Question-and-Answer Session
Operator
Thank you, sir. (Operator Instructions). And for our first question, we will go to Brad Handler with Credit Suisse.
Brad Handler - Credit Suisse
Thanks, guys good morning.
Steve Snider
Good morning
Michael Anderson
Good morning, Brad.
Brad Handler - Credit Suisse
Could we please spend a little bit of time in the US? I guess maybe a general question first. Steve, your cautionary comments on the US deal, I guess they make sense. I'm not trying to suggest they don't.
But as you have explained to us overtime, you have a production orientation and some of the demand pullback that you are describing, is it seem inconsistent with that at all. Is it happening a little more quickly than you have might, I guess, given that? Can you just give a little color in that perspective?
Steve Snider
First of all, I don’t think it is inconsistent. Let me explain what we see as occurring in North America at the present. Certainly, our producer friends have been dealing with all the same issues all businesses are today, trying to decide how best to approach 2009, and I think, most of them have now come out with what their company philosophy is going to be. And for most of them, the common theme is cost containment as it is with us. And to do that, they are trying to find ways to economize whether they can in their operations and their production. One of those areas to economize is compression, and they do first by rationalizing their horsepower. And we are seeing returns of some horsepower due to that rationalization. They need as much horsepower as they currently have on their location.
Second issue that we have is that, as we all know gas supply is up considerably year-over-year and demand is somewhat down. So, we have a commodity price issues that’s in play. But we also have customers who are not as actively replacing declining reserves, so there is a natural erosion in horsepower as we get back down to the market demand. And we have some units that will come back due to that.
And then the third one that we talked about is that with long lead time deliveries last year, which were in place up till almost the end of last year, many of our customers committed the purchase equipment which they are now receiving, some of which was for productions that they may have delayed, so they will use that to replace some contract units from time to time.
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