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Edited Transcript of BAS earnings conference call or presentation 31-Oct-19 1:00pm GMT

Q3 2019 Basic Energy Services Inc Earnings Call

MIDLAND Nov 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Basic Energy Services Inc earnings conference call or presentation Thursday, October 31, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Thomas "Roe" Patterson

Basic Energy Services, Inc. - CEO, President & Director

* David Schorlemer

Basic Energy Services, Inc. - Senior VP, Treasurer, Secretary & CFO

* Trey Stolz

Basic Energy Services, Inc. - Director, Investor Relations

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Conference Call Participants

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* Daniel Burke

Johnson Rice & Company, L.L.C. - Senior Analyst

* John Daniel

Simmons & Company International - MD & Senior Research Analyst of Oil Service

* Tommy Moll

Stephens Inc. - Research Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Basic Energy Services Third Quarter 2019 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Trey Stolz. Please go ahead, sir.

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Trey Stolz, Basic Energy Services, Inc. - Director, Investor Relations [2]

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Thank you, operator, and good morning, everyone. Welcome to the Basic Energy Services Third Quarter 2019 Earnings Conference Call. We appreciate you joining us today.

Before we begin, I'd like to remind everyone that today's comments include forward-looking statements reflecting Basic Energy Services' view of future events and therefore potential impact on performance. These views include the risk factors disclosed by the company in its Form 10-Qs and 10-K for the year ended December 31, 2018. Further, refer to the statement regarding forward-looking statements incorporated in our press release from yesterday. Please also note that the content of this conference call are covered by these statements. In addition, the information reported on this call speaks only as of today, October 31, 2019, and therefore, you're advised that time-sensitive information may no longer be accurate as of the time of any replay.

With that, I'll turn the call over to Roe Patterson, President and CEO.

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Thomas "Roe" Patterson, Basic Energy Services, Inc. - CEO, President & Director [3]

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Thank you, Trey. And welcome to our 2019 Third Quarter Earnings Conference Call. We appreciate your interest in our company. Joining me on the call is David Schorlemer, our Senior Vice President and CFO. Today, I plan to discuss our 2019 third quarter results, operational focus and strategies for the remainder of the year. David will walk through some more detailed financial metrics for our recent quarter.

The first 9 months of 2019 have been more challenging than most expected. Crude prices remain range-bound with the sentiment bearish on weaker global demand expectations. As these softer crude prices have persisted, the third quarter saw a continued decline in activity with the impact largest on our completion-related services. Net outlook is unlikely to change here in Q4, as many of our upstream customers have pointed to exhaustion in their gross CapEx budgets. In addition, many large E&Ps continue to focus on preserving liquidity and operating within cash flow.

With the active U.S. drilling rig count reaching its lowest level since April 2017, a challenging environment has been created for oilfield services as we enter 2020. In contrast to this reduction in new well drilling and completion activity, we have experienced customers pursuing measurable returns by way of enhancing existing production, the single-best option for generating cash. Early indications for 2020 from many of our larger customers verify this trend, which should greatly benefit our core production-oriented businesses.

Late last year, we commenced a strategic realignment initiative, which included the relocation of assets, yard closures, the sale of non-core businesses and the rightsizing of our corporate footprint. We're very pleased that these strategic initiatives have shown positive results in 2019 with margin preservation and even improvement despite shrinking revenue. But this effort is not complete. In order to meet the challenges of today's market and maintain our company's position, we continue to aggressively and decisively cut cost against this challenging backdrop. No initiative is more significant than our move to bolster our market-leading production services businesses and consequently, lower our reliance on completion activities. Well Services and Water Logistics businesses, our scale, production-levered businesses, currently makeup 59% of total revenue, up from 50% just a year ago.

This ongoing relative increase in exposure to production services will result in greater revenue stability with significant upside potential for Agua Libre Midstream, our wholly-owned subsidiary. I'll give you an update on that business in a moment. Last quarter, I discussed our transferring of 17 quintuplex frac pumps that are now deployed as high-horsepower mud pumps in our Well Services operations. These pumps continue to perform extremely well as part of a bundled workover and high-spec 24-hour rig package. On 24-hour rig packages, we worked an average of 19 for the quarter, flat from 19 we averaged in the previous quarter. Pricing has also remained stable for these packages, where day rates reach $30,000 a day. We credit our industry-leading utilization to the fact that our package offerings are best-in-class in spec and capability, designed for the work on today's long lateral wellbores.

Before we turn to operations, I want to touch on the continued moves to develop a leaner G&A structure, strong balance sheet and better working capital management.

Since late 2018, we've made significant moves to lower corporate and field-level G&A cost, modernize our information systems and continue to apply best practices to our working capital management. We're very pleased with the fruit of these efforts today with the annual G&A run rate down $30 million from the third quarter of 2018.

Turning to third quarter results, margins remain relatively stable quarter-over-quarter despite total revenues being down sequentially, with September marking some of the softest revenue levels we've seen this year. Adjusting for the $3.9 million write-down related to our manufacturing division, direct margins were flat quarter-over-quarter at 24.6%.

In fact, margins in our Well Servicing segment increased by 120 basis points sequentially to 23.8% on a revenue decrease of 2%. Meanwhile, completion and remedial revenues decreased approximately 10% quarter-over-quarter largely on declines in frac activity. Despite this sharp decline in revenue, the segment maintained margins of 23.1%, down only 50 basis points from the second quarter.

This preservation of margin was due in part to significant cost-saving initiatives that have continued since our consolidation of frac assets to the midcontinent area in May. We are continuing to trim the cost of our Pumping Services group by blending the G&A structure of this division into our other existing region operations.

Further aiding margin results for C&R segment was the rental performance related to our industry-leading workover and 24-hour packages.

Well Services segment revenues were essentially flat with the second quarter. We marketed an average of 307 rigs in Q3, of which 272 are high-spec. Average rig utilization was 68% for the quarter, and Well Servicing rig hours totaled 149,000 compared to 155,000 in Q2. Of the average 24-hour rig count of 19 for the third quarter, 15 of these large packages are on multiyear, dedicated customer agreements.

These agreements cover broad, multi-well development projects with large operators, and they are concentrated in the Permian Basin.

Water Logistics revenue declined 5% from the second quarter levels to $48.5 million with margins down 220 basis points from the second quarter, but still remains higher than margins we saw in the entire year of 2018. Negatively impacting third quarter revenue and margins in the Water Logistics segment was lower completion activity resulting in lower flowback volumes.

Severe weather and holiday disruptions impacted Q3 revenues more than second quarter. We estimate this impact to the top line was approximately $4 million.

In our Water Logistics segment, we report Agua Libre Midstream as well as basic water hauling to both Agua Libre and third-party disposal wells. In Agua Libre specifically, overall saltwater disposal volumes continued to grow quarter-over-quarter to 10.8 million barrels, a company record with 35% of these volumes coming from pipelines and 13% coming from third-party trucks.

In the Permian Basin, 63% of disposal volumes in the third quarter came via pipe, up from 58% in the previous quarter. We remain very excited about the Agua Libre opportunity and have recently added multiple state-of-the-art saltwater disposal facilities to our large midstream network. As these midstream projects come online, we expect volumes to continue to trend upward into the first half of 2020. The bulk of our projects are in the Permian Basin where we have 33 saltwater disposal wells currently. On the water hauling side, the total number of basic trucks declined to 795, that's down 5% year-to-date, while the number of trucks has decreased significantly from our peak of over 1,000. That decline has slowed recently as we optimize utilization of our fluid handling truck fleet.

I would remind investors that trucks will never go away completely in this business as permanent infrastructure is not always the right decision for a variety of reasons, including field-level economics.

Looking forward, the strategy for Agua Libre Midstream remains straightforward, adding contracted volumes to our disposals and increasing our third-party truck volumes. Our team continues to evaluate and negotiate perspective-contracted volumes. These opportunities range from true midstream contracts with volume commitments and acreage dedications to basin-wide trucking contracts with large upstream operators. The latter creates a strong upstream push to our disposals in addition to our sales force pull for the third-party water and facilities, which are direct billed to operators. And this is a much more efficient process for Basic. The targeted payback on all water midstream projects is approximately 3 years, but due to our ability to use our existing network capacity rather than exclusively greenfield capital, certain projects may see a quicker payback. As we noted last quarter, all of our contracts that require Basic capital have recourse to the customer, if the contract is breached, protecting our capital and our returns. As we move forward, we will begin to see the true operating leverage in this business in 2020 as pipeline and third-party truck volumes increase significantly, while basic truck water remains the steady foundation for all volumes.

Overall, we ended the quarter with adjusted EBITDA of $13.9 million, in line with our expectations despite revenue being slightly lower sequentially. In terms of our 2019 CapEx spend, we are constantly evaluating our plan, and we remain disciplined in our approach to capital allocation this year. Based on results today, we expect full year CapEx to be in line with prior guidance of $58 million. As we look forward to 2020, we plan to again invest the majority of our expansion capital in the Permian focused water infrastructure by way of Agua Libre Midstream. We do not anticipate the unstacking of frac equipment in the near term, but an eventual increase in well completions could represent the source of significant upside. Under our current capital expenditure plan for the remainder of 2019, we are updating guidance for 2019 EBITDA and expect to finish the year between $53 million and $56 million of adjusted EBITDA. With that, I'm going to turn the call over to David for more financial details.

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David Schorlemer, Basic Energy Services, Inc. - Senior VP, Treasurer, Secretary & CFO [4]

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Thank you, Roe, and good morning, everyone. I plan to provide details on our third quarter financial performance compared to the sequential results from second quarter 2019, unless noted, and an outlook for the fourth quarter and first half of 2020.

During the third quarter, Basic reported a $38.9 million GAAP net loss of $1.52 per share, which included non-cash impairment charges of $7.1 million or $0.28 per share related to our contract drilling assets we have moved to assets held-for-sale and an inventory impairment at our Taylor Industries manufacturing business.

Q3 revenues decreased sequentially 6% to $178.4 million from the second quarter, while total company direct margins were relatively flat near 25% when excluding the non-cash charges.

Adjusted EBITDA decreased 16% sequentially to $13.9 million as compared to $16.5 million in Q2 with 23% decremental margin sequentially.

For the 9 months ended September 30, 2019, our weighted average shares outstanding were 26.6 million.

Now turning to our segment results. Our production-oriented businesses combined for 59% of total company revenues with Well Servicing and Water Logistics representing 32% and 27%, respectively, consistent with the prior quarter. In these 2 core segments, revenues decreased $3.7 million or 3% sequentially on reduced activity, while direct margins decreased $1.4 million or 5%.

Completion & Remedial Services revenues were $70 million in third quarter, a decrease of 10% over the prior quarter and represented 39% of total revenues, while margins were relatively flat at 23% compared to 23.6% in Q2 due to increased margins of 41% in Q3 in our RAFT line of business compared to 37% in Q2.

The Well Servicing segment generated third quarter revenues of $57.1 million, a sequential revenue decrease of 2% compared to Q2 on lower rig count and utilization. However, we were pleased to see segment profits increase to $13.6 million or nearly 24% in Q3 from $13.1 million or near 23% in Q2, as we continue to benefit from cost-control measures.

Our rig utilization rate was 68% in Q3, down slightly from 70% in Q2, mainly as a result of decreased completions activity. Additionally, our daylight rig count was weaker as we averaged 96 daylight rigs in Q3 as compared to 108 during Q2. The primary drivers were large E&P customers deferring discretionary spending.

The Water Logistics segment generated revenues of $48.5 million, a sequential decrease of 5%. Segment profits were 28.2% or $13.7 million, a decrease of 12% over the prior quarter, primarily due to decreased completions-related activity as larger E&Ps slowed down their completions activity in the Central and Delaware Basins, which impacted rentals and service work.

In spite of these headwinds and a planned decrease in our active fluid truck count, water disposal volumes reached a record 10.8 million barrels in the third quarter.

Direct margin in the Agua Libre Midstream business within our Water Logistics segment increased 89% in Q3 as the digital pipeline volumes contributed higher direct margins in our water midstream operations. We expect total company revenues to decrease sequentially for the fourth quarter of 2019 based on the normal decrease in working days and seasonality during the fourth quarter and market sentiment that E&P companies will continue to curtail capital spending into the end of the year.

Reported or unadjusted G&A expense decreased during the third quarter to $32.1 million, a decrease of $2.7 million compared to the second quarter. Third quarter adjusted G&A expense of $13.1 million, excludes a $1.5 million net credit to compensation cost related to rose departure. Adjusted G&A decreased $0.2 million sequentially or almost $1 million on an annualized basis. We expect G&A expense in the fourth quarter of 2019 to be approximately $31 million.

Third quarter depreciation and amortization expense was $29.2 million compared to $29 million in the second quarter, and we anticipate D&A in the fourth quarter to remain flat. Reported net interest expense was $11.6 million in Q3 compared to $10.4 million in the second quarter. The increase was related to accrued interest on an income tax judgment and anticipated settlement from prior tax years. We expect Q4 quarterly net interest expense to be $10.2 million, while interest in 2020 is expected to decrease to approximately $9.7 million per quarter as the principal amount out on our capital leases continues to decline.

Our effective tax rate was 0 for the 9-month period. As of September 30, 2019, the company had approximately $860 million of net operating loss carryforwards for federal income tax purposes, for which we carry a full valuation allowance. Due to our NOLs, we do not anticipate paying federal income taxes for the foreseeable future.

Cash capital expenditures for the quarter ended September 30, 2019, were $11.2 million compared to $16.8 million in second quarter, and were $53.9 million year-to-date. Expenditures were partially funded by proceeds from dispositions during the third quarter of $2.1 million. Approximately $5.8 million of cash CapEx was spent on expansion projects, primarily on ongoing midstream projects with the remainder for maintenance.

We had capital lease additions for sustaining fleet replacements of $0.4 million in Q3 compared to $1.4 million in the second quarter, and we do not expect to have substantial additions for the remainder of the year. Our capital lease balance was $45.6 million at quarter end, down from nearly $61 million at year-end 2018. We expect our year-end capital lease balance to decline to approximately $40 million.

We currently expect 2019 full year CapEx to be approximately $58 million, including total lease additions for the year of $8 million, with the range of estimated cash proceeds from dispositions for the year of $15 million to $17 million. This will result in cash CapEx net of proceeds of approximately $34 million to $36 million for the year.

Net working capital decreased sequentially as we paid down accounts payable, and accounts receivables decreased as a result of reduced activity. Our DSO was 65 days, while our 90-day receivables represented 9% of our AR balance on September 30.

As previously disclosed, we have authorization for a $5 million share repurchase program. Share repurchases have totaled 2 million shares for $3.4 million in Q3 with total accumulative shares acquired through October 30 of 2.5 million shares for $4.8 million. Our cash and cash equivalents were $50.5 million, and our borrowing capacity net of letters of credit was $50.4 million with no amounts drawn on the ABL on September 30. Total available liquidity at the end of the quarter was $101 million, and our long-term debt net of discounts was $336 million compared to $350 million at year-end 2018.

We expect total debt reduction during the year of approximately $19 million.

We have no debt maturities through 2023 except the normal course of residual capital leases as they roll-off under normal terms. Our primary focus today is to generate operating cash flow and protect our liquidity through spending discipline while continuing to modernize our business processes to optimize our cost structure and service delivery efficiency.

Effectively and efficiently delivering business intelligence to our internal and external customers is critical, particularly, in today's competitive market. We continue to invest in a successfully deployed best-in-class technology systems to enhance our competitiveness. Our success in this effort has positioned Basic to respond to the supply chain management organizations within our customers that are demanding more and more data. In fact, we've recently attracted a number of global integrated customer procurement teams, who have been impressed by our unique ability to provide the business intelligence and customer portals they're requesting. We expect to make further progress as supply chain management continues to drive decision-making within E&P organizations, large and small.

With that, I'll turn the call back to Roe for some closing remarks.

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Thomas "Roe" Patterson, Basic Energy Services, Inc. - CEO, President & Director [5]

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All right. Thank you, David. As we head into the winter months and expect potentially stronger than typical seasonality in the fourth quarter, we anticipate customers to continue to focus on returns and free cash flow generation.

With our industry-leading fleet of high-spec services rigs and associated rental equipment along with the vast network of saltwater disposal wells, that make up Agua Libre Midstream, we believe that Basic Energy Services delivers a compelling value to upstream producers with this production services offerings and operational outperformance.

Even with this stable platform in production-oriented businesses, healthy returns in our service sector can be greatly improved with a high level of consolidation. To that end, we are working consistently on opportunities that present scale, cost synergies and de-lever the balance sheet. While bringing any specific transaction across the finish line has proven difficult in the industry over the last several years, we remain strongly committed and optimistic that more and more our peers feel as we do. Now, more than ever, we feel consolidation is critical to our space.

Lastly, as this will most likely be my last earnings call with the Basic team, I'd like to take a moment to comment on how proud I am of the team that's assembled here at Basic today. While none of us can control the price of oil or the level of demand for our services in our industry, this team has continually executed at one of the highest levels in the entire service industry space. It's been an honor and a privilege to work side-by-side with each and every one of my teammates over the last 14 years. Also I'd like to thank our Board, our customers, our vendors, our covering sell-side analyst and of course, our shareholders. I'm confident that this industry's best days are not behind it, and that the Basic Energy Services team will be a differentiating factor for many years to come. And with that, operator, please open up the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today is coming from Tommy Moll from Stephens.

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Tommy Moll, Stephens Inc. - Research Analyst [2]

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Wanted to start on Aqua Libre, couple related questions there. First for the CapExI that's gone into already. When will a lot of that start to hit the model? And specifically, if you could give us a size range or just a magnitude, any sense of how big an impact we might see going forward? And then second related question, as you think about the opportunities for potential investments, can you frame up for us, just a hypothetical project, how much capital you might take down for any given project? It sounds like it might be a 3-year type payback, but anything else you can do to help us size the opportunities, that would be helpful.

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Thomas "Roe" Patterson, Basic Energy Services, Inc. - CEO, President & Director [3]

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Sure. So I think in '19, by the time we get through, we're going to have spent somewhere in the range of between $8 million and $12 million on some these infrastructure projects of Agua Libre. We probably start to see the EBITDA generation of that, they'll start in late first quarter of 2020, might even see a little sooner than that. But I think you won't see the full run rate until second quarter of 2020. I think that these projects typically do have a 36-month payback or better. This particular project probably has a little better payback than that. So you can kind of figure the EBITDA -- we only talk about payback, we're just talking about cash-on-cash. So you can kind of calculate the EBITDA yourself as we think it's going to be 30 to 36 months with a full run rate kind of EBITDA generation from that kind of spend. That was a big project, we don't expect every project to be nearly that big. That system has multiple SWDs, it's got multiple gathering stations, lots of trunk lines and gathering lines. So we feel like not every one of these projects can be nearly that involved, several of them will be $2 million and $3 million kind of projects. Some will be less than $1 million where we're actually just retrofitting what was a private basic disposal to a more commercial disposal that allows more third-party trucks. So in a sense, we will go from like a 3-bay depot to a 6-bay depot. Those are going to pay back very quickly. So probably less than 18 months of payback. So it's kind of all over the map. We just think that 36 months is kind of the max, and then I think more importantly, we don't want to deploy capital where we don't have or at least significant capital for these gathering systems where we don't have contracted support from the customer base. And so that's what the discussions are today, getting commitments on paper, volume commitments are hard to get, acreage commitments are a little easier, lots of greenfield out there for some customers, lots of interest in what we're doing and where we're doing it, but it's driven by what the customers are willing to contract. So we're being very judicious when it comes to deploying that capital, and we will be in the future, because obviously, without a third-party capital provider, we've got to be careful because we just don't have a ton of dry powder to go out there and build system after system. So it will require some support from the customer. In some cases, we might even have customers that want to contribute to the capital outlay. So we have lots of irons in the fire. I hope that answers your question, Tommy.

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Tommy Moll, Stephens Inc. - Research Analyst [4]

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It does. And your comments on capital lead me to my second question I wanted to ask. In recent quarters, you guys have given an estimate on where you think you may end the year in terms of the cash balance. I wondered if you could update us on that. And then any early peak you could give us into 2020 CapEx. Understand it's premature, but a range will help or even just qualitatively some of the considerations that are in play.

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Thomas "Roe" Patterson, Basic Energy Services, Inc. - CEO, President & Director [5]

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I'll let David speak to 2020 because I probably won't be here for it, but I think that -- ending this quarter in the $40 million to $45 million range is probable. We'll -- that will include some CapEx that we have planned for the fourth quarter. We can dial that back in. In other words, if we saw customers change their behavior dramatically, we might curtail that a little bit. So think that's more of a high case or as low case for cash. So we could -- we can pull cash in and actually end up with more cash than that if we saw things go more off the rails or something. But right now, it looks pretty stable, and we feel like all the customer commitments we have are going to hold through the end of the year. I think David, you want to talk about where you see in 2020?

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David Schorlemer, Basic Energy Services, Inc. - Senior VP, Treasurer, Secretary & CFO [6]

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Yes. I think, this year, we've communicated, we're going to spend about $58 million, $59 million for the year. That's in a year that we had a lot of expansion CapEx upfront. That number will be in the neighborhood of about $23 million to $24 million for the year as far as expansion. Next year, obviously, it's not something that we're going to do as far as a lot of discretionary CapEx. So I think that number for the year, next year if we're in $30 million cash CapEx level, we would supplement that with some additional leases for our rolling stock, so that number might be upwards of $35 million to $37 million range. But that's kind of what we're thinking at this point. And obviously, in the oilfield space, you can't really make annual plans. You've got to be able to adjust and react to the conditions on the ground, and we know those things are going to change. So we'll be ready to do that.

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Operator [7]

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Our next question is coming from John Daniel from Simmons & Company.

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John Daniel, Simmons & Company International - MD & Senior Research Analyst of Oil Service [8]

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Roe, good luck on your next adventure and thank you for all the support over the years. I guess my first question is margins were pretty commendable in the C&R segment given the revenue drop. I'm just curious the guidance points to revenues being down. I think you said similar amounts in Q4 within C&R. How would you see margins within that segment in light of just the seasonality and in other revenue decline?

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Thomas "Roe" Patterson, Basic Energy Services, Inc. - CEO, President & Director [9]

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I think decrementals are going to be about what they were in the transition from second to third quarter. And it's propped up by the rental and fishing tool business and all of the work that we do on these big workover packages that gets lumped into C&R. So the acidizing business is stable, the cementing business is stable. Our coiled tubing business is pretty stable. Knock on wood, we're pretty happy with those results right now. The softest part of that business is frac, and while our utilization has been good, pricing has been the toughest thing. We've got some of our larger peers out there just dropping prices below what we think are really breakeven returns at the field level. When we pass on that work, we don't even in -- we won't even try for it. So we can't make a decent cash return at the field level. It's not something we're interested in participating in. So -- but when they do -- when they throw those prices out there, they bring the whole tide down. And so it makes things tougher in that business. So I think frac is the softest piece. It will be the softest piece in the fourth quarter, but even though we expect some additional reduction in well completions, we think our rental and fishing tool business and our coal business, cement and acid will hold decrementals about what they were second quarter to third quarter.

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David Schorlemer, Basic Energy Services, Inc. - Senior VP, Treasurer, Secretary & CFO [10]

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Yes. And just to add to that, John, we're going to be benefiting going forward from a fairly substantial realignment in our Pumping Services Division where we've integrated those into our regions. So we're going to be kind of resetting our cost structure. I think our Pumping Services group has done a great job year-to-date. And getting ahead of that, we had a tough first quarter, or first few months of the year. But since that time, we've been in that 15% to 20% or plus percent margin. And we hope to see the benefits of that additional work as we move forward.

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John Daniel, Simmons & Company International - MD & Senior Research Analyst of Oil Service [11]

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Okay. And then sort of following on Tommy's questions within the water business. With these investments that you've made, do you think -- and again, I know, don't give out the 2020 guidance, but would you feel comfortable at least with margins, gross margin there being north of -- in the low 30s with these investments, assuming no major change to industry activity?

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Thomas "Roe" Patterson, Basic Energy Services, Inc. - CEO, President & Director [12]

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Absolutely. I'll be disappointed if they are not higher than that. So -- but we're just talking about pure pipe water and kind of pure midstream kind of margins. The margins get lesser for pure truck barrels, but still pretty good, considering some of the margins that are out there in services today. Those are still pretty healthy margins in the mid-to high 20s. The one thing I would say is, as well completions reactivate, and we've had several customers talk about fracs that have been postponed until the first of the year, things they absolutely are going to do in the first quarter. So we think that flowback barrels are going to pick back up in the first quarter. And that's going to add tremendous support to margins in the fluids business in the first quarter. We could get a nice surprise in that business with flowback barrels. Remember, flowback barrels are usually by the hour, not so much by the barrel, margins are higher and frankly, we see skim oil cuts that are slightly higher from flowback barrels. So those are always -- it's a good time when we're working around the clock doing flowback.

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John Daniel, Simmons & Company International - MD & Senior Research Analyst of Oil Service [13]

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Okay. And then just 2 housekeeping ones, if I may. If you could remind me where the four working frac spreads are located, which regions? And then...

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Thomas "Roe" Patterson, Basic Energy Services, Inc. - CEO, President & Director [14]

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Yes. Okay. It's ranging from 4 to 5. North Texas, Oklahoma, we do a little bit of work in Kansas, and a little bit of work in the DJ. We also will frac some, will jump over into Central Basin platform and Midland Basin from time to time as well.

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John Daniel, Simmons & Company International - MD & Senior Research Analyst of Oil Service [15]

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Okay. And then, I guess, the final one for me, you noted in the release, I don't think you said this in your prepared comments. If you did, I missed it. But on the assets, like the drilling assets, do you -- would you hazard a guess what you're targeting for proceeds from asset sales over the next 3 to 6 months?

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Thomas "Roe" Patterson, Basic Energy Services, Inc. - CEO, President & Director [16]

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I don't want to get into what we think we're going to see at auction, because I think auctions always surprise everybody. We're confident that we're going to sell a split between some stacked assets and some going concern. We've had some folks trying to come in before the auctions and make some offers. So we have some ideas but I mean, I think that the drilling equipment is certainly not going to bring a premium, but it's going to be something that we're happy with when it's all said and done. It's probably under $10 million, but all in, we've got several inbounds on all of that. So it's -- that's healthy to see and good to see. We'll just have to see what the auctions bring when it's all said and done.

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John Daniel, Simmons & Company International - MD & Senior Research Analyst of Oil Service [17]

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Is that a Q4 event, Roe?

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Thomas "Roe" Patterson, Basic Energy Services, Inc. - CEO, President & Director [18]

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Yes.

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Operator [19]

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Our next question today is coming from Daniel Burke from Johnson Rice & Company.

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Daniel Burke, Johnson Rice & Company, L.L.C. - Senior Analyst [20]

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I guess, I wanted to return briefly to the cash CapEx plans for 2020. David, you talked about $30 million a little while ago. Just wanted to understand is that essentially a maintenance-only budget? Or have you guys been able to restrain or with the rationalization of the asset base, is maintenance only a component of that? And is there a growth hold?

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David Schorlemer, Basic Energy Services, Inc. - Senior VP, Treasurer, Secretary & CFO [21]

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That's going to be -- it's going to have some expansion component to it. So I think the way we would look at things is we're going to be pretty stingy on discretionary CapEx, but as Roe mentioned, if we have identified some customer-sponsored projects, not some of the larger projects, but some of those one-offs, smaller ones, that we might look at that. But, I mean, I would look at that as being highly levered to the maintenance of our fleet.

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Daniel Burke, Johnson Rice & Company, L.L.C. - Senior Analyst [22]

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Okay. Got it. And then just to pivot over to the Well Services business, it was nice to see the 24-hour rig packages that were active, hold steady from Q2 to Q3 despite industry activity levels declining. As look ahead to next year, if we do see a completion activity kind of rise, can you just remind me how many of those packages you have the ability to field and what do you think the prospects are, Roe, to maybe nudge that number back up closer to where it was a year ago?

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Thomas "Roe" Patterson, Basic Energy Services, Inc. - CEO, President & Director [23]

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Well, it'll all be a function of the completion work. I mean, I think the -- and possibly some bigger workover. We're doing both right now, recompletions and some lateral extensions, things like that. And even some brand-new lateral work. But I think the driver for that will definitely be completions and drill outs. We'll probably -- we feel that as many as 31, I think, that was our peak, kind of average last year was 23 to 24. We could quickly get back to that number in first quarter of 2020. But I would be disappointed if we didn't touch that high 20s, and possibly even low 30s number before the end of 2020.

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Daniel Burke, Johnson Rice & Company, L.L.C. - Senior Analyst [24]

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All right. And Roe, certainly all the best looking forward.

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Thomas "Roe" Patterson, Basic Energy Services, Inc. - CEO, President & Director [25]

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Thank you, Daniel.

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Operator [26]

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We reach end of our question-and-answer session. I'll just turn the floor back over to Roe for any further or closing comments.

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Thomas "Roe" Patterson, Basic Energy Services, Inc. - CEO, President & Director [27]

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All right, thank you, operator, and thank all of you for calling in. I look forward to watching this company continue to excel. I hope consolidation is a big driver for this industry. I'd love to see a lot of it done over the next few years and would love to see Basic be a big part of that as a significant shareholder.

And to my team, I remain your biggest supporter and have the highest level of confidence that the next CEO will be just as proud to work with you as I have been. So thanks, everybody. We'll talk to you soon.

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Operator [28]

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Thank you. That does conclude today's teleconference. You may disconnect your lines at this time. And have a wonderful day. We thank you for your participation today.