Cameron International Management Discusses Q1 2014 Results - Earnings Call Transcript

Apr.24.14 | About: Cameron International (CAM)

Cameron International (NYSE:CAM)

Q1 2014 Earnings Call

April 24, 2014 9:30 am ET

Executives

Jeffrey G. Altamari - Vice President of Investor Relations

Jack B. Moore - Chairman of the Board, Chief Executive Officer and President

Charles M. Sledge - Chief Financial Officer and Senior Vice President

Analysts

Kurt Hallead - RBC Capital Markets, LLC, Research Division

William A. Herbert - Simmons & Company International, Research Division

Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

James D. Crandell - Cowen Securities LLC, Research Division

Michael K. LaMotte - Guggenheim Securities, LLC, Research Division

James Knowlton Wicklund - Crédit Suisse AG, Research Division

Brad Handler - Jefferies LLC, Research Division

William Sanchez - Howard Weil Incorporated, Research Division

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

Jeffrey Spittel - Clarkson Capital Markets, Research Division

Operator

Greetings, ladies and gentlemen, and welcome to the Cameron First Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Jeff Altamari, Vice President, Investor Relations for Cameron. Thank you. Mr. Altamari, you may begin.

Jeffrey G. Altamari

Good morning, and welcome to the Cameron First Quarter Earnings Call. Thank you for joining us today. This morning, you'll hear from Jack Moore, Chairman, President and Chief Executive Officer of Cameron; and Chuck Sledge, Senior Vice President and Chief Financial Officer. Jack and Chuck will offer commentary on the results for the quarter. We will then open the line for 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 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 recent earnings news release.

I will now turn the meeting over to Jack.

Jack B. Moore

Thank you, Jeff. Cameron reported Q1 earnings of $0.75 per share, net of special items. Total revenues in the quarter were $2.4 billion, up 18% versus year-ago levels, driven primarily by Drilling & Production Systems group. Orders came in at $2.5 billion, while lower than year-ago levels, which included quarter for subsea projects awards this quarter is representative having great exposure to both onshore and offshore markets. No major projects were booked in Q1 for OneSubsea.

Total orders were primarily driven by Drilling, Surface and V&M business units. Backlog sits at $11.2 billion, up 13% from last year's levels. The process to divest our Compression businesses is also moving forward. We expect to complete our transaction with GE for recip before the close of Q2 in the early stages of our process for the Centrifugal business with a number of very engaged potential buyers.

Let's now focus on our operating segments. OneSubsea revenues totaled $540 million in Q1, an increase of 60% versus year-ago levels. Orders totaled $350 million in Q1, substantially below last year's record level of bookings that included 2 large project awards. While we have seen a number of target projects moving to the right over recent months attributed to customers refocusing their attention on project returns, the project pipeline for OneSubsea remains very robust. In fact, tendering activity is currently at the highest levels we have seen in over 2 years. And as a result, we expect to see a very healthy number of project awarded over the next 12 to 18 months, several of which are in the final stages of the approval process.

On the topic of improving deepwater project returns, a number of operators have reached out to OneSubsea to assist them in efforts to improve reservoir recovery for their projects and existing fields. Our ability to integrate the geotechnical resources with technology, both at the seabed and in the wellbore, has identified a number of opportunity that will deliver compelling solutions to these challenges. The ship operators to focus on overall project returns will serve to validate the mission for OneSubsea, which is to deliver more productive wells for our customers over the life of their projects.

Drilling Systems revenues totaled $660 million in Q1, a 35% increase over year-ago levels. And in spite of the overall backdrop of slowing newbuild rig demand, Cameron had a very strong orders quarter in Q1 totaling $820 million, up 25% versus year-ago levels. Overall, orders were aided with the award of several deepwater and numerous jack-up projects plus healthy demand from our onshore operators. We also had a healthy flow of project demand for our rig technology products.

One order I want to highlight was the award of the 25K psi BOP stack from McMoRan. While not as big in terms of dollar value as deepwater stack, what is important to note is that this is now our second 25,000 psi system that has been awarded. The significant is that this technology has lined operators to push the limits of their onshore and offshore discoveries, which could result in the next stage of pressure control equipment demand focused on the high-pressure 20K-plus technology. Cameron has had several BOP systems in the field operating in these very high demanding environments now for several years, and are confident in our advancing the learning curve for broader applications in deepwater as these markets evolve. Aftermarket bookings were a healthy $230 million in the quarter, and Drilling backlog is still above $4 billion.

A brief update on where we are delivering our commitment towards improving our overall performance in Drilling. Berwick's capacity expansion is completed, much of the new infrastructure is populated with stacks and tooling, supply chain is being streamlined and expanded and most important is the organizational focus by the team is yielding more predictable results; in other words, schedules are being held.

Bottom line, a lot of focus by this management team is being placed on improving our performance with the execution on the record backlog in Drilling Systems. While we are not where we want to be with respect to our delivery and margin performance, much progress is being made and we should expect to see this show up in margin improvement as we progress through the year.

Surface Systems revenues totaled $512 million in the quarter. Total orders are off to another great start, which came in at $600 million, our second-highest quarter ever. North America set an all-time high for orders, driven primarily by our Eagle Ford and Permian operations. Orders for North America were up 26% versus a year ago, and we continue to see more opportunities to expand our market presence with our CAMSHALE well site offerings.

To point our positive outlook for North America is the recent introduction of our newly designed horizontal factory and manifold system, which is winning quick approvals from operators. Our engineering teams have developed a system that significantly reduces frac -- free stack heights on locations, which results in safer operations and a much faster rig-up, rig-down process for our customers. We expect the use of these systems will spread most of our U.S. markets as we roll these through our capital programs.

Our APME activity was driven by another strong quarter in Saudi, while Latin America orders were driven by substantial increased demand with YPF in Argentina. Our EACR operations continue with a healthy pace driven by both North Sea and FSO markets with a lot of targeted high-pressure, high-temperature projects.

Revenues for Valves & Measurements totaled $500 million in Q1, slightly below year-ago levels. Overall orders came in at $540 million, which is essentially flat with last year's levels. Engineered valve orders totaled just north of $300 million, benefiting from a number of projects in the Middle East and West Africa. The North America pipeline orders are slowly coming back, but not at the levels we have seen in the past, again, a result of conscious delays by the pipeline companies as they work through very big construction backlogs. While the U.S. projects have been slower to evolve, we continue to track a number of sizable projects outside the U.S. that should book prior to the year end. Distributed valve activity continues at a healthy pace as well, with orders totaling $150 million for the quarter.

Our Process Systems revenues totaled $140 million in the quarter, while orders came in at $122 million. We continue to shift and drive our focus to exploit the unique capabilities we deliver on the processing markets. A number of sizable projects targeted both our MEG and CO2 separation technology for FPSOs, FSOs and increased FLNG applications will yield very positive results for us over the balance of the year.

Before I turn it over to Chuck, let me summarize a few points related to the key themes that we have discussed with a number of you over the past months. First is focusing on our core businesses. As I've discussed, our actions with the divestiture of compression business is on track. With the recip soon to close, our focus is shifted to the process with centrifugal. We have a large number of very interested buyers that clearly see the value of this business has created over the years and the potential it has for the future. We are committed to move this process forward with pace and hope to have this completed by year end.

I'll also say that we are continually committed to continuing the process of ensuring that we are invested in businesses that are strategic to the future growth of Cameron. As for margin expansion, the key to this is getting Drilling fixed. And as I've stated earlier, this team is highly focused on improving on the execution of backlog that will yield higher levels of customer satisfaction and margin improvement. I'll also add that our focus on cost reductions contributed to our hitting the top of our margin range, and we will stay focused on this effort as we move through the year.

As far as aftermarket growth, Cameron's revenues have grown to over 25% of our total revenues when related to aftermarket, and we expect that it will grow even bigger in the month -- in the quarters to come. We understand the value that service excellence can deliver to both customers and our bottom line, and we are committed to invest in expanding our capabilities to capture these opportunities in each of our businesses as we move forward.

As for capital allocation, we plan to invest another $450 million to $500 million CapEx back into our businesses in 2014, much of it focused on growing our aftermarket capabilities, to serve our customers more efficiently and to broaden our footprint in growing markets around the world. We also returned cash to our shareholders in the form of share buybacks that totaled $926 million in quarter 1, and we remain actively looking for opportunities for new businesses that will complement and build on our core platforms.

Our results for Q1 is off to a good start through achieving our targets for 2014. While we still have much to do, I'm very pleased with our employee's focus and commitment to making 2014 the best year we have ever had. Chuck?

Charles M. Sledge

Thank you, Jack. EPS was $0.75 per share before other costs and discontinued operations. As discussed in our fourth quarter call, we wrote off non-tax deductible goodwill in connection with the recip transaction, and this comprised the majority of the $0.21 of reported other cost. Quick note, all the prior year numbers have been restated to remove recip now that that's reflected in discontinued operations.

Revenues were $2.4 billion; that's an 18% year-over-year, and EPS drove this increase, registering a 34% gain. EBITDA margins were 13.9%, that's the top end of our Q1 guidance range. We did benefit from some high-margin shipments late in the quarter which were originally thought would happen in Q2. D&A was $87 million, a little higher than we expected. Interest expense was $32 million and minority interest, $0.02 a share. With respect to our tax rate for the quarter, our operational tax rate was 23%. The rate you see on the face of the income statement is higher due to the write-off of goodwill that is non deductible for tax.

Now for some segment information. DPS revenues were $1.7 billion, that's a record first quarter, up 34% from year-ago levels, higher than our forecast and each business within DPS had record Q1 revenues. EBITDA margins were 14.6%, which exceeded the top end of our forecast. As Jack discussed, we're making progress in our Drilling execution during the quarter, but as we said, we do not expect to see this progress in margins in the first quarter and that's what happened. The Drilling margin did, as we had been telling people, decline sequentially, and this should represent the low part for -- point for the year.

V&M revenues were $492 million, that's down from year-ago levels due to delay in project activity we've been discussing for some time. EBITDA margins were 21.5%, ahead of our forecast. We're pleased with our margin performance for Q1 in V&M and believe it bodes well for the remainder of the year.

PCS, again, reminder, recip's no longer in these numbers. Revenues were $234 million, of which $102 million were for centrifugal. EBITDA margins were 9.8% as compared to 9.5% for the year-ago period.

A couple of words on divestitures. As Jack mentioned, we currently expect a 2Q close on recip. And as you saw in our release, we've already used the expected after-tax proceeds to reach purchased shares by borrowing under our newly implemented commercial paper program. We expect to have an agreement to sell our centrifugal business and close by the end of the year. Therefore, you should expect us to begin reporting centrifugal in discontinued operations at some point this year. But for now, we expect the results for centrifugal for the full year in our estimates.

A couple of words on our cash balance. A lot of investors have inquired as to how much cash does Cameron need to have on its balance sheet. To help answer this question, let me walk you through our cash position at quarter end. We ended the quarter with $1 billion of cash. Half of this was in OneSubsea, and that's effectively not available to us. Of the remainder, approximately $150 million was available to us in the U.S. Therefore, at quarter end, we were approaching frictional cash levels within the company and don't see the cash balance going much lower than it was at quarter end.

A couple of comments on share repurchases. During the quarter, we repurchased an additional 15.2 million shares for $926 million. This brings our total for the last 15 months to 42 million shares, representing a total spend of $2.5 billion. And in addition, the board authorized us an additional $500 million in share repurchases. And as I mentioned earlier, we did, in fact, used the recip program -- proceeds -- expected proceeds by borrowing incrementally.

Now for a few guidance comments. As an introductory comment, the biggest driver to change in EPS is our share count.

Now for the details. Revenue should be between $10.2 billion and $10.6 billion, EBITDA margin is between 15% and 16%. D&A is actually increasing $10 million to $360 million, that's up from $350 million we had previously guided to. Interest expense is about $137 million, operational tax rate at 23%. Share count embedded in this guidance is 207 million shares for Q2 through Q4 and minority interest between $0.15 and $0.20 per share, and that gives us an EPS of somewhere between $3.80 and $4.10.

A couple of segment details. DPS revenue should increase in the low double-digit range and EBITDA margin should increase nominally year-on-year.

V&M, as we talked about earlier, we do expect orders to grow but will be late in the year, and therefore, won't really benefit 2014's revenue. And so we think revenue should increase nominally something around 5%. And EBITDA margins are still expected to be somewhere between 21% and 22% for the year. PCS revenues are still expected between $1 billion and $1.1 billion, and margin should approximate 14% for the year.

With respect to corporate SG&A, we're still expecting $175 million. As a reminder, the vast majority of these costs are business support costs, including back-office support, services and other banks.

Jack did talk about our CapEx program. We've increased our CapEx guidance to $450 million to $500 million to reflect additional organic investment opportunities we see materializing over the course of the year, primarily in Subsea and Surface.

Now for some second quarter comments. Revenues should be between $2.5 billion and $2.6 billion. Margins between 13.75% and 14.75%. As I mentioned at the outset, we benefit from several higher margin shipments in Q1 that were originally planned for Q2. Thus, Q2 is a little lower than we expected at the beginning of the year. So really, what you should do is combine the 6 months and take a look at margins. Minority interest should be a couple of cents per share and EPS should be between $0.84 and $0.89 per share.

A couple of segment details. For DPS, revenue should be up approximately mid single digit on a percentage basis sequentially, and EBITDA margin should approximate 15%. V&M revenues should increase approximately 10% sequentially and EBITDA margin should be between 21.5% and 22.5%. With respect to PCS, revenues and earnings should look a lot like the second quarter -- excuse me, the second quarter should look a lot like the first quarter.

So in closing, we continue to expect another record year for Cameron. We've made good progress in sharpening our focus on our core oil and gas markets. We are maintaining our focus on improving our margins, particularly in our cost structure and our Drilling business, and we're happy with the progress we've made. And finally, we remain focused on returning excess cash to our shareholders.

Jeff, with that, let's open it up for questions.

Jeffrey G. Altamari

Christine, please open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Kurt Hallead with RBC.

Kurt Hallead - RBC Capital Markets, LLC, Research Division

So I guess the -- where I want to start off is on the subsea front. Some commentary from one of your competitors seemed to be fairly positive with respect to overall industry dynamics. I think you alluded to that as well in your prepared comments. Just wondering if you can kind of help us understand the -- what's going on x Petrobras? And especially in the context of some of the chatter around project delays and some of the oil companies trying to reset their cost base. Have we kind of worked through that process and are we ready to reaccelerate?

Jack B. Moore

Kurt, I would say that x Petrobras, we see a lot of opportunities, whether it's the Gulf, or Mexico, West Africa, East Africa, North America, North Sea, even Australia, China. So it's not -- unlike what we've been looking at for the last couple of years. And I would also say that the challenge around the cost, I think a lot of this has become more public in the last quarter, but it has been with us for a while. I think we've all been challenged on every major project. I think everything is, I think, fairly public in terms of the timing of when those awards have slid to the right, primarily as a result of customers really grinding through the cost issues. I will say looking forward, though, and when you think about why we created OneSubsea and the opportunity we have to partner with Schlumberger is really to focus on those return on investment opportunities that our customers are challenged with. And really, we see that as unlocking more productivity in their developments, both existing and future. And if we can get more productivity out of those existing wellbores, you're going to improve the return on investments. So that's a huge focus for this team, and I think all of us for the industry are really challenged with the same concepts.

Kurt Hallead - RBC Capital Markets, LLC, Research Division

Okay, great. My follow-up is on the BOP specifically, and with the challenges that are facing the offshore drilling market right now in terms of day rate reductions and maybe might seem to be less timely to build new rigs. Looks like you may have already worked through the bulk of the recertifications on BOPs. Maybe you can give us an update. And I mean, is the BOP market about to plateau? Is it going to roll over? What's your sense on that going forward?

Jack B. Moore

Well, I think we've been pretty clear that we didn't see the level of bookings opportunities this year that we saw in the last 2 for newbuilds, and that's clearly going to happen. We clearly are seeing that demand for new equipment have slowed and it's going to continue to slow down as we progress through the year, for the deepwater. The recertification program is really -- it's really about -- that's an ongoing process. Customers have really targeted around a 5-year recert program, so that really is a healthy level of activity for all of us in this business for many, many years to come. I think we'll have to get more efficient at it and more focused around the cost of doing it, and that's something that we're working with our customers on. And then a lot of focus on just preventing downtime, and that's going to create opportunities to put more effort on the service elements. But also, it's going to put more demand on just making critical spares be continuously available. So the outlook for us is really going to be driven by base business. As we call, onshore is very, very strong. The aftermarket's going to continue to be strong in Drilling, and the newbuilds will be somewhat episodic. But as I've discussed around the 20K systems and high-pressure systems around, we think those will give us another step change in opportunities over the coming years.

Operator

Our next question comes from the line of Bill Herbert with Simmons & Company.

William A. Herbert - Simmons & Company International, Research Division

Jack, I think you've answered this in part. But to ask a question a little bit differently, you mentioned in your press release in your outlook that with a more robust outlook for North America and several deepwater projects expected to move forward, we believe our orders could exceed 2013's record level and you're off to a very good start in North America, especially with regard to Surface. But overall, orders, I think, were down something like 30% year-over-year. So walk me through how practically we could exceed last year's orders in 2014?

Jack B. Moore

The key to this is going to be the timing of our deepwater awards. Our North America business is solid, and we're going to see that continue, the opportunities to ramp that up. We've got some large projects in the balance side while meaningful to them, it won't move the needle hugely. But the big projects are going to come through the OneSubsea business unit.

William A. Herbert - Simmons & Company International, Research Division

And these are predominately subsea tree project awards that you're expecting to garner?

Jack B. Moore

Correct.

William A. Herbert - Simmons & Company International, Research Division

Okay. And then secondly, Chuck, with regard to your comments on the cash levels, and given the fact that half of the $1 billion on cash roughly is OneSubsea and you're approaching kind of official [ph] levels on the remaining half. So in light of that, given where we are with what sounds like an exit rate share count of 207 million shares or thereabouts coming out of the first quarter, or at least an average share count anticipated of 207 million for Q2 and holding that, say, for Q4, we've had cathartic share repurchases to date. Your target, at least my understanding of it, has always been 200 million shares fully diluted. Is that the way to continue thinking about the share repurchase program, that 200 million is pretty much your endpoint objective with regard to share count?

Charles M. Sledge

Well, it's certainly been a target of ours, Bill, for a long time. I would not necessarily say that it's the end. I would just focus you on the comments that we continue to focus on returning our excess cash to our shareholders. We've got a lot of opportunity for investment in the company, we have to balance our investments, we want to continue to grow the company and invest in the company. But to the extent there's excess cash within the company that we don't need, our focus is going to be on returning cash to shareholders.

Operator

Our next question comes from the line of Jeff Tillery with Tudor, Pickering.

Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Obviously, it's unfortunate that the deepwater packages -- the first innovative deepwater rig package you guys sold just ended up in a bad spot. And just given what's going on in the deepwater rig market, I mean, how are you thinking about kind of giving serial number one out there and completed? And what are the prospects for that over kind of the near to medium term?

Jack B. Moore

Yes, good question, and I will just add to that, that we've got a very good contractor. So in terms of how we move forward with that and recovering the necessary costs, we're in -- we feel we're in pretty good shape. But let me just say this, we booked 18 packages since 2013 in the jack-up market, some of these very high-spec. And when you think of where the rig technology equipment that we have evolved with the Cameron brand over the last several years, top drives, drilling controls, pipe handling, iron roughnecks, a lot of the core equipment, obviously, the pressure control equipment we've been selling in deepwater space forever, we feel really good about how we've advanced that technology in that space and how that will evolve into the floater markets when we do get that opportunity and we will get that opportunity. The key to this is really making sure that our customers know that Cameron's committed to this long-term, we have the aftermarket and service commitment to stand behind it. There'll be more opportunities coming. Are we disappointed that the STX order didn't go through? Yes, we are. But we're not at all strained from where our opportunities and our commitments will be going forward with this technology.

Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

And then just secondly, just around OneSubsea, getting a couple of quarters into kind of fully having those businesses together, could you just talk about kind of organizational progress, as well as any sort of kind of shorter-term technology wins you guys think and talk about?

Jack B. Moore

Well, it's a very committed team. I will tell you, the talent that we've assembled both from Cameron, Schlumberger and Framo to form this team is impressive. They're highly committed, highly motivated, highly incented. The integration of the cultures and the technology has been impressive. We've got a large platform of R&D that we're moving forward with, they're excited about that. The customer response, I will tell you, has been overwhelmingly positive, and it's not just from the small guys. I think, it'd be pretty impressive to see some of the engagement that we've had with a lot of our larger more mature customers around the world. Because of what we have been able to pull together is really this whole focus on life of field productivity, how to improve it, how to advance it, utilizing some known and leveraging the existing technology that both of us bring. And so all of that has really created quite a buzz around the business. And as I've said, I'd be disappointed we didn't have something to show for what we've created before the end of this year.

Charles M. Sledge

And Jeff, I'll add 2 kind of data points to that. If you look, we've talked about our R&D spend quite a bit, but if you look at how much the customers are funding of our gross R&D spend, it's at levels Cameron subsea could not have garnered on its own. So that's one data point. Second data point is, we've got a number of customers who are paying us to evaluate fields that before they concluded were not economically viable. And it's not just from the perspective of how can you get our cost down, it's from the totality of how do you go in and develop this field, how do you model the reservoir, how do you drive incremental recovery to make this field economical. So again, those are just 2 examples of things that Cameron subsea could not have done on its own.

Operator

Our next question comes from the line of Jim Crandell with Cowen Group.

James D. Crandell - Cowen Securities LLC, Research Division

Jack, how are you seeing right now the whole area of subsea separation evolving? And to what extent do you think you can be a major, let's say, player in that market over the next 2 to 3 years with OneSubsea?

Jack B. Moore

Well, Jim, I would say, I would characterize a more subsea processing because that's really where a lot of our customers are focused, because so much of the knowledge and the know-how that is out there today is in that space. The separation element of this is still, I think, in the fairly early stages of where we are in terms of acceptance. So I don't think it's going to be as significant of a driver over the next several years as boosting, and I think more of the general processing opportunities exist. And that's where we feel really good with having the Framo relationship with -- that came with OneSubsea, and just the know-how and the base of experience that they've had over decades of installing and seeing how this technology performs. You combine that with what Schlumberger brings in the downhole space with artificial lift, it's a very compelling opportunity. So we see the space really in terms of subsea processing being very formidable over the next 2 to 3 years.

James D. Crandell - Cowen Securities LLC, Research Division

Okay, good answer. And then as a follow-up, Chuck, given your outlook for strength in subsea equipment, subsea tree ordering over the next 12 to 18 months, and given, I guess, comments maybe by you but certainly of your major competitor that the smaller 2 companies in the business capacity is getting filled up in large excess that pricing should get better here over that period of time. Are you seeing that already? And what do you think about pricing going forward?

Jack B. Moore

Well, I'd say, on the projects that we are working and tendering, I would agree with that. Obviously, I can't predict where the future is going to take us with projects that haven't gotten to that stage yet. But I would hope to think that that's correct. As people get full, I think people get more selective, and that normally turns into better behavior.

Operator

Our next question comes from Michael LaMotte with Guggenheim.

Michael K. LaMotte - Guggenheim Securities, LLC, Research Division

Jack, 2 of the areas that you've talked about in the past for OneSubsea to show the power of the concept has been in brownfield and in unitized controls. Can you just give us an update as to what's happened in those 2 end markets and whether or not opportunities have started to emerge?

Jack B. Moore

I think the brownfield has been overwhelmingly positive, and this is where we've seen a lot of interest by across-the-board, IOCs, NOCs, as well as some of the major independents. And this is I think a very -- I think that's the one thing that gives this team a lot of energy right now is the ability to integrate what both Cameron and Schlumberger bring to this joint venture and seeing the leverage it's given them, and obviously, with the geotechnical expertise that comes with all of that. So -- and those teams are embedded within OneSubsea, so this is the positive piece of this joint venture. It's -- as I've said, it's very committed and very incented around delivering these sorts of results. As far as the -- your question on the unitized control system, that really, Mike, is something that we are still evolving on the R&D front. But again, when you look at the number of different control systems that are delivered to a subsea installation, both on the top sides and at the seabed, it's a compelling opportunity. We have several of them now within our own package relative to the Framo technology. So we're working to bring that together, and it's a much more efficient way to manage this as we go forward. But the real key to unlock the value for these customers is increasing productivity within these existing fields, and that's something everyone is excited about.

Michael K. LaMotte - Guggenheim Securities, LLC, Research Division

All right. Chuck, if I could ask a question on debt, you've added about $1 billion in the last 6 months to help fund the repurchase program and your EBITDA leverage has gone to 2.4 to 1.4. How much debt are you comfortable adding? And is there a specific capital structure that we should be thinking about targeting, particularly given your comments about $150 million in cash in the U.S. at quarter end?

Charles M. Sledge

Yes, a couple of things. Number one, we've been pretty clear, hopefully, that we target a BBB+ rating. That's very, very important to us. We get a lot of questions, obviously, that's a band of debt-to-EBITDA you can take on. We're very comfortable where we are now. We believe it's the right level. We have OneSubsea we have to deal with, we have cash overseas, so we think we're at the right level, but BBB+ is very important to us. I also point out to everyone that, obviously, Q1 is typically the low spot for cash flow generation for the year, and so we will be generating cash throughout the year. But as we think about our capital structure, what I would like everybody to focus on, BBB+, very important to us. When you look at then where within the band you fall, you have to think about things like OneSubsea, how much of that EBITDA is really available to Cameron debt holders, and so we wound up where we feel comfortable.

Operator

Our next question comes from the line of Jim Wicklund with Crédit Suisse.

James Knowlton Wicklund - Crédit Suisse AG, Research Division

I want to follow up a little bit on Kurt's original question. You talked about how the industry has been rationalizing cost for a while, but it's only become more public, I guess, in the last quarter. You mentioned OneSubsea is evaluating fields that are marginally economic. How long does it take the deepwater supply chain to adjust so that we can get back to the levels we've seen the last couple of years in deepwater?

Jack B. Moore

You mean the levels of activity, or...

James Knowlton Wicklund - Crédit Suisse AG, Research Division

Yes, levels of activity.

Jack B. Moore

Jim, I think when you look at just tree orders, Petrobras is such a huge piece of that in terms of just pure numbers. And so the question's is when's Petrobras turn that spicket back on; is that next year or the year after. But overall, our customers, especially the larger ones that are heavily invested in deepwater around the world, and I think maybe we go through this little cycle right now where everyone's focused on return on investments. We get -- I think get some rationalization around that. You're seeing a lot of effort and focus around projects that have been restarted that weren't economical a year ago that are now getting some traction again, and not just in deepwater but some of these large projects on offshore that are dry completions as well. Because there's a lot of -- I mean, there's a lot of work we can do around standardization already that will take cost out of these projects. And our teams, I think, like others in our industry and our competitors, are all driving for the same opportunity there because it really does make a difference when you can sell something you've already made 10x over. And -- but the real key to unlocking, I think, the next step change in activity is going to be how do you increase these reservoir productivity in these deepwater assets. And you know if 2%, 3%, 4%, 5%, is hugely important to them, and it can make -- basically neuters the cost of anything we deliver at the subsea space. So that is the real, as you say and others, the Holy Grail. We now got a lot of horsepower around delivering that. And I see that we have another organization out there that -- a competitor that is partnered, and I think it validates what the mission is for OneSubsea.

James Knowlton Wicklund - Crédit Suisse AG, Research Division

Okay, I appreciate that. In engineered valves, we saw the order rate decline, and then last -- third quarter last year, you guys announced that, that was going to be a disappointment. And that was kind of a leading indicator it seemed for some of these, like I say, big offshore projects, both deepwater and dry installations. Are we starting to see a pickup in engineered valves so that we could forecast a recovery in that business?

Jack B. Moore

I'd say we are optimistic about it. There's some that are more onshore -- there's some very large projects onshore that we're working with right now that I'm real excited about. But when you move to the offshore piece, yes, I mean, we're seeing some things start to gain a little more traction. But I'd still say, it's probably in that band of 12 to 18 months. I hate to use that band, but it's -- there's so much to be said about what we've learned with history on timing of awards. But Jim, it's -- we're getting a lot more noise about it, which is positive energy around it. But I can't tell you we've seen definitive commitments as to when they'll actually launch a PO. Onshore, much more I think, more optimistic.

James Knowlton Wicklund - Crédit Suisse AG, Research Division

You're more optimistic onshore?

Jack B. Moore

For valves? Absolutely.

Charles M. Sledge

But Jim, your thesis is correct. Engineered valves have valves on almost every subsea project in the world. So as subsea picks up, Engineered valve will pick up. It's just a matter of timing.

Operator

Our next question comes from the line of Brad Handler with Jefferies.

Brad Handler - Jefferies LLC, Research Division

A couple of questions related to Surface, please. Let's start with the international. You mentioned the strength in Saudi, for example. But if I stick with the Middle East, it looks as though there are a number of countries that are progressing with additional work and I guess, I'm curious for your perspective on opportunities there, how might -- maybe if you can venture a guess, as to how might international Surface growth look in '14 when all is said and done?

Jack B. Moore

I think you could approach double-digit, I really do. I mean, not just Saudi has just been a huge, it's been so big for us and probably one other person that I know of. It's-- we -- they've gone through a pretty explosive growth with their onshore gas developments that we participate in a lot of that. But Oman has been very active for us. So Abu Dhabi, Iraq, more so last year than this year, just because of some of the dynamics going on in that country. And then if you want to extend the Middle East to North Africa, we're seeing a lot of activity in Algeria again. So that while there's always hotspots, overall, the Middle East has been pretty strong. Last year was very strong for us. I think this year would be very a strong year for us. But it doesn't stop there. We have former Soviet Union, we've got Asia Pacific, predominantly Indonesia, is going to be a very, very active market. And then you got the North Sea that continues to deliver some very large high-profile projects that'll be very meaningful to us over the next 12 months or so. Yes, we're pretty positive, pretty positive on the Surface side.

Brad Handler - Jefferies LLC, Research Division

Sounds like it. If I stick with international for a second, just a quick follow-up. Are you seeing some opportunities to get pricing there? Is conditions -- are conditions adequately tight?

Jack B. Moore

On the higher spec things, yes. And I think if you look at our margins in Surface, we're pretty doggone happy with them. I want -- we want to get as much of that as we can get, and then obviously, you can leverage some of the other things within your control. But yes, on the things that we feel are uniquely different where we got a lot of engineering support and service support around them, we're pushing the envelope.

Brad Handler - Jefferies LLC, Research Division

If I could steal another one just on the U.S. side, interesting comments about the horizontal frac tree, could you give us a little bit more color on that? When was it introduced? And as you look -- as we look at higher CapExes, I don't think you specifically mentioned this, but is this part of the function? Is it a more significant rollout of this that starts to become meaningful?

Jack B. Moore

It's a definite part of the function. I think we look at -- as we've evolved these horizontal frac trees, some of the things we see and remind us to send you a picture of the 2, because side by side you'd be amazed at the height. And height is not always good, right, because you have bending moments when you're frac-ing through this equipment. It's safety issues, it's time to do the stack up, stack downs. We've been working with customers to figure out a way to improve the efficiency of this. And again, here is great -- greatest -- the great dynamics with Cameron. We have strong engineering organizations, strong manufacturing organizations and a strong service and customer base that allows us to get this equipment out there and give it a whirl. And we've been able to move the needle with several customers on this concept. They like it, it's early days, but I think it's going to be meaningful in terms of not only putting -- protecting our markets that we serve, but also give us the opportunity to move into some areas where we may not have been successful in the past, but where you can take a more efficient platform and get the customer to support you from maybe where he was before.

Operator

Our next question comes from the line of Bill Sanchez with Howard Weil.

William Sanchez - Howard Weil Incorporated, Research Division

Two questions. First, Chuck, just back on DPS margins. You talked about some shipments, I guess, that were recognized in 1Q, and that was impacting 2Q maybe down a little bit more than what you guys had thought in terms of the ramp-off of 1Q. Just kind of looking at the product launch comprising DPS, it seems to me that subsea profitability is going to be better maybe than what you guys had anticipated given the guide up and minority interest, and just curious if that's, in fact, the case. Has the Surface margin outlook improved at all over the course of the year from where we thought maybe 9 days ago given its exposure in North America? And I guess, just in terms of the Drilling segment, maybe talk about that. Has -- is the progression there in terms of the margin flection as you guys see it -- saw it earlier?

Jack B. Moore

Okay, yes, a number of things. Yes, good pickup on the minority interest, guidance, yes. Subsea, margins are running stronger than we thought at the beginning of the year. Surface just got a phenomenally strong margin outlook for the year, and we still see the ramp the same in Drilling. The point I made on just a little shift between first and second quarter was just to make sure everybody understands we're on track with exactly what we said at the beginning of the year when you look at the first half of the year.

William Sanchez - Howard Weil Incorporated, Research Division

Okay, great. My follow-up would be just with enthusiasm building around North America now, I think people always looking at derivative plays here in terms of revenue exposure. Can you just remind us for Cameron, maybe more a pro forma basis post these divestitures, my math suggests maybe 15%, 20% of the revenue stream comes from North America onshore for Cameron as a whole. Is that a fair number, Chuck, in terms of way you kind of think about it?

Jack B. Moore

No, that's too low. That's too low. Bill, I don't have the number right here with me, but we can get that to you. But that's too low, that's too low.

William Sanchez - Howard Weil Incorporated, Research Division

That's too low? For total company, that's too low?

Jack B. Moore

Yes, by a meaningful amount. Let us get you the right number.

Operator

Your next question comes from the line of Joe Gibney with Capital One.

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

Just one quick housekeeping question, I was just curious if you could provide the number of stacks on the deepwater and jack-up side in the quarter in Drilling, would be helpful.

Charles M. Sledge

2 out of 4. We got 2 out of 4 on the deepwater and we had 4 out of 9 on the jack-up.

Jack B. Moore

Yes, 2 deepwater stacks and 4 jack-up stacks.

Operator

Our next question comes from the line of Jeff Spittel with Clarkson Capital Markets.

Jeffrey Spittel - Clarkson Capital Markets, Research Division

If I could just follow-up on Bill's question with regard to the progress that you've made in North America over the last couple of years. Can you talk a little bit, maybe qualitatively, about how much you capture of the wallet share around the wellhead has expanded with CAMSHALE and some of the other initiatives?

Jack B. Moore

Yes. I mean, it's -- we made, I guess, significant progress in 2012 in that vein, and we've continued to kind of broaden that space. But just take, for instance, 4 years ago, a well site operation for Cameron would have been consisted of wellhead and a tree, which probably had a value of somewhere between $25,000 and $50,000. And today, on a CAMSHALE well side operation with the frac'd trees and the frac manifolds, standard wellhead and standard trees, plus some of our flow back capabilities and some of the separation capabilities we do at the well site, that number approaches $200,000, $240,000 per well. So it's a significant difference anywhere from almost 10x and it's meaningful. So that's -- and we've kind of maintained that trend over the last 12 months. So it's really a function of how can we capture more customers with that well site opportunity and move them away from just selling them wellheads and trees.

Jeffrey Spittel - Clarkson Capital Markets, Research Division

Sure. Okay, that's very helpful. And then maybe more of a summarization of all these topics we've talked about, as we look at the ramp in earnings through the back half of the year, I think, most of us are cognizant of the primary swing factors. But maybe just a quick refresher on it. I know we've got share count stuff, we've got self-help initiatives in Drilling. But maybe just to summarize those, some things that maybe we're not thinking about that we should be.

Jack B. Moore

I think it's subsea increase profitability is probably one that's off your list. And then kind of when you look at kind of the margin guidance for V&M, it implies a higher back half of the year.

Operator

Mr. Altamari, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Jeffrey G. Altamari

Okay. Well, thank you, Christine. And this concludes our first quarter earnings call. I'd like to thank all of you for joining us this morning.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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