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Cameron International (NYSE:CAM)

Q3 2010 Earnings Call

November 02, 2010 8:30 am ET

Executives

Jack Moore - Chief Executive Officer, President and Director

R. Amann - Vice President of Investor Relations

John Carne - Chief Operating Officer, Executive Vice President and President of Drilling & Production Systems

Charles Sledge - Chief Financial Officer and Senior Vice President

Analysts

Yvonne Fletcher

David Anderson - Palo Alto Investors

Jeff Tillery - Tudor, Pickering & Co. Securities, Inc.

William Herbert - Simmons

William Sanchez - Howard Weil Incorporated

Geoff Kieburtz - Weeden & Co. Research

Roger Read - Natixis Bleichroeder LLC

James Crandell - Barclays Capital

Brad Handler - Crédit Suisse AG

Stephen Gengaro - Jefferies & Company, Inc.

Tom Curran - Wells Fargo Securities, LLC

Kurt Hallead - RBC Capital Markets Corporation

Jeffrey Spittel - Madison Williams and Company LLC

Douglas Becker - BofA Merrill Lynch

Michael LaMotte - Guggenheim Securities, LLC

Robin Shoemaker - Citigroup Inc

Ole Slorer - Morgan Stanley

Daniel Boyd - Goldman Sachs Group Inc.

Michael Urban - Deutsche Bank AG

Operator

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

R. Amann

Good morning, and thanks to all of you for joining us on this election day. 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.

We're also joined today by John Carne, our Executive Vice President and Chief Operating Officer. Jack and Chuck will offer some commentary on the results for the quarter and will 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. Cameron reported third quarter earnings of $0.64 a share, excluding charges of $0.03. Revenues are at $1.53 billion for the quarter, and net income came in at $149 million. These results reflect the continued improvement we are realizing in several of our business segments due to the execution of backlog and recovery in our short cycle focus markets.

Orders for the quarter finished at $1.48 billion, our largest bookings quarter since 2008. Like last quarter, we had no significant project bookings in our numbers. In fact, through Q3, year-to-date bookings stand at just over $4 billion, up 25% from the same nine-month period a year ago, and again, without any large bookings.

Cameron's order flow demonstrates the value we are driving from an averse portfolio businesses across the world. Backlog finished at $4.94 billion, up slightly from last quarter.

I'll speak to more specific areas of our businesses in just a moment, but I would like to highlight the fact that our drilling aftermarket bookings topped $100 million in Q3 and our Process Systems orders exceeded $200 million, both records in Cameron's history.

For Process and Compression Systems, as noted in our release this morning. We have now combined our Process Systems group in our Compression businesses to form a new operating segment within Cameron. This change comes to a result to see a number of synergies emerge in these two businesses as we've integrated NATCO into Cameron over the past year. These synergies will result in enhanced cost efficiencies, product development and customer initiatives focused on both onshore and offshore Process Systems and opportunities targeted things, such as shale gas steel developments and our FPSO markets. I would also note that this will not affect those initiatives we had formed with the combination of NATCO separation technologies and Cameron's Subsea Systems development. In fact, the compact electric static separator unit, co-developed with Petrobras and ourselves, was to deliver to them in Q3 for trial that will ultimately be used in subsea separation applications.

As for Process Systems' results in Q3, net bookings totaling $215 million in the quarter, a record for them. Thus a result of number of projects finally coming home to roost, as well as continued improvement in our North American land markets. This number also, I think, attributes to the results to the Process Systems team, as they're beginning to hit and stride after close to a year working together as a new organization.

Our Compression Systems bookings grew by 10% sequentially, and more importantly, we are seeing a meaningful increased in our tendering activity. Much of this directed at gas process infrastructure, both in the field and plant levels. I would also note that we're seeing an increasing in the number of inquiries for plant air compression as well, most of which is in Southeast Asia and China.

For Drilling Systems, let me discuss what is currently going on in our Drilling Systems business. Bookings came in at $223 million for the quarter, driven by $100 million in bookings for aftermarket as I previously mentioned. This was primarily driven by many of the customers shift to full OEM repair and part programs for pressure control equipment. We expect this ship to continue and as reported in the last call, where we are today, we continue to invest in increasing our capacity to support this movement.

We've also advanced our commitment to new product and development programs focused on increasing RAM and sheering and sealing capacities and design to support operations in higher pressure offshore environments.

We continue to see a healthy order rate for land BOPs as higher spec new builds remain in high demand. We've also seen increase in inquiries for a number of jack-ups, again driven by our plight to quality by operators, seeing the benefits of newer generation flexibility and capacity.

I noted others have talked about the age of the jack-up fleet and the need to upgrade. It is still worth repeating that given over 2/3 of the fleet is 25-plus years old, we could expect to see a decent new Build program for years to come. We did book over 200 cavities and one deepwater stack in Q3. We have also seen a few inquiries for new build floaters, not sure if it's driven by lower financial rates and hungry shipyards or increased demand. We think currently the former versus latter.

Brazil's new build program is still the primary driver for future floaters, and we expect to see some movement towards stacks in the first half of 2011.

Subsea Systems, while orders of $220 million were up slightly versus Q2, we had no major project bookings in the quarter. A roster of opportunities in subsea projects is as large we have ever tracked which is somewhat representative of so many projects that we have targeted that have moved to the right.

We are tendering a large number of these projects currently that will deliver meaningful bookings growth over the next 18 months. Surface Systems had another solid quarter. We continue to see helping bookings from the North American market from our expanded presence in the shales. Demand for higher pressure and large bore completions are driving much of this demand in North America. And the ramp-up of our new manufacturing operations in Romania has been a huge plus in the ability to respond to these new demands. This factory was purpose-built to support the high-pressure, large board markets. And the timing of it coming on stream is proving to be a wonderful asset.

While North America has been a very active and a positive driver for our business in Surface Systems, we had seen lower activity levels in Mexico, North Africa and the Far East. However, we do expect to see these markets improve in the coming quarters as all directed activities switch back on.

Our Valves & Measurement business had another strong bookings quarter as well across all of their business segments. Orders for engineer were up 35% sequentially, driven in large part by the Chevron Gorgon order of $50 million. This is the second tranche of orders for this project of which we have booked approximately $100 million to date. We have another $30 million left to book.

Our Canadian U.S. distribution markets were strong as well with sequential bookings up 15%, and the day rate order activity is holding up very well even today. Process Valves & Measurement order rates continue to improve as well. Higher levels of activity from both midstream and downstream power generation are driving these new demand.

Our overall belief is that U.S. activity remain at current levels, but with a continual shift to the liquid rich resource plays, resulting in continued demand for the vast majority of Cameron's diverse businesses. With the pace of perming in the Gulf of Mexico is still a question mark, our results in U.S. offshore markets will be mixed with both platform and subsea revenues and orders being offset somewhat by drilling contractors bringing their existing fleet in declines with new regulations. We expect activity outside of North America to improve somewhat going forward as global energy remain improves and the need for further investment becomes more obvious.

Now I'll turn it over to Chuck.

Charles Sledge

Thank you, Jack. Before I get too much into the details in the quarter's results, I do want to echo Jacks thoughts on orders. Our orders have increased in each of the last two quarters. This speaks to this strength in the activity levels in our shorter-cycle businesses. In fact, the order rates in our shorter-cycle businesses have increased 43% this year compared to the first three quarters of '09.

Our operational results for the quarter were $0.64 per share as compared to the original guidance of $0.58 to $0.60 per share. The primary reason for the increased earnings was a reduction in the effective tax rate from our original guidance of 25%.

EBITDA margins for the quarter were 17.6%, a 50 basis point sequential drop. Giving effect to the realignment of Process Systems Jack mentioned earlier, margins for the DPS segment decreased 40 basis points sequentially, reflecting higher subsea revenues. We are expecting the amount of subsea revenues to increase again in the fourth quarter, which will cause a further decline in DPS's margins.

Meanwhile, we are approaching year end with approximately 400 million left in subsea backlog in the year ago. It would be reasonable to expect a burn rate on this reduced level of backlog similar to what we have guided to in the past. V&M EBITDA margin held flat sequentially at 17.3%, reflecting low-margin shipments that were booked in 2009. We expect this trend to continue into the early part of 2011, as the remainder of this lower margin backlog is shipped.

Processing and compression actually improved 160 basis points due to higher margin revenues flowing through this quarter's results. PCS margins will however trend down in the fourth quarter, as we do not expect this high-margin revenue to recur. We still expect our overall EBITDA margins to wind up somewhere around 16.5% for the year.

We incurred $0.03 per share of acquisition integration and Deepwater Horizon legal costs during the quarter. We will continue to see integration costs in the fourth quarter related to the NATCO acquisition, as well as Deepwater Horizon costs, and we will continue to call these out separately. We generated $95 million of cash in the quarter, although we did continue to invest in our working capital to support our growth. Our working capital investment should continue to moderate in coming quarters.

We end the quarter with $1.5 billion of cash and $223 million of negative net debt, so our balance sheet remains as conservative as ever. Our 2010 capital spending estimate is $200 million, as we continue to see opportunities to invest in our sales to improve our operations and ultimately our financial results.

As a reminder, our 2.5% converts have been reflected as a current liability as they are pretty callable beginning in June of 2011. With respect to the fourth quarter, our guidance at $0.65 to $0.67 excluding charges. D&A for 2010 should approximate $197 million. Net interest expense for 2010 should come in approximately 10% below 2009's level. Our effective tax rate for the fourth quarter should approximate 23.5%. And our guidance assumes 247 million fully diluted shares outstanding.

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

R. Amann

Okay, Rob, let's go to the Q&A, please.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from the line of Jim Crandell with Barclays Capital.

James Crandell - Barclays Capital

My first question is in regards to Brazil. Are you looking for nine new floater orders, new sales to happen here in the next few months?

Jack Moore

I think you will see seven or nine, you will definitely see, Jim, I think the award could very well happen this year. But by the time they get around to awarding the press controller equipment, we don't think that's still a first half of 2011 event. But I mean, they have very successful capital campaign and raised a lot of money. My expectations you'll see Brazil move forward with this. They got elections to go through. I think that's going to be a little bit of a diversion form. But they're very committed to building these rigs and country. We see no reason why they will not do it. But it's a big challenge. So that's kind of why it takes a little long.

James Crandell - Barclays Capital

Jack, will they be bidding the pressure-controlled equipment separately? Or you're bidding in conjunction with MH as part of the package?

Jack Moore

We have bid in conjunction with MH, and that's been our strategy from day one.

James Crandell - Barclays Capital

Is that the way the share is going to be awarded? Or could it be possibly broken out?

Jack Moore

I'm not saying it wouldn't be. Depending on who is awarded the contract to build the rig that they could come back and say, we have a particular preference for someone else's pressure control equipment. You've got three very formidable competitors in that market, both Hydro and NOV with the Schackart system and ourselves and NOV, its gone in with their package and we blend with MH on their equipment. So that's been the strategy. But it's not impossible, I guess, you could say for them to separate some of that and pick and choose.

James Crandell - Barclays Capital

And Jack, just as a follow-up question on the Pressure Control BOP business, can you speak to what you're seeing in terms of incremental demand in the BOP area, the upgrade BOP stacks around the world?

Jack Moore

I would say, Jim, we've had a lot of inquiries, but they haven't turned in to actual firm orders. So I think there's still a lot of questions around what exactly the rules are going to be and what the requirements are going to be based on what the BOME is going to come down on. So I don't think you've seen anyone out rushing to replace anything they have. They'll be some additional, obviously, requirements around sharing capacities that could change some of the requirements. But we haven't seen any of these inquiries turn into a wave of orders yet. Most all the activity we've had really has been focused around aftermarket.

Operator

Our next question is from the line of Jeff Tillery of Tudor, Pickering Co.

Jeff Tillery - Tudor, Pickering & Co. Securities, Inc.

Chuck, in your comment on burn rate or backlog, was that specific for subsea? Or you intended to make that comment for EPS in aggregate?

Charles Sledge

My comment was directed towards trying to give everybody a sense of what may happen to subsea's revenues in 2011.

Jeff Tillery - Tudor, Pickering & Co. Securities, Inc.

And just remind me so that's typically 60% of the backlog is burned through over four or a 12-month period?

Charles Sledge

Yes, somewhere between 60% and 70%, yes.

Jeff Tillery - Tudor, Pickering & Co. Securities, Inc.

My second question, just on the reorganization with the Process Systems combining with Compression, can you give us a feel for this order magnitude of cost saving you think you achieved over a year or two period?

Charles Sledge

I would not really want to comment on that, Jeff, just to say that there are some synergies and our marketing and field operations arenas. As we put NATCO and brought NATCO into the fold, I'd say NATCO is such a great fit. I mean you look at our alignment with really in this mid-stream transportation side of the business, from the wellhead all the way to the transportation side. It touches so much of our businesses. We see a lot see a lot of synergy with parts of the Valve businesses and obviously, with the Compression business. But with compression, it forms a very formidable segment for us. A lot of alignment with fabrication synergies, how they go to market with certain customers through EPCs. When you look at the FPSO markets that are going to evolve, both of them touch it in a big way. So we'll see marketing synergies evolve will avoid some cost going forward with having these two guys together. We'll be able to leverage some of our packaging and our fabrication footprint that will evolve in other parts of the world. So there's a little bit upfront, but there's probably more that we'll see as we avoid going forward.

Jeff Tillery - Tudor, Pickering & Co. Securities, Inc.

My last question, just on the shorter cycle businesses, orders have obviously have been quite strong to get you kind of aggregate almost 1x book to bill of late. Anything that you see in the shorter-cycle businesses where you don't think the orders are sustainable?

Charles Sledge

No, I don't, really. I think what's interesting is we haven't really seen the international markets kick in yet. And I say, yet, because I think there's a lot of pent-up demand. I think the North Sea is going to be a very good market for our shorter-cycle businesses as we move forward, the Middle East, the Far East. A lot of our success in the last 12 months has really been focused around our North American markets. Now the pace of growth in North America could slow down, obviously, with what we've seen with gas pricing. But it's held up very well in terms of the gas-related rigs shifting over to the more oil related play. And we've been right there to participate in those opportunities as well. So our ability to participate really is somewhat been driven by ramping up our presence in certain markets over the last couple of years, in the Marcellus and some of the basins that we didn't really have historically a big presence in relative to the shale. But we're there now. So it's a yield of great results for us.

Operator

Our next question is from the line of Robert Shoemaker Citigroup.

Robin Shoemaker - Citigroup Inc

I wanted to ask about on the subsea outlook, actually, on the projects you're delivering now, on the large projects, are you finding that in the execution phase? You're able to do a little better job on efficiency or cost or something along those lines, then perhaps your original expectations.

Charles Sledge

No, I think the large projects that we're currently executing which would be Usan and Block 31, I think, are costs we're seeing are in line with what we thought we'd see when we came into the year.

Robin Shoemaker - Citigroup Inc

And going forward, with the number of projects that are out there, are you able to pick and choose amongst some of these projects kind of maximize your return. I mean is that the strategy that there's enough out there you don't feel compelled to bid on everything?

Jack Moore

John, you want to take that?

John Carne

The answer to the question is yes. We are able to pick and choose. We've been very selective about which ones we think are important to us, and we're going to be very focused on that on 2011 and 2012.

Robin Shoemaker - Citigroup Inc

If I may just ask one other question about the new technology in deepwater drilling, some of your systems, BOP systems, EVO, the spa systems and so fort, do you think that in this next round of Deepwater rigs, there will be some significant new technologies incorporated versus even the most recent round of six generation...

Jack Moore

I would say it's more of an evolution. EVO, obvious name for EVO, right? EVO, if you look at the internal of EVO it's very much the same technology we've had embedded in our all of our systems for the last 20 years. It's very robust. It's very well field proven. Really gets around to how do you operate in high pressure environments. How do you operate in what the space constraints that certain generation rigs have and then obviously new generation rigs is how do you get maybe six cavities or seven cavities stacks on that footprint where maybe in history you had four or five. So I think really, it's really not adding an element of risk but a whole lot of new technology because we've got a lot of things that are proving to be very reliable, and there's not a whole lot of desire to change and add more risk to that. Things like our AWKS system, which is our alternative well system, which is going to be a higher sheer strength both for casing, sheering and pipe sheering that will also seal. I think you'll see that technology evolve to be more readily accepted as it rolls out. I think you'll see maybe in the way of additional well control or information acoustics, things of that nature could evolve to be more, I think, aligned to where we need to go in the future from the safety and from just the well-knowledge standpoint. But I don't think you're going to see anything revolutionary in the design of the pressure control equipment. I would tend to say it's more evolutionary than revolutionary.

Operator

Our next question is coming from the line of Roger Read of Natixis Bleichroeder.

Roger Read - Natixis Bleichroeder LLC

Just wanted to follow up maybe a little bit more on your comments on international as not really being much of a contributor to the performance to date. As you look at the orders, I mean, is that true the orders as well as say, revenue and EBITDA margins today?

Jack Moore

I wouldn't characterize it as that we're disappointed in our international markets is all. I'm just saying that we haven't seen it pick up maybe to the pace that maybe we thought it would and where North America has been a lot stronger than we thought it would. So our international orders, especially in the short cycle business, Roger, you got to remember that we tender for longer periods of time and bigger chunks of work like in the Middle East. And so the margins around those projects tend to be a little less because just the scope and the amount of tendering pressure you get on them, so they're not a one-off kind of opportunities maybe we see in North America.

Roger Read - Natixis Bleichroeder LLC

So basically, your comment about the lack of large project award fits directly into the -- it's not disappointment, let's just call it the slowness in the international markets.

Jack Moore

Well, I would characterize that more with our Deepwater markets, subsea and even in the stacks. There's just not a big wave of large orders out there. And the $250 million, $200 million kind of plus orders that we had seen historically in some of our backlog numbers. They're out there, we just haven't booked them yet.

Roger Read - Natixis Bleichroeder LLC

As you look out, say, into the middle of 2011, do we see the opportunity for that to let's say improve?

Jack Moore

Yes, we do. It could be the latter part of 2011. It could be earlier, it could be later. I think as we've said, we don't really have control over the timing as to when it happens.

Michael LaMotte - Guggenheim Securities, LLC

No, but I mean, I know you do have a good idea of whether your customers are getting a little more optimistic or staying the same?

Jack Moore

Yes, I think what's really great about the results we're seeing is in spite of that, we're seeing some pretty healthy bookings coming in from all of our businesses relative to where the markets are. And I think that it really speaks well with the diversity of our portfolio.

Roger Read - Natixis Bleichroeder LLC

Is there any one particular either product line or business line or however you want to break it down that you would say has done, surprise you own international side at this point? Or I'm looking for specifics, I guess.

Jack Moore

I would say, and we kind of called this out earlier in the year, Roger, but it's our Engineered Valves business. They've been very successful in targeting some projects, and again, on the scale of what we see with subsea or whatever, they're not on the same magnitude and dollar wise, but for them very sustainable long-term projects that have been, I think these guys have targeted for the last two years and they're coming home to risk for them. And I would also say Process Systems. Process Systems had a very good bookings quarter, and a lot of those projects are ones that are or in our international arena, Middle East primarily.

Operator

Our next question is from Bill Herbert of Simmons & Company.

William Herbert - Simmons

Chuck, trying to drill down a little bit more on the road map for Subsea. 60% to 70% average conversion rate of backlog in a given year. Remind us where backlog stands today

Charles Sledge

Backlog in subsea is standing at $2.2 billion.

William Herbert - Simmons

And we would expect further backlog bleed probably in the fourth quarter, correct?

Charles Sledge

Depends on what happens in, obviously, project bookings in the fourth quarter.

William Herbert - Simmons

So let's assume it's flat, okay? So in a given year, 60% to 70% conversion of backlog and then in addition to that, is there any revenue that has generated that doesn't necessarily come out of backlog going into the year?

Charles Sledge

Very little.

William Herbert - Simmons

So $2.2 billion -- so we're looking at about a $1.4 billion in subsea revenues assuming backlog was flat quarter-on-quarter going into next year?

Charles Sledge

Yes, you probably should spread that a little and give yourself a range, drop a little bit on the low side and move it up a little bit on the high side.

William Herbert - Simmons

And then when we're talking about backlog conversion, that 60% to 70% applies to the new equipment portion of the backlog or the total backlog?

Charles Sledge

Typically, the total -- when we quoted, it's been the total, Bill.

William Herbert - Simmons

And then secondly, Jack, Mr. Chairman, you made reference to your ample balance sheet here. And the fact that you continue to evaluate acquisition opportunities. What about the share repo, recognizing that we've got some complexity associated with Deepwater Horizon, when do you think we could expect to see a resumption of that program?

Jack Moore

Bill, we haven't called that out. I think just stay tuned, that would be the best advice I could give you, we're being very conservative and prudent in our position, and you'll know it when we know it.

William Herbert - Simmons

And then one last question for you guys, what were subsea revenues in the quarter?

Charles Sledge

Subsea revenues were $428 million.

Operator

[Operator Instructions] Our next question is from Mike Urban with Deutsche Bank.

Michael Urban - Deutsche Bank AG

So you've mentioned some influx of inquiries with respect to upgrades and retrofits on BOP subject to the government figuring out exactly what the requirements are going to be. Once we get that settled, what's your sense either from a Cameron standpoint or an industry standpoint of how quickly we can react to that? In other words, how many rigs over what period of time?

Jack Moore

Well, I think it depends on obviously, what the requirements are. A lot of rigs probably are going to be able to move forward with the new rigs. I think that's the wish on everyone's part. If it's a matter of just changing a set of rounds to put additional set of blinds year round, I think it's a very quick fit, it's a matter of weeks. If you have to put an entire new cavity in your stack, that could take six months. If you have to replace everything, it could take 12 months. So I think your kind of around those timeframe. I think everyone's probably, I know we have built up some additional inventories to support the potential scenarios that could play out. I'm sure others have done the same. The biggest focus we've put internally, Mike, is really around the aftermarket support. We've spent additional capital in ramping up our infrastructure here in the Gulf Coast and hearing our Houston repair center, our Oklahoma repair center, because guess what, some of this is spreading on to the onshore market as well in terms of compliance behavior. We're expanding our capabilities in our North Sea market to support our aftermarket support. We're doing the same in the Far East. So you're going to see us really focused in a lot of our capital around really supporting the aftermarket and service fees. Because I think modifications is going to be the biggest challenge all of these guys will have.

Michael Urban - Deutsche Bank AG

And the pickup that you've seen in the aftermarket side, which has been the more tangible sign of change, so far. Is it your sense that you're seeing kind of a surge of orders in higher level of business here? Or is this -- were you able to read into a level of system business going forward?

Jack Moore

I think it's a combination of both. I think, obviously, you're going to get a surge of people reacting very quickly to the situation at hand. But what we're seeing is this move back to OEM. Cameron, 50% of the install base on both the jack-up and the floating and drilled ship fleet in the world is Cameron's stacks. We service about half of that, in terms of what we call the entitlement of opportunity. We'll never service 100% of it just because some services done offshore during the drilling operations. But what we are wanting to get ourselves in the position is to be able to serve every one of our stacks around the world when needed. And that means we're going to have to have that breadth of footprint and the capacity to do it. And if we get there, and we can prove to those customers that we can sustain that, then I think this will be a sustainable shift. If we drop the ball and don't respond, I think they'll go back to the bootleggers that are supporting some of that today.

Geoff Kieburtz - Weeden & Co. Research

So you have half of the half?

Jack Moore

We have half of the half. But don't dial that in, we'll get 100% of the half. Because we have a target and our guys, our drilling guys have some targets, right John? And

[Audio Gap]

I think they're very focused on the opportunity and it's meaningful to us. It's meaningful to our customers. So that's the pace we're moving to.

Operator

Our next question is from the line of Jeff Spittel with Madison Williams.

Jeffrey Spittel - Madison Williams and Company LLC

I was wondering if you could talk a little bit about what customers are doing on an elective basis with drilling aftermarket support in contrast that onshore versus some of the offshore markets?

Jack Moore

Well, I would tell you -- I'm not going to get specific to customers because I think they're in control of those decisions. But I will say that Cameron is seeing a lot more of this equipment, especially from the offshore arena. Onshore, we've had a very healthy relationships with the agencies and the neighbors that had been historically very focused on OEM. And we're seeing the same move now with Patterson and as they've upgraded and moved to their fleet, so we're seeing that as well. And offshore, we touch everyone. To the extent we want to and the extent we need to, probably not there yet. But we're moving on that direction.

Jeffrey Spittel - Madison Williams and Company LLC

So it hasn't necessarily been the rush to the door that you're seeing offshore in places like the Marcellus or maybe it's a little bit more of a hot button issue in terms of pressure control?

Jack Moore

Yes, could be.

Jeffrey Spittel - Madison Williams and Company LLC

And then I guess, switching over to the subsea market, I guess, specifically as it pertains to the Gulf of Mexico, can you give us a sense of how the climate shapes up there with some of the larger projects apparently are proceeding? Where are we in terms of one zees and two zees and the body language from the independence in the Gulf?

Jack Moore

Well, I think right now it's all going to come down to permitting. There's discussion there'll be a permit issued this year. I don't know if it's going to be a token permit or whether if it's really going to start the valve wave. But I have not seen any independent or any major back away bare enthusiasm for the Gulf of Mexico. I think everyone is committed. I think everyone is anxious. So if we're at the same place six months from now, maybe it's a different mood. But I don't see any one that's losing any interest or any enthusiasm for what the potential the Gulf of Mexico will hold for them. So I expect it to be it's going to be a great market for us. It's just going to take some time to get through this regulatory process.

Operator

Our next question is from the line of Kurt Hallead of RBC Capital Markets.

Kurt Hallead - RBC Capital Markets Corporation

First, on the compression and processing, what was the specific revenue shift from DPS into CPS? Was that just the NATCO business?

Jack Moore

It was the NATCO and the legacy Petreco business.

Kurt Hallead - RBC Capital Markets Corporation

And about how much of that revenue shift has occurred from the third quarter?

Jack Moore

I don't have that exact number in front of me, but I know Scott can get it to you.

Kurt Hallead - RBC Capital Markets Corporation

Maybe do that off-line after this. Now from a -- noticed that the share count did come down in the third quarter and you referenced that it wasn't necessarily related to share repurchase. Just trying to get to color on why the share count had declined on a quarter-on-quarter basis?

Jack Moore

Well, actually, we did buy shares back in the second quarter so the majority of the decline was the annual -- the quarterization of that, if you will.

Kurt Hallead - RBC Capital Markets Corporation

And then you're factoring in some share creep into the fourth quarter that I think you referenced $247 million which your guidance number on share count in the fourth, right?

Jack Moore

Yes, primarily from the converts that we have.

Kurt Hallead - RBC Capital Markets Corporation

Then you referenced on your heavy emphasis on trying to increase your market share of your own aftermarket OEM-type businesses. What's the timeframe that you've kind of put out there to achieve those targets?

Charles Sledge

Well, it started in the third quarter. I would say, for it to look up and say this is a sustainable piece of our business, you'd almost have to give this a six to 12 month timeframe. Because there's some commitments we have to make from an infrastructure standpoint that our customers out there will grab hold of and feel comfortable about. for them to move from where their current providers have been. So we're working through that and we won some of it back, and we're going to continue to chip away at it.

Kurt Hallead - RBC Capital Markets Corporation

And then when you look at your history for free cash flow generation and then utilization of that cash for acquisitions and grow in building the business, as you kind of look at the landscape going forward, do you think it's more likely that you're going to wind up adding to your existing three legs of businesses? Or is there a possibility that you could add a fourth leg? And what do you think has a higher probability of happening?

Jack Moore

Depends on the sellers. We continually look at expanding the platform. We've come close on a number of occasions, but didn't quite get the economics right. So I think it's going to cost.

Kurt Hallead - RBC Capital Markets Corporation

And you think the M&A landscape headwind into 2011 is going to accelerate versus where maybe it has been the last few months?

Jack Moore

There's clearly a lot of sellers. The question is valuation. Again, we've come close on a few deals, but we just weren't willing to take the low returns that would have required to get the deals done. But their...

Kurt Hallead - RBC Capital Markets Corporation

Do you think once again, great, do you think the probability is you're going to keep to the three legs or you're going to add a fourth leg as you look at the landscape right now?

Jack Moore

Hard to tell.

Operator

[Operator Instructions] Our next question is from the line of Dan Boyd with Goldman Sachs.

Daniel Boyd - Goldman Sachs Group Inc.

Hopefully, you can maybe chime with us some perspective, a lot of commentary that on the international side, the short cycle orders haven't really picked up yet. Can you help with this in perspective? And maybe in terms of your total short orders today, short cycle orders, what percentage is international? And maybe if we go back to different points in the cycle, what was the high point that represented at one point?

Jack Moore

I think we, in the last few years, have probably seen about 30% North America, 70% international shift. In North America would not include Mexico because that would be U.S. and Canada. So I think if you look today, we're probably pushing more 35%, 40%, 60%. So that's been the shift. And it's a meaningful number. It's really been North America been very strong and like I said, international not being down, it's just not being up to the degree North America has. So I think as you see North America kind of level off, you're going to see the international piece pick up a little more steam. That's kind of the way we see the market looking forward just based on the tendering activity, just based on the numbers we see out there that are potentially available to us to participate in.

Daniel Boyd - Goldman Sachs Group Inc.

And so where would the short cycle orders internationally be relative to the prior peak? Not that much different then?

Jack Moore

Well, I would say North Sea is going to be up relative to what we've seen in historical years. Just a lot of platform activity and I think onshore, Eastern Europe. The Middle East is always going to be good. And it runs a little, I don't say too cyclical, and you have bigger years than not-down years. And then Asia has been a little slow, at least from our customers in our markets. And we see that picking up. Mexico has been really down this year, and they don't have any choice but to go back up, the timing that is always a little bit questionable. So I think kind of look around those major markets that we have good visibility to -- we see some nice potential out there in 2011 and 2012 in those markets.

Daniel Boyd - Goldman Sachs Group Inc.

I apologize if I missed this one, but when I look at DPS and I think about the margins and some of the headwinds this year just because of a mixed issue, how should I think about margins for DPS next year, as I would assume with subsea basically slightly down at least the guidance is. How should I think about the margin progression there?

Charles Sledge

Well, I think, there's couple of things. We haven't done our budgeting yet, but you're clearly going to get a little bit of a benefit because the subsea mix is going to be less. The rest of it just depends on how the shorter cycle margins hold up. So I think we'll give you -- being in a position a better color here at the end of the year.

Daniel Boyd - Goldman Sachs Group Inc.

What might be helpful is just how did the subsea margins currently compare to the overall division?

Charles Sledge

They're lower.

Operator

Our next question is from the line of Ole Slorer with Morgan Stanley.

Ole Slorer - Morgan Stanley

You've changed your reporting a little bit around. But could you give us some sort of a pro forma number for on your reporting here? What would subsea fees be of drilling and production systems for the first nine months of the year?

Jack Moore

Ole, for the first nine months of the year, I tell you what, let Scott get that to you that way I don't speak off the cut.

Ole Slorer - Morgan Stanley

And basically what I'm trying to get to is that you can sense the focus on subsea revenues for next year and clearly what everybody is trying to back into is whether your drilling and production systems revenue has to come down as much consent is concerned or not. So you give it a $1.4 billion number and my guess would be that this could represent about a third of your revenues for next year on the basis that the Surface business should recover and they have the same size or a little bigger and the BOP businesses should also recover but be slightly smaller. Could you comment on those assumptions?

Jack Moore

I think it's a little premature for us to comment on 2011 what it looks like yet.

Ole Slorer - Morgan Stanley

On drilling and production systems, on the order intake, if you adjust to the new reporting lines, would the order intake be up or down in the fourth quarter based on the third quarter?

Charles Sledge

Ole, I would say, our expectations as it will be higher as based on the projects we're tracking. But it all depends on the timing.

Ole Slorer - Morgan Stanley

And finally, if you listen to some of the European companies recovering are saying as you operate in the subsea market, Technip, sub to seven, eight, et cetera, they're all talking about a very broad-based global recovery in sort of tendering and pre-tendering activity at the moment. Am I right in assuming that you don't see that same degree of enthusiasm?

Jack Moore

Oh, no, I think as I've said earlier, the projects we're tracking now is the list is longer and bigger than we've ever had. So I would concur with that. It's just the timing in which they book, I don't think Technip or anyone else has any control over that.

Ole Slorer - Morgan Stanley

Of course they don't, but you would compare the fact that the level of debt outstanding and what you're working on would be all-time high?

Jack Moore

Yes, that's exactly right. That's why I think it's a little interesting that we're sitting here not having booked the major projects year-to-date but yet we're tracking a whole long list of them. So it will happen. It will all happen.

Ole Slorer - Morgan Stanley

Is $85 oil and credit markets have function and budgeting cycle for big oil are fully going to be the best in the generation? I think you'll be okay. Don't worry.

Jack Moore

We think so too, Ole. That's why we like what the future holds.

Operator

Our next question is from Brad Handler of Credit Suisse Group.

Brad Handler - Crédit Suisse AG

As we've talk about 2011 a lot, can I ask a couple of questions please about the fourth quarter. Your prior commentary about subsea, just to stick with that first, has been for revenue growth of 50% year-on-year in 2010. If I back into what that means, what that requires for the fourth quarter, looks like it's about a $700 million fourth quarter revenue. Is that what you can still achieve in the fourth quarter?

Jack Moore

Well, I think if you kind of look at where we are, I know we said 50% in the past, but we've had some customer slippage. I think we're looking now at about a 45% increase year-on-year in subsea revenues.

Brad Handler - Crédit Suisse AG

So there is some slippage into 2011 presumably back to that discussion.

Jack Moore

Right.

Brad Handler - Crédit Suisse AG

Your D&A guidance confuses me a bit just because it implies $10 million lower D&A relative to the third quarter. Can you walk us through what's going on there?

Jack Moore

A couple of things. We did have a couple of catch-ups during the quarter in D&A on our intangible amortization, as we wrapped up the NATCO purchase price allocation.

Brad Handler - Crédit Suisse AG

But it was flat sequentially, so I guess there's a process of catching up that's happening in the last couple of quarters?

Jack Moore

That's correct.

Brad Handler - Crédit Suisse AG

So it's falls off to $43 million. And then if I understand, you're still budgeting but that's the new base, I suppose if I'd think about the 2011 D&A, that $43 million per quarter is our starting point?

Charles Sledge

I haven't seen the number yet for 2011, but I can't see it going down. I tell you that.

Brad Handler - Crédit Suisse AG

And then maybe last one for me, you've put a very strong margin in your new Process Systems and Compression division. You mentioned it wasn't recurring, but can you speak to what drove the strength and maybe help us think about how that could recur at different times? What sort of combination things has to happen to put up that kind of a margin?

Jack Moore

Well, it was a really, really good margin. A lot of things came together. If you look at year-to-date in our re-casted methodology, that business is running at about an 18% margin to give you some perspective. And think about it in a more fuller context.

Brad Handler - Crédit Suisse AG

Right, versus 21% in the third quarter? So your thought is that the 18% is more representative of what you'll do going forward?

Charles Sledge

Somewhere plus or minus.

Brad Handler - Crédit Suisse AG

Was it a function of mix or was it a function of some projects kind of the larger projects really coming in that much stronger in the third quarter?

Charles Sledge

It was a sale of some inventory that was at very, very high might margin, about $8 million.

Operator

And our next question is coming from the line of Doug Becker, Bank of America Corporation.

Douglas Becker - BofA Merrill Lynch

Jack, you mentioned that you're tendering a lot large number of subsea projects that'll drive bookings over the next 18 months. What are the prospects for subsea awards over the next quarter to Lee 1 3 1 [ph] in particular?

Jack Moore

Well, I think my guess is that it gets booked this quarter most likely. As to who will book it, we don't know, but we feel we're in the process. I would say that's fairly clearly on the near term on our radar screen. There's a lot of other projects out there, Doug, that if you look at where we're at tendering today, you've got Chevron, ExxonMobil and West Africa. You've got Asia, you've got Australia. I don't think we'll see anything booked in the Gulf of Mexico this quarter, but in Brazil. So you're going to see -- a lot of things at work. And I hate to tell you what's going to happen in one quarter. But I feel good about the next 18 months.

Douglas Becker - BofA Merrill Lynch

And what's the timing of Phase II of Block 31. What's your latest thoughts there?

Jack Moore

John?

Company Speaker

The timing is still being discussed with people at the top. I think it's going to be probably in the next 18 months, 12 to 18 months, we'll have more clarity about where it's going.

Douglas Becker - BofA Merrill Lynch

And then Jack, you've mentioned that you're seeing a few more inquiries for floater new builds. Any quantification about how many the timing, is it drillships or some submersibles?

Jack Moore

Well, I think, clearly, there's been a couple of them talked about recently. I know that some of the shipyards have gotten aggressive with promoting their capacity availability. There's a lot of financing that was not available a year and a half ago that -- there's a lot of financing available today. And as I've said, not sure that some of this discussion around building some of these new build floaters is just geared to get that element or if there's really an increase in demand. I think I happen to believe it's the former not the latter that's driving some of this discussion. But the real new build opportunity for the floater market both drill chips and Sunnis is going to be in Brazil. That's where the focus new build activity is going to be, but yes, I you could see some other ones pop up as a result of them beating some very attractive pricing in the shipyards today.

Douglas Becker - BofA Merrill Lynch

We're just talking a handful at this disjuncture that you have.

Jack Moore

That's kind of what we're picking up and seeing. I don't think there's any new huge wave. And I still think operators are looking to see what happens in the Gulf of Mexico as are the drilling contractors. And if we get a long extended, it could pre-natatorium here, it could force some of those rigs to move and find other opportunities. Not that anyone wants to see, but we just have to wait and see how this plays out over the coming months.

Operator

Our next question is from the line of David Anderson of JPMorgan.

David Anderson - Palo Alto Investors

I was hoping you can clarify something for me, a number of contractors are saying they have already completed their contracts on BOPs. Others are saying the BOPs have been certified. But it sounds like you're saying you haven't really even been giving a road map yet. Where's the confusion in all this?

Jack Moore

Well, I don't know that there is confusion. I mean, upgrading BOPs is a broad term. It could be upgraded in with new share ram capabilities because all that does -- all you have to do there is just swap out shear ram for available blue rams, so that can constitute an upgrade. Yet there really isn't any physical work being done relative to an equipment provider like ourselves except maybe providing them with a set of shear rams. The certification process, we have gone through a lot of stacks in the course of the last 120 days. Reinspected them, they did necessary repairs. That is part of the certification process. Now we're not a third-party certifier so drilling contractors using the D&Vs, the Lloyds, the ADSs and those guys, I'm sure that activity has been going on. So I think when you talk about upgrades, we haven't taken stacks in and rebuilt them with additional cavities. We haven't seen much of that demand at all. Because I think the guys still don't know exactly what it is they're going to be required to do offshore.

David Anderson - Palo Alto Investors

So with that chunk of business you haven't even seen yet what's going to come out presumably all starts to kick in next year?

Jack Moore

It could. It could. I'll just caution everyone to the fact that I don't know that there needs to be a whole new wave of rebuilding the existing fleet. I think what's out there works pretty well. I think it just has to be maintained properly. And I think when you have work done to it, I think you need to have it done by the OEMs.

David Anderson - Palo Alto Investors

If I'm not mistaken all of your aftermarket BOP business is on a call-out basis. I don't think you have any service contracts in place of the right contractors for maintenance?

Jack Moore

We do have a few of those. We have guys working 24/7, we sure do.

David Anderson - Palo Alto Investors

I would suspect that would a part of your business that should grow appreciably. I mean, am I wrong on that? I would think that particularly in International locations if this is something that kind of spreads out to over there that, that would seem to be the ideal way for contractors and operators to ideally get their BOP size maintained?

Jack Moore

Well, we believe so. And we've made that available to all of our contractors that had Cameron kit. And some have taken us up on it, some have obviously have the wrong fleet maintenance program. So I think you'll see a mixed bag, going forward. Hopefully, we'll see more contractors move in that direction, and maybe operators will support that effort. I think time will tell. But I definitely agree with you in that respect.

David Anderson - Palo Alto Investors

Jack, last quick question, you mentioned be able to pick and choose on subsea projects. What do you see in terms of trends out there right now? Is pricing continuing to deteriorate out there? Are there just simply too many companies chasing too few projects? How do you see that playing out?

Jack Moore

Well, yes, I think pricing has been an issue. And it definitely has not gotten any better in the last nine months. And a lot of it is because we've got so much of these projects that are moving to the right, and it creates some unconventional behavior around everyone's need to go out and book work. And so I think that as this thing continues to shift to the right, I think you continue to see that pressure maintain. You just have to be very disciplined, you have to be very patient, and it does test your patience sometimes. But you look at the big picture, and you look at where Deepwater markets are going over the next several years, a ton of opportunity. And I think we'll see the opportunities to see more sensible pricing come back into the picture here over the coming quarters.

Operator

Our next question is from the line of Tom Curran of Wells Fargo.

Tom Curran - Wells Fargo Securities, LLC

Shifting gears here to the FPSO outlook. Could you just provide us with a detailed update on how many tenders are currently outstanding that you have or plan to bid on and the likely timing of those awards? And then the number of accessible new build conversions or projects that you're anticipating next year that you plan to bid on?

Jack Moore

Well I don't have those exact numbers in front of me relative to exactly what we're tendering now. I know there's a handful that our guys are working on through both the EPC contractors indirectly with the shipyards. But I will tell you, if you look at the population of FPSO's floating LNG, things that we're going to see that's offshore processing that we would call it kind of in that space. There's over 100 potential opportunities. And most of them FPSOs. And a good chunk of them in Brazil, and a good chunk of them in West Africa. And we will see these evolve over the next -- again, over the next five years, it's going to be a substantial number. So we're very excited about where we're at relative to our ability to play in that market, especially with our Process Systems team, our Compression team, our Valve teams. As I said before, if you put all the potential kit for Cameron on an FPSO, it exceeds $150 million in value to us. So it's a big number when you look at the surface footprint that we can provide on these floating processing systems. And so it's a big market, and we've got some great technology, I think, that will prove to be valuable to us as it evolves.

Tom Curran - Wells Fargo Securities, LLC

And focusing on that total accessible market, is there anything you're currently doing either internally on the R&D front? Or prospects you've identified in terms of M&A that you think could further expand that footprint going further?

Jack Moore

Well, the answer to all of that is yes, we always look in from product gaps that currently exist in our portfolio. There's a great M&A opportunities if we don't feel we can develop them internally. From the product development side, I think one of the biggest opportunities we've had is really on the Processing Systems side, where we've got the Cynara membrane technology in terms of making that more compact, making it fit into the footprint we have now. And John, you may want to add to that.

Company Speaker

I think you just said it all. It's great to see how Jack put that right, technology that we're compacting so that it takes on FPSO platforms, I believe.

Jack Moore

That's really a unique capability that we're getting some great margins on.

Operator

Our next question is from the line of Geoff Kieburtz of Weedon & Company.

Geoff Kieburtz - Weeden & Co. Research

Chuck, just to be clear, I understand your subsea revenue forecast such as it is for 2011 is really arranged, but the message is it's going to be lower revenue in 2011 than 2010, correct?

Jack Moore

I think that's a fair assumption.

Geoff Kieburtz - Weeden & Co. Research

And I think we've already said that, that's likely to have a positive impact on margins and DPS?

Jack Moore

I'm not sure I said that, but we'll give you guys -- again, we're not done with our budgeting process, but theoretically, it should.

Geoff Kieburtz - Weeden & Co. Research

I guess in the release talk about fourth quarter being the trough margin. Does that apply specifically to DPS?

Jack Moore

No, that's a company-wide statement, so an aggregate margin.

Geoff Kieburtz - Weeden & Co. Research

So may or my not be the trough for DPS?

Jack Moore

That is correct.

Geoff Kieburtz - Weeden & Co. Research

As you look at the large number of opportunities that you have in the subsea market right now, I think, been referenced several times, do you have a sense that those opportunities -- well, I'll ask it this way. Would you expect your share of the awards will be higher in 2011 than it has been in the last two years?

Jack Moore

I'd say it be higher than it was in 2010. I think, Jeff, I would just say this. Cameron's in a great position to support any of these projects we've targeted. We're going to win our fair share. The teams worked very hard to put themselves in a great position in terms of prospect sheet in capabilities, product breadth and technology scope, relationships with all of these companies we're tendering with, great position to service them in their markets. So we're not going to win them all, but we'll win our fair share. And some of it's going to depend on the return on that investment that we see in terms of the bidding process it takes. So we'll go to have to be disciplined and patient, but there's plenty opportunities out there.

Geoff Kieburtz - Weeden & Co. Research

But you would expect a higher share in 2011?

Jack Moore

Than we did in 2010? Yes. We had a pretty high share in 2009, so I would say that it really -- it's hard to predict where anyone's share is going to be. I can see it's had a great year in terms of booking projects. And I think their commentary, if you go back a few years, would have reflected a lot of things that we're looking at just haven't come together. And they saw it coming together and I think that's probably similar to where I'd say we're at right now. You can't always predict the timing of it though.

Geoff Kieburtz - Weeden & Co. Research

And finally, on the FPSO, you quote $150 million revenue opportunity in an FPSO.

Jack Moore

That's all in, Jeff. If we...

Geoff Kieburtz - Weeden & Co. Research

That's my question. For that total addressable market, what's kind of your Cameron's current range of market share?

Jack Moore

Well, it's been pretty low relative to that. I mean, if you look at it historically, our biggest win was probably about $60 million on an FPSO. So I think we got a lot of upside. And one of the things that we see putting businesses like Process Systems and Compression hanging out together, they'd both have huge opportunities with FPSO markets. And onshore separation businesses and -- I'm confident we're going to see a bigger opportunity relative to how we've aligned ourselves and how we're marketing ourselves. When you look at our enterprise marketing initiatives, FPSO is clearly one that we have put some emphasis on here in the last several quarters. And we will start seeing those results emerge for us. And so I'm confident when you look at this maybe a year from now, your going to see bigger wins relative to the number. But will we do $150 million? I mean, I don't know. I mean the potential is there, but there's a lot of decision makers for us to win all of that work. And not very many companies that we compete with have the same platform that we bring relative to that surface footprint. So we're going to change some behavior around how this footprint is purchased. And changing behavior into something that happens overnight.

Geoff Kieburtz - Weeden & Co. Research

Is the shrinkage of the footprint on the membrane technology a critical element to growing your market share?

Jack Moore

I would say, because it's focused in Brazil, it will be important to them. Now on the Footprint space these are massive FPSO units, and there's a ton of processing requirements, which is why ultimately, they going to want to push this to the Subsea-Seabed as well. So that's the evolution of all of this. And over the next decade, you're going to see a lot of this is evolve today. But in the meantime, for them to get access to these pre-solved developments and turn it into cash, a lot of processings are going to be on top of that FPSO.

Geoff Kieburtz - Weeden & Co. Research

And when do you think that, that might be ready to go?

Jack Moore

Well, we've started that process now. We've sold some units to Petrobras last quarter, and that's ongoing development in discussions as we speak.

Operator

Our next question is from Bill Sanches with Howard Weil.

William Sanchez - Howard Weil Incorporated

Jack or Chuck, Chuck, the commentary around the V&M margins, I think you said flat around 17% into 2011. Is it too early to offer that up as kind of guidance for next year on V&M margins? Or how should we be thinking about that for our full-year basis for 2011?

Charles Sledge

Can't comment on back half of 11, so my comments was limited towards the early part of 2011.

Yvonne Fletcher

And the 23.5% tax rate for fourth quarter, is that what we should be using for 2011 at this point as well?

Charles Sledge

Again, don't have that fully nailed down, but somewhere between that and the 25% that we were targeting earlier, somewhere in that range.

William Sanchez - Howard Weil Incorporated

And I guess, just one final one for me, I know there's been a lot of talk around subsea just trying to think about -- you guys highlight certainly a strong book to bill for the company as a whole. It was essentially one here for the quarter. When can we be thinking about your book to bill and subsea achieving a ratio similar to that? I mean, you got another big revenue quarter here in 4Q, and I imagine, Chuck, the first couple of quarters of next year are probably pretty strong from a revenue standpoint. I mean when do we see the timing of the orders materialize where we can start talking favorably about book-to-bill ratios and subsea?

Charles Sledge

We're all giggling over it. I wish we can answer that question. It's just tough, Bill. We need to see when these projects is booked. That's going to influence it and we just don't know.

Jack Moore

But somewhere, hopefully, during 2011.

Charles Sledge

The next 18 months?

Jack Moore

Yes.

Operator

Our next question is from Stephen Gengaro of Jefferies & Company.

Stephen Gengaro - Jefferies & Company, Inc.

Two things real quickly. The first, back to the aftermarket side. It looks like you would run at about $300 million a year on the drilling side. And I think the first half of this year was about $170 million in revenue. Is that the number which could be up 50% on an annual run rate in 2011? Or is it too soon to sort of pinpoint? What's the potential size? And it sounds like 50% of 50% of the gross diff 75%, it's 450 versus 3. Is that a reasonable way to think about it?

Charles Sledge

I would say, Stephen, let's give you better clarity on that in the next call. It's still early. Definitely, we will see a higher aftermarket drilling number in 2011. But to the magnitude of the change year-over-year, I think it's too early to tell you that.

Stephen Gengaro - Jefferies & Company, Inc.

And one other follow up back to subsea, it seems like Chuck's guidance sort of implies a fourth quarter of subsea numbers of kind of 630-ish. I mean, obviously the mix hurts the margin. Was there any shipment issues in the third quarter? Because the third quarter numbers seemed a little light relative to the fourth quarter, I know the way you would account for it? A, is that a reasonable expectation? And b, it's just kind of a timing of order of deliveries?

Charles Sledge

Yes, I think number one, it's just the timing of when our customers need the equipment because we do not take revenue till the equipment's done. And specifically, I think your revenue number for the fourth quarter you quoted was a little high.

Operator

I would now like to turn the floor back over to management for closing comments.

R. Amann

Okay, that will do it for us. Thank you, Rob, and thanks to all of you for joining us today.

Operator

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

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