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Superior Energy Services Inc (SPN) Q2 2019 Earnings Call Transcript

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Superior Energy Services Inc (NYSE: SPN)
Q2 2019 Earnings Call
Jul 24, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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

I would not like to turn the conference over to Mr. Paul Vincent, Vice President, Treasurer and Investor Relations. Please go ahead, sir.

Paul Vincent -- Vice President, Treasurer and Investor Relations

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.

David Dunlap -- President and Chief Executive Officer

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 cost, maintain disciplined capital allocation and seek further divestitures of non core 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 two 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 six, compared to an average of nine during the first quarter, and exited the quarter with six 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 would 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 and 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've been involved in engineering and product development efforts to fill in some product line gaps in our tubing product offering, which will allow us to be more competitive in international tenders.

Most sand controlled 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 improve returns, margins and free cash flow. The success of offshore and international service lines, 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 is 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 today, 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 is 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, we divested a business that has not historically garnered much investor attention, but 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 the opportunities to expand our reach with our most productive product and service lines. We will further integrate our business units to reduce operating cost 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.

Westervelt T. Ballard -- Vice President, Chief Financial Officer and Treasurer

Thank you, Dave. In discussing our operating segments, all sequential comparisons will be made to our first quarter results. I also provide commentary regarding third quarter expectations for each segment. This commentary does not take in 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 higher-margin, higher 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 cash.

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 a $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, revenues decreased 20 % to $164 million. As Dave mentioned earlier, we elected to reduce our deployed hydraulic fracturing fleets and average six 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 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 decremental's as a result of continued lower pressure pumping activity, slightly lower fluid management activity and the drilling rig divestiture. Our Production Services total segment revenue of $103 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 in the U.S. offshore market. Our expectations for third quarter results of a relatively flat revenue and margins, as increasing completion tool activity is offset by lower anticipated levels of well control well control and subsea intervention activity.

Before I turn the call back over 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 the 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, Dave, for closing comments.

David Dunlap -- President and Chief Executive Officer

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 two 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.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator instructions] The first question comes from Byron Pope with Tudor Pickering Holt. Please go ahead.

Byron Keith Pope -- Tudor, Pickering, Holt and Company -- Analyst

Good morning, guys.

David Dunlap -- President and Chief Executive Officer

Hey, Byron.

Byron Keith Pope -- Tudor, Pickering, Holt and Company -- Analyst

I realize the uncertainty out there over the near-term, so appreciate the color in Q3. That's really helpful. This is my question. My 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 -- call it the next six to 12 months for the international -- for the U.S. onshore and the U.S. Gulf of Mexico parts of of DD&A, and just in terms of how you feel about the book of work that's building?

David Dunlap -- President and Chief Executive Officer

Yeah. I mean, we deployed additional premium drill pipe assets into the U.S. land market during 2018. We had some that went out in an 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 the 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 -- 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 it as being the real -- 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 and Gulf of Mexico. I think Gulf of Mexico, we probably would tell you that we think there's opportunities 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 and opportunities for all of our Gulf of Mexico businesses in 2020.

Byron Keith Pope -- Tudor, Pickering, Holt and Company -- Analyst

Thanks, Dave. Appreciate it.

Operator

Our next question comes from Marshall Adkins with Raymond James. Please go ahead.

James Marshall Adkins -- Raymond James -- Analyst

Can you hear me now?

David Dunlap -- President and Chief Executive Officer

Yes.

James Marshall Adkins -- Raymond James -- Analyst

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

David Dunlap -- President and Chief Executive Officer

Yeah. I mean, it's a little bit all the above, Marshall. But I think, if you look at our 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. I think you've 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 at 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. line -- service lines tend to be lower margin. So it's a bit of mix and where the revenue is coming from in 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.

Westervelt T. Ballard -- Vice President, Chief Financial Officer and Treasurer

We did have a slight draw, Marshall of working capital in the second quarter, primarily driven by inventory build for the completion tool business that, 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 start-up capital. But I would look for kind of that draw to reverse itself through the second half the year.

James Marshall Adkins -- Raymond James -- Analyst

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 it expected in the international market and Gulf of Mexico and the U.S. has stayed 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?

David Dunlap -- President and Chief Executive Officer

That's exactly the way that we look at it. And I think the one just 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 would be for 2019.

James Marshall Adkins -- Raymond James -- Analyst

Great. Thank you.

David Dunlap -- President and Chief Executive Officer

You're welcome.

Operator

Our next question comes from Blake Gendron with Wolfe Research. Please go ahead.

Blake Geelhoed Gendron -- Wolfe Research -- Analyst

Hey, good morning. Thanks for taking my question. 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 to Onshore Completion and work over 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 of the RemainCo -- the RemainCo being everything outside of Onshore Completion and Workover? Thanks.

David Dunlap -- President and Chief Executive Officer

Yeah. 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. 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've 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 with 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 investment. So I mean, I think your thoughts about free cash flow generation from those businesses are spot on.

Blake Geelhoed Gendron -- Wolfe Research -- Analyst

Okay. Perfect. And then just a quick one G&A. It seems a little high on a percentage of revenue, but I understand that 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?

David Dunlap -- President and Chief Executive Officer

Yeah. I would tell you that we will continue to look for ways to drive overall G&A and corporate -- 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.

Blake Geelhoed Gendron -- Wolfe Research -- Analyst

That's perfect. Thanks. I'll turn it back.

Operator

Our next question comes from Sean Meakim from JP Morgan. Please go ahead.

Sean Christopher Meakim -- JP Morgan -- Analyst

Thanks. Hey, good morning.

David Dunlap -- President and Chief Executive Officer

Good morning.

Sean Christopher Meakim -- JP Morgan -- Analyst

So just continuing along that line of thinking, if we could, for a little bit. So for your next years, 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, will you have some flexibility between free cash to the balance sheet versus deploying it next year?

David Dunlap -- President and Chief Executive Officer

Yeah, sure. I mean, I think just to kind of address philosophically here where we are with capital spending. I mean, we in 2019 are addressing a 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 in the completion tools, although I've said 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 a 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 start-up of contract in Kuwait now. I don't know if we'll have those same type of opportunities in 2020 now in new contracts or not, but listen, Sean, I mean 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 can put a -- we can frame that a bit better for you. But overall spend will be lower than it is this year.

Sean Christopher Meakim -- JP Morgan -- Analyst

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 look 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, playing is certainly out there in the market for folks who may be looking to acquire assets.

David Dunlap -- President and Chief Executive Officer

Yeah. I mean, so first off. We have been very open that -- we were open to divestiture of components of our what we've described as noncore U.S. land services business, and we say

noncore, that means not that we're making investments. We're causing these investments to shrink. So from a philosophical standpoint we are being 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 or toward the end -- toward the end of the second quarter. So just to give an idea of timing.

Sean Christopher Meakim -- JP Morgan -- Analyst

That's very helpful. Thank you, Dave.

David Dunlap -- President and Chief Executive Officer

You're welcome.

Operator

Our next question comes from Stephen Gengaro from Stifle. Please go ahead.

Stephen David Gengaro -- Stifel, Nicolaus and Company -- Analyst

Thanks. Good morning, everybody.

David Dunlap -- President and Chief Executive Officer

Good morning.

Stephen David Gengaro -- Stifel, Nicolaus and Company -- Analyst

Just on the asset sales side first. 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 as right now as you look at other potential sales going forward?

David Dunlap -- President and Chief Executive Officer

I mean, I think that there are a lot of conversations going on. I mean, as I mentioned in the prior -- answering the prior question. Conversations on asset divestitures got pretty quiet and this 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 -- 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 that there is an appetite out there. I think there's a general understanding among industry players and investors that consolidation is something needs to happen. And we certainly are in that camp and I think that others are seeing 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.

Stephen David Gengaro -- Stifel, Nicolaus and Company -- Analyst

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

David Dunlap -- President and Chief Executive Officer

I think we feel like it was a fair price. I mean, it was a -- is 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.

Stephen David Gengaro -- Stifel, Nicolaus and Company -- Analyst

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

David Dunlap -- President and Chief Executive Officer

Yeah, we experienced pretty good growth in 2018 in International. And 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 we've got some good things going for us in that. 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 start-up 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 tailwind, but I'm a bit hesitant to give you a specific expectation on growth rate.

Stephen David Gengaro -- Stifel, Nicolaus and Company -- Analyst

Great. Thank you.

Operator

Our next question comes from J.B. Lowe from Citi. Please go ahead.

John Booth Lowe -- Citigroup Inc -- Analyst

Hey, good morning, guys.

David Dunlap -- President and Chief Executive Officer

Good morning.

John Booth Lowe -- Citigroup Inc -- Analyst

So as you guys have 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?

Westervelt T. Ballard -- Vice President, Chief Financial Officer and Treasurer

Once you know debt maturity, the first maturity wall of $800 million in 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 a market and constantly discussing our alternatives to refinance that maturity or 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.

David Dunlap -- President and Chief Executive Officer

And just to add to that. I mean, what benefits us the most in dealing with this maturity is generating cash. The more cash we have on the balance sheet, the better our options become. So that's -- it's dynamic. As Westy said, we don't have to reach any conclusions today. We will as we get closer to 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 accomplishing now.

John Booth Lowe -- Citigroup Inc -- Analyst

Right. So you guys aren't necessarily and very much hurry to [Indecipherable]

David Dunlap -- President and Chief Executive Officer

Yeah. 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 what we're gonna be most focused right now.

John Booth Lowe -- Citigroup Inc -- Analyst

All right. Thanks. And then just as a follow-up. How many of the 12 rigs that you guys sold in the quarter? How many were actually working in 2Q or I guess today?

Westervelt T. Ballard -- Vice President, Chief Financial Officer and Treasurer

Yeah, that's something, we're not -- we can't disclose.

John Booth Lowe -- Citigroup Inc -- Analyst

Okay.

David Dunlap -- President and Chief Executive Officer

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

Operator

Thank you. Our next question will come from John Daniel from Simmons Energy. Please go ahead.

John Matthew Daniel -- Simmons and Company -- Analyst

Hey, Dave, Westy, two questions for 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 an other public entity?

Westervelt T. Ballard -- Vice President, Chief Financial Officer and Treasurer

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?

John Matthew Daniel -- Simmons and Company -- Analyst

Okay, so just the bank group, not the Senior Notes, no proof from them?

David Dunlap -- President and Chief Executive Officer

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

John Matthew Daniel -- Simmons and Company -- Analyst

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

Westervelt T. Ballard -- Vice President, Chief Financial Officer and Treasurer

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.

John Matthew Daniel -- Simmons and Company -- Analyst

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?

David Dunlap -- President and Chief Executive Officer

Yeah, 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 completion rig which could work 24x7. 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'd say of completions versus production work. But as you know, I mean there are big differences in the way you measure utilization in those two types of operations.

On coil tubing, we've talked about the fact that we have reduced the number of places that we are offering coil 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 the 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 that we're seeing a real significant change between kind of mid-Q1 and what we delivered in Q2. And I'm not expecting any big changes in utilization and coil tubing in the third quarter.

John Matthew Daniel -- Simmons and Company -- Analyst

Okay. Thank you very much.

David Dunlap -- President and Chief Executive Officer

You're welcome.

Operator

Our next question comes from Kurt Hallead from RBC. Please go ahead.

Kurt Kevin Hallead -- RBC Capital Markets -- Analyst

Hey, good morning.

David Dunlap -- President and Chief Executive Officer

Good morning.

Kurt Kevin Hallead -- RBC Capital Markets -- Analyst

Hey, thanks Dave for all for the color and addressing one of the most critical issue obviously out there for most investors. When you look at the cash flow generation, the expected cash flow generation in the second half of the year based on your commentary about what's going on in the international markets, and 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 sustain through 2020? Or do you think there's potential for some improvement even above and beyond the second half of '19 run rate of free cash?

David Dunlap -- President and Chief Executive Officer

Yeah, I mean, I think that it would be a run rate that we would be comfortable. And same exists and I would be biased to tell you there's probably some upside to it. So as you think about that run rate in second half of the year, where we've kind of guided the $20 million to $30 million. My belief is that, in an environment where we continue to be disciplined from a capital spend standpoint, where we do begin to see some growth in -- or 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, I'd be inclined to tell you that 2020 free cash flow even in a stagnant U.S. land market or maybe even a less of a U.S. land market, we can expand that cash flow.

Kurt Kevin Hallead -- RBC Capital Markets -- Analyst

Okay. I appreciate that color. In the context to capex amd you've referenced it, lower run rate going into next year, not really having a firm budget at this point, but what's the maintenance level of capex given the fact that you're operating fewer frac crews now and sold the land rig business. How should we be thinking about maintenance capex...

David Dunlap -- President and Chief Executive Officer

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 probably use the number that's around a $100 million and that's not far off.

Kurt Kevin Hallead -- RBC Capital Markets -- Analyst

Okay, that's great.

Westervelt T. Ballard -- Vice President, Chief Financial Officer and Treasurer

Yeah, 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 our '19 capex. It's not an overwhelmingly a large number.

Kurt Kevin Hallead -- RBC Capital Markets -- Analyst

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

David Dunlap -- President and Chief Executive Officer

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

Kurt Kevin Hallead -- RBC Capital Markets -- Analyst

Excellent. All right. Thanks guys. Appreciate it.

Operator

Our next question comes from Harry Pollans from BOA. Please go ahead.

Harris Newell Pollans -- Bank of America Merrill Lynch -- Analyst

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

David Dunlap -- President and Chief Executive Officer

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've also said we're open to anything, so nothing is off the table.

Harris Newell Pollans -- Bank of America Merrill Lynch -- Analyst

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

David Dunlap -- President and Chief Executive Officer

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

Harris Newell Pollans -- Bank of America Merrill Lynch -- Analyst

Okay, understood. And that's all I really had, thank you guys.

Operator

Our next question comes from Cole Sullivan from Wells Fargo. Please go ahead.

Coleman Wayne Sullivan -- Wells Fargo Securities -- Analyst

Hi, good morning. It looks like a lot of the higher questions had been asked on cash flows and everything. So just on -- quickly on some modeling point, 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 tools side and second half -- is it fair to say second half is shaping up to be better than what we saw last year?

David Dunlap -- President and Chief Executive Officer

Yeah, relative to last year, I think, the answer to that is yes. It's 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 was certainly better than what we saw in first half.

Karl Sullivan -- Senior vice president

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

David Dunlap -- President and Chief Executive Officer

Yeah, I mean that's still in -- that's still within that drill pipe business. I think what we talked about is there being at better mix of overall completions work in the Gulf of Mexico in the kind of second half of the year versus where we've been in the first half of the year. 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.

Coleman Wayne Sullivan -- Wells Fargo Securities -- Analyst

Got it. All right, I'll turn it back. Thanks.

Operator

Our next question comes from Daniel Burke from Johnson Rice. Please go ahead.

Daniel Joseph Burke -- Johnson Rice and Company -- Analyst

Yeah, hey, good morning guys. Not many left. But Dave, I'll stay with completion tools for one minute. My inference from your comments and the constructive longer term outlook is that completion tools based on your calendar right now looks better in 2020 than 2019. But I guess I wanted to ask that more specifically.

David Dunlap -- President and Chief Executive Officer

Yeah, I mean, I think that I hadn'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 that kind of elevate the overall revenue in that business.

Daniel Joseph Burke -- Johnson Rice and Company -- Analyst

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

David Dunlap -- President and Chief Executive Officer

Yeah, 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 four or five 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 it 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 a quarter, you often get opportunities on a 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. It happens this year in Q3 every year, doesn't it?

Daniel Joseph Burke -- Johnson Rice and Company -- Analyst

Yes it does. Yes it does. All right, guys, I appreciate it. Thanks for squeezing me in.

Operator

Our next question comes from Mike Urban from Seaport Global. Please go ahead.

Michael William Urban -- Seaport Global Securities -- Analyst

Thanks. Good morning, guys.

David Dunlap -- President and Chief Executive Officer

Good morning.

Michael William Urban -- Seaport Global Securities -- Analyst

Wanted to dig in on the international side a little bit more, kind of following up on an earlier question. I think it was Steven noted you guys are kind of 12-ish percent here year-to-date. Even if you are flat the rest of the year, I mean, that's still kind of puts you within your range about 6%. Talked about Kuwait starting up, some of the tenders turning in to 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?

David Dunlap -- President and Chief Executive Officer

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

Michael William Urban -- Seaport Global Securities -- Analyst

Yeah.

David Dunlap -- President and Chief Executive Officer

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

Michael William Urban -- Seaport Global Securities -- Analyst

Okay. And then back to everybody's 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 your little over $2 million of annualized EBITDA per fleet, which is kind of below kind of may be at or below maintenance capex level. So I'm assuming you're talking about kind of EBITDA breakeven or cash breakeven at the field in terms of keeping those running?

David Dunlap -- President and Chief Executive Officer

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

Michael William Urban -- Seaport Global Securities -- Analyst

Okay. That's all for -- actually guys, sorry if I could sneak one more in. Tax rate is obviously going to be volatile with earnings where they are and negative, but you did have some cash taxes in Q2...

David Dunlap -- President and Chief Executive Officer

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

Michael William Urban -- Seaport Global Securities -- Analyst

Okay.

Westervelt T. Ballard -- Vice President, Chief Financial Officer and Treasurer

We had GAAP taxes.

Michael William Urban -- Seaport Global Securities -- Analyst

Okay.

Westervelt T. Ballard -- Vice President, Chief Financial Officer and Treasurer

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

Michael William Urban -- Seaport Global Securities -- Analyst

Okay. And now what's your expectation, your cash tax payer at all in the second half or any kind of GAAP tax guidance?

Westervelt T. Ballard -- Vice President, Chief Financial Officer and Treasurer

No.

David Dunlap -- President and Chief Executive Officer

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

Michael William Urban -- Seaport Global Securities -- Analyst

Okay. That's all for me. Thank you.

Operator

[Operator Instructions] Our next question comes from Marianna Kushner from Nomura Asset Management. Please go ahead. Again, our next question comes from Mariana Kushner from Nomura Asset Management. Please go ahead.

Marianna Kushner -- Nomura Asset Management -- Analyst

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

Westervelt T. Ballard -- Vice President, Chief Financial Officer and Treasurer

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

Marianna Kushner -- Nomura Asset Management -- Analyst

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

Westervelt T. Ballard -- Vice President, Chief Financial Officer and Treasurer

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

Marianna Kushner -- Nomura Asset Management -- Analyst

Okay. All right, thanks.

Operator

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

David Dunlap -- President and Chief Executive Officer

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

Operator

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

Duration: 54 minutes

Call participants:

Paul Vincent -- Vice President, Treasurer and Investor Relations

David Dunlap -- President and Chief Executive Officer

Westervelt T. Ballard -- Vice President, Chief Financial Officer and Treasurer

Karl Sullivan -- Senior vice president

Byron Keith Pope -- Tudor, Pickering, Holt and Company -- Analyst

James Marshall Adkins -- Raymond James -- Analyst

Blake Geelhoed Gendron -- Wolfe Research -- Analyst

Sean Christopher Meakim -- JP Morgan -- Analyst

Stephen David Gengaro -- Stifel, Nicolaus and Company -- Analyst

John Booth Lowe -- Citigroup Inc -- Analyst

John Matthew Daniel -- Simmons and Company -- Analyst

Kurt Kevin Hallead -- RBC Capital Markets -- Analyst

Harris Newell Pollans -- Bank of America Merrill Lynch -- Analyst

Coleman Wayne Sullivan -- Wells Fargo Securities -- Analyst

Daniel Joseph Burke -- Johnson Rice and Company -- Analyst

Michael William Urban -- Seaport Global Securities -- Analyst

Marianna Kushner -- Nomura Asset Management -- Analyst

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