Bernard Duroc-Danner - Chairman, President and Chief Executive Officer Andrew Becnel – Chief Financial Officer

Jim Crandell – Barclays Capital Ole Slorer – Morgan Stanley Dan Boyd – Goldman Sachs Bill Herbert – Simmons & Company Mike Urban – Deutsche Bank Brad Handler - Credit Suisse Geoff Kieburtz – Weeden

First as usual Andy and I will read our prepared comments. Andy, you’re first on.

For our third quarter of 2009 we report fully diluted earnings of $0.13 per share before excluded items. The two excluded items total $15 million after tax or $0.02 per share.

There were first, $9 million in after tax costs incurred in connection with our ongoing government investigations and second $7 million in after tax changes for severance and facility closures. In addition to falling short of our own expectations with the bottom line this quarter was a messy one.

The $0.13 number which is up $0.03 sequentially does not tell the whole story. The results include a $0.05 benefit due to our reduced tax rate for the year, 3.3% which is partially offset by $0.02 of negative impact due principally to unusually high FX book losses and settlement of the legal claim.

Within the quarter was a $27 million non-cash benefit due to the revaluation of contingent consideration from an acquisition under FASB-141R business combinations. This is mostly offset by other adjustments going both ways.

At the field level, international results were down but were offset by the seasonal improvement in North America. Two thirds of the international decline came from Latin America where a combination of poor weather and delays severely hampered our financial performance.

On a consolidated basis sequential revenue increased $155 million and earned 8%. International revenue was up $106 million and accounted for 71% of our companywide revenue.

Though FS acquisition contributed meaningfully to international growth while the majority of improvement in North America came from Canada. On a year to date basis our international revenue is up 19% with Latin America up 78% on a 7% rig count decrease and Eastern Hemisphere up 2% on an 8% decrease in rig count.

Consolidated EBIT before corporate and R&D declined $10 million sequentially with operating margins at 12.2% down 140 basis points from Q2. North American margins were 5.4% compared to being at break even at Q2.

International margins at 14.9%, 420 basis points. Year to date, international margins are 18.3% down 560 basis points compared to the same period last year.

Financial performance within our four geographic regions was as follows: North America, 29% of total revenue. Revenue increased $49 million or 9% sequentially.

Canada was weaker then expected due to a combination of wet weather and some due customer activity. EBIT was $33 million up $34 million sequentially with incrementals of close to 70%.

Through the third quarter, North America has sliced $500 million annualized from its cost structure, $160 million of which was fixed costs representing a 14% improvement on our cost structure. Drilling services, wireline and fishing and re-entry were the strongest contributors to the sequential growth in top line.

Middle East/North Africa/Asia/Pacific 28% of total revenue. Revenue increased $7 million or 1% sequentially against a 2% decrease in rig count.

Strong performers were Saudi Arabia, Qatar, China, and Australia. Revenue was up $59 million or 3% on a year to date basis.

EBIT was $102 million down $22 million sequentially and margins were 17% down 380 basis points. Delays in startups and deliveries as well as lower pricing hurt profitability though not any more than expected.

Drilling services, integrated drilling and artificial lift were among the top performers. Latin America 24% of total revenue.

Revenue was up $59 million or 13% sequentially despite weather issues and reduced gas activity in Mexico. On average we operated 45 strings in Mexico up from an average of 33 strings last quarter.

Those rigs that were unaffected by weather ran more efficiently then in the prior quarter. As it pertains to weather, 14 of our strings operate in the Central and Northern part of the Chicontepec field which is a flat terrain with minimal infrastructure and is prone to flooding.

In this area of the field we typically drill fewer wells per pad and on balance the wells are shallower. This results in an increased number of rig moves as compared to other areas of the field.

In addition, we were able to perform far fewer completions then budgeted at the beginning of the quarter. This segment of well construction is particularly profitable for us as we perform all the services ourselves.

Equally damaging to Q3 results was the impact of fixed costs incurred while waiting for the weather. Revenue in total was up $637 million or 78% year to date ’09 versus year to date ’08.

EBIT was $54 million down $31 million sequentially with margins down 800 basis points. The efficiency issues noted above were the major contributor to the decline.

Also responsible were pricing declines of approximately 200 basis points which was roughly as expected. Drilling tools, artificial lift and wireline stood out as the top sequential performers.

Europe, West Africa, FSU revenue increased $39 million or 11% sequentially against a 3% decrease in rig count. The TNK acquisition made a substantial contribution and we’re pleased thus far with the company’s results and prospects.

EBIT was $72 million up $9 million sequentially. Margins were 17.8% up 60 basis points.

Integrated drilling, stimulation in chemicals and wireline were the strongest performers from a product line perspective. Cash and capital, EBITDA during the quarter we generated EBITDA of $406 million with D&A running at $238 million.

Operating working capital, defined as AR plus inventory less AP, consumed $100 million of cash net of increases in working capital due to acquisitions and net of FX impacts. Interest and tax expense was $58 million for the quarter.

Capital expenditures were $291 million for the quarter net of loss to full revenue bringing our year to date total to $1.2 billion. For the full year we still anticipate CapEx of approximately $1.4 billion.

As it pertains to free cash flow our goal has consistently been to generate $500 million of free cash flow in 2009, defined at EBITDA plus changes in operating working capital plus CapEx, plus interest expense and tax expense. Through the first nine months of 2009 free cash flow as defined above is -$150 million.

Our goal of Q4 is to finish the year in positive free cash flow territory for the year. This will clearly be far short of our original expectations.

As of quarter end our ratio of net debt to net capitalization stood at 40.4% with total net debt at $6.6 billion. Cash balances totaled $307 million at quarter end.

In terms of guidance I have the following updates for you, for 2009 non-operational items. Corporate Expense $167 million R&D Expense $195 million Net Interest Expense $370 million Tax Rate-Full Year Effective Rate 3.4% You should expect average share count to be 748 million during Q4 with the increase attributable to a full quarter weighting of our TNK acquisition as well as the effect of other acquisitions completed in the third quarter.

I’ll now hand the call over to Bernard.

Q3 had four moving parts. One, North America started a healing process during the century by recovery in Canada.

Although levels of activity in Canada were by any standards very poor in Q3 there is still improvement over Q2. The US is marginally up with flat margins.

The full impact of cost cuts offset one for one the remaining effects of pricing declines. Average pricing was down 100 basis points in Q3 versus Q2.

We continue to take costs out of the US; we did so throughout the quarter. Two, Eastern Hemisphere, did not do as well as we expected.

Average pricing was down 400 basis points but that is close to what we had anticipated. The volume wasn’t, volume is where we failed.

We experienced delays in contract startups and product delivery. As a result, top line did not grow.

In fact it marginally declined, adjusting for the acquired revenues of TNK. The absorption effect we expected let along the incremental margins associated with the revenues weren’t there to offset pricing declines.

Three, Latin America, had also a disappointing quarter centered around Mexico. Pemex lowered activity around gas in both [inaudible].

We have significant operations in both. Chicontepec was negatively impacted by weather in the Northern and Central zones while completion lagged by a third.

Completion is the most profitable step of the well. The other Latin American operations showed top line growth though were impacted in full by pricing and had lower profitability.

Average pricing for the region was down 200 basis points which again is close to what we had anticipated. Adjusting for the items discussed by Andy operationally we ran the quarter flattish with Q2.

Flattish quarter was less than we expected making Q3 a very disappointing performance. We’re more constructive of the prognosis on five quarters ahead through 2010.

Pricing has started deteriorating whether in North America or international markets. We have seen no contractual instances of further decline in pricing.

We have had, late in the quarter, instances of pricing increases modest in scope and scale bur pricing increases nonetheless. Second, as the forward geographical review will summarize we are comfortable with our top line guidance of 2010.

Lastly, although a few weeks late, a number of integrated project mobilization was successfully completed by quarter end; in China, Tokyo, and Algeria amongst others. The operating productivity exhibited by early results was good.

Additional mobilization work is still underway in several countries. When all is running we’ll have approximately 80 zero strings worldwide in integrated projects.

Product lines, I will not take you the details of the 10 products and services line. I’ll take you straight to the conclusion which is that integrated drilling; drilling services and wire line were in absolute and relative terms the strongest product lines.

They are likely to remain the higher performers of artificial lift as a close run. Acquisitions in addition to TNK OFS business we completed three acquisitions for $170 million.

They were primarily part line extensions and one technology. Forward geographic overview, we are solidly constructive internationally to 2010.

We feel this way even more so then last conference call. The pull back in international markets during the first half of the year was quick and complete.

This puts us in a relatively healthy spot and pricing moves appear to be behind us. All in all we believe international markets will show volume increases ’09 and ’10 of 10%.

There is a difference in prognosis Eastern Hemisphere and Latin America. Easter Hemisphere is likely to be in the 10% to 15% range.

Latin America will be closer to 5% to 10%. There’ll be further differences by region and sub-region for the trend overall will be as indicated.

We do not believe this is an aggressive or conservative view; we think this as a balanced and reasonable assessment based on everything we know. In this environment we expect Weatherford to grow at about three times the underlying market rate or about 30% ’09 on ’10.

To be completely clear whether we expect to grow international segment ’09 on ’09 by 30% or more. Within the Eastern Hemisphere we expect Russia and the Middle East to outshine the other markets.

Within Latin America we expect Pemex budget to be down in 2010 but more than made up by Brazil, Colombia and Peru with Venezuela possible up side market. Weatherford will show strong growth 2009 on ’10 in Mexico on the back of our existing ATG contracts and the most recently planned activity levels at Chicontepec.

We should run Mexico at about $2 billion next year give or take. From 2011 thereon it’ll be a process of maturing and optimizing an operation whose scale will be stable.

We see risk on our 2010 prognosis for Mexico coming out of the gas segment not the oil segment. We also constructed our North America more so then we were last quarter.

Within North American markets we show volume increases 2009 on ’10 and the second half of ’10 in particular will be markedly stronger. It’s true both in Canada and in the US.

Capital resources and overall direction. Should our assessment be correct whether international top line would draw 2009 on 2010 by [inaudible].

As a matter of policy Weatherford keeps it debt to capitalization ratio between 30% and 40%. We do not like to stretch below or above that range.

Capital intensity of $1.00 revenues is about $0.90 of CapEx at $0.30 of working capital. Relating this comment to forward cash flow the financing of 2010 growth plans is nearly fully expensed on the CapEx side meaning we have the equipment supply in place so most of the expansion underway.

The working capital will be item finance our internally generated cash. Capital investments are $1.4 billion in 2009 will likely remain flat in 2010 if and only if the expected growth rate is growing to 2011 remain the same.

In closing, two comments to summarize our thoughts on the quarter. From a financial standpoint this wasn’t a good quarter and it was messy.

From an operational point of view this quarter was productive. North America restructuring proved to be effective fast and well.

We completed shedding one third of our workforce and closed down 34 facilities. On the international side volume was lacking and weather didn’t help but we executed well on those things that were in our control.

For example, Russian integration of OFS is progressing well and quickly in all respects. At leased, Asia/pacific six integrated projects had excellent early drilling results as productivity gains declined.

We weather wasn’t an issue wells drilled in Chicontepec came in at markedly lower costs throughout the quarter which means again improved profitability for the client and us. Lastly, we had very successful first deployments and accomplishments this quarter for a broad range of technology primarily formation valuation, RSS and managed pressure drilling and well records in product lines like expandables completion with drilling with casing etc.

All were markers of good execution in spite of disappointing results. With that I will turn the call back to the operator for the Q&A session.

I seems that many of the items that adversely affect the third quarter such as the rains at Chico the gas drilling at Veracruz, the operating issues in Nigeria startup costs in Iraq and the delays, startups and ITM should be rectified by the fourth quarter or at least significantly improved in the fourth quarter, is that correct?

Yes I think so. When one has a bad quarter I think its best to just go out and put out a good quarter afterwards.

I think that answers all the questions. As a point of logic, yes you’re absolutely correct.

Can you talk at how you think the Chicontepec outlook has changed in the past three months, in the aggregate what emphasis by Pemex on increasing production will mean for Weatherford the potential for incentive contracts and lastly that if Pemex reduces its budget in ’10 where this could be felt?

Many of these questions are best answered by Pemex. If you look at Chicontepec what you have is a very large heavy oil reservoir which is in the early stages of its development.

Heavy oil has a long learning curve before you find the optimal way to drill and produce the reservoir. I think both Pemex and its vendors, service companies, are going through this learning curve.

At some point the drilling and completion and production path will mature and it’ll be essentially an exercise in increasing efficiency and productivity. All of this to say that I think Pemex is looking for the right level of activity on Chicontepec whether it is at the present level, whether it is at the lower level or at a higher level and also what are the optimum zones that one has to go after because there are numerous zones in Chicontepec.

Also resolving some of the issues that they may have with completion techniques or top side problems. All of this is being looked at and worked on, this is normal.

When you have a reservoir of this size with multiple zones and one that has not been developed until now we would expect all of the things I just described and this is happening right now. What does is mean for 2010 for us?

There are two aspects to our work in Chicontepec. On the one hand we are executing contracts that are multi-year contracts and they will go on.

They are called ATG-1, ATG-2, and ATG-4. On the other hand there are supplementary work that will pick up when some of those contracts are completed such as ATG-1, ATG-2 and the supplementary work is a function of the budget.

When you add all the pieces together which we do and then we wait for Pemex to indicate what they would select for 2010 budgetary levels strikes us that on and around Chicontepec we should be in a range of both revenues and activity which is actually rather tight, in other words rather narrow. We have a good idea what it is.

Then when you add the other work we do in Mexico, Chicontepec we work in the North, we work in the South, we work offshore, we work all over the country. When you add all the pieces together it ends up being, it strikes us an operating level which is close to circa $2 billion which is the number I suggested give or take.

That’s about as reasonable expectation as we can give you.

Do you still have a similar estimate for margins coming out of Mexico and Latin America as a whole next year and does that take into account the potential for rains in the summertime which can impact results?

When you’re in a project for a bit longer then what we have been you get better assessing where margins are going to be. First is I think on a whole looking basis we’re likely more accurate estimates then if we failed in doing so.

It’s to a great degree also the teething problems when you’re in a large project. We’re not in the project for just a short term; we’re in that project for a very long term.

First answer is to say that we’re like to be more accurate in our margin assessments on Chicontepec. What was your question, what will it be in 2010?

Is that your question on Chicontepec?

Yes.

There are so many different facets of work that let’s just say what do you think Andy?

For all of Latin America I would expect, based on our assumptions today that we should be up between 250 to 350 basis points on the margin side, full year ’10 on full year ’09.

That’s Latin America as a whole.

Many of your competitors seem to be throwing a lot of caution into their statements in Iraq. Sources indicate to me there could be a big contract award coming up in Iraq before year end and possibly some others after that.

Any comments?

I think Iraq is going to be a very large market. My peers won’t disagree with that.

How large is hard to tell now but a very large nonetheless. I think everyone will agree with us.

The only difference in views if we have any is on the timing of it. I think it’s difficult to get things done in Iraq; it’s a country that’s gone through a turbulent past, to put it mildly.

Things take time, decisions take time and logistics take time. On the other hand the market is likely to be large enough that even the early tranches of the market will be very sizeable for the service company that are involved in this.

I think all the service companies will be involved in Iraq because of the size of the market, some better than others. I would say that for Weatherford we’re in full agreement that it’s a very large market; we said it as early as everyone else.

We believe though that service companies can have material levels of business above and beyond what is known today in Iraq in 2010 and it will cost even more so in 2011. What do you know about our level of business in Iraq in 2010, well it’s contractually known that we are likely to run Iraq around $300 to $400 million in 2010.

Why? Because we will have about five strings turning in Iraq in the south on integrated projects.

That is known, two in [Romela] and [Buzogow] in the [Misan] area. The point for us is that we suspect that service companies and particularly us are likely to do more than that in 2010 in terms of executed business.

In many respects the most important point is not that, the most important point is that that particular market is a very large market in the making which is I think a point that is not controversial with anyone.

Are we likely to see activity and projects move forward that aren’t going through the actual bidding process, not things like [Romela] but awards that go around the bidding process then just directly awarded by the government to oil companies and those actually proceed earlier than maybe the very large projects that are being bid on or progressing?

Yes.

I wonder whether you could also help us a little bit about how to think about the 2010 in terms of what else non-operational activity items that you highlighted the corporate expenses, R&D, CapEx, tax rate, could you go through those and give us some kind of guidance?

If you start at the top on R&D between $200 and $220 million let me give you some ranges because things aren’t finalized yet. On the Corporate side $165 million.

Interest expense should be flat to down at about $370 million. On the tax side right now again against the backdrop of how much we expect to grow internationally and what we should earn on that included where we would earn it as well as a modest recovery in North America I still use for our planning purposes a tax rate of 18%.

The CapEx?

CapEx you can bracket it between replacement CapEx of $500 million and the top end of $1.4 billion. As Bernard said in his notes the $1.4 billion is if and only if we see 2011 having the similar type of growth prospects compared to what we see for 2010.

There’s no reason why that shouldn’t be the case right?

Not that we know of today.

30% international growth you haven’t lost your mojo so to speak despite this quarter. Can you give us a little bit of a feel for how confident you think about this?

I think up in Mexico and Pemex down and you have signed contracts so there’s a lot of writing also on Iraq and Russia. Could you give us a little bit of a feel for how confident you feel out such a bold statement?

I’m not sure about my mojo, let’s hope you’re right. It’s not as bold and aggressive as it sounds at all.

In fact when I wrote it I thought I would be asked that question, very legitimate in light of the fact we have which can be best described as a disappointing quarter. Why no be more subdued?

We’re not being subdued, we’re not being aggressive, we’re not being conservative, it’s truly the way we see it. Mathematically more straightforward then it appears.

We’re talking about $2 billion in international markets. Just do the math on just a few things that you know.

We just finished saying with your predecessor that we were mobilizing and actually mobilized already on half of it, $400 million of work in 2010 in Iraq. The Iraqi revenue in 2009 are far more modest then that so we have an easy delta there.

Mexico and so forth just look at the year 2009 where does it add up, $1 billion something like that. Just what we believe the level of activity and we do expect the budgets of Pemex to come down in 2010.

We expect for us the top line to be about $2 billion and it’s simply a function of the contracts and a slice of the budget to be spent in Chicontepec and not the dominant slice at all. We are going from $1.2 billion to about $2 billion for Mexico you pick up $800 million plus Iraq a delta of $300 million or $1.1 billion.

None of this is terribly new or I would even say exhilarating. Then you have the simple fact that we did acquire TNK and at a minimum the sort of simple fact TNK 2010 will meet at a minimum $300 million loss.

I don’t want to take you and the audience through too much math here but if you start adding the pieces you find that my goodness you’re going to be at $800 plus $300 plus $200, $1.3 to $1.4 billion already so I’ve got to find $600 million elsewhere international growth I have far more than that that has been mobilize, it is being mobilized right now, coming out of what markets? North Africa, the Middle East, Asia, and also in Latin America.

I don’t think it’s a bold statement at all. There is some measure of hedging for precisely the kinds of events that sometimes we don’t hedge for.

Meaning the range, I use the rage as a euphemism. We put in some cautionary cushion for things that could happen in this market or that market or this contract or that contract or we don’t perform quite as well and things of that nature.

It is arithmetic, it is in our minds barring a catastrophe it’s a safe assumption.

On the margin side the risk side, if you look at things that are outside of your own controls such as [inaudible], if Pemex decides to spend their money at the end of the day. We all know it has to be in Mexico somewhere and gas is at more risk than oil I think everybody agrees with that.

If you look at the potential delta there and you look at uncertainty around Iraq or what’s going on in Russia, where do you see the biggest risks to those projections from an execution margin standpoint if you look at things outside your control? If you look at the upside potential where do you sense that the margins could surprise the upside if things plan out the way we all think $80 oil plus and a GDP that isn’t rolling over.

The risks are that at the operating level we mis-calibrate our costs or we are slower then expected but not the sense of one quarter where things took a few more weeks then they should have. I’m talking about just in general so its an operating risk that one runs always particularly if one doesn’t expansion underway its generic I’m not alluding to particular problems at all, it’s a generic comment which I think you would expect me to have I just demonstrated in the quarter that there was some risks associated with performance coming out of operations.

An operating risk would be the way I would calibrate the margin risk, I don’t think it is anything else. Much of the revenue growth beyond Mexico, much of the other revenue growth have actually very decent margins associated with them.

On the upside is so much more fun. North Africa which has been our slower to rise and in come cases in fact there are some backtracks, think Libya, think Egypt.

Algeria is growing but the rate at which it’s growing as been also slower this is because of the contrasting North Africa and within the Middle East itself the Persian Gulf you have materially more upside then what is thought of. It is not something that is often reflected upon but the Middle East in general has seen over the past three quarters a softening of drilling activity sometimes picked up by the statistics, sometimes not, with rigs being stacked or on hot idle.

That reverses itself and that provides material upside. I think the speed at which things will get done in some of the young markets, think Iraq also will go up with the price of oil going up as what is not being capitalized upon will tend to focus everyone’s mind.

I think the Middle East in general is upside. The other upside you know where it is.

What is the large market that is terribly sensitive to the price of oil? Which one is it?

It’s a rhetorical question, its Russia of course. Russia is terribly sensitive to the price of oil.

You can almost spot it on the ruble/dollar exchange rate. It’s measurable.

I think they respond very quickly to an increment of $10 or $20 in the price of oil very quickly. Understanding also that the level of taxation would also change as the government will try to pull back some of the things they gave away.

Still very sensitive to the price of oil. I think the third market which is very sensitive to the price of oil responds accordingly is Latin America.

No surprises here. Middle East, Russia most of them Caspian which much slower to move, and of course Latin America which really they are by and large oil markets.

You gave a lot of great detail on the outlook as we look to 2010 but can you help us with the progression in the fourth quarter maybe particularly on the Middle East and Africa where you did experience some delays in the third quarter? Where are you today in terms of recovering from those factors?

We should have better volume in Q4 as simple as that. I would rather just have it go through the numbers rather then just be out there promising more sunshine.

We should have more volume throughout the Eastern Hemisphere in our numbers in Q4.

I’m trying to understand better that are you mobilized now in the area?

We are. I mentioned three; Algeria, China and Ethiopia also.

When it comes to Russia we move very quickly on the integration and that’s actually successful operating execution. When are we fully integrated its true we are fully integrated now between our original operations at TNK was not easy and was not without casualties but we are.

We are very, very well positioned to also do well there. Contracting information and contracting successes we’ve had are real and they’re early.

On the one had we’ve been mobilized where we were trying to mobilize. Number two where we had significant and change in our business mix which is Russia we are integrated and its and honest statement and positioned to really try to harvest.

Of course product sales as silly as it sounds we had a number of product sales in Q3 that just didn’t make it in the quarter. You’ll say it doesn’t happen every quarter.

No it doesn’t. Why did it happen in Q3?

I don’t know. That also gets into Q4.

Nothing dramatic. I’d feel better if we’re in January talking about it and then you’ll ask me that question because presumably the volume will be there.

Didn’t you also mention you’re starting to see signs of price increases?

When I drafted these notes, I read what I draft I don’t edit as much as I probably should, its true we saw price increases it was in North America. I wouldn’t draw any conclusions from it, it just happened to be true.

We see no more instances of pricing weaknesses now for pretty much the quarter. The pricing declines in Q3 were nothing more but a mathematical flowing through the quarter pricing decisions being made in Q1 and Q2.

This we had anticipated. This is not a surprise.

We see no further pricing declines in any market even instances that would be none of that. I cannot report to you any instances of pricing increases in the international markets I can’t think of a single one.

The ones that crossed my desk were small ones in North America. I don’t think they’re material in any way or form they have symbolic value.

I wouldn’t conclude from it that there is a rush to the pricing curve in North America or anywhere else right now it’s a stable environment right now.

We should be able to expect margins up in North America next quarter is that correct?

Yes that is correct. Not because of what I just said.

There are no more pricing declines, a little bit of volume and we continue to take costs out. Yes.

How should we think about not necessarily what margins are going to be and what they were in the third quarter for Latin America but really when you sift through the stuff that went against you discount sort of perfection going forward what are normalized margins for Latin America? You’ve been running high teens.

Going forward on a normalized basis what should we expect?

I think you should expect them to be up in Q4 off the performance.

Help us with up in terms of magnitude. Do we get back to the second quarter or are we somewhere in between.

I think you’re in between.

We’re talking 14% to 15% margins?

I don’t want to pin down a number for you. I think a progression and I think next year it’ll be up our expectation is between 250 and 350 basis points for full year ’10 on full year ’09.

Let’s assume 15.5% for 2009, 250 basis points above that so let’s call it 18% margins, something like that.

Yes.

How about MENA.

MENA is going to progress I think quite well this coming quarter in Q4 and also next year. In fact I’d probably put it at the top of the list for incremental margins for 2010 on 2009.

When you mean that we are going to progress from the third to the fourth quarter are we back to the second quarter margins of about 21% or somewhere in between?

No. In between.

For next year, again I missed the number, you said up 250 basis points for Latin America, MENA at the top of the class. What should we expect for MENA in terms of rate of improvement for next year?

What I’d like to leave it as is just more than that. I’m not trying to be cagy on it.

Walk me through the drivers of the margin improvement in 2010 for both Latin America and for MENA, what happens? Is it pretty much execution and absorption or is there some pricing thrown in there as well.

Its absorption it’s also a little bit of a different service product mix.

The discussion on the balance sheet and capital spending bridge for us if you will the balance sheet debt to cap somewhere around 40% the free cash flow generation coupled with the growth aspirations and the investment required to get there for 2010. How do we do that plausibly?

In 2010 free cash flow is that what you’re looking for?

How do you navigate the balance act between the balance sheet, the cash flow generation, coupled with the growth aspirations and the investment requirement to get there?

It’s important to remember you’re going to solve for this on your own. I can tell you from our point of view given what we expect the level we expect to perform at next year we free cash flow positive.

Take into account as well that $1.4 billion number of CapEx, $900 million of it is discretionary and is based upon our view and as our view develops and what ’11 will look like. We always have a choice in terms of do we want to maximize cash flow and mortgage growth that’s one thing.

Clearly that’s not our philosophy, that’s not the way we’re built, we’re a growth company. Where we believe we can earn acceptable returns over the long term and what we’re building this place for we go ahead and make the investment.

We do not follow free cash flow generation as an absolute moral objective here.

Not inferring that you did and then thus the stipulation on my part the balancing act.

It is. It’s a very appropriate way to cast it, it’s a balancing act.

With regard to the growth CapEx for next year, where do you think that goes which markets?

Clearly not North America.

I would say the growth allocation is likely to be 75% East, 25% Latin America. North America nada.

East is where? I would imagine Iraq gets some of that but where else?

Actually I have not factored a necessarily aggressive numbers on Iraq at all. I think it is North Africa, I think it is Oman, I think it is Kuwait, I think it is Iraq to a degree, I think it is India, I think it is China, I think it is Australia.

It is much more diverse then what it appears to be. Of course Algeria, I don’t know if I mentioned it or not.

It’s far more diverse then people realize. The thing also please remember is that by year end we will have by and large the entire equipment aside of the growth already commissioned, built and everything else.

What I tried to summarize in my notes is that really the cost of the growth in 2010 is going to be essentially working capital as best I can see it. Put another way, if we decide to go on a diet in 2010 and just have sustaining CapEx which is rather extreme, we’d deliver the growth in 2010 regardless.

On the other hand 2011 so therefore decisions being made in ’11.

Which I think is the right call, clearly ’11 you’re going to have a considerably tighter oil market then you have in 2010 and suspending should be more vigorous.

On the Russian market, you obviously said the integration going quite well and begun to get some contracts under your best. Are those primarily in the existing business lines that you acquired or are you beginning to book some pull through type opportunities and if not when should that become more meaningful part of the mix.

When do you anticipate it becoming more meaningful?

It’s very early so I can’t make too many dramatic statements. I’ve seen two things though that are encouraging.

On one hand I’ve seen a Rostov clients which are much broader than just TNK that’s very encouraging. On the other hand I’ve seen informal, not contractually formal but informal bids on those contracts in other products and service lines.

To what extent did the fact the organization of TNK OFS which is really the one running the region now is to be credited for it or is it just coincidence I don’t know yet. In both instances the Rostov clients and the breadth of our products and service lines are think a contractual success.

Probably more then I would have expected at this stage, it’s very early.

Shifting over to North America obviously we’ve spent most of the time on international which is clearly the focus for you guys. I wanted to understand your philosophy going forward in North America.

We can certainly get an idea of where you’re headed given you’re not going to put any growth CapEx in there. Is this a market that you just manage or are there plays where you do have opportunities to grow?

You obviously have a lot of growth in the shales, you have the oil, is that a net zero where you’re continuing to contract in certain areas and investing in others?

We have excess equipment still in North America. The ability to move equipment from North America to international markets is real in certain categories of products it isn’t in others.

We have excess capacity, using your language, in North America. The comment there would be no growth CapEx North America is not so much one that implies a majority view of North America not at all.

We’re simply realizing the fact that you’re running at the level of capacity. I couldn’t calibrate it because its easier when you’re a rig company but when you have almost 100 different products and service lines in North America, which we do, we just can’t do it.

I know you have excess capacity you can operate at a level of volume substantially higher then where you are today with the level of equipment you have and not a lot I can do about it other then continue to try to bleed the equipment to international market. Then again it has its limits.

With that in mind it should not surprise you that we place the emphasis on growth CapEx purely in international markets. Do not conclude that somehow we don’t like North America markets or it’s worthless, not at all, not in the least.

You just mentioned two of the three areas of focus; unconventionals, shale gas, unconventional should be CBM and heavy oil. Shale gas is not unconventional but in a category of its own.

Of course, [inaudible]. These are areas of focus and they should be with the available capacity that we have and other then those two items it is true we continue to try to be more efficient in North America but it should not be viewed as retrenchment it should be viewed as an attempt to be more productive.

Productivity doesn’t imply shrinking, it implies things better.

Could you please take us through the cash flow comments a little bit, your comments around where you’ve come through the nine months? Where were the areas of disappointment in cash flow generation?

Three areas. First of all I’ll start with the starting number EBITDA its lower then we would have anticipated at the beginning of the year clearly.

We sit here with a disappointing quarter. Point number two on receivables given what happened from a financial point of view to the markets and that our customers felt I would say more severely then we would have anticipated.

Clients, especially in the international arena have been slower to pay then we originally expected. The working capital program that we implemented about nine months ago in North America is right now being rolled out to the international market.

Given the different texture of each of those markets and the different idiosyncrasies not each one of those markets can be handled in the same way from a collections point of view. They all require a little bit different touch.

Right now there are a dozen countries that we’ve started with which represent the biggest portion of our international receivables and we’ll see what progress we make there. It’s happening now as opposed to happened 12 months ago.

I which it had happened 12 months ago and we probably would have done better on the receivable side if we had done that. The other disappointing area was on inventory side.

Inventory was a lower priority for us then other areas. We do have an initiative that’s bolstered by outside help that is designed to improve our performance on the inventory side of things both in terms of direct procurement as well as manufacturing.

You’ll hear more about that as we progress through 2010 but I don’t really want to touch upon it now. Suffice it to say that inventory performance was not as good as expected.

If we take some of what you’re describing as initiatives presumably that’s giving you confidence. I just want to make sure I’ve got the math right.

If you’re spending this year’s CapEx for next year’s growth it’s about $0.70 on the dollar so basically to stay within your cash flow you’re talking about working capital being in the order of $0.30 right?

Yes.

That is actually the number that I was using in my comments on a forward looking basis.

Maybe a calibration for us, how important are these receivables programs and is better management of inventory, how important is that in terms of achieving the $0.30 how would you risk that for us?

I’d put the $0.30 as very achievable if we’re not under that I’ll be disappointed. I would say a more conservative number then what our goal is meaning we don’t want to disappoint you on that number not twice in a row.

The numbers that we’ve used are designed to be reasonable because we don’t what to disappoint you in general across the board.

The program, should I think of that as a software or pieces of software.

No, it has to do with the process that we use from invoicing. Think of it credit and collections but basically from procuring all the way through paying and then on the side of invoicing and collecting.

It’s a redefinition of the process, a retraining of folks in a different type of process around it to focus on it and push performance.

It’s as humble as modifying the paper flow which sounds terribly simple bit it isn’t when you operate in a hundred countries with a greater number of clients and each and every one of them has different invoicing techniques and everything else.

On the acquisition front, I think we became aware of one specific company earlier in the quarter; it looks like you bought a couple of others using shares. Can you round out how many companies and how many shares were used to buy those?

The exact share count I don’t have it was pretty easy because it was the price of the market give or take $20. We bought three different entities other than OFS in the quarter.

It was unusually active in that regard. Very often we don’t like to disclose what we buy for competitive reasons rather do it one on one if you don’t mind and probably shouldn’t be paranoid about these things but we are a little bit.

I would tell you two of the three are nothing more but product line extensions. We’re getting better in products and service lines that we feel are necessary.

Not just in order to put a check mark in a box that’s of no value but because where we’re adding in terms of skills we believe we need, will make us more profitable and we make it also more profitable. Andy or I can give you that offline.

The third one is technology.

It was $170 million of consideration for the other three.

For those three put together. The first two, which were the two product lines, were the bulk of the $170 million.

The technology was something like $10 million as I recall. You’ve got two different companies for $160 million.

Yes we did use stock for the simple reason that we will not go about 40 debt to cap will not go below 30 debt to cap.

Presumably the 2010 guidance is not at all baked on additional acquisitions.

No, nothing to do with it. We may not do any more; we may do a number of them it really depends.

You cannot program that, you cannot plan that and you shouldn’t.

The 748 million share count presumably that’s for now then good for 2010.

That’s correct.

To follow up on Brad’s question in regards to free cash flow. I do understand your comment versus the beginning of the year but you did reiterate the $500 million targeted in last quarter’s call.

It seems like a fairly large miss, it sounds, and if I understand your comments correctly you expect to come in slightly positive for the year. Relative to what you were thinking three months ago can you give us any more clarity on those three pieces; inventory, receivables, and EBITDA.

Where’s the bulk of the $500 million missing?

A big chunk of it is out of EBITDA and a good chunk of it is out of receivables. Receivables balance we consumed $100 million of cash on the operating working capital side.

I expected that to be flipped around and to generate easily $200 million in Q3. There tend to be concentrations of receivables some of it has to do with newer clients that were doing large volumes of work for that we haven’t quite perfected the back office function of getting those bills handed in on time and everything else and in the proper format.

We’ll see how we end up at the end of the year and then let’s take a final scorecard of where we are versus the $500 million.

The bulk of the remaining $300 million is EBITDA?

Part of it is EBITDA, part of it is payables in terms of payment terms too soon, inventory levels that I would have liked to have seen crawl down. Typically we seasonally Q3 inventories are always up.

We were trying to fight that trend and we didn’t fight it as successfully as I thought we would.

In the EBITDA miss it sounds like from your comments. If you break down the EBITDA miss relative to three months agos expectations is it primarily what’s happened in Latin America.

No. Its both Latin America and Eastern Hemisphere.

I would summarize it with just one word in Eastern Hemisphere: Volume. You didn’t have enough volume that you were supposed to have and you have that volume and volume was margin being missed on the volume and absorption.

We didn’t miss the pricing at all. It came in very much where we thought it would come in, meaning the tail end of the pricing moves of earlier in the year.

What was missing was volume. Of course on the Latin American side you’ve got the Mexican situation that I think Andy described rather well.

Volume is the key word for our choice to summarize it for Q3.

If you think about it on a year to date basis if $300 to $350 million off of what I would have liked to have seen which meant I would have been positive $200 million at this point and then we’d be talking about whether I’m going to make it. That $300 to $350 million we can walk through the separate pieces from where it is.

I would be $100 million of it year to date in the EBITDA column.

If I understood all of your comments earlier Mexico as well as the Eastern Hemisphere its volume missed but because of timing issues, not because of…

There are two things. It’s not because of cancellations or anything else like that not at all, service and the product.

The service we were simply late in starting up completing mobilization not only of integrated projects but a number of other service contracts. Why is that?

Myriads of reasons so many of them that the end you conclude perhaps we were too aggressive in our expectations. On the product side we also had a number of product deliveries that simply didn’t make it in the quarter.

Put another way, the revenues could not be recognized. Why is that?

I have no explanation it just is. It happened.

On the service side one could be critical and say that we should have planned a few more weeks to get it done and I would say point taken. On the product side I don’t know what to say because I just don’t know.

It happened.

Do you have a pretty good visibility on product sales looking how far, one quarter ahead or more then that?

No. Typically two quarters sometimes three, two and a half.

That looks okay right now or much better.

It looks progressively better. The volumes look progressively; measurably better, as you map it out two and a half quarters.

You can talk about backlog in our case for some products and services, product lines in particular. We’re large enough and it’s so diversified that we’re not a backlog company.

We can measure what is measurable and it looks progressively better.

Will you quantify the contribution from TNK-BP in the quarter?

We ran about $30 to $35 million a month for the first two months.

That low double digit margins.

That particular region actually declined in revenues quarter to quarter which is highly unusual. Thank you very much and we’ll take calls offline.

Operator you can discontinue to call.