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Edited Transcript of PES earnings conference call or presentation 16-Feb-18 4:00pm GMT

Q4 2017 Pioneer Energy Services Corp Earnings Call

SAN ANTONIO Feb 22, 2018 (Thomson StreetEvents) -- Edited Transcript of Pioneer Energy Services Corp earnings conference call or presentation Friday, February 16, 2018 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anne Pearson

* Carlos R. Pena

Pioneer Energy Services Corp. - EVP & President of Production Services Segment

* Lorne E. Phillips

Pioneer Energy Services Corp. - Executive VP, CFO & Principal Accounting Officer

* William Stacy Locke

Pioneer Energy Services Corp. - President, CEO & Executive Director

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Conference Call Participants

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* Daniel Joseph Burke

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

* James Marshall Adkins

Raymond James & Associates, Inc., Research Division - MD of Equity Research and Director of Energy Research

* Jason Andrew Wangler

Wunderlich Securities Inc., Research Division - Former MD & Senior Research Analyst

* Waqar Mustafa Syed

Goldman Sachs Group Inc., Research Division - VP

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Presentation

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Operator [1]

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Good morning, and welcome to the Pioneer Energy Services Fourth Quarter Earnings Conference Call. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anne Pearson of Dennard-Lascar, Investor Relations. Thank you, Ms. Pearson. You may begin.

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Anne Pearson, [2]

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Thanks, Rafter, and good morning, everybody. Before I turn the call over to Stacy Locke and Lorne Phillips for their formal remarks, I have a few of the usual items we need to cover. First of all, a replay of today's call will be available via webcast and also telephone replay. You can find the replay information for both of these in this morning's news release.

Just as a reminder, information reported on this call speaks only as of today, Friday, February 16, 2018, so any time-sensitive information may not be accurate at the time of the replay.

Management is going to make forward-looking statements. They're based on beliefs and assumptions and information currently available to them. While I think these expectations are reasonable, they can give no assurance or prove to be correct. They are subject to certain risks and uncertainties and assumptions described in today's release and also in recent public filings with the SEC. So if one or more of these risks materialize or should underlying assumptions prove to be incorrect, actual results may differ materially.

Also, please note that on this conference call, we may refer to certain non-GAAP measures. You'll find a reconciliation to the GAAP measures in this morning's release.

Now I'd like to turn the call over to Stacy Locke, Pioneer President and CEO. Stacy?

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [3]

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Thank you, Anne, and good Friday morning to everybody. Joining me here in San Antonio is Carlos Pena, President of our Production Services Segment; and Brian Tucker, President of our Drilling Services Segment; and of course, Lorne Phillips, our Chief Financial Officer.

I appreciate everybody joining the call. Overall, we had a good fourth quarter for the company. Revenue was up 9% mostly due to the ramp-up in our international drilling segment and in our coiled tubing services. EBITDA was up 21%, there again, due to the improvements in Colombia and coiled tubing primarily. EBITDA margin increased 1.5% to 13.5% of revenue in the quarter.

When you look back over the entire year, we experienced a very nice, steady improvement in revenue and EBITDA each quarter of the year, and we expect that trend to continue, based on our outlook today into 2018. We will be pushing very hard to generate positive earnings in Q4 of 2018.

I would like to first talk about the 2 areas that I highlighted above, where we've seen such a big improvement, and I'll start with Colombia. In Colombia, 7 of our 8 rigs there will be going to work, 6 are already working, the seventh will be moving in a couple of weeks, and will begin by beginning of the second quarter in operations. In the country, we're working for 4 different, very good operators, and we've got rigs really spread around the country of Colombia. We have 3 rigs working in the Middle Magdalena Valley. Two of those are under 3-year term contracts and 1 is under a 1-year term contract. We've got 2 rigs, which includes the rig that will be moving in the next couple of weeks, working in the Southern part of the country in the Putumayo region. And one of those rigs will be under a 3-year term contract and 1 is under a 1-year contract, but is in evaluation to go for a longer-term on that second rig. Then we have a rig in the Llanos basin, that's under a 2-year term contract, and then we have a rig way up in the Northwestern part of the country, near Cartagena, under a 1-year term contract. So we've got operations everywhere and we've got a great group of clients that we have really enjoyed working with and in a strong partnership with throughout the past year.

As you can see from the press release, we're guiding a $7,000 to $8,000 a day margin there in the first quarter. We have started up a lot of rigs. We've been mobilizing rigs around the country, as you can hear from that prior description. So we think over time that, that's going to settle down, and we believe those margins will start gradually moving up, closer to a $9,000 a day margin. So presently, things are still a little bit lumpy, with start-up costs and rig moves, but we think that will settle out. Just to frame it for you a bit, since it's such an improved story for us, starting in the second quarter, we would expect to be running close to $1.5 million in EBITDA a month, or if you looked at it on a more annualized basis, we think this is going to turn into a $70 million to $75 million revenue business, with good EBITDA margins in the 22% to 24% range. So it's going to be a major contributor this year. And then, of course, next year, we have the potential to put the eighth rig to work later in the year, but you'll get a full run rate of activity next year. So we think 2019 will be a very, very good year.

Switching now to the coiled tubing business. Revenues there, as you can see from the press release, were up significantly, 29% quarter-over-quarter. Also, a very nice improvement in EBITDA. 15% increase revenue days and a 13% increase in average revenue per day. So just a big improvement for our coiled tubing services business.

We have 14 total units. We've sold a few during the course of the year. We have one 2 and 5/8 unit; two 2 and 3/8 inch units; one -- I mean, no, three 2-inch units. And for all of those, 2 inch and above, we've had extremely strong demand. And then we have four onshore 1.25- to 1.5-inch units and four offshore skid units, also 1.25 to 1.5 inch. That demand in the smaller-pipe sector has been spottier. We are still evaluating. We hope the offshore will pick up. We hope we'll see more activity there, but that's definitely been where we've had less utilization. We are ordering an additional -- we have ordered an additional 2 and 3/8 large-pipe unit, and that should be contributing in the third quarter of the year and the fourth quarter. Our strategy is to gradually shift this business more, emphasizing the larger pipe as we go forward.

Into this year, January started off slow, like it does every year and, typically, Q1 is the softest quarter seasonally. But since about the fourth week in January through where we are today in February, the demand has really picked up significantly. So our outlook is excellent for that business. We anticipate a nicely improving business through the year, and then that will be aided by that large pipe coming in, in the third quarter and the fourth quarter, where we've just had extremely high demand. This is -- this has become a core business for the company, delivering superior performance, and I'm really proud of our management team that has kind of realigned that business and has turned into results that we're seeing today.

Looking at our U.S. Drilling operation, it's just kind of a boring, stable, A+, 100% utilized business. It just doesn't get any better than that there, generating extremely high margins per day. We've got extremely satisfied customers, and we're just -- just is meeting all of our objectives and KPIs as we've ever hoped for. Even though we generate pretty good margins in the fourth quarter, we're guiding up a little bit higher for Q1.

We still have legacy spot rates. We've got rates on the book ranging from 19 to 22, and we anticipate that some of these legacy spot rates will be rolling over and rolling higher this year, we have 5, in fact, that will roll in the second quarter, 1 in the third and 2 in the fourth, that are all spot at lower rates, which will roll pretty materially higher. Now those will -- we have a few that are new-build term contracts that will roll lower, but we think these -- basically, half of the fleet in the U.S. rolling higher will offset those rolling lower. And so we would anticipate that we can hold $9,000 a day margins through the course of the year. So we're really excited about what U.S. Drilling has done for us.

Turning now to our wireline operations. They have done very well. Basically came out of the chute at the beginning of last year, with high utilization, it just got better every quarter. Through '17 looks better, going into '18 than it did in '17. We've got 95 marketed units in our wireline services business. We have 10 stacked units and we have 3 that are currently being refurbished that we pulled out of the stackyard already. So we plan to continue the trend of mobilizing equipment out of the stackyard, refurbishing it and putting it into operations. So through the course of the year, we expect to put about 7 total rigs out of the stackyard back into service, which would take our marketed fleet up over 100 units and out of our total of 108 units. Now we do have 1 new unit on order that will be delivered in the third quarter, so that will take our count, assuming no other changes, from 108 to 109 in the third quarter. For the best I can tell, we are -- we continue to be the most active wireline company in the United States, the best I can tell, at least, if not that, one of the most active. We targeted through the year 3 key markets, and in those markets, we have established a strong leadership position. Today, we have material exposure in the Permian as well, which we did not have a year before last, and we're represented in a wide range of geographic markets. So our focus this year will be to continue pushing pricing and margin and add additional units, the 7 units out of the stackyard and put those into our marketed fleet. And when you take Q4, just stepping back and looking kind of big picture, you take Q4 alone and annualize it, it's $180 million revenue business, with pricing, additional units added and improvement during the course of '18, it should be well over $200 million revenue business for us.

Last but not least, our well servicing segment. We have 125 total units there still, 90 of which we're marketing, not all crewed at any given point, but we consider them in our marketed fleet. If we had the crews, they could work. And we have 35 stacked units there. Utilization and pricing was pretty soft, really, throughout 2017. I think now, for the first time, with the higher oil prices, we're seeing a breakout occurring. And we're seeing a little pickup in utilization and we're seeing a little pickup in 24-hour work in this current quarter. So we're optimistic that 2018 could be the breakout year for well servicing. It's always been one of our most stable businesses, with great margins. As we've talked before, even during '15 and '16, we generated positive EBITDA throughout the down cycle. And it's a great, stable business, and we're excited that we may have the opportunity to increase that utilization and bring that pricing up in this year.

With that, I'll turn it over to Lorne for some comments.

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Lorne E. Phillips, Pioneer Energy Services Corp. - Executive VP, CFO & Principal Accounting Officer [4]

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Thanks, Stacy. Good morning, everyone. This morning, we reported revenues of $126.3 million and adjusted EBITDA of $17 million. Our reported net loss was $12.6 million or $0.16 per share.

In November, we closed on a new $175 million, 5-year senior secured term loan as well as a $75 million, 5-year asset-based lending facility. The proceeds were used, among other things, to pay off and retire the previous revolving credit facility, which had a balance of $101.6 million. This provides us with significant liquidity and relief from restrictive covenants.

Also, as you may have noted in this morning's release, when reporting our operating results, we are now reporting our Drilling Services and Production Services businesses as 5 separate business segments: domestic drilling; international drilling; well servicing; wireline services; and coiled tubing services. Given the unique performance characteristics in each business segment, we believe this level of disclosure will provide more clarity about our operations and our performance going forward.

I think Stacy has covered a lot of the high-level business overview, I'm going to move right to the guidance part of it, talking about the company-wide expense items. Our G&A expense was $18.3 million, up 5% from the prior quarter, driven primarily by increased incentive-based compensation costs. For Q1, we expect our G&A expense to be flat with the prior quarter as we reset those incentive-based compensation costs, which will be offset by the impact of the typical payroll tax items that we said at the beginning of each year.

Our depreciation and amortization was $24.4 million in the fourth quarter and is expected to be approximately $24 million in the first quarter. Interest expense was $7.9 million in the fourth quarter and is expected to be approximately $9.5 million in the first quarter.

In the fourth quarter, due to the tax legislation that was recently passed, we recognized the net $5.4 million tax benefit, net of valuation allowance. Going forward, excluding valuation allowances, our tax rate should be approximately 21% to 23%. We had $9.7 million in committed letters of credit and $53.1 million available under our $75 million asset-based lending facility at year-end. The facility is currently undrawn.

At year-end, our reported cash balance was $73.6 million. Cash capital expenditures in the fourth quarter were $10.5 million. We estimate 2018 capital expenditures to be approximately $55 million, which includes estimated routine of $14 million and approximately $15 million, consisting of the purchase of 1 large-diameter coiled tubing unit; the remaining payments on 3 wireline units, 2 of which were delivered in January; and additional Drilling and Production Services equipment.

Based on our current outlook for activity and our $55 million CapEx spend for '18, we do expect to grow cash during the full year of '18. From a quarter-to-quarter perspective, we expect the first quarter to have a modest net use of cash, likely in the $5 million to $10 million range, with the remaining quarters all generating a net increase in cash.

As we evaluate additional growth opportunities, we will do so with the expectation that we will not outspend our cash flow for the full year of 2018.

With that, I'll turn it back over to Stacy for final comments.

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [5]

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Thank you, Lorne. We identified our guidance there in the press release, but for U.S. Drilling operations, we are guiding up a little bit on average margins per day to $9,400 to $9,700 a day, and we continue -- I think it will be 100% utilized through the first quarter. And in Colombia, we're guiding $7,000 to $8,000 a day margins at 70% to 75% utilization. But that's harder to guide accurately just because of the lumpy nature of the start-up operations of these rigs, they've been stacked a long time and mobilizing rigs to start operations. But as I mentioned before, we think that will clean up through the course of the year and the average margin will rise.

On the Production Service segment, where we're quite optimistic about the growth that we're seeing and the improvement in the new year, so we'll be guiding our revenues up 10% to 15%. We also are seeing pricing improvement, and we think we can improve pricing over and above Labor Creek. So we are guiding that margin should improve in the 24% to 26% of revenue range.

Q1 is, as I mentioned earlier, seasonally the softest quarter, and the first 3 weeks of January were exactly in line with that. But since then, as I said, it's really picked up. And so I think it's going to be an unseasonally strong quarter in the Production Service segment.

Just in closing, I would say that we're very optimistic. We see demand in all of our businesses, including international, and we've got an upward bias on pricing, net of labor, cost improvements. And so we anticipate it will give us the opportunity to activate equipment, start up our stackyards and start increasing our fleets. And so that gives a lot of promise for improving revenue and EBITDA through the course of the year.

So I think that will conclude the prepared remarks and be happy to entertain questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Daniel Burke with Johnson Rice & Company, L.L.C.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [2]

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Stacy, I'd like to stick with the Production Services business and the guide for Q1, which does look pretty positive, particularly in view of, as you termed it, some slowness in the first few months -- or excuse me, the first few weeks of the year. Would you care to kind of maybe force rank your 3 sub-businesses, now that we get to scrutinize them pretty closely here, in terms of sort of the revenue growth expectations you have for each of them in Q1? Will they be meaningfully different? Who's the leader? Who's the laggard?

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [3]

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Well, I would say that the coiled tubing services would be one of the big positives again in the quarter, followed by wireline, followed by well servicing. But they're all seeing great demand in the coiled tubing sector. I kind of wish we had more larger-diameter pipe. Fortunately, we moved into some larger pipe a couple -- a few years ago, and we'll be adding a little bit more now. But that demand has just been stellar. And we've opened in some new regions and have had great success there. And so we're seeing lots of opportunity. Well servicing has been the curious win. But as I mentioned before, we're -- we've just not seen much 24-hour work through the course of 2017. It would be, I would say, typically, 1, 2 at a time. And I think we're starting to see that increase to 3, 4 or 5, 24-hour rigs, and that could increase. It's much more directly correlated with oil prices. So I think oil prices in the $60s is going to generate more demand, more 24-hour work this year. And then wireline is just -- there we -- they need -- we need to activate the additional units, the demand's there. We're going to be cautious about it. As Lorne pointed out earlier, we're very much desiring to live within our cash generation. And so we're going to be kind of cautious about it, but we are seeing quite a few good opportunities, high return kind of project opportunities out there.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [4]

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Great. And then in the release and your prepared comments, you talked about establishing some new market positions in the Production Service business lines. And you also alluded to seeking some new opportunities in 2018. What does that mean? Are you looking at incremental geographies or populating some geographies differently? And is that -- to what extent were those start-ups last year sort of a headwind to margin and may be an opportunity to capture some nice incrementals this year?

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [5]

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Right. Well, it's a very, very good question. In well servicing, we establish in a new market a little bit slower to get started, it takes time. So you're exactly right. Your margins and initial phase are usually pretty anemic until you build your critical mass, and so we are adding to that market. We're going to probably enter another market this year. So it will have some start-up costs associated with it. But there -- we view them as very good long-term markets, where we can utilize equipment that we presently have that's stacked. So -- and then in coiled, we opened into a new market last year, that's done extremely well, very positive, as I mentioned, or within the press release, it contributed almost immediately and really significantly in the fourth quarter. So we're very, very optimistic for that market this year. So we just continue to look at different geographies. We're probably the 1 service provider that kind of -- other than drilling, we kind of go around the Permian, not in all cases, but we found it hard to make the margins there that we do in our other areas. And so -- but as I mentioned, in wireline, we were in there and have had some opportunities there that have made great sense for us. So we are always looking at different markets to find good margin opportunities.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [6]

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Got it. That's helpful. And then last small one, and maybe this one is for Lorne. But when we look at that CapEx budget, is there any portion of the discretionary spend that's sort of uncommitted at this point? Or is it fully described by the growth items you've identified?

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Lorne E. Phillips, Pioneer Energy Services Corp. - Executive VP, CFO & Principal Accounting Officer [7]

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No. There is probably about half of that $15 million is not committed, per se, today. We do expect to spend it, but I'd say, at this point, about half of it's committed.

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Operator [8]

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Our next question comes from the line of Marshall Adkins with Raymond James.

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James Marshall Adkins, Raymond James & Associates, Inc., Research Division - MD of Equity Research and Director of Energy Research [9]

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Obviously, the production-related stuff is surprisingly strong. You kind of went through coiled tubing kind of as the key driver, but the wireline surprises me a little bit. So I want to dig into that. There's been several companies already talked about kind of an air pocket and completions in Q1, and we still have pretty short daylight hours as well in Q1. So are you seeing that air pocket others have been talking about on the completion side? I presume a lot of your wirelines and coiled tubing as well is going around to assist with the horizontal completions. So I guess, I'm trying to understand your confidence in the wireline side, given what we've heard about others in terms of delayed completions, at least, in Q1.

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [10]

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Marshall, I'm going to let Carlos Pena address that. You've met him before. He runs that segment.

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Carlos R. Pena, Pioneer Energy Services Corp. - EVP & President of Production Services Segment [11]

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Sure, Marshall. No, at this point, we're not seeing any real slowdown in our completion-oriented wireline work. Its -- last year, in January, we saw a big uptick. This year, it took a little later to really settle in. The first few weeks of January were fairly slow across all of our businesses, but the activities picked up toward the latter part of January and it's continued on. So may be some of those comments came a little earlier than where we're sitting today. But I think we're fairly optimistic about that completion-oriented wireline work right now.

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [12]

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And I would add to that, that we've introduced some kind of newer technology in that area that I probably won't get into too much, but we've had greater demand as a result of that new technology that we've entered into the marketplace. And where we haven't ordered any additional equipment there yet, but the demand is certainly there, we're kind of assess that later in the year and see how the cash flows are looking and developing. But I'd say, where we have areas where we could grow very significantly right now that we're evaluating. As I mentioned, we are already going to add 7, for sure, units out of our stackyard through the course of the year, and we'll be evaluating other opportunities as well.

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James Marshall Adkins, Raymond James & Associates, Inc., Research Division - MD of Equity Research and Director of Energy Research [13]

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Right. Certainly one of the hotter areas we've been hearing about. The 24-hour crews on the workovers, what exactly are those doing? Are they doing completions-related work? Or is it -- but why -- you mentioned, obviously, it's a function of higher oil prices, but I am just curious as to the types of jobs people are picking up on with the 24-hour crews.

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Carlos R. Pena, Pioneer Energy Services Corp. - EVP & President of Production Services Segment [14]

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It will be a combination of more difficult workovers and some drill-outs and other completion-oriented workover work. It's not these drill-outs.

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [15]

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Yes. So a lot of people think that you go 24 hours, you're drilling plugs, but that's really not the case. We go on a lot of multiday, large workover jobs as well.

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James Marshall Adkins, Raymond James & Associates, Inc., Research Division - MD of Equity Research and Director of Energy Research [16]

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Right. All right. Last one for me. Obviously, labor is tight across where we've heard, particularly in coiled tubing, getting experienced crews is extraordinary tight. But comment a little bit on the labor situation, first of, in general, across-the-board, but also in specific areas where you're having the most difficulty in acquiring labor and/or seeing the biggest inflation labor cost?

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [17]

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Well, I would say that, quite honestly, we're -- well servicing is very tight on crews. If he had crews, we could put more units out today. Wireline, very, very tight. Coil, I wouldn't have thought it was any tighter than the others. We've had pretty good success there. But labor is just tied across-the-board, it's going to make ramp-ups for anybody difficult. No one is going to be able to ramp up too much in any service line. It's got to be measured. Of course, we do a hair follicle drug testing and a lot of prehire training and things that it just takes time to do it right. And it's just -- it's going to be a limiting factor on rampant growth from all service lines, I would say.

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Carlos R. Pena, Pioneer Energy Services Corp. - EVP & President of Production Services Segment [18]

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I don't have much to add to that.

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James Marshall Adkins, Raymond James & Associates, Inc., Research Division - MD of Equity Research and Director of Energy Research [19]

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Are you seeing a loss of efficiencies in your crew, just because you are having to go, I'm sure in some cases, a little less experienced crews than a year or 2 ago?

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [20]

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We have not -- what it's required us to do is be more diligent in the onboarding phase of hiring and a lot more training. We are doing a significant amount of training in these -- all these business lines, more than we would normally have to do, because you are bringing some people that are -- don't have prior experience, and in many cases, with the training programs that we have, that's a good thing, because they are not bringing know-it-all bad habits. But you have to do the upfront groundwork to get them skilled, because we have a great safety record, a great culture, and we don't want to dilute that. So we're just having to fortify the upfront training considerably more than when you're not growing.

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Operator [21]

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Our next question comes from the line of Waqar Syed with Goldman Sachs.

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Waqar Mustafa Syed, Goldman Sachs Group Inc., Research Division - VP [22]

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Stacy, could you maybe provide a breakdown of the regional exposure that your production business or wireline, coiled tubing has? And what are the regions where you get -- what's the revenue kind of split across the different regions?

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [23]

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We really prefer not to dissect it. We're providing really good information now, as you see in this press release and you'll see in the K. But we don't want to get into what markets are doing better than others and where we're emphasizing. We just rather not do that.

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Waqar Mustafa Syed, Goldman Sachs Group Inc., Research Division - VP [24]

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Okay. Just let me ask you this, in general, is it more in line with where the rig count -- proportional to the rig count or is it more heavily focused towards the Eagle Ford or Bakken than the rig count?

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [25]

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Well, if we could make the margins where the heavier rig count is, we would be there, but we can't. So our emphasis is in active areas, but not in the highest rig count areas.

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Waqar Mustafa Syed, Goldman Sachs Group Inc., Research Division - VP [26]

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Okay. That's fair. Then on the CapEx side, could you provide the maintenance CapEx kind of breakdown between Drilling and the Production Services?

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Lorne E. Phillips, Pioneer Energy Services Corp. - Executive VP, CFO & Principal Accounting Officer [27]

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Yes. It's probably a little over half is Production Service for right around. I just go half-and-half, Production Service and Drilling.

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Waqar Mustafa Syed, Goldman Sachs Group Inc., Research Division - VP [28]

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On the maintenance CapEx side?

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Lorne E. Phillips, Pioneer Energy Services Corp. - Executive VP, CFO & Principal Accounting Officer [29]

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Yes.

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Waqar Mustafa Syed, Goldman Sachs Group Inc., Research Division - VP [30]

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Okay. And then, at one point, either you were looking to maybe divest some assets in Colombia, is that now on hold or is that something that's still in the plans?

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [31]

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Well, during slow times, we were looking for any opportunities to raise capital, and so we had rigs here in the U.S. that we were open to selling, and we would have been open to selling some of the rigs in Colombia. It is -- our team there is superb. We've got -- we really have moved from 1 client to 4 diversified clients, and that's a very -- it looks like a very strong market going forward for us. And so we don't -- we do not plan to sell any of those individual rigs at this point.

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Waqar Mustafa Syed, Goldman Sachs Group Inc., Research Division - VP [32]

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Okay. And on the land rig side -- U.S. land rig side, are there -- are you seeing any opportunities or prospects to maybe build new rigs?

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [33]

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Well, we have the 2 rigs where we have about $9 million sunk-cost in 2 potential rigs. We would love to bring those rigs out. We're -- we constantly explore that opportunity. Actually, the rates are getting to the point where it -- certainly from an internal rate-of-return standpoint on the incremental spend, it would make a lot of sense. But kind of back to the point Lorne made earlier, we want to be cautious. We don't want to get out of our skis on spending. So we'll just continue to evaluate that. But I would say that certainly over the next 18 months, we would like to have those 2 rigs completed and generating. But we're going to be cautious and make sure we can generate the cash to help fund it.

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Waqar Mustafa Syed, Goldman Sachs Group Inc., Research Division - VP [34]

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Okay. And so you said that you already invested $9 million, and then how much incremental cost would there be to reactivate that and those rigs?

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [35]

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Right. We have about $9 million or $10 million already invested in 2 rigs. And we think, on average, we could put them each out for approximately $9 million more spend for rigs. So for $18 million, we could have the 2 rigs out working. And these would be the very top-of-the-line, all the particulars that operators want. They'd have the big pumps, the high-pressure mud systems, the big racking capacity, ability to walk over wellheads, high-torque top drives, just -- they would really do anything an operator might want.

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Waqar Mustafa Syed, Goldman Sachs Group Inc., Research Division - VP [36]

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Okay. Great. And just one final question. The 2 5/8 coiled tubing units, how much do they cost and then what's the lead time for delivery from manufacturers?

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [37]

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Well, we have on order a 2 and 3/8 presently for a specific market that, I think, we ordered in November, and we're looking at a May delivery, but...

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Carlos R. Pena, Pioneer Energy Services Corp. - EVP & President of Production Services Segment [38]

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May, June delivery.

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [39]

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Yes. May, June delivery. So we jumped on that window because there was closing rapidly. I think if you ordered something today, a 2 and 3/8 or 2 and 5/8 would be $6.5 million, $7 million cost. And you would be no earlier than a fourth quarter delivery at best.

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Operator [40]

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(Operator Instructions) Our next question comes from the line of Jason Wangler with Imperial Capital.

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Jason Andrew Wangler, Wunderlich Securities Inc., Research Division - Former MD & Senior Research Analyst [41]

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You've talked quite a bit about the CapEx budget and kind of the cash flows and matching those. I was just curious with how much liquidity you have, is there other things you'll be looking at, whether it's M&A or a further work on the balance sheet as we go forward this year?

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [42]

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That's a great question. We have been and will continue to look at M&A opportunities, particularly ones that would be delevering, that would increase our critical mass and delever at the same time. And so we evaluate those on a pretty continual basis. I will say, though, it's been -- we've been limited with our stock price being so low, it's hard to trade to find a fair relative trade when our stock has been so depressed. So as our stocks strengthens into a realm that's more reasonable, I think those opportunities would increase. And we're very open to gaining some scale through some acquisitions or mergers.

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Operator [43]

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(Operator Instructions) Mr. Stacy Locke, there are no further questions at this time. I would like to the floor back over to you for closing comments.

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William Stacy Locke, Pioneer Energy Services Corp. - President, CEO & Executive Director [44]

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All right. Well, thank you all very much for joining us on the call today, and we appreciate the good questions, and we look forward to visiting after our first quarter. Thank you very much. Bye-bye.

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Operator [45]

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Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.