Feb 20, 2013
Executives
Patricia Gil - Investor Relations Cindy Taylor - President & CEO Bradley Dodson - SVP & CFO
Analysts
Collin Gerry - Raymond James Jeff Tillery - Tudor Pickering & Holt Blake Hutchinson - Howard Weil Jeff Spittel - Global Hunter Securities Travis Bartlett - Simmons & Company Daniel Burke - Johnson Rice William Conroy - MLV Joe Gibney - Capital One Rob Murphy - BB&T Capital Markets Michael LaMotte - Guggenheim
Operator
Welcome to the Oil States International Fourth Quarter Earnings Conference Call. My name is John and I will be your operator for today's call.
At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.
Please note that this conference is being recorded. I will now turn the call over to Ms.
Patricia Gil, Manager of Investor Relations. Ms.
Gil, you may begin.
Patricia Gil
Thanks John. Welcome to Oil States’ fourth quarter 2012 earnings conference call.
Our call today will be led by Cindy Taylor, Oil States’ President and Chief Executive Officer and Bradley Dodson, Senior Vice President and Chief Financial Officer. Before we begin, we would like to caution listeners regarding forward-looking statements.
To the extent that our remarks today contain information other than historical information please note that we are relying on the Safe Harbor protection afforded by Federal Law. Any such remarks should be weighed in the context of the many factors that affect our business including those risks disclosed in our Form 10-K and other SEC filings.
I will now turn the call over to Cindy.
Cindy Taylor
Thank you, Patricia. Good morning to all of you and thanks for joining our call today.
2012 marks a second consecutive record year with earnings growing 39% over that reported in 2011. We set many records across the company and in each division.
In the accommodation segment, we reported seventh consecutive year of record earnings and organically expanded our room count by 14% year-over-year. In offshore products, we reported a second consecutive year of record earnings coupled with strong year-end backlog levels.
In our completion services business, we performed a record number of completion jobs and reported our second consecutive year of record earnings. In our tubular services segment, we shipped a record amount of OCTG tonnage, up 23% year-over-year.
Overall, 2012 was a year of many achievements and I am pleased with our ability to deliver these results in a year that offered some challenges, particularly as the year progressed. The fourth quarter slowed somewhat for our businesses which are driven by the North American rig count and our well site services segment revenue and EBITDA were down 5% and 9% respectively due to the 5% sequential rig count decline in the fourth quarter.
Our US accommodation also declined sequentially while our tubular services segment was more resilient due to deepwater OCTG sales. Our offshore product segment posted record results in the fourth quarter of 2012, but came in light relative to our quarterly guidance due to sales mix and year-end inventory adjustments.
Backlog in our offshore product segment remained at strong levels totaling $561 million at December 31, 2012, but declined $36 million from September 30, 2012 levels. Given the active bidding and quoting activity that we see currently particularly for subsea pipeline and floating production facility product, the outlook for offshore products in the coming year is robust.
At this time, Bradley will take you through more details of our consolidated results and financial position and then I will conclude our prepared remarks with the discussion of each of our segment and will give you our thoughts on the current market outlook.
Bradley Dodson
Thank you, Cindy. I want to point out a change in our nomenclature.
Going forward, we will refer to our rental tools business as completion services. We believe this reference more appropriately describes the efforts of our more than 2,000 employees working in the business, many of whom are field technicians and their efforts to help customers’ complete complex horizontal wells.
This business line reporting is otherwise unchanged and remains a component of our well-site services segment. During the fourth quarter of 2012, we reported operating income of $156 million on revenues of $1.1 billion.
Our net income for the fourth quarter of 2012 totaled $99 million or a $1.78 per diluted share. The comparable fourth quarter 2011 results were a $153 million of operating income on revenues of $996 million.
Fourth quarter 2011 net income totaled $94 million or $1.72 per diluted share. The year-over-year increases in profitability resulted from organic investments in the accommodation segment, increased sales of deepwater capital equipment and increased shipments of OCTG in our tubular services segment.
Relative to our guidance we reported operating performance in line with guidance for most of the segments with modestly softer results than expected from our offshore products segment. Offshore products we had some shipments within the 2013 and margins were negatively impacted by the inventory write-off in the amount of $2.5 million.
It’s worthy to note though that despite being lower than my guidance offshore products had a record quarter both in terms of revenues and EBITDA. We reported higher depreciation, interest and tax expenses than previously projected.
Depreciation was higher due to strong CapEx spending in Q4 along with several projects that moved out of construction and progressed during the quarter. Interest expense was higher than forecast due to the Tempress acquisition and our senior notes offering both of which closed in December subsequent to our third quarter earnings conference call.
Taxes were higher than forecast due to the treatment of some foreign sourced income which negatively impacted the quarterly effective tax rate. During the fourth quarter of 2012, we reported strong cash flow from operations of $192 million which included $8 million of cash flow generated from working capital reductions.
We invested a total of $205 million during the quarter including $156 million in capital expenditures and $52.5 million for the previously announced Tempress Technologies acquisition which forms part of our completion services business line. Our capital expenditures during the quarter primarily consistent with ongoing expansion of our accommodations business within Australia, Canada and the US, the addition of proprietary completion services equipment deployed in the active US shale plays and facility and equipment investment in our offshore products segment.
During the fourth quarter of 2012, we completed $400 million senior notes offering. The notes were issues at par yielding 5 1/8 % with maturity in January of 2023.
The net proceeds from the offering were used to repay borrowings outstanding under our US revolving credit facility as well as for general corporate purposes. During the quarter, we repurchased 225,796 shares of common stock at an average price of $67.52 for a total cost of $15.2 million.
As of December 31, 2012, we had approximately $185 million remaining under our authorized share repurchase program which expires in September of 2014. With our strong operating cash flow, we were able to readily fund our investment opportunities and our balance sheet remains in a strong position.
Our net debt at the end of the fourth quarter totaled $1.1 million. Our debt to cap ratio was 35% and our trailing leverage ratio was 1.4 times.
As of December 31, 2012; we had ample liquidity with approximately $973 million of combined availability under our credit facility along with $253 million in cash. In terms of our first quarter 2013 guidance, we expect depreciation and amortization expense to total $69 million and net interest expense to approximate $20 million due to the full quarter interest expense associated with our 2023 senior notes.
Diluted shares are expected to total 55.3 million in the first quarter of 2013 and we currently forecast our 2013 effective tax rate at 28.7%. Our full-year 2013 CapEx is expected to range from $550 million to $600 million which includes approximately $250 million of carryover spending from 2012 primarily related to various accommodations, expansion and upgrades.
Approximately 60% of the 2013 CapEx budget will be directed towards our accommodation segment, 20% towards well site services segment, and 20% is expected to be invested in our offshore products segment. At this time, I would like to turn the call back over to Cindy who will review the activities in each of our business segments.
Cindy Taylor
Thanks Bradley. I'll lead off with some highlight comments on our accommodations segment where on a sequential basis; our revenues increased 2% to $277 million primarily due to the greater number of average rooms available.
However, EBITDA decreased 3% quarter-over-quarter to $119 million due to softening occupancy in the US shale plays and holiday occupancy declined at our lodges in the Canadian oil sands. This lower occupancy and RevPAR was partially offset by contracted room additions in both Canada and Australia.
We added an average of 734 lodge and village rooms during the fourth quarter of 2012 bringing the total to 19,378 average rooms in the quarter. For the full year 2012, we added 2,429 rooms, a 14% organic growth rate, the majority of which were added in support of long-term which are generally three to five years customer contract.
During the fourth quarter, we announced the opening of our Three Rivers lodge supporting the Eagle Ford region in Texas and expect to have all 270 rooms available by the end of the first quarter of 2013. In our offshore product segment, we generated $237 million of revenues and $40 million of EBITDA in the fourth quarter.
Sequentially, EBITDA increased 27% primarily due to higher connector product shipments that were realized during the quarter. EBITDA margins for the fourth quarter were 18% excluding $2.5 million of inventory write-off taken at year end.
We booked over $200 million in new orders during the fourth quarter of 2012 and reported backlog of $561 million at December 31, 2012 slightly down from September 30, 2012 due to record fourth quarter sales and typically slower award activity during the fourth quarter. Noteworthy, backlog additions in the quarter included floating production facility products for Brazil, the UK and the Gulf of Mexico along with connector product orders from Brazil and deck equipment orders from China.
Our well site services segment was negatively effective by declining US drilling and completion activity in the fourth quarter. This softness was more weighted to our drilling services operation which we guided you to in connection with our third quarter earnings conference call.
Revenues from our completion services business were flat quarter-over-quarter at a $131 million but EBITDA decreased 3% to $44 million when compared to the third quarter of 2012. The number of rental tools ticket issued during the fourth quarter decreased 6% sequentially but revenue per ticket improved 6% when compared with the third quarter of 2012 due to the mix of services provided.
During the quarter, we acquired Tempress Technologies, which designs, develop and market a suite of highly specialized hydraulically actuated tools utilized during downhole completion activity. Tempress’ patented tools and specialize services facilitate completion of extended horizontal wells and will start to further differentiate our completion services business across the active resource basin.
During the fourth quarter of 2012, tubular services generated revenues of $455 million compared to $436 million in the third quarter of 2012 largely due to an increase in offshore Gulf of Mexico delivery. Tonnage shift was flat sequentially, EBITDA increased 65% quarter-over-quarter totaling $19 million due to the unfavorable $7.5 million non-cash accrual adjustment for customer credits and returned inventory taken in the third quarter.
Gross margin as a percent of revenues were 5.1% compared to 3.6% in the third quarter of 2012 or 5.3% in the third quarter when you exclude the non-cash adjustment. The company’s OCTG inventory decreased by $73 million sequentially to $450 million as of December 31, 2012 primarily due to deepwater Gulf of Mexico shipment made during the fourth quarter of 2012.
I would like to transition a bit and give you our thoughts as to our outlook in the first quarter of 2013. We continue to see incremental room demand in our major markets and the accommodation segment.
In 2013, room count additions will be predominantly associated with SAGD related activity and the Canadian oil sands and mining related accommodations in Australia. In the first quarter of 2013, we expect our average available rooms to grow 4% sequentially totaling approximately 20,000 rooms available.
Accommodations revenues are expected to improve sequentially and total $295 million to $305 million in the first quarter of 2013 as we realized the fourth quarter impact of rooms added in late 2012. EBITDA margins should be in the range of 44% to 45% which is seasonally higher than our long-term margin guidance.
I am pleased to report that we are currently 84% committed in our major lodges and villages for 2013. We continue to see strong biding and quoting activity in our offshore product segment, the global outlook particularly for subsea pipeline and floating production facility product is robust and coupled with our healthy backlog level provides good revenue visibility for 2013.
As we have guided on last quarter’s call, connector products sales accelerated in the fourth quarter. As a result, first quarter revenues are projected to return to a more normalized level and total $195 million to $205 million, EBITDA margins will be dependent upon on our revenue mix that are projected to be within our long-term guidance range of 18% to 20%.
Certain operators curtailed their spending during the fourth quarter and lay down rigs as their 2012 budgets were exhausted. Fortunately, our ability to leverage our proprietary equipment and services has afforded some mitigation of the recent weakness in overall US completion activity.
Our completion services business is expected to experience some continued softness in the first quarter of 2013, but activity should improve later in the year. In December, we had a total of seven drilling rigs back primarily in the Permian basin.
We have had two of these rigs return to work but customer interest is choppy and modest pricing pressure exists. Accordingly, first quarter revenues for our well site services segment are expected the range between the $100 million and the $175 million with EBITDA margins of 30% to 32%.
The continued influx of OCTG supply from both domestic and international mills combined with a declining US rig count have caused industry inventory levels as measured on months of supply basis to total approximately 5.4 months supply on the ground. As a result of these market conditions pricing for OCTG declined throughout 2012.
One bright spot has been the return of OCTG demand from deepwater Gulf of Mexico drilling and completion activity. With growing industry inventory on the ground and new domestic mill capacity announcement, we expect pricing to remain soft in 2013.
We expect our tubular services segment to generate revenues of between $375 million and $390 million in the first quarter of 2013, with gross margins ranging from 5% to 5.5%. As of December 31, 2012 approximately 87% of our tubular inventory was committed to customer orders.
In summary, our fourth quarter and full year 2012 results were very strong on a year-over-year basis and set many records. Our medium term outlook remains fairly positive and we continue to seek room count expansion opportunities in our accommodations segment, which are supported by long term customer contracts.
With robust activity and a strong backlog, we are well positioned to experience a strong year in our offshore products segment. We remain disciplined in our allocation of capital and are focused on achieving the best return on investments for our shareholders.
That completes our prepared comments. John, would you open up the call for questions and answers at this time please.
Operator
(Operator Instructions) our first question comes from Collin Gerry from Raymond James.
Collin Gerry - Raymond James
Cindy I wanted to ask a little bit on the guidance and the accommodation side if I think I heard this correctly. But I think the implication for revenues in Q1 is a pretty nice bump roughly 8% if I did my math correctly.
Would you say most of that is going to be on the traditional lodge side or more fully allocated quarter for your new Eagle Ford operations and some of the more mobile camp stuff that you are doing.
Bradley Dodson
I would say that it is more a seasonal lift from the mobile camp business particularly in Canada. You pointed out the addition of more fully deployed set of rooms at Three Rivers and the Eagle Ford, but it’s primarily the seasonal lift in the mobile camp business.
Cindy Taylor
And just to tag on to that if you heard our guidance we are projecting our room count to be up sequentially, and if you just look at end of year room count versus fourth quarter average we've already got about a 2% embedded bump there. But what we are experiencing is room count adds but there's also some utilization softness that we saw in Q4 particularly kind of that met coal region in Australia.
But on balance Australia was up sequentially and so there's pretty good trends there, but there's kind of three factors to consider, one is the room count add; possible slight softening I'm going to call it; utilization of existing facilities; and then as Bradley said, on top of that is the seasonal lift that we see and that improves not only top line but you heard our guidance improved margins as well.
Collin Gerry - Raymond James
Understood. Switching gears to the completion services business as we call it now.
Fairly difference size acquisition for Tempress there in the quarter; I guess, part one of that question is how much of a revenue contribution did the Tempress have. But more importantly, you’ve kind of guided to a little bit of softness or kind of fall in the rig count here.
But there seems to be a division that you guys have meaningfully outperformed the peers, and I am just curious to what degree future capital, both organically but more importantly from an M&A perspective is going to continue to go in to this division because it seems like it's quite a differentiator.
Cindy Taylor
Well, I will start off and see if Bradley has any incremental comments. We really do like this business; we've been very kind of true to our product line and our technology.
We have done a lot of consolidating acquisition, but our real goal is to step out the technology and that’s what the Tempress acquisition was all about quite frankly. If you look at the history of what we've done over the last seven years, it hasn’t had very much a technology focus or (inaudible) towards the products that are really necessarily to advance our customers efforts in the field.
We can talk about high end proprietary equipment all day long, but I think performance in 2012 quite frankly is evidence of that fact, and so much of what happens in North American companies needs were more in the commoditized product lines which we have sum up, but we really try to stay on the high end of technology. And again I look at 2012 performance or out performance as you characterized it as really associated with the embedded strategy and the technology that we have.
Again that’s was what Tempress was all about, Bradley do you have anything to tag into that.
Bradley Dodson
No I think that’s right I think our margin performance as you pointed out relative to North American leverage companies not only where it actually peaked in third quarter and maintained a very strong margin in the fourth quarter, and that is the technology it’s the footprint of being able to move efficiently through the shift in activity from the dry gas markets to the oiler markets. I would say generally the vast majority of that has been has worked through the course of the year, and right now we are on a very strong position which seemed good results out of our Bakken Rockies divisions, the South Texas, West Texas region has done well and the gas markets are pretty challenging right now.
But through all that we have been able to move our people and equipment around very efficiently, and it’s really kudos to the team who worked through that pretty volatile market in 2012 and I think are well positioned for 2013. With respect to your specific comment on Tempress revenues, they range about $11 million or $12 million.
Operator
Our next question comes from Jim (inaudible) from Credit Suisse. Please go ahead.
Unidentified Analyst
Just to clear the air on an issues; there’s been an awful lot of activists involved in the offshore drillers; there is a lot of talk of MLPs specifically with you guys. There are talk of some people about MLPs or reach the accommodation business.
Can you address the likelihood, issues, the probabilities can we get that off the table?
Bradley Dodson
Sure I will tackle that first and Cindy to chime in as well. The way we try to run the business over last 12 years has been to do what is right for the business, to try and look into what the opportunities are by each business line, how can we grow strategically, how can we build the business model that has some sustainable competitive advantages.
As we mentioned in the early part of the prepared comments, accommodations that had seven years of growth largely organic augmented by the entry into Australia with the MAC acquisition. So what we’ve tried to do in accommodations is grow that business and we have grown it very successfully over the few years.
In and off itself that business has not because of the growth and the redeployment of capital has not been cash flow positive, because we have been growing the room count by 30% and in this case 14% last year and, so a distribution type model, we think makes more sense for a moment share business, as we look out over the next three to five years while ‘13 will be a period of slightly slower growth because of the headwinds we have from a macroeconomic sense. We still think there’s strong growth in the accommodation business over the next three to five years.
We think that from an operational standpoint the right thing to do is to use the leverage capability and the cash flows of the total company to augment the growth and capture more market in the accommodations business than I think it would have been able to do on its own, or will be able to do on its own. That being said, Cindy has always from the top down expressed the fact that we are going to do whatever is best for the shareholders.
We have in the past going back to when there was an income cost structure available in Canada, evaluated different financial structures to see if that will create long term value for our shareholders. We are very fortunate we didn't do the income structure back in Canada, because it was shortly thereafter dissolved.
When we have been presented with or have discovered different structures that might work for any of the businesses, with specifically accommodations we've investigated those. To the extent that we've investigated, the restructure, the MLP structure there's not been a clear cut pathway that makes sense for that business to move into that structure.
There are tax limitations. There are cash flow limitations in terms of where the earnings are relative to where that structure might exist.
So it’s something that we investigate when we see an opportunity; we've not seen one that is apparent to us that works for that business.
Unidentified Analyst
And my follow-up question, in the subsea products your book-to-bill went below one, the outlook Cindy you said still looks positive, the Gulf of Mexico which has simply been your backyard it sounds like you are much more global now, so I am going to assume that's going to make business a little bit more lumpy. But is there any reason to believe that that business won't continue to grow to decent cliff?
Cindy Taylor
There's absolutely no reason Jim and the one thing I might counter just a bit was the comment that the Gulf of Mexico has been more of our backyard. I consider us a very global company and have been in this business line for the last 10 years.
The backlog content ebbs and flows simply because of the regions that our customers are making investments and everybody with flow obviously in the era of the global financial crisis coupled with the Macondo well blow out and subsequent immediately subsequent that I would say we did get a lot of works in the Gulf of Mexico Jack/St. Malo, Big Foot, Mars V, everybody in the industry did because that was basically the first market to come out of those two fairly draconian events and its no secret you know that Brazil has had a tremendous amount of opportunity.
I asked my people to look at our year-end backlog and just for perspective about 16% of our end of year backlog was tied to projects in Brazil. There's also quite a lot of bidding and quoting activity in Southeast Asia, Australia; we've gotten some good content even in the North Sea and West Africa what I've always called it somewhat the sleeping giant that there seems to be signals that were some of the work is going to materialize there as well.
But a lot for us is right now is this transition where a lot of our customers are spending their development capital on subsea projects and floating production facilities particularly at FPSOs and TLP. So not surprisingly we are focused on those.
I would call that kind of backlog award a big shot in the arm, meaning they don't come every month, they don't come every quarter and they are in addition to kind of that baseline amount of awards that we get in booking the backlog every quarter and so our quarterly backlog tends to always be lumpy because of that, i.e. a big FPSO or TLP award, its going to normally accelerate our bookings in a given quarter.
And so the fact that we were, I think it was Bradley, I am looking at in 0.86 book-to-bill ratio was there about, really means nothing other than the number of awards that came into the quarter when you look at the global outlook again we are relatively bullish on that; the timing is always a question on these major projects. But again I think we are in a very good shape here.
Operator
Our next question comes from Jeff Tillery of Tudor Pickering & Holt. Please go ahead.
Jeff Tillery - Tudor Pickering & Holt
Cindy you gave a rig count growth number for the first quarter. Can you give us a feel for just the range of rig counts growth embedded in the $550 million to $600 million CapEx budget for the full-year?
Bradley Dodson
Well, it's highly dependent on customer contracts. Cindy made a reference that a lot of it will be in the [in-situ] region of Canada.
My guidance would be that we have somewhere around 1,200 to 1,500 rooms, total room adds in 2013, mostly focused again by two-thirds in-situ region of Canada, one-third in Australia. We have one project that’s underway in Canada right now.
Hopefully, we will get the contract signed in for another location in the in-situ in Canada opening later very back and weighted in 2013. The Australian opportunity as Cindy referred to is in the mining region, but at the end of day, we have budgeted some CapEx for those rooms in that $550 million to $600 million range, but it's highly dependent on the customer sign and contracts.
This is an out of market environment where we're looking to do a lot of speculative room additions, so that will ultimately be dependent on whether or not the commitments from the customers come through.
Jeff Tillery - Tudor Pickering & Holt
In the completion services business segment, so rental figures were down. However, it seems like about the level of completion activity was down in the fourth quarter.
Do you see completion activity up in the first quarter or is that more like a second quarter before you see the ticket count starts to grow again?
Cindy Taylor
Well, I would generally characterize the first quarter just kind of slogging through some nominal amount of rig count improvement. We're in kind of the mid; I think the last weekly rig count was 1,762, so we're kind of adding three rigs a week.
I just probably kind of slog in through the quarter, but nonetheless slowly improving and I think our outlook for improvement looks a little better as we head into Q2 and the back half of the year. I think people were looking for some snap back in activity in Q1 and we know anyone else is really saying that.
And when you have that you are going to get pricing leverage, so the next question is what are you seeing in pricing? I would say it’s more of the same.
Jeff Tillery - Tudor Pickering & Holt
But not eroding is that fair?
Cindy Taylor
Not in our completion service business; I think I may have said on the call, may not have, that there is normal pricing pressure for the rig in the Permian Basin.
Operator
Our next question comes from Blake Hutchinson from Howard Weil. Please go ahead.
Blake Hutchinson - Howard Weil
Just to kind of get a better feel for some of the near-term dynamics in accommodations. The 20,000 room count you say for first quarter, does that more or less represent all the contracts you have at hand at present?
Cindy Taylor
I am not sure exactly what you mean by that, but as we obviously put rooms out during the quarter, so our end of year room count is higher than the average, so there is some what I’ll call built in growth, but just having a full quarter contribution from those; you mentioned contracts, I think we said on the call that our contracted percentage for 2013 was 84% if I am trying to get it as two thoughts properly for you.
Blake Hutchinson - Howard Weil
I guess the better question would be then what’s the room count of that 84% is based off of would be the better question.
Bradley Dodson
It’s all the rooms that are lodge and village rooms that are built or being built right now.
Blake Hutchinson - Howard Weil
And I guess that my question is that 20,000?
Bradley Dodson
No, we have more than that.
Blake Hutchinson - Howard Weil
Okay. So there is some visible room count growth without signing new contracts that’s in hand for beyond one or two?
Bradley Dodson
Right.
Blake Hutchinson - Howard Weil
Okay, got you. And then just a feel for, you know you mentioned that in the last conference call that due to some customer activity in Canada and a little bit leakage in the nat-coal side, that RevPAR would be coming down, we faced just a little bit more of a headwind in Q1 and then the feeling is we’re kind of flat now from there?
Bradley Dodson
Q1 right now looks like it will be fairly comparable to Q4, where we have not gotten a great start to the Canadian business; a little bit softer coming out of the holidays. Australia has generally stabilized, really just have one village having some occupancy weakness due to a mine closure down there, but other than that I would say the trend is getting to a stabilized point; we may see slightly softer RevPAR as we always do in the second quarter as Canada comes out of the winter activity season, but generally things are stabilizing comparable on a RevPAR perspective from Q4.
Blake Hutchinson - Howard Weil
Okay, that sounds good. And then just finally thoughts on early year revenue guidance for offshore products; is there any kind of seasonality to that or is it just 240 to 250 guidance for 4Q was an abnormally large number, this is kind of more comfortably what we should be thinking in terms of run rate?
Cindy Taylor
We think it is right now like and realize like what we do is just look at our backlog. We've got a, that's a very good indicator of revenues as we always talk about and depending upon the status of the individual projects and backlog that is specifically how we forecast on a quarterly basis.
In addition to that, we have specialized large OD conductor casing connectors that we put out on a routine basis that will be up or down depending upon our customers’ needs and the drilling activity and all we were telling you is Q4 was going to be high and augmented by higher level of those high end conductor casing connector projects kind of the drilling activity. It was an absolute record quarter for the business, but yeah, we were a little bit light because some of those, I couldn't, it came out of Southeast Asia just or maybe the UK but just a little bit slow on getting out and nothing, absolutely nothing negative in the business.
I've always cautioned you to look quarter-by-quarter because backlog awards are going to vary depending upon the size of the award and the cycles that the customers are in and the same thing is true of revenues. But again, we gave you the best idea for the quarter revenue progression that we have today.
Operator
Our next question comes from Jeff Spittel from Global Hunter Securities. Please go ahead.
Jeff Spittel - Global Hunter Securities
If we could talk anecdotally about what the body language looks like for accommodation clients on the mining side down in Australia and now that nickel prices have stabilized a little bit and you’ve seen any change or would you characterize any change in their body language over the course of last three months or so?
Bradley Dodson
I think there's certainly been what I termed the other day is kind of green shoots, there's definitely some news coming out of China, I mean ultimately our, the vast majority of our existing and even in the near-term perspective room additions in Australia are going to tied to met coal which ultimately is tied to what is China going to do. A lot of the growth opportunities that we are looking at last summer, once the uncertainty around China’s growth rate going forward came into question, kind of July-August timeframe, a lot of those growth opportunities got pushed to the right, not all but most.
What we've seen in the last two to three months to your question has been there seems to be a little bit some growing certainty about what's happening in China, not unanimous positive news but generally starting to see some positive news. I think generally the body language of our customers will be once they see some greater certainty on what China is going to end up and the demand there from that we will start to see hopefully some of those shake lose now when that happens and when does the contract discussions kick back off again, it leads us to the question is that a ’13 or ’14 event, but generally I would say that the posturing has gotten a little bit better, it hasn't really manifested itself into on the ground activity or contracting activity yet but generally I think the posture has been a little bit better.
Jeff Spittel - Global Hunter Securities
And then switching over to the tubulars business, I'm not sure if you commented on where industry inventory levels are on the ground today and did you characterize how some of the guys that you deal with your import pipe are behaving from a pricing perspective?
Cindy Taylor
I'll try to tackle that for you. We just got the most recent OCTG situation report that came out kind of with their 2012 annual data and their end of year inventory statistics and we were ranging somewhere around 5.4 month supply with a reduction in some imports in the fourth quarter.
So that’s more like 5 month supply on the ground right now. Their actual consumption statistics were at 6.5 million tonnes for 2012, which was up about 8% year-over-year and I thought it was interesting when you look at our tonnage shift.
We were up 23% year-over-year. So we far outperformed overall industry consumption.
Their outlook is pretty reasonable for 2013 at 6.8 million tonnes of consumption that will be up about 5% year-over-year, 2013 to 2012. So, again that consumption and the volume statistics for the industry and for a standalone look pretty darn good.
Now, you kind of look at that and say you wanted prices erode as much as they did during 2012 and why did we get continued soft prices in 2013 and it all comes down to capacity adds, anybody that follows the industry knows there is a tremendous amount of domestic capacity adds that are planned. Some of which were put in place in 2012 more that’s coming in 2013, 2014 (inaudible) just announced and e-mailed.
I think you will realize that they are going to locate in Bay City, Texas. Lot of capacity coming on that has put some downward pressure on pricing, kind of had a little conflicting things there.
One is improved consumption data, ‘11 to ‘12. Then add a pretty good outlook ‘12 to ‘13 but more and more capacity coming on and again fourth quarter imports were actually down just a bit but according to Department of Commerce they are snapping right back in Q1.
So, all those dynamics had led to a soft pricing environment but nonetheless, I would say a pretty stable and balanced market that we did fairly well in 2012 I would say certainly outperformed the industry, and so if things stay, 2013 should be pretty reasonable as well, just now when carryout the pricing could continue to be soft.
Operator
Our next question comes from Travis Bartlett from Simmons & Company. Please go ahead.
Travis Bartlett - Simmons & Company
I have a couple of quick questions. First one, can you reiterate the well site service revenue guidance, I think you said it was $170 million to $175 million but can you just verify whether that’s correct?
Bradley Dodson
Yeah, the guidance is $170 million to $175 million for the first quarter of 2013.
Travis Bartlett - Simmons & Company
Okay, perfect.
Bradley Dodson
Total well site services.
Travis Bartlett - Simmons & Company
Right, on land drilling how many of your rigs are capable of drilling horizontally at this point and then do you see the shift to more horizontal work leading to further utilization in pricing challenges for your fleet in 2013?
Cindy Taylor
I will be happy to take that. I think almost everybody knows we have got a small limited fleet of drilling rigs, it’s the small component of what we do, two major markets the Permian Basin, the Rocky Mountain region.
We have 25 rigs in the Permian, it’s actually surprisingly the Permian market that has been adversely impacted kind of with the slowdown and while there is a very strong movement to horizontal work, there is also a lot of vertical work that remains in the Permian Basin market. We had guided to seven rigs going down by the end of the year and that’s exactly what happened, the ones that went down or are smaller mechanical rigs that are always a little more difficult to market.
You asked a question of how many can drill horizontal? I am going to say there is roughly nine rigs that depending upon again the [PVD] that we are talking about that can work on horizontal applications but the rigs are went down, one of the mechanical, they are the smaller rigs that we have.
I think that will go back to work but that will go back to work flow and I think more of what we are talking about with the specific rig probably have to do with to create price differentials that existed in Q4 as much as anything. I will acknowledge the shift of horizontal drilling but I will also tell you that lot of these vertical wells don't demand that type of rig nor the cost that goes with it.
Travis Bartlett - Simmons & Company
And then last one from me on accommodations, are there any efforts underway whether it will be some permits or actual contraction to build lodges in markets outside of Australia or Canada or are there any other markets that you are looking at, where you see potential to create a presence?
Cindy Taylor
Well, there absolutely all markets that we are looking at and just if you think what drives our business concentrated areas of development whether that is SAGD type activity, mining in the Canadian oil stands, in the case of Australia met coal, iron ore, LNG all of those things are prospective for us, what we typically do is start early marketing efforts in any of these regions of interest as I will call them and start looking for land access, land banking and do in the permitting process, we need to do that obviously ahead of the kick-off for these developments, but to answer your question, yeah, there are other markets that we are looking at.
Operator
Our next question comes from Daniel Burke from Johnson Rice. Please go ahead.
Daniel Burke - Johnson Rice
Just a few questions left. Cindy I thought I heard you say in the Q&A that Australia was up sequentially in Q4.
I wanted to confirm was that correct and if so is that revenues or RevPAR that you are referring to?
Cindy Taylor
Well, honestly I tend to focus a lot on EBITDA, and I'm generally thinking in my brain subject to somebody checking me that they were both up sequentially. But again what we had in the fourth quarter of probably three dynamics.
Number one, we added a decent amount of room during the fourth quarter. As Bradley and I both mentioned there's a few of our -- we just realized we were running full out in most of our lodges and villages last year from a utilization standpoint with the over hang from that coal pricing there was utilization that declined a bit in some of our existing facilities.
Again most of those are pursuant to (inaudible) price contracts where you are going to have guaranteed room rentals and you have contracts minimums in place for the food services and management aspects of the contract. So even though it’s a modest opening, I have to acknowledge there was some, it was more than fully offset by room count and of course there's some holiday impacts as well.
But those were the dynamics, but yes we were sequentially up Q4 to Q3.
Daniel Burke - Johnson Rice
And then just to stick with Australia for one more, at times there's been optimism that the Nascent LNG related support business that you have there would be able to support growth. I didn't hear that reference today.
I was curious if you might refer to what the opportunities are for those two near coastal villages.
Bradley Dodson
Well, Karratha just opened in July and that's on the northwest coast of Australia serving both LNG operations as well as iron ore exports. We are just getting underway there.
We are just finishing up quite frankly the facility itself this quarter. Once we get the facility fully operational, we have the permit in place to increase it.
We will just have to see how our presence in the market develops. Currently we do not have that in the 2013 plans, but it’s possible.
The other LNG exposed location is Calliope and Calliope has 300 rooms. It’s done spectacularly since we opened it in the fourth quarter of 2011 and occupancy has been good, pricing has been good.
The issue there is that we have 300 rooms and we are permitted to 300 rooms, and we are in the process of trying to get that permit extended so that we could increase the room count there, but we do not have that permit in hand. We have the land, we own the land but we don't have the permit for more rooms than we have today.
So right now we don't have any LNG expansion plans for either village in 2013. There's a possibility in both markets, but right now there we've not currently budgeted.
Cindy Taylor
A lot of that of course is tied to, these are very early stage developments and we set these facilities up and try to time our permit so that we can scale them up as demand dictates. In other words you don't want to deploy all the capital on day one and suffer under utilization as these projects mature.
Daniel Burke - Johnson Rice
And just the last one, does the addition of 1200 to 1500 rooms and some of those are probably funded in part by the CapEx budget in 2012. Does adding 1200 to 1500 rooms fully spend the announced 2013 CapEx budget, I was unclear on that.
Bradley Dodson
Yes.
Operator
Our next question comes from William Conroy from MLV. Please go ahead
William Conroy - MLV
Cindy, I was hoping if you could just give us a little bit more detail on the offshore product business. I think you had mentioned subsea was one of the areas of strength.
Is that the repair business, is that (inaudible) and could you also speak to your continuing activity on BOP Sacks?
Cindy Taylor
Yeah, I will try to make sure all of those but generally subsea for us [slim split], power connectors, jumpers, pipeline and manifold tie and (inaudible), but the way you think about it or I think about it, we work a lot with the end customers as well as installation contractors to do the specialized equipment subsea and generally for us, it's going somewhere from the subsea bed up to a floating production facility as an example, we're also very strong export pipeline. But those are generally the types of products that we're talking about that really facilitate many of the installation contractors that we work with.
I think your second question is what do we do on the BOP stacks. We don’t now nor we have ever manufactured subsea BOP stacks.
We have developed an expertise over the last many years in doing what we call stack up and integration work. A lot of that started probably 10 or 20 years ago, where a lot of our customers wanted to make manufacturer components around the BOP.
They didn’t want to standardize on one OEMs equipment, and so develop an expertise there, and also when the market got really active they didn’t like the delivery time for the OEMs and so they asked us to do that work and we have got a lot of people that are very talented, but again it’s what we call stack up and integration work. I think you know that our proprietary flex joint is basically the connection apparatus at the top of the subsea stack going into the [riser] system and so we always have a component that is part of.
That component is not a pressure controlled device at all, but again with our legacy and our history and experience around BOP stack, we have also done a lot of inspection and repair work in various countries around the globe in the past year. As I would say that has moderated clearly post [Macondo] because of all of the issues around repairing the stack if that fully answers your question.
William Conroy - MLV
And just may be one more quick one on the accommodation side. In the Q1 guidance is there anything unusual in the other accommodations revenue or the non-lodge, non room revenue?
Bradley Dodson
You have a good point; not in the occurring guidance for Q1 ’13, but it is noteworthy that to remind everyone that in the first quarter of 2012 we had the contract settlement in that non-lodging village revenue that was 18.3 million revenue and 17.9 million of EBITDA related to a contract settlement in the US.
Operator
Our next question comes from Joe Gibney from Capital One. Please go ahead.
Joe Gibney - Capital One
Just a couple of quick ones from me, the accommodations contract cover the 84% of ’13. I was just curious if you had a 14 number at this juncture?
Bradley Dodson
It’s a 58%.
Joe Gibney - Capital One
58, and then just on the accumulative volumes in the quarter that you referenced to go (inaudible) a little bit, I was just curious what percentage of your aggregate volumes in the fourth quarter were coming from Gulf of Mexico?
Cindy Taylor
I am sorry, I haven't done the math on that one Joe, to be honest with you. We know when we are carrying deepwater strength (inaudible), but I hadn’t done the math.
Operator
Our next question comes from Rob Murphy from BB&T Capital Markets. Please go ahead.
Rob Murphy - BB&T Capital Markets
Just a quick question, most of them have been answered. When you look at some of the oil sands project, given where all differentials are right now, what are you hearing from customers in terms of some of these [SAGD] projects potentially getting deferred or push to the right.
Secondly can you just talk about in terms of the accommodations from an opportunity standpoint, it is missed is that obviously coming from brown field expansions or how much of that is actually from Greenfield, thank you?
Cindy Taylor
I will try to answer the first question, I think I was thinking of an answer, I don't know I head the second part, so I was ready to do that. But the first part is clearly that WBC assets has been under pressure and here again we are experiencing in this across North America where inadequate takeaway capacity is analyzing some of our customers success.
I think the good news in the Canadian oil sands is that largely our customers have been very successful in terms of getting their production ramped up. We all know the (inaudible) around takeaway capacity particularly that’s around the Keystone pipeline.
And the differentials for [Savoir] I will characterize and like Q3 and into Q4, they have narrowed just a bit simply because our customers are incredibly nimble about finding ways to get this product to market, whether that is through rail, through barge, through reversing pipelines, and I'll tell you those differentials narrowed a bit and so we are a little better today than we were in Q3-Q4. It is pretty hard for me to say that there's a hard and fast differential that stopped the activity but my perception is that people are still feeling I don't know if the word is confident, maybe the word is secure in the thought that Keystone will get approved and that these differentials will alleviate.
I think the real bottleneck, major bottleneck hits around 2015 but all of this is dependent upon what happens with Keystone and so it is an issue. It has moderated from where we were before.
I think this whole overhang is pushing people more towards SAGD and causing deferrals of the major mining sanctions. We saw that last year and we see it continue.
So I'd be wrong if I didn't tell you that watching the decision on Keystone is significant to most of our customers in the Canadian oil sands but in the short-term, they are finding alternative means to get that product and get a reasonable price for it but it’s a building issue.
Bradley Dodson
In terms of whether the room additions are Brownfield or Greenfield right now the plan is that they are all Greenfield.
Operator
Our last question comes from Michael LaMotte from Guggenheim. Please go ahead.
Michael LaMotte - Guggenheim
Cindy, if I can just follow-up quickly on the tubular services and the notion of cross currents in terms of onshore pricing pressures and the positive effects of mix in the Gulf of Mexico, as you pointed out those trends were with us from the 2011 to 2012 years and EBITDA on tubular services grew almost $20 million as a consequence of the volumes in the mix. Just wondering is the rig count stabilized this year, are we going to feel potentially the same impact of mix with growth in the Gulf of Mexico this year?
Bradley Dodson
Well, I think I'll take that Michael and let Cindy chime in. If you look at our revenues realized per ton sold in 2012 and compare that to the third-party data on composite OCTG prices, you can see the impact of our mix.
Our revenue per ton in 2012 was in each quarter above $2,000 a ton and I think that the composite pricing started off close to that but then at the end of the year probably closer to in the 17, somewhere between $1,700 and $1,800 a ton if I recall correctly. So I think that our mix will continue to benefit us, i.e.
I think we will remain above the composite third-party pricing that's published but I do think that we will not be, we will still fall afraid of the fact that pricing is down. So I don't know if that's what you are looking for but I think our revenue per ton will be down year-over-year and Cindy mentioned, we do have 87% of our inventory committed.
We don't see a precipitous drop in pricing in 2013 more of the slow steady bleed that we saw in ’12. So I don't see kind of a percentage margin gross margin impact and that’s apparent guidance of 5% to 5.5% gross margin in the first quarter.
So, ultimately EBITDA and tubular will likely be down year-over-year in ‘13 versus ‘12. That being said, so will our inventory investments.
We will turn our inventory; we will get our own inventory to the new price tag; and as a result I expect the cash flow from tubular to be quite strong this year as we reduce that working capital investment.
Michael LaMotte - Guggenheim
That’s helpful. Bradley, thanks.
And if I can get two quick updates one on where you stand with the facility in Brazil, when the construction of that will finish up; and then two, if you could just comment on just the M&A environment for completion services.
Bradley Dodson
Well, we closed on The Mackay, new Mackay property in the second half of last year. We have stabilized the ground.
We're working on design plans. I will say and I probably will be too naïve here, but I would say it took us most of 2013 to do the construction of the Mackay facility.
We also closed during the fourth quarter on a property in Santacruz which will be a second property for us in Brazil for the offshore product segment. Again that property is being developed and we will take most of ‘13 to do so.
Michael LaMotte - Guggenheim
Okay, thanks. And are there other Tempress out there?
What's the (inaudible)?
Bradley Dodson
I missed the M&A question.
Michael LaMotte - Guggenheim
Yeah.
Bradley Dodson
On the M&A side, the important takeaway is that the strategy remains the same. We will be looking for technology additions both in completion services and offshore products.
Most of our efforts in accommodations have been primarily geographic expansion focus and that is specifically looking for entry points into South America. Early efforts on that were not as productive as we had hoped, but as I have said several times in conferences and elsewhere that’s the market that’s going to develop over the next several years and it’s I hope I can caution investors that its not as important the speed with which we get in, but the right entry point.
So that’s something that we will develop overtime. There have been a handful of potentially consolidation type plays in the accommodation space across our existing markets.
We have looked at a couple of those, none of those have been particularly attractive to us. But that’s also a possibility.
Well I think that’s probably the end of the questions. We appreciate everyone’s time.
I know it’s a busy season. We look forward to talking to you as the quarter progresses and we will talk to you about the first quarter in April.
Cindy Taylor
Thanks to all of you. We appreciate your time, your interest, your following and we look forward to seeing you in the near future.
All the best.
Operator
Thank you ladies and gentlemen. This concludes today’s conference, thank you for participating you may now disconnect.