PTEN
#Well let me frame it up this way, we're really focused on margin as a Company.
We're not chasing share.
Our target is to stay EBITDA positive but also including maintenance capital that's required to run this business.
So we want to stay positive cash flow in the Pressure Pumping business.
It's unfortunate that we've had to stack already a third of the equipment, but I think that's just really a sign of where the industry is going in terms of overall utilization and that is putting a significant amount of pricing pressure in that sector.
Sure, I mean it really shows you the quality of the fleet, the quality of the operations, the quality of the people that we have in the Company and that's reflected in the term contracts that we were holding as we entered this down cycle.
And a majority of those were APEX rigs which are at a higher day rate than the other electrics and mechanicals that we have in the fleet.
And as our rigs that were on spot or well to well were released as we moved into the down cycle.
Then the mix shifted to the higher speck ---+ higher day rate rigs that were under term contract.
And so therefore the revenue per day and the margin per day came up in Q1.
Well these are long-term customers that we have, and these are customers that have technical requirements in looking for some specific technical capabilities on the rigs.
And so we've got a very exciting rig in our APEX-XK and we're able to do some modifications for some specific customers and that's what we continue to build this year.
<UNK>, that's a great question.
I would really like to say that we're seeing that, but I just don't think we're quite there in the cycle.
I think we're still going to see our rig count come down and that's what we explained in the numbers we gave you earlier.
And I think we will see that kind of upgrading happen, but I think it's just still a little bit early in the cycle.
That's a good question about turn key.
We were in that business at one time, but frankly, we just haven't had any discussions with any customers regarding turn key for ourselves, and we're just not hearing any discussions of turn key either.
It's quite possible there could be some small contractors out there doing that, maybe <UNK> Texas, maybe Niobrara, but we're not involve in those discussions.
Yes and the challenge is that it's basically probably ---+ it's in all the regions.
You've got ---+ the utilization has come down so quickly in that sector, even though you see rig count holding up in the northeast and that bodes well for completion activity in the northeast, you've got operators up there that are working in several different plays.
And so they're working hard to renegotiate terms everywhere.
Our plans for international outside of US, outside of Canada are long-term plans, and so there may be some countries that are doing some pullback on their rig activity, but that doesn't really affect our plans and what we're trying to do organically in setting up the structure to be able to work internationally.
So no I'd say, no, there's no real change in that.
There's some countries that are going to hold steady in their activity at the same time as well.
In fact, in Canada we are very excited that we have an APEX rig heading up there.
That's a really positive thing for us.
We have really good operations in Canada.
And the story there is over the years in the US, it was just always a better return on the rigs in the US and an opportunity in Canada came up and to get the kind of returns and the days that we were looking for in the contract and we're just very excited about that.
That's a fair assessment.
We've been able to get these costs and price concessions from these suppliers across all of our regions.
And I can give you a little bit of color on what some of that will ---+ in terms of sand, we've seen anywhere from 15% to 35% improvement in the pricing of sand for sand trucking.
The cost of the trucking has come down around 35%.
When you look at components to repair pumps and fluid ends, it's in a range of 15% to 20% savings on those as well.
Well that's a good question and I think it's a mix of exactly what you just described.
I think that some of them will be tight on cash, some of them may have to close up.
We've seen a little bit of that already.
Fortunately for us our balance sheet is very healthy, and we're doing what we can to protect the margins going forward.
I think it's just hard to know right now.
It's hard to predict what the recovery looks like in completion just because if you look at the rig count, we just don't think we're quite at the bottom on the rig count yet.
So we see challenges in trying to forecast what the end of the cycle looks like in drilling and then completions is likely to lag that a little bit as well.
Hard to know at this point.
I'd very much like to say that we're going to trough at 110, but I think it's just too early to know that.
I think we're going to have to get a little bit further into the second quarter to see how comfortable the E&Ps are getting with commodity prices where they are and also see what commodity prices do going into the summer.
I think there's just still some uncertainty, so it's hard to know what will happen coming out of the second quarter right now.
Well, even from where we are today, unfortunately if we were to have to, we could certainly continue to scale the Company to make sure that we're sized correctly for any changes in the activity if it were continue to decline.
And I think you've seen historically from the Company that we've been able to scale up coming out of these cycles as well.
And we'll be able to put the people back to work, we'll be able to put our training programs back into effect, we have inventory to start building some new rigs if that's the case.
I'm not worried about us being able to scale coming out.
Do you think even if it's a, say a prolonged downturn, does that delay your ability to scale back up if it's not a quick recovery even it stays depressed for a few quarters, does that impact that at all.
Hey, <UNK>, it's <UNK>.
You've watched a lot of these cycles and I think as you know when we scale down like this, which is what we need to do, scaling back up, we're very capable of doing it.
But it does create a restraint on rig supply which has a tendency to speed the recovery, help pricing, things like that.
But over a period of months and quarters, we can scale the rig count back up to where we've been in the past.
Well just to clarify what I was saying earlier when we were talking about scaling, we were really talking about more of the macro of the business in terms of headcount and overhead support structure and things like that and also working with suppliers.
In terms of the daily cost, there could be some opportunity, but I think we're getting close.
Two-thirds of our cost in Drilling is related to the personnel costs, and we haven't rolled back people's wages at the positions that they're working in, and we've chosen not to do that.
We want to know that we're in some kind of extended downturn before we make that type of decision for the people that work in our Company.
And so with two-thirds of that being personnel and one-third having to do with spare parts, maintenance, things like that there could be some more we could do with suppliers if it's an extended downturn or if we see some further declines.
But when we talk about scaling more on the macro, when you get into the cost per day, there's about a third of that that we have to work with there right now.
I actually think it's both.
I don't think it's necessarily one or the other.
I mean certainly there's some drilled but uncompleted wells out there and there's some inventory and that bodes well for Pressure Pumping if we get into that situation.
But we also have customers that are going to be looking for rigs if we see commodity prices move upwards or if we see that if an E&P has extra cash towards the end of the year, there are those types of plans.
But that being said, we still see our rig count going down in Q2 right now, and not sure exactly where that's going to bottom out yet.
So there's been a lot of discussion about refracs, there's been various notes that are out there that we've seen and people talking about potential for refracs.
We've done refracs, it's something that fits within our technical capabilities.
We have a fiber diverter technology that we use that is similar to what some of the big guys have.
And so we're certainly in that market and we have done that.
But it's still relatively small.
And for us it's still hard to really understand what that potential market looks like.
Just to give you an example, there was a recent technical paper that was out in the petroleum engineering world that was referencing the performance of some of the refracs.
And they were looking at a pool of wells in the study, but the pool of wells was only 38 wells.
And of that pool after the refracs, seven of them actually went down in net value with the cost of the refrac.
So there's still some risks, they're still trying to understand the well choice for your refrac which are your best candidates for refrac, so there's still some work that has to be done technically in understanding that on the technical side.
And then back to the potential market because of the technical challenges that are still out there and the risks and understanding which wells you're going to refrac and which ones you're not, which ones you're going to get value out of, it's really kind of hard right now to understand what that overall market looks like.
But back to what I said earlier, we have the technology to be able to do refracs, we've done refracs, so if there's an increase, then I expect that our teams will be part of that as well.
It is a very similar level of service intensity along with understanding not just the diverter technology but how to pump the diverter technology, how to back circulate the diverter technology and how to do the flow backs.
So there is some ---+ there's the chemical component and there's the technical operational component, but it's relatively the same horsepower intensity.
We were in those negotiations in the first quarter.
And if you remember early in the first quarter, even the first couple of weeks of January, I don't think that the sand suppliers fully appreciated the magnitude of the downturn that we were entering.
And so we were completing those negotiations with the sand suppliers towards the end of Q1, if that helps you understand the timing.
Yes, it is a challenging market.
Activity levels continue to decline, overall industry utilization will decline further going into the second quarter.
We're still a very scalable Company and we'll be able to manage that.
What we're attempting to do is maintain positive cash, so in other words positive EBITDA plus cash to cover maintenance CapEx, et cetera, and the risk in running the operations and that's our objective.
We decided to stack fleets as opposed to taking margins that we considered extremely low.
If we get into an extended downturn, as you mentioned, then we might have to adjust what we consider is extremely low.
But we're going to do our best to stay cash flow positive in that business.
In terms of share we stacked a third of our fleets, but I don't have the impression yet that we're actually losing any share or that we would have to work to regain any, because I think overall utilization in the industry is coming down, certainly into Q2.
Certainly we have the benefit of scale and with our size at almost a million horsepower and frac horsepower in total, only in Texas and only in the northeast, it gives us that negotiating scale with the suppliers whether it's sand or trucking or chemicals or pump parts or fluid ends.
And I think if we get into an extended downturn we'll likely see some further concessions from these suppliers as well, plus we'll do other things to scale the structure of the business if that's what we have to do.
<UNK>, that's a good question.
I'm just ---+ there's really not a spot market out there.
We're still seeing our rig count come down in Q2.
We think the industry rig count continues to come down in Q2, and it's just ---+ there's just not a spot market that you can judge.
There's just not a trade right now out there.
Our rig count continues to come down in Q2.
Thanks, <UNK>.
