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

Q1 2019 Superior Energy Services Inc Earnings Call

NEW ORLEANS Apr 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Superior Energy Services Inc earnings conference call or presentation Wednesday, April 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

* Daniel Joseph Burke

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

* Emily Boltryk

* 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

* Kurt Kevin Hallead

RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research and 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 day, and welcome to the Superior Energy 2019 First Quarter Earnings Conference Call and Webcast. (Operator Instructions)

Please note, this event is being recorded.

I would now like to turn the conference call over to Mr. Paul Vincent, Vice President of Treasury and Investor Relations. Mr. Vincent, the floor is yours, 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 First 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 first 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 first quarter of 2019, Superior Energy generated revenue of $467 million, EBITDA of $63 million and a net loss from continuing operations of $48 million or $0.31 per share. The first quarter was marked by continued challenges in the U.S. land service market and a shift in Gulf of Mexico activity mix, which was weighted towards drilling operations. Both of these trends were expected and resulted in sequentially lower revenue.

In U.S. land markets, the year began much as 2018 ended: slowly. Despite higher oil prices, the measured pace our customers are pursuing is exacerbating the impact of equipment overcapacity in the market today. With more of our competitors pursuing marginal work in pressure pumping, prices in utilization were both negatively impacted. We've responded to this shift in customer behavior by reducing the amount of equipment we are maintaining in the field. Although pressure pumping utilization improved a bit as the quarter progressed, the overcapacity of equipment, combined with very low levels of visibility into customer activity levels, caused us to keep about 1/3 of our horsepower idle. This will reduce the capital associated with running our pressure pumping assets while forgoing revenue with undesirable margin profile.

In the Gulf of Mexico where we generally expect some seasonal weakness this time of year, we also observed a shift in activity towards drilling operations after a completions-heavy second half of 2018. Rental margins trend a bit lower during periods of more drilling activity due to the mix of tools used in drilling versus completions operations. Additionally, and more significantly during Q1, our completion tools sales were down due to lower activity. It's not uncommon for completion tools results to be volatile from quarter-to-quarter and given the level of visibility we have on projects this year, we are comfortable that sales of tools will improve as the year progresses.

Internationally, our revenue was flat sequentially and up 23% year-over-year, with slightly higher margins. Hydraulic workover and snubbing activity primarily in the Asia Pacific and European regions remained steady, bucking a trend of the past several years of lower first quarter revenue in this product line. We also performed intervention work on a project in Latin America, which is one of the core competencies of our well control business. Both of these product lines are cornerstone franchises, which are deployed globally and will benefit from improving international oil field fundamentals.

We're also encouraged by how well our more conventional Production Services held up and believe these service lines will continue to find opportunities to grow against the backdrop of higher oil prices.

We were awarded our first service contract in Kuwait during the quarter. The primary product line will be introduced in cementing services with this contract when representing approximately $30 million per year in potential revenue for us. This was a high profile, very competitive process, and we believe the result reflects the quality of our international offerings. We are also actively pursuing additional contract wins in the region and are confident we will continue to grow our Middle East presence.

The ability to pivot and allocate capital globally differentiates our company relative to our competition, and the contract and award in Kuwait highlights that. As capital has flooded our industry in North America and many service offerings have become more commoditized, it has become challenging to generate reasonable returns. It is evident that the only way to maximize returns over time is to have the ability to invest in competitively favorable geographies and product lines, and that is exactly what we'll continue to do. It would be fantastic if U.S. land competitive dynamics improved. But until that happens, instead of hoping for a recovery that may take too long to materialize, we'll pursue avenues of opportunity that are open to us today as a result of our product line and geographic diversity.

With that, Westy will discuss our first 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 fourth quarter results.

Our focus financially this year is to generate free cash flow and to further enhance our liquidity. Two key drivers of this will be continued discipline and management of working capital and capital expenditures. Although our free cash flow for the quarter was slightly negative primarily due to an increase in DSO and, as Dave mentioned, the slower pace of completion tools sales in the Gulf of Mexico, we expect these items to reverse throughout the rest of the year resulting in positive free cash flow. Prudent CapEx management for the year will contribute to positive free cash flow as well. Our first quarter investment of $42 million was a good start to achieving our 2019 goal of $170 million, and we expect this trend to continue.

As for our segment results, our Drilling Products and Services total segment revenue decreased 4% to $101 million as seasonality and activity weighted towards drilling caused our Gulf of Mexico and international revenue to be lower, offsetting continued growth in the U.S. land markets.

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 $205 million. This decrease is almost entirely attributable to lower levels of pressure pumping pricing and utilization across fewer fleets running during the quarter. A combination of extremely low visibility into our customers' capital programs for the remainder of the year and continued unfavorable competitive conditions make it unlikely that we will return idle equipment to service in this environment. This business is at a point where the competitive dynamics make it very difficult to justify incremental investment.

Our Production Services total segment revenue decreased 6% to $104 million. This revenue decline is almost entirely a result of decreased U.S. land coiled tubing activity during the quarter. This business has become dependent on completion activity over time and was impacted by weaknesses exhibited in the U.S. land market during the quarter.

In our Technical Solutions segment, total revenue decreased 17% to $58 million. After a strong second half of 2018, our completion tools business experienced an anticipated low in activity. As we've highlighted, we have visibility on increased activity in the second half of 2019.

Before turning the call back to Dave, here are a few modeling-related items. G&A for the quarter were $74 million, and we expect second quarter G&A to be in the range of $75 million to $78 million. DD&A is expected to be between $75 million and $80 million. And second quarter interest expense is expected to be approximately $25 million.

Thank you, and now I'll 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. As has been the case for the past several years, our outlook is bifurcated. Unlike in the past, however, our expectations for recovery and improved results are predominantly in our U.S. offshore and international areas of operation.

In the U.S., recovery seems to have been just around the corner, and when it has arrived, it has been exceedingly brief. Our mindset towards U.S. land absent visibility on sustained pricing and utilization improvement is cautious. We will continue to restrict capital investment in the U.S. land market to those opportunities that produce high returns. For example, our premium drill pipe business is expected to grow this year with a margin profile that greatly exceeds what is available today in many of the service-oriented, nonrental product lines in U.S. land. There is no doubt that the U.S. land market will be attractive for investment in the future. But until that point in time arrives, we are willing to forego marginal top line improvement that bolsters our customers' returns more so than ours. If we're going to elevate our returns to become attractive to investors, we must clearly acknowledge where we can win and where there are just too many competitors who offer very little in the way of differentiation, as difficult as that may be.

Our first quarter results are a good step on that journey to improve corporate returns and separate ourselves from a pack of less-diversified competitors. Although the first quarter was softer sequentially in our U.S. offshore business, we believe that the combination of higher oil prices, improving deepwater economics and a greater focus from our customers on returns will result in improved offshore opportunities globally. As we have mentioned, we already have visibility on improving completion tools sales as the year progresses, but there are also reasons to be optimistic about rental tool demand moving forward. Despite indications of improvement in offshore markets and consistent with our approach to U.S. land capital spending, we will invest accordingly with the market we see and not the one we hope to see.

Internationally, I mentioned earlier that we were awarded a contract for cementing services in Kuwait. Aside from the obvious commercial benefit, this represents a significant win for our international expansion efforts. The national oil companies in the Middle East are extremely discerning customers, and qualifying for the tender alone validates a range of our efforts relating to equipment and service quality, corporate sustainability and our safety culture. If it seems like we are highlighting areas of opportunity with a competitive landscape and expected margins, which are favorable to Superior Energy, it is because we are. We believe that the oilfield service landscape has meaningfully changed, and the only response is to radically address this changing landscape with a sense of urgency even if it requires difficult choices to be made. Along those lines, it is only natural for a listener to question our appetite to divest or sell assets and product lines that will be challenged to compete for capital in this environment. At the risk of reducing the Q&A pool, I'll field that now. The answer is, of course, we will. Cash received from divestitures will improve our liquidity and ultimately allow us to reduce our debt levels. Moving forward, we will continue to refine our business and improve efficiencies commercially, operationally and administratively. While I expect the results of our efforts to be evident to our stakeholders as 2019 unfolds, I'll leave you with these closing remarks before addressing your questions.

We fully acknowledge the challenges our industry faces and just how different the market is today than only a few years ago. As a public company, we know change is necessary and that we cannot become who we need to be by remaining who we are, and we won't.

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)

The first question we have will come 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 [2]

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Dave, since the last time you did one of these calls, oil prices are up over 20%. But you kind of started off talking about the lack of visibility. So could you help me reconcile those 2 things? Is it just the lag factor between U.S. operator saying, "Hey, wait a minute," the 20% move includes a big deal for their profitability, their cash flows before that translates to activity. Or is there something else going on there? So just help me reconcile those 2 things.

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

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Marshall, I mean, it is certainly different behavior from a large part of our customer base than what we've seen in the past. Historically, when we see better commodity prices than those that were originally budgeted, the resulting increase in cash is invested by our U.S. land operators. And it's not apparent that, that is going to be the action that we see from those operators in 2019. I think it's well-documented the pressure that our customers are under from their investor base to improve returns and generate free cash flow. And I think that their desire to please their investors and improve their equity prices are causing a bit of a behavior change that we've not witnessed in the past. We'll see if they are rewarded in their equity valuations for this change in behavior or if the equity market truly desires them to grow. If they do, then we'll see budgets expand as a result of that. But for right now, our customers seem to be very noncommittal to changes in pace of spending as 2019 progresses.

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James Marshall Adkins, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Director of Energy Research [4]

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Well, let me ask it a different way. What's your -- let's say, all stays where it is here for the rest of the year, what's your gut feel tell you about where U.S. goes the back half of the year? And I know you don't have visibility on it right now, and you're not -- hope is not a solution here. But what does your gut tell you the U.S. does as well as Gulf of Mexico and international markets, assuming oil prices stay roughly where they are now?

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

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Well, you changed your question a little bit, and so let me address offshore and international. I think there is no question that as the year progresses, we're going to continue to hear from the international and global offshore about expected increases in spending. And you'll see that, I would imagine, initially as we see drilling contracts for offshore rigs that are revealed. I don't know how big a needle mover global offshore is going to be for 2019 revenue, but it sure sets up for a more optimistic market environment in 2020 and beyond.

I don't believe that those operators have the same immediate change in pace of spending that we see in the U.S. land market as commodity prices gets swayed. I mean, the reality is that what we typically see in international markets and global offshore is a lot slower reaction to change in commodity price. And of course, those are typically longer-term investment decisions than the very short-cycle investment decisions we see in U.S. land. So there's just -- there's different motivation here.

Look, back to your primary question, which I think was related to U.S. land, though. I would be inclined to believe that we see higher spending in the U.S. land market in the second half of the year with commodity prices remaining in the range that they're in today. We just don't see the evidence of it yet.

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James Marshall Adkins, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Director of Energy Research [6]

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Fair enough. Is Q1 the bottom for you?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [7]

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I hate to be the one that jumps out and calls bottom. I mean, I will tell you that where we saw price deterioration happening during the course of Q4 and into Q1, the prices appeared to be at a bottom. But I don't know if activity is. I mean, it's a bit hard to call.

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Operator [8]

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Next we have Kurt Hallead of RBC.

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Kurt Kevin Hallead, RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research and Analyst [9]

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Dave, thanks for that color commentary. Really, appreciate that. I was hoping to kind of get your perspective, let's say, on the offshore completion -- on the Onshore Completion business, excuse me. If the dynamic is as you stated and there's lack of visibility and it's maybe unlikely you're going to put any of that idle frac equipment to work as the year progresses. What can be done from your standpoint to improve the profitability level, if anything, as the year progresses?

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

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Yes. I mean, it's -- the way that we are addressing this U.S. land business, Kurt, is for essentially our product and service lines over time to get a bit smaller. And what that generally means for us is pulling our horns in from a geographic standpoint. So there are certain product lines, for instance, that 3 years ago would have been represented in each of the large basins around the U.S. land market. Part of our activity over the course of the last year and I expect going forward will be to pull out of some of those markets where we've not been successful in generating consistent profits and a reasonable return and instead focus on those geographic markets where we have greater success. That is a way to get smaller. And we are under investing from a maintenance capital standpoint, and you do that over a period of time, and ultimately, that business becomes smaller.

By the way, in under investing in it that way, the returns also should improve. So I mean, I think that's a formula that we can follow, and we can follow it for a long term. It does not prohibit you from being able to take advantage of improvements in the market as we see improvements in the market. And so it's essentially downsizing in total that U.S. land business is, I think, what the market calls for.

By the way, that Superior strategy, I would also tell you that, that should be the oilfield service industry strategy as well. We have more capacity than the market needs. And over time, that supply chain needs to be reduced.

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Kurt Kevin Hallead, RBC Capital Markets, LLC, Research Division - Co-Head of Global Energy Research and Analyst [11]

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Yes. Now, for sure, appreciate that. Maybe just then looking at Production Services. There's been a pretty substantial, steady improvement in profitability throughout 2018 and going from negative to actually now positive contribution in the first quarter of '19. Do you think that Production Services now is at a sustainable, profitable level for the remainder of the year?

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

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I do. And I think that part of what you saw during the course of 2018 was some of what I just talked about. In Production Services in the U.S. land market, as we reduced the expense of our geographic position, we saw margins improve. And we'll continue to do some of that in 2019 that allows the margins in that business to continue to get better. The other side of this, though, is that for the past 2 years, we've been seeing improvement in the international Production Services businesses, and that's also going to be revenue- and margin-additive for us as I believe those markets continue to improve and international spending improves. So it's across the geographies that we operate in. It's not one particular base in a one particular geography.

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Operator [13]

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And the next question we have comes from Byron Pope of Tudor, Pickering and Holt.

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Byron Keith Pope, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research [14]

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Dave, you partially just answered the question I had, which was on international. And it sounds like you've got growth opportunities across geographies, but you've historically had somewhat of a rifle-shot approach to which international markets you think have the best opportunities for Superior. So not asking for great, granular detail, but as we think about the 3 business segments where you have international exposure, how should we think about maybe which international regions will drive the top line growth for you guys this year?

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

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Yes. I mean, I think from a Production Services standpoint, it's going to be a bit focused early in the year on growth that we would expect to see in Asia and Latin America, and that's simply a result of higher spending levels from customers that we have worked for, for a long time. Later in the year, we'll see Middle East revenue begin to kick up as our new Kuwait contract begins to kick in. So that's kind of the Production Services side.

On Drilling Products and Services, this is going to be very much weighted towards offshore rigs going back to work. And I've seen estimates out there from some of the drilling contractors about the numbers of floating rigs that they expect to go to work in the next 12 to 24 months. We talked about it in our last conference call the significant tender volume that we had on premium drill pipe in the second half of 2018 versus what we've seen in the prior year. And I tell you, in looking at the log of where those tenders are submitted, Byron, they are everywhere. I mean, they're Latin America, they're West Africa, they're Asia, they're North Sea, really scattered in every one of the offshore -- established offshore basins around the world. So geographically, I'd say it's a bit more weighted to international but not any one particular region. And then on the Technical Solutions side, over time, what you'll see is our reach of completion tools continue to grow internationally. That's been kind of a focus area for us in recent years. And those best opportunities are in the unconsolidated -- areas where we have unconsolidated formations that we're developing, which I'd say favor Latin America, West Africa and Asia.

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Operator [16]

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And the next question we have will come 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 [17]

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I wanted to try to get your thoughts, Dave, on thinking about margin progression for a few of the business lines. There's a lot of things moving beneath the surface, and just want to make sure we're capturing some of these trends correctly. You mentioned the recovery of some completion tools sales in the Gulf, I believe, and that should impact Technical Solutions. How do we think about margin progression for Technical Solutions over the next few quarters? It was down around 9% in the first quarter. It averaged -- on EBITDA, averaged almost 18% last year. Do we -- how do we think about the year-over-year and those margins normalizing over the next couple of quarters?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [18]

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So I mean, I think you can think about year-over-year as being relatively flat overall from a margin standpoint in the segment. Q1, let's say Q1 from a completion tools sales in the Gulf of Mexico was extremely low. And we anticipated it being lower than completion tool revenue in the fourth quarter. But honestly, it was -- we had a number of projects that even in the fourth quarter, we told you we were planning on Q1 that had slipped out later in the year. There's still clean line of sight. I mean, these are completions that will happen. They just slipped out of the first quarter, and that really had a significant impact on our margin from the segment in the first quarter. We expect that to improve as the year progresses. And I'd say, completion tool revenue is a bit middle year and second half weighted. But it's -- we would expect year-over-year to have similar margin performance.

I think the other piece that you would observe from a margin standpoint in Q1 is our Drilling Products and Services margins were down from Q4. And this also relates to the mix of activity in the Gulf of Mexico in Q1 where we saw a lot more drilling-related activity and less completions activity. Our margin in Drilling Products and Services is always going to be better when we're supplying pipe for completions. And so it's not uncommon for us to have these kind of lumpiness, I guess, from a margin standpoint in that business. But I would expect as the year progresses and we see more completions activity that we see DPS margins in the Gulf of Mexico improve as well from Q1.

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Judson Edwin Bailey, Wells Fargo Securities, LLC, Research Division - MD and Senior Equity Research Analyst [19]

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Okay. So same -- I guess, same thought process. Would do you think DPS margins can be flat year-over-year or would they be higher based on kind of what you see in the back half of the year?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [20]

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I mean, I think from a Gulf of Mexico standpoint, think about it as flat. But that's certainly better than what you saw in Q1. And it's -- I mean, I'm glad we're able to clarify this. So completions activity benefits us both in completion tools, and it benefits us in DPS. And so when you have that mix that is a bit more drilling-oriented, it hurts both of those segments. Of course, it works just the opposite when you get into a more completions-heavy environment, which we expect as the year progresses.

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Judson Edwin Bailey, Wells Fargo Securities, LLC, Research Division - MD and Senior Equity Research Analyst [21]

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All right. I appreciate that. And can you -- the next question is on pressure pumping. I missed it if you said but, how many frac fleets did you operate during the quarter? And do you expect that to stay the same in the second quarter?

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

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Yes. I mean, we've got about 1/3 of the capacity overall idled. So I mean, if you think about -- I mean -- and listen, this can vary depending on the type of work that we're doing, and it can vary anywhere between 7, 8 or 9. And I would expect this to kind of stay in that range as the year progresses. I mean, I think for us to be inspired to activate -- hire crews and activate more equipment, we need to see some significant change in pressure pumping prices. And at this point, I would -- I'm not anticipating that we're inspired by that price during 2019.

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Operator [23]

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The next question will come from Sean Meakim of JPMorgan.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [24]

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So I appreciate the commentary on the Gulf of Mexico. There's mix shift this year between drilling and completion, and you called that out in the last quarter. And I guess you've had a few opportunities flip to the right. But can we maybe just get your broader thinking on that market? We're seeing a lot of assets changing hands here among operators recently. Just maybe a little more of how you see the fair way for the rest of '19 and into 2020 shelf activity versus the deepwater, independent versus the majors and how that flows through in the year? I mean those key service lines as you were just talking about.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [25]

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Yes. I don't know, Sean, that we're expecting a big change in overall activity as far as I think about numbers of drilling rigs that are active either drilling or completing wells. I don't know that we expect a big growth from where we are today. There has been a bit of a shift. I mean, we have seen some of the independents, both on the shelf and in deepwater become a bit more active over the course of the last several quarters. But total activity in the way of floaters has remained about flat. I think that last kind of significant move that we saw in activity occurred during late 2017 and during the year in 2018 where we saw a few more tension-leg platforms that were active. And I don't know that, that number is going to grow very much. So I think we'd be biased to tell you that overall activity remains about flat in 2019 in the Gulf of Mexico. I'd be biased to tell you activity improves when we get out to 2020.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [26]

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Got it. Okay. That makes sense. And then just thinking about the back half in the U.S. Maybe to get at that visibility issue in a different way. Some of the work that we've done suggests that the vast majority of incremental activity in 2018 in the Lower 48 came from private E&Ps. Year-to-date, most of the rig count decline can be explained by that same group. So if the majors and the public E&Ps basically stay the course on their plans and the industry has to rely on this subset of operators, how does that customer mix and that incremental activity impact your opportunity set?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [27]

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Yes. I mean, our customer mix is a bit biased towards the larger players. But when we start to see some of the smaller privates, if they become more active, if that's where the incremental spend occurs, I mean, they're certainly part of our customer mix in a lot of our product lines. Typically, in fracturing, we've stuck with some of the bigger companies that offer us a more dedicated opportunity, I guess. But in other product lines such as service rigs or coiled tubing, we've got a mix of smaller players as well.

I mean, I think it's -- as we see activity grow, as you see completions activity increase and see drilling activity increase, then we're going to be a participant in that. It's just -- it's a bit hard to see specifically when we begin to see that increase.

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Operator [28]

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Our next question we have will come from Stephen Gengaro of Stifel.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [29]

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Two things, if you don't mind, Dave and Westy. First, on the Onshore Completion side. I know we've talked about pressure pumping a lot already here. Do you think on the operating income line that can fall towards breakeven by the second half of the year as you kind of manage costs? How should we think about that sort of line? I mean, obviously, pressure pumping drives it, but how should we think about that portion of the income statement in the back half of the year?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [30]

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I mean, I think there is some moderate improvement opportunity that exists there with pressure pumping margins as the year progresses. But I mean, listen, to get to a better margin point, we need a better price. And I mean, it is -- the challenge in that business right now is the price dropped precipitously during the second half of 2018 to levels that are just not interesting, and I would describe them as unsustainable from an industry standpoint. So I don't want to go create perceptions about operating income improvements in a business where our pricing levels are not sustainable.

And I mean, look, I pointed to what needs to happen here. We need less capacity in the marketplace. That's what needs to happen. Less capacity in a flat marketplace means that ultimately there is a price opportunity. And I doubt that we see the impact of that in 2019. I could be wrong way. Maybe we see some bigger activity in the second half of 2019 or into 2020. But I mean, what margin lines need in fracturing is a higher price.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [31]

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And is that -- if I took -- if you took pressure pumping out of that business unit right now, would it be profitable?

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

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From an operating income standpoint, it'd be close.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [33]

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Okay. And then just as my second question just sort of from a bigger-picture, longer-term perspective. I know you've kind of talked a little bit about this. But in a perfect world as you see it and given -- assuming that the dynamics of pressure on goods don't change materially, in 2021, I mean, would you think you could have a non-U. S. business in offshore and international business, which is 50% to 65% of Superior? I mean, is that kind of where you're headed you think over time?

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

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I mean, listen, I don't know that we think about it as being necessarily 50% or 60% or 70%, but yes, it's close to 40% now. So I mean, if the plan is and market stays relatively flat, if that's what happens over the course of the next few years, I'm not advocating that it will, but if we're making the U.S. land business smaller and continue to put growth investment into international and offshore, then it's a likely outcome, it becomes the majority of our business mix.

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Operator [35]

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And next is J.B. Lowe of Citi.

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John Booth Lowe, Citigroup Inc, Research Division - VP [36]

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Just wanted to follow up on the international side. A good start to the year on a year-over-year basis. And I know you asked you -- I think I asked you guys this on the last conference call. But like Marshall said, oil is up pretty significantly since then. What do you guys think that international activity could be up in 2019 kind of generally? And then what do you guys think that could do for your top line internationally this year?

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

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Well, I mean, top line, I would -- I don't think our thoughts have changed since the last call. I mean, we think that overall international revenue is going to be up similar high single digits during the course of the year. In 2018, our revenue was up 11% from 2017. Could we get into double digits? I don't think that's out of the question by any means. So it's similar levels of international revenue growth to what we saw in 2018, and I don't know that, that's too far out of step with the total market internationally. So I still feel like that's a reasonable target for us.

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [38]

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But I think differ to that, I think what Dave mentioned earlier is maybe not a manifestation in '19, but it sets up well for -- potentially for 2020.

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John Booth Lowe, Citigroup Inc, Research Division - VP [39]

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Right. Okay. On the completion tools side, you mentioned the visibility you guys have given some projects that have been pushed out. Would you kind of qualify that visibility as more so than usual? Or is it kind of more of a seasonality thing? The reason I ask is because it seems like the Gulf of -- and this is specifically to the Gulf of Mexico. The Gulf of Mexico has seemingly lagged a little bit on the offshore, kind of pick up we've seen internationally. So kind of wondering as we look out through the rest of the year, is it -- are you seeing more growth than just what is usual on a seasonal basis? And I guess a corollary to that is, could you guys potentially take some market share in the Gulf of Mexico?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [40]

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Yes. I mean, I think that we've done a pretty good job from a market share standpoint in completion tools. And we've established our position along with the big guys as having technology that applies in some of the most challenging deepwater wells that we drill anywhere in the world. So I feel pretty good about our ability to capture market share over time. And remember, this is a -- it's a highly technical area, probably one of the most technically challenging areas of oil field services. I think, this issue of mix between drilling and completion, it really doesn't have a seasonal feature to it. Wells get drilled and operators sometimes change their plans on the way they go about completions. So sometimes you'll have an operator that is choosing to drill and complete the well immediately after drilling. Other times, they'll choose to drill a batch of wells and then come back and do their completions in a batch fashion. I mean, it's -- it varies from operator to operator, it varies from project to project. So there's not a seasonal rhyme or a reason to it. We do see seasonality in the Gulf of Mexico and what I would describe as optional work. So things like plug-in abandonment or any kind of production intervention activities in wells. Operators favor times of the year where we've got more reliable weather conditions than what we tend to see in the winter months where a cold front comes through and we get 5-foot seas in the Gulf of Mexico and you can't load a boat for 4 or 5 days. But on drilling and completion activity, seasonality is not really a factor.

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John Booth Lowe, Citigroup Inc, Research Division - VP [41]

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Okay. Great. That was helpful. Last one, maybe for Westy. Westy, what would you -- could you share with us maybe a free cash flow target for 2019?

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [42]

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I don't think we're providing guidance around that. But it's -- if you look at just kind of our EBITDA and then capital spend, you can probably get pretty close. I'd model year-over-year.

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Operator [43]

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And next we have Vebs Vaishnav of Scotia Howard Weil.

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Emily Boltryk, [44]

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I'm Emily Boltryk on the line for Vebs. Just a question on the asset divestitures. I think you guys had previously mentioned you were hoping to sell the accommodation of water businesses. Curious if you think selling off pressure pumping is a possibility. And if so, what kind of factors are a threshold that would push that decision to sell? Any color on that would be helpful.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [45]

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Yes. Emily, I mean, I think that what we've talked about with these U.S. land service businesses is, in general, underspending maintenance capital, which means that, over time, we're making those businesses smaller. And I think just a reasonable business thought to say, well, look, anything that you're making smaller over time, you ought to be willing to sell. And so that's really the point with this. I wouldn't eliminate anything in that portfolio of U.S. land services as being off the table from a divestiture standpoint. Now as you all well know, it takes two to tango when it comes to doing a deal. And so you've got to have a market where there are buyers for businesses as well. I don't know we've been in a terribly good environment for a divestiture to happen in recent quarters. And we're certainly hopeful that we see some better conditions as the year progresses, but I can't make that determination. I've got to have somebody on the other side of that trade if there's going to be a divestiture activity.

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Emily Boltryk, [46]

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Yes. Fair point. And then a quick second question. So I know you guys have $800 million in bonds due in '21. If you could give any update on that refinancing, that would be helpful as well.

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [47]

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I don't know. Do we have any update? I mean, our plan has been consistently to continue to add cash to the balance sheet as we generate free cash flow. As Westy said, as the year progresses and if we have some cash that is a result of divestitures, then that would be helpful. We want to pay down debt. And we've been consistent in saying that any cash proceeds that we get from divestitures would go towards ultimately debt reduction. And I still expect that there is some refinancing of $800 million in 2021 maturities. We just want it to be less than $800 million.

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Operator [48]

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And next we have Blake Gendron of Wolfe Research.

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Blake Geelhoed Gendron, Wolfe Research, LLC - SVP of Equity Research [49]

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Just shifting over to the Eastern Hemisphere and internationally more broadly. Your largest competitors have signaled somewhat tepid outlook for international pricing. We know that they're clobbering each other over integrated contracts in the Middle East, specifically LSTK-type contracts. What are you seeing on the desperate (inaudible) side of the service side model? And in particular, the niche product and service lines that you guys offer. Are you getting better pricing there? And do you expect maybe better pricing to work in areas outside of the Middle East as we move forward through 2019?

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

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Yes. I don't know that we've seen any real move in pricing in the international markets. If you remember, a lot of that work is more contracted. So your opportunities of price improvement tend to be spaced out over longer periods of time. As for some of that niche product lines, and I'll use hydraulic workover and snubbing as one. We've seen nice increases in international activity with hydraulic workover and snubbing. Pricing levels in that business really didn't deteriorate from 2014. So I don't know that we're necessarily expecting price improvements. What we're expecting is higher utilization and more activity. As some of this work which has been delayed or not part of spending plans with our customers in prior years is beginning to happen. And so with the niche product lines, we're really -- and I'll refer to the bulk of our cornerstone franchise product lines. Really didn't see huge pricing declines in the international arena since 2014. Pricing is always a function of competition, right? And one of the things that we like about this product line so much is that we don't have a real strong competitor base internationally in those product lines. So I don't expect pricing to improve dramatically in those areas. What I expect is utilization to improve in those areas and product lines that have historically generated pretty strong margins for us.

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Blake Geelhoed Gendron, Wolfe Research, LLC - SVP of Equity Research [51]

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Okay. So following on, on that utilization comment then. You've laid out your CapEx for the year. You've mentioned that you're building for what you see in the market versus what you hope to see in the market. The high single-digit international growth, should we expect CapEx to increase if there is upside from utilization and volume standpoint?

And then if you think about the tendering opportunities that you've mentioned offshore, will you have to build speculatively at all ahead of those tendering processes to be able to bid on that work? Or given the land and shallow water here in the international cycle, you're kind of benefiting from the fact that a shorter cycle work in the CapEx will kind of grow in step with revenue growth?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [52]

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Yes. So I would tell you this, that from an overall capital spending standpoint, we've kind of set that number at $170 million. And I would tell you that that's where the number is going to be. So I mean, that -- $170 million included allocation to our premium drill pipe and bottom hole assembly business as well as international Production Services where we were planning on some of the contract wins that are consuming capital. So no change in capital spending plans in total.

I would tell you this on -- as we see offshore rigs go to work, we're going to own the assets today that most of those offshore rigs require. And there will be occasionally a rig that goes to work that requires something new and different from a premium drill pipe standpoint. But we include some of that in our capital budget every year. So I don't think there are any unexpected surprises that would pop up from a capital spend standpoint as we see additional opportunities to put premium drill pipe to work. We own the assets that we need for the by and large to accommodate increase in drilling activity.

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Operator [53]

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Next we have Daniel Burke of Johnson Rice.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [54]

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Just a couple of kind of specific questions I've got for you, Dave. Looked like the CapEx spend in Q1 was kind of ratable overall based on the full year plan. But I was curious if you could comment more on the spend on the U.S. rental side. That converts pretty rapidly to EBITDA. So I wanted to understand if the U.S. pipe and bottom hole assembly spend is ratable throughout the year or if it is front loaded?

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

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It's a bit front loaded on premium drill pipe. And we had -- we mentioned on the last call we had deliveries of premium drill pipe for the U.S. land market in Q4. We had more in -- that came in during the first quarter. Our premium drill pipe revenue year-over-year for the quarter was up nicely and as a result of this or as a result of this capital spend. So it is -- you're right, it is a bit weighted towards the first part of the year. I'd say first half of the year.

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [56]

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Yes. It's about 60-40, first half to second half.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [57]

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Okay. And one other one. Just to tack back over to completion tools maybe one other way. We've tended to think about that business or our perspective on that business is, its top line is kind of $100 million, low $100 million in 2018. Do you expect to match that in 2019? I know you've alluded to the idea that you got some international opportunities this year, but I guess you also had a pretty nice run-in in the Gulf of Mexico in 2018.

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [58]

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So with respect to top line and completion tools worldwide, we expect to be up kind of in that same 10%, 11% range year-over-year.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [59]

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Okay. Good. And that's overall completion tools, not international, right, Westy?

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [60]

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That's right.

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

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Yes. The mix changes a little bit, Daniel. I mean, we had really, really strong years in 2017 and '18 in the Gulf of Mexico with the Hess Stampede completions that we did. And '19's got a bit more international to the mix than what we had in 2018.

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Westervelt T. Ballard, Superior Energy Services, Inc. - Executive VP, CFO & Treasurer [62]

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Yes. Again, it's dangerous to evaluate that product line on a quarterly basis, as we mentioned in the first quarter. It's just -- this plays out over the course of a year. And so trying to look at it through a quarterly lens can be difficult. But we think that's going to be up in the kind of the 10%, 11% year-over-year.

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Operator [63]

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Due to the hour being about up, this will be our last question today, and it'll come from John Daniels of Simmons Energy.

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John Matthew Daniel, Piper Jaffray Companies, Research Division - Research Analyst [64]

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Dave, thank you for the commentary on potential asset sales. But as you know, some potential buyers of your U.S. assets may be limited in their ability to pay cash. So I'm curious if you'd be willing to entertain taking 100% equity in someone else's stock in order to part ways with the business?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [65]

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Well, I mean, listen, I think that we will be open minded about whatever trade is there and whatever the currency is. I mean, clearly, cash is a benefit to us very near term as a result of where we sit from a debt position. But I mean, I think we've got to think about what it takes to get a deal done. And the practicality of this is that absent cash, many companies would have to consider using nothing but equity. I don't -- that may in certain cases reduce the attractiveness of doing a deal. I think you got to think about each and every one of these independently, and there's not a uniform answer to your question other than to say, I think, we would be open to any trade. We don't have a restriction.

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John Matthew Daniel, Piper Jaffray Companies, Research Division - Research Analyst [66]

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Yes. Okay. As you continue to sort of rationalize the onshore business, just facility closures, et cetera, is there any chance that your U.S. onshore business could post lower revenues in Q2? Just a rationalization might offset improving the overall activity levels?

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David D. Dunlap, Superior Energy Services, Inc. - President, CEO & Director [67]

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Yes. It's possible, John. I mean, I think that what we have consistently talked about is the lack of visibility in total. And unfortunately, a lack of visibility would be inclusive of Q2 and the rest of the year. Our biggest revenue mix question that you guys are going to have trouble understanding is right related to sand sales. And so I would tell you we had a lot less of our own sand sold in Q1 than we did in Q4. It had a pretty significant impact on revenue. That could change in Q1 or in Q2. It could be down again in Q2, and we may be in a position to do an exactly the same number of the stages, just pumping more customer-supplied sand. That is a variable in revenue.

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John Matthew Daniel, Piper Jaffray Companies, Research Division - Research Analyst [68]

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Okay. Fair enough. And then I don't -- I think someone asked this, and I missed it, so I apologize. But can you just provide some color on EBITDA margins between Workover Services, that part of the business versus the frac?

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

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Yes. I mean, in the segment, I would say that frac and service rig margins are fairly similar. The fluids margins tend to be a little bit better.

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Operator [70]

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This will conclude our question-and-answer session. I would now like to turn the conference call back over to Mr. Dave Dunlap, President and CEO, for any closing remarks. Sir?

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

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Okay. Well, listen, we appreciate all of you participating in the call today. And we'll either talk to you next quarter or see you on the road. Thanks.

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Operator [72]

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And we thank you, sir, for your time also and also to the rest of the management team. Again, the conference call has now concluded. At this time, you may disconnect your lines everyone. Thank you, take care and have a great day.