Oil States International's CEO Discusses Q1 2013 Results - Earnings Call Transcript

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Oil States International, Inc. (NYSE:OIS)

Q1 2013 Earnings Call

April 25, 2013 11:00 am ET

Executives

Patricia Gil - Manager, IR

Cindy Taylor - President & CEO

Bradley Dodson - SVP & CFO

Analysts

Blake Hutchinson - Howard Weil

Jeff Spittel - Global Hunter Securities

Jim Wicklund - Credit Suisse

Collin Gerry - Raymond James

Stephen Gengaro - Sterne Agee

Daniel Burke - Johnson Rice

Cole Sullivan - ISI Group

John Allison - BB&T Capital Markets

Operator

Welcome to the Oil States International Incorporated First Quarter 2013 Earnings Conference Call. My name is Christine and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Patricia Gil, Investor Relations. You may begin.

Patricia Gil

Thank you, Christine. Welcome to Oil States' first quarter 2013 earnings conference call. Our call today will be led by Cindy Taylor, Oil States' President and Chief Executive Officer, and Bradley Dodson, Senior Vice President and Chief Financial Officer.

Before we begin, we would like to caution listeners regarding forward-looking statements. To the extent that our remarks today contain information other than historical information, please note that we are relying on the Safe Harbor protection afforded by Federal Law. Any such remarks should be weighed in the context of the many factors that affect our business including those risks disclosed in our Form 10-K and other SEC filings.

I will now turn the call over to Cindy.

Cindy Taylor

Thank you, Patricia. Good morning to all of you and thanks for joining our earnings conference call. As most of you know, 2012 was a record year for our company both operationally and financially. However, we entered 2013 with an uncertain economy and a clouded outlook for our businesses. Despite these conditions we reported higher sequential earnings in the first quarter of 2013 due largely to improved accommodations results, partially offset by lower tubular services and offshore products contributions. Our accommodations segment reported seasonally stronger activity in the Canadian mobile camp business, partially offset by weak U.S. accommodations demand.

While our accommodations growth rate appears to have flowed in 2013 relative to very high levels in previous years, we've recently announced the construction of Boggabri Village in Australia, and the opening of Anzac Lodge in the Canadian oil sands region. We will discuss both of these organic investments later in the call.

Offshore products generated solid results and enjoyed strong order flow with a book-to-bill ratio greater than 1x during the quarter. As a result, backlog at the end of the quarter was up slightly totaling $564 million.

In our completion services business, revenue and EBIDTA were up 5% and 1% respectively, largely due to contributions from the Tempress acquisition, which closed in December 2012, along with a seasonal uplift in Canada.

At this time, Bradley will take you through more details of our consolidated results and financial position, and then I will conclude our prepared remarks with a detailed discussion of each of our segments and will give you our thoughts on the current market outlook.

Bradley Dodson

Thank you, Cindy. For the first quarter of 2013, we reported operating income of $161 million on revenues of $1.1 billion, which included a pre-tax gain $4 million from the reversal of an estimated earnout liability associated with contingent acquisition consideration in the U.S. accommodations business.

Our net income for the first quarter of 2013 totaled $102 million or $1.85 per diluted share, which included this after-tax gain of $0.05 per diluted share related to the liability reversal.

The comparable first quarter 2012 results were $204 million of operating income on revenues of $1.1 billion, which included a pre-tax benefit of $17.9 million related to a favorable contract settlement in our U.S. accommodations business.

First quarter 2012 net income totaled approximately $122 million or $2.20 per share, net of the after-tax gain of $0.23 from the contract settlement.

The year-over-year decrease in profitability was a result of lower U.S. drilling and completion activity, coupled with lower OCTG prices and margins, partially offset by organic growth initiatives in our accommodations business, contributions from the Piper Valves and Tempress acquisitions, and increased drilling and subsea product sales within our offshore product segment.

Relative to our quarterly guidance, we reported operating performance in each segment, which was within our guidance range, as was consolidated depreciation and interest expense.

During the first quarter of 2013, we reported very strong cash flow from operations of $219 million, which included $59 million from working capital reductions. We invested a $107 million in capital expenditures during the quarter, primarily related to the ongoing expansion of our accommodations business.

With our strong operating cash flow, we were able to reduce our net debt by 11% sequentially to $946 million at the end of the quarter. Our debt to cap ratio was 33% and our trailing leverage ratio was 1.4 times. As of March 31st, 2013, we had liquidity of approximately $1 billion under our credit facility, along with $326 million in cash.

In terms of our second quarter 2013 guidance, we expect depreciation and amortization expense to total $59 million and net interest expense to approximate $19 million. Diluted shares are expected to total 55.3 million in the second quarter of 2013 and we currently forecast our 2013 effective tax rate to approximate 28%.

At this time, I'd like to turn the call back over to Cindy, who will review the activities in each of our business segments providing outlook and guidance for the second quarter of 2013.

Cindy Taylor

Thanks, Bradley. I'm going to lead off with our accommodations segment, it is our largest segment. On a sequential basis, our accommodations segment revenues increased 7% to $297 million, primarily due to contribution from seasonal Canadian mobile camp activity, partially offset by weak activity in the United States. The U.S. market was characterized by competitive pricing, and an overcapacity of equipment, particularly impacting our Bakken business.

Our lodge and village revenue was about flat sequentially with gains in Canada, offset by occupancy declines in Australia. EBITDA increased 11% quarter-over-quarter to $132 million after excluding the earnout liability reduction.

During the first quarter, we announced the opening of a new Canadian lodge, our Anzac Lodge located south of Fort McMurray in the Athabasca oil sands region of Alberta, Canada. Initial capacity at this location totaled 338 rooms and lodge operations began in January. Construction of the Anzac Lodge was backed by an initial one-year contract, for the majority of initial capacity and support of an in-situ oil sands project.

Longer-term, Anzac Lodge is expected to support other in-situ project in the southern oil sands play, along with pipeline and infrastructure expansions in the region. Additionally, we announced a new Australian village, The MAC Boggabri Village located in the Gunnedah Basin in New South Wales, Australia. The village is expected to be ready for occupancy during the fourth quarter of 2013, and will have an initial capacity of 508 rooms.

The Boggabri Village investment is backed by a multiple customer contract with initial durations of up to five years and provide for essentially full occupancy of the rentable rooms for the first year and a half of operation. Boggabri will primarily support our customers' metallurgical coal projects in the region. Our average available rooms increased by 631 lodge and village rooms during the first quarter of 2013 averaging 20,009 room for the first quarter with a RevPAR of $119. Remaining room additions in 2013 are likely to be weighted more towards the end of the year.

Accommodations revenues are expected to decline sequentially, as a result of breakup in Canada, and continuing softer occupancy levels at certain villages in Australia. We expect to see improvements in Canada and Australia by the third quarter of 2013. However, at this point, we are not forecasting a material improvement in our U.S. accommodations utilization.

Total revenues for the second quarter should range between $250 million and $260 million. EBITDA margins are expected to range from 38% to 40%, due to seasonally lower utilization of our mobile camp assets, although full year margin should be within our long-term margin guidance of 41% to 43%.

I'll now transition to offshore products. In this segment, we generated $201 million of revenue and $36 million of EBITDA during the first quarter. Sequentially, revenues and EBITDA decreased 15% and 12% respectively, primarily due to a high level of connector product shipments in the fourth quarter of 2012, which normalized during the first quarter of 2013. Our EBIDTA margin for the first quarter was 18%.

We booked $216 million in new waters during the first quarter of 2013, and reported backlog of $564 million at March 31st, 2013, up slightly from year-end. Noteworthy backlog additions in the quarter included large subsea pipeline equipment orders for Brazil and West Africa.

The global outlook for our offshore products business continues to be strong, particularly for subsea pipeline and floating production facility products. Active bidding and quoting activity, coupled with our healthy backlog levels provide good revenue visibility for the remainder of 2013.

Pipeline product sales are expected to accelerate in the second quarter, and revenues are projected to increase in total $205 million to $215 million. EBIDTA margins will be dependent upon our revenue mix, but are projected to be 18% to 19%.

In our well site services segment we generated revenues of $178 million and EBIDTA of $54 million in the first quarter of 2013, compared to $172 million and $56 million respectively in the fourth quarter of 2012. Revenues exceeded our first quarter guidance and were driven by a seasonal uplift in our Canadian completion services business and contributions from the Tempress acquisition completed in December 2012, partially offset by lower utilization in our land growing business. U.S. drilling and completion activity was soft during the first quarter of 2013, which had a negative impact on our drilling rig utilization.

Revenues from our completion services business increased 5% sequentially to $137 million and EBIDTA increased 1% to $44 million when compared to the fourth quarter of 2012. The number of ticket issued during the first quarter increased 3% sequentially and revenue per ticket improved 2% when compared with the fourth quarter of 2012.

We are seeing signs of improved activity in certain basins that should help our completion services business contribute to sequential growth in the second quarter.

We did add a new rig to our Rockies drilling fleet under a long-term contract during the first quarter. However a total of five drilling rigs remain set primarily in the Permian basin.

We estimate that second quarter revenues for our well site services segment will range between $185 million and $200 million with EBIDTA margins of 32% to 33%.

During the first quarter of 2013 tubular services generated revenues of $394 million compared to $455 million in the fourth quarter of 2012, which is typically our strongest quarter. This sequential decrease was primarily due to fewer deepwater shipments in the first quarter, and a competitive pricing environment, given industry inventory level. However tonnage shipped was only down 3% sequentially. Gross margin, as a percent of revenues, was sequentially flat at 5.1%.

Industry inventory levels, as measured by the OCTG situation report, now stand at approximately six month supply. We've witnessed pricing and margin pressure due to higher levels of industry inventory, strong import volumes, and increasing U.S. mill capacity. The company's OCTG inventory decreased by $29 million on a sequential basis totaling $422 million as of March 31st, 2013, almost entirely due to decreases in mill pricing.

As of March 31st, 2013, approximately 87% of our tubular inventory was committed to customer orders. We expect our tubular services segment to generate revenues of between $375 million and $400 million in the second quarter of 2013, with gross margins ranging from 5% to 5.5 %.

In summary, our first quarter results showed some improvement on a sequential basis despite a soft economic environment. Our results in the second quarter of 2013 will be impacted by seasonal declines in accommodations activity in Canada, which is expected to be temporary. Our medium-term outlook remains positive as we continue to seek room count expansion opportunities in our accommodations segment, which are supported by longer-term customer contracts.

With our ongoing capacity expansions, and strong backlog levels in our offshore product segment, we are well positioned to benefit from secular growth in deepwater spending.

Demand for our proprietary completion services equipment continues to outpace the U.S. rig count, and we are optimistic that activity will improve as the year progresses, particularly given higher activity levels, light in the first quarter of 2013.

We remain disciplined in our allocation of capital and are focused on achieving the best return on investments for our shareholders.

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

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question is from Blake Hutchinson of Howard Weil. Go ahead.

Blake Hutchinson - Howard Weil

Hi. Cindy just wanted to get a little deeper clarification on your comments around the second quarter accommodations weakness and mainly in Australia. We always now it's coming in Canada. It would appear if we take past years that may be the commentary around weakness is may be 80%. Just the typical Canadian seasonality with another 20% from Australia, is that something ballpark?

Cindy Taylor

Well, I'm going to kind of elaborate around the major message there. As it relates to Australia, we're really focused I'd say primarily on two villages in the region. We talked about one obviously, starting about third quarter or fourth quarter, I forget which, which was related to what I'm going to call a more marginal operating mine that did shutdown. Most of the other met coal mines are highly prolific and profitable at current met coal pricing. And that particular facility, just because of that closure, we're not really seeing expecting a ramp backup certainly in the second quarter and unsure of the third.

The second facility right now is in the Gladstone region around LNG and I just see this as very transitional where we've ended some of the initial contracts that were associated with early work. We're in conversations with another major customer that we think is likely to solidify into a contract and kickoff in the third quarter. So again, we're going to see softer utilization in Australia. But right now, I tell you I see some improvement coming by the third quarter in that market. But most of what we're assessing right now is that, one facility because of the mine closure. Would like to see how our met coal pricing to get that to firm up. But again, we're not talking about a huge variation just because it's limited to those two facilities, right now.

Your comments are right, most of what we're talking about is Canadian seasonality and with little bit of a shift more towards in-situ and SAGD you're going to see a little more seasonality in the numbers that we had kind of moderated a bit, once we acquired the Mc. I don't have that "broken out" between the two, but I'll just say directionally what you're saying makes sense.

Blake Hutchinson - Howard Weil

Okay. And then the commensurate drop in margin is simply reflective of the fact that you actually do see visibility further out in both Canada and Australia and so you really can't make the changes temporarily to manage to your typical margin range around those?

Cindy Taylor

Well, that's exactly right. We'll obviously we're highly attentive to cost at any time but as you drop that seasonal element a lot of the seasonal is more rental oriented and less though the fully integrated facility, so they carry pretty high margins quite frankly. So I'm going to say part of that is just mix oriented as much as anything else.

Blake Hutchinson - Howard Weil

Okay. And then lastly just the U.S. commentary was the weakness centered around kind of just underutilization, your new major open camps or is it just a kind of a general commentary on sluggishness of the business in the U.S. in general?

Cindy Taylor

Again, it's more focused in the Bakken region; it's centered around mobile camp assets that actually go out with the rigs to the drilling sites, and quite less so around lodge facilities in the U.S. There's a distinction for us and what happened in 2012 the Bakken was a pretty strong market and it attracted quite frankly a lot of capacity. And so what we're seeing is obviously a modestly down rig count that's exacerbated by capacity, which has led to both utilization weakness and pricing decline. It won't surprise you to know that we're all over it trying to sustain our utilization, and if that means moving some of those assets into other markets to accomplish that we will do so.

Operator

Thank you. Our next question is from Jeff Spittel of Global Hunter Securities. Please go ahead.

Jeff Spittel - Global Hunter Securities

May be if we could start off in the rental tools aspect of the business, things have obviously been holding up pretty well relative to the rig count owing to your mix of products in the portfolio I guess. Is it conceivable with a little bit of an uptick in activity from the second quarter forward that we could have seen a bottom in terms of EBITDA margin for the first quarter in that business?

Bradley Dodson

We'll have a little bit of impact in the second quarter of the Canadian seasonality. But generally, I would think that from a margin perspective the second quarter will be our weakest.

Jeff Spittel - Global Hunter Securities

Okay, good. And switching over, sorry to make you address this again, but there still seem to be some differing opinions. I know you answered the question on the last quarterly call with respect to evaluating MLP, a REIT structure something along those lines, my interpretation of your answer on the last call was you're conceptually receptive to it, but the timing given the growth trajectory the accommodations business didn't necessarily, lead you to conclude that it made a lot of sense from a timing perspective now. Has anything changed over the course of the last few months or is that still a pretty accurate assessment?

Bradley Dodson

That’s generally true. I think there are really two issues that we've addressed. And one, we've grown the business pretty successfully over the last three years, and so from a -- and I hit on your timing point, we didn't think it would be appropriate time. That being said, as I mentioned on the last call when we've been presented or discovered or become aware of possible structures that will be advantageous to the shareholders we've evaluated those and that has not changed. Thus far, we've not found a structure that readily works for various reasons for our business that would be either an MLP or a REIT. But again, as we become aware of possibilities as you would hope and expect us to do, we evaluate those. And so, the short answer I guess Jeff is that it hasn't changed but we continue to be focused on doing what we can to improve and provide returns to the shareholders.

Operator

Thank you. Our next question is from Jim Wicklund of Credit Suisse. Please go ahead.

Jim Wicklund - Credit Suisse

Cindy, everybody was falling all over themselves to jam assets of all kinds in oil field [inaudible] into the Bakken a year ago. And building permits were delayed and all, what happened to the Bakken and is this spreading to the Eagle Ford?

Cindy Taylor

I don't see it spreading to the Eagle Ford at this stage and we talked to a lot of our customers in the Bakken and most people are kind of calling for a flattish market. We started off in; I'd say the first quarter which was a little weaker than flattish in my opinion. Again, a lot of what's impacting us specifically is more capacity than it is activity. Activity is not terrible. But in my own view, I think we optimized a lot of the play in terms of extended laterals, number of stages completed. And now, we're just carrying out the plan. I don't know how much more incremental improvements that our customers can make and apply that relative to what they had seen over the last 18 months or two years. It's still a very strong market overall. And one that, we're obviously going to be heavily participating in, but it's just kind of hard to say that it's growing in this point. And I just don't see that with my customers, Jim.

Jim Wicklund - Credit Suisse

These are mobile camps. Can you move them? Would you move them? And if you did, where?

Cindy Taylor

Oh, no. Absolutely, I'll try to address that on the call. What's impacting our result more specifically in the Bakken are the mobile assets that actually follow the rig. And if we see continuing overcapacity and pricing pressure, the obvious way to tighten that up is, number one, everybody quit building the asset. Two, and relocate it to markets where there is more demand and that is part of our focus this year.

Jim Wicklund - Credit Suisse

Okay. Let me switch gears from the last question. On the land rig side, I know this is a huge business for you guys. But what's your outlook for rigs and rates through the course of the year with all the discussions we've had over the last several months about U.S. rig count?

Cindy Taylor

Well, as you know the large majority of our rigs are concentrated in the Permian Basin and that is a basin that is very exciting, it's undergoing growth right now, but it's very transitional as well, whereas what was historically a vertically drilled shallow market is transitioning into a deeper horizontal play. And there is a lot of obviously, new and exciting areas to drill out there. But because of that transitional nature, I think operators are refocusing capital, they're relooking at new areas of play, new leases. And they're demanding a different type of equipment. The new equipment that's generally being bid and ordered in that play are 1500 horsepower rig, whereas the lot of it equipment that's out there is typically lower horsepower, more shallow, and a decent amount is vertical.

And what I expect to see right now, again, these we largely work for the large independents and some of the majors in that market. And I think their capital dollars are going to continue to go to the high-end work. And then, there's generally a shift back to footage drilling in private companies that will I think focus on the vertical play, but I kind of think of it as some more transitional. But as we said in our note, we've got five rigs stacked, they're more shallow rigs. And we don't have visibility yet of those going back to work. So we're guiding to a soft Q2 for those drilling assets. It's hard for me to give you a lot of color for the larger drilling company simply because we're nearly focused in two markets with our assets.

Operator

Thank you. Our next question is from Collin Gerry of Raymond James. Please go ahead.

Collin Gerry - Raymond James

Just to kind of follow-up on the accommodations side. You kind of talked last couple of quarterly conference calls, the activity shift in Canada going from the mining to the more SAGD development, and your business following suit. Just curiously, does the same margin, pricing kind of timing over return or payback period exists in the SAGD market versus the mining market or are there any sort of competitive issues that change with that move?

Cindy Taylor

Well, just a couple of comments there. The margins are very good. And this is a business that we are very good at. It -- our well site is a little more competitive at times, both from customers owning their own facilities and other competitors that you've to deploy of 200 to 500 bed facility, it's a little easier to manage than 5,000. So that's kind of lands guide. I'll say there is a little bit of a mix impact from a RevPAR standpoint just because there's a lot more capital deployed in our major lodge and village rooms because of the extent of the infrastructure, i.e. spending, capital investment in the site that occurs that you've less of that with a mobile facility obviously, and therefore, the rates are a bit lower to get the same economic impact and rate of return for us. Both are very good aspect of the business.

Collin Gerry - Raymond James

Okay. And then, just switching gears, I'm always kind of intrigued about what's going on the OCTG market as a barometer for the market's expectations for rig count and so forth. Your inventory has been kind of coming down handsomely since the third quarter. Obviously, I'd think that's a source of cash for you guys, maybe talk a little bit about your spending anticipation? Do you think inventories would start rising or you're going to continue to play them a little bit lower? And may be just what the overall feel on the OCTG distribution market is right now?

Cindy Taylor

Yeah, I'll comment on that, and ask Bradley to tag in. But as you know, I think we said on our call our inventory was up $30 million sequentially, almost all of that was price driven. We don't know when we're going to find a floor on OCTG pricing. I got to think it's not far away, because the mills are now in price increases, and have been for the last three months. They're just not sticking. And I think what that means is, everybody is kind of buying for market share, i.e. I'm talking about the mills right now. And with that they're willing to accept lower pricing right now, but at some point they got to focus on profitability and return and I think you're going to find a floor on that.

Right now, we've got two dynamics that could impact it. But I'd say generally our inventory is likely to be flat to down, certainly in Q2, because of pricing. However that could be offset by the need for some deepwater strains depending upon timing of our customer's order activity. But those are the two I'd say major dynamics that we would be looking at. Bradley, do you have any other comments?

Bradley Dodson

No just, further to your point, we did generate about $90 million with operating cash flow out of tubular in the first quarter, and that's typically what happens it's a little bit of countercyclical. Their earnings usually proceed the cash flow and up cycle that we saw from '12 to '13 is going to the EBITDA was stronger in '12 than it likely will be in '13, but the cash flow in '13 in our tubular will be very strong.

Collin Gerry - Raymond James

And then that actually brings up an interesting point I want to ask about from a financial perspective. Obviously, the last two or three years you guys have been covered by high growth, high CapEx, we're kind of down in that back this year, and when markets kind of flatten out I tend to think that working capital becomes a source of cash for you guys. Longwinded way of asking does this provide any opportunity to go to debt market, do any sort of refinancing or is there any sort of balance sheet kind of switching around or paying down debt anything over the next 12 months that you foresee?

Bradley Dodson

Well we have; really, we've got three revolvers, one in the U.S., Canada, and Australia. The Australian revolver was the only one that had any draws on it at the end of the first quarter that will get paid off in second quarter. Then you've got the two term loans, one in the U.S., one in Canada, those are very inexpensive floating rate debt. I think we certainly could, we've evaluated that but at borrowing at somewhere between 2.25% and 3.25% depending on whether it's U.S. or Canada, I don't think our shareholders generally want us to pay down that cheap debt as is the permanent reduction in overall availability.

Then we've got the two senior notes. There the first one is not callable until 2014. The next one is not callable until let me think it's probably 2016 or '17 I forgot off the top of my head. So, I think, in terms of capital allocation, our first priority has always been organic growth, provides the best return. That being said, in a flattish market environment those opportunities may be sparse, but will certainly that would be our first choice. We continue to look for acquisitions that fit into our strategic direction and we can prices those appropriately, we'd look at that, we weigh that very consistently against the opportunity to buyback the stock. We've $187 million left on our share repurchase program and we've always been a big fan of being opportunistic in buying back stock.

Operator

Thank you. Our next question is from Stephen Gengaro of Sterne Agee. Please go ahead.

Stephen Gengaro - Sterne Agee

I guess two things. One as it pertains to the U.S. businesses on the completion side, are you seeing any signs of and I may have missed that. I missed a little bit at the beginning of the call, but any signs of improvement in the market since beginning of the year and sort of year-end to now?

Cindy Taylor

Yeah, Stephen, I'll comment on that and I'll try to touch on that in my prepared comments. Everybody I see on the street and that's included January and February were very uninspiring months for this business, and we visibly saw some improvement I'll call it late in the quarter, I don't know if that was early March or that timeframe. And so again if we progress throughout the quarter we were improving that's just factually correct. As we stand in April, we're kind of continuing the trend that we saw in March and that leaves me to say if these market conditions do continue throughout the second quarter, we're likely to be up sequentially just about.

Stephen Gengaro - Sterne Agee

And then the other one was just as you think about the opportunities up in Canada from a growth perspective and I think it's a combinations in general, how do you think about the next 12 to18 months from sort of backdrop perspective and what you're hearing from customers and we've seen a project up there cancelled, but there's couple of more which seem to be moving forward. Can you sort of frame the, your thought process on the next several quarters?

Cindy Taylor

Yeah, the best I can. I think they'll be improving stronger activity in the in-situ regions. Again it's not just our thinking and our bidding, you hear that commentary from the major players up there, the economics return are more sound, and obviously the capital deployed, it's a little bit easier to do, and so that's going to be an active area that continues in my view for those certainly next year or two it's hard to say otherwise.

Suncor continues to focus on Fort Hill. The best information I've is what the Street has, they talked about a potential. I hate to say likely because we've been talking about this a longtime. But a Q3 sanction is what is being at least contemplated at this stage and in kind of a region that we're talking about is quite a list of projects that are there that do cause us to continue to be fairly optimistic about continued growth in the region. So that's kind of a landscape for Canada. But obviously there's a lot of discussions also around LNG and it won't surprise you that we're focused on that and are going to try to benefit from that, if and when it does develop.

If we go down to Australia, I think the announcement that we had on the Boggabri Village is indicative that there are -- there's always been a landscape of investment opportunities in that country that is attracted and is very visible. The question is when do you kick them off and that was delayed just a bit because of the reduction in that coal pricing not too surprising. But some customers are moving forward and as we told you that is contracted work. So it's nice, it's still pretty good. And one might say well, why you're adding capacity when you've got softer utilization in another one and my answer is there are 1100 kilometers away. And so when you're operating obviously in the regions we do, you take advantage of the growth opportunities when they come, and obviously we'll do what we can to stabilize and improve utilization in the other facilities. That the way I look at it we're growing that asset base and the earnings power of that asset base is very favorable long-term for us.

Operator

Thank you. Our next question is from Daniel Burke of Johnson Rice. Please go ahead.

Daniel Burke - Johnson Rice

The offshore product business has escaped scrutiny so far. So I guess all our focus there. Really two questions, first of all, if I heard correctly it looks like you took the sort of a 20% end of the EBIDTA margin long-term target off for Q2. I was just curious what would be the driver of that. And then more practically in terms of backlog and mix in the press release didn't see much reference to floating production related items. So I was wondering how floating production related projects are now flowing through both current revenue and what proportion of backlog mix they comprise?

Bradley Dodson

I'll take the first half and comment a little bit on the second half and then see if Cindy has any color. That was the 18% to 19% guidance for the second quarter is the lower end of our long terms guidance, but we're still within it. That doesn't change our long-term guidance of 18% to 20%. This quarter its more mix related of what is going to flow through. We expect to flow through the revenue stream in the quarter and try to get a little bit of tighter range this quarter. So we didn't have the group, kind of expecting the high end of the range and ultimately being disappointed when we thought it's probably more likely we're going to be in that 18% to 19% range. So we tightened it up a little bit, but that doesn't change our long-term view.

I think you've hit the nail on the head in terms of what's happened over the last couple of quarters or well several quarters and that is that late 2010, early 2011; we saw a lot of major floating production facilities get sanctioned. I won't give an exhaustive list, but Big Foot, Jack St. Malo, Mars B, Papa Terra, and (inaudible) and so we did have a lot that work kind of earlier in this part of the cycle. It's now shifted more to subsea. We haven't seen a lot of floating production facilities get sanctioned here recently. They're still out there. As we caution people I think for several quarters and it's either major projects, they're going to be more internationally focused and ultimately this is more, from my opinion, I won't speak for the group, is that because they're larger, because they're more international, they're more susceptible to timing footage, and I think that that's fairly consistent with what our peers have said and seen. So we're still optimistic on the floating production facility outlook.

As Cindy said in the past, I think the outlook is so robust that it's probably more likely that we're going to see some of these timing delays. But we're still optimistic on what we think we can go on in terms of work over the next several years as production facilities actually start to pick back up. Cindy any?

Cindy Taylor

Yeah I think the only thing Daniel I might want to add to that. Bradley hit on it very well. A lot of those floating production facility awards came late 2010/2011. We talked in the past that in 2012 there were less of that and more of the kind of the deck equipment, subsea product type activity coming in our backlog. I'll only comment that a lot of those are highly engineered projects that you've to go through the engineering side and the procurement side before that translates into revenue. So what you're seeing with us hitting the lower end of that margin range the last couple of quarters, I think and we attributed to even call it mix, you can also just call it the lead time necessary for engineering and procurement. And again we're still very optimistic, very bullish about it long-term. There were just some unique dynamics to the business because of the nature of what we do.

Daniel Burke - Johnson Rice

And then if I could append, hopefully a simpler second question. On the accommodations progression from Q1 to Q2, normal Canadian camp seasonality, you all did a great job of describing what's going on the U.S. market, and the Australian market. But then to be clear in the Canadian lodge market is your expectation outlook consistent with where it was last quarter?

Cindy Taylor

I'd have to say yes to that. We've got, if I look across the major lodge facilities, we've got continuity of our customer base in those lodge facilities, Beaver, Athabasca, Wapasu, Henday. There will be seasonal impacts, Conklin and Anzac just want to make sure, you're focused on that. But in terms of customer base and their contracts it implies that type of things. Very consistent in my view, I'm kind of looking for Bradley to see if I'm missing anything but.

Bradley Dodson

No, I mean I think we're right on track as I gave last quarter full year RevPAR numbers on the total lodge and village business in the $111, $112 per day range. That stays consistent. That with $119 in the first quarter that implies that the RevPAR will be lower in the last three quarters and that's consistent. So, I don't think there's any -- there has not been any change other than a good first quarter generally for the lodge and village business with caveat of some softer occupancy in Australia, that Cindy mentioned and we anticipated. So, I think generally the story is playing out thus far as expected. To be honest I was pleased to get Boggabri announce as early as we did and at a number that was at the upper end of my expectation, so in terms of rooms.

Operator

Thank you. Our next question is from Cole Sullivan of ISI Group. Please go ahead.

Cole Sullivan - ISI Group

Most of my questions have been answered. The only one that I just wanted some clarity on is, as we look at the rest of the sort of 1200 to 1500 room expectation for this year of incremental room growth. a) Is that still valid? And then number two, do you see some more of these additional incremental lodges or villages or is it more expansionary sort of projects that you see to get since you already have about 850 rooms into that with the announcement so far this year. Is it kind of some smaller projects out there that you could see or how do you think about that?

Bradley Dodson

Our guidance hasn't changed our conferment. The guidance for room growth this year, year-end to year-end is still 1200 and 1500 rooms across -- in total across Canada and Australia. There are a couple of opportunities for what I think you're referring to is kind of add-on rooms to existing locations that we're working on. And then, as I mentioned on the last call, there's still an opportunity we're working on for a new location in the in-situ region that we're still optimistic, we'll be able to get done in and out. But as Cindy mentioned, the net result of that is most of the room additions including the bulk of our additions are backend weighted. So, it's going to be a lot of fourth quarter additions.

Cole Sullivan - ISI Group

And just a follow-up on that, yeah as we look at the 2Q sort of average rentable rooms, that probably kicks slightly higher, but generally flattish?

Bradley Dodson

Yeah, we're basically getting the benefit of a full quarter availability of a handful of rooms. And so the number is 20,100.

Operator

Thank you. (Operator Instructions) And our next question is from John Allison of BB&T Capital Markets. Please go ahead.

John Allison - BB&T Capital Markets

Thanks for taking my questions. I wanted to start off, we're seeing a lot of increased service intensity of active rigs essentially more wells per rig and I wanted to know if that's offsetting any of your price degradation?

Bradley Dodson

Well, we've seen greater rig efficiency over the last several years. And as a result, you've seen volumes both for our completion services and our tubular services business generally outpace the changes in the U.S. rig count and I think that's a combination of just that rig efficiency, as well as growth and the overall complexity of the completions and that's more of a completion services comment.

That being said, I'd generally say that as we moved into '13, we had been cautioning people that the rate of that efficiency gain and our specific ability to outpace the rig count was slowing. And I think Cindy made some comments earlier just to that effect that the ability to outpace the rig counts in those businesses is starting to pick down. But generally, we are benefiting from the increase in complexity.

In terms of the pricing comments, we -- our pricing position in completion services has been very strong, really if I frankly, we had revenue per ticket. And in 2012, it bounced due to mix somewhere between 10,200 and I think to 10,800. This quarter was pretty strong at over 11,000. And so, that is I think generally indicative of a pretty good mix, if not universal across all of the markets. You can imagine the dry gas markets have been pretty challenging, but because of our ability and our footprint to move equipment and personnel around fairly efficiently, we've been able to maintain and move to areas where the pricing was better. And because of our proprietary mix of products we've been able to hold that pricing pretty firm, so.

John Allison - BB&T Capital Markets

And lastly, in accommodations, we've been seeing a lot of cost issues in Australia especially, on LNG projects and causing some delays and some cancellations. I want to know if, this is pressuring room rates for new builds in the region?

Cindy Taylor

I think you're talking specifically about route, which is on the Northwest shelf at Woodside, may be announcement over the last month or so. And just realize we've only small facility open on the Northwest shelf, it will support a large variety of activity in the region and we've that place -- it's in the Karratha region. And we've seen our occupancy improve. We just opened that last year.

Right now, I mean I don't know how to what to comment on that, it's certainly not impacting. I think you're saying new build capital cost, I'm not sure or room rates. The answer is no, there is enough offsetting demand from other activities in the region and realized that that was very much prospective work. Now, I think the industry the whole well, we're going to say we're disappointed with that cancellation, but it has no I think short-term or really long-term impact on that one small facility that we have opened on the shelf. That area is a very remote, very high cost area to do business. And so, I don't anticipate that you're going to see a change in our revenue generating capability in the region. I just have a tough time seeing that, because we got to get enough economic return for the investment that we make as well.

Operator

Thank you. We have no further questions at this time. I'll now turn the call back over to Oil States.

Cindy Taylor

Well, I want to thank all of you for joining us on the call today. It is a complicated quarter. And but our outlook is farming, I think as we move forward. And we appreciate all the familiar names on the call and your interest in our company. And we will be taking to you soon. Thanks so much.

Operator

Thank you. And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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