Weatherford International plc

Thank you, good morning. Today we have a little bit more people than we normally do.

We have prepared comments from Doug Mills. Doug Mills is our Chief Accounting Officer; he’s been with the company for eleven years.

And he’ll speak in the stead of the Chief Financial Officer. Krishna Shivram is here also in attendance, his official first day is tomorrow so you can say hello to him.

But after Doug there’ll be prepared comments from Dharmesh and then my own before the Q&A session. With that I’d like to turn the call over to Doug.

Thank you, Bernard and good morning everyone. Before my prepared comments I would like to remind listeners this call contains forward-looking statements within the meaning of applicable securities laws and also includes non-GAAP financial measures.

A detailed disclaimer related to our forward-looking statements is included in our press release which has been filed with the SEC and is available on our website at www.weatherford.com or upon request. A reconciliation of excluded items and non-GAAP financial measures is included in our press release and on our website.

In Q3 2013 we recorded GAAP net income of $22 million. Adjusted net income, excluding certain charges, was $177 million or $0.23 per diluted share on a non-GAAP basis compared to adjusted net income for Q2 of $116 million as detailed in the non-GAAP reconciliation table in our earnings release.

Q3 excluded charges totaling $155 million after tax are detailed in our press release and in my comments that follow. Q3 revenues of $3.8 billion were flat both sequentially and versus the same quarter of 2012.

North American revenue was up 4% sequentially and down 7% versus Q3 2012. The sequential improvement in North American revenue was primarily due to recovery from Spring break-up in Canada and stronger artificial lift results.

International revenues were down 5% sequentially and up 6% versus the same quarter of 2012. Sequential declines in Latin America and the Middle East, North Africa, and Asia Pacific were partially offset by improvements in Europe, Sub-Sahara Africa, and Russia.

On a product line basis the lower sequential revenues were primarily from declines in our early production facility projects in Iraq which were partially offset by increases in well construction revenues. Segment operating income of $502 million was a 24% improvement sequentially and down 3% compared to Q3 2012.

Segment operating income margins of 13% were up 270 basis points sequentially while declining 40 basis points compared to Q3 2012. North American operating margins for the quarter improved sequentially with a recovery from the Canadian spring break-up.

International operating margins were up 270 basis points sequentially to nearly 13% as nearly all international segments showed operating income margin improvements during Q3 and were led by Latin America and Europe, Sub-Sahara Africa, and Russia. On a product line basis, the sequential margin improvement came primarily from formation evaluation.

Consistent with prior quarters we continue to isolate as an excluded item net losses incurred in Southern Iraq primarily related to early production facility contracts and certain lump sum turnkey drilling projects. During Q3, losses on these contracts totaled $113 million net of tax as we recorded charges primarily related to $55 million of liquidated damages and $52 million from increased costs, each resulting from delays under Zubair early production facility construction project.

This project was approximately 60% complete at the end of Q3 with an anticipated project completion date of Q3 2014. As the Zubair contract is accounted for on a percentage of completion basis all known and expected losses through to the end of the contract next year have been provided for.

Other excluded charges for Q3 net of tax include $25 million for severance and asset charges and $17 million in professional fees for the US Government investigation and tax. We have also reached an agreement with the US Government to settle our FCPA Oil for Food in sanctioned countries investigation.

The $253 million of accruals we recorded for these matters in Q2 2012 and Q2 2013 remain unchanged with the settlement agreement. During Q3 2013 we generated EBITDA, defined as non-GAAP operating income plus depreciation and amortization, of $744 million, up $117 million sequentially; and depreciation and amortization expense of $352 million for the quarter was up $11 million sequentially.

Foreign exchange losses were $27 million for the quarter, an increase of $12 million or $0.01 per share over Q2. We continued to make progress on income taxes on two fronts during Q3: first, executing on tax planning projects that help lower our projected annual effective tax rate or ETR; and second, the execution of key processes required for the remediation of our income tax material weakness.

The Q3 annual effective tax rate was 20% and continues to demonstrate the progress we are making to reduce our ETR. Our tax processes are stable and continue to mature, however we note that our tax rate may be variable from quarter-to-quarter as we continue to take action to reduce our long-term structural tax rate.

We estimate our Q4 ETR will be between 26% and 28% and that our full-year ETR will be below 24%. In Q3 we completed our annual tax basis balance sheet reconciliation process.

This is the second consecutive year that we have performed a complete tax basis balance sheet reconciliation for effectively every legal entity in the organization. We believe we remain on target to complete the material weakness remediation once our year-end 2013 tax processes are completed and when we file our 10(k) in late February.

Q4 non-operating costs excluding tax professional fees are projected at about $46 million for corporate, general and administrative costs; R&D at about $67 million; other expenses at about $18 million; depreciation and amortization expense at about $366 million; and interest at $128 million. Our professional fees associated with our tax accounting and remediation costs of $7 million in Q3 2013 were flat compared to Q2 and will remain at about the same level in Q4.

I’ll now turn the call over to Dharmesh.

Thank you, Doug, and good morning everyone. First some commentary on product segment.

All core product segments showed improvements in Q3. Some of the highlights for each of the segments are as follows.

Over the past twelve months the Production Group has been targeting a new market, [wells of] between 600 and 1000 barrels of oil today that are on ESP systems. There has been a focused effort to convert these wells to other forms of artificial lift such as RRP.

The primary reasons for our customers to convert are improved energy efficiency and cost savings. Our focused campaign is now starting to produce positive results in the Middle East, Latin American, and North American markets.

We currently estimate that there are approximately 2500 ESP wells in the world that are candidates for the placement, and the size of the replacement market is around $3 billion. Besides the growth of unconventional resources this represents one of the larger market opportunities for growth for our artificial lift business.

Our well construction businesses continued to grow in Q3 with record revenues generated among several of the well construction product lines. Q3 also showed a number of contract wins in deepwater markets in Russia, West Africa, Brazil, and the Gulf of Mexico.

The formation evaluation segment had a strong performance in Q3. Within formation evaluation, drilling services had a record quarter with a 12% increase in sequential revenues.

This was driven by record performances in the logging while drilling and rotary steerable service lines. In the quarter, key new technology rollouts of [guide wear] for (inaudible) for geosteering and SineWave electric imaging tools in the North American and Middle East markets have shown excellent performance and will further extend our technology capabilities in this product line.

And last but not least, in well completion growth in the application of Zonal isolation for fractioning unconventional reservoirs grew 7% sequentially, and as was highlighted by gains in our ZoneSelect sleeves and composite plug sales in the North American market. Some comments on cash: while our Q3 2013 results continue to demonstrate progress they were a little short of our internal expectations.

While cash flow improved by $155 million sequentially over Q2 2013, net debt for the quarter increased by $39 million. Our internal projections have predicted a reduction in net debt of $100 million and the entire shortfall is due to deferment of $150 million of collections in Latin America from Q3 2013 to Q4.

Results for Q3 do not include the $370 million of cash generated from the Borets transaction which closed in early October. The significant capital metrics for the quarter are as follows.

Capital expenditures net of lost-in-hole totaled $328 million in Q3, a 39% reduction over Q3 2012 and a 20% reduction from Q2 2013. DSI decreased by one day sequentially and three days from Q3 2012.

DSO increased by five days sequentially, primarily due to the deferment of cash collections into Q4. In closing, free cash flow through the first nine months of 2013 showed a $510 million improvement when compared to the first nine months of 2012.

The drive for capital efficiency continues in the organization and all our internal metrics point toward continued improvement in Q4 and beyond. For example, DSO in all regions except Latin America is now 70 days which is a seven-day improvement year-on-year.

Inventory is down in absolute dollars for two consecutive quarters and we expect that trend to continue in Q4. Automated controls for inventory management are in place in many regions and will be implemented in all regions by year-end.

Capital improvement trends also show very good discipline. In addition, higher capital is being allocated to our most profitable businesses.

Purchase commitments for inventory and new capital assets in Q3 were lower than any of the prior quarters in 2013. This indicates that cash consumption will continue to decrease in the quarters ahead.

Some comments on Iraq: during Q3 we recorded a $113 million charge on our legacy contracts in Iraq. The majority of the charge was related to the Zubair project and is noncash in nature for Q3.

Q3 was the first full quarter of on-site construction and assembly work and we are now forecasting the first oil to be delivered in Q2 2014. The project is 60% complete but engineering and procurement are more than 90% complete.

We still have in excess of $40 million of contingencies in our cost estimates and have more than $100 million of potential recoveries still remaining on the project. We have also accrued for the maximum penalties associated with project delays.

The combination of these contingencies, potential recoveries, and the accrual for maximum penalties minimizes any further downside on the Zubair project. We completed the other two drilling projects in Q2 and the Garraf early production facility came online in Q3 2013.

We are working on the last two wells of the only remaining turnkey project in Iraq and expect to substantially complete them before the end of the year. The charges on Zubair and the closure of the other four contracts will bring to an end all the noise around the legacy contracts in Iraq by the end of 2013.

Moving on to tax, as Doug indicated we completed a major milestone on the remediation of our material weakness in Q3. We are on track to remediate our material weakness at the end of the year.

The 2013 tax rate has benefited from our systematic focus on removing accruals through planning activities or expiration of audit statutes. During Q3 we also started focusing on tax planning activities which will [release] our tax rate in 2014 and beyond.

We have made considerable progress and remain on track to a tax rate in the mid- to high-20%s in 2014. On our old oil divestiture program: during Q3 we also made good progress on our old oil divestiture program.

The following four businesses will be divested in the traditional auction model: Drilling Fluids, Wellheads, Pipelines, and Specialty Services and Well Testing. The four businesses will have combined revenues of approximately $1.2 billion in 2014 and an EBITDA range of $130 million to $170 million.

The divestment teams are in place and we expect the data [rooms] to be complete in Q4 2013. The auction process will start in Q1 2014 with the intention of completing the divestments in Q3 2014.

Bernard will describe the plans for the [effected] operations. There is an additional schedule posted on our website which provides further details about the divestment program and timeline.

Some comments on the outlook: our forecast shows a positive cash flow of $500 million in Q4 2013. Combined with the $400 million of cash from the divestitures our debt should decrease by approximately $900 million in Q4.

In the last call I indicated that collections were the primary factor that will drive our cash performance in the second half. The difference between the forecast now and our earlier projection of $400 million to $600 million of free cash flow is primarily due to the deferment of about $350 million of cash collections from Q4 2013 to the first half of 2014.

Operational performance in Q4 will be better when compared with Q3. Our operational forecast for Q4 earnings is $0.27 to $0.29 per share.

Q4 performance will also be dependent on seasonal factors such as activity levels during holidays and winter weather in certain parts of the world. These factors could positively or negatively impact our overall earnings performance for Q4.

The focus on cost [reduction] continues throughout the organization. We are looking at both fixed and variable costs and taking steps in a proactive manner to reduce our cost structure.

Reduction in fixed costs already contributed to our margin expansion in Q3 and we expect to raise our variable costs by $150 million. We will see the full benefit of this reduction in variable costs in 2014.

In summary, the company’s focus is on executing projects that will release our debt and deliver earnings growth. The investment in our capital efficiency program combined with the divestiture program will help in reducing our leverage.

All four core segments are doing well and have good growth potential. The higher margins associated with the core combined with the focus on cost compression point to higher revenue growth and sequential margin improvements in 2014 and beyond.

I will now turn the call over to Bernard.

Thank you, Dharmesh. The synthesis of Q2 and Q3 is straightforward: Canada, up by $0.50; US is flat; Latin America up by $0.03; Eastern Hemisphere by $0.02.

Higher taxes reduced the whole thing by $0.02. Foreign exchange losses added up to a $0.03 penalty in Q3 which was an extraordinary high number for us.

Q3 was shaped by the seasonal turn in Canada and margin recovery internationally. The seasonal turnaround wasn’t strong.

Q3 2013 is lower than Q3 2012. This is in spite of this year’s very weak Q2 which you’ll remember was the worst break-up in years.

Canada has been slow grinding out activity. Part of it was weather-related of course but a primary factor was cautious client expenditures.

Gas activity is at a bare minimum; oil activity is healthy and accounts for 80% to 85% of the expenditures. The oil segment will and should rise further.

There will only be a hiccup in activity as refinery throughput for heavy oil increases and/or transportation methods expand – that would be rail or pipelines. Canada heavy oil is an attractive long-term expansion play but it is a slow process.

The US stabilized. Margins went up, the bi-marginal (inaudible) basis 0.30.

The US is in consolidation mode waiting on gas. The shales and tight reservoir plays whether liquid or hybrid are on a double quest operating at technological efficiency and characterizing the sweet spot for exploitation.

Both will define levels of activity. Some plays will expand such as the Permian; others may stall such as the Granite Wash and Mississippi Line.

The US market between now and year-end is moving sideways. The gains will go to fit-for-purpose technology whether formation evaluation, frac, completion and/or lift and will go to operating efficiency.

Integration will be an advantage for the latter. Latin America in the quarter did very well in spite of the sharp drop in Mexico revenues and profitability.

The increase of 400 basis points came from across the region with the strongest performance in Argentina. This was achieved without the support of the largest single country operation, Mexico.

In the European, SSA, and Russian region margins improved by 280 basis points. Gains were across the board but it was strongest in Russia, reflecting seasonal uptake in that market.

The Middle East and Asia-Pacific were the only regions to be essentially flat. At the EBIT level margins rose but only because of slightly declining revenues.

The numbers mask a first sign of progression in MENA. Q3’s results mark progress in all regions.

North American margins reflected essentially the turn in Canada; margins internationally reflected a combination of better execution and cost cuts implemented in prior quarters. It also reflected the first return to a single-minded focus on our core product lines.

Q2-on-Q3 revenues were largely up in the well construction and formation evaluation, and down in non-core business and pressure pumping. The margin arbitrage between the slowly changing mix was powerful and a sign of a developing trend at Weatherford.

Forward views: the prognosis for Q4 is simple – a further progression in all regions except Latin America, not a large progression but overall trending up. North America will be modestly up, both revenues and margins.

This will apply to US and Canada. The driver will be the same process of gradual improving business mix.

Formation evaluation and production, that would be lift, will do particularly well. Latin America will be flat Q3-on-Q4.

The two declining operations in Q3, Mexico and Colombia, will not turn around until 2014. The Eastern Hemisphere will be up in both revenues and margins.

The performance will be at cross-currents with the beginning of the cold season in Russia and China. MENA, SSA, Caspian and North Sea will drive the gains together with an improving overall business mix.

For MENA it is the beginning of a turnaround. The focus on Eastern Hemisphere is beginning to pay dividends.

Q3 EBIT margins rose to 11.4% in Q3 which is a 211 basis point rise. This is obviously progress but we are far from what we have to recover, where less than four years ago when our Eastern Hemisphere margins were at 22%.

They had peaked in prior years at 25%. Today we are less than half where we were.

Recovering our Eastern Hemisphere margin is a priority. Part of it will be carefully avoiding unattractive contractual commitments.

That in and of itself will get us part of the way back on the margin curve. This is a good segue for comments on Iraq.

With respect to the legacy Iraqi problem contracts, Dharmesh summarized both operations and accounting positions taken. We have tried to largely de-risk Iraq until completion of the last contract, which is Zubair.

This is the best we can do for ending lingering losses from legacy contracts in addition obviously to finishing the contracts efficiently and well. We will not engage in any further EPF contracts.

On the rest of our Iraqi operations we will curtail our involvement in Southern Iraq to only contractual commitments at attractive margins and low risk, even if this means shrinking our presence and moving equipment out of that market. Our 2014 outlook: the year looks positive, both top line and continued margin recovery.

We have specific visibility for some regions. Latin America: Latin America will benefit from a restart of Mexican operations sometime in Q1 and likely a recovery of activity in Colombia sometime after mid-year.

Brazil will steadily strengthen throughout the year with the commissioning of well construction incremental contracts one-by-one. Brazil should have an excellent 2015 after all the startups in ’14 are done.

Argentina will continue to strengthen further from a good performance in ’13. Venezuela remains a wildcard – the prognosis for operation is entirely a function of local liquidity issues, it could go either way.

The North Sea and Russia should have improving margins and revenues. The North Sea is a function of contract startups primarily in well construction for Norway.

Russia is market-driven. The effects of the recent changes in tax policy implemented by the government will affect positively low-permeability plays and secondary recovery efforts.

These plays will strengthen that market. MENA will have the first year of its turnaround with a rising margin centered around the Gulf countries in all four of our cores.

SSA has a strong prognosis built on contracts in well construction. SSA will become increasingly important to Weatherford in ’14 and ’15.

This is the first time SSA will be a company mover for Weatherford. These are the main moving parts in the international markets that appear tangible for us in 2014.

North America in 2014 is expected to be stronger in the US, both revenues and margins, driven by well construction and formation evaluations – specifically technologies targeting unconventional plays. Canada will get progressively stronger year-on-year with slowly rising heavy oil expenditures.

It all makes for an improving year-on-year comparison but not for large progression. The NAM assessment for ’14 does not factor in a change in gas pricing from where it is into the 450 zone which would most likely follow a cold winter.

Absent a cold winter gasses aren’t likely to strengthen much until the latter part of ’14. We do not have specific earnings guidance for ’14 yet – we haven’t finalized our plans.

Based on our preliminary analysis of regional trends and the cost compression identified by Dharmesh we will suggest keeping the present street estimates for ’14 as reasonable. US Government: as we announced, we reached definitive agreements with the various agencies of the US Government to settle the longstanding investigations of the company.

The agreements are subject to final approval by the Commissioner of the SEC and US District Court in the Southern District of Texas. Should the approvals be given public filings will render official the settlement and close what has been a very long and very expensive process.

The terms and conditions are what we described in our public filings including the financial penalty. Timing, if approvals are given, is likely to be four to six weeks from now.

Material weakness in tax accounting: I will reiterate what both Doug and Dharmesh have stated. We expect to complete the remediation of our material weakness in tax accounting as part of the year-end closing process and our auditors’ review and approval.

This will close this issue. We’ll never allow ourselves to be caught with less than stellar tax accounting processes.

Divestments and spin-offs: we’re working diligently in preparing the assets and product lines of selected divestments. The auctioning process will commence in Q1.

We hope to have all auctions completed in Q3. The rigs: the rigs at Weatherford have been in earlier times extremely helpful when we were developing our international market presence and infrastructure.

Today we have the product lines and technological breadth and depth in the areas we specialize in that command client interest and attention. We do not need rigs as a door opener.

Furthermore, in the past ten years and at great capital costs we have developed an infrastructure which with almost 1100 bases worldwide is probably one of the most extensive in reach and most versatile in the industry. We do not need to make the same kind of investment and commitment to develop our infrastructure anymore.

It is done. We can now act as a service delivery support and distribution network for years to come.

This will also facilitate our development in international markets. All this means that rigs as a product line aren’t a required component of our strategy anymore.

The rigs have tremendous potential in their own rights. The product line is by our assessment the largest international land rig operation in our industry.

It has strong presence in all the key markets of the Eastern Hemisphere where activity over the next ten years will thrive – the Middle East, Russia, and SSA. The Middle East will develop itself further as a rig draw play with strong operating and financial management.

To that effect we’ll prepare the rig business for a standalone future both from an accounting, financial, administrative and operating standpoint. If all goes according to plan we will target an IPO for a fraction of the business in a public offering in Q4 of next year.

We did something similar in terms of a spinoff with our then subsidiary Grant Prideco years ago. It was highly successful for our shareholders.

We intend to follow the same sort of path here. Weatherford will be smaller, leaner, and thus very disciplined but from a shareholder value generation we should be more rewarding.

In the end that is the only metric that matters. You have a description of the four product lines to be divested in our rig operations placed on our website that may provide better clarity.

In additional news we’re very to report Krishna Shivram is joining us as Chief Financial Officer. He has exactly the range of industry knowledge, financial skills, experience including international assignments, and maturity this company needs in that role.

He also has a wonderful affinity for operations. This will make for a symbiosis between the all-important financial functions and operations, something that has been lacking at Weatherford.

The symbiosis will be helped further with Dharmesh Mehta stepping into the position of Chief Operating Officer. Dharmesh knows our product lines and operations.

He has the respect and following of the entire organization. This is a natural evolution.

His objectives are simple, clear, and immediate: increase operating and capital efficiency, discipline growth and focus on the core. He like Krishna and myself are long-term in his objectives.

This company will perform like it never has and this company will matter in our industry. One word of heartfelt appreciation to Peter Fontana who is retiring as Chief Operating Officer after 45 years of very distinguished service in the industry.

All of us at Weatherford wish him and his family the very best. Peter will stay as a consultant to the company.

Balance sheet objectives: I won’t elaborate further on Q3 and Q4 free cash flow metrics which Dharmesh detailed. In time, Krishna will provide metrics and guidance for ’14 free cash flow.

What I can share here is our two-year objective. That objective is paramount to the company and it won’t change.

It is our first priority. As the combination of free cash flow earned in ’14 and ’15, divestment proceeds and rig contracted IPO we intend to pay down total debt between $3 billion and $5 billion by year-end ’15.

Our debt to book capitalization ratio will close that year, that will be end of ’15, between 25% to 35% - 25% is our long-term comfort zone. We want to operate the company long-term at a 25% level.

In closing I used the word “core” a number of times. Weatherford has four core areas – well construction, formation evaluation, completion, and production.

That is it. We can carve out a path of high growth, much better margins and high returns around our core.

This is what we will focus on with the support of our vast infrastructure and our deep inventory of technology, both applied and base. Separating the non-core from our company is just a question of time and methodical execution.

The financial objectives are clear – it is de-levering and disciplined growth. The path is focus on the core, margins, and return on capital.

We are the inflection point. The past problems are closed or closing.

The direction is clear. The team is assembled.

Now it is all execution. With that I will turn the call back to the Operator for Q&A.

Good morning, guys. Congratulations, Dharmesh and Peter.

I’m sure you’re listening to the call somewhere – thank you for doing our alma mater proud. Bernard, the bad debt expense in Latin America, we keep seeing these companies including you guys do work for companies and not get paid.

When do we get to the point where we only do work for people who pay us?

Well, I think there are very, very few cases where this is a real legitimate problem. When I look at the situation we have in Latin America, in one instance we have a large client where purely for budgetary approval reasons everything is deferred until the first half of next year.

The liquidity, balance sheet and so forth of the client and the country involved are actually better than the ones for the United States and the EU combined. So this is not an issue.

The other half of the problem is obviously in another country and I think as both Dharmesh and Krishna can attest, Krishna’s past experience and Dharmesh’s present experience, we’re well advanced in discussions on how to find a reasonable settlement between our clients and ourselves so that we don’t have to answer that sort of questions for ourselves or for you. Put another way, we’re working on the problem in the other country; the first one is not a problem.

Okay, because the biggest issue with investors is going to be shortfall in expected free cash flow this year. And while I understand the excellent reasons for us a shortfall is still a shortfall and so everybody is going to harp on the execution going forward.

My second question if I could, I had kind of expected last quarter when you talked about divestitures that your pressure pumping business might be something that you would part with and now it’s core to unconventional. Has that been a change of thinking?

Has that been the plan all along? And if you’re going to keep it what’s the likelihood that you become the consolidator of a fragmented industry?

You’re right. It’s something we gave a lot of thought to.

The real definition for us is how could we be better at running it; and the second issue more importantly long term – how could we be different from the others? I don’t want to discuss it too much on the call now but I think we’ve answered both questions to our satisfaction.

It acts very much like an adjunct to the other competencies for unconventionals that are so important to us – formation evaluation and completion and lift for the liquid ones. So it sort of acts a little bit like a cement to all three.

To the extent we can run it very efficiently and secondly we can bring in technology to bear, then it’s a keeper – that’s the conclusion we came to. I don’t think we’ll be a consolidator.

I don’t believe in consolidation in pressure pumping, Jim, because the barriers to entry are too low. Put another way, when you consolidate you get deconsolidated immediately, a little bit like the rental tools business.

Yep, okay. Thank you very much, Bernard.

Good morning and congratulations, Krishna on your appointment, Dharmesh on your promotion and Peter, your retirement at age 66 despite what Bernard says about how old you are. First question is margins in North America – it seems to me that pressure pumping is probably around breakeven and the rest of your businesses is at least in the mid- to high-teens or better, so that your biggest opportunity for improving margins in North America might be in getting pressure pumping operations up.

Is it possible that you can get margins up to the double-digit area by internal things in that business and am I looking at things the right way?

You are, Jim. I’ll let Dharmesh comment on it but I think first of all, your assessment of margins from pressure pumping is on mark.

At the EBIT level it’s a breakeven business, no better, so clearly it’s at a disadvantage to the rest of the businesses. I think the more business we book on or around well construction and production and completion, actually formation evaluation also, there is just that we are raising the bar for the overall business simply because the margins are so much higher in North America too.

So for us it’s a question of time on the pressure pumping side and on the mix improving. Dharmesh, do you want to add to that?

Yeah, Jim, I think we’ve said this before – Q2 was the bottom from a margin perspective on pressure pumping. We did see improvements in Q3 from a margin perspective and we expect to see those going forward.

So from an inflection perspective we are there. However I would say this, that fracking is soft and really from a prognosis perspective we are more focused on growing our core and we continue to heal and repair pressure pumping to the best of our abilities.

And we expect to see positive progress on that but the focus is on growing the core businesses in North America.

Okay, and my follow-up is based on the internal cost cutting you’re doing, Dharmesh or Bernard, where you do you see your Eastern Hemisphere margins reaching by let’s say twelve months out or by the end of 2014?

I don’t think we know exactly, Jim – obviously higher and as a function not only of cost cuts. The $150 million applies to all the international markets including Latin America and the function of the business mix as it rises.

I would not want to give you a percentage yet. I think when we look at the P&L overall for ’14 and the high-low we find the estimates as they now are to be sort of middle of the range of what we have.

That’s why the best guidance we can give today is that it’s reasonable but that we haven’t decided what is the most reasonable targets for margins and so forth. We will provide that certainly by Q4.

Okay, thank you.

Thank you. Good morning.

A comment with the international growth prospects for ’14, is ’14 flat, up, or down in terms of rate of growth relative to ’14?

That’s a good question. I would say again with giving us the credit that we haven’t finalized all of our plans, I would say the rate of growth in ’14 internationally will be greater than in 2013.

Yeah. And along those lines you expressed some optimism with regard to a reboot in Mexico in Q1.

Is that driven by the tenders? And if so, I thought the [spud] date there for those contracts was March; a reasonable expectation is that that probably slips.

How comfortable are you with regard to kind of a Q1 inflection for Mexico?

I think the assessment on Latin America is much more broad-based than just Mexico. Putting Venezuela on the side as an echo to the question that was asked initially, because it all depends on coming to a reasonable understanding of how does one get paid by clients.

Putting that aside which could go either way, as I’ve explained in my comments, the growth in Latin America is broad-based. It has continued in Argentina.

It is to turn in Colombia in the second half of the year. Until the elections in Colombia you will not see much of a turn.

I’m sure you’ve noticed that Colombia is extraordinarily weak – Ecopetrol is extraordinarily weak today. So this most likely turns the second half of the year, let’s say from July thereon.

Brazil, which is not characteristically a strong area for us actually has some good progression for us just based on contracts in well construction that we have and they’re gradual, so they’ll build up throughout the year. I’ve talked about a strong ’15 because by the end of the year they will presumably all be started up, so that factors in also.

Then you turn your attention from all of that to Mexico. Mexico, I don’t know and your point is well taken, whether activity subsequent to tenders in Chicontepec and to a degree in Villa Hermosa in the South will ramp up for all of us – and not only for us, but in March, April, May?

I don’t know. It depends.

It depends on what the client will decide. But I do know for the whole year, regardless of how much one wins tenders and I say for the whole year because there is other contractual activity in Mexico beyond the tenders – I think for the whole year you should expect Mexico to be up as to 2013.

That much I’m quite certain of.

Right. And two more quick ones for me: single fastest growth for 2014 in terms of a region would be what, in 2014?

In terms of margin or in terms of top line?

Top line.

In terms of top line, let me think for a minute. You’re asking hard questions, Bill.

I would say SSA which we’ve had (inaudible).

Okay, and then last one from me. US in Q2, top line, was that actually down in Q3?

I recognize that margins were up for frac but was the top line down in Q3? For US in total?

For US in total I would say it was flat or almost flat. If there was a movement up or down it was fairly inconsequential.

Frac was down and the rest of the core product lines were up.

No, but US as a whole just as a region, was the top line flat, up, or down sequentially?

I remember it to be essentially flat.

Okay, good. Thank you very much.

Good morning, guys. Bernard, on 2014 you made the comment that consensus seems about right in here.

What are the biggest swing factors in your mind on either hitting, beating, or coming in below this number?

I think the consensus on the street right now, that is in sort of the middle of the range we look at in terms of the most probable events – I would say purely execution. There’s always climatic issues, you hear about this all the time but really it is I think just execution.

We do have activity going on now in the North Sea; we do also in the Caspian which I did not mention. We have an SSA for ourselves, contractually committed.

We have some increasing activity in the Gulf countries in the Middle East, not in North Africa in the Gulf countries. Russia is much more of a short-term business as opposed to a long-term contract.

The business is renewed all the time but markets are moving up in the sorts of things we specialize in. So I think I would have to say, James, is just like everything at Weatherford it’s all execution.

It is not a matter now of resolving problems that have plagued us. I think we’ve given both evidence and indication that problems of the past have been either closed or is closing – I think that’s fair.

I think also that the team of leaders has been assembled and below that the ranks have been filled with internally-selected talents and also talents coming from outside. I think it’s all about execution, James.

It’s more that. And also the inevitable, unpredictable issues, and of course the other thing which I’m almost reluctant to mention is do you have a stronger North America than we anticipate?

Because in our numbers it is not a poor North America; it is just a sort of slowly sideways, slowly moving, crawling forward North America – stronger in Canada in terms of improvements but not much than the US in my judgment waiting on gas; the oil segment possibly moving up a little bit but mostly a reward on technology and operating efficiency on the oil side, but waiting on gas. Now waiting on gas, should we wait until ’15?

This is for us a matter really of the demand side which you understand. I don’t need to tell you, you understand.

Sure. So you would say it’s mostly not market-related?

It’s mostly in your control.

Yes, very much so. That’s how we feel.

Okay. And then just one follow-up from me unrelated here on the land rigs side.

In your release last night you talked about a spin, or an IPO plus spin, or an IPO in the secondaries but in the call you mentioned an IPO in Q4. Has that decision kind of been finalized, that you would go the IPO route and then it’s a question of whether you spin the rest into a secondary?

I think step-by-step. I think we’re preparing first the operations, very much the way we did for Grant Prideco years ago, to be a very, very good, strong, well-managed independent company.

This is step one. This is above accounting, financial, administrative issues, operating issues – this is step one.

If the markets, if the markets are welcoming we will perform an IPO in Q4. I think we already envision that the sort of business the rig business is cannot take much leverage so therefore we do an IPO in order to generate one, liquidity in the stock, and two also some liquidity for Weatherford.

What we do after, James, we do have a clear choice and I don’t know yet but we don’t have to make that decision today. We really don’t because it’s a clear path.

Right, got it. Fair enough.

Thanks, Bernard.

I just wanted to dig into North America and your overall guidance a little bit deeper. Last quarter I got the sense that you were looking for more than 30 basis points of improvement in your Q3 US operations for margins.

Is that just the timing of the cost cutting that you’re pushing through your system?

I think the answer is that Canada was not as strong in Q3 as we had anticipated would be the simplest answer I can give you, more than anything else. From the break-up we had in Q2 certainly Canada rebounded but it seemed that it took longer to rebound and it did not move quite as far as we had anticipated and most analysts of the Canadian markets had anticipated.

Okay, so there wasn’t any disappointment in the US side of the margins.

No, not particularly. No, they’re either way I don’t think so.

No, there was no problem on the US side.

Okay. And an unrelated follow-up, where do you stand on the financial breakouts of your land rigs?

I understand that can take quite a lot of time to get those financials audited for an IPO process.

Well that’s actually a question we should let Doug answer and in time Krishna will answer, but not today. What do you think, Doug, in terms of timing to get the audited numbers for the rigs and historically prepared and everything else?

What’s your sense?

Yeah, we’re starting the carve-out process that would be required for this type of transaction. We are I would say in the early stages of that today but we’re looking to have that carve-out process done in Q2 next year with an audit going concurrently as well.

So the answer would be let’s just say that we hope by the end of Q2 to have the carve-out ready to be filed and so forth, something like that – plus or minus a few weeks because these things are hard to time.

Right, and is management for the public company currently in place or will you be looking to hire from the outside?

Both.

Okay. Okay great, thank you very much.

You’re welcome.

Good morning. With parts of the Latin America region and the sequential improvement in margins there, aside from the guidance of those margins being flattish in Q4 and the typical Q1 seasonality with product sales I didn’t hear anything that would suggest that the margin level that you posted for Q3 in Latin America wouldn’t be sustainable if not steadily improving as we move through 2014.

Is that a reasonable way to think about the margin progression for Latin America?

You’re correct. I didn’t mean to suggest it was one-time, not at all.

I think I made the point that Eastern Hemisphere has a lot of catch-up to do as Eastern Hemisphere is bopping around 11% and it used to be 25%, so progress in Eastern Hemisphere is great and we’ve got a long way to go. I didn’t suggest by that that at 16% in Latin America we were done – not at all.

Seasonality is one issue of course, and Mexico timing is an issue of course as one of your colleagues asked. All these things are an issue but when the whole year 2014 will be finished I suspect the margin in Latin America will be higher than 16%.

There’s a progression there also – I didn’t mean to belittle that.

Okay. And then with regard to Middle East, North Africa and the Asian region it’s a little bit difficult to think through the top line growth dynamics with the legacy Iraq contracts rolling off over the subsequent quarters.

Can you help us frame how you’re thinking about it?

Well, it is (inaudible) and of course it’s our fault. The contracts that were taken in Iraq were ill-thought-out and all I can say is on more.

First, and I say this with some hesitation because I don’t want to confuse anyone that you understand the revenues of the legacy contracts in Southern Iraq are flushing through the regional revenues for Middle East and Asia-Pacific. So because they carry no margin whatsoever ipso facto they depress the margins for the region.

When Zubair is over let’s say sometime the end of Q2, or let’s just say from Q3 you are sort of free from it or something and that’s it, it’s the last, if everything stays the same there will be a recovery of margins in that region simply because the revenues will go down. And of course if everything stays the same the margins will be the same and look higher.

This is one thing. Separate and distinct from this, Middle East is healing.

We can see it at the country level and at the region level, and amongst the questions I was asked is which is the region with the fastest growth and I asked was it top line overall or would it be our own use? Had I been asked which one would be up the most on a percentage basis in terms of margins or just absolute dollars of EBIT I would have said MENA.

So MENA is really engaging into a turnaround. Part of it is cosmetic with the revenues of Zubair going away upon completion of the contract.

And understand something also about the EPF contracts – there were terrible economics and there’s no hiding the fact that we’re responsible for that, period. I’m responsible for that at the end of the day, period.

But at the same time the engineering work that was done for the contract that is over with today, which is Garraf Petronas is good. It is functioning, it’s good engineering and hopefully we’ll do the same thing on Zubair.

Then that’s it, we’ll be out of that business. And then cosmetically the numbers will be better but also the underlying business in the Middle East is fueling a rise in profitability.

Dharmesh, add something.

Sure. So when it comes to Asia, Middle East, Europe and SSA the market tends to be multi-year tender markets, and to some extent between the projects we have already won and the projects that are starting up in the second half of this year the prognosis for next year is very good based on the work we’ve already won.

Like Bernard says it’s down to execution in those markets. From a margin perspective the focus this year has been on the core areas, which is well construction, formation evaluation, and lift and completions, and those contracts tend to have better margins.

So you saw it growing both from a growth perspective on revenues and margin expansion in those geo markets because of the predictability of the market – meaning that you have multi-year tenders and if you win them you know that the revenues and the profitability will be there.

Thank you.

Thank you. Bernard, I guess I wanted to come back to your comments on North America, specifically your guidance that you expect it to kind of grind slowly higher, to paraphrase your language, next year.

We’ve heard some fairly bullish comments out of a number of folks, particularly those heavy in the Permian but also out of the Eagleford and some of the other oily plays. Are your comments more a function of your geographic mix in the US or do you think there’s a difference of opinions here that we’re hearing?

I don’t think either one of the above. I think that absolutely you’ll find some plays which have some very strong outlooks depending on who the operators are there.

I think though when you add up all of the budgets that will be approved and spent in the United States in 2014 by all of the operators, and whether it’s in the Permian, Eagleford, Balkan, you name it, you will find that the numbers are positive year-on-year but it’s not a very high number. As you can imagine with our lift footprint we’re on every single unconventional play you can think of and we’re very large.

If you look at the size of North America of Weatherford and you isolate Canada, we are very large in the United States so we’ve participated in every single play to the fullest. So it’s not so much that we’re here but we’re not there.

The judgment is overall that overall the numbers will be positive in expenditures. It’s not going to be a very big number, that’s my only observation.

Therefore what you will find is within that play some particular reservoirs will get more activity, others less depending on the perception of the attractiveness of the play – and that will depend on the operator. That’s all.

It’s not a negative view at all. It’s just that isolating just a particular sub-segment of the United States and saying “This will do great” may very well be true, but when you ask someone of our size or our peer size you will be everywhere; therefore your comments are going to basically apply to the overall market.

Fair enough, thank you. And my follow-up question comes back to the DSO question.

I think it was Dharmesh that said that DSOs excluding Latin America were 70 days. You also mentioned that the large receivable you expect to collect pushed from Q4 to first half of next year of about $150 million.

Once we get that collected where should we expect DSOs to be?

I’m glad you asked the question. Dharmesh, why don’t you just go through the metrics again?

Sure. So first of all, $150 million is a deferment from Q3 to Q4, and then total deferment from Q4 to the next year is $350 million.

So $150 million from Q3 to Q4; $350 million from Q4 to first half of next year, everything else being equal.

And if we had collected this amount this year our DSO would have been right around what we had forecasted, which is 75 days for the full year at the end of the year. So just one figure, that’s about $40 million a day but you can do the math yourself, but that’s really what it ends up being.

Great, thank you very much. I’ll turn it back.

I think we’ll have one last question and then we’ll bring the call to an end since we’re running out of time.

Good morning, guys, let’s stay on North America if we could. You gave us a good overview of pressure pumping – it’s down but stabilizing.

On the artificial lift side in North America is the shift from vertical to horizontal hurting you or helping you?

Dharmesh, why don’t you answer that?

It’s definitely helping us. What you have in unconventional is that you shift from vertical to horizontal it has bigger sizes of pumping in it, the dollars spent per well is higher.

So it helps you both in terms of the absolute dollar amount per well that is spent and also the kind of technology – it requires better technology that we have that fits our footprint. So for example, the Rotaflex Pumping Unit which we have which is very, very good for horizontal wells, we’ve seen a 3x increase in the total amount of Rotaflex sales in the last three years as the horizontal market has developed and there’s been more horizontal over the past three years.

Marshall, Rotaflex is a very long stroke reciprocating pumping. As a result in horizontal wells you lack accumulation at the heel of the well bore and then the long stroke allows you to lift more per unit of time at a lower cost – a much lower cost.

They’re very low maintenance costs, just to give you an example.

Great. So maybe fewer pumps but the pumps you’re selling are a much higher margin.

Yeah, they are, for sure, and actually better business for our clients. We have to reduce the cost structure for our clients.

Right. A follow-up question: it sounds like you’re gaining share in the formation evaluation, directional drilling market and that’s certainly the hottest area that it appears you’re in in North America.

Is that a fair assessment? Am I reading that right?

Yes, you are. We are getting market share in that segment.

It’s not really execution; really more it’s actually the technological choices we made some years ago. We have a proprietary method of delivery on the one hand; we have a proprietary set of sensing on the other – sensing as in relevant for the types of reservoirs that are now being exploited.

And the other thing I would say besides drilling services that we don’t talk about much on the call, is our labs business is also doing very well in North America.

Great, thank you.

Thank you. Thank you very much, and this will close the call and thank you everyone for your time and attention.