Dresser-Rand Group Management Discusses Q3 2013 Results - Earnings Call Transcript

Nov. 1.13 | About: Dresser-Rand Group (DRC)

Dresser-Rand Group (NYSE:DRC)

Q3 2013 Earnings Call

November 01, 2013 9:00 am ET

Executives

Blaise E. Derrico - Vice-President of Investor Relations

Vincent R. Volpe - Chief Executive Officer, President and Executive Director

Jan Kees Van Gaalen - Chief Financial Officer and Executive Vice President

Analysts

Ole H. Slorer - Morgan Stanley, Research Division

Jeffrey Spittel - Clarkson Capital Markets, Research Division

Jeffrey Spittel - Global Hunter Securities, LLC, Research Division

John David Anderson - JP Morgan Chase & Co, Research Division

George O'Leary - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Collin Gerry - Raymond James & Associates, Inc., Research Division

Robin E. Shoemaker - Citigroup Inc, Research Division

Jeffrey Campbell - Tuohy Brothers Investment Research, Inc.

Joseph D. Gibney - Capital One Securities, Inc., Research Division

Basil M. Jones - BB&T Capital Markets, Research Division

Robert V. Connors - Stifel, Nicolaus & Co., Inc., Research Division

Operator

Good morning, ladies and gentlemen, and welcome to the Dresser-Rand's Third Quarter 2013 Earnings Conference Call. My name is Pablo, and I will be your coordinator for today's call. [Operator Instructions] As a reminder, this call -- conference call is being recorded for replay purposes. [Operator Instructions] I'll now turn the conference over to Blaise Derrico, Vice President of Investor Relations. Please proceed, sir.

Blaise E. Derrico

Thank you, Pablo. Good morning all. The call is open to the public. It's being webcast simultaneously at www.dresser-rand.com and will be temporarily archived for replay. A copy of the news release we issued yesterday is available on our website, as are the slides we will use today during our presentation. We will let you know when to advance the slides as we deliver our prepared remarks.

Please turn to Slide #2. The statements made during this conference call that are not historical facts may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. In addition, this conference call contains time-sensitive information that reflects management's best judgment only as of the date of the live call.

Management statements may also include non-GAAP financial measures. For reconciliation of these measures, refer to our earnings news release or the conference slides available in our website.

Dresser-Rand does not undertake any ongoing obligation other than that imposed by law to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after this call. Further information concerning issues that could materially affect the financial performance related to forward-looking statements can be found in Dresser-Rand's periodic filings with the SEC.

Now I'll turn the call over to Vince Volpe, our President and CEO.

Vincent R. Volpe

Thank you, Blaise. Thank you for joining us today, and welcome to Dresser-Rand's earnings conference call. I'll start with a few opening comments, and Jan Kees Van Gaalen, our Chief Financial Officer, will follow me with a detailed discussion of our third quarter results.

Please turn to Slide 3. While our quarter results were somewhat mixed, our full year guidance for bookings remains unchanged, and our earnings are expected to be in line with present consensus estimates. New unit bookings of approximately $265 million were below our earlier expectation of $350 million to $400 million due to the client delays in placing certain major new unit orders. During October, we booked approximately $70 million of orders that had slipped from September. Inquiries for potential new orders remain at a high level, and we believe we may be seeing the long-awaited pickup in orders that has been delayed over the past year or so, starting up in the fourth quarter. As such, we are reiterating our guidance for new unit bookings of $1.5 billion to $1.7 billion.

Aftermarket parts and services bookings of $406 million were strong. We expect aftermarket bookings in the fourth quarter to be in the same order of magnitude as the third quarter. As such, we are reiterating our guidance for record aftermarket bookings of $1.6 billion to $1.8 billion.

Our working capital increased in the third quarter by approximately $196 million, principally due to the buildup of work-in-process inventories to support the high level of expected fourth quarter shipments and delays in collecting certain past due receivables. During October, we have subsequently collected approximately $90 million of these past due receivables. Given present conditions, we expect to see a gradual improvement in our net working capital throughout 2014.

Operating income of approximately $81.4 million was at the low end of our guidance range of $80 million to $100 million, principally due to the slippage of 2 large orders for which all physical activity had been satisfactorily completed. The delays were administrative in nature due to finalizing contract-related documentation. And we believe revenue will be recognized for the projects in the fourth quarter. Completing these 2 transactions in the third quarter would have increased our diluted earnings per share by approximately $0.11 and moved our operating income approximately $14 million and close to the top end of our guidance range. For the full year, we continue to forecast revenues and operating income at record levels and in line with present consensus estimates.

Please turn to Slide 4. Aftermarket activity continues to be good as demonstrated by another solid bookings quarter in most geographical markets. Aftermarket bookings of $406 million for the third quarter 2013 were 3% higher than the corresponding period in 2012.

One of the key initiatives we have to grow the aftermarket is to put in place long-term service agreements. We're making excellent progress on this front. I'll mention 5 service contracts that we signed in the quarter, which will provide a recurring stream of aftermarket revenues for years to come.

Petrobras awarded us a 5-year service contract valued at approximately $50 million for the power generation packages on their P55 platform. Under the agreement, we will provide operations and maintenance services for VECTRA 40G power turbines located on the platform. We also signed a 3-year service contract with Petrobras for compressors and power turbines located on 8 offshore platforms in the Campos Basin.

We entered into a 5-year service contract with PEMEX valued at approximately $33 million for a refinery located in Veracruz, Mexico. Talisman Sinopec Energy UK Limited awarded us a 5-year maintenance and technical support contract that covers 10 non-Dresser-Rand turbo compressors installed on the Piper B platform and Bleo Holm FPSO.

Occidental awarded us a 3-year maintenance contract valued at approximately $18 million. This contract covers predictive maintenance services for their entire fleet of reciprocating compressors and integral engines. Their fleet includes both Dresser-Rand pieces of equipment and pieces of non-Dresser-Rand reciprocating compressors along with their associated drivers. As a reminder, our policy is to reflect in our bookings and backlog only the estimated value of the following 15 months of a service contract.

Turn to the next slide, please. In the new unit segment, third quarter bookings of $265 million were approximately 45% lower than the corresponding period in 2012, reflecting variability in timing of -- and size of very large orders in the new unit segment. As previously mentioned, new unit orders were below our earlier expectation due to the slippage of orders from September into October. Major new unit awards in the third quarter include gas turbine power generation packages for an FPSO offshore Ghana, 2 centrifugal compressor packages for an oilfield in Iraq, 2 additional CO2 compressor trains for the Petrobras pre-salt project, multiple centrifugal compressor packages for 2 fractionation plants in the United States and process-reciprocating compressors for refineries and petrochemical facilities in China, Ecuador and Brazil.

Activity levels remain high in the markets we serve. In October alone, we have booked approximately $70 million in projects that slipped from the September forecast. Also, we were recently notified of our selection as the successful equipment supplier for a planned world-class LNG project. Based on the current timing for this project, we anticipate our involvement in the feed portion next year with an order either late 2014 or early 2015. We will advise on progress as permitted by our client.

For the fourth quarter, we now have a line of sight to over $500 million in new unit orders, and as such, we reiterate present guidance of $1.5 billion to $1.7 billion in full new year unit bookings.

Beyond the fourth quarter, it is also possible that the increase in bookings may be sustained, especially in upstream, midstream and some downstream applications. We will monitor this carefully and provide further guidance on subsequent calls.

Please turn to Slide 6. In addition to our traditional new units market, you will recall that we have decided to enter the small-scale LNG market. At this time, I'm pleased to provide an update on our progress launching, which we are marketing as LNGo. At present, we have designed, constructed and are in the process of commissioning our first unit as shown here in this photo. This unit is expected to produce first liquids very shortly and commence its endurance test this month as the final step prior to market launch. We are very excited about this technology for small-scale LNG, which is basically a methane cycle for refrigerating gas and creating LNG. The nice part about this technology is that it allows for very small plants. We're talking about a 6,000 nominal gallon per day plant comprised of 4 portable skids. There's a lot of Dresser-Rand scope in this offering, including our newly introduced MOS reciprocating compressor, our Guascor engines, control systems and of course, project management to integrate all these and the process components into compact portable packages. We have been talking to potential end users, as well as rental fleet operators and already have over 90 qualified leads. We are very enthusiastic about this technology and the market opportunity we see coming as early as 2014.

Please turn to Slide 7. Before turning the call over to Jan Kees for a detailed review of our third quarter results, please allow me to mention something of which we're very proud. We were recently selected as one of America's safest companies by EHS Today magazine; and separately, we were named the winner of the 2013 Southwest Oil & Gas Award. Safety is a critical core value for us. These awards reaffirm our company's commitment to providing an environment in which we, as employees, create a culture of ethics, caring and respect for one another. We're honored to have received these awards and proud of the underlying efforts that take place daily, as we strive for safety, health and the well-being of our environment. As a proxy for operational excellence, a strong record in environmental, health and safety provides tangible value to clients and shareholders, as well as employees.

I'll now turn the call over to Jan Kees for a closer look at our third quarter financial results.

Jan Kees Van Gaalen

Thank you, Vince, and good morning, everybody. Please turn to Slide 8. Total bookings for the last 12 months were approximately $2.9 billion, 2% lower than the corresponding period ending September 2012.

New unit bookings were down approximately 11% while aftermarket bookings were up approximately 6% versus the corresponding prior period. Approximately 24% of our bookings in the last 12 months were upstream, 15% midstream, 32% downstream and 26% Environmental Solutions.

Please turn to Slide 9. The backlog at the end of September was approximately $3 billion, down 4% versus a year ago. The new unit backlog of $2.2 billion was down 9% versus a year ago, and our aftermarket backlog was up about 15% to $762 million. At the end of September, the new unit backlog scheduled to skip [ph] in 2014 was approximately $920 million.

Please turn to Slide 10. Total revenues for the third quarter of 2013 of $634 million increased $40 million or 6.6% compared with $595 million for the third quarter 2012. New unit revenues for the third quarter 2013 of $273 million increased $25 million or 10.3% compared with $248 million for the third quarter 2012. Aftermarket parts and services revenues for the third quarter 2013 of $361 million increased $14 million or 4.1% compared with $347 million for the third quarter 2012. Revenues increased principally due to aftermarket growth in most geographic segments, especially Latin America.

Turn to Slide 11, please. As I previously mentioned, revenues for the third quarter increased approximately 7% to $634 million. Cost of sales was $451 million for the third quarter of 2013 compared to $424 million for the corresponding period last year. As a percentage of revenues, cost of sales was 71.2% for the third quarter of 2013 compared to 71.3% for the third quarter 2012. Selling and administrative expenses were $93 million for the 3 months ended September 30, 2013, compared to $90 million for the 3 months ended September 30, 2012. While we were able to achieve greater operating leverage on the administrative costs, the increase in selling and administrative costs was generally the result of increased selling activity and cost inflation. We continue to exercise good cost control over selling and administrative expenses, as they decreased as a percentage of revenues from 15.2% to 14.7%.

Research and development expenses for the 3 months ended September 30, 2013, were $8.3 million compared to $6.4 million for the 3 months ended September 30, 2012. The increase in research and development expenses is related to strategic projects that are expected to be in demonstration or launch phases during the next 12 months.

Operating income for the third quarter was $81.4 million. This compares to operating income of $74 million for the third quarter 2012. Third quarter 2013 operating income increased from a year ago, primarily due to higher revenues. As a percentage of revenues, operating income for the third quarter was 12.8% compared to 12.4% for the corresponding period in 2012. The increase is primarily attributable to improved operating leverage on fixed cost from higher volumes, partially offset by shift in mix within the new unit segment, reflecting a higher percentage of major buyouts.

Interest expense net was $7.8 million for the 3 months ended September 30, 2013, compared to $15.7 million for the 3 months ended September 30, 2012.

An affiliate of the company entered into a settlement agreement in September 2013. And a counterparty waived sanctions, interests and other related costs that the counterparty had previously claimed and which the company had previously accrued. Accordingly, upon entering into the agreement, the interest portion of this accrual was reversed, reducing interest expense by approximately $0.05 per diluted share for the 3 months ended September 30, 2013.

Other expense net was $8.1 million for the 3 months ended September 30, 2013, compared to other income net of $1.2 million for the 3 months ended September 30, 2012. The change in other expense income net is principally due to a result of losses on equity method investments and notable foreign currency fluctuations for the 3 months ended September 30, 2013.

The effective tax rate for the 3 months ended September 30, 2013, of approximately 24% was lower than expected, due to a dividend declared by a subsidiary resulting in a tax benefit from the recognition of foreign tax credits in excess of the U.S. tax rate. This benefit added approximately $0.07 per diluted share.

Finally, the $600,000 of net income attributable to non-controlling interest recorded for the third quarter of 2013 relates to a partner share of net income and net losses in consolidated entities that are not 100% owned by us.

As you can see at the bottom of this slide, net income attributable to Dresser-Rand for the second quarter was approximately $49.4 million or $0.64 per diluted share. This compares with net income attributable to Dresser-Rand of $41.2 million or $0.54 per diluted share for the third quarter. I have to correct. The $49.4 million was related to the third quarter -- not the second quarter.

Next slide, please. New unit operating income was $33.5 million for the third quarter 2013 compared with operating income of $21.1 million for the third quarter of 2012. This segment's operating margin was 12.3% compared with 8.5% for the third quarter 2012. The increase in operating income and margin from the corresponding period in 2012 is principally attributable to a change in the mix within the new unit segment. We continue to believe new unit margins will be in the range of 8% to 10% for the full year.

Next slide, please. Aftermarket operating income for the third quarter of 2013 of $75 million decreased $1.1 million or 1.4% compared with $76.1 million for the third quarter 2012. This segment's operating margin for the third quarter of 2013 of approximately 20.8% compares with 21.9% for the third quarter of 2012. The decrease in the segment's operating margin is principally attributable to a higher allocation of overhead costs to the segment resulting from the higher percentage of aftermarket revenues to total revenues in 2013. We continue to believe aftermarket margins for the full year will be in the range of 23% to 25%.

Next slide, please. Before turning to cash flow, let me correct some misconceptions about certain extended scope contracts that are accounted for on the percentage of completion method. First, we did not convert several large projects to percentage of completion method of accounting last year. We do not get to pick and choose the method of accounting. The nature of the contracts drives the accounting methodology.

At the end of 2012, we entered into certain large contracts with expanded construction-type scope and risk. These contractual arrangements had a scope of activity that differs in substance from the scope of the deliverables found in our traditional sales agreement.

Non-traditional scope agreements include activities typically performed by engineering, procurement and construction contractors. Our clients typically require us to act as a general construction contractor for all or a portion of these projects.

The table on this slide show the amount of revenues and the implied margin for the extended scope contracts accounted for on the percentage of completion method for the 6 and 9 months ended 2013. It also shows the forecasted revenues and implied margin for the 12 months ended 2013. Let me make a couple of observations.

First, gross margins for each of the 3 periods are in the range of 15% to 17%, and they are relatively consistent with our traditional business. Second, the revenues attributable to extended scope contracts as a percentage of total revenues are relatively small at approximately 7% of total revenues for the first 9 months of the year and are forecasted to decrease to approximately 5% of sales for the full year. Finally, let me reiterate that we do not choose the method of accounting for these types of contracts, and we did not convert contracts to the percentage of completion method of accounting from the completed contract basis, which is the method used for our so-called traditional business. It's the nature of these extended scope contracts that drives the accounting methodology.

Next slide, please. Turning now to cash flow. In the first 9 months of 2013, cash used in operating activities was $162 million compared with cash provided by operating activities of $49 million for the corresponding period in 2012. The decline in cash from operations in the 9 months ended September 30 is principally the result of higher working capital. Working capital increased principally due to the buildup of work-in-progress inventories to support a high level of forecasted fourth quarter shipments.

Turn to Slide 16, please. Let me point out the changes in certain components of net working capital. Accounts receivable increased for the 9 months ended September 30, 2013, as a result of increased concentration of shipments to national oil company customers, who typically pay on slower terms, as well as an increase in costs and estimated earnings on uncompleted contracts that are being accounted for on the percentage of completion method.

The increase in inventory is the result of building inventory for forecasted sales in the fourth quarter. Accounts payable and accruals increased for the 9 months ended September 30, 2013, as a result of increased activity levels. However, payment terms to our suppliers tend to be shorter than the collection times we are experiencing with the national oil company customers.

Lower customer advances are also attributable to percentage of business with large national oil company customers. As a result, the net working capital increased from a 12-point average of 5.9% to 12.12% of trailing 12-month sales for the period ending September 30, 2013.

Turn to Slide 17, please. We have used this graph previously, and we believe it helps put in perspective what is driving the increase in our net working capital. The colored bars represent components of networking capital, and the blue line shows the -- I beg your pardon. Note that the blue at the bottom of the colored bars is the approximate value of the net working capital attributable to our traditional business. The amounts are net of progress and advance payments from customers.

The green represents the net working capital attributable to our business with national oil company customers. As previously reported, the shifting of our new unit bookings more towards national oil company customers skews our billings to regions where payment due dates are customarily longer, and bureaucratic processes further delay payment of milestone billings.

The orange bar reflects the inventory value of the solar park Cadio [ph] that we have been in the process of selling. On October 10, we reached agreement with MBB Clean Energy for the sale of the solar park, which comprises 3 power plants in Italy. In connection with these plants, we will provide long-term operating and maintenance services, which are consistent with our business model to stay integrally involved with Dresser-Rand built equipment throughout its total life cycle.

We are presently waiting for the final contract-related documentation to complete this sales transaction, which we expect to receive in the next few weeks. Completing this transaction will reduce our net working capital by approximately $40 million.

Finally, the extended scope projects, which are accounted for on a percentage-of-completion basis, are shown in yellow.

Next slide, please. While we provide a more detailed projection, it is our belief that net working capital will come down gradually over the course of 2014 due to the following: One, during October, we collected approximately $90 million of past due receivables, the majority of which was significantly overdue. As mentioned previously, the solar park sale is expected to close in the fourth quarter, freeing up approximately $40 million of working capital. Three, approximately 3/4 of the working capital associated with POC accounted for projects is expected to be collecting -- collected during the third quarter 2014 on one major project. Four, we made a conscious business decision to build inventory to stimulate new product launch. Over the next 9 to 12 months, we expect the conversion of this inventory to cash, which will facilitate the return of net working capital to more traditional levels. Finally, in looking at prospective orders, we anticipate new unit awards to have more favorable terms than those presently in backlog.

Next slide, please. In the first 9 months of 2013, net cash used in investment -- investing activities were $62 million compared with $105 million for the corresponding period in 2012. Cash used in investing activities in the first 9 months of 2013 includes $56 million of capital expenditures. Cash used in investing activities in the first 9 months of 2012 includes approximately $49 million of capital expenditures and $49 million related to the acquisition of Synchrony Inc. net of cash acquired.

Cash provided by financing activities was $288 million in the first 9 months of 2013 compared to cash provided by financing activities of $78 million in the first 9 months of 2012.

Turn to Slide #20, please. At the end of the third quarter, our liquidity totaled approximately $633 million and consisted of approximately $174 million of unrestricted cash and $459 million of available borrowings under our bank credit arrangements, as we had outstanding borrowings of $610 million and $99 million was used for outstanding letters of credit. At the end of the third quarter, we also had approximately $235 million letters of credit and bank guarantees drawn under uncommitted bank lines.

In the quarter, we amended our senior secured credit facility to increase its size from $1.06 billion to $1.46 billion and to extend the maturity from March 15, 2016 to September 30, 2018. The entire $400 million increase is attributed to the U.S. dollar revolving credit portion of the overall senior secured credit facility, which now stands at $1.1 billion, up from $700 million.

Next slide, please. At the end of September, our net debt-to-capital ratio was approximately 45% and net debt to our last 12-month EBITDA was approximately 2.6x. Our leverage increased from the end of the prior quarter primarily due to the increase in net working capital to support a high level of forecasted quarter shipments.

For more information about our results for the third quarter, please refer to our 10-Q, which we filed last evening with SEC. With that, I will turn the call back to Vince for closing comments and to moderate our Q&A session.

Vincent R. Volpe

Thank you, Jan Kees. Turn to Slide 22, please. Turning to our outlook for the fourth quarter and full year, our single-largest challenge is to achieve the guidance we provided for sales and operating income. Our present forecast is to achieve record sales of approximately $1.2 billion and operating income between $166 million and $206 million for the fourth quarter. We appreciate that this is a wide range, but there is much to do. The principal risk associated with this forecast is related to new unit shipments. The good news is that we have the backlog to support forecasted new unit shipments in the fourth quarter. Unfortunately, at present, approximately $150 million of the new unit backlog is scheduled to ship in the last 10 days of December. While we have plans in place to ensure that these shipments occur, there are always unforeseen challenges that arise, thereby creating a risk of revenue recognition.

Conversely, we see reasonable opportunity to increase aftermarket sales in the quarter. Our present forecast assumes approximately 17.5% of the business we booked in the fourth quarter will actually be converted into shipments. Over the past 6 years, the percentages of fourth quarter book and ship have fluctuated from approximately 25% to 27% of the quarterly bookings. If this year follows historical trends, we should logically achieve forecast sales and generate increased earnings.

Based on these risks and opportunities, we believe there is a plus or minus $20 million swing possible in operating income, and for this reason, have provided a full year range of $400 million to $440 million, which is also in line with present consensus estimates.

Turn to Slide #23, please. In summary, we provide the following assumptions for 2013. Guidance for bookings remains unchanged with new units of $1.5 billion to $1.7 billion and aftermarket of $1.6 billion to $1.8 billion. We also reiterate our belief that 2014 bookings by segment will exceed those in 2013. Operating income is expected to be between $400 million and $400 million (sic) [$440 million] and in line with present consensus estimates.

New unit operating margins should be in the range of 8% to 10%, aftermarket operating margins in the range of 23% to 25%. Unallocated expense is expected to be approximately $120 million. For 2013, research and development expenses are expected to be approximately $45 million.

Interest expense is expected to be approximately $50 million to $55 million. Other income and expense net is estimated to be approximately $10 million positive, which represents the estimated impact of the devaluation of the Venezuelan bolivar earlier this year and the losses from start-up equity investments.

The effective tax rate is estimated for 2013 to be approximately 27% to 29%. Approximately $5 million of non-controlling interest is related to our partner share of net income and consolidated entities that are not 100% owned by us. And finally, diluted shares outstanding are expected to be approximately 77 million.

Thank you for your attention. At this point, operator, we'll open the line for questions. Let's begin the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Ole Slorer of Morgan Stanley.

Ole H. Slorer - Morgan Stanley, Research Division

Vince, it looks like you are in -- been in a very, very kind of constructive long-term trend. But I think the focus for the near term might just be on kind of the effect of some of these longer lead times and slippages on the 2014 numbers, which look a little bit like being hit by a speed bump. If you just briefly look at the projected or implied in your numbers, year end kind of backlog that's shipped for 2014, it looks like that will be down to maybe $1.3 billion or something like that, using the midpoint of your guidance, which is down a lot from the $1.7 billion at the end of 2012. So consensus is pretty punchy for 2014, implying then a massive kind of spike in your aftermarket margins or activity. Could you just give us sort of some broad guidelines on how we should think about 2014? I know that you're not yet giving specific guidance, but maybe just help us a little bit in terms of how to think about that 2014 as a transition year.

Vincent R. Volpe

Sure, Ole. I think the way to think about it is on the unit side of the business, a lot of backlog going into the year is going to be somewhat -- apparently somewhat less for shipment next year. Now these orders that we are going to close in the fourth quarter, most of those are not going to ship in 2014. Some may, but I would say the preponderance of those would be early '15 shipments. That being said, we have continued to make cycle time reduction a priority inside the company, and so I would not necessarily expect a significant drop in new unit sales year-over-year. Now I don't know the exact numbers, we haven't gotten there yet, but I would say the new unit sales ought to be flattish, okay? And then I think the aftermarket, we ought to see continued good growth that we've been seeing year over year over year. And so I think cycle time should help the story so that we don't see a precipitous drop in sales in units. And don't forget -- well, don't forget, I really haven't talked about it before. The cycle times on these LNG -- these small LNG plants are going to be quite a bit small, quite a bit shorter than your typical cycle time on a big turbo compressor, but there's a lot of value and content in those plants. So I think that some of those sales may also prop up the sales so that -- again, I think we're feeling like sales on units will be flattish. I don't have a number. In the aftermarket, we ought to see continued growth, and I don't know if that gets to the heart of your question, Ole, or [indiscernible] something else.

Ole H. Slorer - Morgan Stanley, Research Division

No, it nails it down to a T, Vince. It's pretty much exactly how we think about it. And It looked like consensus is not reflecting this kind of temporary slowdown because if you look longer term, are you changing your view at all about how you sort of see the medium-term growth outlook for your business? It looks like it should be very strong as you look into sort of '15 and the rest of the decade.

Vincent R. Volpe

Yes, Ole. I mean, if you look at what's happening -- and we think we may be at the end of the tunnel here, in terms of seeing a pickup in new unit bookings. Again, not 100% sure, but certainly, fourth quarter is going to be a very large quarter. And looking into next year, there's a lot of work coming. So I think what we've basically seen here is the new unit business put on hold for a year. And of course, that puts our sales and everything else on hold for a year. Looking forward, beyond that, I think it's very strong. And adding what we are to our portfolio, think about the things that are coming out. So the small LNG market is enormous. It's everything from fueling to serving frac-ing facilities in places like in Bakken where they're flaring. We can take that flare gas, and we will be in a position to convert that to LNG, stranded gas applications, gap applications for coal bed methane, for mining, fueling mining vehicles and so forth. So the market is extraordinary. We are the first movers, as far as I can tell, that's got a legitimate product that will work. At least, we believe it will work. We're going right through the development program now, okay? We're right at launch, but that's at the end of the funnel, so to speak, ready to come out. We've got the ICS. We've got Echogen, which is the -- our waste heat recovery program. We've got our supersonic compressors. So all of these things that we've been working on over the last several years are getting close -- on different stages but getting close to bearing fruit. And so I think, again, other than the unfortunate slowdown we've seen in the traditional new unit business, we expect nice growth in terms of bookings. Next year, we believe our bookings will be higher year-over-year than they were this year. And of course, that will result in nice sales in the traditional space, supplemented by some of these new technologies that are basically incremental or additive. And of course, we also believe that we'll see the continuation and expansion in the CAES activity. So I'm somewhat disappointed by what we've been through this year in terms of new unit bookings, but it really doesn't change the midterm -- my midterm view at all.

Ole H. Slorer - Morgan Stanley, Research Division

I would think so. And congrats also with the first large scale LNG award since -- since when, Vince?

Vincent R. Volpe

I don't know. It's been a long time. We announced -- we actually announced the accelerated project a few months ago. That's waiting for permitting, coming from, I guess, the DOE. And we're hopeful that, that will move forward sometime towards the end of next year. Perhaps we might move out into '15. And then this other plant that we've just been officially -- we've been officially awarded, we're not allowed to announce it. There's confidentiality wrapped around it, but it's for a major -- it's for a very major oil company and it is a world-class plant. So we're very excited about that. And so it's been a long time, you're right.

Operator

Our next question in queue is from Jeff Spittel of Clarkson Capital Markets.

Jeffrey Spittel - Clarkson Capital Markets, Research Division

I think I'll probably hit on the topic I wanted to dig in to, maybe just a follow-up on that a little bit, Vince. When we think about -- you've got a robust percentage of book and ship stuff set to go out the door in the fourth quarter in new units, is it possible that we could see kind of a similar run rate on a percentage basis as we get into 2014?

Vincent R. Volpe

Let me unravel that a little bit, Jeff. I may have misspoken in my comments. We've got -- for the new unit business in the fourth quarter, we've got literally all of it in backlog or substantially all of it in backlog, 99-point-something-percent, so we don't really have any book and ship. It's already in our backlog. It's scheduled to ship in the fourth quarter. What I really was trying to identify is there's a ton of it, okay? And in the last 10 days, there's like $150 million that needs to go out the door now. We have plans to ship all that stuff, but documentation and the ship doesn't show up or there's something else that's missing that doesn't allow us to actually recognize the revenue, that creates the risk side of the equation in Q4. So I'm not sure how to answer the second part of your question because I may have not been clear about what I said to begin with.

Jeffrey Spittel - Global Hunter Securities, LLC, Research Division

Sure. I guess not only I think of maybe 10% to 15% in a given year will be some of that shorter-term stuff that will go out the door in the same year. Is that in a decent ballpark in your opinion?

Vincent R. Volpe

On new units?

Jeffrey Spittel - Global Hunter Securities, LLC, Research Division

Yes.

Vincent R. Volpe

Or in total -- yes. Yes, that's a reasonable number, that's a reasonable number. Now, it could be a little bit higher next year because we're launching the small LNG plants. And I don't want to give away too many competitive details here, because goodness knows who's out there listening. But it's always good to be first, though, and we're going to make sure that we do everything we can to continue to be first by providing very, very short cycle times on the upcoming plants. So we built some inventory, because I wanted to prime the market. And that's by part of what Jan Kees has referred to when he talks about working capital inventory buildup. We did that on purpose. That was a conscious effort. And beyond that, we believe once we get this market started and primed, we're going to see a -- we're going to see short cycle times on those units, which should actually help the book and ship in 2014. And that's how I get to sales ought to be flattish. Now they might be down a couple of percent or up a couple of percent, but I don't think we're talking about 10%, 15% precipitous drops here, okay?

Jeffrey Spittel - Global Hunter Securities, LLC, Research Division

Good news. I think I'm already there. And I guess the second question, on a totally unrelated topic, was just initial thoughts. And I know you're not issuing anything formal for '14 on the sustainability of where the tax rate is today.

Vincent R. Volpe

I'm going to let Jan Kees answer that, but if he says we can sustain that, I'll be surprised.

Jan Kees Van Gaalen

Look, we provide guidance for 2013. And concurrently with that, we are in a 4-, 5-quarter tax restructuring, of which the first part was done during Q3 2013. In total, we have more than 20 transactions that composed this 4-, 5-quarter process and we got approval to start -- to kick the process off in Q3, which was important, so that we could basically schedule the rest of the transactions and get everything organized. So we're working towards maintaining that tax rate and potentially easing it somewhat. Nevertheless, we'll come with some guidance in the beginning of 2014 to provide you some more light on this.

Vincent R. Volpe

So let me just say something else, in addition to what Jan Kees said. And that is it is a strategy of ours and we're focused on it. And so people talk about operating income and so forth. We -- and we're going to continue to talk about operating income, but we also think that there's some things below the line. Frankly, in the past, we haven't really focused on it. We've got -- we've brought good expertise in. Jan Kees himself has good understanding. We brought other people in. Our tax really shored up our particular international tax capabilities. And so we think it is an important part of the equation that we need to spend more time on. I jokingly said I don't know if we can maintain it or not, but I'm glad to hear he thinks he can. Whatever it is, though, we think we'll make an improvement in terms of how we manage our tax liabilities going forward in of course an ethical and legal way, whatever we're entitled to though, we've got to go ahead and take it. So I think that's the story. It is an initiative. And so you may hear us talk more about EPS in the future and net income because that's really what we're managing the business to going forward.

Operator

Our next question in queue is from David Anderson of JPMorgan.

John David Anderson - JP Morgan Chase & Co, Research Division

Vince, on the guidance for fourth Q on the order book, you've shown a pretty big number. I know you have the $70 million you said that got pushed into the fourth quarter, but it's still a pretty big number out there. Are you assuming big awards in there? We talked about -- maybe you can give us an update on some of the awards that were pushed out. You talked about petrochemical, I know that's a big thing out there. Can you just tell us what's in your view for fourth quarter, are there big things out there?

Vincent R. Volpe

Yes. There are several large orders, David. It is a big hill decline. You can imagine the amount of scrutiny that this has gotten internally so that we feel that we can do this. Otherwise, we wouldn't say that we felt that we can do it. And so the orders are there. They have names on them, they're big. Most of them are in the upstream. There is some downstream activity that we think is likely to close in the quarter. And we have a line of sight beyond the numbers that we're talking about, beyond the bottom end of the range. So we believe we'll get there. We can be wrong, right? That happens, but they're big, they have names and most of them are upstream.

John David Anderson - JP Morgan Chase & Co, Research Division

Okay. On the profitability, I saw your margin guidance on new units and aftermarket. I'll be honest here, I don't know what to make of that, because the others unallocated expenses shifts around from quarter to quarter. We saw this quarter, the new units are much higher, aftermarket is lower. Is there any way we can net this out going forward? It's just like -- I'm just trying to understand the underlying profitability of these 2 businesses. And I feel like we're -- I don't really know how it's doing. I'm trying to understand particularly the progression on aftermarket. Can you talk a little bit about that, the profitability and how we should think about this allocated expense?

Vincent R. Volpe

Sure. Well, let's break down into a couple of pieces. First of all, the overall profitability on a year-over-year basis actually increased by about -- by about 0.5%, right? About 50 basis points. So globally, things move from one side to the other of the ledger. But you look at the bottom line and you say the profitability has actually increased year-over-year, against, by the way, higher R&D spending, okay? So if you were to net that out, you'd see even more progression or expansion in margins. Clearly, we've talked about having spent a lot of money in R&D. We're glad we're doing it, et cetera. But if you were to equalize R&D year-over-year, you'd see a nice progression in the overall business. That's kind of first point. Second point, I totally agree with you, our methodology is not simple to look through. I can tell you that our new unit margins would have been lower and our aftermarket margins would've been higher. I didn't calculate an exact number, but it wouldn't -- that's not the whole difference. We have actually seen expansion in the unit margins. When I look at the aftermarket margins, as they stand alone, first of all, we made a structural change, if you'll recall, in 2011, when we acquired the Guascor business. And the energy assets, which are between $250 million and $300 million a year in sales, had somewhere around 20% or -- it was accretive to overall Dresser-Rand margins, but somewhat dilutive for the aftermarket margin percentages. So that got injected. And ever since then, we've been talking about 20%, 22%, 23%, 24%. So this year, we think we're going to be -- what is it, 22% to 24? 23%?

Blaise E. Derrico

23% to 25%.

Vincent R. Volpe

23% to 25%. That is -- we're still maintaining that. And I think when the dust settles on these swings back and forth in allocation, we are actually -- we should get operating leverage in both the new unit and aftermarket segment. And then the final thing I would say to you is, we're continuing to push price in the aftermarket where we can, David. Some parts are easier to be a little bit more ambitious with than others, depending on competition and so forth, but I can assure you that our aftermarket team is committed to ongoing price increases that make sense for ourselves and for our customers and everyone else. So again, I apologize. It gets confusing, but even if you were to shift all of the allocations from 1 bucket back to the other, you would see higher margins in units quarter-over-quarter and your aftermarket would not -- you would not have seen that on a Q3 to Q3 comparison drop of about 100 basis points. It would have been at or above the previous level.

John David Anderson - JP Morgan Chase & Co, Research Division

Okay. One last question here. Cameron was talking about slowdowns in the midstream and downstream spending as one of the reasons why they have to kind of do some cost rationalization in their valve and measurement business. Obviously, it's a pretty big part of your business over the years. I had to note that in your backlog that you show in your presentation there, the environmental was now about 1/4 of your overall bookings. How do we think about that business right now? It seems like it's a missing part of your story. Are you worried that things are -- what is your outlook -- maybe the best way to ask is, what is your outlook on that? Has that moderated in terms of how that business is picking up in '14?

Vincent R. Volpe

I think -- it's hard to know, David. I think in '14, it may be a little less than 26% because part of our environmental services business is CAES. And so that's in that number, the compressed air energy storage, which we've been given by Apex. And so there may be -- if there's another case plant that closes next year, then you may see the same order of magnitude in the low- to mid-20s. I think -- or maybe it's the same order of magnitude it is now, which is mid-20s. I think, in terms of the midstream, just to move to that -- so look, let me stop on environmental. That being said, steady-state Environmental Solutions should be about 20% of our business. If you recall a few years ago, when we decided to enter this and we bought Guascor and did other things, we said within the next 3 to 5 years, we thought we'd get it to 20%, not at the expense of the others, just that we were going to grow that. So it looks like we're there. And so that -- I feel pretty good about that. In terms of the midstream business, our midstream business is normally large pipeline stations, okay? There is some gas gathering but it's mostly transmission, it's mostly big stations. And a lot of that is overseas. And so I'm not sure that what Jack's talking about over at Cameron exactly equates to what we're talking about. It's places like Central Asia, China, different -- perhaps different parts of the world, than where they've been -- had their strength in their markets. Then on the process side, on the process side, they're talking about small -- sort of small air compressor type applications also. We're not even in that space. That's industrial air and things like that. Our process in petrochemical business, there's a fair amount coming and we're -- we think the upstream is going to be bigger, but we think that the downstream is going to provide good opportunities in petrochemicals, fertilizers, ethylene, PDH, et cetera and refining. So I think we -- we're okay with both of those.

Operator

Our next question in queue is from George O'Leary of Tudor, Pickering.

George O'Leary - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

First question is just around -- you talked about potentially seeing some more favorable terms on bookings as you move in to 2014, particularly on the new units side. Do you think you're seeing the opportunity as awards maybe start to come towards you and move away from you that pricing, you have the opportunity for pricing to get better there?

Vincent R. Volpe

George, I think that pricing in our business moves sort of with the cost curve on new units. And so if we get more pricing, I don't think it's going to mean much to the margin side of the business on our traditional business, okay? Now as we introduce new products that served areas of the market that no one is competing in or we offer solutions like the ICS, which combine compressor separator and process equipment, we think we can press for a little bit better margins in that space, okay? And so I think there is some pricing coming in 2014 as a result of that. But the preponderance of the business, I think, on a variable margin basis is going to be fairly close to what it is this year. However, as your volume -- the overall volume in the business increases, as you -- some of your costs inherent in the business roll off, like we returned to more traditional levels of R&D spending and so forth, and as you launch some of these new units, these new products and programs, the mix of those 3 things should get you margin expansion. And so we, of course, are focused on that and believe that that's in our near future. Just to comment on the nature of the new unit orders coming in, Jan Kees did a good job tackling a pretty complex subject around net working capital. If you think about that blue bar, which is the traditional business and then you think about the national oil company business, a lot of the blue bar is actually for NOCs, right? But it's not a direct order from the NOC. So if NOC XYZ gives us an order, those terms are normally different than if an integrated oil company working with the NOC gives us the order. And so when we looked at the orders coming down the pipe, so to speak, for the next -- let's say next 12 to 18 months, most of those where NOCs are involved will have better payment terms because of the involvement of the IOC. And it's not just the terms also. It's the systems that are already in place for them to process inventory -- excuse me, invoices. So it's not only whether or not you have good terms. It's also when you're owed the money, can you actually invoice and get paid in a reasonable timeframe. And so we believe that, that will improve going forward. And so the stuff coming out that's sort of running out of the pipe will be replaced by better payment terms of that, which we put into the pipe on the other end.

George O'Leary - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

And then as you look at the mix of what's in backlog that you have visibility on for 2014, that $920 million you mentioned, year-on-year, is the mix improving at all? Is there any help on the margin front from mix shift? Or is that a net neutral year-on-year?

Vincent R. Volpe

To be honest with you, we haven't done that much detailed analysis on it yet. We've got to make between $166 million and $206 million in the fourth quarter. And so, you can imagine people are mostly riveted on that and trying to book 500 million in new units. So I honestly can't answer the question yet, but we'll have more granularity for you when we have our call in February on that.

Operator

Our next question in queue is from Collin Gerry of Raymond James.

Collin Gerry - Raymond James & Associates, Inc., Research Division

Guys, most of mine have been answered, but I had a couple of quick ones. Jan Kees, I'm curious as we look into next year, do you have an idea like what percentage of your bookings you expect to be in the POC arena?

Jan Kees Van Gaalen

Look, we'll provide you with that number in February 2014, together with the rest of the guidance at that point in time. But I wouldn't think that it would materially change for where we think we're going to be ending up by the end of the year.

Collin Gerry - Raymond James & Associates, Inc., Research Division

So still in the kind of low double-digit, maybe even single-digit range? Is that the right ballpark to be thinking about it?

Jan Kees Van Gaalen

We think we'll -- in terms of the forecast, we think we're going to end up at the end of this year at about 5% of total revenues. And we think for next year that will be probably be the ball mark.

Collin Gerry - Raymond James & Associates, Inc., Research Division

Okay, that's very helpful. And then last quick one. I think we spent some time kind of really digging into some of the numbers and getting there. And one thing that's kind of come up a couple of times is the variability in terms of what happened at the end of this year, with how -- what will happen at the docks? Whether things will actually get shipped or not. And I'm just wondering, we've heard from a lot of service companies that they're seeing their business could be materially impacted by the fact that Christmas is in the middle of the week. And so you're going to have a lot of downtime, whether you're dealing with governments or getting your paperwork or whatever. Should we factor that in and maybe discount that a little bit? Or to what degree do you think that affects kind of the end of your quarter?

Vincent R. Volpe

I think there may be some impact of that, but I wouldn't think that, that would be the major driver. We've got to ship $150 million worth of stuff in the last 10 days on new units. And so the risk really is a document or something not being done. I think physically, we feel we can get all this stuff ready to ship and ready to go, so to speak. So we -- some of that just in terms of probability, some of that is not going to happen, okay? And so that's sort of -- we've quantified that somewhere around $20 million downside risk. On the other hand, we believe that we will get more towards the traditional number of bookings shipped in the aftermarket. And we've got opportunity there perhaps on the same order of magnitude. So when we look at these 2 things, we've given you $400 million to $440 million for the full year or $166 million to $206 million in the fourth quarter, if you will. And you can pick whatever point you'd like in between those 2, but the midpoint of that is somewhere around where the present consensus sits now. And I think that's as good a guess as any. There's always some things that happen in both directions.

Operator

Our next question in queue is from Robin Shoemaker of Citi.

Robin E. Shoemaker - Citigroup Inc, Research Division

To ask you about the internal initiative you have underway to provide contract-related documentation for NOCs in a more timely, kind of expedited manner and where we stand with that? And could that potentially help the gradual reduction that you just described next year in working capital?

Vincent R. Volpe

Yes, Robin. As it relates to the NOCs, I think we have made progress on our internal documentation initiative. As it relates to the NOCs -- and that's a general comment, right? That sort of stands for everyone. All customers want documents and there is sometimes retention and so forth, the 5% or whatever of the project. And of course, if we don't get those documents issued, we've got 100% of the cost and 95% of the sales recorded. So we're very motivated for all of our business to improve the documentation, which is hard by the way, because this is as built, finished documents that normally go in manuals. And so if there's a lube oil pump or something from -- a valve or something from a supplier, until we get all of those things in our manuals and out to the customer, it is not complete. So this is more than us just making drawings. That being said, I think the problem we have with the NOC is probably -- one really big, big, big one around documentation was exactly what their requirements were. And we went through numerous, numerous iterations before we got it right, in terms of what their actual requirement was. They had different partners that all sort of had their fingers in the pie, to speak. So from the time we'd issue a document to the time we got it back on the principal issuance was much longer than normal. Then when we got it back, we'd get comments. We changed and revised the document, send it back again and somebody else comes up with another comment. And so it's been very, very complex. And until you get all that documentation done, you can't cut an invoice. Now the good news is once you cut the invoice and it goes into their system, it goes through pretty quickly. So there's not a system problem, per se. It's doing all the preparatory work to get it into the system. The other good news is this contract is now largely 1.5 years old or more and we have figured out how to get all the parties to review things quickly and more effectively and so things are improving on that specific program on the -- sort of the upfront side of it. So I don't think that, that is going to be -- as we -- as that contract flushes out over time, I think you'll see that problem go away or greatly disappear. And then as Jan Kees said before, the business that's coming behind it we don't actually expect to have the same challenges or see the same set of challenges with. So, I think, broadly speaking, we're confident, although we haven't given you a detailed forecast on how quickly or how much, we're confident that all the levers are going to start going in the right direction here in most cases, around net working capital. With one exception, and that is in the very short-term, we've got 1 contract, which is a percentage of completion contract, which is -- we've -- about 3/4 of it has been built in to inventory over the next quarter or so it's actually -- the net working capital on that is actually going to go up $20 million or $30 million and then it will ramp down either Q2 or early Q3 when we get paid. But it will all come down and it's a combination of the things that Jan Kees covered, not the least of which is the NOC work. And yes, our work on documentation has helped that and should continue to help.

Robin E. Shoemaker - Citigroup Inc, Research Division

If I may, just one other aftermarket related question. In your 10-Q, you commented that aftermarket sales were quite strong in Latin America. And I just wonder what -- how that -- is that some catch-up type of aftermarket sales? Or kind of generally, what's going on regionally on the aftermarket?

Vincent R. Volpe

No, it's not catch up, Robin, it's just really strong. As we build our install base there and recognizing that this equipment is critical to -- is critical to the economies of these countries because it's directly related to the production of oil or refined products, they're spending more and more on maintaining the equipment. And on top of that, they're also moving closer to a fuller service model, which we think is a good thing. And our folks are doing a great job encouraging them to look at the total life cycle cost. Let's talk about long-term service agreements, so that we don't leave maintenance up for the normal "let's wait until it breaks and then buying new parts" syndrome. So I think our team is working hard to grow that business, but I don't think it's a catch up or -- I think that's a potentially a steady state, as much as there is steady state in life, that's a steady state secular growth trend.

Operator

And our next question is from Jeffrey Campbell of Tuohy Brothers Investment Research.

Jeffrey Campbell - Tuohy Brothers Investment Research, Inc.

A lot of the big picture questions been asked. So let me just ask a couple of quick pointed ones. With regard to the LNGo, if you maybe want to describe it as percentages or however you like, based on what you're seeing now with your customers, what would you say is the percentage of more fixed solutions -- fixed located solutions as opposed to mobile solutions?

Vincent R. Volpe

Well, it's a really great question, Jeffrey. This is a market that's defining itself as we go. Let me give you an example. You talk about large scale fueling opportunities, which we think is part of our -- part of our -- what could be a huge serve market for this. Now, the economies of scale, when you look at it, would dictate that you're probably better off building 100,000 gallon a day plant in one place, so that's your fixed place. And then you bring the transport back and forth, trucks or whatever you're going to use to transport the LNG from that facility and you move out in sort of a hub-and-spokes -- with a hub-and-spokes approach. But that plant takes -- pick a number, 3 years to get designed, permitted and built. In the meantime, in a matter of a few months, and I'm being careful not to tell you how many, but it's a real -- in a real short cycle time, you can buy a 6,000-gallon-a-day facility from us, and we can have it installed and up and running. And so, while you may longer term consider your -- in fact we have customers that we're talking to about this very thing, that say, I'm going to build -- I think I'm going to build a 100,000-gallon-a-day facility, but it's going to take me 2 or 3 years, there's nothing wrong with making money right now, because even these small plants, the cost savings is probably over $1 a gallon versus diesel. And so let's put these small plants in and we put them wherever we need them by the way, so we can fix -- if we're out -- out in the middle of nowhere and we need some LNG, we don't have to truck it, we can go put these things right on-site, if it's stranded gas or frac-ing or whatever. So there may be -- I think the fueling market transportation is looking at larger blocks that would be stationary. But I'm not completely convinced that that's not a market for us. I think if we start putting in small units, we may actually dissuade some of these people because they may look at it and say, "You know what, I'm already saving money by doing this. Maybe I ought to take my capital and invest it elsewhere rather than getting -- looking at the incremental gain I can pick up by going from a bunch of small plants to a bigger one." So, I think there's an immediate market in fueling because of that and it may be longer term. I think that there's a market around stranded gas, coal bed methane, for mining it, particularly looks like a good opportunity. And I think, really, the whole -- one of the potential home runs here is there is already legislation in North Dakota that says we have to stop flaring, as we're frac-ing and producing oil. And so, we offer a solution here that will allow that to actually happen. And so when there is technology available, it's sort of known as the best available technology clause, it makes it very important for the people that are frac-ing up there to use it and so we think we've got a wonderful opportunity with our package, the way that it is now designed. There's basically one more piece that needs to be added, which is fuel conditioning upfront of that and we're ready to go in the Bakken. So I think fixed versus small is hard to know. But generally speaking, frac-ing, coal bed methane applications for mining, stranded gas, these are all portable market deals and your well may last a year, 2 years, 3 years, and you may want a rental company to move it from one place to the next or to take it out. Large scale transportation, that may be more larger scale plants. Now that being said, let me just say one other thing, and that is, we have -- this technology allows us to go to 100,000 gallons a day. So we've decided to start with the small portable plants because we think it's a great way to get started and we can move quickly. But we also have -- we have now the process license to actually work on plants up to 100,000 gallons ourselves. I just don't think that's the biggest bang for our buck right now. So I hope that gives you a little bit of flavor. As I said, Jeffrey, this thing is going to define itself as we go forward. We're just content now to get through our development cycle, get some orders, move some of that inventory that we've got and start really putting our mark on this market. And I -- and going back to what I said before around rentals, we're also looking at developing a partnership or partnerships and we haven't decided yet with several of the large rental people that run managed rental fleets. We are not going to be a rental provider, per se. We're not going to carry these assets on our books. That's not our business model. We don't really know how to do it in this case, and we're not interested in learning. We do have energy assets, we operate in Brazil, we're good at that, we know how to do that. Those are engines making power. But in terms of these LNG facilities, there is not going to be any strain on our balance sheet. We're going to work with either a partner or several partners, depending on how negotiations go here over the next few weeks.

Jeffrey Campbell - Tuohy Brothers Investment Research, Inc.

Okay. That was pretty comprehensive, very helpful.

Vincent R. Volpe

I don't know if I answered more than you really wanted, but there it is.

Jeffrey Campbell - Tuohy Brothers Investment Research, Inc.

No that was great. I'll ask one more and then I'm done. And this is kind of a broader question, one that I think -- it interests me anyway. I know that -- we hear a lot about how there's an effort from a number of the larger players in the industry to try to better standardize the kit that's going on, the FPSOs and the evolving FLNG solutions. You guys are kind of in the middle of this stuff. So I was just wondering, are you seeing any evidence of a move towards more standardization or is this still pretty much bespoke stuff?

Vincent R. Volpe

Well, I think that everyone's intentions are pretty good. And there may be some parts of the vessel that are being standardized that we just don't touch, right? So I can't really answer for the whole vessel. But in terms of what we do, there's a certain amount of kit that you can standardize around the packages in terms of the footprint and the size and so forth. And clearly, what we're doing with our ICS is we're trying to move people to using what is a much smaller footprint requirement. And we believe over time, we will get them to standardize with our kit. That said, the equipment itself, the machinery, it's going to change, Jeffrey, because the reservoir pressures are different, the temperatures are different, the gas compositions are different and some of the processes are different also. So, I think, the compressor itself is always going to change, including when you move a vessel from one site to the next, you may have to either revamp the compressor or completely change it. I do think we have a chance to get them to standardize around the ICS single lift module. As far as the vessels themselves, I don't think I've seen any real ability from anybody to standardize. I mean Jan Kees has been exposed to this. What do you think?

Jan Kees Van Gaalen

Well, look, I think, Jeff, all of the reservoirs are different, have different conditions, have different lives and different -- how do you say, reinjection requirements over the life of those reservoirs to basically remain in the reserve category. So I don't think that you can look at standardizing the compression side at all, the rest of the ships, yes, the holes maybe standardizable, perhaps ship screws maybe standardizable. Perhaps some of the umbilicals, et cetera, et cetera. But I wouldn't think that the compression equipment, which is so much tied really to the reservoir and the life of the reservoir over time, that can't be standardized.

Vincent R. Volpe

No, that's it. Just to finish the thought, just because you can't standardize the compressor, doesn't mean you can't standardize the module and the customer interfaces that go around it. So we do actually think that can happen and that's got to happen one customer at a time. An SVM or any of the other people that are building vessels, they need to come with their own ideas around that in their own intellectual property and we'll work with them.

Operator

Our next question is from Joe Gibney of Capital One.

Joseph D. Gibney - Capital One Securities, Inc., Research Division

A couple of quick ones. I just wanted to button up a little bit on fourth quarter and the unit revenue. I understand a very late December weighting to the $150 million shipping. What is scheduled for the aggregate full quarter on the new unit side scheduled to ship? I just wanted a little bit of color there.

Vincent R. Volpe

On new units? Let me just -- give me a second here. New unit sales in the fourth quarter is between $700 million and $800 million.

Joseph D. Gibney - Capital One Securities, Inc., Research Division

And one last one. Just big picture, I understand topic of the call today, a little bit more acutely focused obviously on throughput and execution understand it. You also alluded to, though, maybe bookings level being a little bit sustainable coming out of the fourth quarter. Just curious, are you -- customer resource and CapEx restraint backdrop that's sort of driven this broader delay backdrop over the last several quarters. Are you seeing some green shoots of abatement there? Just kind of curious to get your broader perspective. Though you seem to indicate that maybe tide perhaps beginning to turn there. Just wanted some additional color.

Vincent R. Volpe

Yes. I'm aware of several hundred million dollars worth of projects now where the clients have said we are going to go forward. There was a big question mark 6 months ago as to whether or not they were going to move. They've gotten the cost reductions that they were looking for and/or the -- or perhaps have negotiated concessions. I mean, I don't really know what's happened behind there -- behind-the-scenes, but I have specific data that is -- that suggests that we are starting to see the -- at least several hundred million dollars of orders that I specifically am aware of where these projects have now been -- they said to us, we are going to go forward, so it's not just -- and the cost savings by the way, that they've made, haven't been on the compressors, okay. The compressor doesn't change the size of the FPSO, the order -- it doesn't affect the order of magnitude or expense on the FPSO.

Operator

Our next question in queue is from Basil Jones of BB&T Capital Markets.

Basil M. Jones - BB&T Capital Markets, Research Division

First question, back to the small-scale LNG, could you add a little more color on the margin profile of this product? And you mentioned that you'll have significant content on these units. Could you maybe discuss what these units could sell for and what the content value would be in dollar terms?

Vincent R. Volpe

Well, yes. I think the units somewhere will sell somewhere between $5 million and $6 million a unit. Okay. So I'm being -- I actually know the number, I -- this is one I'm not going to give you because I know who else is listening. But they'll be on that order of magnitude. And there's somewhat -- it depends on the scope also. Some of these units may not need a power module, which has got our Guascor engine and that would reduce significantly the price. But we think most of them, having power, an installed source of power, is actually quite helpful. And we believe that the margins, as first movers, armed with a really great product, we think we can make reasonable margins on this and frankly, a little bit better than what's in our traditional business. And so, you now have a sense of the order of magnitude of these things. We've put a fair number of these, we've built some inventories so that we can move quickly. And then going forward, I'm not counting on replenishing the inventory. What we're counting on is managing our supply chain, so that the people that have some of the standard parts that we need, the Turbo expander or some piping or Joule-Thomson valve or emulsive [ph], things we integrate in to our package. They're standard products. They need to have them either on the shelf or close to being on the shelf so that we can manage through the supply chain and not have to add all this inventory on our books going forward. So it was a one-shot deal, we did it on purpose, because we wanted to build X amount of units, so that we were ready to go. And now going forward, as we sell those units, we will not be replacing that inventory in kind, but we will be able to maintain short cycle times. So, if you're a first mover, and you get a nice little fleet set up to begin with and you're able to continue to add to that fleet in very short cycle times and if your product works, and we're going through that now, then there's no reason we shouldn't be able to sustain that business for quite some time. Other people have announced that they've got something, but I haven't seen anything work yet. And so, we think we can really have a first mover advantage here and be able to maintain decent margins for the foreseeable future.

Operator

Our next question in queue is from Robert Connors of Stifel, Nicolaus.

Robert V. Connors - Stifel, Nicolaus & Co., Inc., Research Division

Just wondering for the 2014 new unit outlook if you're expecting a mix shift either by end market or geography from what you're booking right now?

Vincent R. Volpe

I think the -- what we see coming in front of us is going to be -- there's quite a bit of pent up upstream work that's coming. So we might see -- we've seen in the past upstream being as high as 45% of our total, right? If I look hard enough I can find that back in some quarter. And so I think that -- I'm looking at the charts here. In 2010, it was 44%, right? And so, it could be that high now because of the pent up demand that's going to be released. And then I think steady-state, it goes -- it ought to move back towards a more traditional mix of call it between 30% and 40% is upstream, it’s still going to be -- probably the single largest piece of our new unit bookings. But I think, we'll see -- we talked about environmental sort of flattening out somewhere around 20 and then the rest being split between midstream and downstream, with downstream probably being a greater percentage than midstream.

Robert V. Connors - Stifel, Nicolaus & Co., Inc., Research Division

Okay, that's helpful. And I notice your parts business, the revenue is picking up here, just generally speaking, what are you thinking of the time and how you stand competitively around a lot of the equipment that is going to be expected to go in to the North American LNG plants and petchem facilities.

Vincent R. Volpe

Is this a question on parts, or is this a question on new units? I'm confused.

Robert V. Connors - Stifel, Nicolaus & Co., Inc., Research Division

On new units, I'm sorry.

Vincent R. Volpe

Okay. On new units, listen, I think, as far as the reciprocating compressor, processed compressor business, we're the only manufacturer in the United States that still builds processed recips of this class. So I think that we -- we have had a strong market share and we should continue to expect that. As it relates to Turbo compressor business, we really have one other significant competitor that builds centrifugal compressors here of this class in the United States. The rest of the folks that would service the market would be imports, either from Europe or Japan. We think we had a little bit of advantage over them because we're here, we've got greater service network and so forth. So, I think we ought to be able to get our fair share, plus a little bit, when I look at the 2 principle product lines that are servicing these opportunities. The steam turbine business, to a little bit less extent, because we're seeing a lot of these -- the recip machines are being driven by motors, always have been. And a lot of the petrochemical activity now, some of it is steam turbines and we have a very good -- good facilities to build this class of equipment here in the states. Burlington, Wellsville, particularly, but I think the steam turbine will be a little bit less of an -- to a little bit less extent just because the demand will be lower.

Operator

I'll now turn it back to Blaise Derrico for final comments.

Blaise E. Derrico

Pablo, thank you. I want to thank everybody for joining the call. I am available for questions, you can find my phone number contact information in the news release we issued last evening. Everybody have a great day and enjoy the weekend.

Operator

Thank you. And once again thank you, ladies and gentlemen, for joining today's conference. You may now disconnect. Have a great day.

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Dresser-Rand (DRC): FQ3 EPS of $0.64 in-line. Revenue of $633.9M. (PR)