the progress made on improving project economics, 2016 Subsea market activity has the potential to be on par with 2015. However, given the continued uncertainty of oil prices and capital spending by the operators, we lack the visibility to project Subsea orders for next year.

Now despite this uncertainty, operators remain committed to deepwater. They’re prioritizing capital spending towards production. And they’ve been successful in improving project economics, all of which support the future growth in Subsea activity.

Operators continue to show willingness to accept vendor based approaches versus the traditional client specific requirements. An example of this is the addition of Chevron to our high pressure, high temperature joint industry program that was announced in July of last year.

Our Company along with five operators are collaborating to help solve the technical and economic deepwater challenges through standardization of materials, processes, and interfaces.

We continued supporting our customers producing assets by leveraging our installed footprint and technology leadership to improve project economics through cost savings and increased recovery. We reached an agreement to produce some multiphase pump solution for Shell’s BC-10 Field, in Brazil to replace the current separation in boosting modules.

At this time, the agreement covers just the first boosting unit. As we previously mentioned in our second quarter earnings call, the initial response from operators to Forsys Subsea, our joint venture with Technip, exceeded our expectations.

Operators acceptance of our vendor based integrated approach at the concept stage has been both real and compelling is evident by the receipt of two integrated front-end engineering studies in this quarter.

The commitment from these operators gives us further confidence that our alliance with Technip will be awarded and integrated EPC contract in 2016.

Turning to the performance of our Surface Technologies segment, revenue remain flat sequentially as our Surface Wellhead business outside of North America performed well, offset by further weakness in our North America onshore business.

Given the decline in the North American onshore activity our Fluid Control orders remain well below historic levels. The North American rig count is expected to further deteriorate, and in response customer spending remains depressed and pricing will remain under pressure.

In light of this market outlook, we’ve taken aggressive action and continue to streamline our North American initiatives to improve our cost structure. Our Surface Wellhead business outside of North America performed well in the quarter. We expect activity to remain similar to current levels as we end the year.

However, we expect future months where we begin to show the impact of pricing pressure as a result of the deteriorating global market. We are restructuring our operations in response to this weaker market. In summary, we continue to see a challenge North America land market and do not expect any recovery as we go into 2016.

we are taking aggressive action as we manage through this downturn to improve our operating effectiveness and we continue to accelerate our strategic initiatives to improve our position in the North American onshore market. We remain confident in our ability to deliver full-year Subsea margins of around 15%, excluding restructuring charges.

We will continue to strategically restructure our Subsea segment in line with anticipated activity levels and also in a way that allows us to sustainably operate with a leaner organization in anticipation of a market recovery.

During the quarter, we achieved important milestones in our effort to improve deepwater project economics through execution, standardization, technology, and new business models. These milestones are also evidence of the industry’s willingness to adapt real and compelling changes and how deepwater fields are developed.

Maryann will now take you through the financial details of the quarter..

Thanks, John. Before I review our operations, I'd like to note as announced on Monday that our third quarter earnings results were negatively impacted by impairment charges, primarily in our Surface Technologies segment of $0.20 per diluted share.

We also incurred business restructuring charges mainly in the Subsea Technology segment of $0.06 per diluted share as previously communicated. When excluding the impact of these two items, diluted earnings per share were $0.61 for the quarter.

Our Subsea Technologies segment continued to deliver strong operating results as we executed well on our strong project backlog and cost reduction initiatives are being realized. Quarter-over-quarter revenue comparisons were negatively impacted by $155 million of foreign currency translation.

Subsea Technologies operating profit of $171 million in the quarter. Quarter-over-quarter comparisons were negatively impacted by $27 million of foreign currency translations due to the strength of the dollar. Operating margins were 15.6%. We incurred business restructuring costs of $14.6 million in the quarter.

Excluding the impact of foreign currency translation and restructuring charges operating profit was up approximately 4% year-over-year. As you may remember we communicated on our last quarterly call that we expected to see cost in coming quarters for restructuring in Subsea -- in our Subsea business.

Excluding these cost, margins were 16.9%, a sequential improvement of 170 basis points when excluding the comparable charge in the second quarter. Our Subsea segment has yet to see a decline in activity and in fact absent the headwinds from the strength of the U.S dollar, year-to-date Subsea revenue is actually up slightly from 2014.

The actions we’ve taken throughout this year including the significant actions in the third quarter will help us develop a stronger and leaner organization as we prepare for the decline in activity in 2016.

We have further restructuring within the organization -- we will have, excuse me, further restructuring within the organization in the fourth quarter. As we enter 2016, our Subsea organization headcount will be more reflective of the anticipated decrease in activity due to delayed Subsea project inbound.

As we see 2016 activity, we will make further assessments on our operating structure. We anticipate an additional $6 million to $8 million of restructuring charges in the fourth quarter.

We continue to experience headwinds due to the strengthening U.S dollar, looking at the first three quarters of 2015, the U.S dollar is significantly stronger against currencies we have the greatest exposure to, the [indiscernible], the euro, and the real.

Subsea revenue for the first nine months of 2015 include more than $400 million of unfavorable impact and operating profit includes more than $60 million of unfavorable impact due to the strong U.S dollar.

Absent of foreign currency translation, total revenue year-to-date is slightly favorable year-over-year and operating profit year-to-date increased by approximately $45 million year-over-year. Moving to our Surface Technology results.

Surface Technology reported operating profits for the third quarter of $37 million, excluding impairment charges of $58 million, primarily related to our Canadian business and restructuring charges of $2 million. Excluding these costs, operating margins were 10.3%.

These results represent continued strength in our non North America Surface Wellhead business. As this is a later cycle business compared to North America we continue working off the healthy backlog and saw an increase in orders in the quarter. However, current pricing is beginning to reflect a more challenging environment.

As John stated, we do not expect to see a recovery before next year in our North American businesses. As discussed in the last earnings call, we’re continuing to reduce our operating cost structure for North America, while integrated -- integrating related products and services to deliver greater value to our customer.

We expect these actions to continue through the fourth quarter and will result in further headcount reductions with an expected cost of approximately $4 million to $6 million. These actions will continue to reduce cost and improve our competitive position as the market recovers. Segment backlog exiting the quarter stands at $495 million.

This continues to predominantly be reflective of our Surface Wellhead business outside of North America. Moving to our final segment, Energy Infrastructure revenue for the third quarter was $97 million. Operating loss for the segment was $2 million.

As our profitable loading systems results were more than offset by continued slower activity in our measurement solutions business. In the quarter, we incurred restructuring cost of $1.7 million.

Given that lower activity levels are likely to continue, we expect to incur additional restructuring charges of approximately $2 million in the fourth quarter due to further headcount reductions. Let me turn to our corporate items. Corporate expense in the quarter was $15 million.

We expect spending of approximately $17 million in the fourth quarter of 2015, including anticipated restructuring charges of approximately $3 million associated with headcount reductions. Other revenue and expense net reflects expense of $22 million.

For the fourth quarter, we expect other revenue and expense to be approximately $15 million, with the potential for further foreign currency fluctuation increasing this amount. Our third quarter tax rate was 19.2%, primarily due to a change in geographical earnings mix.

We expect our 2015 full-year tax rate to be between 24% and 26%, which includes the U.S tax audit settlement discussed last quarter. Capital spending this quarter was $50 million. We expect capital spending in 2015 of approximately $250 million. At the end of the third quarter, we had net debt of $583 million.

It is comprised of $712 million of cash and $1.3 billion of debt. We averaged 231 million diluted shares outstanding in the quarter. We repurchased 1.7 million shares of stock during the third quarter at an average cost of $33.95 per share. In summary, we expect total company restructuring charges in the fourth quarter of $15 million to $20 million.

Looking forward, Energy Infrastructure revenue is now expected to be down more than 25% year-over-year, with full-year margins in the mid single -digits, negatively impacted by the poor results due to slower activity in our Measurement Solutions business.

We no longer expect to see a recovery in this business in the next few quarters given that activity corresponds to the North American market. As indicated, we continue to take actions to improve performance. Surface Technologies revenue is expected to be down nearly 30% from last year due to reduced North American market activity.

Full-year operating margins will be approximately 10%, excluding business restructuring and impairment charges as we will see continued pricing pressure. Subsea revenue for the full-year should be approximately $4.6 billion as the strengthening of the U.S dollar continues to make great -- a greater negative impact.

Absent the headwinds we’re having our strongest year in Subsea revenues. We continue to expect Subsea margins excluding restructuring charges of around 15%, as we execute well in our backlog and cost reduction initiatives improve performance. The current market conditions are presenting a number of challenges to our near-term results.

However, the actions related to the strategies we are implementing across our businesses will result in long-term cost savings, while preserving our capabilities to improve our execution as the market recovers. Operator, you may now open up the call for questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from James West from Evercore. James your line is open..

Thanks and good morning..

Good morning, James..

John as you think about ’16 you made the comment that Subsea orders could rival 2015, but you weren’t -- it didn’t sound totally confident on that.

When do you get that confidence that it could be similar or maybe even better? Is it just oil prices, is it your customer budgets coming out in the next couple of months? Is it behind the scenes bidding activity that we’re not seeing, I mean, what -- what’s really the driver that would increase that confidence?.

The driver -- James, the driver absolutely is the capital budgets from the operators, which have not been set and then something else and that is when those budgets are set, will these projects be included in that capital budget. And this is kind of unprecedented for us.

In the past, we had a rough idea of what the capital budgets were at this time and we knew whether or not projects would be included in that capital budget.

Now on the positive side, we know that the number of named big projects that would make up Subsea inbound for the market that they exist and we also know that we made a lot of -- we, meaning the industry, has made a lot of progress in improving the economics.

What we don’t know is what the capital budgets are going to be and whether or not these projects are going to be included.

And that’s the uncertainty that we haven’t had in the past that we have today and I think once we see those capital budgets and we know whether or not these projects are included, we will have a lot more confidence in 2016 Subsea inbound..

So around the next quarter’s release you probably should have a much better feel?.

I’d certainly hope so..

And then a follow-up on that, with on Subsea -- with the restructuring that’s underway, the significant restructuring that I think Doug is spearheading, do you -- is that change your view of Subsea margins at all four next year or was that incorporated already in the guidance that you provided last quarter?.

Yes, it’s incorporated. I think when we talk about 2016 margins; we know that there is some natural headwinds we’re going to have more of the down cycle pricing in backlog starting to flow through the revenue stream in 2016. We also know that our revenue, because we’re going into the year with lower backlog, that our revenue will be down about 10%.

Now those are two headwinds that will drive our margins down from what we’re experiencing this year and we’ve suggested that those margins would be a range of 11% to 13% biased towards a 13%.

We are assuming good execution to get to that 13%, but we’re also assuming that some of the restructuring that we’re doing now and into early next year will help us offset those headwinds in terms of 2016 margins..

Okay, got it. Thanks, John..

Yep..

And our next question comes from David Anderson from Barclays. David, your line is open..

Great. Thanks. Hey John, I just wanted to dig down a little bit more into those two feed study awards from Forsys.

Can you help us understand a little bit of these projects, were they already on the drawing board, but the economics just didn’t work out? And perhaps -- and is your expectation be able to take 30% of the cost out of the serve portion of these projects?.

David, I think what we’re realizing -- I mentioned this in the last call that the interest by the operators in this different business model has exceeded our expectation.

One of the things that we found of particular interest was that those projects that had not been started in terms of concept design and had maybe been sort of shelved in terms of the project economics were the ones that the operator seem to have the most interest in applying the Forsys methodology and the two feed studies that we receive the awards for I think both fit into that category.

These were projects that may or may not have actually been able to go forward had it not been for this different approach. I’d like Doug to comment more, though specifically on overall the interest that we’ve had on the feed studies and these two awards that we’ve got a little bit more color on what was behind them.

Doug?.

Thank you, John. David, you may recall last quarter we talked about a wide range of interest, interest from partners as well as non-partners, interest from independents as well as IOCs and NOCs. And also that the approach we were finding had great applicability in both Greenfields as well as Brownfields.

So if you look at these two awards that we were -- that we’re discussing today, it actually fits into that category. So the first was for an independent operator who was a non-partner and this is a Greenfield approach. This is actually at the concept stage.

So in this particular case, the value proposition was by aligning and having early engagement, making a commitment to partners and close collaboration that they would be able to take anywhere from 18 to 24 months of the first oil delivery.

So that was the real value proposition whilst at the same time recognizing and experiencing the savings that will come from a vendor based integrated frond-end engineering project. So that was one example.

The other example was for an IOC, a partner, and in this case of Brownfield application, if you will, this is a field, its going to tie back to an existing host. In this particular example, we got involved at the feed stage, we’re involved with the feed stage, I should say.

And yes this project I would say had some economical hurdles that needed to be overcome. The customer recognize two things that by using this approach, one, they had the very real possibility of overcoming those economical hurdles which we certainly expect to be the result.

And in addition they saw this as a way to change the behavior within their own company by changing the approach to, one, early engagement. Two, committing to doing an integrated project a integrated delivery of that project or if you will an integrated EPC project.

And this is really a change of behavior and this was a catalyst for us receiving that award. So two very different projects with different characteristics, but again it demonstrates the very broad interest that we’re receiving in our integrated approach along with our partner Technip..

So John, earlier I think last month or so you talked about the three potential projects you’re working on. You thought it maybe get one of those feed studies you come out and you have two of those feed studies now.

How many more potential feed studies do you think are out there that you can announce, say over the next couple of quarters? I mean are we talking this is sort of a growing list that you are -- this is sort of the beginning, just sort of getting the tip of the iceberg? Or how should we think about the progress as we kind of monitor the progress of Forsys over the next several quarters?.

Well, I mean, absolutely David, we believe that this is the beginning of an industry wide change in the approach to developing deepwater projects. So we absolutely expect this to be the I think you call the tip of the ice berg.

We are very pleased that we’ve got two operators which suggest -- I mean, two operators, but it suggests in such a short period of time that not only are the potential savings and the impact on returns compelling, but the openness and the willingness of as Doug described two different kinds of operators open to a different approach suggests that this could be the beginning of a shift and how the industry develops their fields.

We said earlier that there was a -- the interest exceeded our expectations from the full range of operators including even NOCs, all geographies as Doug said, Greenfield and Brownfield, it suggests that the breadth of the interest and application of this different approach could apply to virtually all deepwater projects and we would expect -- I mean particularly success breeds success and I think these feed studies as we demonstrate that we can deliver these savings as they become EPCI contracts and we execute these savings that will create a momentum that would -- should increase -- should only increase the number of projects that are using this approach going forward..

Great. I appreciate the color John and Doug..

And our next question comes from Ole Slorer from Morgan Stanley. Ole, your line is open..

Congrats on the Forsys feed studies as well as your break into the boosting market..

Yes, thanks Ole..

When it comes to this -- again, to go back to the two studies that you won, it sounds like the first one is you’re able to fast track, while the second one you might be able to use some more or more specific or tend [ph] to the designs around some very more specific technologies and products.

Could you elaborate a little bit on to what extent the cost savings are achieved by streamlining the execution versus using more specific technologies that you can center the designs around?.

Ole, thank you for the question. Absolutely it’s a combination of both the ability to do the integrated planning and execution and the cost savings associated with that, as well as the introduction of different technologies.

But most importantly it’s removing components, actual hardware from the Subsea field design by working together early with the service provider, with Technip, to be able to look at ways that we can streamline the interfaces between the umbilical risers and flow lines in our traditional Subsea production system.

Thus physically removing and permanently lowering the costs of Subsea field development and that’s really where the -- what the objective is.

Now on top of that, absolutely, we’re going to see benefits and the benefits we’re going to come from the integrated planning and execution, better delivery, improved execution, as John has mentioned many times the execution in Subsea projects has been not great over a long period of time for our industry and this is a way for us to address that as well.

The introduction of new technology will come over time.

Just to remind everyone, the actual relationship is just slightly over 120 days old and we continue -- we do have a robust plan for the development of new technology, but we’re seeing right now is actual savings from the physical removal of interfaces or streamlining of interfaces and then the streamlining of the actual installation of the Subsea field..

And of the savings, the same -- do you think the potential for savings are they the same in both of these two different categories?.

Most definitely, Ole. I mean and again the earlier the engagement, the greater the opportunity set. So you could say if you’re engaged with the concept stage you may actually be able to influence the actual savings even greater than if you’re involved later in the front-end engineering process.

So -- but we would expect similar savings for both of these projects, yes..

And our next question comes from Bill Herbert from Simmons & Company. Bill, your line is open..

Thank you..

Good morning..

Good morning. Just a couple questions on Subsea orders. And John, so you prophesied that at this stage notwithstanding that the visibility is somewhat limited, you feel by 2016 would be equivalent to ’15. And I’m just curious as to the components of that.

It seemed like if I back into it that your onesie and twosie baseline for the third quarter was running at about $650 million, if you assume that for 2016, that’s $2.6 million and then you are assuming something close to like $1 billion in major projects in ’16 assuming the fourth quarter of this year comes in at close to what you did in the third.

And so when you get to that math, I’m just curious about the major project composition, we’ve been talking about greater Western Flank here for a while, talking about Cobalt Cameia, we’ve been talking about Mad Dog phase 2.

The one that’s the biggest one, which seems to be slipping at least based upon the fact that you’re not upsized relative to 2015 in Bonga South West.

So can you comment about that formulation and some of those projects, please?.

Sure, Bill. The components of the -- the potential components of the 2016 Subsea inbound for us would be, lets start with service. Services held up at about a run rate of $1.5 billion. I think in 2016 the installation portion of that will hold up. We think some of the -- maybe discretionary services because of CapEx cut backs will face some headwinds.

So we might come under our past run rate, but figure a $1 billion plus, $1.5 billion -- something under $1.5 billion could be our Subsea service number potentially..

Okay..

On the small onesie, twosies the third quarter number that you referenced is too high..

Okay..

We had fairly -- there in the second -- we’re watching the onesie, twosies very closely, because we think that the Gulf of Mexico market will portfolio hold better in this downturn than any of the other markets and we have a very strong position. In Q1 the small order is strictly coming out of the Gulf of Mexico were very, very light.

In the second quarter they were very strong. In the third quarter they were not strong. They weren’t as light as the first quarter, but they were close to it. So we think that, the onesies, twosies are demonstrating a kind of lumpy characteristic that’s becoming a little hard to project.

But in the 2016, we’d expect -- I mean it’s not going to go zero, it’s not going to look like Q1 of 2015 but probably continue to look like an average of 2015. So that would make up a number for 2016 and then we would have to win as we did in 2015, several major awards.

And this is where I showed my caution, because not knowing capital budgets, not knowing whether or not these major projects will be included in the 2016 capital budget, it’s hard to predict.

But assuming that they would make the cut and be included in those capital budgets we would need a couple of two or three; I don’t want to say exactly, depending on which ones and how large. But we would need several major Subsea awards. Its hard to imagine getting to an equivalent 2015 Subsea inbound without a major Africa project.

So those would have to come -- those would have to come in and that’s how we get to the components of 2016 Subsea inbound that’s on par with 2015. The big question of whether or not are these big projects going to be included in the capital budgets; we won't know that till later..

So specifically with regard to Bonga South West, because that's the biggest project out there, close to 50 trees. We were hoping for earlier this year that possibly that was a 2016 event. How do we feel about that just given the fact that Shell has a lot to digest with BG.

Oil prices aren't exactly accommodating? What will be the harm in sort of deferring that for another year or what's your thought process on that right now?.

I don’t have any really insights on Shell, but I think you just look at the facts, this is a huge project. So it’s going to comer a lot more scrutiny and it’s subject to more delays.

The larger they are it’s a national oil company project that has a tendency to delay because you have another partner that has to -- you have to reach approval and then it’s a Nigerian project. So with the uncertainty in Nigeria I think that puts a lot of question marks around Bonga. There are other projects though and Bill you know them all.

I mean Mad Dog, Greater Western Flank, Anadarko’s Golfinho project, ENI in East Africa. You mentioned Cobalt, Chevron has projects. There is a list of projects that support assuming they all make the cut on the capital budgets that support the potential inbound that I referenced. But they’d have to come through.

You’re right; they would have to come through in order to have 2016 look like 2015..

And our next question comes from Bill Sanchez from Howard Weil. Bill, your line is open..

Thanks. I guess just one clarification on that prior question.

So, John it sounds like to me or maybe just to specify, do we not expect to see a name plate award here in fourth quarter additionally?.

That’s right, Bill. I mean we’re running out a year now, we were looking at a couple of major Subsea awards in order to hit our target of three plus billion, we got those. We’ve only got a couple of months left.

I -- and just given while people are talking about winding down the year, I just -- I wouldn’t include that on my forecast, because we’re running of out of year.

And so you’re right, given where we are year-to-date Subsea services hold up, the onesies, twosies which I already mentioned are kind of lumpy, they show up we get to three plus billion for the year. We’re not expecting a major award and just given the timing I think that’s probably the right way to look at it..

Okay. Great. Thanks for that. And I guess just one question on Subsea margin, and Maryann I guess for you, the 17% roughly in 3Q I think exceeded people’s expectations and given the guide for still 50% average would suggest you’re probably looking sequentially something greater than 200 basis point decline in margins in Subsea in 4Q.

I guess I would have thought that maybe they’ve been a little bit stickier here just given the cost cutting initiatives and still some of the benefits of the higher price backlog, the mix of more aftermarket.

Can you talk a little bit about that? Progression, was there something unusual in 3Q driving a higher Subsea margin and it would be helpful?.

Yes, sure Bill. So I think in general you’re absolutely right. There’s a lot of stickiness to all of the cost reductions that are coming through. We expect to continue to see that nothing abnormal between three and four, a little bit of timing. The thing to think about in four -- and you’re right, we are expecting to see a sequential decline in four.

One of the biggest drivers is Light Well intervention. As you know normally in the first quarter of every year we see Light Well intervention flowing. In the fourth quarter we’re actually going to see all three vessels that operate in the North Sea come off on contract. So that’s a part of it.

A little bit of timing in the way that we executed our projects, and then lastly we had slightly higher R&D spending in the fourth quarter than we had in the third quarter.

So, yes stickiness to all of the good execution we have really just a little bit of timing between three and four and then again, we’re seeing an early slowing if you will or contract removal on the Light Well intervention..

And our next question is from Byron Pope from Tudor, Pickering, Holt. Byron, your line is open..

Good morning. John, in the context of winning your first Subsea pump award with Shell for BC-10 and you have another between separation and boosting you’ve got another half dozen of those projects.

Could you just frame for us at a higher level how you see the Subsea processing opportunity over the next 18, 24 months boosting versus separation opportunities?.

Right, Byron, I think we -- in the near-term the next year or so, we’ve got to put Subsea processing projects in the pace of which they’re awarded and pursued in the context of a pull back on capital spending on operators redirecting their capital spending towards production, certain projects that are in the queue that for various strategic reasons they want to proceed with all in the context of a smaller capital budget.

It doesn’t mean that Subsea processing technology in these projects aren’t very, very compelling financially to the operators they are. But I think we should assume that they’re going to go a little bit on the backburner for the next year because of the capital constraints. There are several projects that are out there.

Now that our pump is -- we’ve broken the ice in terms of our first award. We’re going to be where we know that we’re qualified with a number of operators. We’re going to be pursuing other pump projects.

But I think there might be a temporary slowing in the pace of Subsea projects in the next year or so just because of the prioritization of projects in the capital budgets. But as you can appreciate we are very encouraged that we broke through getting our pump qualified last year, now we’ve broken through getting our first award.

We’re going to -- we’re now competing in the processing market, and that market will come. Absolutely it will come, the economics are very compelling. I just think that the pressure on capital budgets will have an impact on the near-term pace of projects that go forward in processing..

Okay.

And then, just a quick question on Surface Technologies, its seems as though Middle East activity has been an island of strength with regard to activity levels and would it be fair to assume that, that’s been the source of resiliency with regard to your International Surface Wellheads business this year and would you expect that business to be relatively stable in that region of the world again as you move into next year?.

Byron, you’re right. Surface International has been a source of resiliency for us in our Surface business, but we see that we could be approaching an inflection point.

I mean to think that our Surface International business would be insulated from the entire global deterioration in the market really doesn’t make sense and we think starting next year, the next couple of months or so, we’ll start to see our Surface International business which has help up so well over the last year and a half come under fire particularly in the area of pricing.

And I think that is a change from what we’ve spelled out in the past. We now see the potential of real weakness -- beginning of weakness I should say as opposed to this business that has held up so well over the last year and a half.

So we think we’re going to start to see the effects of the global deterioration in the oil and gas market service sector start to affect really for the first time in a year our Surface International business..

And our next question comes from Scott Gruber from Citigroup. Scott, your line is open..

Good morning..

Good morning, Scott..

Turning back to the feed study awards which are, its truly great news. John, you mentioned a broader industry wide change undertake -- underway here, just in terms of why projects engineered and executed offshore, and you specifically highlighted interest from NOCs.

But in your opinion are the NOCs operating offshore, are they really ready at this point to change the way they interact with their vendors and their contracting processes? Do they need to see the benefits that IOCs and in independence reap before shifting?.

Actually, Scott we -- when we first announced the joint venture and we began engaging with all our clients on the benefits. Quite frankly we were surprised by the interest by the national oil companies. They operate under production sharing contract agreements which require a common tender document, the approach is fixed, its standard.

Multiple contractors bid the projects that’s built into production sharing contract process. And we really didn’t expect for any serious interest from the NOCs, so we were surprised when the NOCs and not just one but multiple NOCs said no, don’t rule us out, we’re interested. And they want to improve their economics as well.

They saw the compelling nature of this different business model. Now, when challenged -- when challenged they said, yes you’re right, we have production sharing contract processes that require tendering.

But there are some options that we are to consider, like a design competition upfront so that we meet our tendering requirements but could still apply this new business model.

I think you’re right -- for the NOCs to go from interest to actually implementation as opposed to the two clients that Doug discussed in the awards, its going to come later, because they have -- they have natural hurdles they have to overcome and I’m sure they’re going to want to see the success of this different business model before they proceed.

But I think we should take it as an important sign that the industry is prepared to accept different business models even those organizations that have natural barriers to overcome. So I just think we should be encouraged but probably shouldn’t assume that NOC is going to be the first one out in terms of experimenting with this new model..

And was Petrobras one of those that expressed interest initially in the strategy?.

Yes, they were..

And our next question comes from James Wicklund from Credit Suisse. James, your line is open..

Good morning, guys. Congratulations on the first pump. And adding Chevron to the lower tertiary study is a coup, so good job..

Thanks, Jim..

You’re still cutting people in Surface and in infrastructure and you talk about how you’re sizing the business in Subsea. You talk about how we could be at an inflection point in pricing in International Surface. Maryann mentioned that on a dollar adjusted basis this quarter was record up from last year.

We seem to kind of be at a pinnacle rolling over in a lot of ways and trying to figure out when the bottom is going to be.

And I know, you and Ole talked a lot about kind of my question really is, how long could this last if big projects aren’t going to be in the oil companies budgets for next year and therefore to adapt, right, and how long could this last, John? I mean I’m -- nobody is going to zero, I got that.

But how long could we scrape along the bottom of this bathtub in your businesses?.

Now let me think about that question ….

I know we all have to be optimistic..

Yes..

I know we all have to be optimistic, but you’re scaling your business for something smaller than it is today, so you’ve got some idea where its going?.

Right. Jim, when we talk to our partners, there’s not a single partner who doesn’t say they remain completely committed to deepwater. Nobody is abandoning it, nobody is going anywhere else. The conversation is almost a 100% around how can we improve the economics so we can proceed to develop our extensive deepwater portfolio.

Just to give you some color, Doug and I were with an operator a couple of weeks ago and they said, and I opposed that question and they said, John our exploration success in deepwater is un-paralleled, it’s a strength of our company. Our ability to successfully develop deepwater projects is one of the best in the industry.

Why would we abandon that strength? What we need to do is to take our strengths with your help, improve the economics and get on with developing our deepwater portfolio. So there’s no abandonment of deepwater ….

No, I don’t think its abandonment, but we could not have a date for a couple of years..

Except the pace, where the encouraging thing Jim is that they’re moving quickly, much more quickly than I think you or I would have thought to improve the economics.

How do you expand -- explain that, a number of major products now all won by us were awarded in 2015 despite the capital constraints and the downturn in the industry, because these projects were successfully reworked to improve their returns.

I’m confident that this will only accelerate the success in improving economics will only accelerate in the year to come. We should be encouraged by the early adoption of these new business models.

Nobody thought that in just over 100 days two companies would decide to turn upside down their historic business models for the purpose of improving economics. So this is going to gain momentum and to the extent that the capital budgets which were already directed away from exploration to production start to incorporate these major projects.

So you’re right, how long -- well, I don’t think every operator understands that ….

I don’t disagree with you John..

Yes, go ahead..

I don’t disagree with you on any point. Its just that the disconnect I have seen between what investors think is quick and what happens especially in deepwater with IOCs and what -- and the industry is called quick is often a disconnect.

And I just -- my concern is, is like ordering deepwater rigs, we’re not going to do it for a couple of years or 10, while your guys can stay committed to deepwater. When do they get the budgets to develop is the issue. And my concern is they -- they may not be in this year’s budget or next year’s budget or the next year’s budget.

What you’re doing is great and right and it will work, but that the rate of adoption is my biggest concern..

Yes, and I think that’s our concern as well, but again I think that’s why we’re so encouraged that this adoption is faster than anybody that you pointed, anybody has ever seen in this industry and that gives us some encouragement.

Now, what are we doing in responses, because we can't -- not under our control how fast they adopt this? We’re trying to make sure that we can act quickly to restructure our business during this uncertain period of time without jeopardizing our ability to execute and succeed when the market eventually comes back and so far, based on the numbers we’ve seen and the base load that we get from our partners that we can achieve this.

But you’re right, I mean there’s uncertainty and in terms of the level of activity and we’re watching that carefully. Right now, we think we’ve been able to balance the necessary restructuring, yet keeping our core capability for when the recovery comes..

And our next question comes from Mark Brown from Seaport Global Securities. Mark, your line is open..

Thank you.

I wanted to just get any kind of update on Petrobras with you, and many of your competitors have backlogged, associated with the company and to what extent you expect to see a risk of impairment or slowdown in the deliveries from either you or the industry in general?.

Right, you recalled two and half years ago we received one of the largest Petrobras award for Pre-Salt Christmas Trees and Pre-Salt Manifolds that was four years requirement. We got the bulk of the manifold awards and very large tree awards at that time. That backlog represents 17% of the company’s entire backlog.

There has been clearly pressure by Petrobras in some cases cancellation although we’ve seen no cancellation; instead we’ve seen some rescheduling of that four year requirement of Petrobras as it was in our backlog that actually worked to our favor.

We were able to avoid some expansion cost and spread out the deliveries over a period that takes us through mid 2019, and we think that backlog will stay intact. Again lots of pressure from Petrobras but we think it will stay intact. The margins have held up. There’s a lot of pricing pressure.

But largely we think that the margins will be able to hold up. And as a result we see no risk of any type of impairment. We obviously are going through a major restructuring to resize ourselves. But we think we can use that Petrobras backlog to get us well into 2019.

Now beyond that we’re obviously anticipating the market starts to improve in Brazil, but that’s the story for us. We benefited by the large awards we won almost three years ago and we can stretch those out into 2019 and size our organization accordingly..

All right.

Well thank you, and just as a follow-up on a different topic, obviously the big merger that was announced recently affecting the Subsea space, was wondering if that changes you strategy in any way or if you think that there might be additional consolidation or combinations in the overall Subsea space going forward?.

I’m assuming you’re referring to the Schlumberger acquisition of Cameron. They have had a joint venture -- a Subsea joint venture between Cameron and Schlumberger for almost three years. The acquisition by Schlumberger shouldn’t directly affect that joint venture.

One Subsea which we’ve been competing against for three years, so there’s not a significant change in that structure with regard to Subsea.

Our response to that has been to focus on our alliance with Technip and our joint venture and with Forsys Subsea and obviously we’re encouraged by the results that we had in those last quarter as a result of that, that focus.

In terms of consolidations in the industry, I really couldn’t speak to that during the downturn, its not in common for industries to consolidate and I don’t think our industry will be any different..

Our next question comes from Robin Shoemaker from KeyBanc Capital Markets. Robin, your line is open..

Thank you. John, I was wondering if you could shed any light on this year’s breakdown between in Subsea between backlog conversion to revenue, customer support and book-and-turn.

It looks to me like backlog conversion this year is around 50% level but maybe I’m wrong on that, comparable to last year and its usually a little higher as backlog declines..

Robin, you’re right. The 50% conversion rate is about right. Historically we’ve had a little higher number but because we’ve got these large projects particularly Petrobras those conversion number is a little bit lower, but 50% is a good number. Subsea service’s is a book-and-turn business and we’ve said that’s about a $1.5 billion of the revenue.

So you take the conversion rate of our backlog and you know we went into almost record backlog in 2015 a 50% plus the Subsea services book-and-turn and then the smaller orders book-and-turn which is probably the smallest piece of all three of those. You get the revenue recognition of 2015 of $4.6 billion..

$4.6 billion, right? Okay -- so on another topic, I wanted to ask you about the fluid control business and whether you observe what's happening there similar to previous downturns where the purchases dry up very substantially, but sort of create a deficit of inventory that leads to sort of like a coiled spring when the market does recover.

But in terms of pump sales or treating our in sales, are we at the very, very low levels we’ve seen before and working down inventories rapidly?.

Robin, absolutely the fluid control business is following, that’s the same pattern as you just described. The challenge is as we see further reductions in activity in North America it just adds to the idle capacity which adds to the cannibalization that’s going on versus that coiled spring releasing.

So the amount of energy being stored in the spring is increasing but the release of that is further delayed because of the continued deterioration of the North American market..

Our next question comes from Jud Bailey from Wells Fargo Securities. Jud, your line is open..

Thank you. Good morning. I had a -- just a follow-up question on your margins for Subsea’s next year in reference to the guidance between 11% and 13%. John, you mentioned your goal and confidence in getting something towards the higher end of that range.

I'm just curious, if you were come in at the low end, what are the variables to think about that would cause you to come in at the lower end of that range? Would it be lower utilization on the well intervention? Would it be weaker Subsea services? Or how should we think about the difference between the high and the low end of that range?.

I think you’ve got it Jud, I mean execution is always a variable. We’re very, very pleased with the process we made on execution. So we don’t anticipate anything but we managed a lot of projects. So execution would take us to the low end.

You’re absolutely right on the services side, we had headwinds on services which is a book-and-turn business, its not in backlog, so that would affect it. And then in pricing, we’re under tremendous amount of pricing pressure including some of our service contracts.

So even though generally our pricing and backlog at least historically in downturns has stayed intact. It’s under a lot of pressure and so I think there could be some pricing concessions particularly on the service side, service activity and execution could all lead us to the lower end of the range.

Now, again as you heard my remarks, I think we’re bias towards the high end because we’ve made such good progress in execution. We fully expect that to continue and we’re focused on the continually into next year.

And we think with our good execution performance we’re in a position to push back on some of the price concessions because of our execution performance for the operator. So that’s where to -- I think you’re on the right track, that’s what would drive us to the low end..

Okay. And then just one clarification.

Did you say the potential for price concession is for orders that are already in backlog?.

No, I was referring to service rates. So service is a book-and-turn business. We have negotiated rates. We have come under a lot of pressure to renegotiate those rates and that's why that would affect margins in 2016, because it’s a book-and-turn business.

Mr.

Davis, do you have any closing remarks?.

This concludes our third quarter conference call. A replay of our call will be available on our website beginning at approximately 2:00 PM Eastern Time today. We will conduct our fourth quarter 2015 conference call on February 17 at 9:00 AM Eastern Time. If you have any further questions, please feel free to contact me. Thank you for joining us.

Operator, you may end the call..

Thank you. Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect..