Executives
Scott Amann - VP, IR
Sheldon R. Erikson - Chairman and CEO
Franklin Myers - Sr. VP of Finance and CFO
Charles M. Sledge - VP and Corporate Controller
Jack B. Moore - President and COO
Analysts
Collin Gerry - Raymond James
Dan Pickering - Tudor Pickering
Kurt Hallead - RBC Capital Markets
Jeffrey Kobylarz - Citigroup Asset Management
William A. Herbert - Simmons & Company
James Crandall - Lehman Brothers
Kenneth Sill - Credit Suisse
Brad Handler - Wachovia Capital Markets
Robin Shoemaker - Bear Stearns & Co
Joseph Gibney - Capital One Southcoast
Ole Slorer - Morgan Stanley
Kevin Simpson - Miller Tabak & Co., LLC
Cooper Cameron Corp. (CAM) Q4 FY07 Earnings Call January 31, 2008 8:30 AM ET
Operator
Greetings ladies and gentlemen, and welcome to the Cameron Fourth Quarter Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It is now pleasure to introduce your host Mr. Scott Amann, Vice President for Investor Relations for Cameron. Thank you, Mr. Amann, you may begin.
Scott Amann - Vice President, Investor Relations
Good morning, and thank you for joining us today. As a reminder, if you haven't accessed the release yet, it is available on the wire services as well as on our website.
This morning you will hear from Shel Erikson, Chairman and CEO of Cameron; Jack Moore, President and Chief Operating Officer; Franklin Myers, Senior VP and CFO; and Chuck Sledge, Vice President and Corporate Controller. These gentlemen we will offer some commentary on the results for the quarter and will then take time to field your questions.
In accordance with the Safe Harbor provisions of the Securities Laws, we caution you that some of the statements made on this call maybe 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 Shel.
Sheldon R. Erikson - Chairman and Chief Executive Officer
Thanks Scott. Let me cover some of the key points and highlights for not only the quarter but for the year. Earnings for the quarter as you can see $0.54, but really should be viewed as $0.61, up 30% from last year that's compared when adjusted $0.47 last year. And that includes stripping out $0.10 a share for the termination cost of our US DB plan and a one-time tax gain of $0.03 a share. The good news on our DB plan, it looks like it's going to get wrapped up in the next year or so on a cashless basis which is better than what we expected.
And our real tax rate for the quarter, as we got it last quarter, was 33%. So, we came in pretty much as we expected.
The year was reported at 2.16 but that really is 2.11 for the same kinds of reasons. We had some adjustments, tax adjustments and so forth, and that's up 42% from last year.
The good news is we had a strong revenue fourth quarter and full year revenues compared with prior periods were both up about 25%. So the business is strong, and it's growing. Orders are good story, for the year, we're fairly constant from quarter-to-quarter, and we really peaked out in the fourth quarter to almost a 1.5 billion, that's up 22% from last year's fourth quarter. So, the business, as I mentioned, is continuing on strong.
Full orders for the year reached almost 5.4 billion and that's up 6% from the prior year. Backlog continue to increase it's up to 4.27 billion that's up 27% from last year and 3% from the last quarter.
Order strength, really, came from subsea separation and compression. Subsea orders were up about 75% for the year, reaching almost 1.3 billion. Certainly a record for us. Orders for our surface wellhead business also topped $1 billion for the year. The drilling equipment orders for the year declined less than what we had expected, but did, nevertheless, exceeded $0.75 billion for the year. It's our second highest level ever in that business. So, that part of the business continues to be stronger for longer than what we expected.
Approximately 70% of our '07 yearend backlog is scheduled to ship in '08, so we got a good running start on '08. Having said that, we expect the '08 backlog to exceed yearend '07 levels with orders exceeding '07 levels by around 20%. A lot of that is going to come in the subsea business.
Our order and revenue pattern pretty much continued the way it has been in the past, trending to our international markets. 66% of our orders and 63% of our revenues for '07 were coming from outside North America. We would expect that trend to continue in '08. Having said that, some of the softness that we have seen in our distributed valve business in '07 seems to be perking up earlier this year, so maybe that's a positive sign for what's happening in the US.
We spent record capital of almost $0.25 billion in '07, and we will probably exceed that level somewhat in '08. The Malaysian facility, that we have spent money on, has started, and we started that facility in '06 in terms of construction came on-stream last year, and we shipped product at the end of '07. So, it's coming on. It isn't full yet, but it is making progress and we are happy with where it is.
Our new surface facility in Romania that we have under construction is underway and should be operational later this year. That will give us some additional capacity in our surface wellhead business.
Our BOP facility in France has ramped up to where we can now ship, probably, 10 to 12 deepwater stacks a year, and we think our lead time to manufacture and ship these stacks is the shortest in the industry. As our backlog is increased it's obvious that execution and delivery of that backlog will continue to be the major focus for us this year. As you know we recognize revenue and income only when we get product out the door. We are not a percentage of completion company.
I think we did a good job generating cash this year, about $450 million from ops. This was down, somewhat, from last year as our in-process inventories increased to... in response to our growing backlog. No acquisitions, no significant acquisitions in '07... small smaller things, but looking forward it would appear that opportunities are probably better today than they have been for the last couple of years, and Franklin may talk about some of this... we are looking at several different opportunities.
We continue to be an acquirer of our own stock. We think that's the best deal, we ran into this last year and we spent more than $300 million in '07 doing that. Our cash, at almost $0.75 billion is about the same as our debt.
Going forward, and I am repeating myself, effective execution is got to be key for '08. Capacity is relatively tight in some of our segment, so getting product produced and out the door and shipped is paramount.
We are looking, in the first quarter, at $0.50 to $0.53, that's up $0.44... from $0.44 last year, but down from the fourth quarter. And this is really is a result of the scheduling of some larger projects that are due out at the end of the first quarter that will probably roll into the second quarter. So, we are being little bit cautious, maybe, there, but we think that's the right way to look at it.
For the full year, we are looking at something like 2.45 to 2.55 which is up 16% to 20% from '07.
Franklin, your comments?
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Thank you, Shel. I'll run through some of the items associated with 2007 results, and then turn it over to Chuck who'll discuss the items with respect to our guidance going into 2008.
The final tax rate for 2007 was based on 33% rate. With that we had several one-off, or one-time discreet items in the quarter which added $0.03 per share. As we've seen and as we talked about, I guess in our July conference call that during the last three quarters we've seen a number of these discreet items run through our results. While we anticipated this to happen this year because of some of the changes in how we account for things, we don't expect these discreet items to occur with the frequency that they occurred in 2007.
The cash and equivalents ended the year, Shel mentioned at $740 million, long-term debt $745 million. We saw about $50 million in cash come out of the balance sheet due to working capital items and operations where they really focused on their balance sheet in the fourth quarter and generated some cash by squeezing these things out.
All of our debt right now is long-term, but approximately $238 million of it will flip to short-term in the second quarter, as one of the series converts gets within 12 months maturity.
Cash flow from ops in the quarter $284 million, $450 million for the tear. About 10% against the revenue line which I think is helping for our business. We spent $322 million in share repurchases this year at an average of $132 [ph] a share. That includes about $40 million in dollar spent in the quarter.
We did spent $76 million on acquisitions. Nothing closed in the fourth quarter. We had a couple... we looked at the couple [ph], we think we'll see a couple of three small deals close in the first quarter of the year. And as Shel mentioned, the market for medium-sized company seems to getting a little better and pricing a little bit more reasonable. So, it would be a... we may have a more active year in the acquisition arena coming into '08.
CapEx $84 million for Q4, $245 for all of 2007, operations were really working hard in the fourth quarter to get the capital in the door in our various locations to help them out for 2008. D&A $110 million, but that obviously will kick up a little bit. Share count at the end of the year, $231 million after the split which was below our prior year 2.4 million shares. We earned $500 million in 2007, all-in-all a very good year.
Chuck?
Charles M. Sledge - Vice President and Corporate Controller
Thanks, Franklin, excuse me. As Shell indicated, our initial guidance for 2008 is $2.45 to $2.55 a share, and that excludes any charges associated with the final phase of closing down our pension plan.
In order to hit our guidance you'd expect to see a mid-teens revenue growth year-on-year. We are estimating around $130 million of D&A for 2008 and this really reflects the significant capital we put into our franchise over the last couple of years.
With respect to the tax rate for '08, we are expecting a 32% rate that's kind of down from a normalized tax rate in 2007 of 34.1%. You may see some volatility in the rate from quarter-to-quarter giving how the accounting rules work. But on balance, we think the 32% is a pretty good estimate for the year. And our cash rate should be around 30%.
Given our strong backlog and the relatively robust markets, we continue to invest heavily in the franchise. CapEx, as you saw, estimated to be between $2.50 and $2.70, $40 million of which is the Romanian facility Shel discussed.
Free cash flow for 2008 should be strong, again, we are targeting north of $300 million. This coupled with our relatively underleveraged balance sheet gives us plenty of dry powder, as we pursue our acquisition strategy and stock buyback activities.
We have got 234 million shares in our '08 guidance, and again, as Shell mentioned, the final phase of the shutdown of our US pension plan will occur once we get the final regulatory approvals. If it happens in '08, we will take a $26 million non-cash pretax charge or $0.07, but again, we will keep you updated on that.
As is normal, our guys pushed pretty hard in the fourth quarter to close out the year. So, our first quarter guidance of $0.50 to $0.53 per share reflects a realistic estimate based upon the current mix of business we expect to get out the door during the first quarter.
With that, Scott, let's open up for questions.
Scott Amann - Vice President, Investor Relations
Okay. Let's open up for questions if we can, Doug.
Question And Answer
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Collin Gerry with Raymond James. Please go ahead with your question sir.
Collin Gerry - Raymond James
All right, thanks. Good morning guys.
Sheldon R. Erikson - Chairman and Chief Executive Officer
Good morning.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Good morning.
Charles M. Sledge - Vice President and Corporate Controller
Good morning.
Collin Gerry - Raymond James
Quick question on the guidance... what should be assume for revenue growth in the DPS division? And if we you could, kind of, break this out as you see the mix broken up between those three main divisions within that?
Sheldon R. Erikson - Chairman and Chief Executive Officer
Well, we haven't provided that kind of guidance, I think, if you follow to, to what Chuck said, we are looking at revenue growth somewhere in the mid-teens and that's the most granular we are going to get for you.
Collin Gerry - Raymond James
Okay. And maybe to drill down a little different way. As a proportion of the overall mix, do you see that changing? Do you see drilling products becoming a bigger portion or subsea becoming a bigger portion? It seems like all divisions are growing rather substantially, so I am trying to understand a little bit more on the mix side.
Sheldon R. Erikson - Chairman and Chief Executive Officer
The answer is, yes.
Collin Gerry - Raymond James
Okay. Fair enough. And then final question, oh sorry.
Sheldon R. Erikson - Chairman and Chief Executive Officer
No, I said, you'll see subsea and drilling become a larger piece of that total revenue pie for '08.
Collin Gerry - Raymond James
And then as it relates to aftermarket, I'm thinking more on the drilling side. What percentage, in the current revenue, comes from aftermarket?
Sheldon R. Erikson - Chairman and Chief Executive Officer
It's up 25 now.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Yes, as a company it's below 25. And if you're talking about drilling, in particular, as that new kicks up that percentage, obviously, is going to drop. It grows at a slower pace than the new coming out the door in'08.
Sheldon R. Erikson - Chairman and Chief Executive Officer
But in terms of dollars, it's continuing to grow quite healthily.
Sheldon R. Erikson - Chairman and Chief Executive Officer
It's probably been growing at the rate of 7% to 8% a year. We've never had a down year in aftermarket since we started measuring back in 1995. So, the percentage will change, as Franklin as it becomes more new capital going out the door, but just, kind of, on the aftermarket business, growing probably 7% to 8% a year.
Collin Gerry - Raymond James
Okay, well that's helpful, and then final last question. The corporate expense line that you break out and the divisional breakout, if you back out that $35.7 million charges related to the pension cost, it still seems like it came in a little bit higher this quarter. Could you maybe give us a base level of expectations going forward? And maybe what... explain to us what happened this quarter with that?
Charles M. Sledge - Vice President and Corporate Controller
Yes, sure. Every fourth quarter, if you back, our corporate costs kick up a little bit. They were little high this fourth quarter, because we took about a $9 million FX swing from third quarter to fourth quarter. We have some inter-company loans, between the US and our foreign subsidiaries and currency moved against us there. So, kind of... we normally target right around $100 million a year. And again you have volatility from quarter-to-quarter on where that gets recognized.
Collin Gerry - Raymond James
Okay, that's helpful. Thank you.
Operator
Our next question comes from the line of Dan Pickering with Tudor Pickering. Please go ahead with your question, sir.
Dan Pickering - Tudor Pickering
Good morning.
Sheldon R. Erikson - Chairman and Chief Executive Officer
Good morning, Dan.
Dan Pickering - Tudor Pickering
Looking at the DPS, clearly, Q4 very strong, just wondering if you could walk us through... do we have a big shipment in drilling or was it subsea or both or I am just trying to understand the composition of the quarter a little bit?
Jack B. Moore - President and Chief Operating Officer
Dan, this is Jack. It was both. We had healthy shipments in both product areas, and don't underestimate the impact our surface business makes in that whole mix as well. But we the guys we delivered, I believe it was three subsea stacks in drilling in the fourth quarter. Shel point earlier about our ability to deliver subsea stacks relative to anyone else out there. These guys are doing a good job of getting these things put together and out the door.
Dan Pickering - Tudor Pickering
And as we look at 2008 steps forward, Jack, and both subsea and drilling become a bigger piece of the overall mix. How does that influence the margins that we should see in DPS? Are we going to be able to grow margins in 2008, given the mix, or is it going to be flattish kind of margin here?
Jack B. Moore - President and Chief Operating Officer
I think, Dan, we've always been pretty straight with you guys about the mix of the project business. And again, it's we have an estimate that we put together of what we think '08 is going to look like, but we recognize it until we ship it. And if we ship a lot of rouser [ph] that has a lot of flow through product in it, like pipe or if we ship subsea projects that have a lot of third-party hardware in it, our margins are not going to be as healthy. So, it really depends on the mix of what we ship with these two project businesses.
But overall, our surface business, in general, is more profitable than the other two. If we can get a lot of aftermarket related to the drilling business, that's obviously a very juicy part of the business for us. But as we see the projects go out the door and as a greater percentage of our overall business in DPS, the margin mix is really going to be impacted by how much of that is flow through.
Dan Pickering - Tudor Pickering
Okay. And then just
Sheldon R. Erikson - Chairman and Chief Executive Officer
To answer a question, Dan; subsea business, the way it's constructed, this is inherently a less EBITDA percent profitable business, but it's large dollars.
Dan Pickering - Tudor Pickering
Right. And all I was trying to get to is you guys see the mix of both your shipments, pricing, all of that, and so
Sheldon R. Erikson - Chairman and Chief Executive Officer
I would not count on an overall margin expansion to any degree coming out of DPS in '08 from a percentage standpoint, only from a dollar standpoint.
Dan Pickering - Tudor Pickering
Okay, and my other general question is just we heard a lot from a lot of different companies leading into this week in terms of the international market, people talking about expectations, et cetera. Can you just give us your flavor for the actual demand out there? Are you guys seeing any kind of slowdown in demand for your products, internationally?
Jack B. Moore - President and Chief Operating Officer
I'll tell you what, Dan, it's interesting. International business for us is continuing to be very healthy. We do not see... in fact, investing the $60 million plus in Romania, I think, is a good indicator, at least from our end, how we see that business evolving over the next several years, because that facility will target that market for us in surface. And the surface business, in general, will be the shorter cycle business.
Now, North America, we're obviously not as bullish on the North American markets, as we are on international, but we have a healthy position. The customers we work for, I think, have a longer term view of these markets and they are very committed to stick with these projects.
Dan Pickering - Tudor Pickering
Okay, thank you.
Operator
Our next question comes from the line of Kurt Hallead with RBC Capital Markets. Please go ahead with your question.
Kurt Hallead - RBC Capital Markets
Hey, good morning.
Sheldon R. Erikson - Chairman and Chief Executive Officer
Good morning.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Hey Kurt.
Kurt Hallead - RBC Capital Markets
Just kind a reference on the valve and measurement order intake for the quarter was down sequentially. And looking back over the last couple of years, it doesn't seem like there is, necessarily, a downtick on a fourth quarter. I just wonder, if you might be able to provide some color on that, and what that may mean as you head out into 2008?
Sheldon R. Erikson - Chairman and Chief Executive Officer
I can give you couple of answers on that. Number one, we saw continued softness in the distributed valve business throughout '07, but as I mentioned in my comments, we have seen a little bit of uptick so far in the beginning of this year. The second thing, as we are more project oriented in that valve business than we have in the past. The orders for that business will tend to be lumpier than they had been in years... three or four years ago, where more of our valve business was shorter cycle.
But in this past year that engineered valve business exceeded 600 million in revenue, so it's half of our valve business today. So, there is some lumpiness in that, but I wouldn't read that as any softness in the market going forward.
Kurt Hallead - RBC Capital Markets
Okay, and my follow-up question I had for you, if you look out and you talk about the mid-teens revenue growth. I will go into the assumption that all three of your divisions will be somewhere between 10% to 20%, also I'm trying to gauge here, is there anything going to grow less than 10% that's really kind of what I am trying to get at.
Sheldon R. Erikson - Chairman and Chief Executive Officer
God I can't, I can't think of anything one-off that's
[Multiple Speakers]
Kurt Hallead - RBC Capital Markets
Anything that you know.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
No.
Sheldon R. Erikson - Chairman and Chief Executive Officer
No, they are all going to be positive year-over-year.
Kurt Hallead - RBC Capital Markets
And you think DPS, probably has a highest growth rate year-on-year.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Probably yes.
Kurt Hallead - RBC Capital Markets
Okay, and then I just had one housekeeping question for clarification. Your corporate or your other expense line and EBITDA jumped to $37 million when you back out your charge in the quarter. As you go forward into 2008, Franklin, what are we looking at on a quarterly basis or for the year for that other number there?
Charles M. Sledge - Vice President and Corporate Controller
Yes, it's Chuck. I think, again, normally we run about a $100 million, but it will swing from quarter-to-quarter.
Kurt Hallead - RBC Capital Markets
So, $100 million. Okay, great. Then lastly, GE obviously started to build out their presence a little bit more: They just acquired, what, Hydril's BOP business here recently. I know recent conversations that we've had suggest that you guys still haven't seen much of GE in the market. Any updates on how you think you are attacking the market or approaching the market?
Jack B. Moore - President and Chief Operating Officer
Well, I mean, they are looking... they are tending to look more and more like Cameron. So, I guess that's pretty flattering... the management... they need a big valve business.
Charles M. Sledge - Vice President and Corporate Controller
You have some extreme there [ph]. Yes, they are going to have to find a big valve business someplace.
Kurt Hallead - RBC Capital Markets
And I don't understand why they are going for number three instead of number one, anyway, all right, thanks.
Operator
Our next question comes from the line of Jeff Kobylarz with Citigroup. Please go ahead with your question.
Jeffrey Kobylarz - Citigroup Asset Management
Good morning.
Sheldon R. Erikson - Chairman and Chief Executive Officer
Good morning Jeff.
Scott Amann - Vice President, Investor Relations
Good morning Jeff.
Jeffrey Kobylarz - Citigroup Asset Management
To come back on one of your comments Shel, you are not expecting a margin improvement in DPS what about in valve and measurement or compression services for '08?
Sheldon R. Erikson - Chairman and Chief Executive Officer
My sense is, you will see I mean the valve and measurement business I think is just doing wonderfully and if we get too far out of there I think we do cause ourselves some problem. I think you will see... and as I said in the last half a dozen years, some continual improvement in the compression business and in fact it has been delivering and I am really proud of the work that that organization has done. I would say if you are going to see a change upward in margins you'll see it coming out of the compression side Jeff.
Jeffrey Kobylarz - Citigroup Asset Management
Okay. I was a little bit surprised to your comment about the cash flow generation. I am assuming it was a fourth quarter comment rather than a full year, because you've seen a fairly significant inventory build and with big net income increase that will decrease in cash flow from ops. Can you help us understand sort of what the future looks like on that score?
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
I am not sure, I followed your question on your confusion on cash flow generation. This year as our revenue kicked up, I think we stayed in... every, we saw some build in our working capital, which is going to take away from some of that cash flow from ops, as those comps go up. The guys squeezed the balance sheet in the fourth quarter and squeeze some cash out of the balance sheet and that was earnings what gave us a real nice fourth quarter in cash flow from ops. Going forward, the 10% plus is what I would expect in cash flow from ops, going forward. Jack, you have any --
Jack B. Moore - President and Chief Operating Officer
No.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
I mean, looking at 08 that is what we're doing. We are heavily reinvesting. And if get to net cash flow or free cash flow, we were heavily reinvesting above the D&A line, almost twice our D&A, and that's taking away from free cash flow. I don't if that's you're question here.
Jeffrey Kobylarz - Citigroup Asset Management
No. To see such a strong net income growth and actual cash flow from ops decline, it was I guess a little bit of a surprise. It suggests to me at least, you will have to finance the inventory build rather than being able to lay it off on the customer?
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Yes. Some of that was there. But remember that, over the last two years we have gone from like a 20% net cash tax payer that goes through cash flow from ops to about 30% net cash tax payer and that's had a negative effect on some of the cash flow from ops as well.
Jeffrey Kobylarz - Citigroup Asset Management
Fair enough
Jack B. Moore - President and Chief Operating Officer
Jeff the other thing I think that maybe misleading is typically on large projects, we get a significant upfront cash component. We have not seen any of those really large projects that like we have seen in the last couple of years, come through in 07. In 08, Probably it's going to be a different story.
Jeffrey Kobylarz - Citigroup Asset Management
Got you. Okay. And the last question, obviously the guidance you're giving for full year 08 is different from the what the published estimates were out there. Is it... is your guidance a change in your internal thinking about 08? Over the last three months has your view on 08 changed?
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
No, we've never given guidance.
Sheldon R. Erikson - Chairman and Chief Executive Officer
We've never discussed '08 before.
Jeffrey Kobylarz - Citigroup Asset Management
I understand that and that's why I am asking the question. I'm not going to assume you have the consensus number in mind.
Sheldon R. Erikson - Chairman and Chief Executive Officer
I don't think our enthusiasm for 08 from where we were in 07 has changed.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
We don't drive our guidance based upon street estimates.
Jeffrey Kobylarz - Citigroup Asset Management
I really understand that's why I wanted to ask whether you had a change of view.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Okay.
Sheldon R. Erikson - Chairman and Chief Executive Officer
I mean think about the capital we're are laying in Jeff, I mean you look at the capital to share buybacks, how we're spending our cash and judge the attitude of the company.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
The other thing I would add is that our bookings came in stronger that we thought in 07 without any large projects. So, our outlook for the business going forward is, we're positive given the backlog we're going into the share with and so... that actually is probably going a little better as the quarter has evolved.
Jeffrey Kobylarz - Citigroup Asset Management
Great, thank you.
Operator
Our next question comes from the line of Bill Herbert with Simmons & Company. Please go ahead with your question.
William A. Herbert - Simmons & Company
Thanks. Good morning.
Sheldon R. Erikson - Chairman and Chief Executive Officer
Good morning.
William A. Herbert - Simmons & Company
Speaking of big orders in 2008, can you give us a sense of as to what your best assessment is at this state with regard to the timing of Block 31 in Usan [ph].
Sheldon R. Erikson - Chairman and Chief Executive Officer
Probably no better than you can Bill, but my sense is and one of the things that I said in my comments that I think the order is in 08 will be up by around 20% from they were in 07, and obviously that includes the booking of some large West African subsea projects. My God, I can't tell you, when that's going to happen. We very frankly expected one of them in 07.
William A. Herbert - Simmons & Company
Have you signed LOIs on one of those two or both of them?
Sheldon R. Erikson - Chairman and Chief Executive Officer
We can't comment on that.
William A. Herbert - Simmons & Company
Okay. That sounds informative to me. Can you give me, what at this stage you expect the respective sizes of those projects to be from a total tree standpoint?
Jack B. Moore - President and Chief Operating Officer
Well, I guess you can a look at what's reported in all those rags.
William A. Herbert - Simmons & Company
Well, I'm just asking --
Jack B. Moore - President and Chief Operating Officer
It is going to be north of 40, somewhere between 40 and 50 trees, from what we've seen in Block 18. Block 31 actually is going to be somewhere in that same vicinity.
William A. Herbert - Simmons & Company
Phase 1 you mean?
Jack B. Moore - President and Chief Operating Officer
Phase 1
William A. Herbert - Simmons & Company
Okay because I think we're talking --
Jack B. Moore - President and Chief Operating Officer
Both phases of that.
William A. Herbert - Simmons & Company
We're talking close to like a hundred trees on that, right?
Jack B. Moore - President and Chief Operating Officer
North of a hundred.
William A. Herbert - Simmons & Company
Okay. And so recent awards have been roughly in the neighborhood of $20 million per tree. Is that a decent assumption for these awards?
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
We can't comment on that Bill.
Jack B. Moore - President and Chief Operating Officer
We don't know what other color that guys are going to price.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Until we have the deal in our hands and we might be announcing.
William A. Herbert - Simmons & Company
Okay. Just thought I'll try.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Nice try.
William A. Herbert - Simmons & Company
Yes, well, thank you. With regard to forget to VNM margins, remind us where you are in the continuum of bringing out the engineering valve margin piece of that relative to the whole. At one point last year, I think you made the comment, or basically engineered valves comprise roughly about 50% of the business. Your margins were at about a 500-basis point discount to the VNM average and where are we with respect to bringing those margins up?
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
They are... that discount to the average is less than 500 basis points.
William A. Herbert - Simmons & Company
Well, I guess what I am trying to assess here is basically, we sort of describe that, its never easy but we sort of describe that as reasonably sort of low hanging fruit in terms of improving manufacturing efficiencies and what happened, and I am just trying to assess if most of that has run its course or do we still have a decent chunk of that to look forward to?
Sheldon R. Erikson - Chairman and Chief Executive Officer
We have a little bit more but, we are... in all candid, we are running high teens in that... in the engineered valve business.
Jack B. Moore - President and Chief Operating Officer
Bill, a lot of the improvements we've made to especially the facility in Bulgaria will be finished the first of this year.
William A. Herbert - Simmons & Company
Got it.
Jack B. Moore - President and Chief Operating Officer
So, we will have -- we will be at a pretty good clip. The guys are doing a fantastic job. I would not want to let them know that it was low hanging fruit, I think it's a pretty massive effort, remember [ph] where they came from two years ago to where we are at today.
William A. Herbert - Simmons & Company
No, absolutely. Very impressive. Last question, has your outlook in further with respect to the project visibility for the energy process industry build out and how that relates to the engineered valve piece of the business. Has that diminished or waned at all or are you still as constructive on that outlook as you have been.
Jack B. Moore - President and Chief Operating Officer
Well I would... you know it's interesting, because the big large projects China, Russia even in the U.S, they suffer some of the same issues we see with some of the big projects in our subsea drilling in terms of... and really primarily subsea there's issues around resources people, cost creep and they got to get back and recalculate their returns on them. But there is huge opportunities and huge projects still out there. So the potential is huge and the timing is always not easy to predict.
William A. Herbert - Simmons & Company
Okay, thank you very much.
Operator
our next question comes from the line of Jim Crandall with Lehman Brothers. Please go ahead with your question.
James Crandall - Lehman Brothers
Good morning.
Sheldon R. Erikson - Chairman and Chief Executive Officer
Good morning, Jim
James Crandall - Lehman Brothers
I assume Charles that this is your last conference call and I just want to congratulate you on your retirement. A fine job you have done to Cameron and the great career you have had in the oil service industry.
Charles M. Sledge - Vice President and Corporate Controller
We may get into guest toast a few more going forward.
James Crandall - Lehman Brothers
And Franklin, congratulations to you as well.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Thank you. Thanks Jim.
James Crandall - Lehman Brothers
Could you guys elaborate a bit more on the margin weakness on the fourth quarter on drilling and production side, and then also for 2008 you would talked about revenue guidance in the mid teens which is sort of what I had in my model but I was getting the higher DPS numbers, so I assume the difference is on the margin side in 08 as well. Is there anything other than net to more subsea that would explain that?
Sheldon R. Erikson - Chairman and Chief Executive Officer
I am not quite sure, what you are referring to as the margin weakness in DPS, we ran 19.7% in DPS in the fourth quarter, Jim, which was... is up from the prior year at 19%.
James Crandall - Lehman Brothers
I guess by margin weakness I am looking at a quarter-to-quarter, 120 plus million increase in revenue and $20 million increase EBITDA. So sort of operating incremental operating margins of 16%, 17% which would be a bit lower than which you might ordinarily expect.
Sheldon R. Erikson - Chairman and Chief Executive Officer
Go ahead, Jack.
Jack B. Moore - President and Chief Operating Officer
I would say it's really the flow through issues around. It's always, it's going to be subject to what we have shipped. And we had a healthy shipments of subsea and drilling in the fourth quarter and that's going to kind of dilute what we are doing in the surface side of the businesses.
James Crandall - Lehman Brothers
Okay, so it's solely a mix issue Jack. There is nothing about any --
Jack B. Moore - President and Chief Operating Officer
I hate to pull the mix part on, but that's exactly what it is.
James Crandall - Lehman Brothers
Nothing in terms of later deliveries or kind of increased coarse or anything that would impact the quarter.
Jack B. Moore - President and Chief Operating Officer
No.
James Crandall - Lehman Brothers
Okay, and anything on 08 other than the mix issue as well and am I right to assume you are looking at your overall margins as being relatively flat in 08.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Yes, and again its more EBITDA but a lot of it generated from the project shipments that we see coming forward.
James Crandall - Lehman Brothers
Okay and last question, how many tree order were there in the fourth quarter for Cameron?
Jack B. Moore - President and Chief Operating Officer
38,
James Crandall - Lehman Brothers
38, okay good. Thank you.
Operator
our next question comes from the line of Kenneth Sill with Credit Suisse. Please go ahead with your question
Kenneth Sill - Credit Suisse
Good morning guys.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Good morning Ken.
Kenneth Sill - Credit Suisse
I am very glad that you guys don't use our estimates for your guidance.
Charles M. Sledge - Vice President and Corporate Controller
That would, if you talk about putting --
Sheldon R. Erikson - Chairman and Chief Executive Officer
We are not unaware of your estimates, it's just not where we start. We just disregard them totally.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
No we don't.
Kenneth Sill - Credit Suisse
Which is fine, I wanted to beat one of the dead horses just a little bit more. You know one of the things that's clearly coming across from the big service companies is delays in subsea... I mean you know deepwater rig deliveries, delays in projects. Your guidance is a little bit below ours and obviously the street has been a little bit high across the board here. But has the magnitude of delays gotten greater over the last 3 to 6 months or has it been fairly consistent and how much of have you guys factored into your forecast for the fact that things just tend to slip to the right?
Sheldon R. Erikson - Chairman and Chief Executive Officer
Well, I mean its a real simple solution right here. Had we received one of these large subsea orders in '07 you would see some revenue expected to come out in 08. The fact is that hasn't happened, that's not going to be an 08 item. So for us it does impact when we get it because, as I said before its when we shifted the accounts it's not a POC kind of a deal for us. So 09 we would expect it to be a very, very strong year, given the order intake that we expect for this year. If our orders are really up 20% like we expect, you are going to see a gangbuster 09 and I am not giving guidance for 09, I am just telling you that directionally it ought to be buyers. We got to book it first
Kenneth Sill - Credit Suisse
Yes, that's the smart way to do it. And then going on to the science projects out there in your industry obviously when your big competitors can have big backlog built for something's that they have booked in the subsea processing area, I just wanted if you could update from what you guys are doing there and I [indiscernible] for the first of all electric tree is getting installed and kind of follow up on how you expect that business to grow?
Sheldon R. Erikson - Chairman and Chief Executive Officer
Our process business is just growing wonderfully. Our process business approached $300 million in revenue... I am sorry, in orders, in '07 that's up 47% from the prior year. More than half of that stuff goes for deepwater applications. Now is the stuff being put on the bottom of the ocean? No. Its being put on FTSOs, it's being put on platforms but it's got the same driver as the subsea business. Now overall at some point, some of that stuff will go to the bottom of the ocean. The question is how much. But the good news is we are in a business today that is up and operating, that is generating cash that's profitable, and it's not an R&D business. We are taking that capability and marrying it with our marinization capability to be able to do more of that stuff on the subsea floor. But I got to tell you, I am really impressed with the progress that our separation business has made, not only just from order and revenue growth standpoint but of the profitability and improvement standpoint. It's a nice business for us and I am glad we made the acquisition a couple of years ago.
Kenneth Sill - Credit Suisse
How about the margins in your surface separation business compared to the subsea business?
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Probably around the same. It's kind of... for us it's a mid-teens kind of EBITDA thing.
Kenneth Sill - Credit Suisse
And then any follow-up interest on the electric trees?
Jack B. Moore - President and Chief Operating Officer
Absolutely, yes. We are waiting with, working with Total to install this first system and system and some of that... that's kind of being driven by their schedule at this time. We are on go. I will tell you there the all electric... and there's a tone of interest. It's going to be a lot like the separation systems that are being booked. I think the industry is going to watch, they are going to see it work, they going to see it be a viable option for them that will generate them the kind of returns its going to take to make investments. We are not an early adaptor when it comes to new technologies in industry. So, you got to start somewhere and I think past flow [ph] with FMC was a good win for them. It takes you out Norway, that's maybe the only place to try this out. And that's what we're seeing with all-electric as well. Getting an operator like Total and Bracet, it really opens up the door for a lot of options around the world.
Kenneth Sill - Credit Suisse
But again just on the slower adoption side, no big orders expected on that any time assumed?
Jack B. Moore - President and Chief Operating Officer
I would say just wait and see.
Kenneth Sill - Credit Suisse
Okay. And then finally just a housekeeping question. A pretty big increase in fully diluted shares quarter-to-quarter. Is that just an option issue with the prices?
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
It's principally the converts?
Kenneth Sill - Credit Suisse
It is the converts. Okay.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Yes. As our stock price kick up, you get more shares in that number. So the better we are, the worse it hurts us.
Kenneth Sill - Credit Suisse
Okay. Alright. Thanks guys.
Operator
Our next question comes from the line of Brad Handler with Wachovia. Please go ahead with your question.
Brad Handler - Wachovia Capital Markets
Thanks. Good morning guys.
Sheldon R. Erikson - Chairman and Chief Executive Officer
Good morning.
Brad Handler - Wachovia Capital Markets
Could I ask you please to share with us some more color on the North American market appreciating its diminishing place in your overall business but I'm just curious it didn't... I just hadn't discussed it much. Some optimism out there about our steady activity level, perhaps that means more completions, a little bit more opportunity for you again. Just sort of thrown out there for you, please just a comment.
Sheldon R. Erikson - Chairman and Chief Executive Officer
Let me first start and then I'll flip it over to Jack. From what we've seen, if you take a look at the rig count, it's kind of proxy of the business out there. Its been pretty flat. I mean it oscillates around a number but for us, I am not sure that we see any great big upside in the next six months nor any great big downside, sort of steady. It's probably a pretty indicator. Having said that, you see a little being for improvement today in Canada, but again Canada for us isn't that big a piece of business. Jack you want to --
Jack B. Moore - President and Chief Operating Officer
No. I agree we haven't really seen anything that would tell us that 07 is an anomaly relative to '08, I mean 08 will be another good year for our North American businesses. The distributive valve side of the business which is really, purely driven by North America. That business has started off pretty good, now will it sustain itself... Canada is going to have a lot of big role in that, but I'll come back to the fact that lot of our customers in North America or the Exxons and the BPs in the Shells and in Canada, some of the major players that will sustain activity kind of through these cycles that may be driven down by may be a weaker gas price but. We see a pretty decent business going forth. I can't really say that we see anything that's going to take us... make a different... take a different look at it. We are though... I will tell you this, North America has a lot of independent operators and we work for a lot of them and that may be a little more price-sensitive in these markets when they flattened out than others. So that's something that we have to continually keep eye on the ball.
Brad Handler - Wachovia Capital Markets
Make sense I guess may be just a point of education for me. Does an increasing mix of unconventionals or may be that much more of the Shells change the opportunity set for you with may be more a surface overhead question?
Jack B. Moore - President and Chief Operating Officer
That's not necessarily a positive mix for us.
Brad Handler - Wachovia Capital Markets
Alright
Jack B. Moore - President and Chief Operating Officer
Typically that's lower pressure, lower temperature kind of stuff where we tend to focus on the other end of the spectrum... so our shift to unconventional from that standpoint doesn't do much for us. We like deep part gas shells.
Brad Handler - Wachovia Capital Markets
Alright. Right.
Jack B. Moore - President and Chief Operating Officer
That condition does, it does help our... above business. So saying that, there is a good story there.
Brad Handler - Wachovia Capital Markets
Okay that's helpful. And I guess one more issues sort of related to the stuff. Is there an initiative underway in terms of moving the distributive valve business internationally as well?
Jack B. Moore - President and Chief Operating Officer
We would like to do it the model is different. Your product is slightly different, the way you go to market in the U.S is through distributors like the Wilson and brand name like Jenkins and so forth but internationally it's a little different. You have to have a different model and we have had some success with it and we obviously want to take advantage of that market internationally. But it's going to be a little different way to get there then we have historically tried.
Sheldon R. Erikson - Chairman and Chief Executive Officer
The answer to your question is that would be a nice opportunity and we would like to get there. We are just struggling how to get there.
Brad Handler - Wachovia Capital Markets
A longer-term initiatives it sounds like. Okay, fair enough. Thanks guys, I appreciate it.
Operator
Our next question comes from the line of Robin Shoemaker with Bear Stearns. Please go ahead with your question.
Robin Shoemaker - Bear Stearns & Co
Yes, Shel, I wanted to ask you've discussed this in the past I believe in a really a critical path item for Cameron going forward is the pace of delivery of deepwater drilling rigs. And both are obviously from the BOP standpoint deepwater BOP, but also just the availability of deepwater rigs to clear out this backlog of trees that are to be installed. And I wonder if your guidance for... going back to the guidance issue for 2008 anticipates a slippage in deepwater rig deliveries from 08 into '09?
Sheldon R. Erikson - Chairman and Chief Executive Officer
Well the answer is probably not. I think what's going to happen is you are going to see a lot of rigs coming on, in late 08 and '09. But I think more of our guidance is really related around the timing of when we are going to be shipping the trees. I don't think anybody is going to have a heartburn if the rigs came on sooner and trees would be available to be installed sooner. But right now, I don't think that is an issue. I think what it is Robin, is that's an issue that goes out for the next 2 or 3 years in terms of overall capacity for the industry. And what it means is that is you have the capacity in the industry, you might see orders loosen up a little bit sooner or little bit faster. But right now I don't think whether rigs are delivered in 08 or 09 will really impact our ability to change our revenue in 08.
Robin Shoemaker - Bear Stearns & Co
Okay, just one other question then you described last year a program to replace vendors with internally manufactured parts and supplies. I wonder if that's meeting your goals in terms of quality timeliness improving the delivery of components that were previously outsourced and I have to assume of course whatever benefit from that is in your current guidance?
Sheldon R. Erikson - Chairman and Chief Executive Officer
Where we saw the greatest need to do that was in our surface business. As we started building a backlog in our surface equipment business and my feeling is that we shouldn't have much of a backlog and the orders and revenues are to be pretty consistent and when we started to see orders jumping ahead of our ability to ship product and we started outsourcing. That's when we pushed forward some more capacity and we did two things. Number one, we built a subsea facility in Malaysia, to take the subsea manufacturing capability out of Singapore and separate it and provide more capability in Singapore. And secondly, we are building the second plant in Romania in Plouest [ph] that should give us more capacity in the surface business, because again we are outsourcing an awful lot of our surface business. And you are right, it does impact your cost, it does impact the potential quality and we believe that that kind of stuff we are going to be making in house. So that's the movement we've done in the last year or two.
Robin Shoemaker - Bear Stearns & Co
Okay. Thank you.
Sheldon R. Erikson - Chairman and Chief Executive Officer
You bet.
Operator
Our next question comes from the line of Jas Patel [ph] with Natexis Bleicheroder. Please go ahead with your question.
Unidentified Analyst
Good morning gentlemen. If I could revisit the international project subject one more time, can you give us a sense of what the cut-off date would be in terms of timing one of these larger orders or to be impact full for 2008 in terms of revenue and I guess, if you could comment on whether that is... that assumption is embedded in your current projections for EPS growing?
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
We already passed that date.
Unidentified Analyst
Okay. And shifting gears a little bit, you previously announced interesting in some commentary on the merger and acquisition market. Has the cooling of the private equity markets begun to unveil some new opportunities for you and if so, could you comment I guess on some areas that you're looking at in potential size of the acquisition?
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Sure. I've answered the first, the private equity firms who were taking advantage of some high leverage aren't really bidding up in the businesses that we are looking at. They still have quite a bit of equity that they're trying to put to work and so they are still in the market, just their pricing aggressiveness has changed and so we see opportunity towards our synergies that we can bring and they makes us more price competitive and I think potentially more successful.
Secondly, the things that they bought over the last couple of years. At some point they are going to turn and we've already seen some opportunity to where they're trying to turn some businesses and that gives us the potential. In terms of areas we'd look at other than saying if it looks like us we're always interested. If we're talking about other platforms that we might add to the business, we will just defer that until we have something to announce
Unidentified Analyst
Okay, thanks very much,
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
We don't want to give away the secrets.
Unidentified Analyst
I understood.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
We have always said, if you are doing smaller deals it takes a lot of them to really move the needle, we'll do some because that make sense. But we really like buying businesses in that $50 million to say $200 million to $250 million range, because you can move the needle and do the same amount of work and really add some value to the franchise.
Unidentified Analyst
Great thanks, Franklin. Appreciate it.
Operator
Our next question comes from the line of Joe Gibney with Capital One Southcoast. Please go ahead with your question.
Joseph Gibney - Capital One Southcoast
Good morning everybody
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Good morning.
Joseph Gibney - Capital One Southcoast
Most of my questions have been answered I just want to touch a little a bit on the compression side of the story continued strong growth here in this segment over the last couple of quarters curious if you just give a little additional color on any fundamental change in the segment that has been driving the growth, you mentioned that in terms of incremental margin growth next year the segment could see that any specific initiatives you got there on cost side or any additional color there will be appreciated.
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
Well, the shift that we have seen in the in the compression side you have to break it down between our centrifugal side which tends to focus on air and the reciprocating side, the reciprocating side for years has been almost the domestic business only and we've moved a lot of our initiatives outside the United States and there has been fruitful. We have bought some business in Eastern Europe that we didn't do before, of the engineered side and centrifugal has been really a worldwide business. I think very frankly we get some benefits because we happen to be an American company today. And the soft dollar certainly has been hurting us there, but that business that large engineered compression business continues to be moving forward and it covers a lot of different industries not the least of which is air separation.
And as you need more and more industrial gases around the world, particularly in places like China, that are building steel mills like there is no tomorrow. That continues to... it continues to bode well for us. Again long lead time stuff. The engineered compression business, if don't get an order by the end of February or March and you are not going to book any revenue that year, so its again longer lead time kind of business, kind of coupled together with receipt side which has fairly high aftermarket component, which is a shorter cycle. So again, our hold issue is trying to match the shorter and longer cycle stuff and at one point during the year, it gets to be beyond the point where you are going to get me revenue recognition in that year. But it's certainly up nicely for the next year. So some of the orders that we booked in 07 for compression... you will see rolling out this year. So I see a positive year for compression.
Joseph Gibney - Capital One Southcoast
I appreciate the color. Well most of my questions have been answered. I will turn it back. Thanks.
Operator
Our next question comes from the line of Ole Slorer with Morgan Stanley. Please go ahead with your question.
Ole Slorer - Morgan Stanley
Thanks for letting me on. 2011 is the year where there were few deepwater rigs due to be delivered... that's been about 140 BOP deepwater drilling well systems delivered publicly a year up until then. What you are seeing for 2011? Are you getting any inquiries at this point from rig owners that are looking to fill this available slots in Korea?
Sheldon R. Erikson - Chairman and Chief Executive Officer
Interesting. We continue to get inquires and it would appear that they are going to be more deep water rigs, ships being build. Some by speculators, some by regular drilling companies and this cycle seem to be lasting a little bit longer than I would have expected. Having said that, the peak order year was 2006, 2007 was not a bad year because in our business we booked three quarters of 1 billion of business, largely driven by deepwater rigs and 08 doesn't look to be a bad year for us either. So Jack, do you have any other....
Jack B. Moore - President and Chief Operating Officer
Well, I think only what's interesting is a lot of the guys drilling these rigs that we're working with, take options on slots after going forward. Your question about what's going to happen in 011 and 012 is a good one because a lot of them have taken options in slots. Now that doesn't mean they're going to build them but they want to hold a place. And we've had a lot of discussions with guys that have visibility well beyond this kind of delivery cycle, which kind of ends in 2010. And it's going to depend on how many of the rigs that are coming out, get contracted and that is a pretty large population of what's being built now. All those guys have nice healthy contracts, going well out into 2012. So you got to ask, what's going to be available beyond that and we may see another uptick in the cycle beyond kind of beyond where we are at now and there is a lot of people who believe in it.
Ole Slorer - Morgan Stanley
I would agree with that. But I'm just little perplexed to why there has been more orders placed in 11 whether its Korean yards holding back because they can't hedge the sea thus far out or if there is going to be watershed soon. We have just a ton of orders placed for 11 deliveries so are you in discussion? I was trying to get a feel for the momentum.
Sheldon R. Erikson - Chairman and Chief Executive Officer
Well, our delivery lead time for our equipment is, we wouldn't be booking an order to ship in 2011 right now. We do have a lot of our orders in our backlog that go beyond 08 and even 09. But the majority of that are things that we have on our radar screen and I am sure they'll evolve into opportunities for the guys for buying the equipment like ourselves here in the next 12 to 18 months.
Jack B. Moore - President and Chief Operating Officer
All of the... if you just I mean think about the time it takes to place an order for a rig and get it delivered it is longer than the lead time we have to built a deepwater stack. So for us, people have to place firm orders for in the shipyards and then we start to see step. We are not the long link in this chain it's... we're shorter and our lead time today is to build a deepwater BOP as probably around 2 years.
Ole Slorer - Morgan Stanley
I remember Shel a few years ago you were quiet excited about surface BOP stacks and it sort of never took off and we are seeing some tier come in with Shell building a series of this build rigs, with surface BOP stacks. Is this a breakthrough, is it something that you expect more of, could you talk a little bit about that?
Sheldon R. Erikson - Chairman and Chief Executive Officer
You know its interesting most of the focus that we have had just because of the pure size has been on the deep water market but I'll tell you that Cameron has booked a big chunk of the jack up business and the land business. So it's... what we are booking and what we booked this past year $0.75 billion is a good mix of non-deepwater stack equipment. So it's... we see it across the board.
Ole Slorer - Morgan Stanley
Just finally to go back on the subsea business again I mean we are doing a lot of analysis at the moment about the tendering activity for production drilling in deep water availability of rigs and production guidance by oil companies and it strikes me that it's a total lack of realism amongst the oil companies with respect to the production guidance based on the availability of rigs that they assume they, in reality they can't and all my follow up there is, this has to at some point translate into this massive slippage of contract awards or of development. And we are seeing it in some of the subsea construction companies that are guiding to massively deferring the revenue expectations. Little surprises that you are not saying that any of this is affecting you. Is this because you are not giving guidance from. You have talked about this differently half a year ago to what you are doing now.
Sheldon R. Erikson - Chairman and Chief Executive Officer
Well. For us, because most of our drilling equipment is being ship from a backlog which means we have the order... I think we take a little different position. But you are absolutely right; I think you have seen some of this operator. We saw two or three years ago, where there was a reluctance by at least one operator may be more to book a rig because $500,000 a day is not like an exorbitant rate and they were going to wait for the rig rates to go down and obviously that has not happened yet.
And I think all these guys have judgment call and in some cases they don't recognize that to try to get things done through a system, whether it's ordering equipment from us or ordering drill bids or mud or anything else is a ramp up process, you don't just start it on like an electric light. It's people intensive, it's lead-time intensive. So I think some of the people are just a little bit naïve to what it really takes to sustain a growth cycle and we've been at there for a while and so it's. May some of the larger guys understand it, some of the independents still think, for example you can get a subsea in two weeks. This is not a surface business in some cases. So there is realism that needs to be built in and I think your conscious probably warranted that, could this impact business going forward. It has in the past; I don't know why that changes.
Ole Slorer - Morgan Stanley
And I am intrigued. But thank you very much.
Sheldon R. Erikson - Chairman and Chief Executive Officer
You bet Ole.
Operator
Our next question comes from the line of Kevin Simpson with Miller Tabak. Please go ahead with your question.
Kevin Simpson - Miller Tabak & Co., LLC
Thanks and good morning.
Unidentified Company Representative
Good morning.
Kevin Simpson - Miller Tabak & Co., LLC
Just a couple of quick questions. On guidance, can I assume that surface revenue growth is kind of baked in and in the mid-teens for 08?
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
No. You're looking around.
Jack B. Moore - President and Chief Operating Officer
Probably in the lower teens. We have to get of people in here. [Multiple Speakers]. We are going to call that a fumble though. The growth here is I call it an interception here maybe but the growth in the surface business won't be as big as it is in the subsea or drilling stack. And a lot of that's driven by the impact in North America. We think its going to be little less robust as it is in international but we got, again we got a lot of that growth in international ahead of us.
Kevin Simpson - Miller Tabak & Co., LLC
Okay. And could... is there I mean some is pretty backlog driven so....
Jack B. Moore - President and Chief Operating Officer
We've got about 25% to 30% of our surface business out we call project business. We look at some of the equipment we build for over the North Sea, for the Caspian, Gulf of Mexico, Falklands, East Coast of Canada. We got a fairly long... a real long visibility towards it and the lead times are longer to build it.
Sheldon R. Erikson - Chairman and Chief Executive Officer
But basically our surface business on the whole is not as big a backlog-driven business. It's drilling in subsea and since a good portion is in North America which we've already said is flattish, you're just not going to see robustness of the growth there that you're going to see in the revenues stream anyway from the subsea and drilling.
Kevin Simpson - Miller Tabak & Co., LLC
Do you guys still have the capacity to stay in businesses that are driven a little bit less by the long cycle backlogs like in drilling in subsea, do you have the capacity to do say another 300 bps plus of revenue growth in 08?
Sheldon R. Erikson - Chairman and Chief Executive Officer
For your model...
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
in the markets there. I would stick in though for your model, Kevin something, sampling between 5% and 10% for '08 over 07. And some of that is just a function of our capacity coming on that we're building in Romania and how fast we can get out it out the door.
Sheldon R. Erikson - Chairman and Chief Executive Officer
Yes.And the real effort in 08 and surface is going to be really looking at the cost side of the equation with the Romanian plant and some other areas and so that you're... those guys have a lot to do despite what the markets may give them.
Jack B. Moore - President and Chief Operating Officer
Yes. And that plant comes on last quarter of the year.
Kevin Simpson - Miller Tabak & Co., LLC
Okay. So there can be but break-in issues really would be 08 late 08 and then '09?
Jack B. Moore - President and Chief Operating Officer
Yes.
Kevin Simpson - Miller Tabak & Co., LLC
It grows a little bit faster. And then last, of the tax rate down to 32. Is that something we can use for out years going forward or is there something just specific to 08 that's bringing that down a little bit?
Franklin Myers - Senior Vice President of Finance and Chief Financial Officer
No, Kevin I think that's a good rate going forward.
Kevin Simpson - Miller Tabak & Co., LLC
Great. Thank you. That's it from me.
Sheldon R. Erikson - Chairman and Chief Executive Officer
What we know today.
Kevin Simpson - Miller Tabak & Co., LLC
Yes. Okay. Thanks.
Sheldon R. Erikson - Chairman and Chief Executive Officer
You bet.
Operator
Our next question is the follow-up question from Dan Pickering. Please go ahead with your question sir. He just took himself out of queue. There are no other questions in the queue at this time gentlemen. Would you like to make any closing comments?
Sheldon R. Erikson - Chairman and Chief Executive Officer
Nothing necessary from us Doug. Thank you very much and thanks to all of you for joining us today.
Operator
Ladies and gentlemen this does conclude today's teleconference thank you for your participation. You may disconnect your lines at this time.
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