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Cameron International Corporation (NYSE:CAM)

Q1 2010 Earnings Conference Call

April 29, 2010 8:30 AM ET

Executives

Scott Amann – VP, IR

Jack Moore – President and CEO

Chuck Sledge – SVP and CFO

Analysts

James Crandell – Barclays

Stephen Gengaro – Jefferies & Co

Mike Urban – Deutsche Bank Securities

Marshall Adkins – Raymond James

William Herbert – Simmons & Company International

Brian Uhlmer – Pritchard Capital

Juan Chisler [ph] – Credit Suisse

Jeff Tillery – Tudor, Pickering & Holt Co., LLC

Geoff Kieburtz – Weeden & Co

Robin Shoemaker – Citigroup

Roger Read – Natixis Bleichroeder

Operator

Greetings, ladies and gentlemen, and welcome to the Cameron First Quarter Earnings Conference call. (Operator Instructions) It is now my pleasure to introduce your host, Mr. Scott Amann, Vice President of Investor Relations for Cameron. Thank you, Mr. Amann. You may begin.

Scott Amann

Thank you. Good morning and thanks to all of you for joining us today. This morning you’ll hear from Jack Moore, President and Chief Executive Officer of Cameron, and Chuck Sledge, Senior Vice President and Chief Financial Officer. Jack and Chuck will offer some commentary on the results for the quarter and we’ll then take time to field your questions.

In accordance with the Safe Harbor provisions of the securities laws, we caution you that some of the statements made on this call may be forward-looking in nature and as such are subject to various factors not under the control of the company. For a more complete description of these factors and the related risks and uncertainties, please refer to Cameron’s annual report on Form 10-K, the company’s most recent Form 10-Q and the associated news release.

With that, I will now turn things over to Jack.

Jack Moore

Thank you, Scott. As you’ve seen by our release this morning Cameron’s Q1 results generated $0.51 a share before special items related to the NATCO integration cost, which equates about $0.03 a share. We’ve also raised our earnings guidance for 2010 to a range of 220 to 230 versus our previous guidance of 210 to 220 excluding any special items. This change reflects the impact of the shorter cycle business primarily North America that is having on our earnings leverage in 2010.

Revenues for the quarter finished at $1.347 billion, which is up 7% versus Q1 of ’09. This is primarily driven by increased shipments in our subsea business unit and the addition of NATCO, which combined offset lower sales in our Valves & Measurement group as well as our compression groups.

Bookings for the quarter came in at just over $1.2 billion which was up 23% versus Q1 of ’09. And that is without any significant projects booked in the quarter. This underscores the breadth of our product lines and our ability to participate across the broad spectrum of the oil and gas markets.

Backlog finished at just under $5 billion for the quarter and we did see the benefit of having a full quarter at NATCO in these numbers. Further to that point integration of NATCO has resulted in substantial year-over-year growth and Process Systems bookings with sequential orders up 140% as well. In addition to our product lines within Value & Measurements saw both year-over-year and sequential bookings growth.

Total bookings for V&M came in at just over $400 million, our largest quarter since Q3 of 2008. This was driven by engineered valves which benefited in the quarter with a booking of Exxon Mobil’s Barzan project in the Middle East. We expect to see a number of engineered valve projects awarded this year and Cameron is in a good position to win its fair share.

We also saw a significant turnaround in our distributive valve orders which grew by 150% versus Q1 of ’09 and 70% sequentially. We are seeing the benefit of many of our distributors restocking their inventory levels that have been worked down with a ramp up in rig activity, plus the build out of infrastructure and the shale plays both gas and oil.

Current order rates continue to run well above last year levels but we expect to see some leveling off as inventories are restocked. Our process valve business was up 20% both last year as well as sequentially. Overall I was optimistic about our valve business in 2010 on the last call and the outlook has not changed. Bookings for our Drilling Production Systems group came in at just under $700 million. We booked just under $200 million in our subsea business unit with a total of 10 trees booked for the quarter.

As we stated in the last call, we see a healthy environment for subsea orders over the course of the next 18 months, as customer enquiries and tender activity remains very active. It’s all about timing and that is something we can never control. Our surface systems bookings were up year-over-year and sequentially with all of the increase coming from our North America region.

Our share continues to pick upstream in the shale plays which is driving a big part of this increase. We also expect to see an increase in our international markets, as the rest of the year unfolds to complement our North America activity level. With recent awards in Iraq from both BP and Schlumberger for surface wellheads and trees will support this increase as well as new projects in the North Sea, the former Soviet Union.

As stated earlier in our proxy systems bookings grew by 140% in the quarter. The integration is going smooth and our teams are focused on leveraging the global footprint to support sales and service activities as well as integrating the joint technologies. One incremental growth opportunity their team are excited about is the expansion of what was formally known as NATCO’s standard and traditional product line.

Into our international markets where Cameron has a mature put. We did open our Process Systems Technology Center in March. This is world’s most advanced center for oil, gas process and separation, research, development and testing, both onshore, offshore and subsea. As for drilling systems, current bookings for the quarter reflect no new Deepwater stack awards but does reflect the uptick in our aftermarket business which always follows a new build cycle.

As for new builds, as we communicated in the last call, we did anticipate an extended process for the awards of the Petrobras new build program. The reality of the complexity of the tender process continues to move award base to the right and in this case for at least another 60 days.

On a positive note however Petrobras has raised its commitment level towards funding additional new build rigs underscoring the focus that they have to create a sustainable rig construction market in Brazil. Cameron has approximately 1,000 employees today in Brazil and are well positioned to support the local currency demands that this market opportunity would generate.

We do continue to see ongoing new build and upgrade programs for onshore markets in both North America and the Middle East as well. Our Compression Systems business seems to have finally trough its positive order flows towards the later part of Q1, point to a stronger booking for the balance of 2010. Most, all of our growth will be centered in our international markets with it evenly balanced between (inaudible).

On the pricing front, we are monitoring the impact of steel and energy cost across all business units and we are passing on those increases as we see appropriate. As for the outlook for overall activity for Cameron, North America will finish the year stronger than we had planned late last year. I guess you could consider ourselves slightly conservative. We do however expect the second half of the year to soften to some degree.

Our expectation for international activity is for gradual uptick as global demand for oil continues as positive trend upward. Now let me make one final comment before I turn it over to Chuck. Our industry suffered a tragic accident last week with the explosion on board the Deepwater Horizon rig and like all of you our thoughts and prayers are with those affected by this tragedy. And is then reported Cameron did supply the BOP to the Deepwater Horizon rig when it was commissioned in 2001. Although we have had no one on the rig at the time of the accident Cameron personnel have been working around the clock with Transocean, BT and others to bring the well under control.

Everyone has questions as to what may have caused this accident to occur. While I’m sure that this answer will come once the full investigation is completed. Our focus at this time is on assisting Transocean and BT to get this well shut in. I would have to direct each of you to a dedicated website that has been established by BT, Transocean and the unified command that is updated daily on the efforts put forward to bring the situation under control, www.deepwaterhorizonresponse.com. And with that I will turn it over to Chuck.

Chuck Sledge

Thank you, Jack. As we reported our operational results for the quarter were $0.51 per share as compared to our original guidance of $0.48 to $0.50 per share. EBITDA margins for the quarter were 17.5%, a 120 basis points sequential improvement. Margins for the DPS Group increased a 190 basis points sequentially reflecting improvement on the cost side of the business.

Over the next three quarters, I will point out however the DPS margins were moderate as we delivered significant amount of subsea systems projects which typically carry a lower margin than DPS’s overall margin. V&M EBITDA margins were relatively flat sequentially which was encouraging while compressions were down somewhat due to the negative leverage on the sales volume decline.

Primarily as a result of the increased mix of subsea project revenue, overall Cameron EBITDA margins should wind up somewhere between 16 and 16.5% for the year. We incurred $0.03 per share of severance in acquisition, integration costs during the quarter and we will continue to see integration cost throughout 2010 related to the NATCO acquisition and we will call these out in separately in future quarters.

We consumed a $116 million of cash in the quarter, primarily due to a decrease in cash advances from our customers as we make significant progress on delivering our drilling and subsea backlog. I will point out that Cameron typically consumed cash in the first quarter and generate significant cash over the later quarters.

We ended the quarter with $1.6 billion of cash and $356 million of negative net debt. So ample with liquidity for whatever the future holds. Our CapEx estimate for 2010, remained approximately $180 million. We bought one million shares during the quarter and as we’ve said before share repurchases represent a viable use of cash and we intend to continue dilution over the – excuse me, to control dilution over the long term.

With respect to 2010, we have raised our outlook to 220, to 230 per share up from the previous guidance of 210 to 220 and again these exclude any restructuring costs and the reason for the increase is really the benefit we’re seeing in the North American rig count on our shorter cycle businesses. D&A for 2010 should approximate $190 million, net interest expense for 2010 should be in line with 2009 level and our effective tax rate should approximate 25%.

Finally I’ll point out our guidance assumes $240 million fully diluted shares outstanding. With that let's open it up for questions.

Jack Moore

Okay, Diego, we can go to questions please.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). Our first question comes from Jim Crandell of Barclays. Please state your questions.

James Crandell – Barclays

Good morning.

Jack Moore

Hi Jim

Chuck Sledge

Good morning Jim.

James Crandell – Barclays

Jack, when do you think we will get some information on the sort of performance of the GLT system and maybe why that didn’t start down the well?

Jack Moore

Jim I would not want to speculate on that, right now all the efforts are really geared around getting this well shut in. There will be a full investigation and I think that will bear out hopefully to everyone what happened. But it’s just too early to speculate on when.

James Crandell – Barclays

Okay, Jack there is also a lot of questions about your insurance coverage relative to this, could you briefly summarized?

Chuck Sledge

Yes, Jim I will. We have a $500 million liability policy that will respond to any claims if any again related to this matter.

James Crandell – Barclays

Okay. Second question, Jack, I believe I heard you say that the pre-salt 40 tree order will be put out in another two months, is that correct?

Jack Moore

So I was referring to the rig new build rig program…

James Crandell – Barclays

I’m sorry, Okay, could you give us the status of that tree order I think that was originally expected in the first quarter?

Chuck Sledge

Yes, I can tell you that we’re not going to be participating in it. That much I can tell you. We didn’t have the right price.

James Crandell – Barclays

Okay, there is only two other betters.

Chuck Sledge

And you can ask the other one here pretty quick.

James Crandell – Barclays

Okay, well sorry to hear that.

Chuck Sledge

I won't answer for the rest.

James Crandell – Barclays

Jack where do we stand, going back to your BLT business in the first phase of Petrobras, this new build program, I believe that Delba for its four rigs hasn’t yet ordered sort of rig equipment packages GLTs etcetera, is that a live prospect for you at this point or where does that one stand?

Jack Moore

All of them Jim, would be, I mean these guys -- its going to be a very engaging tender process. So there is going to be multiple shipyards that are betting on this and multiple operators and I would say it’ll be, it will be very healthy process between ourselves in OB and GE. So it’s going to take a little while for it to sort out because so many technical challenges had been put forth with some of the rig equipments.

Dual drilling centers, single drilling centers all of these things have been are being cost around but I think that’s been finalized, kind of as we speak and everyone is in the process of getting their tender responses put back in order. So hopefully we’ll see something here in the next, within the next 30, 60 days.

James Crandell – Barclays

Okay and my last question Jack, excluding Brazil, do you see your customers moving forward at a faster pace in Deepwater now and so to be expect the answer is yes could you maybe provide some specifics?

Jack Moore

Well, I’ll tell you what, our tender in activity is significant and I’ve always said that I wish we could control the timing of these awards, I mean when you at the potential that still exists just in West Africa alone with (inaudible) Injena in Nigeria and I think as those elections get solidifying there is going to be a lot of local content challenges there for us but we know those are coming. I mean we’re going to be building trees here in the next six months in Nigeria for the balance of Luzon.

So we’re getting well ahead of that curve, so we feel we’re in a great position to continue that momentum and with the local county and we’re building wellhead equipment in Angola right now for BP. So all of these things are setting the stage what we feel is for a very robust market, as it continues to unfold. Angola, again you’ve got CLOV that’s coming up, I think right around the corner, once that gets awarded you’ll see other ones come behind it. And like every, and like we’ve always said our major operators have such a huge commitment and focus on Deepwater that this momentum will continue.

James Crandell – Barclays

Okay, thank you.

Jack Moore

Thanks.

Operator

Our next question comes from Stephen Gengaro of Jefferies. Please state your questions.

Stephen Gengaro – Jefferies & Co

Thanks, good morning gentlemen.

Jack Moore

Hi Steven.

Chuck Sledge

Good morning Steven.

Stephen Gengaro – Jefferies & Co

Two questions, I think I’d start with I mean you mentioned the sub-salt trees in Brazil. Can you -- how does that pricing impacts the pricing around the globe. Is there any impact others looking at, what Petrobras is doing, that’s my first.

Jack Moore

I wouldn’t expect that Steven because those trees and those the way that Petrobras orders where trees are separate from manifolds and some kinds the tree systems are in the manifolds. It’s not the typical system tender that we would see for like Block 31. So I wouldn’t flow lands are tendered differently and Petrobras is a very uniform way of going about it and its very efficient for them. So I would just say that I wouldn’t hold Petrobras as the standard for the rest of the world.

Stephen GengaroJefferies & Co

And any update on the manifolds down there?

Jack Moore

Not yet, I think the first award FMC is the – it’s been I think known as the winter of Block 1 and but I don’t see anything official on that yet and normally they will not award the second lot until the first lot has been awarded and made official. So that’s historically always in the process and I don’t see any reason they would change.

Stephen Gengaro – Jefferies & Co

Great and then my other question centers around V&M, you had good order flow, how should we think about margins progression there as we move through 2010?

Jack Moore

I’ll let Chuck answer that.

Chuck Sledge

Margins held up really well there during the quarter, so that gives some optimism for the rest of the year. We do have a little bit in engineered valve backlog that we booked during the depths of the pricing pressure. So you may see them come under a tad bit of margin pressure over the remaining part of the year, but clearly it’ll trough this year and if distributed valves keep going gang buster you may not see it in the overall at all.

Jack Moore

The valve business, we’ve been waiting on this one. We were disappointed last year that everything just kind of drifted to the right and this thing has kicked in and they are cooking right now.

Stephen Gengaro – Jefferies & Co

Any guess on when margins overall trough this year?

Chuck Sledge

Given how we account for our project revenue meaning we got to get it done and get it accepted by the customer really I prefer not to call it because I will be wrong.

Stephen Gengaro – Jefferies & Co

But although you’ll be wrong, it will be helpful.

Jack Moore

Yes, sometime this year, they will trough this year.

Stephen Gengaro – Jefferies & Co

Okay, thank you gentlemen.

Jack Moore

Thanks Steve.

Operator

Our next question comes from Mike Urban with Deutsche Bank. Please state your questions.

Mike Urban – Deutsche Bank Securities

Thanks good morning.

Jack Moore

Good morning.

Chuck Sledge

Good morning, Mike.

Mike Urban – Deutsche Bank Securities

So you talked about pickup in your shorter cycle businesses which makes sense but the parts of the surface equipments business and the valve businesses that have typically been shorter cycles. Those businesses in general have migrated to much more of an international mix over the last several years. How short is short cycle internationally or is there such a thing or should we still think about it as more of a project business?

Jack Moore

Well that’s a good question. The thing in international what we normally see with valves and wellheads and trees is long-term contracts. They are still delivered in a shorter cycle per se in terms of throughputs or factories in call-offs, but they are committed for a long term. Maybe like two to three years in some cases, whereas in North America its normally, you normally get a – you pick up by well-by-well basis in some cases. So that when we talk I guess truly short cycle in our business, it is that business that moves with the rig count maybe within 60 to 120 days.

So that’s more normally going to be North America, little bit of Latin America, some in the Middle East. It’s probably characterizes about 20% of our business overall.

Mike Urban – Deutsche Bank Securities

Okay, that’s helpful. And with respect to the North America outlook and some of the – you specifically mentioned with respect to the shorter cycle business, you talked about the potential for some risk there in the second half. Is the decreases in the outlook really just based on what you are seeing coming in the door in terms of orders right now and if the US or North America kind of flattens out or is that going down or needs to go up that would imply some additional upside is that the right way to think about it?

Jack Moore

I would say that, we’re just cautious probably little cautious up, conservative on the 2010 forecast we put together for rig activity in North America. What surprises was a lot of the drilling to hold leases and we probably underestimated that. We also have underestimated the impact of our customers shifting some of their drilling budgets oil related versus gas related and that’s helped us. So that I don’t see going away, you see a lot of guys shifting to wet gas. So opportunities like in the Eagle Ford and these are half pressure wells that companies like Tamarind do pretty well with.

So while we look at the balance of the year and say you can't continue as great as it’s been we don’t see a whole lot of reason to say it’s going to crash either. So we – I kind of use the word soften maybe a little liberally, but too liberal but we don’t think it’s going, we don’t think it’s going to grow from where it is.

Chuck Sledge

Mike we probably have a couple of 100 rigs softening over the remaining part of the year in our forecast. Who knows if that’s the right number or not.

Mike Urban with Deutsche Bank Securities

Okay, that was very helpful. That’s all from me. Thanks.

Jack Moore

Thanks Mike.

Operator

Our next question comes from Marshall Adkins with Raymond James. Please state your question.

Marshall Adkins – Raymond James

Hey Jack, first I don’t know want to beat this one depth on the BOP and the Deepwater Horizon. What is their other backup systems like subsea safety valves and other stuff in addition to the BOP on the rig, help walk us through the other kind of safety systems that would exist in a setup like that?

Jack Moore

Marshall, of course, we weren’t on the rig and we weren’t part of the well completion operations. I’m not sure if they had a subsurface safe valve in the well, they may not have yet. But from my Baker Hughes days I can tell you I was in the subsurface safety valve business. So everyone of those wells out there that is producing has a subsurface safety valve in it, that does shut the well in when you lose hydraulic pressure to it. But that’s in a production mode. This well I don’t think was at that stage, so I’m not sure again that’s a question for Transocean and BT.

But it’s that what you’re referring to, I’m just not sure.

Marshall Adkins – Raymond James

Yes, I was just curious, to the mix there. Alright let me get a real question here, your margins were a whole lot better than I would have thought sequentially and you’re saying margins were probably bottomed sometime kind of looks like they bottomed in Q4, because you’re coming out pretty good in Q1. What drove the margin improvement this quarter, was it mix pricing, just walk us through that logic?

Chuck Sledge

Okay, yes so let's take it segment-by-segment. The DPS segment were drove the increase was on our all of our businesses, we just had better cost performance than we did in the fourth quarter, really wasn’t a mix issue there at all. Going forward I think we’re probably pretty close to the bottom in troughing in each individual business unit, but you will have within DPS the significant amount of subsea revenue that will come in Q2 through Q4. Again we said that subsea will be up 50% year-over-year. It wasn’t up that much in the first quarter. So you can see it back end loaded, with no come out. So that’s what’s going to cost the aggregate margin to come up.

If you look at the individual business units in DPS, we’re probably getting pretty close to the trough. Within V&M, shorter cycle businesses will be fine, those margins are doing okay, engineered valves, you’re probably going to see some choppiness in their project business margins, here over the next couple of quarters due to backlog we booked first part of last year and middle part of last year, but V&M may not see much margin compression the rest of the year depending on how it’s the short cycle businesses stay as robust as they are.

I’d say well Marshall, too our compression group and I mean you look at five years ago when they were ahead of revenue stream like they had in Q1.

Jack Moore

That would have been a single digit.

Chuck Sledge

It would have been a single digit number and their margin is pretty decent.

Marshall Adkins – Raymond James

Okay.

Chuck Sledge

And we think that will only get better as time evolved here.

Marshall Adkins – Raymond James

Well that’s very helpful and all I’ve got. Thank you all.

Jack Moore

Thanks.

Chuck Sledge

Welcome.

Operator

Our next question comes from Bill Herbert with Simmons & Company. Please state your question.

William Herbert – Simmons & Company International

Thanks, good morning guys.

Jack Moore

Good morning Bill.

Chuck Sledge

Hey Bill.

William Herbert – Simmons & Company International

A few questions here Chuck as it relates to updating the guidance here. Last call we talked about the DS revenues in 2010 being up about 15 to 20% year-over-year. Does that still hold?

Chuck Sledge

Yes, that’s probably a pretty good number.

William Herbert – Simmons & Company International

Okay, even with the I know you have a sort of cautious outlook on North America going forward, but assuming the quick start to Q1 and that we have witnessed certainly relative to your expectations and then assuming that the rig count really for pretty good reasons doesn’t collapse and doesn’t correct by two or 300 rigs as you were calling for but it’s actually stays where it is, it’s not fully tired during the combination of mix shift oil, hedging and just abundance of capital still pouring into this industry via JVs and what have certainly E&Ts have the money. So assuming the rig counts stays relatively where they had, is that revenue guidance should actually conservative now?

Jack Moore

Yes, we’re definitely sitting towards the top end of the number, you mentioned.

William Herbert – Simmons & Company International

Okay.

Jack Moore

But the lower end of the range is just probably up.

William Herbert – Simmons & Company International

I got it and on V&M I think you guys were calling for flat 2010 again you had a different set of expectations certainly relative to what transpired in the first quarter. Do you have any modified guidance on that front?

Chuck Sledge

Yes and I know you want that, so let me give it to you.

William Herbert – Simmons & Company International

Thank you, sir.

Chuck Sledge

I will probably just 10% to 15% increase in V&M.

William Herbert – Simmons & Company International

That’s all I have Chuck. Thank you. And compression I guess, we came into rig year with a pretty anemic backlog and expectation was for revenues to be down pretty sharply. Any change on that front?

Chuck Sledge

No, we’re still there, if we can get to half billion dollars of revenue in compression in 2010, that will be a significant win for our guys.

William Herbert – Simmons & Company International

Okay.

Jack Moore

I think what you’ll see is the upside in compression is going evolve in 2011.

William Herbert – Simmons & Company International

Okay.

Jack Moore

It’s just the timing of the booking.

William Herbert – Simmons & Company International

Hey Jack, getting back to the pre-salt tender on trees, it wasn’t Ocker a little better there on first tranche?

Jack Moore

I’m not sure if that’s been officially reported yet.

William Herbert – Simmons & Company International

Yes, I think they were, they may not be official but I think that’s out there.

Jack Moore

You can triangulate with the guys on the other call, that are coming up after us on the call and if it isn’t them it’s not us, then that's gets you to Ocker.

William Herbert – Simmons & Company International

No, I hear you, I think that’s still pretty comfortable with my assessment. With regards to the outlook for tree orders, I think sort of consensus expectations now are calling for about 400 trees this year. Do you have sort of guesses as to what I mean given the significance of the tenders that you’re seeing out there and the visibility on a multiyear basis going forward, do you have sort of guesses to what the tree outlook is for 2011?

Chuck Sledge

Boy now you’re getting, I would just say over the course of the next 18 months it’s going to be better than 400 run rate. That’s I think that’s clearly our expectation based on what we’re seeing.

Jack Moore

Because really have other than the big Petrobras award that FMC just got for lot two, the next one is CLOV and then you really don’t have any big, big project awards for sale yet but there is a bunch of amount there and…

William Herbert – Simmons & Company International

Yes.

Jack Moore

And those we’re all working on them. So they’re going to get.

William Herbert – Simmons & Company International

Along those lines Injena Second Phase of Block 31. Are all those pretty much next year events?

Jack Moore

Yes, could be not mostly likely yes based on this history but we’re working on all those tenders as we speak.

William Herbert – Simmons & Company International

I bet you are. Okay guys. Thanks very much.

Jack Moore

Okay.

Operator

Our next question comes from Brian Uhlmer with Pritchard Capital. Please state your question.

Brian Uhlmer – Pritchard Capital

Hey good morning gentlemen.

Jack Moore

Good morning Brian.

Chuck Sledge

Hi Brian.

Brian Uhlmer – Pritchard Capital

I just wanted to hone in a little bit more on margins and what led to I guess the improvement if we’re talking raw materials, operating efficiencies or short cycle stuff here to led higher margins and kind of what led to the sequential improvement?

Chuck Sledge

I think you pretty much got all the reasons there, clearly we had we’re not in a couple of businesses because of our, the way we contract for raw materials, the price increases haven’t hit yet. Secondly we’ve invested a lot of capital in the company over the last three years and it continues to pay off significant dividends in our margin. And then we did have a little mix with our similar shorter cycle stuff. So it’s combination of all the above.

Brian Uhlmer – Pritchard Capital

Okay and secondly when you talk about the acquisition and not doing the integration, how should we look at integration moving forward and how should we look at that turning into backlog and what portion of your DPS backlog if you can give that out what could come from the NATCO acquisition?

Jack Moore

Don’t have the answer to your last question at the tip of my fingers. I will tell you that the integration costs will probably ramp up over the later part of the year because we begin the process of putting them on our ERP, our enterprise wide business system. So you will probably see that and in fact I know you will see that when it’s up over the back part of the year. You will probably see our restructuring activities in the rest of our business though wind down. So I don’t imagine you’ll see in any one quarter much more than $10 million but time will tell.

And hopefully by the end of 2010, we will have most of the integration, vast majority of integration behind us.

Brian Uhlmer – Pritchard Capital

Okay, and then I guess one final follow-up. Going back to the NATCO product line. They had clearly if we talked about some more results coming out of Petrobras towards the end of the year, prior to your acquisition I was just wondering if you could give an update on if we should expect some separation results out of you now in the near future and what kind of the magnitude of orders could look like or the prospects down there and that’s my final question.

Chuck Sledge

Well a couple of things, we’re doing number of things with Petroco, excuse me Petrobras on the processing side. Some are in our legacy business Petroco some are NATCO, the CO2 separation that occurs on the FPSO, yes I think you’ll see us book some wins there and then as well as on the MEG side MEG Reclamation side, Petrobras will continue to experiment with that technology and we will be heavily involved in that.

Jack Moore

I’ll tell you, you think of Petrobras and we’ve got rigs developing subsea obviously a very pretty mature market that’s going to get huge, you got FPSOs that are coming behind all of this and we have a huge opportunity with the legacy Petroco and the NATCO technology that we acquired along with our valve business, along with our compression business that can participate in a big part of that infrastructure is still (inaudible). We’re pretty excited about having all of this together and looking it how to leverage this enterprise for the processing business going forward.

Brian Uhlmer – Pritchard Capital

Okay, thank you, you guys will have some good stuff at OCC show off next week in that segment or?

Jack Moore

We always do.

Brian Uhlmer – Pritchard Capital

Good. Thank you gentlemen.

Jack Moore

We’re (inaudible) in the middle of it all this year.

Brian Uhlmer – Pritchard Capital

Good, see you all. Thanks.

Jack Moore

Okay.

Operator

Our next question comes from Brad Handler with Credit Suisse. Please state your questions.

Juan Chisler – Credit Suisse

Hi, it's actually Juan Chisler [ph] filling in for Brad. I wonder if you could speak on NATCO and you guys can talk about how the US portion of that business did in the quarter, now you got a full quarter compared to the rig count. What you’re seeing in terms of the standard and traditional business, I guess we think of that as being, having the most shale benefit if you saw that in the quarter and what you see going forward to that business.

Jack Moore

Most definitely yes, we’ve seen a definite rebound in our North America what you call the standard new traditional business of the legacy NATCO product and services both for the gas and the oil. So that’s been a nice benefit, but as I mentioned on my prepared remarks, one of the things to gather really I think have seen an opportunity with this standard and traditional business is Mexico, the Middle East, former Soviet Union, some of the things in Eastern Europe where we have a pretty good presence already as Cameron, where NATCO was not quite as embedded especially in the what I would call the standard surface kind of environment.

So this has been where I think you’re going to see some nice wins that are probably going to come from some of the untraditional areas that we’ve sold this equipment in the past. So that’s just really a great incremental win for this acquisition, so we’re excited about where that’s going to take us.

Juan Chisler – Credit Suisse

And now that you’ve had them in-house for a full quarter, are you feeling any differently about the margins, potential in those businesses than say you were six months ago?

Jack Moore

No different. They will look a lot like DPS margins over time.

Juan Chisler – Credit Suisse

Okay, thanks. That’s it from me.

Operator

Our next question comes from Jeff Tillery with Tudor, Pickering & Holt Co. Please state your questions.

Jeff Tillery – Tudor, Pickering & Holt Co., LLC

Hi good morning.

Jack Moore

Hey Jeff.

Chuck Sledge

Hi Jeff.

Jeff Tillery – Tudor, Pickering & Holt Co., LLC

I guess Jack that in the international expansion you talked about for NATCO’s standard and traditional businesses, is that Mexico you’re talking about or are you alluding to other areas as well?

Jack Moore

Yes, Mexico is one market but the Middle East, former Soviet Union, Eastern Europe, these are markets where we’ve had a pretty strong traditional presence with our surface infrastructure and so these businesses will come along with it. And one country we don’t talk a whole lot about is where Iraq will consume a lot of this equipment as that infrastructure gets rebuild.

And NATCO actually had a pretty, they had some level of presence there and but we have a very strong surface presence there historically. So that’s going to be, I think that’s going to be a very interesting market for us as it involves as well.

Jeff Tillery – Tudor, Pickering & Holt Co., LLC

That’s helpful. Can you talk a little bit about just the debt environment for project awarding, I mean not just thinking about subsea here but thinking about engineered valves as well, Chuck has talked several times about the pressures coming this year from orders that were booked in a more competitive environment. Could you just give a qualitative feel for what the debt environment looks like to some of these longer lease time project awards?

Jack Moore

Yes, I think Jeff the subsea is probably the most competitive. We’ve seen some behavior that probably will show up in results of people here over the next couple of years, that’s a little discouraging to us. But on the rest of our project business, not bad, I think we’ve clearly bottomed in that and so I think its looks a lot better in the 12 months was a lot better than last 12 months did. The other thing Jeff, we’re very on the engineered valve business for instance we have great relationships with Exxon, Chevron, BP where they’re more focused on the quality, delivery, service after the sale. And price didn’t going drive their behavior as much as maybe where you have an EPC making the overall decision, where pricing is going to be more competitively tendered, part of the tender process.

So as our major customers, where we have strong partnering agreements in place with get these projects launched, that’s where we’re going to see opportunity, projects like Gorgon coming up and things of that nature. So where we don’t see as much price pressure but we see pressure on delivery and performance and things of that nature, where it’s kind of separates us from the some of the pack.

Jeff Tillery – Tudor, Pickering & Holt Co., LLC

Great. Thank you guys very much.

Jack Moore

Okay.

Operator

Thank you. Our next question comes from Geoff Kieburtz with Weeden & Co. Please state your question.

Geoff Kieburtz – Weeden & Co

Thanks very much. I guess start with subsea orders, if I understand what your kind of describing here is that the large project awards look like they are continue to slip a little bit further out and therefore most of the order we’re going to see in the next couple of quarters are going to be small, small size orders. Is that correct?

Jack Moore

Well I would say that the big order out there that’s probably going to get next is CLOV Cameron is not, we did not bid on the CLOV. So we won't be in that game. We’ve got a very healthy backlog in subsea so don’t let that get a whole lot of you tune but we’ve got a lot on the radar screen Geoff that is coming at us over the course of the next second half of this year, next year that we feel we’re in a good position to participate in. and some – we’re going to continue to see a lot of small orders as well, I mean we don’t we make a pretty good living on that and we’re going to continue to be very focused on the smaller projects but the big name plate projects I think are going to they’re going to be later than earlier.

Geoff Kieburtz – Weeden & Co

Right, I guess that’s kind of always been true, I’m just trying to understand whether you’re fee describing something whereas to little bit more accentuated or whether it’s just sort of normal business conditions?

Jack Moore

I think it’s normal business conditions if you look at it over a long cycle.

Geoff Kieburtz – Weeden & Co

Okay.

Jack Moore

If you take any one of us and any short one year only timeframe or six months or two quarters, you may see the timing work differently based on the customers or the projects that you targeted but I think over time, you’re going to see these awards kind of come in lumps and then they’ll move to the right and then they’ll in lumps and we just don’t see unfortunately a whole lot is going to change that.

Geoff Kieburtz – Weeden & Co

Alright.

Chuck Sledge

So we just, but we look at it long term and it’s a great business over the coming years and we’re going to be a significant player in it.

Geoff Kieburtz – Weeden & Co

Okay. I guess, as far as where I am dealing with this is that kind of emphasizing the if anything increasing intensity or competition these large projects, would it be, would you agree or disagree with the statement. We’d rather see you book a billion dollars worth of small orders than billion dollars worth of large orders?

Chuck Sledge

It depends. If it’s something we’ve made a lot of already.

Geoff Kieburtz – Weeden & Co

Okay.

Chuck Sledge

And it’s in parts of the world where logistically it’s easier to operate. It can be more meaningful for the bottom line, especially in your mature markets but taken on a huge billion dollar project in a part of the world that you don’t operate in historically with a brand new design, a lot of risk in that and that’s we have a few of those, we’ve had a few of those and we’ll probably have a few of those in the future but given the choice we probably take the stuff we’ve already done in an environment that we are very comfortable in but that isn’t always going to be the case. So we have to take what we get.

Geoff Kieburtz – Weeden & Co

Okay. And in terms of Chuck’s comment about the costs management being the real driver of the margins in the quarter. I understand, there has been a lot of capital investments, there is improved manufacturing efficiency and so on. But is any of this cost improvement going to reverse as you start to see volumes going up as you’re forecasting?

Chuck Sledge

Well we believe we’re going to pass all that in – that our intent is to past the cost increases on to our customers.

Geoff Kieburtz – Weeden & Co

Okay, already you feel pretty good, I mean the competitive environment is still allows you to do that?

Chuck Sledge

In place, that’s what I said, we will pass it on where it’s appropriate and where we can and we have done some of that. And some of our markets aren’t going to allow us to do it just yet, so we’ll have to be patient.

Geoff Kieburtz – Weeden & Co

Alright. And in terms of the North America and the short cycle business, does the shift toward more oil and liquid rich drilling meaningfully impact your margin picture on the short cycle businesses.

Chuck Sledge

It’s yes in some of our businesses, hot pressure gas wells those have meaningful wellhead systems on it, but low pressure oil wells have a lot of valves separation technology on it, may have a wellhead system that we aren’t probably going to be too competitive with because there is very low pressure, but there is whole lot more that Cameron brings to the picture and to parties in just one product line any more. So that’s why when you look at our bookings for the quarter of $1.2, it was kind of everywhere and I think it just kind of reflects on the diversity of our business and our product lines and the breadth of the market that we can participate in.

So we feel pretty good with what we’re looking at.

Geoff Kieburtz – Weeden & Co

Okay, great. Thank you very much.

Chuck Sledge

Thanks.

Operator

Our next question comes from Robin Shoemaker with Citigroup. Please state your questions.

Robin Shoemaker – Citigroup

Yes, good morning.

Chuck Sledge

Hey Robin.

Robin Shoemaker – Citigroup

Hi I wanted to go back to Brazil for a minute, NOV mentioned on their call that local content on rig equipment is going to start at sort of 20%.

Chuck Sledge

Right.

Robin Shoemaker – Citigroup

That’s going to 50, is that your understanding.

Chuck Sledge

Yes.

Robin Shoemaker – Citigroup

And how you are positioned for that?

Chuck Sledge

Yes that’s been the case all along and when you look back where Cameron was 10, 15 years ago in the subsea market and we were ramping up our local content and Petrobras was really pushing the local service providers or sell FMC, Ocker, Betco with the time to make the investments in countries. Some of it bought local companies that were representatives, some of us, built on the infrastructure.

We probably started with 150 employees and now we got a 1,000 and we’ll do the same with the drilling market. You’re going to see the biggest drilling market in the world centered in Brazil. We have over half the rig equipment – the process control equipment that’s operating there today. It’s a great aftermarket for us, we service and support that market, expanding that to build and service more that kit down there is not going to be a big stress for us. It will require investments, it will require hiring and training local people but that’s exactly what the country of Brazil wants to see.

If you got a big enough market and enough volume you can justify and that’s where Petrobras I think is really driving their commitment is really to encourage and justify the spend and I will tell you everyone down there, they tell us they want to create a sustainable business for companies like ourselves, NOV that are going to be part of this business, GE, for us to come in and setup and make and generate a return on that and that’s obviously what we’re going to be driven to do.

Robin Shoemaker – Citigroup

Okay, and just related to that I think you’ve mentioned previously that you’re looking to partner with some other rig equipment providers like Maritime Hydraulics in terms of these rig equipment did packages. How far – is that the case and how if you think you can be or does it enhance your competitiveness to be part of a comprehensive, offering of a comprehensive package as opposed to a single item?

Chuck Sledge

Well we’ve worked with Maritime Hydraulics now for three years on multiple packages and been very successful in terms of winning those and securing I think a very competitive position for both of us in that respect in terms of what we do for each other to complement that, and we’ll continue that in Brazil as well and we’ll also see operators continue to some operators will pick and choose who they prefer to use. That will – I don’t think that ever goes away, so you’ll see a little bit of both, where operators will prefer to have a particular system on their rig versus another and they’ll drive that to decision directly, but we’ll also be working closely with the Maritime Hydraulics to position ourselves and to strengthen their position on these packages where they want to have a more of turnkey solution.

Robin Shoemaker – Citigroup

Right. Okay, just one other question and that I want to ask you about the process systems are indeed healthy that you created and it seems like that whole area of process systems improvement and efficiency has tremendous potential for better integration and just a lot of improvements overall. What do you kind of targeting through that facility?

Chuck Sledge

Well, I agree with you, that’s why we acquired NATCO. When you see where Process Systems fits within Cameron’s portfolio of businesses it’s smacked down in the middle of our well head systems, and our valve systems. It is a tremendous opportunity to tie it altogether and taking customers to this facility hands on, it is absolutely state of the art, some of you that are going to be here for LTC will probably see it. But it really is going to allow us promote more of an enterprise solution for Cameron and just selling products. And that’s really what the whole strategy is with evolving the Process Systems group and that’s why it fits within DPS, because that’s where its biggest leverage is.

Robin Shoemaker – Citigroup

Okay. Thank you.

Operator

(Operator Instructions) our next question comes from Roger Read with Natixis Bleichroeder. Please state your question

Roger Read – Natixis Bleichroeder

Good morning.

Chuck Sledge

Hi Roger.

Roger Read – Natixis Bleichroeder

I guess I would like to come back to the Valves & Measurements segment to see the view that revenue there can grow, I believe it was kind of a 15 to 20%, sorry 10 to 15% range? I mean obviously orders kind of came back up to the level of sales in Q4 outperforming Q1, what’s kind of the normal turnaround, I know it’s going to different point of two pieces of Valves & Measurements, but what’s the normal turnaround from orders coming in to actually being able to roll amount in to the revenue side?

Chuck Sledge

Yes, I think Roger there is actually four different pieces of that group, but there is probably a third of that is kind of six months if you will of the aggregate and the rest being more nine to 12 months.

Roger Read – Natixis Bleichroeder

So we get – so basically any of the orders coming through now from this point forward can't have a huge impact on 2010?

Chuck Sledge

No, there will be distributed valve orders will and there is a piece of engineered valve that’s a quick turn business here in North America well. There is a large project bookings and process and the large project bookings for engineered valves will probably not, maybe you can get a little bit in this year but much past the second quarter there is large project bookings will probably be in the 11 revenue event.

Roger Read – Natixis Bleichroeder

Okay. And then just my final question. The share repo, you did the million shares this quarter, commented about you want to maintain there is no dilution from what’s going on in terms of compensation. Is there any intention to get ahead of the curves, I mean buy more shares back to actually reduce the share counts in the near term.

Chuck Sledge

Well actually when I take a control dilution, what we do is target to ultimately be pretty close to where we came split adjusted from our spin out of Cooper. So there is a lot of room to go there and so I think you’ll continue to see us be very active in that area.

Roger Read – Natixis Bleichroeder

Okay, thank you.

Chuck Sledge

Yes no problem.

Operator

Ladies and gentlemen there are no further questions at this time. I will now turn the conference back over to management for closing remarks. Thank you.

Chuck Sledge

Okay, thank you very much Diego and thanks to all of you for joining us this morning.

Operator

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you all for your participation.

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THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

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Source: Cameron International Corporation Q1 2010 Earnings Call Transcript
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