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Executives

[Paul Ludig - CCG Investor Relations]

Longhua Piao - Chairman, Chief Executive Officer

Yip Kok Thi - Chief Financial Officer

Xizhong Xu - Assistant General Manager, Director

[Dr. Henry Chang] - Vice President of Strategy, Planning and General Counsel

Analysts

Ian A. Zaffino - Oppenheimer & Co.

[Richard Saffernak - Wifri Advisory Investments]

WSP Holding Limited (WH) Q2 2008 Earnings Call August 15, 2008 9:00 AM ET

Operator

Welcome to the second quarter 2008 WSP Holdings earnings conference call. (Operator Instructions) I would now like to turn the call over to your host for today, Paul Ludig.

Paul Ludig

Welcome to WSP Holdings second quarter ended June 30, 2008 earnings conference call. My name is Paul Ludig with CCG Investor Relations. With us today are Mr. Longhua Piao, the Chairman and CEO of WSP Holdings, Mr. Xizhong Xu, Director and Assistant General Manager, Dr. Henry Chang, Vice President of Strategy, Planning and General Counsel, and Mr. Yip Kok Thi, Chief Financial Officer.

Before we get started, I would like to remind our listeners that management’s prepared remarks in this call contain forward-looking statements that are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today due to such risks as but not limited to fluctuations in customer demand, management of rapid growth, intensity of competition from other providers of OCTG products and services, general economic conditions, geopolitical events and regulatory changes, and other information detailed from time to time in the company’s filings and future filings with the United States Securities and Exchange Commission. Although the company believes that the expectations in such forward-looking statements are reasonable, there is no assurance that such expectations will provide to be correct. Any projections as to the company’s future performance represents management’s estimates as of today, August 15, 2008. WSP Holdings assumes no obligation to update these projections in the future as market conditions change.

I will now turn this call over to Mr. Piao, the Chairman and CEO of WSP Holdings, for opening remarks in Chinese with Dr. Chang translating.

Longhua Piao

[Speaks in Chinese]

Dr. Henry Chang

I would like to thank everyone for joining us for WSP Holdings second quarter of 2008 conference call. We held our annual meeting yesterday during which we discussed our results for 2008. I would now like to update you on how 2008 is progressing.

Longhua Piao

[Speaks in Chinese]

Dr. Henry Chang

Our second quarter 2008 net revenue was $199.2 million US dollars 55.1% higher than in the second quarter of 2007 and 51.9% higher than in the first quarter of 2008. Our second quarter 2008 net income was $26 million US dollars which is 24.7% higher than in the second quarter of 2007 and 64.2% higher than in the first quarter of 2008. We continue to [inaudible] our revenues because of our focus on manufacturing and selling high quality higher technology products.

[Translation in Chinese]

Longhua Piao

Record prices for oil and gas make it important for oil and gas exploration companies to develop new sources of supply. New sources of supply are in increasingly hard to reach places. Our products are used under extreme conditions in different environments and are produced for the fastest growing segment of the oil and gas exploration industry. Even though oil and gas prices keep coming down, we expect demand for our higher quality higher technology products to keep growing.

[Tranlation in Chinese]

Longhua Piao

Dr. Henry Chang will now provide you with the rest of my remarks in English. They will be followed by our CFO Mr. Thi who will discuss our financial performance for the second quarter ended June 30, 2008. Thank you everyone. I will now continue to present Mr. Piao’s remarks in English.

In the second quarter of 2008 WSP Holdings increased its focus on the higher value end of the OCTG market comprised of technologically sophisticated non-API pipes and connectors and decreased its focus on lower and API products. The oil and the gas industry needs high end OCTG products in order to continue exploring and accepting oil and gas located in increasingly hard to reach places. There are a limited number of companies that produce high quality OCTG products and [inaudible]. There currently is more demand than supply for high end OCTG products.

Raw material and energy costs rose throughout the first half of 2008. Steel mills throughout the world announced sharp price increases to record levels in May and June. China increased its retail prices for oil and gas in June. OCTG production and transportation costs increased steadily throughout the first half of 2008. Higher wholesale oil and gas prices led to higher OCTG prices. This was because demand for OCTG for the oil and gas industry recently grew so rapidly that OCTG suppliers were able to negotiate higher prices for OCTG products.

At the last quarter’s earnings conference call we spoke about how WSP Holdings recently made two significant investments that will increase our manufacturing capacities. I would like to update you on our progress.

The first investment was to set up a 70% owned subsidiary Liaoyang Seamless Oil Pipes Company Limited. Liaoyang Seamless in Asia. Liaoyang Seamless will construct a manufacturing facility with hot-rolling OCTG pipe production capacity of 300,000 metric tons per year, pipe finishing capacity of 150,000 metric tons per year, and a pipe heat treatment processing capacity of 100,000 metric tons per year. Pipe finishing and heat treatment operations are scheduled to start in the first half of 2009 and hot-rolling pipe operations are scheduled to start in the second half of 2009. Construction is progressing according to schedule.

The second investment was to establish a wholly-owned subsidiary Songyuan Seamless Oil Pipes Company Limited, Songyuan Seamless [inaudible] with $6 million US dollars initial registered capital in Songyuan, Jilin province. Songyuan Seamless began construction for a manufacturing facility in April 2008 and will have part finishing capacity at about 60,000 metric tons per year. The new manufacturing facility is scheduled to start production in the first quarter of 2009. Construction is progressing according to schedule.

These two investments will bring our company production to new levels. Hot-rolling production capacity will reach about 1 million metric tons per year. Pipe finishing capacity will reach about 800,000 metric tons per year.

As part of our expansion strategy we previously ordered production equipment for a new fledging line at our Wuxi facility. We originally expected the new line to start production in September. Because of delays in receiving this equipment, we expect the new fledging line to start production some time during the fourth quarter of 2008.

Oil and gas industry analysts expect [inaudible] to increase in the second half of 2008 which will place even more upward pressure on high-end OCTG prices as demand increases. In May and June 2008 WSP China received four purchase orders from six oil distributors encompassing the United States for a total of 8,217 metric tons of API casing pipe. Chickasaw has experience as an OCTG product distributor and is an OCTG provider to Shell Oil Company, one of America’s leading oil and natural gas companies. WSP China expects to complete delivery for these orders by December of 2008.

In July 2008 WSP China received a purchase order from PTTEP in Thailand for a total of 2,246 metric tons of non-API casing, drill pipe and related accessories. PTTEPS is a subsidiary of PTTEP Exploration and Production Public Company Limited, a Thailand oil and gas exploration and production company with operations throughout the world. WPS China expects to complete delivery for this order by December 2008.

We view these orders as important orders for us because they show how WSP competes in the global market place. Sales to the United States and Thailand have established our brand among global customers. We believe such sales will lead to greater brand and product acceptance by other leading oil and gas companies. WSP Holdings will continue to monitor and control our production costs while reacting to increasing domestic and international demand for our high-end products throughout the rest of 2008. We can pass along our increased costs of production to our customers because customers are willing to absorb higher OCTG prices. We’re pleased that higher prices and increased sales of high-end OCTG products throughout the rest of 2008 will continue to protect our margins while we upgrade [Mengfong] and fully integrate its operations according to WSP Holdings requirements.

Having made these comments. I would like to turn things over to Mr. Thi, our CFO.

Yip Kok Thi

I would like to thank you all for joining this second quarter 2008 earnings conference call. Our second quarter 2008 results reflected the growing importance of non-API product sales compared to API product sales for our company. Our focus on producing and selling higher quality non-API product offsets increases in production costs. Going forward, our acquisitions of [Mengfong] steel mill will give us greater control over the most important raw material that we use in our manufacturing processes.

I’m happy to report that we had good first half results for 2008. Three months results. Our net revenue in the second quarter of 2008 was $199.2 million up 55.1% from $128.4 million in the second quarter of 2007. Increased sales revenue continued to result from higher OCTG production volume, higher selling prices for both non-API and API products, and greater non-API sales compared to API sales. Total sales volume was 138,599 metric tons of total production for the second quarter of 2008 up 21.7% from 113,879 metric tons of production for the second quarter of 2007.

Non-API products had higher selling prices than the API products and accounted for 39.1% of net revenue in the second quarter of 2008 compared to 28.2% in the second quarter of 2007. Sales of non-API products was $77.8 million in the second quarter of 2008 an increase of 115.1% from sales of $36.2 million in the same period of 2007. API product sales were $101.9 million an 27.4% increase from sales of $80 million in the second quarter of 2007. Non-API product sales volume was 41,788 metric tons an increase of 72.6% from 24,214 metric tons sold in the second quarter of 2007. API product sales volume was 74,528 metric tons a 0.2% increase from the 74,645 metric tons sold in the second quarter of 2007. Sales of other products were $19.5 million up 58.9% from $12.3 million in the second quarter of 2007.

Gross profit in the second quarter of 2008 was $54.7 million an increase of 62.2% from $53.7 million in the second quarter of 2007. Gross profit margin was 27.5% compared to 36.3% in the second quarter of 2007. Gross profit margin increased because of increased sales of higher margin API products. The average selling price increase for non-API and API products is the result of passing along increased manufacturing costs to customers.

Operating expenses in the second quarter of 2008 were $12.3 million an increase of 145.9% from $5 million in the second quarter of 2007. Operating expenses increased because of higher marketing and selling expenses related to better post-sales costs from on-site technology support and increased sales commissions to sales reps involved in overseas expansions. General and admin expenses increased because the sales of our operation expanded and we had greater salary expenses because of additional employees.

Operating income in the second quarter of 2008 was $42.4 million an increase of 47.6% from $38.7 million in the second quarter of 2007. Operating margin was 21.3% in the second quarter of 2008 compared to 22.4% in the second quarter of 2007.

Net interest expense was $4.9 million in the second quarter of 2008 compared to $2.1 million in the second quarter of 2007. Net interest expense increased because of larger bank loans due to more working capital required for larger scale operations.

Income tax expenses were $10.5 million an increase of 110.1% from $5 million in the second quarter of 2007. The income tax rate in the second quarter of 2008 was 25% compared to an income tax rate of 15% in the second quarter of 2007. The second quarter of 2008 also included deferred tax provisions for the undeclared dividends from subsidiaries.

Net foreign exchange loss in the second quarter of 2008 was $1.1 million due to the depreciation of the US Dollar against China’s Renminbi. Sales increased to overseas customers which were denominated in US Dollars.

Net income for the quarter was $26 million in the second quarter of 2008 an increase of 24.7% from $20.8 million in the second quarter of 2007.

Basic and diluted earnings per ADS were both $0.25 for the second quarter of 2008 compared to $0.28 for both in the second quarter of 2007.

There were 25,789,800 diluted weighted average ordinary shares outstanding in the second quarter of 2008 compared to 150 million in the second quarter of 2007.

Six month results. Revenues for the first six months of 2008 were $330.4 million up 44.8% from revenue of $228.1 million in the first six months of 2007. Gross profit was $86.8 million up 46.3% from gross profit of $59.3 million for the six months of 2007. Gross margin was 26.3% compared to 26% for the first six months of 2007. Operating income was $67.5 million up 31.3% from $51.4 million for the first six months of 2007. Net income was $41.8 million or $0.20 per diluted share compared to $36.8 million or $0.25 per diluted share for the first six months of 2007.

Balance sheet. Turning to the balance sheet as of June 30, 2008 we had $277.5 million in cash and cash equivalents compared to $300.9 million as of December 31, 2007. Inventory and accounts receivable increased proportionately with our increasing overall operations. Working capital was $206.9 million as of June 30, 2008 compared to $23 million recorded at December 31, 2007. Total assets were $1 billion as of June 30, 2008 compared to $827 million as of December 31, 2007. Total shareholder equity was $420.6 million as of June 30, 2008 up from $341.1 million as of December 31, 2007.

In regards to 2008 earnings guidance, for fiscal year 2008 we have revised upward our net income guidance to between $90 million and $105 million.

Dr. Henry Chang

In summary, domestic and international demand for oil and gas continues to grow and WSP Holdings is expanding its capacities to produce technologically advanced high-quality OCTG products needed by the oil and gas industry. While production prices have risen, demand for WSP Holdings products has also increased. Worldwide demand for high-end OCTG products currently exceeds worldwide supply. The rest of the year 2008 is shaping up well. The purchase of [Mengfong] Steel will begin to impact our production before the end of 2008. We will soon benefit from expanded production capacity in Northern China where we expect to receive new orders for our non-API products. We plan to accelerate our expansion into overseas markets. This includes not just [inaudible] sales but development of overseas manufacturing capacities in overseas markets.

With that we will be happy to open the call to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Ian A. Zaffino - Oppenheimer & Co.

Ian A. Zaffino - Oppenheimer & Co.

With the decline in raw materials and oil prices, how long is that going to take to flow through to your margin line? Your guidance said was $90 million to $105 million, is that correct?

Yip Kok Thi

Yes.

Ian A. Zaffino - Oppenheimer & Co.

What are you assuming as far as your raw material costs? Do they assume the recent decline or do they assume an increase? Where are you on that and how long will it take to witness the decline in raw materials flow through to your bottom line?

Yip Kok Thi

As for the raw materials we have experienced high raw materials increase in the first half of the year. For the second half of the year we expect the raw materials to start to come down a bit coupled with the fact that we have the acquisition of [Mengfong] we would be able to better control our iron billet price.

Paul Ludig

Does that answer your question?

Ian A. Zaffino - Oppenheimer & Co.

How long would it take? What is your pipeline as far as how far forward you are buying your raw materials and how long will it take to impact?

Yip Kok Thi

[Speaks to executive in foreign language.] As for the raw material, right now we have committed at least two months [inaudible] we also expect our [Mengfong] to start production somewhere around October of this year.

Operator

Our next question comes from [Richard Saffernak - Wifri Advisory Investments].

[Richard Saffernak - Wifri Advisory Investments]

My question is just regarding the sizable cash balance that you have. Obviously it gives you room to make further acquisitions and for the flexibility, but I’m wondering about the possibility of any room to buy back shares? Is that a consideration?

Dr. Henry Chang

Mr. Thi and Mr. Piao are discussing this in Chinese and then we’ll be with you.

Yip Kok Thi

The current large balance we basically have earmarked that for our future investments. Right now at this stage we have no plan to buy back our own shares.

[Richard Saffernak - Wifri Advisory Investments]

Could you give a little guidance in terms of the new relationships you had with say for example PTTEP and Chickasaw? What can we expect in the future in terms of potential to grow sales with those new relationships?

Yip Kok Thi

[Speaks to executive in foreign language.] These are our core customers as for PTTEP. We have another few contracts with them coming up. We have maintained a good working relationship with both Chickasaw and PTTEP. There is also a plan for us to go down to Houston during our US trip to meet with one of the important customers which [inaudible] product to sell companies.

[Richard Saffernak - Wifri Advisory Investments]

Along the lines of that previous question, could you also maybe talk a little bit more about the ability to grow sales with Shell and also maybe with some of the other majors now that Shell has approved you and is buying product from you? What’s the potential to maybe sell your product into new accounts with some of the other oil majors?

Yip Kok Thi

[Speaks to executive in foreign language.] Right now we have been selling to national company [Inaudible]. We also are selling to [Totare last] national company of Thailand. We are in the process of committing our tender for Kuwait National Oil as far as [inaudible]. This tender can [inaudible] our supply for three years and the volume we are talking about is pretty large.

Operator

There are no further questions in the queue at this time.

Paul Ludig

On behalf of the entire WSP Holdings management team I want to thank all of you for your interest in WSP Holdings. If you have any interest in contacting or visiting the company, please let us know. Contact information is available on the company’s website www.wsphl.com. Again thank you for joining us on this call. This concludes WSP Holdings second quarter 2008 earnings conference call.

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