Hello. My name is Lorraine, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Baker Hughes Third Quarter 2013 Earnings Conference Call. [Operator Instructions] I would now turn the conference over to Mr. Trey Clark, Vice President of Investor Relations. Sir, you may proceed.

Thank you, Lorraine. Good morning, everyone, and welcome to the Baker Hughes Third Quarter 2013 Earnings Conference Call. Here with me today is our Chairman and CEO, Martin Craighead; and Peter Ragauss, Senior Vice President and Chief Financial Officer. Today's presentation and earnings release that was issued earlier today can be found on our website at bakerhughes.com. As a reminder, during the course of this conference call, we will provide predictions, forecast and other forward-looking statements. Although they reflect our current expectations, these statements are not guarantees of future performance, but involve a number of risks and assumptions. We urge you to review our SEC filings for a discussion of some of the factors that could cause actual results to differ materially. Also, reconciliation of operating profit and other non-GAAP measures to GAAP results can be found on our earnings release and on our website at bakerhughes.com under the Investor Relations section. Lastly, I'd like to take a moment to announce the 2014 Baker Hughes Analyst Conference scheduled for May 8 and 9 in Houston. Further details on the agenda and how to register will be communicated in the coming weeks. And with that, I'll turn the call over to Martin Craighead. Martin?

Thanks, Trey, and good morning, everyone. I'd like to begin by sharing some highlights about how Baker Hughes performed during the third quarter. Today, we reported record revenue of $5.8 billion, an increase of more than 5% over the previous quarter, with record revenue in the United States, the Middle East/Asia Pacific, Africa, Russia Caspian and our Industrial segment. We're particularly pleased with the results of our Eastern Hemisphere operations, where our core business in the North Sea remained strong, and we are seeing solid growth in the Middle East, Africa, Russia and the Caspian. In addition to top line growth, we remain committed to improving the quality of our earnings. In Asia Pacific, we repositioned our business to capture profitable growth in key markets, such as China and Southeast Asia, resulting in strong margins from this region. In North America, we continue to execute our plan to improve operating efficiencies in our U.S. Pressure Pumping business, resulting in higher profitability for the third consecutive quarter. Also during the quarter, we continued the restructuring of our Latin American operation to better align with recent activity declines in Brazil and Mexico, leading to improved profitability. Our growth in earnings, along with a disciplined approach to capital allocation and ongoing initiatives to reduce working capital, generated an increase in free cash flow for the quarter. Later in today's call, I'll share a few examples of the products and services we are commercializing today that will shape the economics of tomorrow's oil and gas production and contribute to future earnings growth. But first, let me turn it over to Peter for additional details on the quarter and our guidance for the remainder of the year. Peter?

Thanks, Martin, and good morning. Today, we reported adjusted net income for the third quarter of $358 million or $0.81 per share, up $0.27 per share sequentially. Adjusted net income excludes a $17 million after-tax severance charge or $0.04 per share related to restructuring in our Latin America operation. However, adjusted net income includes a $42 million or $0.09 per share after-tax reserve for bad debt in Latin America. On a GAAP basis, net income attributable to Baker Hughes for the third quarter was $341 million or $0.77 per share. Revenue for the third quarter was $5.8 billion, as Martin mentioned, a record for Baker Hughes, which is up $300 million or 5.5% compared to the previous quarter. Compared to the same quarter last year, revenue was up $432 million or 8.1%. Adjusted EBITDA for the third quarter was $1 billion, up 18.4% sequentially. To help in your understanding of the quarter's results, I'll bridge last quarter's earnings per share to this quarter. In the second quarter, we posted GAAP net income of $0.54 per share. First, add back $0.07 for bad debt reserves and inventory charges, which were highlighted in the second quarter. Next, add $0.10 for North America operations, driven primarily by the seasonal rebound in Canadian activity. Add another $0.10 for Eastern Hemisphere operations, where typical seasonal declines in Europe were more than offset by strong performance in every other region. Add $0.06 for Latin America as our actions to improve profitability are being executed as planned. And add $0.03 for lower taxes and other expenses. At this point, our earnings per share would have been $0.90. Next, subtract $0.09 for the $42 million reserve for bad debt in Latin America. That brings us to adjusted earnings per share of $0.81 this quarter. To get to GAAP…

Thanks, Peter. Looking ahead, we remain focused on achieving long-term profitable growth by leveraging our culture of innovation. We continue to see strong demand for Baker Hughes' products and services on the world's most challenging oil and gas projects. From ultra-deepwater exploration to field management of mature assets, our operations are growing around the world. In Russia Caspian, for example, we have diversified our business to include both high-end product sales and a steady service business. Starting with the foundation of Completions and Artificial Lift sales, we are expanding our Drilling & Evaluation service lines. Today, we are providing drilling services on the highest number of rigs in the history of our Russia Caspian region. In Asia Pacific, our strategy to grow margins by focusing on key product lines in growing markets is paying off, and we intend to continue this momentum by targeting and winning work aligned to our strengths in this region. In Malaysia and Vietnam, we've grown our Drilling Services business and expanded wireline services to include high-pressure, high-temperature capabilities. In China, sales of our artificial lift and drill bits continues to grow. In Australia, our wireline services and Completion Systems businesses are expanding based on recent contract awards. And today, I'm pleased to announce that Baker Hughes and Petronas Carigali have entered into a long-term oilfield services agreement to enhance recoverable reserves and production of hydrocarbons in the Greater D18 field. This 23-year agreement is a result of a successful field development study and production enhancement campaign by our Reservoir Development Services and Integrated Operations groups. Beginning in the fourth quarter, this award will support continued growth in the region and complements our growing position in field management projects around the world. In Africa, we are seeing profitable growth across all product lines. In North Africa,…

Thank you, Martin. At this point, I'll ask the operator to open the lines for your questions. [Operator Instructions] Lorraine, can we have the first question, please.

[Operator Instructions] And our first question comes from Byron Pope from Tudor, Pickering. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Martin, I just wanted to see if you could touch on how the recent changes to the ONE Baker Hughes matrix organization has implications for how you improve margins and efficiency in your regions going forward.

Sure, Byron. Well, look, when we did this about 4.5 years ago, the organization, the -- there were a lot of span of control issues, particularly at the hemispheres, as well as the density of the regions. If you remember as well, I think we started with something like 23 geomarkets, quickly moved 1 year or so, 2 years later, into 19. So it was never a plan, I think, that we would go long term with some of the structure we had. It was a security blanket to a degree. So I've been very impressed over the last several quarters with the maturity of the geomarkets in terms of the capability and the talent, the systems in place, the rigor by which they move in managing their business, their focus on the results. And it was time, I think, to delayer a bit. So that's the first thing. The second thing I wanted to get a little closer myself to the operation, which the delayering allowed. So I think going forward, it would give us a better opportunity to execute more reliably and keep a lean business profile. So that's kind of the motivation. But like I say, it was always part of a longer-term plan. And we're always looking to optimize the business, right? We got a lot of great people, and we want to put some talent into some jobs. And so time was right and we feel very, very good about it. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay. And then just one quick question on North America. You mentioned this was the third straight quarter that you saw improvement in the Pressure Pumping business. And as we think about the margin progression for that region as we get into 2014, is it fair to think that the margins for the Pressure Pumping service line are starting to get close to the region average? Or is it still a ways to go there?

I -- look, it -- you're right, it's getting better, but there continues to be a wide margin between that particular product line and our overall results, let alone the other product lines.

And our next question comes from Jim West from Barclays Capital.

Martin, on the international side of the business, obviously, good, steady progress here has been made in the third quarter, and Peter went through kind of the fourth quarter. How are you thinking about 2014? I know you said it would be a strong year of growth given project startups and contract wins. I think some have been -- some, ourselves included, have been pegging growth somewhere in the 10% type range for E&P spending. Is that consistent kind of with your view? I don't want to pin a number down on you, but is that type of growth what you guys kind of see?

Yes. I think 10% is reasonable. And I'd also add to that, maybe back to the earlier comments I was making to Byron, executing -- for us, executing on that 10% and maximizing the value, I think is going to be better than it's been in the past. And the appetite for technology in that 10%, given where it's at internationally, is going to be very, very strong.

Good. That's what we're seeing as well. The North American business, just a quick follow-up for me, similar type question, but really more Baker Hughes specific. I mean you highlighted a number of new technologies. We're hearing data points that are kind of unbelievable about number of wells being drilled per pad, et cetera. And just kind of service intensity of wells is continuing to increase in here, and a lot of that is your technologies being absorbed. Do you think that your growth in North America, both top line and then, of course, margin, I guess, will be some of leftover of the repair of Pressure Pumping? But do you think your growth is more just market share gained through technology adoption? Or do you think the market itself will grow next year?

Well, I think the market is going to grow. I think you guys, as well as a few of your peers, have put out there that spending will likely be up, given buoyant commodity prices and cash flow our customers have. Turf [ph] existing, they're going to completely lose discipline, I think they're going to be very, very prudent, but there is an increasing appetite for technology. The heat's on in terms of getting the EURs up, getting the initial production rates up, getting those -- squeezing out incremental efficiencies per pad. I mean, the pad is a big move, but the pad alone, without the bottom-hole assemblies, doesn't make a difference. So it really -- the whole combination falls into our wheelhouse very well, James. So we're confident in North America. I think it's going to be, though, going forward, an increasing conversation with the customer community around technology. And even things like bifuel or dry-on-the-fly or you name it, they just need to keep solving these problems. And it's good, it's good for us.

Right. And do you think that you can outgrow the overall market growth then because of that?

Yes, I think so. I mean, if you look at what we've done the last couple of quarters sequentially in North America in terms of revenues, I would fully expect that we'd outgrow the overall market, yes.

And our next question comes from Bill Herbert from Simmons & Co. William A. Herbert - Simmons & Company International, Research Division: Martin, back to international. If you were to, at this juncture, looking into 2014, highlight what you would expect to be the 5 key growth markets for Baker Hughes in '14, what would those be?

5? We only have 3 international segments, but I know what you mean. William A. Herbert - Simmons & Company International, Research Division: Well, countries, of course.

Sure, sure, sure. Let me start with the one that we're probably seeing the most buoyancy and that would be Africa and just walk around the outer ring, right? I think the pre-salts out of Brazil are going to be very, very strong. We've already seen some geological success for our customers. And just like in Brazil, the drilling and subsurface technology is going to be in high demand. So that part of the world, move down around the horn, and I think East Africa is going to drive the numbers in '14. Middle East is going to be exceptionally strong year-on-year, led by Saudi, Kuwait and Abu Dhabi. We'll see margin progression in Iraq and continued top line growth, and given the amount of revenue that's there, you can't avoid it in terms of where the top line growth comes from overall. The North Sea will be steady, so I wouldn't put it in there as a top 5 contender in terms of difference. In terms of delta, it won't -- I don't see it necessarily being able to achieve that. Russia would be up there on the list. I don't know how many I've mentioned, but... William A. Herbert - Simmons & Company International, Research Division: What about Mexico? With these large tenders out there, are you optimistic about that or no?

No, I am optimistic. I think there will be a degree of caution. There's been some challenges, payment challenges in the North that we've all experienced. There's -- I think there's still a lot of debate with regards to the new petroleum law, and I think some of it will be resolved before the end of the year. But I don't see the big issue with our customers in terms of ownership versus profit sharing being resolved any time, frankly, next year. So I think it will definitely be up year-on-year, that would be my expectation. But I think I'd temper a bit the -- some of the euphoria around Mexico. William A. Herbert - Simmons & Company International, Research Division: Right. I guess the thing about Mexico is that the tenders that are out there, the $8 billion thereabouts, they don't have that much to do with the constitutional reforms, but they're just, I mean, tenders for essentially 3 regions.

That's right. William A. Herbert - Simmons & Company International, Research Division: Okay, good. And then, secondly, what -- at this juncture, could you hazard a guess, as from a Baker Hughes standpoint, how oversupplied the frac market is domestically? And what kind of well count growth do we need to see in order for the market to become more balanced and even to drive pricing leverage for the service providers?

Okay. So our estimate -- it's still a sloppy market, of course. We'd say it probably hasn't changed, say, 20% oversupplied. And in terms of the well count, as you know, Bill, there's so many variables, I mean there's lateral length, there's number of stages, in addition to the well count. But then offsetting that is, as I look at our numbers, our own improving efficiency. So we're getting more sand pumped with -- on a per-horsepower basis than we did this time last year, and we fully expect to even get better at it. So the well count alone isn't going to -- isn't the only solution. So I'd hazard to guess how many wells are going to -- how much well count is going to have to go up. I'm not smart enough to figure that out, Bill, not at this stage. William A. Herbert - Simmons & Company International, Research Division: Okay, fair point. Peter, last one for me. With regard to -- I know you're probably still formulating your plans for '14, but I'm just -- if you could hazard a guess with regard to capital spending outlook for next year. Is it up? Is it flat or even down, frankly? And also, the free cash flow generation for next year looks to be considerably higher. And any thoughts with regard to how that may come back to shareholders in one form or fashion?

Yes, sure, Bill. Well, we're pretty pleased with what we've been able to do this year on cash, right, and a lot of that -- we've driven higher revenue. First 9 months, I think it's $500 million over last year, with lower CapEx. And so our capital discipline is working, and we expect to continue that capital discipline into 2014. Certainly, in the first half of 2014, CapEx will be at current run rate. Depending on market conditions, if we need more tools, we'll then start gearing up, but right now, it doesn't feel like we need more tools because we've been able to prove that -- we've been able to keep the tool spend steady and grow revenue, so that's good. As far as cash flow and working capital, that sort of thing, yes, we had a great quarter this quarter. I'm very pleased with our team's ability to manage working capital despite revenue going up. I think we got more to do there into 2014, so that should help cash flow incrementally, 2014 versus 2013. So yes, we think this quarter, next quarter, next year, cash flow should continue to increase. And with respect to uses, it's still something we debate and discuss with the board every quarter, and the good news is we got a lot more to talk about now.

And our next question comes from Bill Sanchez from Howard Weil.

Peter, I was curious just as it relates to the Latin America margin outlook here. Basically, you're affirming your second quarter guidance with regard to a high-single digit, yet you showed pretty appreciable improvement in 3Q as we back out some of the charge-offs and the write down of bad debt. What is driving the margin improvement, I guess, for 4Q at this point? Is it still just realization of that cost rationalization? Is there still product sales we're anticipating here in 4Q moving margins up? And then, I guess, just how do we think about typically what would be -- I guess assuming product sales in 4Q then going away in 1Q, how are we looking at margin in Latin America for first quarter?

Well, I think you've pegged 2 of them. We had some one-off costs in Q2 that did not repeat in Q3, so that was helpful in Q3. We also had some labor savings in Q3, which we'll have more of in Q4, so that's the good part. We do have some new contracts in the Andean and Mexico that will help offset what's been going on in Brazil and Chicontepec areas. So it's a little bit of mix, a little bit of activity and a little bit of cost savings going into Q4. As far as Q1 -- well, and we will probably have a little bit more product sales in Q4 as well, so sort of all of the above, not each of which is in huge amounts, but when they add up, they'll be accretive. Q1, yes, you probably will have the typical selloff in product sales relative to Q4.

I mean do you all feel like that the charge-offs that you've had here in the last few quarters are essentially done in Latin America now?

We certainly had a sizable amount in Q3. We continue to look at the business every quarter, and we'll decide during the quarter, based on conditions and contracts, what we'll do next.

Okay. Martin, my follow-up for you, just back on the North America market. I know the 10% bogey, I think, was an important number for you guys here in 3Q in terms of the margin. I'm trying to just get a sense -- clearly, there's been a lot around Baker with the self-help opportunities you've had on the margin side in North America. And you've talked about, in the past, the move to the 24/7 crews and what that's doing and then the logistics cleanup that you guys have had to kind of embark upon and then some of the fuel level cost savings, which you touched on today around the bifuel fleets, and I know some of the slurry mixing and things like that. Can you just give us a sense of kind of where we are in kind of each of these 3 things in terms of how much of the margin appreciation have you realized from these, kind of where we are? And I guess, if you could clarify, too, I think there had been some maybe confusion with regard to your 24/7 crews, what percentage were actually working on 24/7 and what were kind of capable of working on 24/7. I know there have been numbers out there. You were looking at, at least a 50% exit rate at 24/7. Just if you could clarify, is that capable of working 24/7 or is that you actually see your crews being 50% employed on 24/7 by year-end?

Sure, Bill. Let me start with the final part. Right now, 50% of the fleets we have in the U.S. are 24-hour capable, and by far, those are the fleets that work the most hours on any given week. So the utilization is the highest with the 24 hours. We expect to be, this time next year, far higher than we are today with 24-hour capability. As far as the initiatives that were underway, the big one being supply chain and all that it encompasses, particularly logistics and procurements and R&M, I'd say that we're probably second base, and the time to improvement in that particular space is a little bit lengthier than, let's say, some of the early wins we had in some of the other areas, like, for example, converting to 24-hour fleet. Efficiency gains with the fleet in other ways, making sure it's in the right markets, is, I think, essentially complete. Another component which you didn't mention but was a big driver for us year-on-year was the customer mix, Bill. And again, there, I'd say we're probably, again to stay with the baseball analogy, say, between second and third base. You can always do a better job of not only high-grading your mix, but working with the customer to make sure that they're being more efficient. So we've made good improvements there. I think if you look at our top 20 list, it reflects a big percentage of the U.S's leading clients in the space with regards to pad drilling and understanding the subsurface and having the rig count to keep our fleet active, so somewhere around second base. And in terms of margin progression, as I think I highlighted on a previous question, still a very, very large gap between the -- that particular product line, which is our largest in North America, and our other business lines. I think, as we said in our prepared remarks, record revenues for many of the other product lines and what we didn't say, but if you remember, whether it was chemicals or Artificial Lift or completions, we had records in those last quarter, so 2 quarters in a row with some of these product lines. So we still have a lot of opportunity, and I would expect that 4 will be better than 3 and 1 will be better than 4 and every quarter going forward, of course, with a Q2 normal hiccup in Canada. Hope that answers your question.

Martin, I guess, assuming you get to home plate on these initiatives, can you quantify for us what's remaining -- assuming pricing in stim stays where it is and the operational top line trends stay the same, is it possible to quantify what kind of basis-point ramp you would see once you kind of deliver?

It's definitely possible to quantify, Bill. We have a plan to get to the mid- to high-teens, but I'm not going to give you any more specificity than that.

Okay. One last one for me. Did the third Gulf of Mexico stim vessel make its way into the fleet here by quarter's end?

It's on -- it's in this quarter. It's mobilizing this month.

And our next question comes from David Anderson from JP Morgan. John David Anderson - JP Morgan Chase & Co, Research Division: Martin, I just wanted to stick on the same question about the offshore stim market. It looked -- things do look like they are starting to pick up a lower tertiary development. I was just wondering if you have had any discussions internally about adding more stim vessels or how you see that market playing out. Is there any thoughts to that right now?

That's kind of a touchy area in terms of the amount of capacity the market can take. We have a new boat in -- that's mobilizing or has arrived in the North Sea called the Blue Orca, which is kind of a copy of the ships we have here in the Gulf of Mexico, 300-footer, and it should be active. And then this recent add in the Gulf, we have no other plans. But I think Peter did mention that we recently won 2 additional boats, renewals in the -- in Brazil. So it's a market that's got to be very well looked after because we don't want to have any spare capacity, just given the pain that, that can cause. So we're pretty comfortable with what we have right now in terms of floating capacity. John David Anderson - JP Morgan Chase & Co, Research Division: Okay. And obviously, you're going to be thinking about your CapEx spend for next year. Have you guys thinking -- Peter, are you thinking about kind of your CapEx for next year? Can you give us any indication as kind of what you're thinking? Is it going to be flat, you think, slightly up, slightly down? Any help on there?

It's going to be flat through the first half, and then we'll see how market conditions evolve. And if all of you guys' predictions are right, with double-digit customer spend, then we may have to spend a little bit more in the second half. But we haven't made that determination yet. John David Anderson - JP Morgan Chase & Co, Research Division: Okay. And just one last quick one on Latin America. I know you talked about kind of the progression of margins. I'm just wondering about kind of -- the mobilization and demobilization has been impacting some of the numbers. I guess just, first of all, are you completely demobilized out of Brazil? Have you rightsized that business? And the second question, I think it's a little bit more important, is on Mexico. I mean, is this a market that you add capacity now in front of these contracts? I know you have one of the -- incentive contracts starts up, I believe, in February, and then these mega tenders, I think those start up in April, yet work has stopped right now. How do you think about that business and kind of positioning yourselves for the next couple of years?

Okay. So let's start with Brazil. A substantial amount of the demobilization took place in Q3. And as far as Mexico, I think as I've highlighted to Bill earlier, they've -- this -- we've got to wait and see how these IO tenders unfold. Where they are, a lot of them are offshore, a lot of them are in the South, some of them are in the North. I've got some concerns, personally, about those IOs actually getting issued and executed in the North, given what transpired this year. So we'll mobilize according to how we normally do. We'll look at the terms of the contract, we'll see how diligent the customer is and be prepared to execute the work. We're pretty good at that. I'm not worried about kind of -- any kind of stumbles when it comes to mobilizing for those projects. John David Anderson - JP Morgan Chase & Co, Research Division: Well, is it fair to say some of those equipment are kind of floating around and kind of Latin America will hang on margins for a bit and then maybe kind of, this time next year, we should eliminate all of those overhangs?

We don't have much spare equipment hanging around anywhere. A lot of the Brazil equipment went upside of the continent, and it's working. So if these projects in Mexico come to be, then it will further stretch resources. And maybe as Peter highlighted, we'll have to get the machine shops working on the overtime. We'll have to look at it when it happens.

And our next question comes from Brad Handler from Jefferies.

If I come back to U.S. pumping, too, but maybe slightly differently. I'm curious for your reactions to what sounds like it may be a trend, but that's part of the question. Whiting and Continental are talking about moving away from sliding sleeve and seeming to prefer perf and -- plug and perf up in their Bakken completions. I guess are you seeing that more than you were before? Does it seem as though sliding sleeve is actually losing traction? And how does that affect your business, if it's true?

Well, Brad, I'll tell you this. The experimentation that occurs within the customer community and the unconventionals is as rampant as it's ever been. It's probably going to continue. We love that. I mean, we've got a very broad portfolio of completion systems. Plug and perf is a good business. We're in the plug business. We're in the perforating business. Some customers try 1 thing, and I got to tell you, they go right back to something else. I think, at the end of the day, depending on the particular reservoir and where they're at in that reservoir, there will be sliding sleeve technology forever. It just -- it makes sense. There may be some places where it doesn't work. And don't forget that the fact that sliding sleeve, almost every couple of quarters, we're launching a whole new derivation of it from where we were 3 years ago. So we're not in the least bit worried. It's a market ripe for innovation, and we -- our people are very, very good at that. So whatever customer wants to -- like I say, if they want to experiment, we're the right ones to help them with it. But again, our completions business had another record quarter, and it doesn't include the plug and perf segment. So we're pretty happy with the way it's going.

Okay. Martin, that's helpful context. I appreciate that. Maybe an unrelated follow-up, presumably for Peter. Trying to think about the debt write-offs here. I know you had a more significant one in Q4 of last year, and then, I guess, there was a little bit in Q2 and then again in Q3. Maybe again, in a sense, what does it -- maybe what is it saying to us? And how should we be thinking about -- how should we be thinking about, if I wanted to have a -- it's a recurring risk just because of your policy, if nothing else? Is there something that flows through the model going forward just as -- almost as a safety measure? And then maybe the other way of asking it is, have you had some recoveries that perhaps we're not seeing relative to the bad debt, say, from the fourth quarter of last year?

So first of all, let me just talk about this quarter. We had more than one customer this quarter. But they're both in Latin America. One is the typical slow payment, the other is their financial condition. But you're right, we've been applying the same policies consistently over the years. I mean, it's been a while, and it's a conservative approach. I think it's fully transparent. Others in the industry have the same issues, but they're not taking the same accounting approach, so that's interesting in and of itself. But I would say -- we have not been, in Latin America, collecting -- we haven't had quarters where we've collected and not told you because we haven't been collecting above sort of what we expected. But if we did, we would probably break it out, if it were material. So I think it's -- and we've -- essentially, over the years, we've reserved quite a bit in Latin America. So the accounting risk and the financial risk is a lot lower than somebody else who maybe have it all on their balance sheet,n so...

Brad, let me add 1 thing to that. I wouldn't tell you that -- we still fully expect to collect every dollar we have legitimately earned. This is an accounting approach that we feel very strongly about. And we follow our rules, and we've been open straight with that. But we expect to collect every nickel. And when we do, if it's -- it needs to be broken out, we'll break it out.

And our next question comes from Kurt Hallead from RBC Capital Markets.

Martin, I was -- I just wanted to see if you could give a little bit more color around the semantics used when you talk about 50% of your frac crews are 24-hour capable. I think some of the benchmarks that have been discussed in the past were, I think, more directly related to how many of your frac crews are actually contracted for 24/7 operations. And I think in the past, at least I had the impression, that your target was about 70% of your frac fleet were to be contracted on 24/7 ops. So I just wondered if you might be able to provide some clarity and/or differentiation between 50% 24-hour capable versus what percent of your actual fleets are running 24/7 ops on contract basis right now.

Well, okay, so I'm not sure I'm going to be able to answer your question -- I'm not going -- probably choose not to give you what you're going to want to hear. We're 50% capable. I hope to be about 70% capable this time next year in terms of what's fitted out to be about 24 hours. And as I said earlier, all I'm going to say is that the 24-hour fleets are working more than the non-24-hour fleets, as you would expect. What percentage of that depends on the basin, it's something we work closely. Obviously, they're not any anywhere close to 100% utilized as -- nor is any -- even of the conventional fleets. So that's about the extent I'm going to be able to provide color for you, Kurt.

Maybe just in the context then of your comment about 50% capable, what makes a frac fleet 24-hour capable? And if you're going to go from 50% of your frac fleet that's 24-hour capable to 70%, what is the dynamic that's going to drive that?

There's 2 key drivers. One, you have to have a workforce and a work program to be able to keep the fleet going. Two, you have to have a customer structure that allows that fleet to be able to work at that high intensity. And then third, you have to have the supply chain, which is both infrastructure and R&M and just overall logistics, that can keep that fleet on location for -- and working. And what I mean by the supply chain, it also includes, obviously, being able to pull equipment off location and maintain it at a nearby infrastructure, to where, then, you can mobilize it back out. So it's a -- if you were to look at the fleet, it doesn't look any different. It's really -- if you would, everything in the background, it allows that fleet to keep working, starting with labor and the customer and then the supply chain.

And our last question will come from Ole Slorer from Morgan Stanley.

Martin, so in this backdrop of relatively steady but slow by historic standards suspending growth, you highlight kind of your biggest areas of top line excitement. But where do you see the biggest improvements for Baker Hughes to normalize margins just by being more efficient and rational with the bidding strategies and contracts? And what should the sort of new normal margins be? And also, where would it be the hardest to get to kind of what you would view as a normal level?

Well, I think my expectations are that all of our 4 geographical segments will continue to improve their margins. And if you look, on a relative basis, Latin America will -- should be driven by further efficiency gains and productivity gains in Brazil and given what actually materializes in Mexico, should be pretty good for the overall industry. North America, we obviously still have a lot of work to do in the 1 particular product line. And given the rollout of the technology, whether it's on the Pressure Pumping side, the AutoTrak Curve side or the Artificial Lift side with the ProductionWave, I expect margins there will definitely track north. I think the Europe, North Sea area will be steady. It's already one of our leading margin areas. I think activity will be strong, but I don't think activity will drive price there. I think it will be more of a technology play. I do think you're going to see some price traction as a result of activity in the Middle East. And as I highlighted earlier, Ole, Africa is probably one of the areas for us, both because of the increasing rig count that we see going forward, but also the technology plays and the demands for our kind of products is what's -- it gives me a whole lot of optimism and confidence that, that will be one of our leading margin areas in 2014.

And Ole, this is Peter. We've recently demonstrated, in Asia Pacific, a big turnaround. It used to be a laggard in terms of margins. But this quarter, it's no longer a laggard. It's -- the delta in Asia Pacific was very strong this quarter, and as you talked about intelligent bidding and this and that, well, we've done that. It's taken us a while, but we're seeing the fruits of it, particularly this quarter. I'm very proud of that region.

So back to Latin America again, what would -- could those margins go to, again, by rationalizing your business? And it sounds that -- I mean congratulations for winning that latest directional drilling contract in Brazil. But with the reorgs through and business normalizing and smart bidding, as you highlighted, what would the normal margin be for you guys in Latin America?

Ole, I'm not going to predict the margin. I'm going to just tell you that it's going to be up from here on out. And as Peter said, there's still some rationalization, some smarter contracts to improve our mix. I'm not going to give a -- give you a prediction or -- on what that margin is going to be in Latin America.

Okay, fair enough. Back to North America again, on Pressure Pumping. You highlighted that new technology is also making your frac fleet more efficient, 20% overcapacity. How do you view the industry-wide efficiency gains relative to the current overcapacity in a market that's modestly improved, steady headwinds through technology and efficiency gains, but some volume improvement? How do you measure those 2 against each other?

Well, you ask a good question. As we get reviews with the business, we obviously try to understand what the peers are doing and the industry overall because until the capacity is absorbed, we're not going to see any improvement in price, and pricing has to improve. I mean, it's a tough business right now. But I'll tell you that everybody, our peers included, are making headway in efficiencies. And so, again, it's just going to drag out the amount of time until this 20% capacity is absorbed. So -- and look at us as a perfect example. I mean, we're not the only one improving efficiency of our fleet. So I think this overhang of capacity is going to be with us for as far as I can see into '14. That's for sure.

Okay. Just finally, since I'm the last one, on the depreciation, relative to CapEx, you're spending 15%, 16% more than depreciation. Do you see a scenario where your CapEx can kind of drop in line with depreciation given the more capital-intensive components, such as Pressure Pumping overcapacity?

Not overall, Ole. Certainly, in Pressure Pumping, we're spending a heck of a lot less than we used to, but we're still in a growth business. We're growing revenues quarter after quarter, year after year. And we are -- we got to replenish our tool fleet regularly and introduce new products. And so, I think unless you see a dip -- heaven forbid, a dip in the rig count, we're probably still going to be spending above depreciation for the next...

Okay. Above sales growth, above depreciation?

Yes.

All right. Thanks, Ole. Thank you, all, and we appreciate everyone's time today. And Lorraine, let's, please, conclude today's call.

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