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Cameron International (NYSE:CAM)

Q4 2010 Earnings Call

February 02, 2011 9:30 am ET

Executives

Jack Moore - Chief Executive Officer, President and Director

R. Amann - Vice President of Investor Relations

Analysts

David Anderson - Palo Alto Investors

Brian Uhlmer - Global Hunter Securities, LLC

Alan Laws - BMO Capital Markets U.S.

William Herbert - Simmons

James West - Lehman Brothers

Geoff Kieburtz - Weeden & Co. Research

William Sanchez - Howard Weil Incorporated

Tom Curran - Wells Fargo Securities, LLC

Stephen Gengaro - Jefferies & Company, Inc.

Jeffrey Spittel - Madison Williams and Company LLC

Brad Handler - Wachovia

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

Michael LaMotte - Guggenheim Securities, LLC

Robin Shoemaker - Citigroup Inc

Daniel Boyd - Goldman Sachs Group Inc.

Michael Urban - Deutsche Bank AG

Operator

Greetings, ladies and gentlemen, and welcome to the Cameron Fourth 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 thank you for joining us today. A quick housekeeping note. Due to the rolling power blackouts in the Houston area, Jack and I have actually migrated to a division office this morning to do the conference call because power has been out at our offices since about seven this morning. So those of you expecting e-mails from me of news release or other information, we will get those to you as quickly as we can get back to the office and get power restored. In the meantime, the release should be available on the newswires, and it has been posted or is being posted to our website as we speak.

This morning, you will hear from Jack Moore, President and Chief Executive Officer of Cameron. Chuck Sledge, our Senior Vice President and CFO, is out off the office tending to a medical issue in his family. We ask for your good thoughts for him and his family at this time. Jack will offer some commentary on the results for the quarter, and we'll then take time to field your questions.

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

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

Jack Moore

Thank you, Scott. And first, let me say that our thoughts and prayers are with Chuck and his family today, especially with his wife, Liz, as she goes through her surgery this morning. She's in great hands.

Now let's talk about Cameron's fourth quarter and our outlook for 2011. As you've seen, we've printed earnings of $0.69 a share, excluding charges of $0.03 a share, primarily related to the litigation costs associated with Deepwater Horizon and NATCO integration cost. Excluding unusual items, earnings for 2010 came in at $2.42 a share. Now, we're done with the acquisition integration costs surrounding NATCO, but we will continue to see Deepwater Horizon cost for the foreseeable future. And we'll continue to call these out separately in future quarters.

Revenues for the quarter were a record $1.8 billion, up 23% versus the prior year. Revenues for 2010 were just north of $6.1 billion, up 17% versus 2009, also a new record. 2010 revenues were primarily driven by record deliveries to subsea equipment, which were up $450 million in 2010. We also benefited from a recovery in our shorter-cycle businesses. The primary reason for the increase in earnings in the quarter from our original guidance was improved margins.

EBITDA margins in DPS actually surprised us in the fourth quarter, increasing 80 basis points sequentially despite a 26% increase in subsea revenues. Each of the businesses within DPS improved its EBITDA margin sequentially, reflecting the leverage we got off a 19% increase in revenues sequentially.

V&M's EBITDA margins increased 80 basis points as well, primarily as a result of improvements in the Process and Distributed Valve businesses. However, their margins are still being negatively impacted by low-margin work in the Engineered Valve portion of this business. As expected, PCS's EBITDA margin decreased significantly as the third quarter included certain high-margin revenues, which you do not expect to see repeat.

Orders for Q4 totaled just north of $1.7 billion, up from $1.37 billion a year ago, as total orders increased for the third quarter in a row. Year-over-year orders were higher in all three of the company's operating groups. Total orders for 2010 were $5.8 billion, a 26% increase over 2009 and the second highest order year in our history. This was achieved without the benefit of any single large subsea project award. DPS orders totaled close to $3 billion supported by a strong finish in subsea in Q4. V&M posted a record level of orders totaling just under $1.6 billion in 2010. And Process and Compression Systems recorded its first $1 billion orders year, actually generating over $1.2 billion in bookings for the year.

Backlog finished the quarter at just under $5 billion. We ended the quarter with $1.8 billion of cash and $540 million of negative net debt, so our balance sheet remains as conservative as ever, and we spent $200 million in CapEx in 2010.

As a reminder, our 2.5% converts have been reflected as a current liability as they are callable beginning in June of 2011. In addition, given our current stock price, these instruments can be converted by the holders. Under our debenture [ph], we are allowed to repay the in-the-money portion of the bonds and cash rather than stock, and that's our current intention if any are tendered for conversion. I'll make a few comments on the business units before we discuss our guidance for 2011.

Our Drilling Systems business unit booked the world's first 13 5/8 inch, 25,000 psi BOP stack to be delivered in the fourth quarter of 2011. This was sold to McMoRan for their Davy Jones project. I will also note that Cameron is providing all of the 25,000 psi surface wellhead and tree systems for this project as well. I must say having two of our divisions engaged in providing such critical technology for this development is a real complement to our engineering and operational teams.

We saw another record quarter for aftermarket sales and service bookings in Drilling Systems in the fourth quarter, driven by our customers' OEM only initiatives with over $110 million in bookings. We've also continued to press forward with our aftermarket capital expansion projects, both in the U.S. and overseas, to sustain these programs. These investments are necessary to support the scope, pace and quality of the work that is now being demanded by a number of operators to ensure equipment certification by OEMs is maintained all over the world.

Quotation activity for both new onshore and offshore projects is extremely active. We are tracking over 50 potential jackups, as well as 25-plus drillships and semis. We see renewed commitment to upgrade fleets across all segments of our product offerings. The decisions on Brazil's new build programs awards have been extended, but we see it happening here in the second quarter at latest.

Subsea Systems bookings totaled $490 million in Q4. The quarter included the booking of our first Deepwater project for offshore China. The LNG one [ph] (10:50) project booking covers the first phase of a multi-well development program for bringing gas to shore to feed local demand. We also secured the remaining three commitments from Petrobras for the Lot 1 frame agreement that was awarded in 2009 along with additional treaties for the property development. We opened Angola's first-ever dedicated subsea product manufacturing assembly and testing facility, which is a huge step in advancing Cameron's commitment to Angola local content initiatives with key suppliers. And not unlike drilling, our tendering activity remains extremely high across a number of our deepwater markets with lots of focus in West Africa, Brazil, Mediterranean and the Far East.

Revenues for Surface Systems topped $300 million in Q4, a record for Cameron, much of the strong performance was driven by North America activity where investment in the shales is delivering great results. We've invested over $80 million in the shale market since 2010, and we'll invest another $50 million in 2011. Much of this is focused on our frac and flowback rental markets. We also saw positive recovery in our North Sea and Caspian markets and expect us to continue along with Asia and the Middle East markets that have held up steady through 2010 and see a number of new projects that should benefit bookings in 2011.

Mexico is the only negative spot on the radar as we are seeing historical lows in activity levels, albeit should recover somewhat in 2011. Our facilities in Iraq are underway, which is to support not only our surface platform but a number of other Cameron businesses as well. All in, we see a very positive picture for global demand for surface wellhead and trees in 2011.

Our Valve & Measurement group had a record year of bookings led by Engineered Valves. Distributed and Process had strong years as well coming off 2009. Orders for Q4 totaled $442 million, led by Engineering with $109 million with additional orders for the Chevron Gorgon project accounting for $45 million of this amount. Distributed Valve orders topped $100 million in Q4 due to robust North America activity by our legacy customers. Process Valves had a strong order flow from a number of projects in China that allowed for a strong quarter. And Measurement Systems orders exceeded $60 million in the quarter, a record for them, led by our turbine meter products used across a wide variety of oil and gas applications.

We were very positive about our valve markets at the beginning of 2010, as you remember, and we remain positive for 2011. As the number of projects, we move forward along with continued strength in our short cycle businesses. As stated in the beginning of our call, our Process and Compression Systems group finished 2010 with bookings north of $1.2 billion, over half of which was fueled by Process Systems, which had a record year. We continue to gain synergies and expand new market opportunities with our enterprise initiatives around our Process Systems platform. Brazil will be a key part of our growth here with the buildup of their FPSO requirements in support of pre-salt developments, all requiring CO2 separation technologies, which we are in a great position to support.

Our Reciprocating Compression business had another strong orders quarter and finished 2010 up 25% versus 2009. We continue to experience a large number of inquiries for compression packages primarily outside of the U.S.

Centrifugal Systems booked over $100 million in Q4, which is up 65% versus Q4 of '09 and finished 2010 up 35%, which is a great sign that our more GDP-sensitive businesses are seeing some meaningful recovery. We're very pleased with the results that we have said many times, it underscores the value we generate from having the diverse portfolio of businesses that serve our customers both in deepwater and onshore markets in all corners of the world.

Now I'd like to make a few comments with respect to our guidance for 2011. Our earnings per share forecast is $2.65 to $2.75 per share. Embedded within this guidance is a 3% to 5% increase in revenues, with EBITDA margins increasing to slightly north of 18%. The DPS group should see margin gains with the shorter-cycle businesses with DPS offsetting lower subsea margins. V&M EBITDA margins should also increase slightly again with the same story. Improvements in the shorter-cycle businesses will offset some lower margin in Engineered Valves we have been talking about for the past few quarters. And finally, PCS should be relatively flat year-over-year.

D&A for 2011 should approximate $220 million, while capital spending will increase to between $250 million to $300 million. Net interest expense for 2011 should come in below 2010's level of $78 million depending on what we do with the converts, which are callable in mid-2011. Our effective tax rate for 2011 should be approximately 23.5%, and our guidance assumes 240 million fully diluted shares outstanding, again depending on how we deal with our converts, which currently impact our share count by about 1.9 million shares.

Our overall outlook for 2011 is very positive for all of our business units. Planned CapEx on the part of our customer base for both deepwater and onshore projects is robust and will provide a multitude of opportunities for Cameron.

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

R. Amann

Okay, Christine, let's open it up for Q&A, please.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from James West with Barclays Capital.

James West - Lehman Brothers

Jack, I was curious about the current pricing environment in subsea. There's been a lot of market chatter about even more aggressive pricing from some of your smaller competitors here in recent awards, and I was curious. I know Cameron's been fairly disciplined, but have we seen any improvement overall in kind of pricing by your competition?

Jack Moore

I think it's early days. I would say that it's somewhat project-specific. There's going to continue to be a little pressure in this as these projects move to the right, but there is a ton of projects out there that we're all looking at. And so we're, long term, very excited about, I think, the stability of the deepwater market as they evolve in seeing some discipline in pricing restored.

James West - Lehman Brothers

You mentioned the 50 jackups and 25-plus drillships. Does those numbers you mentioned include the roughly 35 or so new offshore rigs that have been ordered and announced since late September?

Jack Moore

That would include -- what I'm looking at or projects we're tracking that the decisions around the Pressure Control equipment has not been made yet. So it could include some of those. It probably does include a handful of them, but the majority of them are new builds that are being quoted through the shipyards.

Operator

Our next question comes from Robin Shoemaker with Citi investment research.

Robin Shoemaker - Citigroup Inc

Jack, just following up on that last question. In terms of the rig pricing, we've seen announcements as considerable reduction in overall jackup and deepwater rig pricing versus the last cycle. In terms of the BOP equation, as part of that, do you expect that your margins as you book or win business for deep or shallow water BOPs will be equivalent to the last cycle? Or are there competitive pressures there?

Jack Moore

Yes, I would tell you that we're probably seeing a little more pressure on pricing with some of these systems than we did in the last cycle, and a lot of that has to do with who's making the buying decision. If it's a turnkey out of a yard, where they’re not as driven by a particular brand, I think the generic approach would be to take a more competitive price. A lot of our customers, though, that specify first as a Cameron preventer, they do it for a reason. It's not necessarily because of price, it's because of their history and performance, and they want to keep, maintain a consistent fleet. So there's not as much price pressure in those in that piece of it. So I'd say it's a little more of a mix in this cycle than we probably saw in that prior build cycle in '06, '07 timeframe.

Robin Shoemaker - Citigroup Inc

Right. Another question is on the ton of projects out there that you mentioned, how significant is the Gulf of Mexico? Where do we stand there? We have seen a few awards here recently of Gulf of Mexico Deepwater subsea awards. What's your view on further awards for Gulf of Mexico Deepwater development?

Jack Moore

Well, I think our customers need first to get through this permit process. And almost all of the majors have permits now sitting within the BOME, and as soon as those get some traction, I think you'll see the pent-up demand and some of these deepwater developments start to evolve. But there's plenty of opportunities out there, whether it's Hess, whether it’s BP, whether it's Shell, Exxon, Chevron, a number of opportunities that our customers are waiting on.

Operator

Our next question comes from Mike Urban with Deutsche Bank.

Michael Urban - Deutsche Bank AG

So on your shorter-cycle businesses clearly, a pickup going on, which is certainly what you would expect at this point in the cycle. How much visibility do you have into those markets at this point?

Jack Moore

Well, it's normally the first markets to come back and the first to go away. I think a lot of it's driven in the U.S. by oil prices, and the oily shales is where a lot of our customers' activity’s been focused. So I think you have to say if you believe oil prices are going to remain healthy and robust for the next, however long you want to look out, two to three years, it's a good story. The other is driven by lease holding. There's a lot of drilling activity that's going to remain in place just to hold the leases that these operators have spent a lot of money on. But I think the primary dynamic is oil price. Gas prices in this $4 range plus or minus $0.50, we still see some of these projects make a lot of sense. As it gets lower, I think you'll see more sensitivity to that. But we're positive about the outlook for the shorter-cycle businesses for sure because of oil.

Michael Urban - Deutsche Bank AG

And so maybe really tackling it another way, the orders that you book in the fourth quarter, say in surface or in upstream valves, when would you expect to deliver those?

Jack Moore

Well, normally, we call it shorter cycle because those will equate to revenue probably within, some cases within a week, in some cases within 90 to 120 days. So I would say on average, it's a 60- to 90-day kind of timeframe depending on the complexity of the product.

Michael Urban - Deutsche Bank AG

And is that what's kind of baked in to your guidance, what you've booked so far? Or is there some expectation of further improvement there?

Jack Moore

No, it's what's baked in.

Operator

Our next question comes from Jeff Tillery with Tudor, Pickering, Holt & Co.

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

Question just on the V&M order side. I mean, it's obviously very strong in 2010 and began to [ph] really good 2011 from a revenue standpoint. Do you have a sense for what the 2011 order book looks like? Could it be as good as it was in 2010?

Jack Moore

Yes, it could.

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

And which businesses are going to start in Q4, those that you'd expect to lead in 2011?

Jack Moore

I see all of the elements of our V&M group, the Engineered, our Distributed, our Process Valves, our Measurement group had a great quarter and a really great year. The fundamentals are all very positive for every one of those businesses. We depend a lot on the infrastructure projects with some of those businesses, especially Engineered and Process Valves, and they're coming off a very, very dismal '08, '09 kind of environment. There was just a lot of pent-up demand, and we thought it would come through in 2010. And it did, and it's carrying over into 2011. We're very optimistic.

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

And is pricing getting better for those business?

Jack Moore

It is. We are still digesting some low margin Engineered Valve work that is longer cycle, and we're going to have to get that through our system here in 2011, but we're seeing some positive signs of pricing improvement in that area for sure.

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

And then my last question just on the Processing Compression business. You guided to roughly flat year-on-year. I would have thought it leads up somewhat year-on-year just given what the order progression through the course of 2010. I just wanted some color behind the concept that, that segment is going to be roughly flat.

Jack Moore

Well, I think we will be up revenue-wise year-over-year. What we've said is -- we had a really strong, I think, a very strong margin performance in Processing Compression in 2010, and we're essentially seeing it the same. It's going to change a little bit within the product mix, and that's kind of what's driving it.

Operator

Our next question comes from Michael LaMotte with Guggenheim Partners.

Michael LaMotte - Guggenheim Securities, LLC

Jack, on the Statoil press release, I was kind of intrigued by that one. Can you talk a little bit about opportunities in Norway?

Jack Moore

Well, I think we do a lot of business in Norway both in our Surface and Drilling Systems. We're not a player per se in the subsea market in Norway. Cameron just never got its roots established there but very well established in the Surface and Drilling platforms business there. And I think it's just underscore. This is a very critical project for Statoil, one that we worked very closely with them on, and it was a high-profile project to them and one that we wanted to, I guess, brag about a little bit. But I think it also underscores. There's going to be a lot of stuff going on in the North Sea, not just in the Norwegian sector but also in the U.K. sector. We're very bullish on what the North Sea is going to look like for this market for the next couple of years, and so that's really underscoring kind of where we're very focused right now.

Michael LaMotte - Guggenheim Securities, LLC

Is there anything sort of and trend-wise that we can look for, should look for in terms of the capabilities that you'll be delivering in that project as, as things that we can look for in future projects?

Jack Moore

Well, I think just think back on my comments relative to the Davy Jones project. Cameron, I don't think it should be lost with all of you. When you're talking about 20, 25 K systems, high-pressure, high-temperature, I mean it’ll separate the men from the boys real quick. And there's only a handful of people that customers out there can trust that can do it. I think Cameron's at the top of the list.

Michael LaMotte - Guggenheim Securities, LLC

Second question. Can you talk about the frac-in flowback rental market and what that looks like for you and how you ended up getting into that business?

Jack Moore

Well, we make valves and...

Michael LaMotte - Guggenheim Securities, LLC

It came from a rental standpoint.

Jack Moore

Well, let me tell you. In Cameron, again, when you've seen the shift into the frac markets, we've had a lot of customers asking us to help them come up with the frac manifold [ph] (28:24) designs and equipment that gives them more flexibility, longer run times and less downtime. I mean, think about the cost of having all that frac fleet out on location for a day longer than they should be because you're having to replaced valves that failed. And there's a lot of valves entering the market from parts of the world that aren't very desirable, and the quality is suspect and the reliability is, it's just not where it needs to be. That's not the way Cameron runs its business. We talked about the importance of having a facility like Romania in our manufacturing capability and how important it's been for us to be able to respond to the demands we're getting from customers for high-pressure, high-performance frac valves or valves to be used in frac-ing requirements. And a lot of them prefer to rent them versus buying them, so we're very flexible on how we approach it.

Operator

Our next question comes from Daniel Boyd with Goldman Sachs.

Daniel Boyd - Goldman Sachs Group Inc.

Just building on that last comment. What do you see is your revenue opportunity these days as we shift further into some of these liquid shales looking at whether it's from a rig, revenue per rig or it's revenue per well and how maybe that compares to a couple of years ago?

Jack Moore

Good question. You just take a typical well in West Texas three years ago, Cameron's revenue opportunity for a well having tree system, let's say, would be $25,000. Not that -- that's very generic, so it could be less than that. It could be more than that depending on the pressure rating, but just take that as an example. If you look at the wells that are being drilled and completed today in similar areas, shale well, with multistage frac-ing, that revenue opportunity for Cameron could be north of $100,000. So it's a 4x kind of opportunity given how much frac valves you consume, the flowback valves and the systems that we provide. So some of the process equipment we can bring to location. One of the things we talked about when we bought NATCO was creating, integrating the Process Systems with what we can do with Surface Systems’ valves and compression. So that's the story we've been talking to our customers about and one we've been taking to our customers, and it's gaining some traction. So our revenue opportunity at a well site has increased significantly just because of the capabilities that we now have with frac-ing opportunities, with flowback opportunities, with process opportunities, so it's really not a rig-driven issue. It's more of a well-driven issue.

Daniel Boyd - Goldman Sachs Group Inc.

And where are you in the evolution of that strategy, maybe from either a market share perspective? I see you're obviously investing quite a bit in that business this year. Is there further room to consolidate it, or is it more of an organic growth opportunity?

Jack Moore

I think obviously we'd look for opportunities to acquire businesses that get us there quicker, but organically is how we've approached it. And I think we have, when you look at our historical share and just the wellhead businesses around the world where Cameron is somewhere in that high-30s kind of environment, we're not anywhere near there with the shales. I think there's a lot of players in this market, and what's going to differentiate us from the pack is the quality of the products, the quality of the service, the performance of the equipment and the people that stand behind it, and that's where we're going to focus.

Operator

Our next question comes from Bill Sanchez with Howard Weil.

William Sanchez - Howard Weil Incorporated

Jack, back to DPS. I guess as I look at the comments in the press release in which you said here this morning, clearly, the subsea side revenues did not grow as much in '10 and '09, I think, as you guys had expected in the third quarter calls. I'm guessing there was some slippage in the 2011 there, and I guess just the initial outlook on the subsea revenue decline for 2011 versus '10, it's not as sharp, I guess, as one might have expected given the third quarter commentary. Just a combination, I guess, of some slippage there and also just the robust orders that you saw, I guess, relative to what you had booked for most of 2010 in subsea. And I guess I just wanted to just to follow up on the margin progression there. If I heard you correctly, you expect DPS margins to be up again in first quarter versus fourth quarter even though, I guess my belief would be is that subsea revs would perhaps be a bit higher sequentially fourth to first quarter. If you could talk a little bit about that, please?

Jack Moore

Bill, yes, I think your characterization of kind of the moving parts of subsea, I wouldn't say you're wrong. We can't always predict what's going to ship in the quarter because of the way we account for it. So the customer has to say it's good before we account for it. So that does allow things to move from quarter-to-quarter, both in or out. The question on margins relative to subsea, we have not given margins on the first quarter, so as I think we relate to margins for the full year, we're confident that our DPS margins will be better than 2010 for the full year. How that flows across the quarter, I think, is going to be a little more dynamic, so we haven't called that out.

William Sanchez - Howard Weil Incorporated

And just a question on, I guess, the former Compression segment now. I know it includes NATCO, but historically, we would see a seasonal decline in revenue and margins in that business, and I'm just wondering now it's a little, I guess, less transparent on the compression side with NATCO being there. Margins, I know you know they were down significantly in fourth quarter. Can you give us just some expectations on maybe first quarter, first half in that particular segment?

Jack Moore

Well, they'll be better next year than they were in the fourth quarter for sure. We had some things that happened in the third quarter that we're extremely positive for it. So it's just again, we have some things moved around. But no, we feel very positive about the business in 2011 and a little less cyclical because process gives us some more, I think, a more, less seasonal cyclicality with it. But I'll tell you what's interesting, and I don't want it to be lost with our audience is how well we've seen on the compression side of the business come back in 2010 in terms of our order rate. It's very encouraging, and it's going to turn out to be a good year for them in 2011 as this evolves.

William Sanchez - Howard Weil Incorporated

The last one if I could ask it, and I may have missed a comment on it earlier, but how are we thinking about the potential to resume the share repurchase program, Jack?

Jack Moore

As we called that last time, there's, I think, one dynamic that I would just tell you guys that we're watching as we're going through the BOP investigation. It's still ongoing. We're not in control of that process, so just that dynamic, I think, the prudent thing for us to do is just be patient, and that's the position we've been in and one we'll stay in, so just stay tuned.

Operator

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

William Herbert - Simmons

So you provided Subsea revenue guidance down 14% year-over-year. Would you be willing to share what your revenue guidance is for Drilling and Surface?

Jack Moore

We'll be slightly down in Drilling, as we kind of work through some of the bigger backlog that we've had, but I wouldn't say dramatically. And Surface should be up. All the other businesses will be up relative to just Subsea predominantly and a little bit in Drilling.

William Herbert - Simmons

It was hard to keep up with the speed of your narrative here when you were giving your summary, so a couple of questions that perhaps you may have answered in your opening comments but I didn't quite get. Year-end subsea backlog was what?

Jack Moore

Subsea backlog.

R. Amann

Scott here. We didn't talk about that. But subsea backlog at the end of the year was a little under $2.2 billion.

William Herbert - Simmons

And then, Jack, getting back to the theme of short-cycle businesses and the resilience, if you will, of your North American businesses due to the strength in oil prices. What percentage of your short-cycle businesses today in North America would delever the oil versus gas? Is it pretty much the same percentage that's dependent to the rig count? Or how should we think about that?

Jack Moore

I think that would be exactly the way to characterize it. The shift from gas to oil, we have followed it pretty much step-for-step.

William Herbert - Simmons

Lastly, you said that there a lot of projects out there, and I'm just curious as to whether you're gleaning any added sense of urgency on the part of IOCs and Deepwater NOCs on the subsea project side with regard to forging ahead in China, lock in some capacity given the strength in oil prices.

Jack Moore

I don't see any different necessarily behavior in that respect, Bill. I think you still have certain IOCs that are wanting to move faster in places like West Africa than maybe they're able to just because of -- the political views that go with it. And then I think there's a lot of pent-up demand in the Gulf of Mexico, and once this kind of permitting issue gets put behind us, I think you'll see that move probably with faster pace.

William Herbert - Simmons

And do you have any update, I mean, you're probably down, but I'm going to ask it anyway. There's been some movement with regard to some of the working interest owners on Block 31 and Exxon and Total, I guess, trying to peddle their respective non-operated stakes. Where do we stand, do you think, on the phase of project sanctioning for that project?

Jack Moore

Well, we've been in discussions with the BP team on that project now for a while, and their intention is to try and move forward with it, sanctioning hopefully maybe this year, if not early next year. So I think I've kind of said it's a 12- to 18-month process, and it still seems to be the case. This is an important asset for BP, and I think you're going to see them continue to push ahead with getting this asset fully developed.

William Herbert - Simmons

And in a similar vein, Angina [ph] (39:52), would you expect that to be a 2011 project sanction or would that slip into next year?

Jack Moore

My guess is, Bill, it's a 2012 project, just knowing the history of getting things done. I mean, everyone's actively engaged with it right now in terms of going through the tendering process. But it wouldn't surprise me if it slipped in 2012.

Operator

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

Brad Handler - Wachovia

You mentioned the Brazil and the rig orders briefly, but maybe you could offer some more color on that? And can you speak to kind of if nine rigs get ordered and given where the bidding stands, how you are positioned, do you think, for that specific subset?

Jack Moore

Well, I think the first seven had been announced that it would be in the Atlantic Sioux [ph] (40:53) yard. There's a total of 28 out there that are going to be ordered over the next several years. It's impossible for me to tell you where we would sit. There's two folks bidding the packages. That's NOV and that’s MH, and we're in line with MH. So everyone can handicap it based on where everyone is, but I would tell you some of the decisions around the equipment is somewhat the last things that get announced. The shipyards are the first. But I would say at the end of the day, when all 28 are ordered, Cameron will have its fair share. That's probably the best way for me to answer it. Whether you win the first seven or the next seven or the next two or whatever is going to be a little bit of a little guesswork that I wouldn't want to comment on.

Brad Handler - Wachovia

Your confidence on the 28, though, remains high?

Jack Moore

Yes, I mean, there's no reason to believe, and when you continue to see the success Petrobras is having in making discoveries and some of the other operators that are making discoveries in Brazil, the demand for these deepwater rigs is not going to slow down. And they are pushing ahead with their local content. And so be it while some of our CapEx guidance for 2011 is geared towards building up our infrastructure in Brazil to support it. It's a long-term commitment by everyone involved, and for us to be competitive in that drilling space, we're going to have to figure out how to build equipment in Brazil and do it competitively, and that's what these investments will help us do.

Brad Handler - Wachovia

Sure. Let me switch gears, please. On the corporate expense side, it was a little higher in the fourth quarter than we were expecting. Maybe you can give some guidance for '11 as part of the answer, but can you speak to some initiatives that may have taken those costs up a little bit?

Jack Moore

Well, what you see some of the things is it probably would capture some of our cost associated with the integration of NATCO and some of the other things.

Brad Handler - Wachovia

But I think even if you strip those out, you go sort of north of $40 million.

Jack Moore

Yes, it could be related to compensation. I'll tell you what, Brad. I would yield to, why don't we get back to you on that, we can give you more color on it.

Brad Handler - Wachovia

That’s fine. While I am on the line, I guess, in terms of the D&A front, again, I think a little bit more variability than we were looking for in the quarter. Can you just maybe place all those for us D&A expectations in Q1, so I can start to think about the ramp?

Jack Moore

Q1 would probably be somewhere in that $50 million to $55 million range, I would think.

Brad Handler - Wachovia

Pretty flattish?

Jack Moore

Yes.

Brad Handler - Wachovia

The idea is it's pretty flattish throughout the year.

Jack Moore

It may grow a little bit as we bring some of these other capital investments on.

Operator

Our next question comes from the line of Alan Laws with BMO Capital Markets.

Alan Laws - BMO Capital Markets U.S.

You've noted that the project you're tracking in the new kind of offshore arms rate is pretty extensive. Could you give us your thoughts on the ultimate magnitude of this business in 2011, 2012? And if I cornered you and said over, under another 20 rigs added to that list by June, what would you say?

Jack Moore

By June, Deepwater or just offshore?

Alan Laws - BMO Capital Markets U.S.

Just offshore.

Jack Moore

Oh, I'd say that's probably I wouldn't bet against you. I love your offshore arms rate. That's a great one.

Alan Laws - BMO Capital Markets U.S.

Any preference for you, though, over the jackups over deepwater?

Jack Moore

Well, I think what you see is the jackup yards, we have great relationship with the yards, like Keppels, so those relationships help. And I think there's more tendency to go with specific kits on the jackups than you have on the drillships where they're more inclined to do turnkey packages. So I think that's probably the dynamic I would tell you we see in the two. So we fight harder for drillships, and we tend to have great alignment to, easier alignments sometimes on the jackup side. And I think that's true for all of the providers.

Alan Laws - BMO Capital Markets U.S.

Your inbounds have been up for three quarters in a row and really from quite a diversified base. Can you talk about the expected progression in 2011 given the rig equipment business over in year and then the subsea business expectations?

Jack Moore

Yes, I would just characterize it, it's hard for me to tell you because projects do impact a quarter. A single quarter booking can make it dramatically different from the next. So I can't gauge when one project will land and skew the number up or one doesn't hit that we thought would that would skew it down. So I would just characterize our overall businesses for 2011 as positive, and it wouldn't surprise me that we have better bookings across the board in 2011 than we did in 2010.

Operator

Our next question comes from the line of Stephen Gengaro with Jefferies & Company.

Stephen Gengaro - Jefferies & Company, Inc.

I guess two things and one just a follow-up on the DPS margin side. It sounded like the mix was not any better than you thought from the subsea perspective but the margins were awfully good. Can you kind of speak to what drove the upside in DPS margins in the fourth quarter specifically?

Jack Moore

Well, we're seeing some better pricing in Surface. That's helped us, and that's reflected in our guidance for 2011. We had, I thought, extremely good project execution on the major projects side, both in Subsea and Drilling, which yielded some benefits to us. So I think those are the positives that kind of came through. I wouldn't say it was any -- we had some incremental revenue support, and that drove a little bit of incremental margins. But overall, all the businesses delivered better margins than we thought in the fourth quarter. And it gets back to execution, and I think we're seeing some price improvement in a few of the shorter-cycle businesses that's helping.

Stephen Gengaro - Jefferies & Company, Inc.

Would you hazard a guess if you bought them?

Jack Moore

Well, I would say that when you look at the quarters and the margins across 2010 versus where we're going in 2011 that I feel confident we're seeing the trough.

Stephen Gengaro - Jefferies & Company, Inc.

Is that an overall comment or DPS comment?

Jack Moore

That's an overall comment, and the revenue mix with subsea -- subsea is going to be the lower-margin business of some of these, so if we get a lot more revenue in one quarter versus the next, it could impact it. But I would -- overall will be up.

Stephen Gengaro - Jefferies & Company, Inc.

Just one follow-up. You mentioned, I think, earlier on the drilling side that pricing, you probably saw a little more pressure than last cycle, but I also know you've done a lot internally from an efficiency perspective, and it looks like you'll have some maybe headwinds or actually tailwinds on the aftermarket side helping. So overall, do you think that pricing gets offset by those factors?

Jack Moore

Yes, to some degree. That's what I would expect. We always challenge our drilling guys with that. But we've made a lot of investments in the drilling side of the business, both from a manufacturing, and we've put a lot of money into the aftermarket element in 2010. We're going to do more in 2011 to gear us up to take on more of that work that generates better returns.

Operator

Our next question comes from the line of Jeff Spittel with Madison Williams and Company.

Jeffrey Spittel - Madison Williams and Company LLC

With regard to CapEx and some of the incremental spend that you're looking at this year, specifically, with regard to the aftermarket, is it safe to assume that a fair portion of that is going to be devoted to Pressure Control? And if that's the case, could you talk a little bit about capacity utilization and where we're headed there?

Jack Moore

Yes. I would say that our capacity for Pressure Control is stretched as a result of post-Macondo. We've increased capacity in the U.S. on the Gulf Coast and in the onshore in the Mid-Continent. That's continuing to evolve. We're increasing capacity in North Sea. We're increasing capacity in the Far East, and we're going to increase capacity in Brazil. And some of the Brazil capacity increases to support an increasing fleet. Now, so all of those around the Pressure Control business will be a big focus of our aftermarket CapEx, but we also were increasing aftermarket CapEx to support some of our subsea initiatives in Australia and in South China Sea as well. So those should not be lost with where we're making investment as well. So the aftermarket support, primarily focused internationally around the world with the Pressure Control but some with subsea as well.

Jeffrey Spittel - Madison Williams and Company LLC

And then with regard to the subsea project outlook, would you care to hazard a guess in terms of geographically how you'd rank or order the opportunities set this year versus Brazil against West Africa and the Gulf of Mexico?

Jack Moore

Well, in terms of just total trees, Brazil is always going to be big. It may not be big in terms of the dollars, but dollars can be a little misleading sometimes if a lot of it is flow-through with third-party. So when we look at these projects around the world, they're all important to us. So West Africa's got the biggest, obviously the biggest spend because of the complexity and the breadth of products and services that you bring with it. But I'll tell you what, you look all around the world and even the Gulf of Mexico and a little bit of, kind of been parked a little bit, but by the end of the year, I think you'll see some activity even in the Gulf pick back up. And we're hearing rumblings of that now. So I don't see any part of the world that's going to be handicapped when it comes to deepwater development. At these oil prices, there's just a lot of interest and there's a lot of opportunity, whether it's the Far East, whether it's Australia or South China Sea or Malaysia, Mediterranean, you're going to have -- the issues in Egypt right now, obviously going to create some folks to pause and look, but still it's a very compelling market what's going on off the coast of Israel, off the coast of Libya. Our operator community both out-seas and in-seas are very committed to develop these deepwater projects.

Jeffrey Spittel - Madison Williams and Company LLC

With regard to the Gulf, are we talking one season and two season [ph] or some potentially chunkier awards or a little bit of both?

Jack Moore

It's a lot of both. Obviously, you've got a huge network in the Gulf that allows for tiebacks to evolve fairly quickly. But like I said, BP, Shell, Chevron, Hess, all have some sizable projects that are on their radar screen that I know they're anxious to move forward with.

Operator

Our next question comes from the line of Geoff Kieburtz with Weeden & Co.

Geoff Kieburtz - Weeden & Co. Research

I'd like to go back to the trend toward liquids in North America, Jack, and just understand that a little bit better. I think you've described a substantially larger revenue opportunity and a liquids-directed well versus gas for Cameron. But I'm not sure I completely picked up your comment about market share and the idea that you have, like, a 4x revenue opportunity but your revenue mix has kind of tracked the rig count mix, seemed to be a little bit -- well, can you reconcile that for me?

Jack Moore

Yes, like I said historically, we've had kind of this mid- to high-30 market share of wellhead, traditional wellhead activity. And when the shales evolved, the Barnett, the Haynesville, the Fayetteville, now the Marcellus, now the Eagle Ford Niobrara, Bakkens, we were late to that party, I will tell you that. We kind of -- whether we didn't believe it or whether we just felt it was, and some of it was marginal, the Bakken was not high pressure. The Haynesville was where we really caught, I think, caught some traction because of the high pressure nature of it. But we focused the team on it. We've focused investments on it over the last three years. Our market share probably went from nil to -- it may be single digit today, high-single digit. We are just scratching that surface from an opportunity standpoint. So that's why I'm so positive about it. I think our model is to develop these markets with great products, great people and great service and where customers can depend on when we show up it's going to work and it's going to be maintained and it's not going to let them down. And that, I think, when you're looking at the opportunities and the cost our customer incurring that on these locations, that's going to be meaningful to them. So that's the model we're going to play, Jeff, and I think it will evolve. To say we're going to capture 30-plus percent of that market over the next three years, I don't know, but we're going to bust our butts trying.

Geoff Kieburtz - Weeden & Co. Research

In terms of the products themselves, intrinsically, the margins are similar between what you're putting into a gas...

Jack Moore

Yes. I mean, the rental side offers a different dynamic. Obviously, your margins can be higher, but you got greater investments. So you got utilization. You got to earn against all that. There's a little more risk with it. But like I said, we've been flexible in terms of how our customers have approached those needs, whether it's an outright purchase or whether we will provide that from a rental standpoint. So I think we've been pretty open minded about it.

Geoff Kieburtz - Weeden & Co. Research

Is the rent versus buy preference any different between the liquids versus the gas?

Jack Moore

I don't see it. I think it's more of an operator preference.

Geoff Kieburtz - Weeden & Co. Research

Another topic, a follow-up question. You just mentioned in passing about subsea projects continue to move to the right. I mean, that is the norm for subsea projects, but I would've thought given just sequence of events that, that rightward movement would have been less severe than historical norms. Is that not the case?

Jack Moore

I think you would think so, but that, like, let's see what happens with -- I tell you this, some good ones to watch out there in terms of -- let's watch Wheatstone, let's watch Angina [ph] (57:09). Let's watch West Nile [ph] (57:10) Those are projects that should occur in the next 12 months, but I think history always tells us when you have multiple partners, you're spending billions of dollars and you're dealing in foreign government sometimes that have political challenges with those decisions, I think you just have to expect that things aren't going to happen as planned. I think we're all probably a little more anxious sometimes. When you talk to the operators, they're anxious too, but they'll always tell you it will happen eventually, just you've got to be patient.

Geoff Kieburtz - Weeden & Co. Research

If I could put one more in there. You mentioned that the NATCO charges have really been concluded now. We shouldn't expect more. Can you tell us where you are in terms of realizing cost synergies from the integration?

Jack Moore

Yes, I think those will be reflected as our margins evolve, not only in the Process Systems group but in some of the other things that hang out with it. But we had targeted integration savings, and we have been very pleased with what we have generated with that.

Geoff Kieburtz - Weeden & Co. Research

So we can expect some more progress there?

Jack Moore

Yes, I think you will as it evolves. I think where you'll see, again, in terms of just the easy-to-identify synergies with some of the overhead challenges and so forth, but I think the real opportunities for us and one of the real compelling reasons for us to acquire NATCO's capabilities is to expand our enterprise capabilities. I mean FPSOs, being able to combine Process Systems with valves, opportunity there is huge. It's a huge market that will be much easier to penetrate with their capabilities in the past. And in what we're seeing with the shale developments and not just in the U.S., also Eastern Europe, Far East and even Latin America to seize the opportunities involved.

Operator

Our next question comes from the line of Brian Uhlmer with Global Hunter Securities.

Brian Uhlmer - Global Hunter Securities, LLC

First, with the integration of NATCO complete, as I look out at maybe the FPSO market or a production platform market, what shall I look at as the opportunity set per units? Is that on the order of $100 million to $150 million? Or is that increasing as we add Compression as well as separations equipment?

Jack Moore

Well, the FPSOs would be bigger, just simply the complexity, and when you make things, when you go compact, it puts different dynamics into the spend. So I would tell you that the FPSO opportunities will be bigger in terms of value. We see more platform opportunities, and platforms are -- FPSOs are not used in every market. But platform opportunities, whether they'd be in the U.S., Gulf of Mexico or whether they'd be in the North Sea, the Middle East, those tend to be smaller in terms of spend but a lot more of them. So the dynamics really relate to quantity versus quality.

Brian Uhlmer - Global Hunter Securities, LLC

Okay. On a percentage basis, how does the NATCO product line increase? I guess your opportunities versus your just your typical compression and pre-prior businesses?

Jack Moore

Again, it depends on the application. For an FPSO, it probably doubles the opportunity for us, maybe triples the opportunity from where we historically were. From a platform standpoint, it probably is a 30% kind of 40% kind of incremental opportunity. And then onshore, it's almost 100% because Cameron prior to that really didn't have any onshore process capabilities per se in the traditional sense. So you put their process capabilities with our compression opportunities, it increases that by about 100% in terms of the potential spend.

Brian Uhlmer - Global Hunter Securities, LLC

And obviously, there's going to be big growth in that segment versus 2010. Is it $700 million per half year run rate a good run rate? Or shall we expect growth over what already occurred in the back half of '10, continued growth in 2011 versus 2H '10?

Jack Moore

We'll continue to see some growth in 2011 beyond where we're at. And again, it's going to be market-driven growth. And I think as we introduce some new products and continue to penetrate -- our process footprint is going to grow as the Deepwater markets emerge and subsea processing, things of that nature, are going to emerge for our capabilities with what we're learning onshore and on these platforms. So that will evolve as well. So it's a good place to be, and I think it's going to get better as time goes on as well.

Brian Uhlmer - Global Hunter Securities, LLC

Finally, one quick one. Back in 2008, it seemed that Cameron was almost a bottleneck on these new builds because you had so many orders for BOPs. Is your capacity good enough right now and substantial enough right now that you can deliver into all these new build orders that we see and that you're not capacity constrained?

Jack Moore

That's correct. I think our capacity focus now is really around aftermarket support.

Operator

Our next question is from the David Anderson would JPMorgan.

David Anderson - Palo Alto Investors

Quick question on the BOP, you said that the investigation was still ongoing on the Horizon of BOP. It's been in the witness protection program for some time now. I just want to know, any idea when that investigation is going to finish up? And related question, how does that impact establishing new standards for BOPs in the industry? And how do you see that taking place?

Jack Moore

Well, I think we're not in control of the process, let me just say that. It's a very thorough process that's got lots of different bodies and organizations managing through it. So it will just run its course. We're not in control of it. So as it relates to the future of BOPs, the biggest change that we've seen is just conformance to OEM, and pretty much every major operator in the world is ensuring that the BOP equipment on their rig operating on their site has been certified by the OEM, that repairs and any modifications to it are done in conjunction with the OEM's blessings. And I think that's the biggest change. I think it's premature to say that there's going to be a huge wholesale change in the design of a piece of equipment that has worked extremely well for 80 years, and I think I can say that for all of our competitors' equipment as well. So you could actually increase more risk by making major changes to that. So I think it's basically just ensuring that what's out there is indeed -- conforms to what it was originally designed to do, and that's the major change that has taken place.

David Anderson - Palo Alto Investors

So that obviously also ties into your CapEx spend on the aftermarket side.

Jack Moore

Yes. And that's exactly where we need to be because it's making sure that we can support our customers that are going to be required to conform to that, and we can't inconvenience them with saying you got to wait longer, you've got to accept something that isn't quite up to our standards. That just doesn't cut it. You've got to respond with pace. You can't compromise quality, and you've got to be competitive at the same time. So I think all those challenges are before us, and we're making the investments to support that. It's where we should be, and that's the behavior our customers expect us to have.

David Anderson - Palo Alto Investors

With respect to inspecting those BOPs and as such, are any of your customers coming to you about service agreements, about kind of you guys spending -- literally having people on the rig or having a group of people service different regions along those lines? Is there discussions like that?

Jack Moore

Yes to all above.

David Anderson - Palo Alto Investors

So I think you said at the outset you had about -- we didn't see the breakout yet from Scott here, but $100 million or so, you said, in aftermarket drilling?

R. Amann

A little north of $110 million in the fourth quarter is kind of where we ended up.

David Anderson - Palo Alto Investors

So that's been moving up pretty steadily last several quarters. I think it was like 90% last quarter. Does this become like a $150 million to $200 million business kind of by the end of '11, do you think?

Jack Moore

Per quarter?

David Anderson - Palo Alto Investors

Yes. Somewhere along those lines? Or is that too much?

Jack Moore

No. I mean, if you capture the 100% of it, maybe, but you want to recapture 100% of it because it's just the logistics. But we'll hit a point to where we are comfortable that we're supporting the level of activity that our customers demand that we do. And we'll get to that point before long. And then as new rigs get added to the fleet and as they come into service and they start consuming aftermarket support, then it's a great annuity.

Operator

And our last question comes from the line of Tom Curran with Wells Fargo.

Tom Curran - Wells Fargo Securities, LLC

Most of mine have been answered, just a few left here on the list. First, sticking with the aftermarket capacity investment being that you guys have been speaking to for some time now, given the visibility you've had on the opportunity in Brazil, what factors drove the timing of this specific investment you're going to make over the course of 2011 there?

Jack Moore

Well, we've been spending money in Brazil, increasing our spend there over the last 15 years, probably ramped up more than the last five years, and it's just really we're staging it as we see the market evolve. We know there's going to be more subsea trees purchased. We know there's going to be more infrastructure required to support [indiscernible] (1:07:59) plans, manifolds, control systems that support all of those subsea trees. We know there's going to be aftermarket that's required, facilities to do the repairs and the testing and so forth that supports it. There's new markets evolving in Deepwater processing and separation that's going to require opportunities for us, the FPSO markets. So all of those things, you just have to kind of grow with that pace. I mean, you get out in front of the two years and if you're an investor in Cameron, you don't really like the idea, you’re going to have assets sitting idle for a number of years before you generate the return on it. So there's a little bit of a chicken and the egg here, but I think we're all very confident that the investments we're making in Brazil will pay off. Brazil and Petrobras have been very supportive of Cameron, very supportive of the investments we make. And so we feel the timing is right. We won't slow down. We'll probably be -- we'll continue to make -- I finally got our five-year plan for Brazil. It's pretty bold, so we're not talking about the five-year plan, we're talking about 2011. So that won’t be the end of it because we think the opportunities down there are going to continue to be very opportunistic for those who invest.

Tom Curran - Wells Fargo Securities, LLC

So it sounds as if the bulk of this then is just that the 2011 portion of a multiyear plan that was already in place and the decision to go ahead with it as opposed to a reaction to any specific new developments?

Jack Moore

Oh, yes. Yes, exactly. We look at these major markets every year over a three- to five-year time frame, and how we make those investments, review that with our Board, review that with our own internal organizations and how we leverage that across Cameron's enterprise. There's a bigger story that plays out in Brazil, and I think that's true for probably everyone, but this is not the first phase of our investment down there. This is probably the fourth phase of our investment down there. It's going to be a little bigger number this year because we're doing some things probably -- we're stepping up some things to support, like our R&D initiatives, we're stepping up some things to support our aftermarket initiatives around some of the Drilling Support group and the Valve businesses as well. So it's a little multifunction in this case.

Tom Curran - Wells Fargo Securities, LLC

And then just two data points I was hoping you can help me out with as I try to track some sequential trends here. Last quarter, you said that you had booked over 200 BOP cavities. Do you have that same number available for this quarter?

Jack Moore

I think that was onshore and I think that was year-to-date, if I remember right. Yeah. No, I don't, but we can get that number for you.

Tom Curran - Wells Fargo Securities, LLC

And then last one would be when it comes to the spending you've been seeing on the short-cycle offerings, last quarter you mentioned that geographically, the share in North America had shifted from around 30% historically to closer to 40%. What geographic split are you assuming in the 2011 guidance?

Jack Moore

Probably similar just because of the backlogs. And then I would say I would not be surprised as we move into the 2012 some of that has shipped back into international because I think we're going to have a strong international -- we have a lot of opportunities internationally for booking business in the shorter-cycle businesses. So that just takes a little slower to flow through the revenue stream. So I think on a revenue side, that probably on our short-cycle business, what you saw latter part of '10 continues in '11.

Tom Curran - Wells Fargo Securities, LLC

And then the international really starts to kick in, in 2012?

Jack Moore

Yes, as it gets booked, and it takes a little longer to flow through the revenue stream, yes.

Operator

Mr. Amann, I would now like to turn the floor back over to you for closing comments.

R. Amann

Okay, thank you, Christine. For those of you who need to follow up with us, we ask for your patience, while Jack and I make the drive from this office back to our office in hopes of finding power and PC networks and e-mail access and everything back on and working, as well as phones. Thanks for joining us this morning, and we'll talk to you again soon.

Operator

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

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