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#Thank you, <UNK>, and good morning, everyone.
Joining me here in San Antonio is <UNK> <UNK>, President of our Production Services Segment; and Brian Tucker, President of our Drilling Segment; and of course, <UNK> <UNK>, Chief Financial Officer.
By all accounts, our first quarter of 2017 was a robust quarter for the company.
Our Production Services segment grew at an exceptional 39% rate, and we were able to expand our gross margin as a percent of revenues to the high end of our expected range of 20%.
That's up from 14% in the fourth quarter.
The drilling segment, aided by improvement in Colombia, operated at 72% utilization with average margins of $7,700 a day, which are some of the highest drilling margins in the industry today.
Both segments performed very well in the first quarter.
As noted in the press release, we had investments in working capital during the quarter and had a little heavier discretionary capital spending in Q1 that'll bleed over into early Q2.
But after that period, we'll resort back to pretty much routine and maintenance spending in the second half of 2017 and looking into '18, as we began to whittle away at our short-term bank debt.
Also in the first quarter, we collected another $7 million on the sale of drilling assets, and we continue to have dialogue around selling our 6 held-for-sale rigs that could generate an additional $10 million to $12 million in cash.
Looking at our Production Services Segment, all the businesses were up during the quarter.
But as we mentioned in the press release, wireline led the way.
We had a very big increase in revenue and in margin in wireline in the quarter.
Well servicing and coiled tubing continue to see a very steady upward trend in both activity and pricing, and we're very optimistic about that gradual continued improvement in those businesses.
Labor is a limiting factor in all 3 of these businesses, and we could put more equipment to work today if we had the people.
Looking at our drilling segment.
In the U.S., we worked 14 of 15 rigs and put our 15th rig that's capable of working ---+ to work in April.
So we had, starting in April, 100% utilization except for the 1 rig that is being upgraded where we're putting our latest generation [mast] and substructure on it that's performed so well.
Once that rig is completed next month, it'll move into the Permian, and at that time, we'll have 16 of 16 rigs contracted and working.
Dayrate renewals.
On average, there's been a range of improvements in dayrates.
But on average, they're up 12%, 15%.
And in Colombia, we had mostly 4 rigs working during the quarter.
We ended the quarter with 2 working.
We're repositioning with some new clients, and we're very optimistic that by the end of the second quarter, we should be back up to 3 to 4 rigs working, and generally, the outlook in Colombia is very favorable just like it is in the United States.
That'll end my remarks.
I'm going to turn over to <UNK> to do a financial recap, and then we'll talk a little bit about guidance.
Thanks, <UNK>, and good morning, everyone.
This morning, we reported revenues of $95.8 million and adjusted EBITDA of $6 million.
Reported net loss was $25.1 million or $0.33 per share.
As <UNK> mentioned, wire production service revenues were up 39% to $56.7 million driven by all businesses led by wireline.
Drilling services revenues were $39 million, up from $30.6 million in the prior quarter, and the drilling margin per day was up ---+ was $7,659 up from $7,088 in the prior quarter, again due to a higher percentage of drilling activity that was attributable to our operations in Colombia, where they tend to have higher ---+ they tend to exceed the average margins in the U.S. We have 24 rigs in our fleet today.
Currently, 15 of our 16 AC rigs in the U.S. are earning revenues, and 3 of our rigs in Colombia are earning revenues, which includes 1 rig that began mobilizing after quarter end.
Of the 18 rigs earning revenues, 11 of those are under term contracts in the U.S. for which the roll-off is as follows: One is up for renewal late in the third quarter of 2017; 4 are up for renewal in the fourth quarter of 2017; 1 in the first quarter of 2018; 2 in the second quarter of 2018; 2 in the third quarter of 2018; and 1 in the fourth quarter of 2018.
Turning to company-wide expense items.
G&A expense was $17.7 million, up 17% from the prior quarter.
That was driven by higher activity levels in production services, increased deployer-paid payroll taxes and incentive compensation resets.
For the second quarter, we expect G&A expense to be approximately $17.5 million.
Depreciation and amortization was $25 million, down from $26.9 million in the prior quarter.
We expect D&A to be approximately $25.5 million in the second quarter.
Interest expense was $6.1 million, and is expected to be approximately $6.5 million in the second quarter.
Our effective tax rate was close to 0% in the first quarter due to a valuation allowance taken against the deferred tax assets primarily related to domestic and foreign net operating losses.
We currently have $79.7 million outstanding and $11.8 million in committed letters of credit under our $150 million revolving credit facility.
Cash capital expenditures in the first quarter were $24.7 million.
We estimate 2017 capital expenditures to be approximately $50 million, which includes an estimated $20 million for fleet upgrades and additions, specifically including the upgrade of the U.S. drilling rigs <UNK> mentioned, the exchange of the 20 well servicing rigs for newer models that occurred in the first quarter and the addition of 4 new wireline units.
As <UNK> mentioned, our 2017 CapEx is front-end loaded, and we estimate approximately $35 million of the $50 million will be spent in the first half of the year.
We spent just under $25 million in the first quarter.
To meet bank covenants, the company must meet a minimum bank EBITDA threshold of $12 million for the 12-month period ending June 30, 2017.
As of March 31, we exceeded that requirement.
With that, I'll turn it back over to <UNK> for final comments.
Thank you, <UNK>.
The market we see today continues to be fairly strong.
Capital spending remains high, and at this point, the sub-$50 oil has not had an impact on business, possibly just minimally around maybe recompletions and workovers in well servicing but modest at best.
And so we're still guiding for improvement into the second quarter.
It's a little hard to gauge, the revenue growth and production services or the margin improvement.
But as we talked at length in the last quarterly call, when you're running at 39% growth, there's a quite a bit of associated cost and startup that is a little inefficient, so we are forecasting a further improvement in margin as a percent of revenues up to 22% to 25% range, above the 20% we experienced in the first quarter and continued revenue improvement of 10% to 15%.
Those numbers are hard to estimate but that's a good guesstimate.
On the drilling side, the only really uncertainty there is in Colombia, when the timing of the rigs is going back to work and exactly how many do go back to work.
But we know the U.S. will be 100% utilized at improving dayrates, so we're forecasting 72% to 75% utilization for the entire fleet.
And margin per day, as a result of Colombia being a little softer in the second quarter as we reposition to some new clients, that'll have an impact on margin per day.
So we're forecasting that to be a little lower at $6,800 to $7,200 per day.
But once we get those rigs situated with these new clients, we think that margin will work itself back up.
That'll conclude our prepared remarks, and we'd be happy to answer any questions.
Well, it continues to be primarily remedial.
I think that we've seen a little bit of uptick with this better oil price, particularly when it was above $50 where we're doing more longer lateral-type completions where we are doing some drill outs with the well servicing rig.
But it's historically run, what, 70% or so maintenance and workover.
So that hasn't changed too much.
I think that will change more as we ---+ oil prices improve and lateral lengths continue to get longer.
Well, I think that preferred method continues to be drillouts utilizing coiled tubing.
As you know, there's been a gradual shift over time to the larger diameter.
As an example, for us, we added several years ago, the 2 and 3/8s, and now we have a 2 and 5/8s coil diameters.
So with a bigger diameter coil, you can go further in the laterals.
But as we continue to push out to kind of 10,000-foot, 12,000-foot laterals, I think that there's going to be an increasing shift to start utilizing well-servicing rigs.
But we haven't seen too much of that so far.
But we've certainly used the well servicing rigs to fish coil out, attempting to do those long laterals in the past.
And so some operators would just prefer to just go straight in with the stick pipe from the get go.
So, <UNK>, you have anything you want to add on that.
I think that's fair.
It's hard for us to have a view of the entire market but we certainly do both.
We will drill out using coil.
We'll do it with well service.
Some operators will use a combination.
So it varies.
And I would say also on coiled tubing, and really up to about the fourth quarter of last year, we virtually had no large diameter coil work.
And with the improvement in oil prices, granted we're primarily in the Eagle Ford with a large diameter or exclusively in the Eagle Ford with the large diameter coil, but we're now doing large diameter work regularly via 2 and 3/8s, 2 and 5/8s, which for the bulk of last year, we had no work during drillouts.
So that activity is definitely increasing consistent with improving oil prices.
Well, I would say having the stability through the downturn and we remained pretty active in all of our services during the downturn, so we had trucks move in lots of different directions.
That stability certainly helps, but our competitors were very competitive during the downturn.
And they're continuing to try to gain market share and raise rates, which is good.
So I don't think they've been severely damaged in any way.
They're still out there competing, and everyone is a little tight on capital still today even though some of them have reduced debt.
They still have high interest expense.
And we're not making a lot of cash flow because pricing hadn't improved sufficiently, so we're all still struggling in that regard, but it's getting better.
And as oil prices improve in the future, then cash flows will improve, and I think we'll ---+ the group will continue to be very competitive, I believe.
I think that, <UNK>, has to do with Colombia.
We have 3 currently, as it stands today, we have 3 rigs earning revenues.
There's a chance we go to 2 briefly, and then, as <UNK> said, we think we could be back at 3 to 4 working by the end of the quarter, so a little bit of fluctuation there.
In the U.S., it's pretty set.
In the U.S. ---+ Don Lacombe is in here, but in the U.S., I think we pretty much already renewed in principal at least, if not on paper, all the contracts that are near-term or medium-term coming up.
So, as far as we know there should be no change in the U.S. to the end of the year.
We should remain 100% utilized.
Well, we agree with your observation.
That's a slowly improving sector.
It's been historically one of the most stable businesses we have.
As we talked about in the past, it remained cash flow positive throughout the downturn every quarter and ---+ but it has been slower than we would've thought in the recovery.
And like you pointed out, there's great upside there.
As you recall, in 2014, there were points when we were above 100% utilization because we had 10 or 12 rigs working 24 hours.
And so we ---+ like today, I think we have 5 rigs doing 24-hour work, so we have a lot of room to pick up more 24-hour work.
I just think that that's been a little slow to recover relative to these other businesses.
And the other factor that I think is plaguing everybody in that business is the tightness of labor.
We could put more equipment to work today if we could find, train ---+ or crews that we could hire and train or the qualified crews.
It's just an extremely tight labor market.
And so we are hiring people every month, but we do lose some every month as well and ---+ to competitors.
And early on, we were losing some from some of these businesses into the pressure pumping space.
So it's been a very tight labor market.
I think that I would say is the biggest constraint facing all the production services businesses.
I think drilling, we've done a great job of being able to crew those rigs up without too much difficulty.
But on the production service side, labor is tight, and it's a competitive market, and I think all of us are struggling with that.
Well, we had 20 rigs that were close to or beyond the kind of 10-year anniversary, that for us, we take them in and we sandblast them, and we do a critical inspection on them and recertify the mast and sub and totally go through them, repaint them.
And we were faced with that capital outlay at some point in the near term.
And a company that had leased rigs from one of our primary rig manufacturers had gone belly-up, and so the manufacturer got all those rigs back.
And these had a average life of 0.6 years, I believe.
So there are a bunch that have never been used, and some that were very lightly used.
They were all right in our kind of market.
They were 550, 104-foot, up to 116, even 121-foot mast, so right in our sweet spot.
And so we just started negotiating with the manufacturer about what kind of trade we could make.
To your point, I mean, some people would look at it and say, "My gosh, you got the youngest fleet in the industry.
Why would you trade 10-year-old rigs.
" But essentially brand-new rigs helps, and we think in the recovery, having these newer rigs, freshly painted up, will be easier to crew and position during ---+ because it is a very competitive market so having new iron helps.
And so that was our logic.
It was a very reasonable trade financially.
We thought it was a good trade, and it really helps keep our rig fleet the youngest in the industry.
A million ---+ all things, a working rig, we package it with tanks and pumps and closing units, but somewhere in the 1 million, $1.8 million range.
Right.
About $1.8 million.
Yes, these are ---+ yes, these are all the highest capacity type well servicing rigs.
So they can pretty much work in any shale play anywhere in the country.
And then, of course, the 116- up to 121-foot mast allow you to go into the higher pressure areas where post (inaudible) some of those BOP stacks get fairly tall, so you can operate your floor above those stacks comfortably and have plenty of mast height.
Yes, really it was a good.
We feel like it was a good trade.
We were opportunistic there.
Honestly, we didn't want to spend money at that point, but it was just an opportunity we felt like we couldn't let go by and someone else would have grabbed it if we didn't, so we just went and did it.
Well, we ---+ through '15 and '16, we stayed very busy on the maintenance side with our wireline fleet.
So I think we were one of the most active wireline fleets across the board in the industry and doing also some slip line work, and that business has increased.
But the real delta in terms of revenue has been as the rig count has moved up and as the [ducts] have started to be completed, we moved into a heightened phase of plug-and-perf work.
So that's really the ---+ everything ramped up higher, but the plug-and-perf work is where the big revenue gains, big ticket started coming in, and that's gotten very, very active for us.
And the pricing is, I would say in this quarter, it was kind of in process of improvement, and we think we'll see some continued improvement into the second quarter.
We see a little bit of the full effect in the second quarter.
So now it's not euphoric or off the charts or hockey stick or anything like that.
It's ---+ I think, we need better oil pricing to really drive much greater pricing improvement, but they're ---+ with the rig count as high as it is, the duct work that's is being done, there is demand on all these services, and it's helping improve the pricing a little bit.
Labor, as I've mentioned before, very, very tight.
So we can't do everything we like to be doing, but hopefully we'll be able to hire more people and train more people over time.
Okay.
Well, thank you very much for joining the first quarter call, and we look forward to visiting at the end of the second quarter.
Thank you very much.
