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Edited Transcript of SPN earnings conference call or presentation 19-Feb-19 2:00pm GMT

Q4 2018 Superior Energy Services Inc Earnings Call

NEW ORLEANS Feb 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Superior Energy Services Inc earnings conference call or presentation Tuesday, February 19, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David D. Dunlap

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

* Paul Vincent

Superior Energy Services, Inc. - VP of IR

* Westervelt T. Ballard

Superior Energy Services, Inc. - Executive VP, CFO & Treasurer

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Conference Call Participants

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* Blake Geelhoed Gendron

Wolfe Research, LLC - SVP of Equity Research

* Byron Keith Pope

Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research

* Chase Mulvehill

BofA Merrill Lynch, Research Division - Research Analyst

* Gregg William Brody

BofA Merrill Lynch, Research Division - MD

* James Marshall Adkins

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

* John Booth Lowe

Citigroup Inc, Research Division - VP

* John Matthew Daniel

Piper Jaffray Companies, Research Division - Research Analyst

* Judson Edwin Bailey

Wells Fargo Securities, LLC, Research Division - MD and Senior Equity Research Analyst

* Michael William Urban

Seaport Global Securities LLC, Research Division - MD & Senior Analyst

* Sean Christopher Meakim

JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst

* Thomas Allen Moll

Stephens Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Superior Energy Fourth Quarter 2018 Earnings Conference Call. (Operator Instructions) Please note, today's event is being recorded.

I would now like to turn the conference over to Paul Vincent, Vice President of Treasury and Investor Relations. Please go ahead, sir.

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Paul Vincent, Superior Energy Services, Inc. - VP of IR [2]

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Good morning, and thank you for joining Superior Energy's fourth quarter 2018 conference call. With me today are Superior's President and CEO, Dave Dunlap; our CFO, Westy Ballard; and our CAO, Jamie Spexarth.

During this conference call, management may make forward-looking statements regarding future expectations about the company's business, management's plans for future operations or similar matters. The company's actual results could differ materially due to several important factors, including those described in the company's filings with the Securities and Exchange Commission.

Management will refer to non-GAAP financial measures during this call. In accordance with Regulation G, the company provides a reconciliation of these measures on its website.

With that, I'll turn the call over to Dave Dunlap.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [3]

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Thank you, Paul, and good morning to everyone listening to our call today. We'll begin with a brief review of our fourth quarter activity. Westy will discuss segment results. And I'll offer thoughts on strategy and our outlook before turning the call over for Q&A.

For the fourth quarter of 2018, Superior Energy generated revenue of $539 million, adjusted EBITDA of $84 million and an adjusted net loss from continuing operations of $31 million or $0.20 per share.

The fourth quarter of 2018 clearly demonstrated the challenges our industry confronts. Despite a relatively stable rig count during the fourth quarter, oil prices declined approximately 38%, causing oil and gas developers to rapidly reduce their completions-directed activity levels. Reduced completions activity in U.S. land markets impacted pressure pumping most prominently. And as a result, the fourth quarter was the first quarterly period of 2018 with sequentially lower U.S. land revenue.

Our customers' business models are clearly evolving. As they attempt to become more efficient with their capital allocation, it is essential for us to be extremely flexible with our capital deployment. This flexibility was on display during the quarter, as demonstrated by sequential capital expenditures decreasing almost 50% to $35 million and free cash flow of $47 million.

Elsewhere, our results were indicative of the gradual global recovery that has been underway for several quarters. In the Gulf of Mexico, premium drill pipe rentals remained steady and hydraulic workover and snubbing activity increased. More broadly, recovery in the Gulf of Mexico has been slowly progressing. Now that many of the shelf operators have concluded restructuring efforts and owners of deepwater assets are realizing substantially lower drilling and completion costs, we are becoming more confident that the next move for the activity in the Gulf of Mexico is higher.

Activity levels also increased internationally, concluding a year in which international revenue increased 11% over 2017. Sequentially, better results internationally occurred across all 3 of our operating segments with international exposure, most notably in our Production Services segment, driven by one of our core global product lines, hydraulic workover and snubbing.

We remain committed to expanding our revenue base internationally. As recovery continues, we enter new markets, international expansion will continue to differentiate our cash flow and return profile.

The fourth quarter was an extremely challenging period, especially coming after several quarters of expansion and a growing belief that the U.S. land recovery would continue. It is always frustrating when positive momentum is interrupted, but our 16% adjusted EBITDA margin for the quarter represents a 66% improvement year-over-year and highlights the stability inherent in a geographically diversified operating model.

Before turning the call over to Westy, I want to acknowledge something we are exceptionally proud of as it relates to our 2018 results. Understandably, most interaction with our shareholders relates to operational and financial performance. Despite this, there should be no doubt that the most important job anyone has at Superior Energy is to ensure that all of our employees who head out to the field every day return home safely. Despite a dramatic increase in activity, as well as the addition of a substantial number of new hires throughout the year to meet greater demand, we just concluded the best year from a safety perspective in the history of our company. There is no better demonstration of a commitment to corporate sustainability than an accountable, behavioral-based safety culture that stems from the core values we share across the organization. The values that support this type of safety performance inspire respect for each other, trust in the workplace and drive better operational and financial performance.

To each and every one of the people who've helped us achieve these results, I thank you for your commitment to our values and to the wellbeing of your coworkers, and I urge you to take time to celebrate this achievement. I also urge you to continue our pursuit of a zero-incident workplace. Every day brings new risk, and there is nothing that we do that is more important than your safety.

Westy, please review our fourth quarter financial results.

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [4]

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Thank you, Dave. In discussing our operating segments, all sequential comparisons will be made to our third quarter results.

As Dave mentioned, we generated approximately $47 million of free cash flow during the quarter and ended the year with $158 million of cash on our balance sheet.

Capital expenditures during the quarter were $35 million and $221 million for the year.

Free cash flow will be a primary driver for how we operate our business in 2019. We will improve our cash flow profile through diligent management of our working capital and meaningfully reducing our capital expenditures, which we initially expect to be 20% to 25% below 2018 levels.

In addition to consistently generating free cash flow, a primary financial objective remains improving our capital structure. Although our nearest debt maturity is several years from now, we remain highly committed to reducing our total debt levels in order to maintain the most efficient capital structure to enhance the value of our enterprise.

And moving to our segment results. Drilling Products and Services total segment revenue increased 6% to $105 million as U.S. land activity remained steady, and our Gulf of Mexico product mix was weighted more favorably towards completions activity.

In our Onshore Completion and Workover Services segment, which is comprised of product lines that exclusively serve U.S. land markets, revenue decreased 13% to $255 million. This decrease is almost entirely attributable to lower levels of pressure pumping activity. Due to current market conditions, we continue to run less horsepower and are focused on operating for customers who contribute to our goal of free cash flow.

Our Production Services total segment revenue increased 4% to $110 million. Despite completion activity slowing in U.S. land markets, this segment's revenue was flat sequentially as an increase in hydraulic workover and snubbing offset any weakness experienced in other service lines. Activity was higher in both the Gulf of Mexico and in international markets, also primarily due to high workover and snubbing activity.

In the Technical Solutions segment, total revenue decreased 6% to $69 million. Within the segment, both well control and completion tools, which tend to be project-oriented businesses, had very successful 2018 campaigns and are both positioned to expand as recovery progresses globally.

Before turning the call back to Dave, here are a few modeling-related items. G&A for the quarter was $75 million, and we expect first quarter G&A to be in the range of $77 million to $80 million. DD&A is expected to between -- to be between $83 million and $86 million. And first quarter interest expense is expected to be in a range of $24 million to $26 million.

Thank you, and I'll now turn the call back over to Dave for some closing remarks.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [5]

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Okay. Thanks, Westy. We often highlight our operational leverage to businesses with global reach and unique characteristics, businesses which create barriers to entry and attractive, long-term financial performance. As we increase our emphasis on free cash flow and total capital expenditures decrease, it should come as no surprise that a greater portion of our capital will be allocated towards these competitively advantaged global franchises.

Diving into this a bit further, our largest capital investment in 2019 towards any single product line will be in our premium drill pipe business, in which, we expect to order 400,000 feet of product this year. The U.S. land market continues to demand more premium drill pipe as operators require more reliable drill strings for the longer laterals and more complex wells that they are drilling. Although we don't anticipate that drilling activity will increase in North America this year, we have a backlog of customers awaiting new pipe deliveries.

Outside the U.S., tendering activity has been brisk. In fact, we responded to twice as many request for tenders and engineering programs in 2018 as we filled in 2017. Along those lines, we will invest capital in Asia Pacific to fill some gaps in our pipe portfolio with projects in Malaysia, Brunei, India, Thailand, Australia and Papua New Guinea.

Engineering for extended-reach wells has increased on a global basis, and we expect to supply pipe for ERD projects starting up in Alaska in 2019. We will establish permanent operations in Mexico in 2019. And we are also doing engineering work today on several 20,000 psi projects that will start in 2020. Wells are becoming more complex throughout the world, and we are very bullish regarding opportunities for continued expansion of our premium drill pipe business in the future.

Similar in many ways to premium drill pipe, our bottom hole assembly business, Stabil Drill, is also expanding as a result of more complex wells being drilled around the world, particularly relating to lateral length extension in U.S. horizontal wells. As a result, we are doubling our capital allocation to Stabil Drill in 2019 from 2018. This will support expansion of our offering of drill collars, hole opener, stabilizers, shock subs, agitators and drilling jars. And this additional capital is primarily to keep pace with growing demand. We will support Stabil Drill's product development efforts after field tests of our Smoothbore Reamer technology were successful in 2018. We are now building out a fleet of these reamers for deployment in U.S. land markets. This proprietary technology fills a gap that has existed in the construction of long laterals for some time, and we have established a clear first-mover advantage with this technology.

We're also expanding our machining capabilities to manufacture our new technology and enhance district capabilities to rebuild tools closer to where they are deployed.

For someone who's indicated a substantial cut to total spending this year, I've spent some time discussing increased allocations to certain businesses, and you'll need to continue to bear with me because we are also directing more capital toward our completion tool business in 2019. This business has been very successful in the past several years, executing safely and profitably on some of the most challenging sand control projects in the Gulf of Mexico and has earned the opportunity to build on this success. We will expand our international completion tool revenue base during 2019. Our capital investment is geared towards expanded machining capabilities that will allow us to bring 100% of the manufacturing of our subsurface safety valves in-house. We have also introduced a next-generation sand control screen, [Econo Pro] and have added manufacturing capacity to accelerate the development and growth of this technology.

Also attracting capital this year are our international Production Service businesses. We have the opportunity to deploy capital to execute on new contract awards in several international markets, including India, Kuwait and Argentina, and we will.

Overall, we will spend approximately 20% to 25% less capital this year than last. Most of that reduction will occur in U.S. land-directed spending. We expect U.S. land markets to remain challenged from a demand perspective, particularly as it relates to completions through the first half of the year. As in the fourth quarter, this is likely to impact pressure pumping results most acutely. Given that outlook, we expect to run fewer pressure pumping fleets and will keep horsepower sidelined until the commercial environment exists to achieve free cash flow objectives consistently.

There remain a number of underappreciated components to our U.S. land exposure, including our hydraulic workover and snubbing capabilities, which have recently gained traction in the U.S. as a viable completion alternative to coiled tubing solutions, which are increasingly reaching their technical limits.

Another business which has evolved as a result of increasing intensity of drilling and completions program is our water handling and transfer business. The ceaseless growth of fresh and produced water volumes as a result of unconventional reservoir development has created meaningful opportunities for our fluid management business, which has been enhancing its water transfer capabilities for the past several years. With long-term customer relationships and an accomplished management team, this business has already posted impressive results, and we see the potential to expand further, even in an extremely challenging market environment. Both of these businesses require minimal capital in 2019 and are expected to contribute to our free cash flow targets.

Despite the soft fourth quarter for our industry, 2018 was a good year. Activity increased and opportunities for efficiency gains continued to appear. Although uncertainty surrounding near-term activity levels remains, it is clear the environment has changed. Should investors begin to reward financial restraint and discipline, the competitive landscape should improve and better-run businesses should succeed. As I mentioned earlier, Superior Energy is a company committed to its values. And despite a generational downturn, we maintain that commitment with the most recent proof demonstrated in the exceptional safety performance we delivered in 2018, in spite of the crosswinds our industry encountered.

In case I haven't been clear, I'll conclude by noting that we recognize the oil and gas business has changed and that growth above all else is no longer as attractive as it once was. Whether oil prices are $30 or $100 per barrel, our focus will be on disciplined capital allocation directed toward businesses that have historically generated free cash flow and rates of return in excess of our cost of capital.

That concludes our prepared remarks. Operator, please open the line for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And today's first question comes from Tommy Moll of Stephens.

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Thomas Allen Moll, Stephens Inc., Research Division - Research Analyst [2]

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Dave, I wanted to start on Gulf of Mexico. You're up significantly year-on-year for Drilling Products and Services and Technical Solutions. Am I hearing you correctly that you can sustain some of the momentum there despite the commodity headwinds in recent weeks and months? And what kind of incrementals should we expect? And any kind of highlights you could call out in terms of customer commentary or specific business lines that you're most or least optimistic about within that region?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [3]

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So thank you, Tommy. So we had a strong year in our Drilling Products and Services segment, predominantly in premium drill pipe. A good mix of completions work, which -- actually, we're expecting a good mix of completion work on the premium drill pipe side in 2019 as well. So I think the big activity that changed that we have seen on the -- in the Gulf during the course of this year was a bit more focus on the shelf, which has been in a bit of dire straits in the last few years. And we saw some operators begin to deploy a bit more capital, both for new wells as well as workover and completion activity on the shelf during 2018. And I don't expect that to diminish at all in 2019. I think we are not expecting significant change in the deepwater market until, perhaps, later in 2019. But that's a -- when we begin to see more deepwater activity, then we're going to be in a good position to respond to that. And when we think of the deepwater rigs, I should mention these big platform tender wells -- rigs also, so that's counted as part of our deepwater -- it's a similar wellbore configuration to anything we see on a drill ship or a floater. I think the other part of our business that performed very well in 2018 was in completion tools. And we've had a couple of really strong years of performance in completion tools. That's in the technology solutions (sic) [Technical Solutions] segment. And we expect another good year for completion tools activity in the Gulf of Mexico as well as international in 2019.

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Thomas Allen Moll, Stephens Inc., Research Division - Research Analyst [4]

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Great. And then just pivoting to U.S. land for a follow-up. Obviously, the frac fundamentals there have been challenged and continue to be challenged. It sounds like the message for today is emphasis on capital discipline, stacking some equipment, keeping a close eye on CapEx allocated to frac. Can you give us any more details there just in terms of the timing of your response? Did you stack in Q4? Should we expect more in Q1? And then as the market potentially improves throughout the year, what kind of parameters are you looking for when you potentially would redeploy some of that equipment? Is it all solving for free cash flow?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [5]

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I mean, I'll answer the last part of that question first, and the answer there is yes. We are solving for free cash flow in the fracturing business. We did stack fleets during the course of the fourth quarter as we saw activity levels and utilization decline as well as pressure on pricing, which actually began during the third quarter. Now listen, I can tell you, I can give you kind of high-level philosophy here. We deployed a lot of capital into the fracturing business in 2017 and '18 to reactivate a fleet that was running 300,000 horsepower in mid-2016 to up to 750,000 horsepower. I see absolutely no reason for us to go wear out those assets and reduce the value of that capital investment for pricing levels that do not generate free cash flow for us. And so although we believe that pricing levels have reached somewhere close to a bottom in this first quarter, we need to see price improvement before we're going to be inspired to reactivate fleets. The fleet is in very good condition right now. And if we're going to deploy it, we need to be able to make money doing it.

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Operator [6]

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And our next question today comes from Jud Bailey of Wells Fargo.

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Judson Edwin Bailey, Wells Fargo Securities, LLC, Research Division - MD and Senior Equity Research Analyst [7]

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A follow-up on pressure pumping, if I could, Dave, and I apologize if I missed this. But could you give us some color on how many crews you may have stacked already in pressure pumping and then how many you're running today just to give us a sense of how the end of the third quarter kind of trajected through the fourth quarter into where we are today?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [8]

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Yes. We've stacked about 1/3 of our overall horsepower. And yes, I would tell you this. As we continue to look forward, if we continue to see pricing or utilization pressure, we'd be prepared to stack more of it.

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Judson Edwin Bailey, Wells Fargo Securities, LLC, Research Division - MD and Senior Equity Research Analyst [9]

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Okay. And how would you say your visibility is today for the next few months? Are the remaining fleets on kind of dedicated agreements? Or are they -- are you a little more in the spot market than you typically are just given the softness in the market today?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [10]

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They're on dedicated -- on a dedicated basis, and I expect that, that will continue. I don't think that we're going to be taking a lot of risk in the spot market during the course of this quarter. And what we have working today is all on a dedicated basis. And I can only imagine that, that's a tactic that will remain going forward, Jud.

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Judson Edwin Bailey, Wells Fargo Securities, LLC, Research Division - MD and Senior Equity Research Analyst [11]

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Okay. I appreciate that. Then my last one is your U.S. land revenue declined about 10% in the fourth quarter. With that magnitude of your fleet getting stacked, does the revenue drop -- does it look similar in the first quarter? Or is it more severe? Just trying to get a sense of when those crews going idle impacts the revenue number. Is it more in 4Q or in 1Q?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [12]

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Yes. I mean, for modeling questions, I suggest you get with Paul, specifically, after the call to get -- to gain details. But I mean, the stacking of the fleets occurred during the course of the quarter. I can tell you, our activity level and utilization stayed better in December than we thought it would, and so, to those customers we're working for, kind of continued through the quarter. I think the challenge in the first quarter, and everybody has to remember this, is that we always have impacts at some point in time during the quarter as a result of weather. And our customers know that, and that impacts their desire to get real aggressive with completions activity generally in January and February. So don't forget it's winter.

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Operator [13]

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And our next question today comes from Marshall Adkins of Raymond James.

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James Marshall Adkins, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Director of Energy Research [14]

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Dave, we've been on a roller coaster with crude prices here. Obviously, today versus 2 months ago, a $10 move in crude is a big deal for your customers. Tell me about your conversation recently. Or has it not been enough time to see any difference? But I'm sensing a lot more optimism out there from your customers. Can you confirm that and give us some color on that, particularly U.S. land-related customers that are short cycle? Could you just give us a little color on that?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [15]

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Yes. Marshall, I mean, I think that everyone feels a lot better about $56 a barrel WTI than we did about $42. And I think there's no question that our operators and customers are in a better mood and a better position today than they were in mid- and late December, and I'll count myself in that group as well. I mean, it is a lot better to have a commodity price where we are today versus where we settled in December. So yes, I think that one of the questions that's in the mind of investors and the in mind of service providers alike is how does better optimism and a better commodity price translate into activity increases that we'll see in the U.S. land market as the year progresses. And I only tell you, if that happens, then Superior clearly is a beneficiary of that. What I can tell you is that I gave you a capital deployment plan when I went through my remarks earlier in the call and we're going to stick to that capital deployment plan, regardless of what happens to U.S. activity levels or oil prices during the course of the year.

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

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It didn't sound like international demand or, I guess, the thought process there changed at all with this gyration in prices. Is that fair? Or did we see that wobble as well?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [17]

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We did not see it wobble. Your conclusion is quite accurate. I mean, you just have to note that, internationally, our customers take a bit longer view -- a longer-term view on commodity prices. And so the kind of bobble that we saw in oil prices late in Q4 really did not impact international plans that we witnessed in any way at all.

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James Marshall Adkins, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Director of Energy Research [18]

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All right. Last one for me. On the cornerstone franchises you mentioned, it sounds like drill pipe, Stabil Drill, completion tools and maybe even some international Production Services would define that lift. Did I catch them all? Or can you just elaborate on that just a little bit more than you did in your commentary?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [19]

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Yes. You can include our snubbing and workover -- hydraulic workover business on that list as well as Wild Well Control. Yes, what we -- the comment I would make on those 2 is that I didn't -- when I was highlighting some of the other businesses, I was talking about how we are allocating capital in 2019 and why well control and our snubbing business are not in need of any significant capital in 2019.

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Operator [20]

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And our next question today comes from Byron Pope of Tudor, Pickering, Holt.

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Byron Keith Pope, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research [21]

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Dave, when the dust settles, I suspect there aren't going to be any of your peers who posted double-digit international growth. And as I was thinking about 2019, I guess, I thought that Drilling Products and Services would lead the way. But it sounds like Production Services and Technical Solutions might also get some growth capital on the international side. So could you just frame the way you think about 2019 qualitatively with regard to the growth drivers among your 3 business segments with international exposure?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [22]

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Yes. I think they all have opportunities in 2019. So our Drilling Products and Services segment, it -- really the premium drill pipe business is the one that probably has the best opportunity to see expansion from an international revenue standpoint in 2019. I made a comment in our prepared remarks about the tendering activity that we've seen in the premium drill pipe business. And particularly in the second half of the year, we had twice as many requests in 2018 for tenders and engineering project work, which very much geared towards the international market. So I would expect that we see revenue growth opportunities for premium drill pipe. In international Production Services, which has really been kind of quiet the last couple of years, we did see a bit of a resurgence in activity and utilization during 2018. Didn't require a lot of capital spend. We are allocating some capital dollars for new contracts in Argentina, in Kuwait and India that will help us from a revenue growth standpoint in 2019. And then the third area I'd speak to is our completion tools segment, which I talked about more capital spending there, but it's not a very capital-intensive business. It's a manufactured product business, and we are spending a bit of capital on manufacturing capacity during 2019. But in that business, they've really got their sights on international expansion in '19 and beyond. So I think all of those are -- could be good contributors for us for growth in 2019.

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Byron Keith Pope, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research [23]

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Okay. And then last question for me. As I think about Drilling Products and Services within U.S. onshore, it sounds like some of your customers in that region are waiting on premium drill pipe. So I guess, the question is, irrespective of what U.S. land rig count does over the next several quarters, it feels like there's still an opportunity to grow the U.S. onshore part of Drilling Products and Services this year. Is that a reasonable way to think about it?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [24]

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That is a very reasonable way to think about it. And we do have customers that are waiting for drill pipe from us. I'd tell you, they're not going to have to wait long because we are allocating capital to U.S. land drilling pipe in the first quarter and the first half of the year. It didn't -- listen, Byron, this is just -- this is driven by the fact that our operators, as they've stretched lateral length, continue to encounter risk and challenges as they drill these wells. And those risks and challenges, in many cases, can be solved by a more robust connection in the drill pipe that's offered with premium drill pipe and can also be solved with some of the technologies that we've developed for -- within Stabil Drill for reducing torque while drilling, such as our new underreamer product line. So I mean, this is -- longer laterals are right up our alley in Drilling Products and Services.

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [25]

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One thing, also, I'd add to that is that's got quite a lead time to it. So a lot of those orders were placed the latter part of last year for arrival in the first quarter. So you'll see that expenditure, as Dave mentioned, really in the first quarter more heavily so than you would kind of on a normalized year.

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Operator [26]

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And our next question today comes from Sean Meakim of JPMorgan.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [27]

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Just a couple of pieces to clarify with respect to the focus on free cash in '19. I appreciate all the detail on the CapEx plans. At a high level, could you maybe distinguish between maintenance and growth? There's obviously a lot of growth opportunities in the budget that you laid out. And then working capital, could that be a source of cash this year? And then could we -- are we able to put a range around how much free cash you could expect to generate this year?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [28]

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Yes. So I'll take the question about CapEx and let Westy speak to working capital. So -- and I think what you can expect from us in 2019 is somewhere between 25% and 35% of our overall CapEx is going to growth. It is within premium drill pipe. It's within our bottomhole assembly business, Stabil Drill. It's within our completion tools business. And it's within our international Production Services and the contracts that I spoke of. Other CapEx is related to maintenance. Now there's some maintenance capital that goes into our premium drill pipe business as well as Stabil Drill and some of the others. I mean, I think the biggest delta in our capital spend from 2018 to 2019 is clearly in the U.S. land service-oriented business, particularly those completions-oriented businesses, such as hydraulic fracturing. So that's the biggest delta. Westy, you want to comment on working capital?

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [29]

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Yes. And what I would think about working capital is no real change in 2019 in our expectations than 2018.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [30]

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And so are we able to put a range around potential free cash generation or maybe decline to do that at this time?

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [31]

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Well, I'll tell you this. We are optimistic and think that we will generate and are very confident that we will generate free cash in 2019. But as I mentioned, we've got a front-end loaded capital expenditure program, and that was some long lead time items that had -- that were awarded last year. So it will impact first quarter. But for the year, we are confident that we think we could generate some free cash flow.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [32]

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Okay. Fair enough. And then just one last piece. So outside of frac, what are the pricing trends in other U.S. onshore product lines? Did you have to concede any pricing in the year-end? How does that look today?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [33]

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Yes. I would tell you that the bulk of any price pressure that we felt was in pressure pumping. And in fact, I mean, our -- in the Production Services segment, you will note that U.S. land was pretty flattish from Q3 to Q4. We really didn't see those other completion-oriented product lines have the same kind of pricing pressure that we saw in fracturing, and I'll give you my assessment of that. We also didn't see industry invest in those other product lines the way industry invested in fracturing horsepower. And so our other completion services-related product lines, things like coiled tubing or service rigs, our flowback business, pressure control business, we really didn't see deterioration in price or activity in the fourth quarter. And the prices were actually up in many of those service lines during the course of 2018.

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Operator [34]

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And our next question today comes from Chase Mulvehill of Bank of America Merrill Lynch.

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Chase Mulvehill, BofA Merrill Lynch, Research Division - Research Analyst [35]

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I guess, first one, if we can kind of talk about first quarter a little bit as it relates to kind of the Gulf of Mexico and international and maybe just kind of, on the top line, how you expect those to trend kind of from a high level on the revenue side.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [36]

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Yes. I mean, I expect that international will kind of trickle up as the year progresses. I don't know off the top of my head how much it changes in Q1 from Q4. Gulf of Mexico is -- Gulf of Mexico, I mean, I think you heard us comment on the fact that we think it's probably overall flattish from where we exit 2018. First quarter is always one that you got to be careful about in the U.S. land market. And although we haven't seen any huge weather interruptions at this point during the quarter, they do seem to surface during the first quarter. So again, I'd just caution everybody about that as we look forward. So I mean, historically, first quarter has not been one where we see a big change in pace in revenue, either internationally or in the Gulf of Mexico or in U.S. land. And I don't think this year is much different.

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Chase Mulvehill, BofA Merrill Lynch, Research Division - Research Analyst [37]

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Okay. And if we look at the margin side as we kind of get through 1Q and maybe just kind of progress through 2019, just kind of from a high level also just kind of how are you thinking about margins? 1Q, you've probably got some seasonality, weather, some pressure pumping pricing pressure that's still got to roll through. So how much margin degradation, if any, do you expect in 1Q?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [38]

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So I don't know specifically on 1Q, but I would expect, as the year progresses, that we see some margin expansion as a result of some of the capital that we're deploying to our highest-margin and highest-return product lines. So I mean, you know what kind of incremental margins we generate on things like drill pipe and bottomhole assemblies. That's where growth capital is going. I'd tell you that, even in international Production Services, the margins are -- that we're expecting as a result of investment that we make is good. So -- and in some cases, that offsets the headwind that we see year-over-year from fracturing, but I don't know that it's much of a change from Q4 to Q1.

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Chase Mulvehill, BofA Merrill Lynch, Research Division - Research Analyst [39]

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Okay. All right. Westy, I guess, I want to ask you about the 2021s. I know that it matures kind of later in the year, but you've got $800 million that matures in 2021. How are you thinking about the timing or maybe how you would extend that or take out the 2021s?

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [40]

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I think we think about it in a lot of different dimensions. I don't think that there's one kind of unique way that we're approaching it. I think there are many levers that we're still very confident that we can access in order to address those. But you hit the nail on the head. They're not until 2021. And so we think and feel confident that we've got plenty of time to accommodate that.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [41]

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I think, primarily, what we'd like to do as we get closer to that maturity is to add cash on balance sheet. And so in the -- I also feel relatively certain there'll be some form of refinancing event, but we'd like to refinance less than $800 million.

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Chase Mulvehill, BofA Merrill Lynch, Research Division - Research Analyst [42]

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Right. Is there a targeted debt level that we should be thinking about?

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [43]

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Not really. It's really how do we optimize our capital structure to enhance firm value. It's pretty simple. And so based upon some of the different earnings metrics and some of the different operational results that we anticipate, we'll rightsize this balance sheet to accommodate future growth. So no, I don't think there's one kind of data point that we look at. It's lowering cost of capital and looking how we can increase enterprise value.

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Operator [44]

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Our next question today comes from J.B. Lowe, Citi.

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John Booth Lowe, Citigroup Inc, Research Division - VP [45]

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Just a follow-up on that last point. So you guys, the $800 million coming up in 2021, and I think, Westy, you mentioned potentially some debt reduction over the next couple of years. Could you actually start to repurchase some of those notes ahead of the 2021 maturity?

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [46]

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That notion is not lost on us. It's certainly something we track and we follow where our bonds are trading. But I think it's a bigger picture than that. I think we anticipate generating free cash flow over the next several years. We think, as Dave has mentioned in the past, there might be some noncore or non-synergistic business units that, regardless of where we are with debt, don't necessarily fit in our portfolio and our strategy moving forward. I think there are a lot of different ways that we can address the 2021s. And so I wouldn't look at it as just kind of a one-size-fits-all.

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John Booth Lowe, Citigroup Inc, Research Division - VP [47]

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Got you. On the 5 franchise businesses, could you talk about how much of the 2019 CapEx is actually going toward those businesses? I know that, David, you outlined -- there are -- most of them are getting increased allocations of capital. But can you talk about either an absolute number of CapEx going toward those businesses or just a percentage of total?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [48]

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I can tell you, it's around half of our overall capital spending.

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John Booth Lowe, Citigroup Inc, Research Division - VP [49]

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Okay. And are there any of those 5 businesses that you guys are actually gaining share or growing faster than the market? And kind of related to that, are there any particular businesses that the competition in those business lines has been either pulling back or slower to respond to the expansion internationally?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [50]

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I would say that in the premium drill pipe business that we are in a very, very strong market share leadership position. And our competition on a global basis in that business has -- is minimal, which, I mean, it's a fantastic market position for us. Our bottomhole assembly business is also one that's in a very strong market share position, although most of their business today is predominantly in the U.S. And so we do have expansion opportunities available to us in Stabil Drill that, internationally, that we expect to pursue over the next few years, which I think would also be market share growth. But probably, most importantly to note here, the market for these businesses is expanding as wellbore complexity becomes more challenging. And so they are both product lines that are levered to a directional well and particularly levered to long and complex geometry. And we're seeing more and more of that type of well being drilled around the world. So I think our market share positions in those 2 businesses is very strong. And I expect, even in a flat rig count, that we continue to see opportunities for those businesses to expand as wellbore complexity increases.

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Operator [51]

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And our next question today comes from Mike Urban of Seaport Global.

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Michael William Urban, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [52]

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Wanted to follow up a little bit on the international side. You guys had a great performance in 2018. I think you pretty significantly outgrew the market. You did say that your international customers didn't really waiver or pull back when we had the blip in commodity prices in Q4. And I think expectations kind of prior to that were maybe for a high single-digit, 10%-ish kind of growth internationally. I think those have been probably scaled back at this point. You guys did about that level in '18. Do you think you can kind of match that growth or exceed the market again in '19?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [53]

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Yes. I mean, I've heard some of the commentary from the large caps to expect kind of mid-single-digit to high single-digit growth internationally in 2019. I don't think that we would differ much from that commentary, although I may be biased to tell you that some of the countries that we're more focused in give us an opportunity to get back into double-digit growth in '19. So it's in a good range. If I had to give you a solid range, I'd say it's somewhere between high single digits and double-digit increase.

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Michael William Urban, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [54]

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Okay. It sounds like you guys think you can outgrow the market regardless of what the spend is, though.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [55]

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Yes. I think we have.

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Michael William Urban, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [56]

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Okay, you have to. And then sorry to beat a dead horse, but it's obviously very important from a cash flow perspective. You guys, and correct me if I'm wrong, probably spend, I don't know, maybe $5 million, $6 million a fleet on pumping just in kind of maintenance capital. Is that, in terms of EBITDA per fleet, you have a threshold you'd need to hit or exceed that in order to start thinking about deploying additional fleets back into the market.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [57]

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I think it's got to be above that number, quite frankly. I mean, I think if you put together a plan for redeploying a fleet, and it's based on those types of cash flow metrics, there just -- there's always stuff that happens out there. I mean, you run into a February where the weather gets real bad and activity and utilization is quite slow or a customer that you believe is going to run for a full year and winds up taking a 6-week break at some point during the year. And so to me, you've got to be approaching those economics that would imply closer to $10 million or better per fleet to kind of make up for the fact that not everything out there is perfect. And so, to me, pricing levels have to -- for us, would have to approach that point before we consider reactivating anything.

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Michael William Urban, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [58]

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Got it. Where would you say you are to that -- relative to that?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [59]

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We said we've got about 1/3 of our fleet that is parked today.

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Operator [60]

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And our next question today comes from Gregg Brody of Bank of America.

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Gregg William Brody, BofA Merrill Lynch, Research Division - MD [61]

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Most of the debt questions were actually asked by the equity folks I'll just ask a couple of follow-ups there. You -- in terms of your cash balances, you've accumulated quite a bit so far. How much of that do you view as excess for -- to use for debt reduction? What's the right minimum balance that you think about for cash?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [62]

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Yes, I don't know. I mean, we've got a credit facility, which backs us up from a day-to-day cash standpoint, that we've been undrawn on because we have that luxury of having a bit of a cash balance. I don't know that we've tried to thread the needle here and determine exactly what minimum level of cash we would want to keep on the balance sheet after any debt reduction. But some.

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Gregg William Brody, BofA Merrill Lynch, Research Division - MD [63]

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In the after-sale market today, I know you've talked about selling some assets. How does that look?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [64]

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It's been -- we had some pretty good interest and activity that was taking place in kind of the second half, I guess, late Q3 and early Q4. And then with oil prices declining the way that they did and, as you know, capital markets under strain in December, some of those conversations slowed down. But I mean, I think conditions are improving. I would expect, as 2019 progresses, that we continue to engage in some of those discussions.

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Gregg William Brody, BofA Merrill Lynch, Research Division - MD [65]

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Great. And then just my last one. I was trying to follow the working capital guidance for '19 versus '18. Are you saying it should be a similar use of capital or -- as it was in '18? Is that what the guidance was?

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [66]

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Yes. So when you think about kind of just the modeling aspect and you think about receivables and payables, I would say that it's a continuation really of '18, flat. I wouldn't look for us to get overly rambunctious in collections or disbursements. And so think of it fairly flat year-over-year.

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Gregg William Brody, BofA Merrill Lynch, Research Division - MD [67]

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Great. So you're saying no working capital use, no working -- and...

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [68]

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We may harvest some throughout the year, but I would say, just for your purposes, think about it being flat year-over-year.

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Operator [69]

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And our next question today comes from John Daniel of Simmons Energy.

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John Matthew Daniel, Piper Jaffray Companies, Research Division - Research Analyst [70]

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Dave, can you get sort of -- as you get more focused on the CapEx and the capital allocation, for those businesses not receiving much CapEx, what's the long-term plan for them?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [71]

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Well, I mean, if it's a business that, long term, doesn't receive much CapEx, it probably gets smaller. And I mean, I think that's just kind of general business philosophy. We've had businesses like that in the past. I mean, one of our really better performing businesses today is our Gulf of Mexico Production Services business, which the Gulf of Mexico Production Services market is one that has been in decline for quite some time, particularly since Macondo, it's mostly shelf work. And the shelf market for Production Services has just gradually declined since 2010. We -- we've not made substantial capital investment in that business. We took out a lot of cost, did a lot of consolidation. They have executed exceptionally well. And I would tell you that it's gone from being a business in decline to being one of our better performance from a return standpoint because that's what happens when you have less capital investment. I mean, ultimately, the business gets smaller. It realizes an efficient size and an efficient internal capital structure, and return improves. And some -- and I think you could say that about any business, long term, that is getting less capital from us. It's probably going to get smaller and, my guess is, over time, the return improves.

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John Matthew Daniel, Piper Jaffray Companies, Research Division - Research Analyst [72]

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Would you -- I mean, is there any appetite to divest those businesses? And are you allowed to do that under your indentures and credit agreement?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [73]

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The answer to allowed is yes. I mean, I think that we're always open minded about those businesses that are not receiving capital from us. I mean, some of those decisions about capital deployment don't last forever either. And yes, I'm giving you what our guidance is for 2019. I'll talk to you about 2020 when we get to this point next year. And you can see if there is a trend. But I mean, I think, in general, if you're -- if we're not investing capital, then we've got to at least be open minded to other alternatives, and we always have been and always will be.

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John Matthew Daniel, Piper Jaffray Companies, Research Division - Research Analyst [74]

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Okay. Just a last one from me, Dave. You mentioned that the hydraulic workover and snubbing increasingly taking share from coiled tubing. And as I'm sure you know, there's been a bit more chatter from some of your peers about this oil well plug technology, just their acquisitions and developments, et cetera. When you look at those 2 things together, just how -- give us your take on the coiled tubing market going forward.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [75]

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Well, I mean, I think that, listen, coiled tubing has been an important part of our U.S. land mix for some time, and I think it will continue to be. I do think that we are really stretching the technical limitations in some of these long laterals of coiled tubing. And it has certainly been, overall, in the U.S. land market, the technique of choice in drilling out plugs. And I might mention most of the plugs we drill out today, I think, are dissolvable plugs, but maybe there's room for that technology to improve. We're not in that business, so I don't know. But we have reached technical limits on coiled tubing. And we corrected for that technical weakness by increasing the diameter from 2 inch to 2 3/8" and now 2 5/8". And I can tell you, technically, it's not the best tool for drilling out plugs. It goes fast. And that's why our operators have been very interested in it. But if you take into account, in many of these wells, the overall cost of drilling out plugs and taking into account sticking coiled tubing and those challenges that go along when you have a coiled tubing reel that's stuck in a long lateral, many of our operators are moving in a different direction. And their options become stick pipe, which is either a service rig or a snubbing unit for those customers that have an interest in drilling out those plugs, while they're flowing the wells, then a snubbing unit is the alternative. And that's in our wheelhouse, and that's not necessarily a big part of our overall snubbing and workover business. We're much more international, I think, Gulf of Mexico-focused in that business line. But we are getting significant demand from U.S. land customers now.

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Operator [76]

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And our next question comes from Blake Gendron of Wolfe Research.

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Blake Geelhoed Gendron, Wolfe Research, LLC - SVP of Equity Research [77]

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Just one higher-level clarification on the international business. We tend to paint it with a pretty broad brush here. But in terms of the specific product and service lines that are getting some of the growth capital, is it more that you guys are just keeping up with the technical design changes on the part of E&Ps? I guess, what I'm asking, are there underutilized assets within those product lines that are maybe obsolete just from a design perspective? Or are you just staying ahead of the competition as far as providing more capacity and are basically sold out across those?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [78]

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It's kind of all of the above. I mean, I would describe a lot of our capital investment as investing in product that is required for a new generation of complex wellbore. And it doesn't mean that the other assets that we have won't be utilized at some point in time. One of the things we've gotten very good at in the premium drill pipe business is moving assets into markets where those assets are specifically needed. But listen, a lot of our time and attention, particularly from an engineering standpoint and from a capital investment standpoint, come in the investment of new types of connection technology and new metallurgy that's required in new markets. And so it's a little bit of everything there. That's a mature business. We get some new product development capital requirements. We get some replacement of kind of what I would describe as more standard assets that are lost in the hole or damaged during the course of the year. Every year is a mix of those.

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Blake Geelhoed Gendron, Wolfe Research, LLC - SVP of Equity Research [79]

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Okay. That makes sense. So I guess, it's more of an upgrade cycle somewhat across some of those product and service lines as opposed to a utilization and sort of a pricing-driven growth story. I guess, secondarily, just focusing on U.S. land. If we don't get any improvement in the pressure pumping business through 2019, are you going to maintain your disciplined approach kind of in perpetuity? Or is there a time limit with respect to a potential recovery, say, in the back half of 2019, where you would start to put back spreads maybe at not the best pricing or not the pricing that you want to get?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [80]

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I guess, we'll face that challenge if that challenge is there. But I can tell you this. I mean, we invested good capital dollars in 2017 and '18 in the pressure pumping fleet. It's a fleet that's in very good condition. And I just don't see a lot of benefit to wearing out those assets without a reasonable return. We're not the largest fracturing company in North America, and that's a bit by design, so that we can make these choices when we see these variances that occur in the marketplace. If you're the market leader in fracturing, you probably have to think about it differently. Or if your only business is fracturing, you probably have to think about it differently. We don't. It's the benefit of diversity is that we get choices. And so the choice we choose to exercise here in 2019 is to idle equipment in fracturing and wait for a better day to deploy those assets.

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Operator [81]

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And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [82]

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Okay. Thank you. We appreciate your time and attention today, and we'll talk to you next quarter.

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Operator [83]

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Today's conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.