Monica Broughton – Head of Investor Relations Andrew Lane – President and Chief Executive Officer Jim Braun – Executive Vice President and Chief Financial Officer.

Sean Meakim – JPMorgan Matt Duncan – Stevens Nathan Jones – Stifel Walter Liptak – Seaport Global Vaibhav Vaishnav – Cowen and Company.

Greetings, and welcome to the MRC Global Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Monica Broughton. Thank you, Ms. Broughton, you may begin..

Thank you, and good morning, everyone. Welcome to the MRC Global Second Quarter 2017 Earnings Conference Call and Webcast. We appreciate you joining us. On the call today, we have Andrew Lane, President and CEO; and Jim Braun, Executive Vice President and CFO.

There will be a replay of today’s call available by webcast on our website, mrcglobal.com as well as by phone until August 18, 2017. The dial-in information is in yesterday’s release. We expect to file our second quarter quarterly report on Form 10-Q later today, which will also be available on our website.

Please note that the information reported on this call speaks only as of today, August 4, 2017, and therefore you are advised that information may no longer be accurate as of the time of replay. In our remarks today, we will discuss adjusted gross profit, adjusted gross profit percentage, adjusted EBITDA and adjusted EBITDA margin.

You are encouraged to read our earnings release and securities filings to learn more about our use of these non-GAAP measures and to see a reconciliation of these measures to the related GAAP item.

In addition, the comments made by the management of MRC Global during this call today 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, MRC Global’s actual results could differ materially from those expressed today. You are encouraged to read the company’s SEC filings for a more in-depth review of the risk factors concerning these forward-looking statements. And now, I’d like to turn the call over to our CEO, Mr. Andrew Lane..

Thank you, Monica. Good morning, and thank you for joining us today and for your interest in MRC Global. Today, I will review company performance highlights and then I’ll turn over the call to our CFO, Jim Braun, for a more detailed review of the financial results. I’ll then finish with our current outlook.

We had strong execution in the first half of the year, which is reflected in our financial results and our various MRO contract gains. The market has improved significantly since last year and we have benefited. Revenue for the first 6 months of the year was $1.78 billion or 17% higher than the first half of last year.

Our customers have been active this year, particularly in midstream, where we saw 39% growth for the first half of 2017 over 2016. Sequential quarterly revenue growth was in line with expectations at 7%, driven by midstream and upstream. As compared to the second quarter last year, revenue was up 24%, driven by our midstream and upstream sectors.

Midstream increased 44% and was higher in both subsectors. The transmission and gathering subsector was up 83% and the gas utility subsector was up 14%, continuing its steady climb.

The increases have resulted in an increase in new gathering infrastructure as a result of increased upstream activity as well as the approval of pipeline infrastructure projects. Our upstream business increased 22% for the second quarter of 2017 over the same quarter in 2016. North America drove the increase with our U.S.

and Canadian upstream businesses up 60% and 33%, respectively. Completions in the U.S. have steadily increased since December, driving the U.S. upstream revenue growth. In Canada, drilling and completion activity increased as operators continue to shift spend from heavy oil projects to more conventional oil drilling, aided by a milder spring breakup.

Our downstream sector was flat this quarter compared to the same quarter a year ago, primarily due to lower international revenue due to non-repeating projects, which offset an increase in the U.S.

We have increased our MRO contract position in downstream, which we expect to see some benefit later this year as activity under our contracts ramps up, and even more so in 2018 and beyond.

In the second quarter, we announced a new 400,000 square foot regional distribution center or RDC in La Porte, Texas, in the Greater Houston metropolitan area, which will streamline our operations by consolidating 4 facilities into 1, including our 2 current Houston RDCs, a major project staging warehouse and a branch in Houston.

The new facility is strategically located near all of our downstream customers on the Gulf Coast. It is the largest facility in our global footprint, well positioned for the expected refining and petrochemical spend on the Gulf Coast. It will house a new state-of-the-art valve automation shop with additional valve-testing capabilities.

This allows us to offer an expanded capability for complete value packages and solidify our leading distributor position in valves and automated valves. We expect to begin operating from the new RDC late this year.

In June, we announced the opening of a new 80,000 square foot RDC in Bakersfield, California, which includes a 5,000 square foot valve and engineering center, a 15-acre pipe yard and a state-of-the-art pipe fitting facility.

Growth in our California business from our contract customers Chevron, CRC, Ara and PG&E drove the need for a new expanded facility. Defending and taking market share through the execution of customer contracts remains a core strategic objective of ours. These contracts usually place us in a primary PVF supplier position.

Since last quarter, we have announced a 7-year contract renewal with Chevron, our largest customer over the last 7 years for the global PVF business. We have a 60-plus year relationship with Chevron and have continued to expand our products and services with them over that time.

Another contract win this quarter was with LyondellBasell, which expanded our framework agreements to include valves.

As with all our customers, we worked to expand our offerings and we were successful in doing so here, as we had previously been awarded their carbon pipe fittings and phalanges and then added their stainless and alloy business at the end of last year. The combined value for this agreement to us is estimated to be around $35 million per year.

LyondellBasell recently announce reaching a final investment decision on a $2.4 billion petrochemical plant, which will be located in the Houston area. This presents an opportunity for us to participate in supplying their new plant from of our new expanded RDC.

We also announced 5-year contract renewal with NiSource, which includes additional scope for one of their subsidiaries. NiSource is our second-largest gas utility customer and one where we provide full integrated supply services.

The incremental value for the additional scope is estimated to be about $10 million per year on a base business of approximately $90 million. Another contract announcement was with Statoil to expand their framework agreement to their refinery in Denmark, as well as additional Norwegian projects that we should benefit from beginning in 2018.

We also renewed our agreement with ConocoPhillips for their Gulf Coast, Mid-Continent and Permian business unit operations for an additional 2 years. These multiyear customer contracts position us to continue to deliver longer-term shareholder value as customers increase spend, and we will continue to capture more of that spend.

We expect to have additional announcements in the third quarter as we continue to execute against this strategy. The results for the first half of the year have been solid. While the market remains volatile, we expect good performance the remainder of the year, with continued growth across all sectors.

In the U.S., drilled but uncompleted wells or DUCs represent a backlog of completion activity for us, which supports our upstream growth.

A Bloomberg estimate based on EIA data calculates a 7-month backlog of DUCs and our customer base is expected to continue completion activities through the end of the year in key basins as our upstream revenue trails any rig count changes by 1 to 2 quarters.

Midstream is supported by pipeline approvals and continued takeaway capacity needs, as operators continue to increase production – particularly in the Permian for oil infrastructure and the Marcellus for gas infrastructure.

Midstream is also supported by relatively steady growth from our gas utility companies, which is independent of current commodity prices.

Downstream is supported by relatively steady recurring maintenance and turnarounds and is also enhanced by several upcoming projects, including Shell’s cracker in Franklin Pennsylvania, which we will see the benefit of in the second half of 2017 and into 2018 and 2019.

Announcements from ExxonMobil to invest in refining and petrochemicals on the Gulf Coast, expanded business with PVF on the Gulf Coast and LyondellBasell’s new contract will also support growth in downstream over the next several years. I’ll now turn the call over to Jim..

Thanks, Andrew, and good morning, everyone. Total sales for the second quarter of 2017 were $922 million, which were 24% higher than the second quarter of last year, primarily due to increases in midstream and upstream activity. Sequentially, revenue increased 7% also due to an increase in activity in midstream and upstream. U.S.

revenue was $720 million in the quarter, up 31% from the second quarter of last year with improvement across all sectors. The U.S. midstream sector increased $103 million or 37% from the second quarter of last year, due primarily to ongoing transmission projects which will continue to deliver over the course of this year.

Gathering customers have also been active, contributing to the increase in U.S. midstream as liquids and gas infrastructure projects have seen an influx of activity. The gas utility subsector has continued to grow as well. The U.S.

upstream sector increased $60 million or 60% from the second quarter of last year, driven by the higher rig count and related well completion activity. The U.S. downstream sector increased 4% from the second quarter of last year due to an increase in maintenance activity, partially offset by the completion of a large petrochemical project last year.

Of the product lines, we saw strong growth across all product groups in the U.S. Line pipe had the highest percentage increase at 51% growth over the same quarter a year ago, followed by gas products at 34% and valves, automation, measurement and instrumentation as well as stainless pipe, fittings and phalanges, each at 32% growth.

Sequentially, the U.S. segment sales were up from the first quarter by 8%. Gains were across all sectors, but primarily due to increase in midstream sales due to project deliveries for a variety of customers followed by upstream related to increased well completion activity.

Canadian revenue was $69 million in the second quarter, up 28% from the second quarter of last year, driven primarily by upstream as the rig count increased significantly, with customers shifting more spend toward conventional oil drilling from the heavy oil and a milder spring breakup.

Sequentially, the Canadian segment was down 10% from the first quarter due to seasonal breakup. In the international segment, second quarter revenues were $133 million, down 6% from a year ago. Sales were lower as a result of slower Norwegian upstream activity and the conclusion of downstream projects.

These declines were partially offset by higher midstream activity from a major pipeline project in Australia. Sequentially, the International segment was up 12% from the first quarter, primarily from the Australian pipeline project mentioned earlier and an increase in upstream. Turning to our results based on end market sector.

In the upstream sector, second quarter sales increased 22% from the same quarter last year to $258 million from strong performance in the U.S. and Canada, both driven by increased well completions. The U.S. upstream increased 60% while Canada increased 33% over the quarter. U.S.

well completions were up 44% in the second quarter of 2017 over the same quarter in 2016 based on EIA data for major basins. Sequentially, the U.S. upstream business increased 14% in the second quarter. Midstream sales were $420 million in the second quarter of 2017, an increase of 44% from the same quarter in 2016.

Among the subsectors, sales to our transmission and gathering customers increased 83% and sales to our gas utilities increased by 14%. Gas utility sales increased primarily due to pipeline construction and increased spending on integrity projects.

The increase in the sales to transmission and gathering customers was due to both an increase in transmission projects as well as an increase in gathering line work.

The mix between our transmission and gathering customers and gas utility customers was weighted 56% for transmission and gathering and 44% for gas utilities in the second quarter, as the rebound in our transmission and gathering subsector outpaced the more steady growth of our gas utility subsector.

In the downstream sector, second quarter 2017 revenue was $244 million, flat with the second quarter of 2016 as declines in the International segment offset gains in the U.S. Turning to our margins. Gross profit percentage decreased 60 basis points to 16.2% in the second quarter of 2017 from 16.8% in the second quarter of 2016.

The decrease was due to the mix of lower-margin midstream projects in the U.S. and international segments as well as the impact from LIFO. A LIFO expense of $5 million, reflective of the product cost inflation we’re experiencing, was recorded in the second quarter of 2017 as compared to a benefit of $1 million in the second quarter of 2016.

Adjusted gross profit for the second quarter of 2017 was $171 million or 18.5% of revenue as compared to $140 million and 18.8% from the same period in 2016, but up sequentially from 18.2% in the first quarter. This is in line with our annual adjusted gross margin percentage guidance.

As I mentioned previously, we started to experience line pipe inflation over the past several months, which is providing an uplift to our gross profit. As compared to the previous year, the higher mix of midstream project revenue in the second quarter lowered the adjusted gross margin percentage.

Regarding product inflation, line pipe prices have continued to steadily increase since last October. Based on the latest Pipe Logix all items index, average line pipe spot prices in the second quarter of 2017 were 28% higher than the second quarter of 2016 and 8% higher sequentially.

We should continue to experience line pipe inflation, but there is the potential to see it flatten out over the remainder of the year. We have begun to see an impact from this inflation with an increase in our gross margin percentage for stock sales as is typical for our business model.

SG&A costs for the second quarter of 2017 were $132 million, a decrease of $3 million or 2%. Second quarter 2016 includes severance and restructuring charges of $4 million; there were no such charges in the second quarter of 2017.

Related to our previous outlook, second quarter SG&A ran slightly higher than expected due to increased sales volumes and higher noncash stock-based compensation expense. As a percentage of sales, SG&A was 14.3% in the second quarter of 2017 compared to 18.1% in the same quarter a year ago.

Based on a revised and improved outlook for 2017, we now estimate our 2017 SG&A run rate will be $131 million to $133 million per quarter for the remaining 2 quarters of the year, recognizing that the third quarter expense will have ERP implementation costs as we cut over to the new system in Norway.

Interest expense totaled $8 million in the second quarter of 2017, which was $1 million lower than the second quarter of last year due to lower average debt balances. We recorded a tax expense of $3 million in the second quarter of 2017 for an effective tax rate of 33%.

We expect the effective tax rate to be approximately 35% for all of 2017 based on our current forecasted geographic profit mix. However, at relatively low pretax operating levels, the effective tax rate is subject to being volatile on a quarter-to-quarter basis and for the full year.

Our second quarter 2017 net income attributable to common shareholder was breakeven compared to a loss of $23 million or $0.24 per diluted share in the second quarter of 2016.

Net loss attributable to common shareholders includes after-tax charges of $2 million or $0.02 per diluted share for a previously disclosed litigation settlement and $3 million or $0.03 per diluted share related to severance and restructuring charges for 2017 and ‘16, respectively.

Adjusted EBITDA in the second quarter was $44 million versus $15 million a year ago, up almost 3x from last year. Adjusted EBITDA margins for the quarter were 4.8%, up from 2% a year ago due to higher revenue and the benefit of cost-reduction measures taken throughout 2016.

Our operations used cash of $46 million in the second quarter of 2017, commensurate with our revenue growth and the related increase in working capital. Also included in operating cash flow was a $6 million payment for the litigation settlement I mentioned earlier and $22 million of federal income tax payments.

We expect that our cash flow from operations will be about breakeven for the year given the growth of the business. At the end of the second quarter 2017, our working capital excluding cash as a percentage of trailing 12-month sales was 19.8%. Working capital growth could be sporadic based on the timing of inventory deliveries.

However, we expect our working capital as a percentage of revenue to remain best-in-class at around 20% on average. Our debt outstanding at the end of the second quarter was $410 million compared to $414 million at the end of 2016. Our leverage ratio based on net debt of $373 million decreased to 3.1 xs as EBITDA grew in the second quarter.

We have no financial maintenance covenants in our debt structure and our nearest maturity is July 2019. The availability on our ABL facility was $505 million at the end of the second quarter, which gives us ample financial flexibility and will continue to grow as working capital grows.

At the end of the quarter, we had nothing drawn on the ABL and had $37 million in cash. Capital expenditures were $3 million in the second quarter and $14 million for the first 6 months of the year.

Our annual capital spending is expected to be $45 million, which was increased recently to include spending on our new regional distribution center in the greater Houston area. And now I’ll turn it back to Andrew for closing comments..

Thanks, Jim. Now let me wrap up with our current outlook. I am pleased with our results for the first half of the year, especially the 17% revenue growth and the $80 million of adjusted EBITDA, which is more than all of 2016.

Midstream and upstream have had particularly strong growth as customers have increased completion activity and execute on projects, and we’ve increased market share through new customer contract wins that will ramp up in the second half of the year.

The number of drilled but uncompleted wells has continued to rise and are at a higher than historic level. We expect those wells to be completed as the year progresses, supporting growth in our U.S. upstream completion-focused business.

The regulatory environment is more favorable to energy infrastructure projects and inflation in line pipe pricing increased in the first half of 2017, which should have a positive impact on margins in the second half. These factors support both our upstream and our midstream business, as do increased production levels from upstream activities.

We have also garnered market share with notable contract wins in downstream. As we complete these customer implementations, we expect to see increased revenue in downstream later this year. We also expect the Shell Franklin project to begin deliveries in the second half of this year and more so in 2018.

The new MRO contracts and new project announcements from ExxonMobil and LyondellBasell, provide us opportunity for additional growth in downstream post 2017. Turnaround activity this fall is expected to be average with turnarounds that were not completed in 2017 pushed into 2018, which we expect to be higher than average.

Our backlog was $827 million at the end of the second quarter of 2017, up $170 million or 26% from a year ago and up 10% from the end of 2016. At the end of the second quarter, 21% of the backlog was attributable to a midstream transmission customer building out gas infrastructure in the U.S. Northeast.

As such, we are updating our annual outlook with a higher expected revenue for 2017 with some changes to the sector guidance. As compared to 2016, we expect total revenue to be 18% to 24% higher in 2017. By sector, we now expect upstream to be 22% to 30% higher, midstream to be 30% to 38% higher and downstream to be 2% to 6% higher.

For comparison, we previously expected upstream and midstream to increase 20% to 30% and downstream by 5% to 15%. By segment, we now expect the U.S. and Canada to each grow in the low to mid-20% range and international to grow mid-single-digits. Sequentially, we expect third quarter 2017 to be up mid-single digits from the second quarter of 2017.

We maintain our expectation of adjusted gross margins of 2017 to average 18.5%. Margin tailwinds will include the continued move to higher-margin valves and instrumentation, line pipe inflation and project to MRO mix changes in the second half of 2017. U.S. rig count the past month has been flat to slightly up.

We still expect customers to work down their DUC inventory and this will support our upstream business in the last half of 2017. We are pleased by the performance so far this year and have been able to raise guidance each quarter since we reported last year’s results. 2017 is shaping up to be a much stronger cycle recovery year for us from 2016.

With that, we will now take your questions.

Operator?.

[Operator Instructions] Our first question comes from the line of Sean Meakim from JPMorgan..

Andy, I wanted maybe just to get into the midstream a little bit, really impressive numbers, a much bigger pop than I think we were expecting.

Could you give us a little bit more sense of the mix in terms of price versus volume that drove that growth?.

Yes, Sean. Midstream has been really strong for us and it looks to continue into the third quarter. It’s a combination of both tons on the volume side, ramping up with the projects we’re delivering on, but also price.

And I would say as we mentioned on previous calls, we – some of the first quarter and even early second quarter pricing was tied to contracts and bids tied to late fourth quarter 2016. And so those definitely are improving, especially as we’ve got into the second quarter and the late second quarter, we saw both pick up in volume.

We also made significant inventory bets in November and December, when we felt we were near bottom of the cycle and a lot of that inventory has come in now. So we feel very good from both, on the volume side, the contracts we have and the activity.

We still have a nice balance as we’ve talked about in previous calls between gas infrastructure in the Northeast and oil infrastructure in the Permian area, so nice balance there. We have a low cost position because I think we’re first-in-line on the mills.

And definitely, as Jim mentioned in his prepared remarks, we’ve seen inflation overall in line pipe and it’s just going to serve us very well. I mean, we hit lows for this cycle in October, November last year and they’ve come up nicely all year long. And so we’ll benefit from that as an overall mix.

And we feel very good, we had very strong line pipe out of stock margins at the end of second quarter in June, the best we’ve had in 2 years. So definitely, I think, both the volume will continue and as Jim mentioned, we expect the positive impact on our margins in the second half, particularly from an improvement in line pipe pricing..

And so, Andy, just to follow onto that, what’s the – recognize you kept your guidance consistent and that implies some improvement in the back half.

What’s to prevent the gross margin from getting north of that 19% in the second half given all those tailwinds?.

Well, line pipe will definitely help. Our mix change to valves, we have a – we’ll definitely have higher valve revenue in the second half than the first half, so that, of course, helps us. And we’ll have a shift to more MRO.

As Jim mentioned, we had several major pipeline projects that hit us in the first half that tend to be lower margin if they’re large projects for us.

So the mix change is to more MRO and less projects in the second half, so all those are positive, and we’re not trying to forecast too high at this time because of all the volatility in the market, but I certainly feel very good especially about our midstream business.

And just in the last day or two, we finally had two more FERC commissioners approved, so we have a quorum on future pipeline approvals. So we’re not even factoring in that, but there was some of those that were installed waiting on a quorum will now start to move forward.

And probably most of that will impact us early in 2018 as some of these pipelines get approved, but we have nice visibility from our backlog on projects that’ll fuel the second half of ‘17. So we feel very good about midstream..

One more if I could, just to ask Jim, just thinking about the – where you are in working capital, the ratio to sales still looks very strong. Just how do you feel kind of where DSIs and – inventory turns as you kind of make this move here in the cycle? Just curious as to how you see that unfolding in terms of cash needs, et cetera..

Yes. So the inventory turns have improved on a quarterly basis to about 5.3 turns. DSOs were up just a tick in the quarter with some customer-related issues that have since been worked through. We still have inventory coming in, but as we noted, we’ve been selling it, delivering it very quickly up to – out to our customers.

So we should see – for the back half of the year, we’ll see a little cash generated. That’s predicated on a fourth quarter that’s typically down from the third quarter as we collect receivables and extend payables. So as we said in our guidance, we’re looking to be cash flow from operations of about break even for the year..

Our next question comes from the line of Matt Duncan of Stevens. Your line is now open..

So Andy, sticking with the midstream topic for a minute, because I think it’s really important as we think into the future. People are obviously nervous about what’s going to happen with upstream with news of some CapEx budget cuts and we’ll get to that in a minute.

But on the midstream side, what’s to keep you guys from growing double digits again next year? I mean it seems like with the quorum now reestablished in FERC, we’re going to have a lot of big pipeline projects. The pipeline EMC guys are all talking about record kind of years with industry capacity basically sold out into next year.

So do you see that opportunity shaping up for you guys to be at least kind of a low double-digit or better grower in that midstream business into next year given the way the environment is now shaping up?.

Yes, Matt. I mean it’s early for us to give the guidance on ‘18, but I will say we feel very confident it’s going to be strong. I mean, I’ve seen estimates of the total pipelines that had been held up for approvals. Just the gas infrastructure, multiple major projects and a total of over $14 billion in projects backlogged, waiting for the quorum.

So a lot of those will get approved, we think. So it certainly is a strong tailwind going in and while we don’t do the very large trunk lines, it generates a lot of associated revenues for us. Of course, we’re the leading company in midstream valves and automated midstream valves, so it fuels that also.

And so I would say we’re not in a position to give a number, but we certainly feel like it’s going to be a good year for us on top of ‘16. Definitely growth over ‘16. I mean growth over ‘17 – sorry, Matt, definitely growth in ‘18 over ‘17..

Okay, got it. And then just to sort of refresh everybody’s memories on your upstream business, your relationship to rig count and sort of what’s going on right now, right.

So it sounds like we’re still seeing a little bit of a delay in completion activity, and if you could flesh out why you think that’s happening and your level of confidence that, that’s going to sort of turn around in the back half. And if it does, and we see completions kick in, some of your E&P customers are cutting their CapEx budgets.

Can you still grow given that they’ve got to get to completing these wells. They’ve got to build the tank better if they want to get the cash out of the ground.

And if rig count were to flatten out where it is today, how far into the future can your upstream business grow?.

Yes, Matt, and I know there’s a lot of attention on that so let me make a few comments. First off, in general, completions of wells and tie-ins for the tank batteries and associated expansions of tank batteries follow increases in production. And historically, that always has lagged 1 to 2 quarters, normal business.

A little bit that’s not normal in 2017 is there’s been a big increase in the drilled uncompleted over what I would say is the normal run rate on those, largely driven by shortages in frac equipment and personnel, sand and water shortages, concentration of activity in 1 region in the Permian.

All those bottlenecks have created non-ordinary growth in drilled uncompleted. And so it really has pushed out what’s been historical 1 to 2 quarter lag into 2 to 3-quarter lag from the drill count increase. As we mentioned in our comments though, we think you have at least 7 months of backlog and drills uncompleted.

So even if you saw a flattening out or even a decrease in the rig count, we still have a couple of good quarters of the completion activity already in that, and so we consider the drilled uncompleted as a backlog figure for us in the U.S. So I see very little short-term risk on any of our upstream and if you – upstream is very positive for us.

When you compare our U.S. upstream revenue quarter-on-quarter from last year, it’s up 60% and the well completions are up 44%. So we feel very good about both our share and our position in upstream. And it’s just a matter of the industry turning to complete more of these wells.

We feel very good about the upstream and our position for the rest of ‘17, and then we’ll see where the budgets land on upstream U.S. for ‘18 and later this year, and that will set the course for the outlook for ‘18..

Our next question comes from the line of Nathan Jones of Stifel. Your line is now open..

I’d like to focus in on the comment you made in your prepared remarks about the turnaround expectation in the second half of ‘17 and into 2018. I assume when you say second half of ‘17 is average, you’re talking average relative to the last couple of years, not the several years before that.

And can you talk about what gives you confidence, what your customers are telling you around that improved outlook as we head into 2018?.

Yes, Nathan. So let me address a couple things, because this has been, for ‘16 and ‘17, very difficult to predict. And we’re the largest – by far, the largest pipe outfitting distributor for downstream and especially for refining. So we have a very good insight with our customer contracts in downstream.

The last 2 years, it’s been an industry forecast of higher spending that continues to get pushed. So a high projection in ‘16 didn’t materialize. High projection in ‘17 didn’t materialize and a lot of this is maximizing utilization, managing spreads and our downstream customer base pushing expenses and turnaround activities out as best they can.

So when you look at U.S. turnarounds and you look at the total invested value, the last 2 years turned out to be more of an average with ‘15 and it’s around the $500 million to $600 million activity level.

And so what you think – to answer your question, we see the fall being the average of what we’ve had the last year and 2 years in the fall – still good. When you think about our downstream business and we posted a new updated deck on our company this morning, shows our downstream refined and chemical running to roughly 20%.

So it’s roughly a $700 million annual business and historically, our turnaround activity has been roughly 15% of that total. So we expect this year to be averaging right at that $100 million. But we’ve seen a forecast and there’s several industry forecasts that show the 2018 refining turnaround spend in the U.S. to be up 50% to 60%.

So we’ll see how that materializes, but certainly directionally, it looks like a lot of the activity that has been delayed a year, even 18 months, may now get done in 2018 and we’ll have a better handle on that when budgets get approved in the fall. But it definitely – even directionally, it looks like a much stronger U.S.

refining and turnaround season for us next year, but the second half will be just average for us..

Okay. And then you guys have made a lot of good progress here, winning these dedicated contracts.

Can you maybe talk a little bit about how they ramp up? What the timing of those is? And how we should expect to see that manifest itself in growth for the business?.

Yes, Nathan. So I mean, it’s core to our company. We talked about it. It’s 50% of our revenue comes from our top 25. We have all of those on multiyear MRO contracts and some of them, both MRO and projects. So that’s the base of our business. Of course, there are framework agreements; if our customer spending is down year-on-year, our revenues are down.

But when we’re in an improving market like we are right now, ramped up spending, we already have those gains in our contracts. They’ve been the key to our market share gains, going from 25% basically market share to 30% to 35%. And then you look at ones that – recent wins, we just talked about ExxonMobil, that was a huge one for us on downstream.

We were not the incumbent on that one. So really only at midyear do we start, late in the second quarter do we start ramping up on that contract. So that includes currently the U.S. and Europe. So we’re starting to see, we’re transitioning to new facilities, getting our stock in place as the incumbent ramps – uses up their existing stock.

So that’ll ramp nicely all through the second half. And then we’ll have a full run rate of that into – in ‘18 and beyond. And so we feel very good about that. That’s a contract we’ve been wanting to have for a number of years.

And then on a smaller scale, LyondellBasell also, the contract where we had part of that work, the carbon work that we talked about, we added the alloy and stainless and that ramped up in the first part of the year. And then just recently, we added the valves. So that is just starting to ramp up in the second quarter.

So we’ll see improvement in the back half that’s part of our projection of an improved back half that’s coming from the downstream on these new contracts we’ve already won. But they’ll really hit the full run rate 2 quarters out after we win these contracts.

So by the start of ‘18, our downstream business will have BASF, LyondellBasell, ExxonMobil, PVF, Chemours, all the contracts that we won in recent history here, all ramping up to the higher activity. So that’s going to be better. We have low single-digit growth this year, but we’d expect that to be better in downstream next year..

Guys thanks very much, taking my questions..

Thank you, Nathan..

Our next question comes from the line of Walter Liptak of Seaport Global. Please proceed with questions..

Hi, thanks. Good morning guys. Just as a follow-on to the last one. I wonder if – it sounds great with the downstream wins and the ramp next year. I wonder if you can parse out for us, though, what 2018 growth might look like organic versus – organic market versus organic with contract wins..

Yes, well, I would say it’d be a combination. We think spending in general – at this point, we’re not going to give solid guidance. It’s too early. But just U.S. refining, we think turnaround will be stronger. All these contracts, I mean, the ExxonMobil one is both all the U.S. and all of Europe, so that’ll ramp nicely for us.

A lot of activity in the Gulf of Mexico that we’re planning for with contracts we already have. So I would say in general, we feel good about the macro downstream market, and this is just our base business.

You’re really not seeing a lot of new major projects in petrochemical and refining that were in ‘17 and early part of ‘18, due to lack of sanctioning projects in ‘15 and ‘16. So it’s really what you’re seeing in downstream today is our base business with our MRO contracts so it’s more organic growth. And then growth with fabricators.

Fabrication is a big business for us. A lot of small-cap projects in downstream get done through fabricators. And so we’re by far the largest North America pipe valve fitting supplier to fabricators. We have 200 of them and on an annual basis, we do $300 million of revenue with fabricators.

So we’ll see a ramp up with fabricators, and some of that is upstream, midstream and some downstream. And then we’ll also see the overall spend in refining improve. But the biggest thing – the biggest impact is the contracts we’ve already won, and we’re not done. We expect to have additional contract announcements, as we’ve said, in the third quarter.

So we’re just talking today to what we’ve already won..

Okay, yes, that sounds great. I wonder just kind of a – on the valves side of things, you haven’t talked yet, I don’t think, about pricing of valves.

Have you seen prices going up? And do you think you’ll be able to get pricing in the back half of the year?.

Yes. Lead times on valves have definitely extended as the industry’s ramped up. Pricing will definitely be stronger in the second half in valves. And we’re really optimistic about our close working relationship with Cameron that we worked on last year. That’s ramping up really nicely.

We are front of the line as far as orders with Cameron on all the valve lines. And so part of it has been getting those valves in, in the first half of the year. We have a lot of valves on order. One of the largest orders we’ve ever had when you think about the Cameron orders.

So we see that ramping in the second half, both the volume of valves, and of course, the pricing has moved with the extended lead time. So we feel very good about all our valve suppliers, but especially the ramp with Cameron, and that’s the North America comment.

And then we’re still in the early days of ramping some of those Cameron lines in International that we just gained access to. And then associated with the valves, that Cameron measurement business has done very well since we signed that exclusive in North America.

And it’s ramped up much higher than our early projections as we’re working very closely with Cameron on the measurement products side. So valves are going to be a bright spot. We talked about it. Our goal is to get it to 40% of our revenue.

It’s roughly 37% right now, but ramping up in the second half of the year as overall mix changes to we become more of a valve-focused company..

All right , thanks for that color. I’ll I guess I’ll ask one for Jim. You kept the CapEx guidance the same and you’ve got the new facilities that are going in, and it implies a pretty big back half ramp.

Where are you with the construction projects, do you expect to have them complete by the end of the year?.

Yes. So the new regional distribution center in La Porte, Texas, the building, the warehouse, the 400,000 square-foot facility, is complete. We are now in the process of racking it out and putting in all the conveyor systems and all the related equipment.

And so we expect to be operational there by the end of the year; thus, the increase in CapEx for the balance of the year..

[Operator Instructions] Our next question comes from the line of Vaibhav Vaishnav of Cowen and Company..

So if I think about the U.S. rig count, let’s say it starts to decline modestly and then ends up in 2018 modestly down versus 2017. Can you help us just think about how much upstream business or upstream exposure you have in the U.S.? And then how the midstream and downstream businesses also get impacted if the U.S.

rig count goes down?.

Yes, so certainly over time, a falling U.S. rig count would impact our U.S. upstream business. As we mentioned earlier, we have the backlog of drilled but uncompleted wells that would carry us for a while. The downstream business should be less impacted by that.

The fact that we have a large number of projects that are being constructed in the downstream area based off of the cheap natural gas and oil, we don’t think that would be impacted as much. Midstream, we’d see some impact on the gathering systems.

But the large pipeline, some of the takeaway capacity, that’s still catching up would continue to be there. And then of course we’ve got our gas utility business, which is almost half of our midstream business. It’s not impacted at all by the commodity prices. It would continue to grow into 2018 and beyond..

Okay. Yes, it sounds like your guys’ business should be pretty resilient, even in the face of rig count going down. I just want to make sure I’m not missing anything..

You’re right. Let me just add that again, as you look at our business today, our upstream business is a relatively small percent, less than 30% of our overall company today. We’re today primarily a midstream business with some tie obviously into energy prices, but much more independent of what’s happening with the day-to-day commodity price..

Okay. And so if I just want to make sure that I got the message so far. So if I think about 2018, it seems like the midstream business would still end up year-over-year in 2018, downstream business because you have some larger projects like Franklin, like Exxon Mobil.

It should – the pace of revenue growth in 2018 should be better than what you are seeing in 2017. And then some impact on upstream, which is like only 30% of your U.S. business..

Yes, I think that’s the right way to think about it. I mean, we’re early. We’ll definitely give a lot more color on the way we see ‘18 unfolding in our next call when we have some more CapEx spend by our customers. But I think you’re right. The variable in the U.S., when you look at the U.S. rig count, 80% is oil and 20% is gas drilling.

I see the gas drilling staying strong. A lot of that is related to both capacity and the supply side and infrastructure, and still getting the natural gas in the United States to where it needs to be for future petrochemical investment. And plastics we – our petrochemical business we see very strong for many years.

And so then the big variable factor is what’s the oil price going to be? What’s the oil rig count going to be? And it’s too early to put a tight estimate on that, but the way you’re thinking about midstream and downstream is the way we’re thinking about it, at least now, for the outlook for 2018..

And if I may ask one more question, last one for me. International revenues, you have guided to, like up mid-single digits in 2017 versus 2016. If I look at first half 2017 versus first half 2016, it’s flattish. To me, it implies that international revenues will grow in third quarter and fourth quarter.

So let’s say if I annualize fourth quarter 2017, assuming international activity stays flat from there on, I still end up internationally up year-over-year in 2018.

Are there any bigger projects, may that be Australian pipeline or Sverdrup or any other projects that may impact my thinking that international may not be up year-over-year?.

So I would think at this point, as we would look at it, it should be up. And it’s driven for us internationally, a lot on Shell, Chevron – of course, the new ExxonMobil year-on-year will definitely be up in international, and then Statoil being the 4 big drivers for our revenue. So it really depends on their spend.

I mean, the big project revenues, the one that I can definitely speak to that will carry into 2018 is the future growth project for Chevron, TCO in Kazakhstan. We have a lot of activity there and even some large valve orders, we have long lead time valve orders that will always – already set up for 2018.

So I think we feel good about both the Chevron and Shell, and of course, the Exxon ramp. Statoil, we are uncertain what their spending will be next year. And then activity level really in the U.K. is a question mark.

But I would feel good about our outlook for 2018 to continue to grow and then would be just what percentage that is when we get a little closer to the end of the year..

There are no further questions over the audio portion of the conference. I would now like to turn the conference back over to Ms. Monica Broughton for closing remarks..

Thank you for joining and for your interest in MRC Global. This concludes our call today..

This concludes today’s teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful rest of your day..