Thanks, Michaela. And good morning, everyone.

We appreciate you joining us for MRC Global's conference call today to review 2012 second quarter results. We'd also like to welcome the Internet participants listening to the call as it is being simulcast live over the web.

Before I turn the call to management, I have the normal housekeeping details to run through. For those of you who did not receive an email of the earnings release yesterday afternoon and would like to be added to the distribution list, please call our offices at DRG&L, and that number is (713) 529-6600, and provide us your contact information.

Or you can email me at my email address on the Contacts section of the press release.

There will be a replay of today's call, that will be available by webcast on the company's website, and that's www.mrcpvf.com. There will be also a recorded replay available by phone, which will be available until August 15, 2012, and that information for access is in yesterday's press release.

Please note that the information reported on this call speaks only as of today, August 8, 2012, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening. In addition, the comments made by management of MRC today during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws.

These forward-looking statements reflect the current views of management of MRC. However, various risks, uncertainties and contingencies could cause MRC's actual results, performance or achievements to differ materially from those expressed in the statements made by management.

The listener is encouraged to read the company's annual report on Form 10-K, its quarterly reports on Form 10-Q and current reports on Form 8-K to understand certain of those risks, uncertainties and contingencies.

And now with that behind me, I'd like to turn the call over to MRC Global's CEO, Mr. Andrew Lane.

Andrew?

Thanks, Ken. Good morning, and thank you, all, for joining us today for our second quarter 2012 investor call.

We'd like to welcome you all and thank you for your interest in MRC Global. I would like to begin by highlighting our second quarter accomplishments before turning the call over to our CFO, Jim Braun, who will go through our financial results in more detail.

Turning to our second quarter performance. It was another record quarter despite a great deal of volatility in the energy commodity market.

We managed to achieve our highest ever second quarter revenue of $1.43 billion, which was a 22% increase over the same quarter a year ago, and it's the third highest revenue for any quarter in the company's history.

Once again, the revenue increase was broad-based, as each of our upstream, midstream and downstream sectors continued to perform well, and all 3 sectors exhibited year-over-year growth in excess of 20%. Activity in the liquid plays in the U.S.

remains robust, despite the slide in crude prices during the quarter. Although we are continuing to see a slowdown in the dry gas areas, particularly upstream activity in the Marcellus and Haynesville shales, our diversity in terms of end markets and within our customer base has succeeded in mitigating this fall-off.

Adjusted EBITDA for the second quarter came in at $124 million or 8.6% of revenues, and this represents an increase of 36% over the second quarter of 2011 adjusted EBITDA of $91 million or 7.8% of revenues. This 80-basis-point improvement was driven primarily by an improved sales mix and the upside leveraging of the fixed cost component of our expenses.

I would like to note that we are continuing to rebalance our inventories toward higher-margin products, thus reducing our more volatile, lower-margin oil country tubular goods, or OCTG, business, which will become a small component of our inventory and revenues. We anticipate OCTG to be approximately 10% of our total inventory and contribute a similar percentage to our total revenues going into 2013, as compared to its traditional higher weighting.

For example in 2008, OCTG represented 26% of the total inventory and 25% of the company's revenues. We are making good progress in implementing our strategic shift, as the OCTG inventories were 12% of the total at the end of the second quarter and made up less than 14% of our consolidated revenues in the second quarter and less than 15% of our year-to-date revenues.

an increase in activity in the oil and gas liquid plays, such as the Permian, the Bakken, the Eagle Ford, the Mississippian Lime and the Niobrara shale; strong growth in the midstream sector, with the continuing build-out of the infrastructure required to get new production to market; and the strong contribution from our international acquisitions of SPF and Piping Systems Australia, which made up nearly 2/3 of the downstream sector's growth.

There were also several additional noteworthy events during the quarter. In late May, we signed a 5-year global valve enterprise framework agreement with Shell.

This "first of its kind" global contract covers Shell's upstream, midstream and downstream project and MRO requirements in North America, Europe, Asia, Australia, the Middle East and Africa. It makes MRC the single source distributor for valves and automation services and the primary distributor for a multitude of other products to Shell's business units worldwide.

And this represents the largest distribution contract that we've ever entered into with a global customer. Under the terms of the contract, there is an option to extend the contract's initial 5-year term to -- for an additional 5 years.

This standardized one-stop distribution platform affirms our belief that many energy companies will migrate towards our model as a means to optimize their global supply chain needs for PVF purchases. We do expect to see some incremental revenue from the contract over the balance of 2012, but the benefits of the global arrangement will be evident in 2013 and beyond, where we expect Shell will become our largest customer in terms of revenue.

In June, we signed an agreement to acquire the majority of the operating assets of Chaparral Supply, a provider of PVF products and oilfield supplies to its former parent organization, SandRidge Energy. Their operations have been merged into our Alva, Oklahoma branch, which was opened relatively recently to serve the Mississippian Lime play.

As a part of the acquisition, we have agreed to a supply agreement with SandRidge whereby MRC will serve as the primary PVF product and oilfield supply distributor to their operations in both Oklahoma and Kansas.

Finally, we were honored to debut in Fortune magazine's Fortune 500 list. As many of you know, the Fortune 500 ranks the top 500 U.S.

companies by total revenues for the respective fiscal years. It was especially gratifying to be recognized in this prestigious list so soon after our April IPO.

With that, let me now turn the call over to Jim Braun to review our second quarter results in more detail.

Thanks, Andrew, and good morning, everyone. I'm going to speak to a number of items impacting our results, and then Andrew will return with some concluding remarks.

First, let me begin with some comments on the second quarter market conditions. The North American rig count was 7% above year-ago levels, averaging 2,147 rigs in Q2.

In the U.S., the rig count averaged 1,970 in the second quarter, up 8% from a year ago, with oil rigs accounting for 70% of the total number of rigs. This increase in activity took place against the backdrop of weakening crude oil and natural gas prices during the quarter, although the average WTI price for the quarter remained over $90 per barrel.

In the second quarter of 2012, our sales reached $1,430,000,000, an increase of 22.4% versus the $1,168,000,000 we earned in the second quarter of last year. This marks our ninth consecutive increase in quarter-over-quarter revenues.

Of the $262 million increase in quarterly revenues, 76% came from organic growth, with the remainder, about $64 million, from our acquisitions of SPF in June of 2011 and OneSteel Piping Systems in March of 2012.

Our North American segment had revenues of $1,279,000,000 in the second quarter, an increase of 17% from Q2 of 2011. This increase was substantially all organic.

Internationally, revenues doubled to $151 million from $75 million a year ago, as a result of the 2 Australian acquisitions. Organic revenue growth in our international segment was 16.9% during the quarter due to higher activity levels in the U.K., The Netherlands and Australia.

In the upstream sector, sales increased 21.7% in the second quarter of 2012 to $657 million or 46% of our quarterly revenues. We continue to see strong activity in the oily and wet gas areas in the various U.S.

shale plays, as well as the Canadian heavy oil and tar sands region. North American MRO sales in the sector grew 32% even as we started to reduce our OCTG business.

The midstream sector continued to be strong as the drivers we saw during the first quarter persisted. Second quarter sales to the midstream sector increased 23.3% to $397 million in the second quarter of 2012 and represented 28% of sales.

Revenues from our natural gas utility customers increased 32%, while revenues from our gathering and transmission customers increased 19%. Key drivers of the growth include the continued build out of the oil and gas gathering infrastructure and transmission pipelines, as well as increased pipeline integrity work and expenditures by natural gas utilities.

In the downstream sector, second quarter 2012 revenues increased 22.8% to $377 million and accounted for 26% of total sales. Nearly 2/3 of this growth was attributable to our international acquisitions of SPF and PSA, which are more heavily weighted towards our downstream sector than our business as a whole.

Our North American downstream sales for the quarter were up 6% year-over-year. Anticipated increases in turnaround activity have been slow to develop, but we continue to believe they will pick up in the back half of the year.

And in terms of sales by product class, our energy carbon steel tubular products accounted for $488 million or 34% of our sales during the second quarter of 2012, with line pipe sales of $294 million and OCTG sales of $194 million. Overall sales from this product class increased 6% in the quarter from Q2 a year ago.

Sales of valves, fittings, flanges and other products reached $943 million in the second quarter or 66% of sales. This represents an increase of 33% over the second quarter 2011 results.

Carbon steel fitting and flanges and alloy pipe had a particularly strong quarter, growing 50% over last year's second quarter to $300 million driven in large part by our Australian acquisitions.

And now turning to margins. The gross profit percentage in the second quarter of 2012 grew 210 basis points to 16.9% from 14.8% in last year's second quarter.

The increase was driven by improved product mix and the leveraging of our fixed cost component of cost of sales. Included in our cost of sales is a LIFO charge of $11.6 million in the second quarter of 2012 compared with the $17.6 million in the second quarter of 2011.

Our adjusted gross profit percentage, which is gross profit plus depreciation and amortization and amortization of intangibles plus or minus the impact of LIFO inventory costing, increased to 18.9% from 17.7% in the second quarter of 2011.

And moving on to SG&A. Although the absolute dollar level is up, expenses were flat on a percentage of sale basis.

In this year's second quarter, SG&A costs were $151 million or 10.6% of sales compared to $124 million or 10.6% of sales in the second quarter of 2011. The increase in expense year-over-year is primarily due to additional personnel costs, other costs directly related to the increase in business activity and our acquisitions of SPF and OneSteel Piping Systems.

Operating income for the second quarter improved to $90.5 million or 6.3% of sales from $48.6 million or 4.2% of sales in last year's second quarter. Both higher gross profits and increased leverage of our fixed G&A cost contributed to the operating income increase.

Our interest expense totaled $30.7 million in the second quarter of 2012, which was an 11% reduction compared with $34.5 million in the second quarter of 2011. This was primarily due to lower interest rates on our asset-based lending facility, as our average outstanding debt levels were comparable between the 2 quarterly periods.

During the second quarter, we purchased in the open market $102 million of our senior secured notes for $110.4 million, consistent with our strategy following the IPO to reduce our long-term debt, reduce interest expense and improve cash flow. The purchases were funded from drawings against our global ABL facility and were made at an average price of $108.28 per $100 of face value.

In connection with these purchases, we incurred a pretax charge of $11.4 million or $7.5 million after tax, consisting of the purchase premium and the write-off of the -- for the financing costs and original issue discount.

Our effective tax rate for the second quarter of 2012 was 34.3% compared to 34.6% for the same period in the prior year. During the quarter, we lowered slightly the expected rate for the full year 2012 to 35.3% from 36%, which drove the lower rate in the second quarter.

Our expectation for the full year is that tax rate will be in the 35% to 36% range.

Net income was $31.3 million for the second quarter or $0.32 per share on a fully diluted basis, as compared to $4.7 million or $0.06 per share in the second quarter of 2011. Included in our second quarter net income is $7.5 million after-tax charge or $0.07 per diluted share that is related to the purchase of a portion of our senior secured notes.

Excluding the impact of this charge, net income was $38.8 million or $0.39 per diluted share.

And as a reminder, our outstanding share count was 101.5 million shares at the end of the second quarter, and with the April 2012 IPO, the weighted average diluted share count during the second quarter was 98.7 million shares and compared with 84.6 million shares during the second quarter of 2011.

Consistent with our strong revenue and profit performance, adjusted EBITDA improved significantly over the prior period. Adjusted EBITDA was $123.6 million in the second quarter of 2012 compared to $90.6 million for the same period in 2011.

As a percentage of sales, adjusted EBITDA grew to 8.6% in the second quarter from 7.8% a year ago. And on an incremental basis, the $33 million year-over-year improvement in adjusted EBITDA is 12.6% of the $262 million revenue growth.

Our outstanding debt was $1,355,000,000 as of June 30, 2012, decreasing from the $1,612,000,000 at the end of the first quarter. In April, we completed our IPO where we sold 17 million shares of newly issued common stock, resulting in net proceeds of $333 million, which was used to pay down amounts owed on our global ABL facility.

A selling shareholder also sold 5.7 million shares as part of the IPO.

At the end of the second quarter, our leverage ratio, defined as net debt to trailing 12 months of adjusted EBITDA, was 2.9x, as compared to 4.1x at the 2011 year-end. Our operations used cash of $65 million in the second quarter of 2012, which was due to working capital build during the quarter, particularly on the inventory line.

Inventory turns declined slightly, while DSOs improved modestly. And additionally, our semiannual interest payment on our senior secured notes of $50 million was made during the quarter.

The inventory build was responsive to the increasing activity levels in the first half of the year. And with the necessary investments in inventory now in place, we've made targeted inventory reductions a priority in our operations for the second half of 2012.

Our working capital at the end of the first quarter was $1,283,000,000 compared to $1,175,000,000 at the end of March, and our total liquidity, including cash on hand at the end of the quarter, was $653 million. Cash used in investing activities totaled $26 million, including $15 million for working capital adjustments related to the PSA acquisition and capital expenditures of $10.4 million.

Our expectation for full year CapEx is between $26 million and $27 million. We are accelerating an IT spend for the integration of our Australian acquisitions, the development of productivity tools for our U.S.

business, and a small portion of the increase in our expectation will be in the fulfillment for our new contract with Shell. And in addition, we're going to spend capital to expand our Nisku facility to support the growing business in Canada.

And now I'll turn the call back to Andrew for his closing comments.

Thank you, Jim. Let me conclude with some thoughts on the current business environment.

Our backlog at June 30 was $857 million, including $695 million in North America and $162 million in our International segment. The backlog at the end of the first quarter was $948 million.

The decrease in Q2 is reflective of our inventory rebalancing efforts and our repositioning of our OCTG business, as discussed previously.

After a short-term drop in oil prices to $78 per barrel during the second quarter, prices rebounded to just under $90 a barrel at the end of the quarter, and natural gas prices have returned to the $3 per MCF level at the end of the quarter. Commodity prices at these levels should continue to drive good activity levels for our upstream business.

Demand for midstream infrastructure to transport oil and natural gas liquids to market remains robust, and we should continue to benefit from that. For the downstream sector, we should see some additional benefit in the form of more active turnaround season for domestic refineries in the second half of the year.

We believe the key drivers for our business and our primary end markets remain strong.

And with our first half performance, we are increasing our previous annual guidance, and we now expect full year 2012 revenues to be between $5.5 billion and $5.65 billion. We expect our adjusted gross profit percentage to be 18.3% to 19%, and we also expect our adjusted EBITDA percentage to be between 8.2% and 8.6% for 2012.

I'm pleased with our sales growth, the performance of our newly acquired businesses and our industry-leading new Shell contract. As I emphasized earlier, we will continue to focus on our higher-margin product lines and downsize our OCTG business, which should benefit our earnings stability and yield some further margin improvement.

We will also work to expand the footprint of the higher-margin valves, fittings and flange business. Our goal is to reduce earnings volatility and improve overall profitability.

With that, we will now take your questions. Operator?

Andy I wonder if you could talk a little bit about how you're thinking about upstream, midstream, downstream in the second half relative to the first half. If you look at the implied guidance for the back half, I think it's revenue growth in the second half relative to the first half.

For the total company of up 1 to minus 3, maybe give us some color around that range for the 3 segments.

Yes, Terry, and we feel good about the second half, a lot of dynamics going on as we go into 2013. If we look at the year as a whole, I do want to start there.

At the midpoint of our guidance, this will be another 15% annual growth, which is really above our 10% to 12% target we had as a company during the IPO. So we're right on plan for annual growth.

We had a very strong first half of the year. We see, with the upstream activity, things moderating in the second half.

So we're planning for either flat to slightly down rig count activity in the upstream sector. And what we're absorbing right now is the shift from downsizing our OCTG business.

As we've said before, that is our lowest-margin business. It's our most volatile business, and while we have a good position in that sector, we just want it to be a lower percentage of overall mix.

And we really want to concentrate on those customers that buy broadly from us, so a broad PVF offering and where it's an important part of that mix. We will have no customers at the end of the year where they only buy OCTG from us because of the margins there.

So we're -- at the same time, we see good investment in infrastructure spend, which we're concentrating on for the long term. We'll have decreasing OCTG revenues in the second half, but the balance of that is a pretty flat picture for upstream from where we were in the second quarter.

Midstream is, as we've said, our fastest growing end market, remains very active both from a line pipe and from a valve standpoint. So we feel very good about midstream through the rest of the year.

And then downstream, we had a good first quarter in turnaround. Second quarter was flat activity-wise, not as robust as we thought.

It would be third -- the utilization was extremely high, 92% in the quarter, so a lot of activity on the refining side. But we see historically kind of the August through October time frame is good turnaround activity for us.

So we feel cautiously optimistic about it improving turnaround in the second half. There are the 2 major events going on: the Port Arthur, Shell, Saudi Aramco refinery that went through a startup issue; and then the recent fire of the last couple of days in the Richmond, California Chevron facility.

Now we do have the MRO contracts on both facilities, and we'll work closely with the customers, providing product to try to get both of those refineries back up. So there's 2 big unplanned events going on.

It's hard to estimate at this point. We feel a little bit better about the downstream turnaround in the fall than we saw in the second quarter.

And then I do want to emphasize we feel very good about the midstream activity.

And maybe just a couple of follow-ups there, Andy, on that midstream outlook. I guess I'd sort of interpret from your comments sort of second half flattish to up slightly versus the first half.

Do you have enough visibility on 2013 within midstream at this point to say whether you think, "Clearly, that business grows" or "Clearly, it's flat" or "Clearly, it's down?" Or is it too short cycle at this point to really get a read on that?

Yes, Terry, it's probably too short to make a good read on 2013. We feel really good about -- the budgets, major customer budgets were increased here midyear.

And we feel even with the commodity pricing variations that went through the second quarter, we feel good about the spend on midstream through the end of the year, lots of committed projects. And -- but it's too early for 2013.

But we have very good tons shipped in the second quarter of kind of flat with the first quarter, which was a very good quarter for us. And so we still feel real good about the line pipe and the associated valves and fittings.

Remember that we are the tie-ins to the midstream and not those major trunk lines that get a lot of publicity but those usually go direct to the mills, both from a line pipe standpoint and from a valve standpoint.

First question, Andy, would be as we think about the volatility that we saw both in oil prices and natural gas through the quarter, would it be fair to say that you saw maybe some unevenness from month-to-month through the quarter? Or were your trends pretty consistent throughout?

Yes, I mean our model adapts very well to the shifts, as we've talked about. And so we're -- it's more of a shifting of inventory for us from the hubs to the active branch areas, but it does cause some fluctuations in the activity on a monthly basis.

But if you look at the year, for the first half of the year, we've dropped a little over 300 rigs on the gas side and picked up about 220 rigs on the oil side. So -- and then that was down 4%.

So there was a lot of change in activity, but from an infrastructure spend, it's very consistent. The oily areas of the Marcellus, the wetter gas areas were very active for us.

The dry gas areas of Marcellus, Haynesville, Barnett had very -- slowing activity. And then our 2 bright spots remain through the first half, and also we see for the second half, is the Eagle Ford in south Texas and the Bakken in North Dakota, really robust activities in both of those oil areas.

The Permian basin and both the San Juan basin, all very active.

Okay, that's helpful. And then second, just wondering if you'd care to comment at all on what you've seen in July so far.

Yes, third quarter historically has been a very good quarter for us. We have no season -- second quarter, we absorbed approximately $50 million in revenues; sequentially decreased because of the spring breakup.

So we have that every second quarter as everyone supplies products and services up there. So we offset that with a good U.S.

And normally, the third quarter is our best quarter of the year, and we certainly see activity in July was good.

The first question I've got, Jim, kind of getting back -- or Andy, either one, to maybe the underlying conservatism in the guidance. If I'm doing my math correctly, if I look at just OneSteel and Chaparral Supply and look at those as the acquired sales, I'm getting at the high end of your guidance, the growth -- the organic growth in the back half of the year pretty low, kind of around maybe 3%.

A, am I doing my math right? And b, if you can maybe talk about sort of how much conservatism is in the guidance?

Yes, I think Matt you've touched on one of the key drivers on that. I think the other one that we have a little less visibility to is just the downsizing or the reshifting in the OCTG business.

Coupled with a little bit of the flattening of rig count, that's going to have some impact. So that may be a piece of the variable that you're missing.

Coming into the -- into this quarter with half the year behind us, we've tightened up the range of guidance on the revenue in particular and feel like it's a good fair way to be in.

Fair enough. And Jim, on the debt.

You said it ticked up mostly on inventory. How much do you think you can manage that inventory down by the end of the year?

And then do you have a viewpoint on what your free cash flow should be for this year and then a targeted leverage ratio as you exit the year?

Yes, with -- we used $47 million of cash in the first half of the year. We still feel confident that we can generate close to $150 million for the full year.

So that means we're going to generate about $200 million of cash in the back, and a lot of that's going to come from that inventory reduction. That will the single largest source from the balance sheet.

And using that midpoint in the guidance, we end up with a leverage ratio right around 2.5.

A question. I guess if my math holds, it looks like that sequentially, your adjusted gross margin is expected potentially to decline in the second half.

I'm guessing there's a little bit of contribution from the Shell deal in there, and I guess you're working down inventory also. But could you talk about that and what the primary drivers of that, if my math holds?

Yes, Sam. I mean, the margins, the adjusted gross margins for the first half of the year are somewhere between 18.8% and 18.9%, and that's kind of the high end of our range.

So we're expecting to kind of hold it at that levels for the balance of the year, so I don't know that we're expecting that to decline over the back half.

But you had the low end of the range is in the low 18s, and so suggesting that the midpoint would be below where you're at now. So that would suggest that there might be a little bit of pressure on gross margins.

Am I reading too fine a point on that?

Well, Sam, the only thing I would say we left a little room on that range. You have seen a spot pricing on both line pipe and OCTG in the last couple of months come down 2% to 3%.

So a little bit of pressure with the flat rig count and a little pressure on imports on line pipe, so we factored some of that in. We feel very good about the third quarter.

The fourth quarter is a little bit more uncertain for us, so we have a little conservativeness in our range there, but we don't feel like any significant impact on the margins.

Which leads you to my second question perfectly. Can you talk about pricing in each of the streams?

We see what the line pipe and OCTG were, but it's hard to see what your overall pricing looks like by stream. And then if also, you can give expectations for LIFO, Jim, that'd be great.

Jim, why don't you do LIFO first. I'll do pricing.

Yes, I think on the LIFO, as you know, we've got about $28 million in there the first half. We've seen some moderation in the steel prices, a little bit of deflation.

With that as a backdrop, we would expect the second half to be fairly comparable to the first half, probably $25 million to $28 million in the last half of the year.

Yes, Sam. On pricing, it's a little bit of a mixture for us.

As you know, with the spot pricing and line pipe OCTG, slight downturn there, 2% to 3%. We actually have price increase in valves, as lead times are going to be extended, with the strong demand globally for valves.

And that's broad-based: up, mid and down. So that's a positive, slightly flat to -- although slightly up on fittings, flange and our general products, so that's our general guidance.

Andy, just want to get a better sense for what the optimal mix of OCTG is. How much would you ideally like to have?

And how quickly do you think you can actually get there? Is it year-end?

Or does that spill in 2013 before you get there?

Yes, Doug. It's -- I mean, this is -- just to kind of recap this.

This is a multiyear strategy that we've been implementing. If you go back, 2007 and 2008, 2 very strong years for us in that product line.

Historically very high margins over and with the steel inflation we saw. 2009 and '10, we spent 2 years adjusting and downsizing that business from the high-cost inventory we had from '07 and '08.

So -- and in 2011 and '12 have been -- and 2011 and the first half of 2012 have been times where we've decided to rebalance an optimal for us. Our peak was the 26% of inventory and 25% of sales in 2008.

And we see a good level for us that fits with our customer base is 10%, roughly 10% of inventory and 10% of sales being tied to OCTG. We have -- that remains a significant position for us, but it's of a scale that we think dampens the volatility.

And it also fits who we are. We're making bigger investments in our valve lines, bigger investments in seamless line pipe, bigger investments in both stainless and carbon fittings and flanges.

So we're offsetting the inventory gains that we -- investments we want to make on those more higher-margin product lines with the reductions on our lowest-margin OCTG. So I think we will get to 10% by the end of the year, and going into 2013, that's really our target.

And we'll see how activity levels go. If activity levels in the drilling side deteriorate, we might move that down slightly.

I do not see us moving it up more than 10% as we go forward because it doesn't fit our strategy.

Yes, makes sense. And then a quick one for Jim.

Just your thought process on purchasing additional debt going forward. And what type of interest rate can you refinance debt at this point?

It seems like there's a significant opportunity to reduce interest expense going forward.

Yes, we're continuing to evaluate, look at what our options are in terms of reducing our overall interest expense, and improving profitability. And certainly one of the options is a refinancing.

Those rates today would be somewhere in the 7% to 7.5% range.

Just going back to the OCTG. As you de-emphasize that product line, have you talked about or could you talk about the impact to gross margin that you would expect?

Yes, I mean we haven't -- if you look historically and you look at our mix and you look at the other players out there, you look at the B&L portion of Edgen Murray, you look at Sooner in oil states and if you look long term over a 20-year period, this is a business that historically has had mid-single digit profitability gross margins. And that's really -- after a spike in 2007, '08, that's where it's returned.

So we fit very closely to that kind of industry range of profitability. So as we're decreasing that from our mix, you'll see a margin improvement that results from the inventory investment in the valves and the stainless product lines and seamless line pipe, which are all at or above our company average.

So we're -- you're basically switching 6% or 7% profit business for the average 18%, 19% profit business, and that's our goal.

And then can you just touch on the acquisition environment, what you guys are seeing out there right now?

Yes, it's still very active. The big deals in the quarter, of course, were National Oilwell Varco buying Wilson and also, just after the quarter closed, the CE Franklin portion business in Canada.

So those were the big deals. There's others out there that we've looked at.

But we are sticking to our strategy of geographic expansion. International, we're -- approximately 10% of our revenues now come from our international, which is per our plan, to continue to grow that segment.

So we have several we're looking at in that arena. We did the Chaparral bolt-on, which is consistent with the ones we've done, very good multiple, new MRO -- 5-year MRO contract that we like very much.

So there's still plenty of opportunities and several -- a couple that we're looking at here in the shorter term in the U.S. bolt-ons.

And then we still like valves and valve automation, but it has to be at the right multiple for us.

On the Shell agreement, can you guys provide a little more detail on the size of the opportunity, and then also the margin profile that you would expect there?

Yes, David, let me -- with the Shell agreement, they don't let us disclose too much. But let me just frame it from what I think is all public information.

What we've said through the IPO is Shell and Chevron are our top 2 customers. We've said that no customer is larger than 6% of our revenues in 2011.

So if you think about those super majors kind of in the 4% to 5% range, just to talk about it, of our $4.8 billion, you get to a $200 million to $250 million size annual revenue from our top customers. So that's kind of the starting baseline.

For Shell, we had their MRO work, PFF and valves in the U.S., and we had their MRO valve work international. So that makes up the baseline of really the range of the $200 million, $250 million.

So what this is, if you look at their CapEx plan, and let's just use -- I use the Barclays Capital spending survey as my reference. If you use Shell, which is always in one of the top 5 capital budgets and their annual CapEx this year is roughly $25 billion.

And a good estimate for PVF use is on the capital projects is 5%. Some are 3% to 4% and some are 6% to 8%, but 5% is a good number when you look at a capital budget on what is actually PVF.

So if you use the $25 billion, they spend roughly $1.2 billion a year on buying PVF for those capital projects, of which we have not had a significant amount at all. And so if you look at our revenue split and roughly 25% of our PVF is valves -- of our total mix, and that's pretty comparable to a project spend.

You can easily look at -- their annual valve spend is roughly -- on their capital projects, is roughly $300 million. And so over -- these projects all have a life over a couple of years, the're major projects.

So we'll be in a period of ramping up on some new projects for valves and as other projects wind down for them that we haven't participated on. But it's a significant contract for us.

We clearly see Shell being our #1 customer in 2013 and beyond with the contract. And this is really a culmination of our strategy to build an international presence to go with our strong North America platform, so that we could compete and win contracts like this.

And this combining of a North America PFF contract, where we picked up both stainless and alloy PFF in Canada. We also picked up the valves, of course, in Canada and -- to go with our U.S.

presence. And then to pick up the project's work that went with our MRO platform internationally is a really big contract for us, and it's the first of its kind where you combined a PFF North America business with a global valve business.

So we like being the first mover on that. There is other customers we are targeting now for the same type of contract.

And over the next couple of years, our strategy still is to build out our international capability so that we can have broad PVF contracts because that's the future, and we think that significantly separates us from our competitors. So it's a good first step for us.

It's a great contract. On a margin basis, for the valves, the Shell approach was to lock in cost with each of the valve manufacturers, with their own separate agreements.

So we have like a distribution margin agreement on top of that. So we have no cost risk on this contract, and so the margins will not be at the company average we've had for valves, where we take on a lot of cost risk for our purchases.

But it's a very good contract, and it's an industry first-mover contract that we think others will follow. And we did not pick up Australia PFF, which -- it was already under contract.

We see that as another addition to the contract we already signed as we go forward. And so there's a lot of things to be very happy about with the contract, and it really puts a stamp on our global strategy.

And then one -- a second question. For the backlog, how do you guys define it?

And then how far out do those sales usually come?

Yes, the backlog is -- it usually goes out a couple of quarters. It's not like an EPC backlog that's multiple year.

It usually goes out 2 to 3 quarters for us. It's the fabrication and engineering procurement construction projects that are -- go in our backlog and also, our OCTG program drilling projects go in that.

So the big -- the drop in the second quarter was as we pulled back on the OCTG inventories, we pulled back on our program -- future programs on OCTG, and that was the drop. We're slightly ahead of the backlog we had at the end of the year 2011, and it's in the areas that we wanted to be on projects.

We have very little added in the second quarter due to the Shell contract because it was so new, just late May. And so that will be added as we build project backlog going forward, even over the next year.

Andy I wonder if you might provide a little more color on how the acquisition pipeline is looking and how you are measuring your firepower right now.

Yes, Terry. It's strong.

There's lots of candidates that we're looking at. We try to keep a couple in the international and on the burner with us and a couple of bolt-ons in the U.S.

We've got over $600 million availability now in our ABL, even with our long-term debt purchase buyback. So we feel very good about -- our priorities are the working capital in North America where we will be pulling some inventory down in the second half, and Jim already mentioned the $200 million cash flow.

So we feel very good about our working capital needs are covered. And so then the next priority for our ABL and our use of money is acquisitions.

So that takes the spotlight here in the second half. And then we still have a -- our third priority is the debt, further debt buy-down.

So I see some areas regionally in the U.S. primarily where the oil activity remains robust, and there are some regional players.

So that's going to be a priority for us, U.S. oil-based regional distributors.

And then, I also still like the U.K. and Norway as a good market for us that we're not in, in the PFF.

We're there in U.K. in valves today.

We've looked at things in continental Europe, but that's kind of on hold for us. And we like Southeast Asia, Singapore as another good spot.

So we kind of have a U.S. oil plays small bolt-on acquisitions at the size we've been doing, maybe slightly larger.

We continue to look at valves and valve automation, but those are relatively small, all U.S.-based. And then kind of North Sea and Southeast Asia would be the other 2 areas that we're focusing on right now.

That sounds like you've got a pretty good line of sight to some additional acquisition growth as you look into '13.

Yes.

And then just to understand how you're thinking about your upstream performance relative to the rig count. You've continued to grow revenues faster than the rig count.

And obviously, you've got the mix benefit that's coming from the shift to the oil shale activity. It kind of looks like that mix effect will continue to a degree in the third quarter and then maybe flatten out in the fourth, if we were to pretend that the rig count kind of goes sideways from here as you indicated your baseline assumption.

Any additional color you want to put around that whole question of your upstream growth rate [ph] over rig count for us?

Yes, Terry. I mean, really our strategy is to decouple from the rig count.

And I think you have it exactly right. The third quarter will still have a pretty good weighting to OCTG and the infrastructure in upstream.

But our growth has come from production facilities and tie-in of wells and tie-ins of production facilities to the midstream infrastructure. And we see a long growth vehicle there that's not directly weighted -- related to the rig count.

So we've positioned ourselves that OCTG will be smaller, as you described, in the fourth quarter. Even if the rig count turns down at the end of this year or starts out low in '13, it'll have a much smaller impact on our business.

While we believe we can continue to grow in the upstream because we're focused on the infrastructure spend, on tying in either the wells that have already been drilled or just building out the infrastructure to expand for the higher production. Like you're seeing in the Eagle Ford and Bakken, there's a lot of investment still has to occur just to take care of the ramp-up in overall production.

Jim, just real quick. First, a clarification on LIFO.

I think you said it was $28 million in the first half. The press release says $18.5 million.

No, if I said that, I misspoke. It's $18 million, and it's what we see something comparable in the back.

Just wanted to be clear on that. In terms of quarterly interest expense going forward, after you bought back those notes and flipped that out.

It looks like that's about a $2 million per quarter benefit in terms of quarterly interest expense?

That's correct.

And then the debt level is up a little bit, but I assume you're still going to have roughly kind of that $2 million per quarter benefit from the 2Q level.

That's right because it happened there towards the end of the second quarter.

And then last thing, were there any IPO-related costs that flowed through the SG&A line at all this quarter?

No, there were not.

So that's a pretty clean number, and that expense level is what we should base our forecast off of?

Yes, that second quarter G&A has got a full quarter of the Australian acquisition, so that would be a good run rate.

Okay. Thank you for joining us today on the call and your interest in MRC Global.

We look forward to talking to you again after the conclusion of the third quarter.