Patricia Gil - Investor Relations Cynthia Taylor – Chief Executive Officer and President Lloyd Hajdik – Senior Vice President, Chief Financial Officer and Treasurer Christopher Cragg – Senior Vice President, Operations.

Marshall Adkins – Raymond James Jim Wicklund – Credit Suisse Stephen Gengaro – Sterne, Agee Bill Herbert – Simmons and Company Blake Hutchinson – Howard Weil Sean Meakim – JPMorgan Jeff Spittel – Clarkson Michael Lamotte – Guggenheim Chase Mulvehill – SunTrust.

Welcome to the Oil States International Incorporated Third Quarter 2015 Earnings Conference Call. My name is Adrienne, and I'll be your operator for today's call. [Operator Instructions] Please note this conference is being recorded. I'd now turn the call over to Patricia Gil, Investor Relations. Patricia Gil, you may begin..

Thank you, Adrienne, welcome to Oil States' third quarter 2015 earnings conference call. Our call today will be led by Cindy Taylor, Oil States' President and Chief Executive Officer; Lloyd Hajdik, Senior Vice President and Chief Financial Officer and we are also joined by Chris Cragg, Senior Vice President, Operations.

Before we begin, we would like to you caution listeners regarding forward-looking statements to the extent that our remarks today contain information other than historical information, please note that we are relying on the Safe Harbor protections afforded by federal law.

Any such remarks should be weighed in the context of the many factors that affect our business, including those risks disclosed in our Form 10-K and other SEC filings. I will now turn the call over to Cindy..

Thank you, Patricia. Good morning to all of you and thank you for joining us today for our third quarter earnings conference call today. We reported earnings per share of $0.11 after adjusting for tax valuation allowances and severance reported in the third quarter of 2015.

While we managed our operations well during the quarter our business segments continued to be negatively impacted by the low commodity price environment which was particularly acute in our North America and Well Site Services segment.

The price of WTI crude oil decreased 24% per barrel in the third quarter when compared to the closing price on June 30, 2015, which eliminated any hopes for our commodity price recovery that looked possible at the end of the second quarter. Although the rate has declined in the U.S. rig count, showed some stabilization during the quarter.

Our completion services business continued to be negatively impacted by low drilling and completion activity in North America, coupled with persistent pricing pressure from our customers. In our Offshore Products segment, we realized positive data points, including an averaged EBITDA margin for the quarter that exceeded the high end of our guidance.

Orders booked that increased 50% sequentially and only a 4% quarter-over-quarter decline in our September 30th ending backlog position. Our book-to-bill ratio for the third quarter totalled 0.98 times bringing us to a year-to-date book-to-bill ratio of 0.87 times.

At this time Lloyd will take you through more details of our consolidated results and provide highlights of our financial position. I will follow with more details by segment and provide you additional comments on our market outlook..

Thanks, Cindy. During the third quarter we generated revenues of $259 million and reported adjusted net income of $5.6 million or $0.11 per diluted share. Third quarter adjusted EPS excluded a $3.2 million tax valuation allowance, reported against certain of the company's deferred tax assets and $700,000 for severance related cost.

EBITDA adjusted for severance cost totalled $39.5 million. Our consolidated third quarter adjusted EBITDA margin of 15.3% was only slightly lower than the 16% adjusted EBITDA margin we achieved in the second quarter of 2015, a testament to our attention to our cost structure in a challenging environment that we're operating in.

We continue to focus on our balance sheet and or debt capital structure. We ended the quarter with total liquidity of $492.4 million, which is comprised of $406.7 million available under our revolving credit facility, plus cash on hand of $85.7 million.

Our liquidity position remained relatively flat compared with the second quarter, as we used our free cash flow to fund CapEx and repurchase stock. Our financial position remains healthy with our gross and net debt levels at September 30th totalling $160 million and $74 million, respectively.

Our net debt to book capitalization ratio approximated 6% at September 30 and our leverage ratio using trailing 12 months adjusted EBITDA was approximately 0.6 times. Further, we have no significant debt maturities until 2019 when our credit facility is set to mature. During the quarter, we invested $23.6 million in capital expenditures.

Capital spending during the quarter related to ongoing facility expansions in our Offshore Products segment, primarily in the U.K. along with maintenance capital spend in our completion services business. In full year 2015, we expect to spend approximately $125 million to $130 million in capital expenditures.

Our top priority is to complete our new Offshore Products facility in the U.K. which we are currently in the early stages of commissioning. During the third quarter, we repurchased 483,000 shares under our authorized share repurchase program at an average price of $27.30 per share.

Amounts remaining available under our current repurchase authorization, totalled $136.8 million, which is scheduled to expire on July 29, 2016.

In terms of our fourth quarter 2015 consolidated guidance, we expect depreciation and amortization expense to approximate $31.6 million, net interest expense to approximate $1.5 million and corporate cost to approximate $11.7 million.

Our 2015 consolidated effective tax rate is expected to average 43% for the full year, given the valuation allowances recorded in the current quarter. This equates to an effective tax rate of approximately 25% for the fourth quarter. At this time I would like to turn the call back over to Cindy, who will take you through our business segments..

Thank you, Lloyd. In our Offshore Products segment, we generated revenues of $176 million during the third quarter of 2015 compared to $183 million recorded in the second quarter of 2015. Our top line results were below our third quarter guided range, as a portion of our connector product and crane revenues slipped into the fourth quarter.

EBITDA totalled $40 million for the segment in the third quarter of 2015 compared to $41 million reported in the second quarter. Our EBITDA margin percentage was favorable to our guidance and averaged 22.5% for the current quarter.

Orders booked during the third quarter increased 50% sequentially to total $173 million, yielding a relatively modest backlog decline of 4% quarter-over-quarter, after some backlog cancellations and scope changes.

Our third quarter book-to-bill ratio was 0.98 times before scope changes and cancellation, totalling approximately $9 million, bringing our year-to-date 2015 growth book-to-bill ratio to 0.87 times. Major backlog additions during the third quarter included a multiyear U.S.

military products order, a large plane order and several pipeline products orders. Expanding on Lloyd's earlier comment I would now like to provide you with an update on our new U.K. manufacturing facilities. Construction of this new facility is nearing completion and we have begun the relocations process to consolidate our other locations in the U.K.

mainly Aberdeen to this new facility in the Heartlands area. This facility is state-of-the-art and sits on a 28 acre tract of land in close proximity to Edinburgh and Glasgow, Scotland. The complex of buildings covers nearly 213,000 square feet and should provide many efficiency benefits for decades to come.

We will continue to maintain a sales project and engineering presence in Aberdeen. As we progressed into the fourth quarter, we believe that revenue and our Offshore Products segment will increase marginally and range between $180 million and $190 million.

This projected revenue increase is due to greater connector and subsea product contributions, partially offset by reductions in revenues in our shorter cycle and consumable product and services as our customers remain focused on cash flow preservation. We expect to incur approximately $2.5 million of facility relocation cost in the U.K.

during the fourth quarter. Excluding these costs, our EBITDA margin guidance for the fourth quarter is forecasted to remain within our guided range of 19% to 21%. In our Well Site Services segment results were in line with our projections and the guidance ranges that we provided in connection with our second quarter 2015 earnings conference call.

Our third quarter results continue to be impacted by the extremely low levels of activity in the U.S. land drilling and completion market. By the third quarter, our Well Site Services segment revenues totalled $83 million, which represented a 3% sequential decrease.

The sequential decline in revenues was attributable to an 8% decrease in the number of completion services job performed and low utilization of our land drilling rigs, which was partially offset by 4% increase in revenue per completion services ticket due to a slightly more favorable product mix in the U.S.

offset by customer pricing concessions in our international market. EBITDA decreased 1% sequentially to total $11 million and EBITDA margins averaged 13.1% for the third quarter. Land rig utilization persisted at low levels in the third quarter averaging 33%, essentially flat with the second quarter.

Activity is already slowing in the vertical rig market as we move through the fourth quarter. We currently have only seven rigs out of our total fleet of 34 land drilling rigs working.

We are now one-third of the way through the fourth quarter with a high degree of uncertainty surrounding land-based North American drilling and completion activity from today through the end of the year.

With market expectations suggesting significant seasonal holiday downtime and customer budget exhaustion in the fourth quarter, we are forecasting the utilization of our land drilling fleet to approximate 15% to 20%. In addition, we expect our completion services revenues to decline from mid-November through to Christmas holidays.

Given all of these variables, we estimate that fourth quarter revenues for our Well Site Services segment will decline sequentially and range between $60 million and $70 million with EBITDA margins averaging 5% to 10%. In conclusion, the fourth quarter is expected to be very challenging in the North American onshore services market that we support.

Customer budget exhaustion, seasonality and holiday downtime coupled with already depressed levels of drilling and completion activity is likely to negatively impact our Well Site Services segment in the fourth quarter. However, our Offshore Products business should hold up relatively well.

Further, Well Site is in an enviable position with a strong balance sheet characterized by low levels of leverage and nearly $500 million of liquidity at the end of the third quarter. As always we will remain focused on operational efficiencies and customer service, while we are seeking opportunities to invest for long-term growth.

That completes our prepared comments, Adrienne would you open the call up for questions-and-answers at this time..

[Operator Instructions] And we have Marshall Adkins from Raymond James on line with the question. Please go ahead..

Good morning guys. Cindy, you guys have maintained a remarkably strong book-to-bill relative to most oil service manufacturers. Walk us through how the FIDs flow through your system from a timing perspective. I'm trying to understand what's different about you to where things have been so strong.

Is it timing or what? Just help us get our arms around that?.

Well part of it, I think is having a good product line diversification, let's start with that and if we kind of look at some of the nature of the wars throughout the year, that's number one.

I think number two is a focus on production infrastructure and I hit that thought as I reflect on Q4, Q1 bookings very much related to subsea price lines infrastructure as an example. If you'll recall, Q2 was light on any major project and then if you look at Q3 we had everything from subsea pipeline work to cranes to a military order.

So there is a lot going on there. But again, I think the real key for us is significant focus on either well consumables, meaning they're not like a field type investments.

And then a lot of our other key products, that are like a field investments have a production infrastructure focus, which I said all along, there will be budget cuts, a lot of that will start as it always does with exploratory drilling activities. And so later to cut is for development drilling activities.

But once you have a field that is already covered and being delineating, there's no common sense to not developing that and get your revenue stream on. So particularly for these long cycled deepwater project.

So I think it's a little bit of all those things, that has helped basically mitigate some of the pressures that are ongoing in the capital equipment cycle..

Good. That helps. I want to switch gears on my follow-up here to the margin side, I appreciate the help on Q4 margins. But I think, given the lack of visibility we're all wrestling with next year's margins. So that guidance you gave on EBITDA for offshore 19% to 21% for Q4.

Where do we think the bottom is for next year? I mean, should we be thinking 15% and I know it's early, but just help us get our arms, is it 10%, 15% or the 18% to 19% where we'll find them next year?.

Just to be clear, we will not give guidance yet for 2016, however in the context of your question what we look to right now as kind of the low EBITDA margins that we witnessed in the last five years is kind of indicative of what we might expect it to be, again without giving guidance for 2016.

I will say that looking back historically that low EBITDA margin percentage was 17%..

Okay. I mean, that's - it's been remarkable how well you've been able to manage costs in the downturn, that's why I'm asking that question. Thank you..

Thank you, Marshall..

And then next question comes from Jim Wicklund from Credit Suisse. Please go ahead..

Good morning guys..

Hi, Jim..

Hi, Jim..

So the timing of the recovery is obviously been pushed back, where we were back in May filled with optimism about the rest of the year and that's gotten crushed. Has the M&A market, is the activity we expected to see in M&A, which was going to be in fourth quarter, first quarter a while back.

Is that now been pushed to Q2 and Q3 next year? Or are we going to have to wait longer to see a heated up M&A market?.

It depends on whether you're talking about things coming to market are closing. We're not - I wanted to be clear to my board, we're not sitting around waiting for books to arrive, we're trying to be proactive, anticipate these things, not only troubled situations but strategic things that we might want to look at.

And so we're beating the bushes heavily around here to try to find ways to grow the top line. I am talking to everybody in town particularly anybody that has kind of a work out practice to get the same answers you're looking for which are when are these going to come to the market.

What I am hearing is coming to market late first quarter will see more, that does not mean closing obviously. And so it kind of depends on the framework you're looking for there. We've only seen a handful of what I would call troubles our companies that are really under pressure coming to market.

And as you would expect, most of those are weighted to North American activity. Unfortunately they have to add and they are cash breakeven or worse.

Bleeding cash right now, so even though they're going to come to market valuations, I think are going to be challenged getting two people to agree on what that forward earnings outlook and cash flow outlook display..

And so you start to see some kind of recovery, you can't start discounting recovery.

You're buying back stock in the quarter and since we're at the bottom of the cycle, if you buy somebody it's going to be more than likely have to be stock and cash? Are you cool with that? And does that have anything to do with why you're reducing your share count at these levels?.

It very much depends on the size and we only bought back I think $13 million roughly worth of stock in the third quarter. It's amazing though, when we put our new authorization in place at these depressed stock price level, you can actually buy back a lot of stock with but not much money.

We continue to want to do that when we think number one, so overall price makes sense in the context of the long-term outlook for the company and to particularly if we feel like we're kind of trading out of things with the market.

But I think to maybe answer what I anticipate your question to be, we are really, really loved this on trying to grow the top line. I have tried - said it before at your conference, I'll say it again, you can't cut your way into success and profitability.

We got to grow the top line and so - and a lot of people overnight had kind of questions on how does M&A compare to share repurchases. Certainly we want to grow the top line and that can be market share, gains being recovered and it can be M&A. So we're willing to use our stock as we can make it work, obviously in the context of a transaction.

But if it's a smaller deal, I do think that our balance sheet affords us the flexibility to use cash. Again as long as our visibility is good about the cash flow profile of the company because even though Q4 is going to be painful, partially market, partially just holiday impact.

I do think we'll be cash flow breakeven or slightly better, which not everybody is going to be in that position. And so it's not is if we're bleeding cash or building debt through ongoing operations and again it affords us a little bit of flexibility..

Okay guys thanks and good job on the marine part. That was good..

Thanks, Jim..

And your next question comes from Stephen Gengaro from Sterne, Agee. Please go ahead..

Just wanted to follow-up a little bit, you mentioned this a little bit in the prepared commentary about the uptick in sort of revenue per job ticket.

What color can give us around that and how to think about that going forward given kind of pricing and mix?.

Well, I'd hate to ascribe too much to it quite frankly. There is certainly some mix orientation in there and we had a lot loop current in the Gulf of Mexico. You may have a one-off job that can alter that. A customer that uses isolation, that didn't use it last quarter. So I don't think that would make too much honestly to that.

I wish I could say that's indicative of bottoming, but we don't believe that that is the case..

Okay. Thank you. And then as we think about just the pricing backdrop on sort of the Well Site Services particularly on the proprietary side of the business.

How is that holding up?.

I'm sorry, would you ask that again. I missed --.

Pricing concessions..

Well, I mean, we made some incremental pricing concessions in Q3, I think that's probably evident with most ever company out there, particularly in the small-to-mid cap space. Obviously, cost reductions are taking hold, so that we were able to stabilize margins, despite that. But we've not been leading price on the way down.

We feel like we've got great people and great assets, great technology and being cut throat on pricing, just doesn't really make a lot of sense. But we have to be responsive because as you know in a fairly draconian market like this low price wins.

And I think if we're being objective we probably would say, we lost a little market share, but those jobs are going at cash flow losses. And that's just not our mentality.

So is there more from here, I think there may be customers doing it, but along the way we're seeing more and more facility closures, regional consolidations, product lines, equipment stacking.

So it is my belief and my thesis that the strength of our people and the strength of our operations will regain some market share as these people that are bidding fairly ridiculous pricing realized that they can't do this forever.

And so there should be, I mean, I don't know if it takes six months, nine months, but there should some market share recovery, once some of these smaller players go by the weight size just a little bit..

Thank you. And then if I could just slip a quick one in for Lloyd, the tax rate.

What would you suggest for next year?.

We hadn't done the budget, Stephen for next year..

Yeah, I think we need to give that figure out. But the macro I got at another analyst comments, the macro is and like everybody knows you hear it, every time we hear our political debate U.S. tax rates are the highest in the world. So what's happening, we're getting crushed in U.S. operations, which is lowering or eliminating any U.S. taxable income.

So it has that - tend to mix, has the tendency to lower your overall effective tax rate? And what Lloyd is saying we need to line out our plan going into next year and we'll farm that up for you going forward..

Yeah, it's going to be the mix of a foreign operations and effective rates in the foreign operations, until we do the budget on that, Stephen, we rather maybe has to say at this point..

Okay. Great. Thank you..

Thanks, Stephen..

And our next question comes from Bill Herbert from Simmons & Company. Please go ahead..

Hi Bill..

Hey, good morning. So I'm going to ask a couple of questions, which have already been asked, but dance around in a slightly different vein. And that is with respect to the Offshore Product order book.

And I understand your advantaged mix component and the diversity within your Offshore Products complex that led in part to the - start taking orders in Q4.

But not withstanding that just given the really grim austerity outlook for 2016 on the part of the IOCs, which is being imparted on this Q3 earnings season and the dislocations amongst deepwater NOCs.

I'm just curious as to what you think is a reasonable sort of conceptual expectation for orders in 2016 likely lower or flat or even higher?.

So let me try - I think you used the work dance around it, I'll try to do that again, no, I'm kidding. Let me first, let's talk about Q4, which we have obviously a little more clearer visibility and nobody has yet asked that.

We've kind of gone through our note book and our book and we do at this point believe that we can hold a 0.8 book-to-bill in Q4 based on what we believe comes into backlog during that time. That implies a 0.85 gross book-to-bill for the year.

So we here would view that as an incredible success relative to the soft goals and objectives with set in connection with our fourth quarter earnings, our conference call coming into this year.

Those are very specific oriented projects and jobs that are out there that everybody knows about what's the pipeline products and other orders that are fairly routine to us. We will continue to look at the longer term, which for us is going to take us into 2016.

And without naming specific projects, I could say unfortunately, it can go either way depending on how these play out.

I have a stable bookings here, lower or higher, but we've got bids outstanding on riser systems, floating LNG, water uptake risers crane, standard connecters pipeline system, those are the main project in our phase 2 and others out there Whether and when these come to market is just allusive at this point in time.

So we give you quarterly guidance for a reason, that's about as good as a visibility. On just the projects are still there, the certainty on timing, we just don't know at this point in time. But there are some big bids outstanding, some of which have been delayed for months already.

So do those come to market or not? I just can't even handicap it, if the customers are saying they will, but nonetheless we're seeing the delay. So it's impossible to give you a better read at this point in time..

Okay, that's fair. And then on a topic, which has been discussed, but I'll ask it differently here.

With regard to your balance sheet strength and M&A optionality, trying to, not so much with regard to kind of smaller tuck-in deals, which you referred to in terms of timing of kind of early part of next year, a sort of bigger stream of opportunities coming.

But really what I'm thinking about are kind of redefining transformational deals for Oil States.

And we got these Halliburton divestitures looming on the horizon here? I'm curious as to whether you're feeling opportunistic with regard to larger deals and pushing the balance sheet? Or are you feeling cautious?.

Well I would - I guess, I would say, I'm one of the more positive people around, so I'm going to stay opportunistic, but with recognition that the larger deals are challenged. Meaning that anything larger I think it was Jim, I don't remember who made the comment of required stock components.

And the problem in a market like this, you almost have to have an exactly like-for-like company whose stock has traded in very, very similar patterns to get comfortable with an exchange ratio. But when I say optimistic, I'm just saying we're going to look at everything.

And I think this is the time that larger transformational deals can and should get done.

So the optimism is around the willingness to work through the process, but also a recognition that once you get into it, stock-per-stock deals have some been issues to get over and quite frankly everything we hear, there is no capital financing market available to energy services right now.

And even a company like us with an incredibly good track record and strong balance sheet, if we could borrow, it would be in the double digit yield range. So the market is kind of closed right now. There's just some fundamental challenges that are lying ahead of us in terms of getting deals done.

But I think that really speaks to the overall lack of market visibility when that starts firming up and when deals come to market, potentially in the second and third quarter. People just have a better feeling for what the outlook is I think things improved just a little bit from where we are right now..

So even with the quality of your balance sheet and the ample balance sheet capacity that you have, the cost of capital with regard to debt financing is just too high..

If it's available at all..

Yeah, Bill, if its available to all, if you think about the high yield market, it's non-existent right now for energy..

Got it. All right. Thanks very much..

Thanks, Bill..

Cheers..

And you next question comes from Blake Hutchinson from Howard Weil. Please go ahead..

Good morning..

Hi Blake..

Cindy, can you just address for us the cancellation and scope changes as this, I understand that they were small in nature. And you know historically you've had little experience with that, but as we see some of the peers report, it's apparent that maybe the rules are a little different for this time through the cycle.

So just your thoughts on that and you know what your customer feedback is in that regard at this point as well?.

Yeah, you know we don't view, ours was $9 million, there was nothing significant in there. I got hold this to smaller things from connectors to cranes, but also just scope changes where we might have been doing some connection that they exited, when you did a final engineering drawing, might have been doing testing that they took that out.

So there's really nothing to take away from that. I think from our standpoint, I don't know that there is a market norm in terms of how you calculate book-to-bill. So we always try to be transparent and make sure that you understand the ins and outs.

And I think historically, assets go, we had some cancellations on ''drilling equipment" in either Q4 or Q1 I don't recall which one, we've always disclosed that. But I don't think there's any take away, certainly nothing negative from the kind of scope changes we have, that are here.

And this is very, very heavily weighted to scope changes in our projects cancellations..

Excellent and just keeping with kind of this what we've seen from some peers kind of want to questioning, this is more technical. But I guess I look at your offshore products, the segment and I assume that most of the revenue base is U.S. dollar denominated if not, close to all.

And I don't recall you ever have any real currency impact on your backlog figure.

The risks are minimal in that regard as well?.

It's been fairly negligible, the book and realize, particularly right now, a lot of what we're bidding and quoting, it's been manufactured in our U.S. operations, U.K., Singapore operations. And in the case particularly of Singapore that structural currency is the U.S. dollar. So a lot of these are dollar denominated.

When we have what I call, soft currency bids particularly one that involves multiple facilities and multiple operations, we'll typically put hedges in place where possible to neutralize that just from margin impact from you've got cross currency exposure, so it's to work with, I'm not telling you, everything we did is U.S., but historically, it's been fairly small impact..

Great. And just one more quick one. Just to see where you are kind of strategically heading into the new year. I think the completion services guidance and putting a kind of more extreme bottom to that range.

Part of the thinking is you're disinclined at this point is to break the organization down anymore cost wise for 4Q? And it's where it's size right now for how you want to address the market for '16?.

Yeah, I mean, as I said earlier at some point, you don't cut your way into prosperity. When we talk about, this is absolutely a service oriented business. You got to keep your quality and your experienced employees, if you're think you want to be in the long term, clearly we do.

And so I'm not saying we're not going to be attended to our cost, because of course we are, but to think that we have, we've always been on lean operation. And to think that there's a whole lot more excess sitting around, which is not the case.

And so, I do want to say, I think that I'm finished with some of these fairly draconian cuts that have had to be made responsive to the market. But you know we'll see how long this persists. So everybody is trying to get their arms around what is the duration of this.

I'd crack my brain out and manage, I look at production statistics, just like everybody else. I'll look at past cycles, just like everybody else and it's feeling a lot more like the 1997 to 1999 cycle that we all or a lot of us on this call lived through any way. And that kind of puts us midyear to August to fully come out at the bottom of this.

But I think our cost structure right can handle that, our balance sheet can certainly handle that. And that's just the view we're taking right now..

Great. Thanks for that and thanks for rundown today. I appreciate it..

Thanks, Mike..

And the next question comes from Sean Meakim from JPMorgan. Please go ahead..

Hey, good morning..

Hi, Sean..

So just I was hoping to follow-up a little bit more on completions and the margins that you put up. Just have you seen any substitution trends that we talked about away from higher margins, the well inflation rentals. Has that moderator at all as activity hits the lower levels.

I'm just curious that how much cost cutting you think kind of helps in the quarter, 3Q versus say 2Q?.

Well, I mean, I think we acknowledge we made some further or incremental price concessions in the third quarter and the cost basically manage to stabilize the margins. So means that those, cuts if you want to call them that are taking hold or focused on cost or taking hold to where we've stabilized operations in a fairly weak market overall.

There is always going to be substitutions, but when you high priced equipment out there that's one of the major selling points are job efficiencies and saving on other third party cost, that gets mitigated as everything as price collapses all around you. So we've had some element of this in Q3 and in Q2 quite frankly.

It can be even a customer that just says, I'm going to shut down operations for the rest of the year that has historically used isolation equipment. All of a sudden that mix shifts a little bit to the negative. And so I'm going to say there is a trend anywhere and the good thing is we provide alternative completion techniques to the customer base.

So if they chose not to use as an example, the isolation tool, we're happy to work with them and supply frac heads or other alternative to the marketplace..

That's fair. Thank you for that. And then just switching over to offshore. I just thought it'd be interesting to talk a little bit more about some of the shorter cycle parts of the business? And kind of how they held up in terms of activity you noted in the 4Q. We're going to see a drop-off as much, it's going to be exhaustive.

But just to be thinking about that business, particularly the consumables pieces.

Just curious how you think that performs as inventories drawdown in a more protracted downturn?.

Well, I feel like the inventories have drawn down considerably and what we speak to there is a little bit of a mix in service and to consumables. A lot of it is about product that are consumed globally, probably both land and offshore quite frankly.

And you've got elastomer product that with the rig count waiting, it's waiting a little bit towards land. And then welding services, crane inspection services, et cetera are all of which has been under pressure throughout the year.

I do feel like we kind of hit a baseline or more, on those activities and it's all inventory drawdowns that there has been that for about or there from now or elastomer product as an example. But I we're all trying to get our minds around, okay, what are the budgets.

What is the budget going to look like? Everybody is speaking to maybe next year, the macro being down 20% to 25%. With the strength of activity in the FERCs order and the decline throughout the year, I'm not sure that that means much of a negative off of run rate.

But again, we've got to process all of this as it comes together from our customer's budget announcements, just like everybody else. But speaking specifically about to those short cycle product lines, unless I'm missing it we're pretty much at a close to 4 already, it feels like..

That's very helpful. Thanks Cindy, I appreciate it..

Thanks..

And the next question comes from Jeff Spittel from Clarkson. Please go ahead..

Thanks, good morning everybody. If we could start off with Offshore Products, Cindy. And it sounds like the pipeline is reasonably robust and with the understanding that timings are a little uncertain around a lot of the projects. The news certainly hasn't been too good out of Brazil and I know that's an important market too.

Have you seen anything particularly disconcerting about any of the projects that are in the bid pipeline there?.

We're still bidding on projects in Brazil. We still have backlog that is tied to Brazil that we're obviously working off. A lot of the awards that we got in Q4, Q1 were subsea pipeline oriented bids and we are continuing to see similar bids out of Brazil, But also some other equipment that we're working on.

With all that has gone on with really reassessing of budget and I'll call it reassessing our focus. There has clearly been delays in awards for bids that we've had outstanding for months now. So that's probably not going to be a surprise.

But where that puts us today is a bit less exposure to Brazil in our backlog than what we had earlier this year, I would say that. Brazil is still a very, very prolific deepwater market. We think there is a lot of potential there. Petrobras has been a good customer to us and we have bids outstanding.

The key question for everybody is going to be what is the likelihood and what is the timing of those materializing. But I feel like what the indices have been to start this year, quite frankly, they've been ongoing. So as we feel like, that come 2016, if not before we should start seeing some of these bids come in markets..

Okay. That's encouraging. And Lloyd this one's probably for you, and I know you're going through the budgeting process or maybe just starting it. But as we think conceptually about preserving cash flow and keeping some firepower on the balance sheet.

How are you guys thinking about sort of a bare-bones maintenance CapEx number on a go-forward basis?.

Yeah, and so the bare-bones maintenance CapEx in a normalized market is trended towards probably $150 million in a normal market, Jeff, but with bare-bones, it's probably $700 million. I'd say $75 million to $90 million..

All right. Pretty commendable job this quarter. Thanks guys..

Thanks, Jeff..

And our next question comes from Michael Lamotte from Guggenheim. Please go ahead..

Thanks, you all. And also let me give my congratulations on job well in third quarter. If I can maybe start with a couple of new questions. First on services work for offshore Cindy, that was called out in the press release. I'm wondering if that work is tied more to projects or more to maintenance.

I guess, maybe the main question is, is it lumpy or more consistent of an annuity?.

Okay. I think, I'm trying to recall what was in the press release. I think --.

I think the reference - this is Chris. I think the reference in Cindy's comments related to the lube currents [ph] and the impact we had on some of the timing --.

But he said on Offshore Products, but any way let me address the question as I think you're asking it is, most of the targets were specifically tied to new project development or is it recurring type service work. And you're going to love the answer, but it's a very little of both.

When we have a large install base of cranes and wedges as an perfect sample, you're going to have ongoing levels of service for inspection repair, service work and the parts that go along with that. And so that is one element.

The other element is as an example welding technology that is new project development or installation service work associated with installing risers as an example. That that's really got the - the latter is really the only piece that tends to be lumpy.

And since you haven't heard us now too much in the way of PLP or FPSOs off late, that's the type of service content that we have right now. More I'd say where we're at the kind of base line level comes into to more ongoing to add service work.

Historically however, the rough percentage has been about 20%, dedicated to service that seems to be fairly consistent through the cycle in terms of that level of contributions..

20% of total Offshore Products..

Yeah, thanks for that clarification. The total Offshore Products revenue..

Okay. Great. And then switching to completions, I'm curious about CapEx as it relates to equipment in the field, recognizing that there's a replacement element there.

So is that replacement CapEx part of a maintenance and even a bare-bones maintenance figure? And then secondly is there a next-generation technology that with respect to that completions equipment, I'm thinking specifically of Halliburton Q10 pump for example.

That could create some better operating leverage, more efficiency as we emerge from this downturn?.

Well we are. We do invest in capital equipment and certainly though, you're right, there was maintenance element and I think that's what Lloyd is you to leading within bare-bones CapEx, a number that he would ask to give a $75 million to $90 million. A lot of that is going to be dedicated towards just wear and tear, maintenance of existing equipment.

What we do is high pressure, high temperature, everything a piece of equipment that comes out of the field, it reinspected, retested, recertified before we put it out on another job. So they're clearly a maintenance CapEx element to the business. But we obviously are looking at new technology.

We've introduced various things from fall drop systems to extended reach technology, some of our temperate investments and again have the luxury to continue to invest in that. But typically does are not huge CapEx Dollars, day one and just as you bring them to market, then you start having a little more CapEx associated with it.

I don't know if your question is, is there disruptive technology being developed. And right now I'd say what we're doing is on the margin with efficiency improvement for the customers as opposed to game-changing disruptive technology..

Okay. But that is what I was getting at. Thank you for clarifying that. And then lastly, Cindy as you think about M&A. I know we've talked about maintaining exposure to shales and deepwater that that diversity is important. But you also sort of have an opportunity to take a big step out in terms of product and service lines.

So I'm wondering if you are approaching this M&A cycle more as an opportunity to pick up more bolt-on or types of businesses or if you would actually do something more scale or size in a new product and service line is going to hit the criteria in that market?.

Well, we're willing to do all of them, but if I were to rank those things, I would say the bolt-ons, first and those are financeable for us. And we have a long history, not only doing them, that doing them very, very effectively.

Both identifying, going through due diligence, integrating and bringing it to test, so successful operation, so first priority there. I think market consolidation of size would be a second priority.

There is clear indications, that particularly in the small to midcap space, that if our customers are going to have more than three service companies to work for, there ought to be some consolidation at the lower levels, right. So we are focused on that, I don't know how you view this, anything done. But I think that should be a key focus for us.

It's interesting you said that, we had a conversation just yesterday and whether there are other or new product lines or bolt-on line that we should explore. My think there is, whatever we do is going to be in energy services at the end of the day and whether that's a slightly different product line than what we have or not.

I still think that where activity is going to be is in shelf life and a deepwater. So I think we're in the right position, we're just in a bad market right now. And I always say, low crude oil prices have the tendency to cure themselves and there will be a brighter day, down the road..

Well, look forward to seeing how you all emerge from this sort of next 12 months I think is going to be an interesting year. Thank you..

Thank you..

Thanks, Michael..

And our next question comes from Chase Mulvehill from SunTrust. Please go ahead..

Hey, thanks for squeezing me in. So I guess I wanted to ask real quick, would there be a big margin difference between the new U.K.

facility and the Aberdeen facility?.

We hope so. Time will tell, but first of all the beauty of this facility, it can actually pay for itself based on rent savings alone. And rare you make a long term, 50 year investment decision that you can kind of say, you know what we can pay for this. It may take 20 years, but we can pay for it on that.

But it was originally intended, this was a growth investment. We had a hard time growing, giving the facility designs that we had, the age of the facility and an inability to hire and attract talent, those engineers and shop workers.

And we think all of that is alleviated, we've already seen evidence of that with the new facility that is specifically designed for our product line. And so I do think we'll absolutely have efficiencies. I think our labor cost will have a tendency to decrease, but importantly, one or two things.

If and when the market recovers we'll be able to grow more. If and when we're able to consolidate the market, we got a great facility to bring the bottom lines. And so I don't hesitate to say that we're going to be pleased with that investment. The cost and the margin impact will be realized over time..

Okay. Great.

And over time, do you think this is like a 10 percentage points margin uplift?.

We wouldn't be ready to go there at this point in time and a lot of our, in fairness that sounds, I don't know if you're 10 percentage points saying you're going to go from EBITDA margin of 22 to 30, so I'm not - or 20 to 22..

I'll take it, 15 to 25, I don't know how bad the Aberdeen facility was, so that's not the question right?.

No. It's not that magnitude, but realize that in our projects, just to be clear about 65% of our cost structure is material.

It's not the facility throughput and the labor and so it will have impact, but not to a degree that you're hoping for?.

Okay. All right. And then what about pricing for large projects, is that down, if so how much? Offshore, sorry..

Yeah, its' impossible to answer that question because most of what is going on is scope changes, redefining how fields are being developed as opposed to, I can take the conductor casing product line, last year and this year and there is a 10% discount, it's really not that.

These are all highly engineered steels, that I think there's been a lot of rework and scope change. And yes, there's been beginning to be standardization of equipment. But it's really hard to pin point an absolute lower price, as it relates to manufactured equipment.

Clearly what is driving our customers thinking, their real savings on drilling rig cost, the spreads, the vessels, a lot of the downhole consumables et cetera that are going to lower that breakeven cost for our customers and enable them to start moving forward some of these projects.

But as it relates to field development, it's very hard to define what has happened in pricing..

Okay. So I mean, at most it sounds like a couple of percentage points.

If you were to kind of look at it?.

Your guess is as good as mine..

Okay, great. I mean, then on the third quarter, Offshore Products revenues.

How much, Michael kind of hit on this, but how much of third quarter Offshore Product revenues were generated from kind of short cycle aftermarket business?.

Actually we haven't broken them out, hadn't disclosed it. In past periods, it's ranged anywhere from 10% to 20% of total Offshore Products revenues. I would put it probably to the lower to midpoint, meaning we're not at peak, 20% contribution that I hadn't done the math. But just that range of 10% to 20% should give you a feel..

Okay. And then maybe if you could help us just frame in the context of how much of this short cycle aftermarket portion of Offshore Products is coming from U.S. onshore? How does that compare historically as U.S.

onshore kind of comes back and as we can understand where that number could go?.

The reality is we don't know. If you're talking about a frac plug, if you're talking about a valve, most of the time we don't even know where that product is going. Just intuitively, if you're starving an offshore market and a land market, we know where the rig count is and we know the sensitivities there.

So I know a portion of its is dedicated to land, but it's not ordered that way by the customer, it's not tracked that way..

All right. Thank you, I'll turn it back over..

[Operator Instructions] And we have no further --.

Yeah, I agree, it sounds like everybody is done, it's a very, very busy time for earnings. I know yesterday was incredibly busy. So I thank all of you who were willing and able call in today and appreciate working with you as we move forward going into 2016. Thanks and have a great weekend..

Thank you ladies and gentleman, this concludes today's conference. Thank you for participating and you may now disconnect..