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Superior Energy Services (SPN) Q1 2019 Earnings Call Transcript

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Superior Energy Services  (NYSE: SPN)
Q1 2019 Earnings Call
April 24, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Superior Energy 2019 First Quarter Earnings Conference Call and Webcast. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (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.

Paul Vincent -- Vice President of Investor Relations

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.

David Dunlap -- President and Chief Executive Officer

Thank you, Paul. 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 toward 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 the 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 a third 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 the year, we also observed a shift in activity toward drilling operations after a completions heavy second half of 2018. Rental margins trended 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 the cementing services with this contract win, 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 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 (ph) 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.

Westy Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

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 in 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 tool 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 toward drilling caused our Gulf of Mexico and international revenue to be lower, offsetting continued growth in 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. The 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 will turn the call back over to Dave for closing comments.

David Dunlap -- President and Chief Executive Officer

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 toward 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, non-rental 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 and 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 tool 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.

Questions and Answers:

Operator

Yes, sir. We will now begin the question-and-answer session. (Operator Instructions) The first question we have will come from Marshall Adkins of Raymond James. Please go ahead.

Marshall Adkins -- Raymond James & Associates, Inc. -- Analyst

Good morning, guys. 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 two 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 two things.

David Dunlap -- President and Chief Executive Officer

Yeah, Marshall, I mean it's -- 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 that 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're rewarded in their equity valuations for this change in behavior or if that 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 non-committal to changes in pace of spending as 2019 progresses.

Marshall Adkins -- Raymond James & Associates, Inc. -- Analyst

Well, let me ask it in a different way. What's your -- let's say, oil 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, it's not a solution here, but what does your gut tell you that U.S. does as well as Gulf of Mexico and international markets assuming oil prices stay roughly where they are now?

David Dunlap -- President and Chief Executive Officer

Well, you changed your question a little bit and so let me address -- 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 away (ph).

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 mean, 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.

Marshall Adkins -- Raymond James & Associates, Inc. -- Analyst

Fair enough. Is Q1 the bottom for you?

David Dunlap -- President and Chief Executive Officer

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

Marshall Adkins -- Raymond James & Associates, Inc. -- Analyst

Thanks guys.

Operator

Next, we have Kurt Hallead of RBC.

Kurt Hallead -- RBC Capital Markets, LLC -- Analyst

Hey, good morning.

David Dunlap -- President and Chief Executive Officer

Good morning.

Kurt Hallead -- RBC Capital Markets, LLC -- Analyst

Hey Dave, thanks for that color commentary. Really, appreciate that. I was hoping I could kind of get your perspective, let's say on the offshore completion business -- on the onshore completion business, excuse me. If the dynamic is as you stated and there is 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?

David Dunlap -- President and Chief Executive Officer

Yeah. 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 three 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. And 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 -- that's -- 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.

Kurt Hallead -- RBC Capital Markets, LLC -- Analyst

Yeah. Now, for sure, appreciate that. And maybe just then looking at Production Services, there has 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 in a -- at a sustainable profitable level for the remainder of the year?

David Dunlap -- President and Chief Executive Officer

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 expanse 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 two 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 and it's not -- it's not one particular base, in a one particular geography.

Kurt Hallead -- RBC Capital Markets, LLC -- Analyst

That's great. Appreciate that color. Thanks, Dave.

David Dunlap -- President and Chief Executive Officer

You're welcome.

Operator

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

Byron Pope -- Tudor, Pickering, Holt & Co. Securities, Inc. -- Analyst

Good morning, guys.

David Dunlap -- President and Chief Executive Officer

Good morning.

Byron Pope -- Tudor, Pickering, Holt & Co. Securities, Inc. -- Analyst

Dave, you partially just answered the question I had, which was on international and you were (ph) -- it sounds like you've got growth opportunities across geographies, but you've historically had a 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 three business segments where you have international exposure, how should we think about, maybe which international regions will drive that the top line growth for you guys this year?

David Dunlap -- President and Chief Executive Officer

Yeah, 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 -- that kind of the Production Services side.

On Drilling Products and Services, this is going to be very much weighted toward 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 will tell you, and looking at the log of where those tenders are submitted Byron, they're everywhere. I mean, they're Latin America, they're West Africa, they're Asia, they're North Sea. It 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, overtime what you'll see is, our reach of completion tools continue to grow internationally. That's been kind of like 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.

Byron Pope -- Tudor, Pickering, Holt & Co. Securities, Inc. -- Analyst

Very helpful. Thanks Dave, appreciate it.

David Dunlap -- President and Chief Executive Officer

You're welcome.

Operator

And the next question we have will come from Jud Bailey of Wells Fargo.

Jud Bailey -- Wells Fargo Securities, LLC -- Analyst

Thanks, good morning.

David Dunlap -- President and Chief Executive Officer

Good morning.

Jud Bailey -- Wells Fargo Securities, LLC -- Analyst

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 -- the margins normalizing over the next couple of quarters?

David Dunlap -- President and Chief Executive Officer

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 -- and 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 -- that we had a number of projects that even in the fourth quarter, we told you, we were planning on in 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. And -- but it's -- that 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.

Jud Bailey -- Wells Fargo Securities, LLC -- Analyst

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

David Dunlap -- President and Chief Executive Officer

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.

Jud Bailey -- Wells Fargo Securities, LLC -- Analyst

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

David Dunlap -- President and Chief Executive Officer

Yes. I mean, we've got about a third 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, they can vary anywhere between seven, eight or nine. 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 higher 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.

Okay, great. I will turn it back. Thanks.

Operator

The next question will come from Sean Meakim of JP Morgan.

Sean Meakim -- JP Morgan Chase & Co -- Analyst

Thank you. Good morning.

David Dunlap -- President and Chief Executive Officer

Good morning.

Sean Meakim -- JP Morgan Chase & Co -- Analyst

So, I appreciate the commentary on the Gulf of Mexico. There's mix shift issues between drilling and completion, you called that out in the last quarter. And I guess, a few opportunities flipped to the right, but can we then 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 how you see that fair away for the rest of '19 and into 2020, shelf activity versus deepwater, independents versus the majors and how that flows through in the year? I mean, those key service lines as you were just talking about.

David Dunlap -- President and Chief Executive Officer

Yeah, 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 the 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 tensioned like 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.

Sean Meakim -- JP Morgan Chase & Co -- Analyst

Got it. Okay. Now, that makes sense. And then just thinking about the back half for the U.S. Maybe that to get at that visibility issue in a different way. We assume the work that we've done suggesting 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 in the public E&Ps basically say the course on their plans and the industry has to rely on this subset of operators, just how does that customer mix through that incremental activity impact your opportunity set?

David Dunlap -- President and Chief Executive Officer

Yeah, I mean, our customer mix is a bit biased toward the larger players. But when we start to see some of the smaller privates, if they become more active, if that's the -- 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're 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 -- 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.

Sean Meakim -- JP Morgan Chase & Co -- Analyst

Right, right, OK. Fair enough. Thank you, Dave.

Operator

The next question we have will come from Stephen Gengaro of Stifel. Please go ahead.

Stephen Gengaro -- Stifel, Nicolaus & Company, Incorporated -- Analyst

All right. Thanks, good morning. Two things, if you don't mind Dave and Westy. First, on the onshore completions side, I know, we've talked about pressure pumping a lot already here. Do you think on the operating income line, that can fall toward 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 in the income statement in the back half of the year?

David Dunlap -- President and Chief Executive Officer

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, what -- look, I'm 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. It could be wrong, 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.

Stephen Gengaro -- Stifel, Nicolaus & Company, Incorporated -- Analyst

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

David Dunlap -- President and Chief Executive Officer

From an operating income standpoint, it would be close.

Stephen Gengaro -- Stifel, Nicolaus & Company, Incorporated -- Analyst

Okay, OK thank you. And then just -- as my second question, just sort of from a bigger-picture to 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 the 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?

David Dunlap -- President and Chief Executive Officer

I mean, listen, I don't know that we think about it as being -- it's being necessarily 50% or 60% or 70% but, 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 continuing to put growth investment into international and offshore, then it's a likely outcome it becomes the majority of our business mix.

Stephen Gengaro -- Stifel, Nicolaus & Company, Incorporated -- Analyst

Okay, now thanks for your comments.

Operator

Next is J.B. Lowe of Citi.

J.B. Lowe -- Citigroup Inc -- Analyst

Hey, good morning, guys. Just wanted to follow up on the international side. Good start to the year, on a year-over-year basis. And I know I 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 to your top line internationally this year?

David Dunlap -- President and Chief Executive Officer

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 somewhere 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.

Westy Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

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

J.B. Lowe -- Citigroup Inc -- Analyst

Right, 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 that it seems like the Gulf of -- and this is specifically to the Gulf of Mexico. Gulf of Mexico 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?

David Dunlap -- President and Chief Executive Officer

Yeah. 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, that varies from project to project. So there's not a seasonal rhyme or reason to it. We do see seasonality in the Gulf of Mexico in 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 five-foot season in the Gulf of Mexico and you can't load both for four or five days, but on drilling and completion activity, seasonality is not really a factor.

J.B. Lowe -- Citigroup Inc -- Analyst

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

Westy Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

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 (ph).

J.B. Lowe -- Citigroup Inc -- Analyst

Okay. All right, guys. Thanks very much.

Operator

Next, we have Vebs Vaishnav of Scotia Howard Weil. Please go ahead.

Emily Boltryk -- Scotia Howard Weil -- Analyst

Thanks. Good morning, guys. 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. And curious if you think selling off pressure pumping is a possibility? And if so, what kind of factors or a threshold would push that decision to sell? Any color on that would be helpful.

David Dunlap -- President and Chief Executive Officer

Yeah. Emily, I mean, I think that, what we've talked about with these U.S. land service businesses is in general, under spending 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 -- and 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 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.

Emily Boltryk -- Scotia Howard Weil -- Analyst

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

David Dunlap -- President and Chief Executive Officer

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 get from divestitures would go toward ultimately debt reduction. And I still expect that there is -- that there is some refinancing of the $800 million in 2021 maturities, we just want it to be less than $800 million.

Emily Boltryk -- Scotia Howard Weil -- Analyst

Yes, all right. Thanks, that's helpful. I will turn it over.

Operator

And next we have Blake Gendron of Wolfe Research.

Blake Gendron -- Wolfe Research, LLC -- Analyst

Hey, thanks for letting me on this morning. 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 collaborating each other over integrated contracts in the Middle East, specifically LSTK-type contracts. What are you seeing on the desperate eye side of this service 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?

David Dunlap -- President and Chief Executive Officer

Yeah. I don't know that we've seen any real move-in pricing in the international markets. Remember, a lot of that work is more contracted. So your opportunities at 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 -- some of this work which has been delayed or are 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 and 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 those product lines 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.

Blake Gendron -- Wolfe Research, LLC -- Analyst

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 see -- or 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 the shorter-cycle work and the CapEx will kind of grow in step with revenue growth?

David Dunlap -- President and Chief Executive Officer

Yeah, 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 included -- 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, 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 a -- 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.

Blake Gendron -- Wolfe Research, LLC -- Analyst

Okay, good deal. Appreciate it, thanks.

David Dunlap -- President and Chief Executive Officer

You're welcome.

Operator

Next, we have Daniel Burke of Johnson Rice.

Daniel Burke -- Johnson Rice & Company, L.L.C -- Analyst

Hey, good morning guys. Thanks for letting me in (ph).

David Dunlap -- President and Chief Executive Officer

You're welcome.

Daniel Burke -- Johnson Rice & Company, L.L.C -- Analyst

Just a -- just a couple of kind of specific questions, 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?

David Dunlap -- President and Chief Executive Officer

It was -- it's a bit front loaded on premium drill pipe and we had 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 those capital spend, so it is -- you're right, it is a bit weighted toward the first part of the year. I'd say, first half of the year.

Westy Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah, so that's 60-40, first half to second half.

Daniel Burke -- Johnson Rice & Company, L.L.C -- Analyst

Okay. Thanks for that Dave, and thanks for that, Westy. And then one other one. Just to tag back over to completion tools, maybe one other way. We've said then (ph) 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.

Westy Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

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

Daniel Burke -- Johnson Rice & Company, L.L.C -- Analyst

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

Westy Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

That's right.

David Dunlap -- President and Chief Executive Officer

Yeah. The mix changes a little bit, Daniel in that. I mean, we had really, really strong years in 2017 and 2018 in the Gulf of Mexico with the (inaudible) completions that we did. And '19 has got a bit more international to the mix than what we had in 2018.

Westy Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah, 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 the 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 that kind of the 10%, 11% year-over-year.

Daniel Burke -- Johnson Rice & Company, L.L.C -- Analyst

Okay, great. I appreciate that. All right guys, I will leave it there. Thank you.

David Dunlap -- President and Chief Executive Officer

You're welcome.

Operator

There you go. Due to the hour being about up, this will be our last question today and it will come from John Daniels of Simmons Energy. Please go ahead sir.

John Daniel -- Simmons Energy, Piper Jaffray -- Analyst

Hi guys. Dave, thank you for the commentary on the -- 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 a 100% equity in someone else's stock in order to part ways with the business? Now getting this --

David Dunlap -- President and Chief Executive Officer

Well, listen I think that -- 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 -- again, 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 -- bring on restriction.

John Daniel -- Simmons Energy, Piper Jaffray -- Analyst

Yes, and there is -- Yes. Okay. As you continue to sort of -- to 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 overall activity levels?

Westy Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

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, the 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 sold -- 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.

John Daniel -- Simmons Energy, Piper Jaffray -- Analyst

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?

Westy Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

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

John Daniel -- Simmons Energy, Piper Jaffray -- Analyst

Okay, thank you. That's all I got.

Westy Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

Okay.

Operator

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

David Dunlap -- President and Chief Executive Officer

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.

Operator

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.

Duration: 53 minutes

Call participants:

Paul Vincent -- Vice President of Investor Relations

David Dunlap -- President and Chief Executive Officer

Westy Ballard -- Executive Vice President, Chief Financial Officer and Treasurer

Marshall Adkins -- Raymond James & Associates, Inc. -- Analyst

Kurt Hallead -- RBC Capital Markets, LLC -- Analyst

Byron Pope -- Tudor, Pickering, Holt & Co. Securities, Inc. -- Analyst

Jud Bailey -- Wells Fargo Securities, LLC -- Analyst

Sean Meakim -- JP Morgan Chase & Co -- Analyst

Stephen Gengaro -- Stifel, Nicolaus & Company, Incorporated -- Analyst

J.B. Lowe -- Citigroup Inc -- Analyst

Emily Boltryk -- Scotia Howard Weil -- Analyst

Blake Gendron -- Wolfe Research, LLC -- Analyst

Daniel Burke -- Johnson Rice & Company, L.L.C -- Analyst

John Daniel -- Simmons Energy, Piper Jaffray -- Analyst

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