Monika Broughton - IR Andrew Lane - CEO Jim Braun - CFO.

James West - Evercore Matt Duncan - Stephens Incorporated David Manthey - Robert W. Baird Sam Darkatsh - Raymond James Ryan Merkel - William Blair William Bremer - Maxim Group Kevin Maczka - BB&T Walter Liptak - Global Hunter Nick Chen - Alembic Global Chris Dankert - Longbow Research.

Greeting, and welcome to MRC Global’s Fourth Quarter Earnings Conference Call. At this time, all participants are in listen only mode. A brief question-and-answer session will follow the formal presentation (Operator instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today Ms.

Monika Broughton, Executive Direct of IR for MRC Global. Thank you ma’am, you may begin..

Thank you and good morning everyone. Welcome to the MRC Global fourth quarter and year end 2014 earnings call and webcast. We appreciate you joining us. On the call today we have Andrew Lane, Chairman, President and CEO, and Jim Braun, Executive Vice President and CFO. Before I turn the call over I have a couple of items to cover.

There will be a replay of today’s call available by webcast on our website mrcglobal.com as well as by phone until March 06, 2015. The dial-in information is in yesterday’s release. Later today we expect to file the fourth quarter 2014 Form 10-K and it will also be available on our website.

Please note that the information reported on this call speaks only as of today, February 20, 2015, and therefore you are advised, that information may no longer be accurate as of the time of replay.

In addition, the comments made by the management of MRC Global during this call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of the management of MRC Global.

However, various risks, uncertainties and contingencies could cause MRC Global’s actual results to differ materially from those expressed by management. You are encouraged to read the Company’s Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and current reports on Form 8-K to understand those risks, uncertainties and contingencies.

And now I would like to turn the call over to our Chairman, President and CEO, Mr. Andrew Lane..

Thanks Monika. Good morning and thank you for joining us today on our fourth quarter and year end 2014 earnings call and for your interest in MRC Global. I’ll begin with some highlights from the year’s performance and then discuss the outlook for the business before turning the call over to our CFO, Jim Braun for a review of the financial result.

Let me begin with last year’s performance. I am proud to be report 2014 revenues set a new record high for the company at 5.93 billion and was in line with the guidance we provided landing at the midpoint. For the year revenue growth was 13% compared to 2013 with strong organic growth of 9%.

We realized 1.51 billion in revenue in the fourth quarter which is the second best fourth quarter the company has been seen. The quarterly revenue increased 12.5% from the fourth quarter of last year with organic sales growth of 8%.

For the year we had organic sales growth across all the end market sectors and product groups as compared to last year which goes to the continued strength of our customer spending through the end of 2014. Adjusted gross profit for the year was 1.12 billion or 18.9% of total sales. This two was in line with our expectations.

Adjusted EBITDA was 424 million and slightly below the low end of our guided range. This was due to lower Q4 gross margins primarily in our international segment along with some large Middle East orders that were in our forecast but slid into 2015. Profit margins at our U.S. and Canadian businesses held up reasonably well in the quarter.

Net income for the year was 144 million or $1.40 per diluted share compared to 152 million or $1.48 per diluted share in 2013. Excluding certain items in each year adjusted net income per diluted share was $1.57 in 2014 compared to $1.60 in 2013.

While oil and gas prices began their rapid decline last fall customer spending and drilling activity in the U.S. remain steady. As our U.S. revenue in the in the fourth quarter 2014 grew 15% from last year with the U.S. rig count 9% higher over the same period.

Contributing to this growth was the continued execution of our line pipe strategy to target new and growing upstream and midstream companies. Overall, I am very pleased with our 2014 performance; we had a series of accomplishments including several strategic acquisitions and market share gains.

So, while we are in faced with a difficult upcoming year, I still want to take time to acknowledge the hard work by all our employees and achievements of 2014. Now let turn to the current environment in the energy market and how that will impact our business, since that is what is our forefront of everyone’s mind.

When we spoke last quarter, we did not expect the decline in oil prices to be so severe, since then oil prices continue to fall to the current levels around $50 per barrel and customers have continues to lower their capital and operating expense budgets for 2015.

The volatility and uncertainty remain and customer’s plans remain in flux as the industry adjust to the new reality. While we don’t know exactly how this cycle will play out, we have continued our discussions with our customers and suppliers.

Public announcements, spending surveys and predictions about oil prices give us an indication of how 2015 might unfold. We believe the current general consensus that WTI Oil will trade around $45 to $55 per barrel and that U.S. natural gas will trade around 250 to 350 per mcf.

We’re also led to believe that we should expect the 35% or more reduction in 2015 capital spending in North America. This implies the decline in rig count of around 800 rigs to 900 rigs from the peak in 2014. International spending is expected to be 15% to 20% lower.

We would expect our upstream business to be impacted the most and fall in line with the lower capital budgets.

We also expect some of these lower spending trends to affect our midstream business somewhat, but not nearly as much as the upstream and we expect the downstream business to be impacted more modestly since it is most operating expense driven and the capital of projects are longer term in nature.

Geographically, we expect the biggest percentage decline to be in Canada due to high production and transportation cost environment, followed by the U.S. with the least impact in international.

Our backlog was 1.09 billion at the end of the year, down 13% from the record high level at September, yet still over 300 million higher than the backlog a year ago. We also expect the first-half of 2015 to be stronger than the back half as activity levels are still in decline and are expect to bottom layer this year.

Like many other serving the energy end markets, we are not providing specific 2015 guidance at this time. The volatility and uncertainty I mentioned earlier makes an already challenging exercise even more difficult.

I will say that based on our revenue so far in the first quarter, we believe the first quarter will be down sequentially, although we expect some carryover spending from 2014. Directionally, we would expect the back half of the year to be more challenging; I believe this is not fully reflected in the current consensus view for 2015.

I would also point out that we expect the recent strengthening of the U.S. dollar to create additional headwinds in 2015. With that said, while we cannot control commodity prices or how much our customers spend there are some things we can control and we’re squarely focused on those.

We are focused on three primary actions, using our industry leading position to continue to win new business and gain market-share; we do see our working capital and applying the operating cash to debt repayment and managing our cost structure.

In terms of gaining market-share, we have a couple of recent changes that I want to highlight today, I also want to say that we’re looking forward to working with these companies, we’re honored they trust us to help solve their supply chain complexities and bring value to them during the challenges they face in this environment.

As we previously announced in December, we were awarded a five-year supplier agreement by MarkWest, a midstream company focus in the Marcellus and the Utica. In addition, we’ve been informed that Statoil intends to award us a contract to provide instrumentation valves, compression tubing’s and fittings for the Johan Sverdrup project in Norway.

This is a major $29 billion Statoil project that was recently sanctioned and is expected to begin production in 2019. We also expect to have further announcements of recent wins in the near-term.

Regarding the balance sheet, one of the benefits of our distribution business model is its ability to generate cash from working capital reductions and a counter cyclical fashion which provide downside protection. For example, in 2013 we generated 324 million in cash from operations and paid down debt by 269 million.

As we generate cash throughout the year, you’ll see us use it to reduce debt. We expect to bring debt down in 2015 by between 200 and 300 million, if activity flows more than we currently anticipate we will reduce debt further.

In addition, the terms of our credit facilities are favorable in that we have no financial maintenance covenant, no near term maturities and an average interest cost under 4%.

Regarding the cost structure as we discussed on previous calls, we have been working through various cost saving measures that started in 2014 improved profitability which at the end of 2014 have resulted in a reduction of 230 positions.

However as we enter 2015 with the continued [negative] macro oil and gas market sentiment we have embarked on additional cost saving measures and we will continue to evaluate the cost structure to keep it in line with customer spending and activity levels.

In addition to cuts in discretionary spending we have instituted a hiring freeze and deferred the annual wage and salary increased. We have reduced headcount another 270 employees through termination and attrition in the first quarter. In total we have reduced headcount by 500 or approximately 10% of our employees since March 2014.

We expect the headcount to be approximately 4,700 by the start of second quarter. We have managed through downturns in the energy cycle before and MRC Global is well positioned to manage through this one and be in even stronger position when we emerge. The question I believe isn’t if the activity will return, but just when.

As decline rates on shale production are high and with steep retail decline and delays in completing wells that have already been drilling the picture should change for the better global oil demand is expected to continue to grow and as U.S. oil production falls. With that let me turn the call over to Jim to review our financial results..

Thanks Andrew and good morning everyone. Total sales for the fourth quarter 2014 were 1.512 billion which were 12.5% higher than the fourth quarter of last year due to higher spending levels and the impact of acquired revenue. As compared to the same quarter a year ago, revenue increased 8% organically and 4.5% from acquisition net of divestiture.

Sequentially, as expected revenues declined 7% in total, across all geographic segments. U.S. revenues were 1.159 billion in the quarter up 14.5% from the fourth quarter of last year. Market activity as measured by rig count and number of wells completed increased 9% and 5% respectively over the same time period.

Growth in excess of these levels is indicative of market share gains and project activity. The upstream and midstream sectors as well as every product line in the U.S. business posted revenue growth in the quarter.

The midstream sector grew the most at 26% and at the product lines OCTG grew at 24% due to a large number of well completions by our core OCTG customers followed closely by valves at 21%. Sequentially, U.S. segment sales were down from the third quarter by 4% primarily due to midstream and downstream revenue declining about 4% and 9% respectively.

Normally year end seasonal trends were primarily responsible. Canadian revenues were 155 million in the fourth quarter down 18% from the fourth quarter of last year. The sale of our progressive cavity pump business reduced sales by 24 million in the quarter and 8% decline in the Canadian dollar relative to the U.S.

dollar reduced sales by another 13 million. Sequentially, the Canadian segment is down 4% from the third quarter due to the negative effective of the decline in the Canadian dollar otherwise revenues were flat. In the international segment fourth quarter revenues were 198 million, up 55 million or 39% from year ago.

The increase was primarily the result of four recent acquisitions Stream, Flangefitt, MSD and Hyptek, which added 85 million in incremental revenue in the fourth quarter of 2014. Organically sales were down 21% from lower activity particularly in the Netherlands, the Middle East and Australia and from the negative impact of the stronger dollar.

Sequentially the international segment was down 21% from the third quarter due to negative impact of the strong U.S. dollar, large Middle East orders that were forecasted but not realized in the fourth quarter and the timing of certain large orders in Europe and Australia.

Turning to our results base on end market sector in the upstream sector fourth quarter sales increased 19% from the same quarter last year to 719 million. This increase was driven by organic growth of 9% and the impact of acquisitions of 10% net of the Canadian pump divestiture. Strength in the U.S.

based on higher activity levels was offset by declines internationally. Midstream sector sales were 453 million in the fourth quarter of 2014 an increase of 16% from 2013. Compared to the fourth quarter sales to our gas utility customers were higher by 23% and sale to our transmission customers increased 12%.

Gas utility sales were up due to the timing of customer projects and the increase in the sales to transmission customers was due to increased project activity and the continued penetration of targeted accounts. In the downstream sector fourth quarter 2014 revenues decreased by 1.6% to 341 million as compared to the fourth quarter of 2013.

Now turning to the revenue-by-product class, our energy carbon steel tubular product sales were 465 million during the fourth quarter of 2014 with line pipe sales of 321 million and OCTG sales of 144 million.

Overall sales from this product class increased 14% in fourth quarter from the same quarter a year ago including an increase in line pipe of 30 million or 10% increase and an increase in OCTG of 26 million or 22%.

In terms of pricing, it wasn’t much of a factor in the quarter based on the latest Pipe-Logix All Items Index averaged line pipe spot prices in fourth quarter of 2014 were up modestly from the fourth quarter 2013. More recently pricing continues to be slight lower over the past several months. January’s prices 1% less than December.

While we expect to have some deflation in certain types and sizes of line pipe in 2015, we don’t expect it to be anywhere near the levels as we experienced in 2009 when we saw prices decline nearly 50%, in fact we would estimate deflation to be in a range of between 5% and 15%.

Sales of vales, fittings, flanges and other related products were 1.047 billion in the fourth quarter, a 12% increase from fourth quarter of 2013. Sales of valves were up 25% during the quarter. Organic growth was 9% and the remaining 16% came from acquisitions.

Sales of fittings and flanges were up 14% from fourth quarter of 2013, 9% from acquisitions and the balance organic. Our oilfield, gas and related product groups were down 6% from the same quarter of 2013 as the disposition of the Canadian progressive cavity pump business offset modest organic growth.

Turning to margins, gross profit percent decreased 40 basis points to 16.4% in the fourth quarter 2014 from 16.8% in fourth quarter of 2013. The decrease was primarily due to the impact from LIFO of 30 basis points. A LIFO charge of 5.9 million was recorded in fourth quarter of 2014 as compared to a charge of 1.1 million in the fourth quarter of 2013.

The adjusted gross profit percentage, which is gross profit plus depreciation and amortization, the amortization of intangibles and plus or minus the impact of LIFO inventory costing was 18.1% in fourth quarter of 2014, down slightly from 18.3% in fourth quarter of 2013. Sequentially, the adjusted gross profit declined 90 basis points or $33 million.

The decline is primarily due to the 106 million sequential revenue decline lower margins in the international segment and slightly lower margin in the U.S. and Canada. In addition, the sequential revenue decline was weighted more to the higher margin international business.

We also incurred cost for inventory provisions related to the integration and rationalization of certain international operations. SG&A costs for the fourth quarter of 2014 were 174 million, an increase of 7 million from 167 million a year ago.

SG&A increased 20 million as a result of acquisitions even so SG&A was 11.5% of sales in the fourth quarter of 2014 as compare to 12.4% of sales in the fourth quarter of 2013, a 90 basis improvement.

The quarter benefited from the cost cutting measures taken earlier in 2014 and a reduction in operating expenses related to the divestiture of our Canadian progressive cavity pump business. As mentioned earlier we reduced our operating expense in 2014 through our reduction in headcount.

In 2015, we’re taking further actions to reduce costs including hiring and salary freezes. We eliminated approximately 270 positions including reductions of permanent and temporary employees, attrition and the elimination of open positions. The sum of these two actions represent a workforce reduction of approximately 10%.

In the first quarter we expect to incur pretax charges of approximately 3 million for severance expense. We continue to look for cost savings opportunities to size our business appropriately to fit current customer activity levels.

Interest expense totaled 16.3 million in the fourth quarter of 2014, which was higher than the 14.7 million in the fourth quarter of 2013. This was due that average -- higher average debt balances. The effective tax rate for 2014 was 36.2%, although the rate in the fourth quarter was 41.1% due to changes in the mix of profitability between the U.S.

and international operations and certain discreet tax items. Our fourth quarter 2014 net income was $31 million or $0.30 per share compared to net income of 23 million or $0.23 per diluted share in the fourth quarter of 2013.

For the fourth quarter of 2014 adjusted net income was 34 million or $0.33 per diluted share and excludes charges related to the disposition of our rolled and welded business.

This is compared to an adjusted net income for the fourth quarter of 2013 of 33 million or $0.32 per diluted share and excludes charges related to refinancing, accelerated equity based compensation and the deferred tax asset adjustment.

So rolled and welded business is a legacy business which fabricates large diameter, steel vessels that contributes less than $4 million of revenue a year and has minimal profits. This business is a non-core activity and we elected to dispose of it. Adjusted EBITDA in the fourth quarter was 102 million versus 87 million a year ago, up 16%.

Adjusted EBITDA margins for the quarter were 7.6%, up from 6.5% a year ago, but down sequentially from the third quarter’s 8.2% due to lower revenues and margins that are subscribed above, partially offset by cost savings measures. Our debt outstanding at December 31st was a 1.454 billion, compared to 987 million at the end of 2013.

This increase was due to our acquisitions and working capital growth. Our leverage ratio at the end of 2014 was 3.4 times. We have no financial maintenance covenants in our debt structure and our nearest maturity is in 2019.

As our working capital requirements go down with the lower activity, we expect to generate cash that will be used to repay debt in 2015. In addition, the availability on our ABL facility was 302 million at the end of the year. That availability should increase as we pay down debt in 2015.

Our ABL facility like most has a borrowing base that changes overtime and is determined as the percentage available accounts for sellable and inventory. Our operations used cash of 38 million in the fourth quarter of 2014 and a total of 106 million for the year.

Our working capital at December 31, 2014 was 1.438 billion, 354 million higher than it was at December of 2013. We experienced an increase in accounts receivables a result of acquisitions, organic revenue growth and the timing of payments from various large customers.

However we improved our number of day sales, were outstanding by approximately three days from the third quarter as we may progress in collections.

Inventory increase in the fourth quarter as lead times on certain size and types of line pipe and valves extended going into the fourth quarter and resulted in a [receive] of product through the fourth quarter and into 2015. The third quarter was a record quarter for the company and October was the highest revenue month of 2014.

So working capital requirements continued into the fourth quarter. As it became more apparent the 2015 would be a more substantial downturn, we began aggressively reducing our inventory purchases.

Since peaking in November, open purchase orders have come down around $200 million or 32% by the end of January indicating that we expect to see inventory levels decline over the course of the next two quarters. Capital expenditures were $20 million in 2014 and somewhat lower than typical.

Our capital expenditures are expected to be higher in 2015 as we are planning for the implementation of a new ERP system to bring certain areas of our international segment on the one system.

As a result of our various acquisitions, today we operate on several disparate systems internationally and the plan is to migrate the business to one system to improve service for the customer and improve our operating effectiveness and deliver long-term value to our high growth international segment.

This implementation will take most of the year and we expect to go live sometime in 2016. Including a regular capital spending means and plans the total capital budget for 2015 is $43 million. The average currency exchange rates in 2014 were around 7% to 8% lower than 2013 for the Canadian and Australian dollar as it compared to the U.S.

dollar most of that hitting in the fourth quarter. In 2015 we also expect to have a revenue impact of overall $100 million related to the currency as the U.S. dollar has continued to strengthen again some of the major currencies where we operate including Canada, Australia, Europe and Norway.

And now I’ll turn it back to Andrew for his closing comments..

Thanks Jim. While we face a challenging 2015 MRC Global is well positioned to manage through it and emerge stronger. We have a low cost debt structure with favorable terms. We’re focused on protecting and growing market share, controlling cost and reducing debt.

We have been through many energy cycles before, since the last cyclical downturn we rebalanced our product portfolio towards higher margin lower volatility products and we expanded internationally. All of which helps now with downside protection. In summary I believe we are well positioned to take advantage of opportunities even in this tough market.

So with that we’ll now take your questions, Operator?.

(Operator Instructions) Our first question comes from James West with Evercore. Please proceed with your question..

Andy when we think about your midstream and your downstream businesses obviously we’re going to see a big cut in the upstream, we know where the CapEx numbers are kind of falling, lay that out nicely, but you indicated your midstream somewhat gets hit downstream maybe not nearly as much.

Could you frame that a little bit for us and how you are thinking about it is that going to be half of the decline in the upstream business or quarter of the decline -- is there some type of range that you’re thinking about for those two businesses?.

James the upstream as you said with the rig count drop and number of wells projected to be completed we’ll be pretty much in line with the CapEx decline in North America.

On midstream a couple of things happening there; one, large diameter major trunk line projects that we spoke about in the last call that are in the backlog in ’15 and ’16 those we see going forward without interruption. Also that’d be 16 inch and above line so we see no impact to that investment level at that infrastructure has to be put in place.

We also see a good year in gas utility which is more tied to construction both residential and commercial gas utility work so those aspects of our midstream business are positive.

The only negative will be in the smaller diameter lines less than 16 inch primarily ERW where you have gathering lines and flow lines with the less well hookups from the upstream.

So a slight impact on demand there but their only real impact that I would say in the midstream business is really the deflation we see in those carbon pipe prices related to lower demand and deflation that we expect of the -- what Jim spoke to the 5% to 15% in that range is what we would see in the mid-stream offset by no decline in the gas utility but that type of decline in the transmission sector..

And then as we think about your strategy this year, you mentioned the three areas where you can’t control things are you also still on the hunt for M&A at this point or giving your leverage ratios and the kind of tough market environment, do you see that kind of on hold for now?.

James I would characterize that we are on hold for 2015 on the acquisitions. I mean our primary focus will be managing the cost, generating the cash flow as Jim talked about how the working capital reductions and deleveraging and paying down our debt.

And that’s at least for the first few quarters of the year until we see what tiny amount of pickup of activity will look like. But I wouldn’t expect us to do any acquisitions in these first few quarters..

Our next question comes from Matt Duncan with Stephens Incorporated. Please proceed with your question..

So I appreciate this maybe a little bit of a difficult question to answer but I want to try and see if we can get a little help on the margin side. Your gross margins in the fourth quarter were little lower and Jim you did a good job describing what was happening there.

Help us think through how the gross margin would be impacted by the drop in tubular prices and then sort of you look at year-over-year adjusted gross margin, how much do you think you could be down?.

You’re right Matt I think one is the headwinds we see going into 2015 is on the margin line with the desire for customers across the spectrums trying to control their cost.

Certainly we feel good about the pipe we have in inventory and what we can sell it for, as we take new orders and we start to see deflation we’ll be buying at lower prices but we’re also be selling.

So we’ll get some small squeeze on margins but as we go into ‘15 I think the margin areas one where we will be working hard to maintain a preserve that we’ve earned -- gain in the past..

Okay and then flowing that down to an EBTIDA margin, I think back in ‘09 the adjusted EBITDA margin was -- I believe it was 5.7%, the cost structures changed a bit since then obviously the gross margins have been a little better at times because you guys have lessen the OCTG exposure, but your SG&A expenses as a percent of sales are a good bit higher than they were back down, so as we think about where you EBITDA margins might be this year that kind of 5.5% to 6% range of a descent starting or do you see reasons it could below our above that?.

We’re going to try to manage the cost to keep them in those levels..

So using the ‘09 range, the ‘09 number would be a good place to start then..

That’s a reasonable place to start..

Okay and then thing on cash flow, I know in ‘09 the free cash flow was I think it was almost 500 million -- 486 million if I remember correctly, and you’re guiding us to 200 million to 300 million of debt pay down which would seem to equate to how much free cash flow you will have, why would you maybe not be able to do a little bit better than that, if you’re seeing a 35% drop in upstream revenue it seems like the potential is there to generate more cash and maybe as simple as not wanting to over promise and under deliver but just help us think through how you guys were planning to manage working capital? How much inventory do you planned up to take out and once the opportunity to maybe generate more cash than that?.

Yes, Matt, you’re exactly right and your recollection of 2009 exactly right, we pay down around that 500 million that year. You know this is -- as I know you appreciate, it’s a very volatile market, we don’t have a great outlook on the exact activity levels for the second half of the year.

And so that’s really only, our only formal guidance that we wanted to give and if we wanted to give that in this uncertain environment with 100% certainty that we could deliver, so it is a conservative range at -- regardless of what happens in the market we feel very comfortable saying today that we can generate 200 million to 300 million and decrease our net debt that much.

Certainly if activity goes little lower and we reduce our inventory little bit further, you are going to see more cash flow. But at this point in the year that’s our target and just to your inventory question, we expect to pull up at least 200 million lower out of the inventory by the end of 2015..

Our next question comes from David Manthey with Robert W. Baird. Please proceed with your question..

First of I guess where you’re talking about the capital spending plans of customers down 35% there you’re talking mainly about volume and again concentrated in the upstream, but as you’re talking about pricing that would be added to that -- I guess or add to the decline if you will, related to how much pipe in each of this different streams you have, so just trying to get to those thoughts could you tell us -- just remind us sort of what percentage of up, mid and downstream are related to pipe, line pipe and OCTG and all in specifically?.

Sure, well, the OCTG business is all upstream. The majority of line pipe that’s in the midstream it makes up about half of the midstream business, but you probably got 25% to 30% of the upstream business is going to be pipe related so you’ve guided in those primary and also some in the downstream..

Got it okay that’s very helpful, and then on the cost cutting side, just giving your relatively high fixed cost structure 10% headcount sounds like a lot.

But if we’re looking at the cost improvement that you realized in 2014 let’s say from the first 230 headcount reductions, could you talk about the carryover benefit from that you’d expect to see in 2015 and then I guess the next round of reduction enforced that to 270 would be pretty much all in 2015, can you give us an idea of the dollar benefit you expect to see form those two things year-on-year?.

We said last year the annual impact was around $16 million to $17 million and we’ve got most of that in the third and fourth quarter so you’ll have some of that that carryover impact. We haven’t quantified the impact of the actions so far as they’ve unfolded; you certainly have a comparable number of people.

But in this go around its more field people that were related to or to adjust for the activity level, last year it was more related to management structure and organization higher levels. I’d expect -- you’d expect to see something probably a little less than last year..

Okay and just so I here you correctly that the 16 to 17 and actually you hit that run rate in the third and fourth quarter meaning that maybe you get a half of that benefit again in 2015?.

That’s correct..

Our next question comes from Sam Darkatsh with Raymond James. Please proceed with your question..

Jim, I noticed that there was no good will impairment charge or write-down in the quarter despite the fact that oil prices have obviously come down meaningfully, can you go through what your impairment test assumptions are and what it would take to revisit them mid-year until your annual test of next year?.

Sam, you're right, we went through the analysis like we do every year in terms of goodwill impairment and you’ll have no indications there was an impairment.

Some of the key assumptions of that of course what is -- what are the plans for the next year in growth, in turmoil rates and discount rates and we’ve applied something that’s reasonable and consistent to where we think the market as we stressed at those have sensitivity to see how that might change.

If some of the assumptions are different and of course the reality is that as 2015 unfolds and things tend to play out as we expected or differently we’ll have reassess that -- do that analysis again..

Are you assuming growth returns in 2016 or 2017, how do you reckon are your out year expectations?.

No, they are not [reckoning] but they are consistent with some of the expectations around what’s going to happen with oil prices and spending level. So it's consistent with what we’ve done the best..

And then two others if I could, I know you mentioned Andy I believe in your prepared remarks that you expect the first quarter to be down sequentially.

Any sense of magnitude based on what you're seeing thus far into the quarter?.

Yes, Sam, I think the first quarter is going to be a decent quarter and I think consensus view is pretty accurate there and -- but it reflects the carryover of drawn activity, we are still dropping at a pretty good clip of delivery accounts, but our revenues tend to lag at least a quarter behind that where we do well hookups and completions on well is already drilled in the fourth quarter.

So I think you're going to see, we’re going to be down for sure sequentially, but I think consensus is in the ballpark of that because of the carryover activity.

And I see the -- disconnected with the annual consensus being really to second half of ’15, been slower once the drilling rig count bottoms here, we think in the second quarter, early third quarter..

And my final question if I could, you talked about what your variable comp bogies are potentially for 2015 and either what the tailwind might be for 2015 over ’14 or what total variable comp was in ’14, something along those lines so we can gauge that?.

Yes, our variable accomplish includes incentives not only management at all levels, but all our employees in compensation including commissions typically runs less than 10% of overall EBITDA array in a range, so that’s kind of levels we pay out, but that includes not just incentives, but that include sales commissions to our sales, inside sales, outside sales people..

Yes, so Sam I just ballpark it would be 10 million to 15 million lower in ’15..

And which metrics are you using, are you switching to more of a cash flow or is it going to be EBITDA sales dollars, I mean obviously you're on a different strategy phase in this cycle, so where?.

You're exactly right Sam, we -- 2014 we were 70% EBITDA and 20% grants for the executive management and 10% other performance indicators. For 2015 will be 70% EBITDA and 20% on free cash flow, so we have switched to a cash flow focus some of return grants and then grants will be the measure we use for our long-term incentive.

So we have made some changes in 2015 in both short-term and long-term incentive plan..

Our next question comes from Jeffery Hammond with KeyBanc Capital Markets. Please proceed with your question..

This is James filling in for Jeff. So, I know you ranked -- you sort of ranked your regional exposures, Canada the worst followed by U.S.

and then a little more resilient internationally, can you just sort of frame that what’s in the context of your 35% reduction in upstream CapEx and as to how you're thinking about those regions?.

I mean as we said Canada especially for us with the heavy oil and project work up in Canada and those completions, that is a high cost to produce per barrel environment and then you have the transportation differential that also an expensive location.

So, we expect that and it's also a heavy upstream market for us, so as we said we expect that to be the biggest impact. The U.S. will moderate, we expect the full impact on our upstream business, but will be moderated by our midstream and downstream which are stronger. And then internationally actually we would focus on flat to up regardless of the FX.

And then as Jim said we see a significant over 100 million FX impact in 2015 due to strong dollar. So it’s down, but down because of the FX impact. We have some markets that we feel like the Middle East and like Southeast Asia still very good about..

Got it but did I hear correctly did you mentioned that international spend is -- you guys expected to be down 15% to 20%?.

Yes, down but we have full year of the three acquisitions and that’s kind of a global spend and that’s a lot more exploration ways, but we have some of our contract wins plus the full year of all three acquisitions plus as we mentioned the carryover of some large Middle East orders that we did not book in the fourth quarter into 2015.

We feel much better about international than Canada and the U.S..

And I know you mentioned the Statoil win.

Do you have any idea as to the time frame of when you might see some revenue contribution from that?.

There would be some in late ’15 a lot more in ’16-’17 and that’s really only the first bid of many bids we’ve been working on, that’s the, the mega project, the four platform major development over multiple years and we also have our Solberg & Andersen and our Energy Piping bids out what we’ve been awarded already as that team trade instrumentation award.

So it’s a real good step. We’re happy with that win because that’s one with the big Norwegian projects going forward. But I think the way to think about that -- we’re bidding a lot right now, we hope to get some additional awards in ’15 majority of that revenue will be ’16, ’17, ’18..

Our next question comes from Ryan Merkel with William Blair. Please proceed with your question..

Just wanted to follow up on Canada, so if I understood you right should we expect Canada to be down greater than the 35%? And would currency then be on top of that?.

You’re right it’s going to be down more in the 35% and you’re going to have the impact in currency, so it will be down more than 35%..

Okay, and then you said that you expect the second half to be worse than the first half.

So does this mean that the second half revenues are going to be below the first half revenues?.

That’s correct..

And then does that also mean second half EBIT margins are going to be below first half EBIT margins?.

That’s correct..

Okay, that’s what I thought. Last question what is the variable SG&A rate for every dollar of sales decline? I was thinking it was in the $0.10 range. But help me there..

I think that’s a little higher Ryan, it’s probably in the [Indiscernible] range..

And then fixed cost stay will on top of that and I don’t know you gave a better color there.

But you don’t want to give out a dollar range at this point?.

No not at this time..

Our next question comes from William Bremer with Maxim Group. Please proceed with your question..

Can we touch upon a little bit more on downstream? Little surprised that that was actually down considering the amount of supply floating around here in North America. And then secondly maybe you just mentioned Andy a little bit about your bidding.

Can you just sort of give us an idea of what are you seeing -- can you breakdown between oil versus gas in the three segments?.

Let me address downstream first and it’s going to hold up the best of all of our end markets stronger in chemical a little weaker in refinery we have a good backlog as we said almost 1.1 billion in backlog. A lot of that is downstream projects, so those haven’t changed.

But downstream refining are not immune to these overall cut backs in capital spending, we have seen some discussion about some of our customers deferring turnaround activity from 2015 into 2016 because of the current environment.

So we’re being conservative about not counting on a big historical fall turnaround session that might slide into ’16, so that’s why we’re guiding conservatively there..

And then just quick follow up does this polar vortex we’re getting right now does it impacted at least this short-term for your MRO services in anyway?.

I mean we’ve had a pretty mild winter in our east, we have a big Appalachia and Eastern U.S. business so I would say January was pretty mild as far and less impact than last year from weather disruption, of course the very cold temperatures are good for natural gas pricing and so that’s stabilizes things somehow for us.

And then of course we had even a bigger impact last winter in the Permian Basin and through even Oklahoma that we haven’t seen this year. So I think the cold -- this recent late cold is good for supporting some gas commodity pricing. I think the disruption from overall winter will be less than we saw last year so that’s helpful for the first quarter..

And then just bidding between mix of the oil versus gas side your three segments?.

Really we don’t do a lot of spot bidding we do much more contract and MRO pursuit. So our mix Will is about the same, its roughly 80% oil and 20% gas and we’re still very much focusing they’re all frame work agreements so while we get impacted by the overall amount they spend, they spend less on these frame work agreements.

Our focus is really on capturing more agreements during this down turn adding scope -- continuing to add scope to our major customer contract even at lower spending level this year that will service well in the coming year, so our focus is, we’re going to be aggressive we’re going to focus market share because it’s a very competitive market in ’15.

But we have been that strategy and we don’t play any changes..

Our next question comes from Kevin Maczka with BB&T. Please proceed with your question..

I just want to come to the 35% CapEx reduction we’ve been all over that on this call but just to make sure I am clear, why wouldn’t your upstream business actually be down more than that, is that -- that’s more of a volume component and then you would expect from additional price and maybe destocking component of that as well, is that because maybe the MRO portion holds up a bit better?.

Yes, Kevin, you’re exactly right. MRO portion holds up better kind of OpEx spending, sort of saying production facilities hold up better. We don’t have direct exposure to drilling rig and drilling rig equipment, that’s not our customer base or equipment base.

So we’re not going to be impacted as directly from that, that’s part of the reason why it’s not more. And the other part is production facility and well hookup expansions that are related the drilling activity of the last two quarters of 2014 carry into the first two quarters of the ’15.

So those things those aspect service better -- the second half of ’15, we would see the highest percentage decline if the activity levels and drilling rig counts go where people are forecasting it..

Okay that’s great and then, if we do see a 35% decline upstream, how should we think about detrimental margin there I think you’ve mentioned if I heard you correctly trying to hold the 5.5% or 6% EBITDA margin for the total company, but I can guess is that -- did I get correct and how we should think about detrimental?.

You heard that correctly Kevin and again we would typically see detrimental margins flowing through the EBITDA around 15% to 16%, now if that changed and that would become higher to the extent that product margin also deteriorate, so the 15% to 16% assume product margins stay the same, but as I mentioned earlier we anticipate there will be some headwinds on the margin line going into 2015..

Okay and just finally for me I guess, I know the crystal ball for ’15 isn’t good if even worse for ’16, but what would a recovery scenario in ’16 look like at this point because it sounds like there is some carryover that’s still helping the first half, the second half is worse and so then if we move into ’16 at that kind of run rate, I am just wondering if -- are there some areas like we take a big dive in upstream this year but maybe there is some lag in mid and down, perhaps taken another leg down next year if in fact we’re still sitting here around $40 or $50 oil?.

It’s hard to predict without knowing where the oil prices going be in ’16 and there of broad spectrum there, but our view today sitting here would be that ’16 might be the mirror image of ’15 where the first half of ’15 is higher because drilling activity is ramping down. The back half will be slow.

You might start if things don’t change on a macro level with a slow first half of ’16 and then activity picking up towards a better ’17. So we sitting here today it’s a long ways off, but we would look at from that perspective..

Our next question comes from Walter Liptak with Global Hunter. Please proceed with your question..

Thanks for the color so far on the call, my question is on just the way that you managed the step down in cost and you mentioned that first quarter is going to be descent, so trying to understand the timing on when some of the costs will be coming out from this new round and then just kind of along those lines as you get further into the downturn in 2015, is there consolidation that you can do? Are there more cost you can take out before you start cutting into bone?.

We expect the reduction we’ve talked about the 270 to be completed in the first quarter, so we expect to be at that cost run rate going in the second quarter. We certainly will continue to watch things.

We would monitor -- we have a review of this year and 10% reduction fits that view and personnel reductions, if it gets slower then we generally anticipate we will continue to make another round of reductions at midyear..

Okay, are there other things that you can do to make distribution centers more productive by taking some fixed costs out?.

Well, I mean, that is what we do.

We have a hub and spoke model all over the world now with our expansions internationally that’s how we controlled cost, just trying to drive more efficiency through the hub operation and minimize the expense at each of the branch levels that -- so are the main areas where we reduce overall activity declines and that’s how we adjust the work force..

And kind of along similar lines thinking about the inventory, what do you think the timing looks like for inventory coming out, sometimes it’s starting to come out within the first quarter, but does it accelerate in the back half?.

Yes, I would say because we were -- if you look back we had fantastic third quarter October going into the fourth quarter was our busiest month of the year and we had good activity all through November was just a tail-off and late December because of oil pricing.

So, I do expect a slight pull down in inventory in the first quarter, it won’t be significant because of that, but as Jim mentioned we’ve already pulled down open purchase orders by 200 million, so you see the full impact of the inventory reduction in the second and third.

And our objective of pulling it out at least 200 million it's our kind of mid-year look of the business and if business is slow we would pull it down more in the second half..

And if I can just ask a quick last one, you talked about the receivables a little bit, you mentioned that was from large customers and there are you expending terms to large customers or is it are you seeing any small customers they are any worst to receivables?.

No, we’re actually we managing that, I mean as you know there is a lot of operators of all sizes and shapes in the U.S. land business, some in better shape and other, but we are actively monitoring credit limits and balances and reducing and lowering those I mean that’s been going on since the first of the year..

Our next question is from Robert Norfleet with Alembic Global. Please proceed with your question..

Hi this is actually Nick Chen for Rob this morning, thanks for talking our call.

In terms of the Stream acquisition, I was hoping you guys could just give a little recap of how that’s going with some commentary around the North Sea drilling environment offshore?.

That’s a very good acquisition for us. It adds a lot of big dimension to our offshore production operation. We are mostly production oriented, not drilling rig and not exploration focus. So our MRO work and our 5,000 fittings and instrumentation engaging really is the production environment.

So there is a long MRO cycle both on the UK and Norwegian side and we’ve used the Stream acquisition to build up our pipe business in that region of the word and also expand their capabilities into the UK and we’re in the first year of multiple years of doing that.

So I see it as a good extension of our business and then we’re keenly focused on winning the large project with Statoil and Norway that’s very important to us..

And also given the magnitude of price cuts taking place, do you see smaller distributors not having the balance sheet and scale staking competitive right now?.

Yes in downturns like this it puts a lot of pressure on the real small distributors which there are many to fund inventory and also survive through the -- this type of pricing environment.

But we don’t really complete heads up on a day-to-day basis with the real small distributors that are there, but we much more compete with the major players in the industry..

Our last question comes from Mark Douglass with Longbow Research. Please proceed with your question..

This is Chris Dankert filling in for Mark.

Thanks for the call, you pretty much answered everything we had, just one quick question if I may, just given the strong free cash expectations, you re-read the commitment of paying down debt and that’s obviously benefit to interest, but is there any reason or any covenant that preclude you from doing a buyback just given more valuation to that or could you give me some color around that decision?.

There is some ability within our facilities within certain limits, but for 2015 with the leverage that we have we want to bring that back down, so that will certainly be the priority..

At this time I would like to turn the call over to management for closing comments..

Thank you. This concludes our call today and we appreciate you joining us and your interest in MRC Global..

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time and have a great day..