Baker Hughes Incorporated Presents at Bank of America Merrill Lynch 2011 Global Energy Conference, Nov-15-2011 02:50 PM

| About: Baker Hughes (BHI)

Baker Hughes Inc. (NYSE:BHI)

November 15, 2011 2:50 pm ET

Executives

John A. O'Donnell - Vice President and President of Western Hemisphere Operations

Adam B. Anderson - Vice President of Investor Relations

Analysts

Douglas L. Becker - BofA Merrill Lynch, Research Division

Unknown Analyst

Douglas L. Becker - BofA Merrill Lynch, Research Division

Is on Baker Hughes. Really, over the last couple of years, Baker Hughes has undergone a huge transformation, going from product line to geographic management structure. We've also taken on pressure pumping released off the product line basis. Presenting today at BofA is Andy O'Donnell, President, Western Hemisphere.

John A. O'Donnell

Thank you, Doug. Good afternoon. I hope everybody is still alert today. And we'll try to keep these pretty brief and leave a good bit of time for some Q&A. We'd like to lay out today why we, at Baker Hughes, are bullish on what lies ahead in our industry and it's about some of the technologies that we are bringing or have brought to the industry and the success that they're bringing in helping our customers unlock their resources.

During this presentation, I may make some forward-looking statements. For a full disclosure of the associated risk factors, I'd like you to refer to our 10-K, 10-Q and other SEC filings, as well as the forward-looking statements on our last earnings release. So now that I've got the legalese out of the way, we could keep on going. I'm going to cover today some of our industry outlook and why we're bullish about it. A lot of this you've seen before, but I think it's always good to go through what it is so you know what we're thinking and what we're basing our outlooks on and our investment plans. I'm going to speak a little more specifically about the Western Hemisphere since that's my sphere of responsibility within Baker Hughes, and hopefully, give you some color on North America and Latin America that hopefully you'll find helpful. And then we'll talk about some key technologies which I think are key things we're very proud of and are showing great traction and progress in the industry.

One of the things that is fascinating to me, having been in this industry a long time, I've been fortunate enough to spend my whole career in the oil industry with Baker Hughes is that the more money we spend, the less oil we find per capita. And so I think what that tells you is, is a couple of things. One is, is that all the easy oil has been found and that oil is going to continue to be a sought-after commodity, and it's going to be more difficult to find, which plays well into the investment thesis for us service companies. So as you see per capita, the amount of CapEx that continues to be spent and the amount of production increase we have, we have to spend a lot of money nowadays to stay even. And obviously, this is driven by the decline of some of the major producing fields found a number of years ago.

Now the other one that's fascinating to me and having spent of good bit of time in the Middle East is that we've always depended on the Middle East to be the big exporter and the one that makes up all shortages, and is the big swing factor. But the truth of the matter is, as many of you know, is as their consumption has increased dramatically, their net exports actually have decreased over time. And I think that you're only going to continue if you spend much time in the Middle East, you see the amount of power generation, emerging large fast-growing populations that all wanted to have -- drive Hummers or Suburbans, and also the desalination projects consume a lot of energy. So I think one of the things in the Middle East is one could project out and you could argue that there may be incremental production from Iraq and all those things but it won't be long before you see -- you start to see the Middle East may not be a net exporter. And you've already seen this trend emerge in some Asia-Pac countries where at one time, they were net exporters and they're actually net importers. So I think it's one of them that is the trend as we watch the industry we need to follow as we go forward, because I think, again, the oil industry is a very fascinating industry to me because if you're slightly long on production, prices go down dramatically. If they're slightly short, they go up dramatically. So it doesn't take much of an imbalance in one direction to cause a fairly dramatic change.

The other one that's been fascinating, and this is a site here recently, we did a meeting where we brought in emerging leaders and we talked about scenario development and we were challenging all our folks to think about what's going to happen in 2021. Being the old guy, I was given the opportunity to talk about what we thought was going to happen in 2001. Surprisingly, in our scenario planning back then, we got a lot of things right. We actually predicted oil prices amazingly close. We predicted some of the production figures fairly close. What we missed was the shale revolution. And so at that time, basically it was West to East, North America is dead and everything will be in other parts of the world. And so what we missed was this revolution. I think it's a great story for North America, both as a service provider but I think also in terms of supplying energy inbound. So I read the other day where U.S. has gone from 62% of its oil being imported to actually a low in the last month of 47%. So I think that's all driven by the unconventional production. I think one of the other things here that we've spoken, some of the one on ones we've had today and -- actually, I started my career at Hughes and one of big things I was responsible for initially was the rig count. And when we first automated and published the rig count, we put it out electronically. Well, the rig count is still a very important metric and I'll be the first one to admit that if the rig count goes down, I get nervous. But more and more of our business has driven the rig count, you can't tie the rig count directly to our business. It is particularly true with pressure pumping and hydraulic fracturing. So in the rigs, we've got much more productive. So it's much more now about this. This unconventional has been -- is the length of lateral, the types of laterals, the number of stages. So if one of them where one rig is driving much more production than historically, we would have seen it even if many in the room could remember, but actually we're doing more now with 2,000-something rigs than we did with 4,500 rigs back in the '80s.

I think the other authority is, demand is -- demand on -- for natural gas is amazing is that it's -- of course, we have to debate displacing coal. Actually, who thought in North America would talk about being a net exporter. That will start sometime here in the not-too-distant future and obviously, now the other one that I watch with interest is the rebirth of petrochemical industry in North America driven by cheap feedstock. So it's -- the shale revolution not only has driven revolution in terms of energy supply for North America, but also -- and becoming an exporter, rising importer and the return of basic industries.

One of things that's also been very interesting, if I go back 3 or 4 years ago and I look at our customer base in Baker Hughes, we would have been dominated, particularly in the top 12, 15 by IOCs and NOCs. And now, we have many of the independents who are very large that have entered -- that are in our top 10, certainly in our top 20. So really, if you look at our revenue mix as a corporation, we have a pretty even split between IOCs, NOCs and independents in the top 20. And so -- and each one of these has a very different need. IOCs are focused on large complex projects. The big LNG projects are focused on the frontier projects, things such as Arctic drilling, very high technical requirements, very high reduction of risk requirements that they focus on. So it's a different customer model dealing with an IOC that certainly is dealing with the other customer. NOCs are in many cases, not just -- they want to locally produce their own assets. They're much less dependent. In most cases, not dependent at all. An IOC is for expertise. It's a real opportunity for service companies because they depend on service companies more and more. It's really important to be global, act local with NOCs, but also you have the emerging trend and many NOCs who're expanding around the globe like Petrobras, a Statoil in many different places in the world. So you have to deal -- you're dealing with them much more in some ways than you're dealing with LOC. But also remember that they're driven to some extent, by national agendas. Many of the independents are a fascinating group to deal with because they're very quick on their feet. They're quick adopters of new technology. They're real value buyers. They move at large -- they move quickly. And one of the trends that I think that all of us will need to watch going forward is, are the independents independent or do you see some of the trend that we've seen in North America with the IOCs reemerging by buying the independents. But certainly, you have major independents now that are -- would've made it as we might have called them, not super majors, but majors, but we have a very large customer set there that is driven a lot by the unconventional production in North America. This is a very, very important set of customers for Baker Hughes.

I'm going to talk little bit about North America. Obviously, the key in North America has been the unconventional. There's some people who call them nonconventional play. It's driven, it's huge rig count increases, it's put us in areas that we didn't think we'd be. It's -- our -- I'd like to say that when we bought BJ Services, we knew exactly what would happen, but our timing was turned out to have been impeccable in terms of pressure pumping being a key aspect of unlocking the conventional reserves. I mean, if you go back, some of this was originally started in the Barnett actually by George Mitchell, who just didn't know that they had to frac it to the degree they did to unlock the reserves. But the unconventionals have driven a service intensity that is just mind boggling. Ships in the industry, obviously we drilled a lot of laterals, we drilled -- the majority of the rig count is horizontal, it's going after the liquid-rich zones. It's, in some cases, high temperatures, it could be easier drilling, but it's a totally different set of applications that we reacted to quickly. It has been a real growth in our business, and obviously, growing strong North American growth for us and some others.

Pressure pumping, one of the questions that we've had a lot and I guess it's about North America market would be, when does pressure pumping turn over? Our belief is, is that capacity will, at worst, reaching equilibrium by the end of next year. We don't think it will happen. We used to think it will be at the end of this year. We believe there's still an underserved market. Actually, in pressure pumping now today, some of the constraints aren't as much equipment. We're probably building equipment at the rate we can absorb it but there's other constraints in the system that will be solved, too. Shortages of people, some matter of recruiting and training, but it's also been for profit specifically sand. Well, we believe that pressure pumping, the up cycle still got life in it and it's still our stated objective to protect share, and we'll do that. So I think pressure pumping still got legs in it and I think it will be better next year as we learn more and we get more efficient and we're able to handle the size that we've added.

The Gulf of Mexico is improving as we speak. Gulf of Mexico are each subsequent quarter through the end of next year will improve as activity improves. We have a good customer mix. Particularly, it will be important for us. We've made an investment in the 2 largest stimulation vessels in the Gulf of Mexico, the Blue Dolphin and the Blue Tarpon. These vessels get back to work. Actually, Adam wrote the AFP for the Blue Tarpon so every day when it's not working, I blame it on him. But we didn't know if more [indiscernible] will come. But there will be a point of time because it'll be the key in producing -- completely in producing the lower tertiary. I can tell you that our customer set is very bullish on the prospects in the Gulf of Mexico. Today, if you didn't remember, is the day that we've all had to sign the letters saying we comply with the regulations. And so it's been an important day. A lot of work has gone into that. It's slowing the activity down, not so much from a permitting perspective as people observing how these regulations apply and what do they do in certain situations such as when a well plan changes. So I think you're going to see a continued improvement in the Gulf of Mexico. And one of the other questions I'll answer and we've been asked routinely, did the customers take advantage of this situation or renegotiate everything and chopped prices. They didn't realize that we needed to keep the capability. We needed to stay there. We're proud that we get to stay. We didn't close facilities. We were able to reuse people and tools around the world. We brought those back. And I think that the customers knew that, in the long term, they needed to do that to protect the industry so it was viable on the other side of the moratorium, then I think we'll come out of this in good shape. It's been a slow, painful thing and you can see what's happened but I think there's -- from here, it's only going to be progressively better as we go through the next months.

Let's talk a little bit about Latin America. Brazil is the hotspot in Latin America. Brazil's fast growth, it's an exciting place to be. It's -- but it's a place which is probably constrained on resources. And again, because of the local market outgrowing, some of the local capabilities are probably stretched and they actually have a little bit of a labor churn in that market that we have to -- but Petrobras is a very sophisticated buyer. So one of the things about Brazil that we're always managing is, is that Brazil is a rapid growth market, a high-tech market that at the end of the day, dominated by one customer which drives a different behavior. We are very proud that we still -- we have the lion's share of the directional drilling work, or I should say we have over 50% of it. We do all of the most difficult drilling in the pre-salt and we're very proud of the thing. And when I go to Rio, the Petrobras people are always extremely complimentary of our drilling performance.

We also have other strong business segments. We have 3 stimulation vessels there. Up until recently, we had all the stimulation business that there has been a second competitor brought into that market. We also have some [indiscernible] pressure pumping business, completion business, wire line business. So we are building a good base of business in Brazil and I think you'll continue to see Brazil become a larger and larger share of our Latin America results.

Now the one that's probably the most pleasing market in a way is Colombia. I could really say that about the whole Andean geomarket, as we call it. Colombia is more -- a little more of the North American market in that you have a large customer set. We have 50 customers alone in Colombia that we do business with. Some of the drilling is very difficult amongst some of the most challenging in the world, so it requires high technology solutions. We have a good diversification of business there between all the product lines, so it's one where we're not dependent on one customer or one product line, and so that always gives you some comfort. It's also a place where you can check price points pretty quickly. This business turns over pretty quickly so you don't have a lot of long-term nature of it which is good and bad. But Colombia has been a star for us and we're very proud of the business in Colombia, very strong Colombian organization.

Argentina is kind of a good news, bad news. Obviously, large resource in the Neuquen basin. YPF has published the numbers. I think it's going to take a little bit of time for it to develop. As you are aware in Argentina, a couple of dems [ph] won the recent elections, the prolabor government, the aspect of that one, the numbers I'll throw out to you. If you go back and look at our pressure pumping business in Argentina where we are, the largest company but that's largest -- 3 smaller -- not a large market at this point in time. It'll grow because of the shale. But when you looked at 21% of the ticket was labor cost, now it's almost 50%. So you've had this giant labor inflation driven by the power of the labor unions in Argentina. I think that's going to have to sort through and there's going to be before people making a lot of the -- majors have left Argentina because of the business situation. So there'll have to be some correction in the business situation before, I think, you see all the investments made that some are projecting. But we're there, we've been there a long time. We have a strong Argentinian organization and we'll be there at the play. We're investing, we're taking additional horsepower to the country as we speak and we'll continue to do that at the rate that we think that the market can absorb it.

A couple other comments to make real quick about Latin America. Venezuela actually is a decent market to be in nowadays. If you like risk because the capacity has attribute to the point that there really isn't very much capacities on most cases, you're able to bid at pricing levels that are okay that you can make a good return at. The issue, obviously, you have is the political uncertainty and anybody in this room can guess, as well as I could have, what would go forward. But Venezuela is -- my point there is there's a lot of hydrocarbons. I know that they're there. You have super majors that are investing in there. It's going to happen. It's going to be there because it's a proven low-risk development of a hydrocarbon resource. It's just a matter of when the political situation makes this a little easier.

Let me talk about some of -- one of the things we introduced at the Analyst Conference we had last spring was AutoTrak Curve, AT Curve, as we call it. And this was designed and built to take advantage of shale plays. And the couple of things that it does, a lot of times, when you're on a section, I don't know how well you can see the curve up there, but one of the things it does is you can have a higher build rates so you can come around here. So you're going to get -- actually, you can do the calculation, 760 feet additional of well production versus 5,000. So if you're in a section, you can get more of the pay zone. Remember, in a lot of these shale plays, the pay zones are maybe 8 to 10 feet thick, so every additional foot you get is good economics. We've set a lot of records. We had a recent success in Oneida with drilling the whole curve and lateral and one passed, went from a 16-day drilling program to a 6-day drilling program. We've been able to price this with the value that we're creating customers so it's -- now it's really a matter of us being able, and we're still putting improvements in as you do with new technology. But I think all the major hurdles are worked out. And so I think that it's one that is a clear winner and is establishing itself as the leading rotary steerables drilling system for land-based drilling. And particularly, one of the things we set out was basically less trips when past drilling. But we've been able to achieve a higher rate of penetration with the package and it was bits that we developed specifically to run on our system. So it's very attracting and so probably our limitation now is just the ability to produce and get these things to market. But it's been a clear winner and it's something that when I go visit customers, the first thing they want to know is when can they get an AT Curve to put on the rig.

Another one that we -- is IN-Tallic disintegrating balls. They're known within the company as the Alka-Seltzer balls. These, by themselves, these -- what these allow you to do is to go in and when you typically do all these plug and perf and Frac-Point, you drop balls so that you work your way from the smallest back out. And so you have these to close off the zone. The problem is, you have to go in, build those out so that you get production. So any wellbore intervention, any other thing that you have to do increases risk, increase the cost, increase the time. And with these, basically, you can put a solution down and you can dissolve these balls and not have to do that. But the real power of this that I'm excited about is nanotechnology, is now is -- we're introducing this with other products. One of the things in our industry that we're very focused on is we're drilling hotter wells, we're drilling higher pressure wells so the strength of the basic traditional materials we've used becomes a limitation and nanotechnology is a real key in unlocking a new material set that we can use productively in the oil patch. Such things as nanotechnology being used to strengthen elastomers. It improves the sealing characteristics, the durability and the strength of it. So while this is important and this has been a nice step forward, it's -- what this leads to the next set of things that we'll have coming out of nanotechnology. Again, this is a technology where their limitation is the ability to produce these because we're on a first piece with people to produce this IN-Tallic material, and so it's been difficult to find getting into routine production at the volume that we'd like to have.

Another one, we've run lots and lots of Frac-Point at Adam's previous job, he ran the product line, he's sold the Frac-Point, it's probably known in the industry as the most reliable system. But as always, you hear between sliding sleeves and plug and perf there's advantages and disadvantages and really what we see here with OptiPort that we're bringing out is we're trying to get the advantages of both systems. So this you can run it with open hole or you can cement it in. One of the things is it gets tired of spacing of these fracture initiation points. We'll talk a little bit more about that in the next slide and also you'll be able to get a full-bore access without milling and that's really, really the key. And because this is actuated by coal tubing in there, literally, you can do an unlimited number of stages. You'll be able to do it quick, you'll leave the quill in the hole and also you could actually do the nonsequential fracs should you choose to do so, what some people might believe would give a better frac room -- fracture mechanism.

One of the things that when people ask me about what's the most important in Baker Hughes, what I'll tell people that I've learned over the time that we -- will be unconventional and the importance of that and I think it will spread around the world. I don't think that we know that we know a lot about the fracturing. People have learned this by trial and error and empirical data. And so now for instance, in the Barnett, people have the standard practice, the number of stages, the length of the lateral, whether it's toe up or toe down. They ask about orientation in those type of things. So I think we're still relatively immature in unlocking these resource so with our geomechanics organization [ph] as more customers sets, I think we're going to unlock the mysteries of this and make it more scientific so that -- the thing for Baker Hughes that I think is most important is to be at the forefront of this. It's maybe -- it'll bring pressure pumping. If you go international, you look at it. Today, we routinely take 2 million to 3 million pounds of sand to a job. I don't know how you're going to do that. In some other places in the world, we use a lot of water. So I believe one of the things with the shale as we go forward and you can say this sounds kind of silly because you have a big investment in pressure pumping, but I do think we're going to have to be disruptive to our own technology, that there's going to be a more scientific way to go about producing these resources because the resource consumption, the ability to handle the logistics will be -- so I think it's something we've got a lot to invest in the company and a lot of stake, in a way, how do we replace ourselves with the next level of unlocking these shale sources because they're around the world. As many customers will tell you, one of the good things about shales are, is they're fairly low risk. You're going to find hydrocarbons. The only question is whether you got an economic well that you won't have a total miss like you've had in some other places where you could drill a dry well. So I think in this graph, without getting to basically if you went and you took some of the previous data, you would have thought that zones 6 -- 7 and 6 would be the most productive. It turns out, they're actually zones 5 and 4, but other data would have said 3. So part of it is, is the predictive models and what actually has turned out to be, how do -- when you do multistage fracs, where you actually get the production from is still a little bit of -- that's why people frac a lot of stages. They don't know exactly the ones that are going to be the most productive. So that's part of it as an industry, I think that it is going to be key for us and key for the development of Baker Hughes is basically bringing more science and technology to unlocking the shale resource.

Okay, so hopefully today, we've run -- quickly run through kind of why we think the macros are good for the industry, some about Western Hemisphere and I'll close by saying that, again, we're with the oil prices starting with '09. We are very bullish on our North American operations and we think they'll continue to improve. And we're still bullish on pressure pumping and will continue to invest in that. And we're very proud of the new technologies they have and I can guarantee you that next year we'll have some new things to talk about that will continue to move the industry forward.

With that, we'll take some questions.

Question-and-Answer Session

Douglas L. Becker - BofA Merrill Lynch, Research Division

If we can take advantage of your expertise on U.S. pressure pumping market, you indicated in the worst case, you thought it would be turning over at the end of 2012. Just to clarify that gross pricing, I mean how do you reconcile that with some of the comments that we've been pretty consistently hearing that frac splits are more available? And then also, how availability claims to margins?

John A. O'Donnell

Yes. I think certainly fleets will become more available because there are more players, there are more -- they're out there. And so some of the things where people were waiting 3 to 6 months now, is that timeframe is down and it's more plannable, it's more predictable. I think the other part of it is, is that some of that was a little bit overstated because a lot of people were doing double bookings. To be entirely accurate there, what I would say is, we don't believe that we'll reach equilibrium next year. We're not sure that it will turn over at that point. We believe that we still got to run through 2012 and we really can't see much -- we can't see further than that. But I think that today, more today, if you talk to people is it getting the fleet or is it getting sand? Probably today, the subject is sand. Six months ago was water or gel. So the constraints will move some days, the ability to get permits to move on the roads. And so pressure pumping is a high logistics game and so are the constraints to move around. We're building fleets. The rate we're building now is probably as quickly as we can productively absorb them and we do think -- we do have uncertain demand that we have customers who would like us to do a higher percentage of the work they've done and all those kind of things. So that's one of the reasons we remain bullish. We also think that the service intensity is you go to some of these newer quarries that we haven't really talked about here, in Niobrara and the Granite Wash, Oneida and the Utica. They're going to have a service intensity and they're going to create more demand for fracturing services.

Unknown Analyst

Maybe just to follow-up on that a little bit more, what basic activity assumptions are you making in that statement, flattish, rig count increasing?

John A. O'Donnell

Yes, we -- our assumption is we have a moderately increasing rig count. Again, sometimes the rig count isn't the best proxy for service intensity and for the service intensity, it will be as people go to more liquid rich, is that you'll have bleed down on the gas side and you'll have a slightly larger increase than bleed down on the liquid-rich side. And that's based upon customer interviews that they've got more prospects as a matter of getting the rigs and crews in place but that they've got sound economic projects and they've got the prospects and there isn't a shortage of prospects to drill.

Douglas L. Becker - BofA Merrill Lynch, Research Division

In terms of BJ Services acquisition, I know it wasn't about cost but where do we stand on the cost savings, and just thinking about the revenue synergies, what else -- what is left out there? I know price was early days for the revenue synergies.

John A. O'Donnell

Yes, we're -- in terms of the synergies, I think we're right on target. I mean, a lot of the synergies were initially gasoline when you, quite frankly, take out 2 corporate -- you take out a second corporate organization. The last part of it that we're working on is the more slug it out, we just flip the switch and just started Q3 on bringing legacy BJ Services on to the Baker Hughes enterprise live system SAP in any of these events. During SAP conversion knows that it can be -- it can have a choice [ph] but that's one of the steps now to bring fully into the support services, then to go into the financial outsourcing, some of the other things we have. And also why we've done a good job of eliminating duplicate organizations, particularly for finance or HR and things like that, we won't be complete on that until we completed the system integration globally. And in terms of revenue synergies, our approach has been, we've worked very hard on particularly completion tools, wire line and chemicals. There's some pull through and we do it with directional drilling. But more of it's been in terms bringing packages to the completion process. They allow the customer to get the well on production quicker and allows us to utilize our equipment better and to turn it faster. So more of our revenue synergies have been focused around that. And in every month, we increased the amount. Quite frankly, on the drilling side, we've been in the pleasure where we've been sold out in most markets so there really wasn't a push to change over, we didn't see an uplift. And in many customers, those decisions are made by different groups in the company between the completion side and the drilling side. So it's a little -- it's not a consolidated sales process.

Unknown Analyst

I mean, most of that focused idea around the -- on the international margin guidance. Given that the third quarter was lower from second quarter, how do you reconsider what are the moving parts that can help us get from 11,000 roughly to 15,000, if you can please quantify those factors?

Adam B. Anderson

So what we talked about with respect to the international margin from Q2 to Q3 was that there was an impact of mix of activity, both product and geographic across all 3 international super regions, as well some unusual costs, some transitory costs associated with some separation expense, R&M and FX that just swung the wrong way at the end of the quarter. So as we walk from Q3 to Q4, obviously, we expect to see a reduction in some of those transitory expenses. We expect to see an improvement in the overall activities of the business, and we think that it comes with slightly more favorable mix than what we had in Q3. And then we have a seasonal delivery of completion tools and artificial lift in Q4 that come at pretty good incrementals. So when you add all that up, we chose not to explicitly break out the expenses in Q3 because we don't want them pulled out for different reasons. But when you add up all those features, the costs going down, activity improving and the incremental completion deliveries, then we think 15% margin in Q4 is reasonable. Obviously, with any of these kind of forecasts, there's some uncertainty so there's obviously it hinges on our keeping the cost in control, not having any other one-off incidents, as well as making those completion deliveries, which, as we said, these are orders that we have in hand so that we had to physically run through the supply chain and deliver. So there are some risks associated with that. Is that fair?

Unknown Analyst

I have a question about competition. How is the competitive environment in your space at the moment? Have you seen any changes in the last year? And then secondly, are you happy with the makeup of your business at the moment and is there anything that you think you need to require?

John A. O'Donnell

Yes, I'll take first crack on it. I think the thing in competitive is you take -- I'll take the North American competitive situation. I mean, a part of it is probably the biggest changes because pressure pumping has been an attractive investment as the inflow of capital for the small and start-up companies. So they -- the specific in there that I would say is, is because of very high rates of return there's been a significant capital inflow into pressure pumping. It's one that we watch out of concern. So in terms of competition with the usual list of suspects, not a big change, but it's the -- we track what we call others. I always tell people on this, there's a service company called others that mess up our market share charts. But it's the others -- the growth of the others and the opportunities that come in that you've had is probably the big change in the competitive landscape. Don't see that so much in Latin America. We have local competition in different places. You'll have local companies, but you don't have quite as much. You have that same dynamic exist in the U.S. and they exist in Canada. Internationally, I don't think the competitive landscape has changed dramatically. The one thing we would say that probably is internationally that is been well prevalent here over the last time is in markets where you have a single dominant customer, you'll have more and more of a there where incumbent that protects their business. And so that basically is part of one of the reasons where we see that international hasn't gotten as much price contraction as you might think, when people wanting to protect what they have. The -- there's a second part of the question in there?

Unknown Analyst

Are you happy with the makeup of your expenses and do you want to buy anything?

John A. O'Donnell

Yes, well, I think we are always going to look at opportunities and have things we buy. I think what our strategy and we try to go through and look for, part of the things -- pressure pumping turned out to be even more acute than we thought. But, I mean, some of us go back to when we sold it, wanted to buy it back because we always thought that they have a full suite of services to tie with the completions, tie with the stimulation, tie with the production phase that you had to be and stimulators we need of coal tubing. And so I think what we will look for is we're continuing to look for things in the industry where we have to be in something because you don't have that. You're kept from being participating in the segment of the business. And right now, there's not a clear thing that would be there. But I mean, I think there'll be dynamics that change in the market as you go forward, that there'll be things that you have to bring into the portfolio so that you can offer the proper -- have the proper breadth of services to do that. But there's not a clear one today that I would say we have our eyes on.

Douglas L. Becker - BofA Merrill Lynch, Research Division

Here's the perception. I think [indiscernible] quarter back, BJ Services frac was older. You've obviously been investing fair amounts in that. But there's some debate, how much of that's replacement versus incremental capacity and I think in the last quarter call it's pretty adamant that they're adding incremental capacity, if you could just put some qualitative on the comments around that?

John A. O'Donnell

Yes, I think where that comes from, more the issue was during the time of the acquisition and the merger and then we had a little bit, though have actually started investing in pressure pumping assets before the merger -- the acquisition was complete. Certainly, we did it while separate, was that during that time that the deal was going on and we drug on with the Department of Justice, investment decisions weren't made. So I mean, the reality was, I don't think there was much in the age of equipment. There's some places on so many where you would like to have a little less age of equipment and we've had to replace that because so many has been retirements and replacements but I think more of it was, we were late starting just simply because of during the merger, the legacy BJ management wasn't going to make the decision and we didn't own the company. I think it's more -- I don't think the age of our fleet is dramatically different than others. And one thing that I will give the guys credit, we've always been told they're very -- they've always had a very strong culture around maintaining equipment and equipment is well maintained. I've never -- customers have never -- we don't get criticisms over the age or condition of our equipment.

Douglas L. Becker - BofA Merrill Lynch, Research Division

Andy, Adam, thank you very much.

John A. O'Donnell

Okay. Thank you.

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