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Edited Transcript of SPN earnings conference call or presentation 24-Jul-19 1:00pm GMT

Q2 2019 Superior Energy Services Inc Earnings Call

NEW ORLEANS Jul 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Superior Energy Services Inc earnings conference call or presentation Wednesday, July 24, 2019 at 1:00:00pm 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

* Coleman Wayne Sullivan

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Daniel Joseph Burke

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

* Harris Newell Pollans

BofA Merrill Lynch, Research Division - Research Associate

* 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

* Kurt Kevin Hallead

RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research and Analyst

* Marianna Kushner

Nomura Asset Management Co., Ltd. - 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

* Stephen David Gengaro

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst

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Presentation

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Operator [1]

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

Please note that this event is being recorded. (Operator Instructions)

I would now like to turn the conference over to Mr. Paul Vincent, Vice President, Treasurer 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 Second Quarter 2019 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 second quarter activity. Westy will discuss segment results, and I'll offer thoughts on our outlook before turning the call over for Q&A.

For the second quarter of 2019, Superior Energy generated revenue of $436 million, adjusted EBITDA of $69 million and an adjusted net loss from operations of $46 million or $0.29 per share.

Our cash balance increased in excess of $82 million sequentially, primarily due to divestiture of our U.S. land drilling rig business. This all-cash transaction resulted in the receipt of $74 million at closing as well as roughly $4.5 million in net working capital collected early in the third quarter. During the first quarter of 2019, these rigs generated 11.5% EBITDA margin on approximately $33 million of revenue. This attractively valued divestiture immediately improves our balance sheet and also demonstrates that transactions can be consummated despite a very challenging market.

We also generated free cash flow during the quarter as we maintained a disciplined approach to capital spending and benefited from the diversity of our geographic and product mix. Our expectations are to generate free cash flow between $20 million and $30 million in the second half of 2019. We now expect capital expenditures for the year to be approximately $160 million, lower than our original expectation of $170 million. We recognize that our current capital structure contains too much long-term debt. As a result of the aforementioned developments, which have significantly increased our cash balances, be assured that we will continue to proactively rationalize operating costs, maintain disciplined capital allocation and seek further divestitures of noncore assets. All of these behaviors are cash positive and in conjunction with routinely evaluating refinancing opportunities, greatly enhance our ability to address our first long-term debt maturity, which occurs more than 2 years from now.

Operationally, U.S. land markets continue to experience varying degrees of fragmentation and oversupply on the service side as well as continually evolving customer behavior. More specifically, hydraulic fracturing continues to face significant challenges, and given what we believe will continue to be a volatile OPEC market, we elected to reduce the average number of operational fleets during the quarter to 6 compared to an average of 9 during the first quarter and exited the quarter with 6 operational fleets. In doing so, we expect these fleets to operate for a more consistent mix of customers at or above cash breakeven economics.

This may come as a surprise to market observers who believe us to be a "pressure pumping company." But during the quarter, EBITDA contribution from pressure pumping was less than 5% of our adjusted EBITDA. We expect a similar percentage contribution to EBITDA from the service line going forward, particularly as profitability improves in other areas. I'd further add that we've been very open about our commitment to divest assets that do not support free cash flow growth or that will be unable to compete internally for investment. Much as we did during the second quarter, we will continue to work diligently to improve our capital structure and to further eliminate the concerns of our investors.

While a reduction in active pressure pumping fleets resulted in lower U.S. land revenue for Superior Energy, most other U.S. land service lines met our expectations despite a declining rig count and customer hesitancy to increase activity.

Our U.S. offshore results improved sharply as our completion tool business executed on projects that we had previously indicated had shifted from the first quarter to the second quarter. We expect to be in a period of strong completion activity mix in the Gulf of Mexico for the remainder of the year, and our business has a robust backlog of customer orders that we will deliver on over the next several quarters.

The completion tool business, which has been a part of the Superior portfolio since 2010, has had some very important wins in recent years, and I believe we are on the verge of seeing this business increase substantially over the next several years. Since the acquisition in 2010, we have consistently funded R&D and product development in sand control completions, which is one of the most technically challenging segments of the oil and gas service industry. Our advances in Multi-Zone Single Trip tool technology resulted in Superior Energy being selected as the tool provider for Hess on their critical and challenging Stampede completions, which began in 2017. This project was very visible with other operators in the Gulf of Mexico, and our technology and successful execution on Stampede have attracted other high potential customers to Superior. This technology and manufactured product business is one that does not consume significant capital investment dollars and is generally a solid free cash flow producer. In recent years, ROIC has been above cost of capital, and we believe this is a business that can consistently generate returns in the mid-20s or better.

We have made an investment in additional machining capacity that will expand margin and improve our competitive position on international tenders. In addition, we have been involved in engineering and product development efforts to fill in some product line gaps in our up tubing product offering, which will allow us to be more competitive in international tenders. Most sand control completion opportunities exist in offshore wells. And with expectations of global offshore activity improving in the coming quarters, we feel very confident that our completion tool business will become a bigger contributor to Superior's overall results.

Our business is global in nature, and our future opportunities aren't contingent on near-term spending patterns in the Permian Basin. For context, we estimate that 23% of our revenue was related to Permian Basin spending in the second quarter, down from a high of 34% in the third quarter last year. It would be inaccurate to assume that increased U.S. land spending, particularly in the Permian Basin, is our path to improved returns, margins and free cash flow. The success of offshore and international service line such as our completion tools business is what gives us confidence that we will be able to consistently generate free cash flow while moderating capital expenditures as we build cash and ultimately retire debt.

Internationally, revenue was effectively flat sequentially, and we still expect an approximate 5% to 10% international revenue increase year-over-year. We are encouraged by the improvement in activity levels we've witnessed to date as well as the continued indications of further activity increases over the next several years. For example, we've noted for several quarters an increased level of tendering activity for premium drill pipe in numerous regions globally. While tendering activity remains high, we are beginning to see that activity convert into work being awarded, which will begin in the second half of the year and continue into 2020. Additionally, we'll be starting up our cementing business in Kuwait in the second half of the year. We expect additional opportunities in the Middle East over the next 12 months.

Before turning the call over to Westy, it’s important to emphasize our focus given current market sentiment. Understandably, there are concerns about anyone's ability to refinance debt over the next several years, and while we share those concerns, we are confident that the recent divestment of the U.S. land drilling rig business and numerous other avenues we will pursue will allow us to improve our capital structure.

During the second quarter, we divested a business that has not historically garnered much investor attention for what we consider to be an extremely fair valuation. We generated free cash flow and expect to generate more free cash flow this year. We also maintained a capital expenditure run rate that puts us below our previous 2019 expectations. Moving forward, we will continue to pursue divestitures both smaller than and potentially larger than what we achieved this quarter. Capital expenditures will be limited to our highest-return opportunities as well as to opportunities to expand our reach with our most productive product and service lines. We will further integrate our business units to reduce operating costs, and we will continue to leverage our global franchises to provide unique solutions for our customers. All of these actions are achievable and don't require us to make decisions that limit our ability to compete in the future.

With that, Westy will discuss our second 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 first quarter results. I'll also provide commentary regarding third quarter expectations for each segment. This commentary does not take into account any financial impact due to interruptions caused by Hurricane Barry.

Our second quarter results are directly related to the successful execution of our strategic objectives. This execution resulted in $3.5 million of free cash flow for the quarter, which was a $17 million swing from the first quarter and continues us along the path of improving our returns and reducing debt. Cash balances increased to $234 million, primarily as a result of the divestiture of our drilling rig business. While we are encouraged by our initiatives, work remains to be done. We will continue to rationalize costs, prudently allocate capital to high-margin, high-return business lines and we will continue to pursue divestitures. All of these actions are expected to result in free cash flow during the second half of the year in excess of $20 million.

CapEx for the quarter was $38 million. We expect the rate of expenditures to slow further during the second half of the year and now anticipate 2019 CapEx to total approximately $160 million, which, as Dave mentioned, is down from our initial 2019 target of $170 million.

As for our segment results, our Drilling Products and Services total segment revenue remained at $101 million as lighter accommodations activity was offset by improved premium drill pipe rental revenues. For the third quarter, we expect revenue and EBITDA to be flat to up approximately 5%.

In our Onshore Completion and Workover Services segment, which is comprised of product lines that exclusively serve U.S. land markets, revenue decreased 20% to $164 million. As Dave mentioned earlier, we elected to reduce our deployed hydraulic fracturing fleets and averaged 6 fleets operating during the quarter. This resulted in decreased pressure pumping revenue of roughly $33 million.

Fluid management revenue also declined due to an annual decline in heating revenue but was offset primarily -- partially by an increase in well service revenue. Additionally, the financial results from the drilling rigs which were divested during the second quarter were included in this segment.

Looking ahead to the third quarter, we expect revenues to decline approximately 15% with 20% to 25% EBITDA decrementals as a result of continued lower pressure pump activity, slightly lower fluid management activity and the drilling rig divestiture.

Our Production Services total segment revenue of $103 million was unchanged, and our expectations are for a relatively flat third quarter as well. Aside from our commitments related to our Kuwait expansion, capital expenditures will be limited in this segment, and our expectations are for returns to improve even in a static U.S. land environment.

In the Technical Solutions segment, total revenue increased 20% to $69 million. Improved results were driven by increased levels of completion tools activity of the U.S. offshore market. Our expectations for third quarter results are for relatively flat revenue and margins as increasing completion tool activity is offset by lower anticipated levels of well control and subsea [intervention] activity.

Before I turn the call back over to Dave, here are a few modeling-related items. G&A for the quarter was $72 million, and we expect third quarter G&A to be in a range of $72 million to $75 million. DD&A is expected to be between $70 million and $75 million. Third quarter interest is expected to be approximately $25 million.

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

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

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Okay. Thanks, Westy. With respect to our market outlook, we are approaching the U.S. land market as if it is fully recovered and have no expectations for increased activity levels in the near future.

Maintaining capacity or cost on behalf of our customers with the hope of increased utilization at some point in the future is no longer acceptable, particularly in the most fragmented, competitively disadvantaged service lines. As such, we are laser- focused on operational efficiency, controlling costs and rationalizing assets and locations, which are likely to remain challenged from a profitability perspective.

The U.S. onshore and international markets both seem poised to continue to experience gradually increasing activity levels. Again, this isn't aspirational but based on interactions we have been and continue to have with a variety of customers. As activity levels increase, our revenue mix and capital allocation will increasingly favor these 2 regions, both of which result in higher-margin, higher-return results. Our primary focus is on cash generation and improving our capital structure. The second quarter was a solid step in that direction.

That concludes our prepared remarks. We'll now turn it over to the operator for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

The first question comes from Bryan (sic) [Byron] Pope from Tudor, Pickering, Holt.

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Byron Keith Pope, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research [2]

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Realize the uncertainty out there over the near term, so appreciate the color on Q3. That's really helpful. My question -- one question relates to Drilling Products and Services, and Dave, it's encouraging to hear how you characterize some of the international offshore premium pipe tenders starting to convert into orders. Could you just frame how you think about the next 6 to 12 months for the international -- for the U.S. onshore and the U.S. Gulf of Mexico parts of [DPS] and just in terms of how you feel about the book of work that's building?

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

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Yes. I mean we deployed additional premium drill pipe assets into the U.S. land market during 2018. We had some that went out in early 2019. I would say utilization on premium drill pipe in the U.S. land market remains very high. We've not made decisions about additional pipe for 2020, but I won't be surprised if we see some additional opportunities with premium drill pipe in U.S. land market in 2020. As operators have stretched out their laterals, they are certainly realizing the benefits of going with a premium connection as opposed to more standard drill pipe. And I think what we've put in the market is a premium drill pipe offering that has given our customers an advantage from a maintenance and repair cost standpoint. So I think there'll continue to be some opportunities in the U.S. land market even with a low rig count or slightly lower rig count from where we are today. I think that's probably in the U.S. land market what we think about as being the real opportunity for expansion beyond where we are today.

I think the rest of our U.S. land businesses are kind of in a bit of a steady state in U.S. land. Certainly, if we see completions activity decline during the second half of the year, particularly in Q4, then we'll have some variability around that. But overall, the business is entering kind of a steady-state position now.

You asked about offshore, Gulf of Mexico. I think Gulf of Mexico, we probably would tell you that we think there's an opportunity to see some growth in the Gulf of Mexico. We'll witness it in our own business with completion tools activity in the second half of 2019, but I won't be surprised if we see some uplift in opportunities for all of our Gulf of Mexico businesses in 2020.

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Operator [4]

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Our next question comes from Marshall Adkins with Raymond James.

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James Marshall Adkins, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Director of Energy Research [5]

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Can you hear me now?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [6]

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Yes.

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James Marshall Adkins, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Director of Energy Research [7]

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Perfect. Your guidance on free cash flow suggests a meaningful improvement from what we've seen in over the past several years. Could you help me understand how you're getting there? Is this confidence in the international market, Gulf of Mexico, the completion tools? Or is it working capital? Or just help us understand how we're going to see this improvement in the back half of the year in cash flow given the stagnant U.S. market.

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

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Yes. I mean it's a little bit all the above, Marshall, but I mean I think if you look at our pace of capital spending, the pace of capital spending in the second half of the year is less than where we were in the first half of the year. And I think you got to think about the way long-term capital spending has occurred and will occur going forward. And we came off of a pace of capital spend that was well in excess of $200 million in 2018. We've got it down to now what we're telling is $160 million in 2019. I don't have a 2020 capital spending forecast to give to you, but I'd be inclined to tell you, it's going to be down again in 2020.

So if you follow kind of the pace, the pace has been and continues to deteriorate, and I think that, that is probably one of the most significant factors to why we're generating free cash flow as the pace of capital spend reduces. And the businesses, which the composition of our profitability mix here is coming more from those offshore and international-related businesses and our global franchises and less from the U.S. land service lines, which the U.S. land service lines tend to be lower margins. So it's a bit of mix in where the revenue is coming from and a bit less capital spending. Overall, from a working capital standpoint, it's got ins and outs. And I think that our DSO level is about flat today with where it was at the end of 2018. We're not an inventory-intensive company, so that tends not to be an area where we see big working capital swings. It's becoming more steady-state.

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [9]

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We did have a slight draw, Marshall, of working capital in the second quarter, primarily driven by inventory build for the completion tool business set, as we mentioned, slid from the first to second and also we think ramps up in the third and fourth quarter.

We also had a slight working capital draw for some international projects that needed some startup capital. But I look -- I would look for kind of that draw to reverse itself in the second half of the year.

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James Marshall Adkins, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Director of Energy Research [10]

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Makes sense. So if -- just reading into next year, I know it's early. If you're able to keep CapEx flat or maybe even lower it from where you are and you continue to get improvement like most of us expect in the international market and Gulf of Mexico and the U.S. stays steady-state, as you put it, am I reading too much into it? But you should be able -- the improvement you're looking for in the back half of this year continues to gain some momentum, and I'm talking free cash flow now, gaining momentum into 2020. It's early, but with everything you know today, is that a fair look at it?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [11]

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That's exactly the way that we look at it. And I think the one qualifier that I put on this is that I think you can pretty well count on capital spending in 2020 being below what our spending level will be for 2019.

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Operator [12]

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Our next question comes from Blake Gendron from Wolfe Research.

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Blake Geelhoed Gendron, Wolfe Research, LLC - SVP of Equity Research [13]

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Just attacking the 2020 cash flow question from a different angle, perhaps. I know you can't give us guidance quite yet. There's really no visibility at least in the U.S. market. But the last time we got the Onshore Completion and Workover contribution on the EBITDA side at this level was back in '15, and it was a 55% free cash flow conversion from EBITDA. So should we be thinking that we're going to gravitate toward the higher end of that kind of range from where we are now? Or is there a way we can think about the CapEx run rate of the RemainCo being everything outside of Onshore Completion and Workover?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [14]

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Yes. I mean I think that what you can count on is that capital spending on the U.S. land service-oriented businesses will be at very low levels in 2020. I mean they're at low levels in 2019. We did have some CapEx that was embedded in the first half of the year for fracturing, for commitments that we'd made a year ago. But as we go forward, I would expect that U.S. land capital spending is going to be very low. I've commented in the past that our problem in the U.S. land market is one of overcapacity. I can't -- we cannot address the entire overcapacity issue throughout industry. We can only do those things that are best for Superior and for us. That means allowing those businesses to get smaller over time, and you do that by underspending capital investments. So I mean I think your thoughts about free cash flow generation from those businesses are spot on.

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Blake Geelhoed Gendron, Wolfe Research, LLC - SVP of Equity Research [15]

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Okay. Perfect. And then just quick one on G&A. Screen is a little high on the percentage of revenue, but I understand your rental businesses specifically have more corporate overhead as opposed to service-related OpEx. Any further levers to get down G&A across the business as it relates to sort of the free cash flow improvement moving forward?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [16]

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Yes. I would tell you that we will continue to look for ways to drive overall G&A and corporate expenses down. We've been pretty successful in doing that since the business began to downsize in 2015, and I think you can look for us to continue to find ways to operate more efficiently.

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Operator [17]

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Our next question comes from Sean Meakim from JP Morgan.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [18]

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So just I guess continuing along that line of thinking, if we could, for a little bit. So for next year, it's a little early in terms of putting together a budget, but would you be able to give us a line of sight to what you think would be a maintenance level of spend, assuming a steady-state of activity, both just international as well as North America? Just trying to get a sense of how much it becomes flex capital that could be put into your best opportunities versus we have some flexibility between free cash to the balance sheet versus deploying it next year.

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

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Yes. Sure. I mean just to kind of address philosophically here where we are with capital spending, I mean we in 2019 are addressing very good opportunities, and I outlined those when we kind of gave you our first look at capital spend for 2019. You'll recall there is capital going into the premium drill pipe business, bottomhole assembly business, a bit into completion tools, although I'd say it's not a capital-intensive business. But all of those -- I mean the reason we're putting capital into those businesses is they all represent growth opportunities that are in our highest-margin, highest-return areas, and I think that we will continue to have some of those opportunities in 2020. But I do believe that as we go forward, there are -- there continue to be opportunities to get more efficient from a capital spend standpoint in our U.S. land businesses.

We also have some expansion capital that's going into international Production Services this year with startup of contract in Kuwait. Now I don't know if we'll have those same type of opportunities in 2020 now on new contracts or not, but listen, Sean, what I said before I'd stand by, and that is look for overall lower capital spending in 2020. As we get closer to the end of the year and maybe next time we report, we'd put -- we can frame that a bit better for you. But overall spend will be lower than it is this year.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [20]

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Fair enough. I appreciate that. And then on the divestiture that you announced, I was wondering if you could give us a sense of what the timing looked like in terms of putting that up for sale, renting it, putting it up for tender and being able to secure a buyer and just kind of your overall view of how you're seeing that market in terms of the potential for some of these divestitures, kind of what the appetite looks like out there, considering plenty of uncertainty out there in the market for folks who may be looking to acquire assets.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [21]

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Yes. I mean first off, we have been very open that we were open to divestiture components of our, what we've described as noncore U.S. land services business. And when we say noncore, that means not that we're making investments, we're causing these investments to shrink. So from a philosophical standpoint, we ought to be open to divestiture. That's not a new thought that developed in the last couple of quarters. In the case of drilling rigs, I mean it's a business that we socialized a divestiture with in 2018. Towards the end of the year, of course, things got pretty quiet on the front with potential buyers, and that attitude prevailed going into 2019. But I'd say conversations on this began kind of late in the first quarter, and we wound up closing the transaction just right at the end of -- toward the end of the second quarter. So just to give an idea of timing.

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Operator [22]

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Our next question comes from Stephen Gengaro from Stifel.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [23]

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Just on the asset sales side first. I mean, I know you've been pretty open about working to sell noncore assets. Where do things stand now outside of the rigs, obviously? Where you see the bid ask right now as you look at other potential sales going forward?

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

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I mean I think that there are a lot of conversations going on. I mean the -- as I mentioned in the prior -- answering the prior question, I mean conversations on asset divestitures got pretty quiet, and this in kind of beginning late November of 2018 and stayed pretty quiet in the first few months of 2019. But my observation has been there's a lot more conversations going on since middle of the second half of the first quarter. And we've seen a few other transactions that have taken place, that have been more sizable than the one that we executed. So and I think there is an appetite out there. I think there's a general understanding amongst industry players and investors that consolidation is something that needs to happen. And we certainly are in that camp, and I think that others are seeing the same opportunity there. So look, I would expect, Stephen, that as the year continues and more and more people gain this understanding of consolidation being a potential driver for earnings for companies, you're going to see more and more of these transactions take place.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [25]

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It seemed like have you have to be happy with the sale price.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [26]

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I think we feel like it was a fair price. I mean it was a business that, quite frankly, was hard for us to continue to make capital investments in as a lot of the U.S. land service businesses are. But this is a very high-quality business with great employees and a great reputation from an execution standpoint, and I think that the buyer certainly knows that. So they bought a good business.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [27]

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And just as a final question. When you think about the international business, I think your revenue's up first half '19 about 12% year-over-year. You think that pace continues in the back half of the year? And do you think the 2020 international growth rate could exceed '19?

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

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I don't know. We experienced pretty good growth in 2018 internationally. I think that it was up kind of low double-digit from a growth standpoint. We have said this year, we think it's probably more like high single-digit, but it could creep up a bit higher than that. And at this point, I would believe that the pace of growth continues to look pretty good in 2020. We haven't done a 2020 budget yet, so I'll give you a little better idea as to what exactly growth rate we expect in 2020. But what we've got some good things going for us and a lot of the international tendering activity we've talked about for our premium drill pipe business begins to produce for us in 2020. We've also got startup in the Middle East that I've mentioned that gets to a more full run rate in 2020. So we have a little bit of a tailwind, but I'm a bit hesitant to give you a specific expectation on growth rate.

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Operator [29]

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

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John Booth Lowe, Citigroup Inc, Research Division - VP [30]

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So as you guys have cash coming in the door through divestitures and potentially additional divestitures down the road, free cash flows improving, the balance sheets starts to look a little bit better, what steps can you guys take on the debt side, I guess ahead of the 2021 maturities to kind of address your capital structure from that end?

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

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Well, as you know, that maturity, the first maturity wall of $800 million isn't for roughly 2.5 years from now. And so I think it's a variety of things. Certainly, Dave mentioned some of the operational initiatives that we have, some of the divestiture and other strategic initiatives that we have. But also recognize that we are constantly in the market and constantly discussing our alternatives to refinance debt maturity over the entire set of maturities. And so I don't think there's anything actionable today. I don't think there's anything to really discuss, but just know that we are, on a real-time basis, investigating and analyzing our ability to create a more optimal capital structure.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [32]

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And just to add to that, what benefits us the most in dealing with this maturity is generating cash. The more cash we have on the balance sheets, the better our options become. So that's -- listen, it's dynamic. As Westy said, we don't have to reach any conclusions today. We will as we get closer to the maturity point. But the one thing that does help is cash and gives us way better options. So that's what we're most focused on, on accomplishing now.

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John Booth Lowe, Citigroup Inc, Research Division - VP [33]

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Right. So you guys aren't necessarily in very much hurry, so you can show some patience on that front?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [34]

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Yes. I don't want to make it sound like it's not a -- this is not a priority for us. It is. I mean we commented on that in our prepared remarks, and it clearly is a priority for us. I know it's a priority for investors as well. I guess we just see the best opportunities for us being as a result of adding cash to the balance sheet. So that's where we're going to be most focused right now.

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John Booth Lowe, Citigroup Inc, Research Division - VP [35]

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Right. And then just as a follow-up. How many of the -- 12 rigs you guys sold in the quarter, how many were working in 2Q, or I guess today?

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [36]

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Yes. That's something we're not -- we can't disclose.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [37]

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I think I gave you the financial impact that those rigs had for us in the first half of the year.

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Operator [38]

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Our next question will come from John Daniel from Simmons Energy.

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John Matthew Daniel, Piper Jaffray Companies, Research Division - Research Analyst [39]

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Dave, Westy, 2 questions from me. To the extent you sold any other business lines, are there any restrictions in your bank agreement or the senior notes, which would limit your ability to take equity from another public entity?

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

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Certainly, a lot of things has to be cleared with our credit facility, but beyond that, no. I think we have a pretty wide degree of latitude in how we can think about ensuing transactions.

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John Matthew Daniel, Piper Jaffray Companies, Research Division - Research Analyst [41]

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Okay. Just the bank group, not the senior notes, no approval from them?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [42]

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It's just the bank group, and you will note that the only obligations we have with the bank group is on letters of credit. So we're -- I don't believe that there would be real restrictions there, John.

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John Matthew Daniel, Piper Jaffray Companies, Research Division - Research Analyst [43]

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Okay, good. And then, Westy, I know you mentioned you're constantly looking at the capital structure, but if I'm not mistaken, I think the debt's trading at a pretty deep discount. Can you speak to your ability or desire to buy back any of the debt early? Or would you rather just build cash?

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [44]

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Look, I wouldn't rule out anything, but I think right now, cash is a premium for us. And so I think the advantages of maintaining liquidity and a robust cash balance at this point in time outweighs any notion of reining in some of these bonds. So I don't -- you never say never, but right now, look for us to continue to build cash.

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John Matthew Daniel, Piper Jaffray Companies, Research Division - Research Analyst [45]

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Okay. And then just the last one for me, operational question, Dave, on if you'd be willing to share sort of utilization on your workover fleet, outlook for that business and then data of coiled tubing.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [46]

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Yes, sure. I mean on service rigs, I think we continue to operate somewhere between 60 and 70. I don't know that we've seen any real shifts in utilization over the course of the last few quarters. Those rigs, John, are, I would say we do a lot of production work. And what we have found in the business is that where we have opportunities to bundle for production work on things like plug and abandonment, either utilization on a rig like that is a different than a completions rig, which could be first quarter 24/7. But we can generate good margin and good return in doing that type of production work. So I don't think we've really seen any real shift in utilization in total on the fleet. Continue to have a healthy mix, I would say, of completions versus production work. But as you know, I mean there are big differences in the way you measure utilization in those 2 types of operations.

On coiled tubing, we've talked about the fact that we have reduced the number of places that we are offering coiled tubing. We've got probably our strongest presence in the Mid-Continent and in Pennsylvania, and utilization has been lumpy in the Mid-Continent since the start of the year. We've had some new competitors that moved assets into the market that have not been helpful from a price standpoint. But that was more early in the year. I don't know we've seen real significant change between kind of mid-Q1 and what we delivered in Q2, and I'm not expecting any big changes in utilization in coiled tubing in the third quarter.

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Operator [47]

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Our next question comes from Kurt Hallead from RBC.

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Kurt Kevin Hallead, RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research and Analyst [48]

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When you look at the cash flow generation, the expected cash generation in the second half of the year, based on your commentary about what's going on in international markets, in the offshore markets and pipeline of opportunities, taking into account some of the uncertainties around U.S. land, is that free cash flow generation, you think is that a baseline run rate that you can sustain through 2020? Or do you think there is potential for some improvement even above and beyond the second half of '19 run rate on free cash?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [49]

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Yes. I mean I think that it would be a run rate that we would be comfortable in saying exists, and I would be biased to tell you there's probably some upside to it. So as you think about that run rate second half of the year where we've kind of guided to $20 million to $30 million, my belief is that an environment where we continue to be disciplined from a capital spend standpoint, where we do begin to see some growth in our continued growth in Gulf of Mexico and some of the international markets and particularly in product lines that tend to drive high margins for us and lots of cash to the bottom line, then I'd be inclined to tell you the 2020 free cash flow, even in a stagnant U.S. land market or maybe less than the U.S. land market, we can expand that cash flow.

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Kurt Kevin Hallead, RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research and Analyst [50]

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Okay. Appreciate that color. The -- in the context of CapEx, and you referenced it, a little run rate going into next year, not really having a firm budget at this point, but what's the maintenance level CapEx given the fact that you're operating fewer frac crews now and you sold the land rig business? How should we be thinking about maintenance CapEx (inaudible)?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [51]

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I don't know. I mean if you use 2018 as a proxy, I'd tell you that we probably have on the order of $40 million or $50 million in growth CapEx embedded in our spend. So I don't know, Kurt. I mean you probably use a number that's around $100 million, and that's not far off.

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [52]

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That, that even, that even might be...

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

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Yes.

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [54]

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Yes, I think that might even be a little high. It might be more like $60 million, $75 million because right now, it's running about half of '19 CapEx. It's not an overwhelmingly large number.

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Kurt Kevin Hallead, RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research and Analyst [55]

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Great. And then maybe just 1 follow-up, Dave. You mentioned you exited the second quarter with 6 frac crews running. You mentioned that business would be probably 5% of EBITDA if not less on a go-forward basis. Great color. Should we basically assume that those 6 -- you're going to -- that 6 frac crews is something you feel confident in the current operating environment with absolutely no improvement in activity, that even if you don't sell that business, you'll be running kind of 6 frac crews well into 2020? Is that a reasonable assumption?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [56]

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Yes. Absent really significant price increase, I can tell you it won't be more than that.

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Operator [57]

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Our next question comes from Harry Pollans from BOA.

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Harris Newell Pollans, BofA Merrill Lynch, Research Division - Research Associate [58]

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Can you guys talk about any other potential divestitures and identify the businesses that you'd consider selling? And do you guys have kind of total cash goal you're looking at from, as far as divestitures go?

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

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I think we've been consistent in saying that all of those U.S. land services businesses that we're under-investing maintenance capital would be candidates. But I mean we have also said we're open to anything. So nothing's off the table.

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Harris Newell Pollans, BofA Merrill Lynch, Research Division - Research Associate [60]

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Got it. And do you have a kind of cash number that you're looking for to raise as far as divestitures go?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [61]

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We don't have a specific goal, no. I mean what we're trying to do is to optimize overall our cash balance.

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Operator [62]

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Our next question comes from Cole Sullivan from Wells Fargo.

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Coleman Wayne Sullivan, Wells Fargo Securities, LLC, Research Division - Senior Analyst [63]

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It looks like a lot of the higher questions have been asked on cash flows and everything. So just quickly on some modeling points. It sounds like the Technical Solutions, the comments on 3Q and going forward, it sounds like completions activity is picking up nicely for you guys on the tool side, and second half is -- is it fair to say second half is shaping up to be better than what we saw last year?

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

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Yes. Relative to last year, I think the answer to that is yes. Certainly better than what we saw in the first half of the year. Q1 was a very low quarter for us from a completion tool standpoint. And so second half overall in Technical Solutions is certainly better than what we saw first half.

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Coleman Wayne Sullivan, Wells Fargo Securities, LLC, Research Division - Senior Analyst [65]

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All right. And then in DPS, good margin improvement in the second quarter. You mentioned some drill pipe potentially there. Is it drill pipe that we're seeing kind of flowing through there? Or is there may be some additional uplift from the completion starting to pick up in 2Q?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [66]

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Yes. I mean that's still in -- that's still within that drill pipe business. So I think what we talked about is there being a better mix of overall completions work in the Gulf of Mexico in kind of second half of the year versus where we've been in the first half of the year. And I mean in our premium drill pipe business, we rent completion strings as well, and typically, what we've seen is a little bit better revenue opportunity when the rigs are in a completions mode. So it's from the same business line. It's just a different mix of product.

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Operator [67]

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Our next question comes from Daniel Burke from Johnson Rice.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [68]

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Yes. Not many left, but Dave, I'll stay with completion tools for 1 minute. My inference from your comments and then the constructive long-term outlook is that completion tools, based on your calendar right now, looks better in 2020 than 2019, but I just wanted to ask that more specifically.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [69]

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Yes. I think I haven't seen a 2020 budget yet, Daniel, but I'd be inclined to tell you, with the momentum that we have been gaining in that business, both with Gulf of Mexico share and also internationally, I'd be inclined to tell you that we do see growth in completion tools in 2020. The international market has been a bit slow for us over the past several years, and I expect that we're going to have some wins in 2020 to kind of elevate the overall revenue in that business.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [70]

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Got it. Okay. And then maybe just the last one. Can you give us a sense right now maybe on a qualitative, if not quantitative, basis of how disruptive Barry was for you guys?

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

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Yes. I don't know that we have a specific quantitative measure, but we were evacuated for off of a significant portion of the rigs and production platforms in the Gulf of Mexico for 4 or 5 days. That kind of disruption in the first storm of the year is always one where we get people out and our customers drive people off of the job sites fairly early, and then that tends to take a few days before you get everything back out. What I'd tell you is this. When you have a storm interruption that happens in the very first part or very early in the quarter, you often get opportunities on the non-rig-related work to make up for that. I think the challenge you have to think about is that, as you well know, Daniel, there could be a few more storms that are out there in Q3, and those are hard to predict. So we'll see. Happens this year in Q3, every year doesn't it?

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [72]

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Yes, it does. Yes, it does. All right. I appreciate it.

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Operator [73]

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Our next question comes from Mike Urban from Seaport Global Securities.

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Michael William Urban, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [74]

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Wanted to dig in on the international side a little bit more, kind of following up on an earlier question. I think it was Stephen who noted you guys are up kind of 12-ish percent here year-to-date. But even if you're flat the rest of the year, that's still kind of puts you within your range, about 6%. And talked about Kuwait starting up, some of the tenders turning into work. So I'm just trying to understand if you're just trying to be conservative here, some of that stuff may slip into 2020 or if there's some work that's rolling off. Because, like I said, even if you're kind of flat, you're within that band that you're talking about.

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

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Yes. I mean probably if you go back and think about this, the biggest change is in Q1, right, from a year-over-year standpoint.

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Michael William Urban, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [76]

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Yes.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [77]

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Yes. That probably answers your question for you. But I mean as far as what we're thinking about in forecasting for the second half of the year, I think what we're trying to do is to set an expectation that we are comfortable with, and trying to give you guys that guidance that would fit within our comfort range, so.

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Michael William Urban, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [78]

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Okay. And then back to your favorite topic on pumping. With the fleets that you are running, you said you're only accepting work that's above cash breakeven. I mean just rough math, kind of 5% of EBITDA. You're a little over $2 million of annualized EBITDA per fleet, which is kind of below -- kind of at or below maintenance CapEx levels. So I'm assuming you're talking about kind of EBITDA breakeven or cash breakeven at the field in terms of keeping those running.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [79]

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Yes. I mean I think what we talked about is trying to keep it above cash breakeven at the field.

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Michael William Urban, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [80]

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Okay. Sorry, if I could sneak one more in. Tax rate is obviously going to be volatile with earnings where they are in the negative, but you did have some cash taxes in Q2. I'm assuming that was (inaudible)...

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [81]

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We did not -- yes, just to correct that, we did not have any cash taxes.

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [82]

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With GAAP taxes. P&L had GAAP taxes, but no cash taxes.

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Michael William Urban, Seaport Global Securities LLC, Research Division - MD & Senior Analyst [83]

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Okay, okay. And what's your expectation -- are you a cash taxpayer at all in the second half or any kind of GAAP tax guidance?

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [84]

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No.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [85]

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We would not be a cash taxpayer in the second half.

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Operator [86]

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(Operator Instructions)

Our next question comes from Marianna Kushner from Nomura Asset Management.

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Marianna Kushner, Nomura Asset Management Co., Ltd. - Analyst [87]

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Could you please provide the borrowing base -- the updated borrowing base in the ABL facility as well as LC usage?

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [88]

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Right now, we've got availability of about $160 million.

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Marianna Kushner, Nomura Asset Management Co., Ltd. - Analyst [89]

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And what's the borrowing base and the LCs outstanding?

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [90]

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The net borrowing base is about $160 million with nothing drawn.

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Operator [91]

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This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Dave Dunlap for any closing remarks.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [92]

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Okay. Thank you. We appreciate all of you joining us today, and let us know if you have any follow-up.

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Operator [93]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect, and enjoy the rest of your day.