Nabors Industries Ltd (NBR) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome do the fourth quarter 2009 Superior Well Services Inc. earnings conference call. My name is Erica, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We'll be facilitating a question-and-answer session at the end of this conference. (Operator Instructions) I would now like to turn the presentation for your host for today's call, Mr. David Wallace, Chairman and Chief Executive Officer. Please proceed, sir.

Thanks, Erica. Good morning, everyone, and welcome to the Superior Well Services fourth quarter 2009 conference call. Joining me today is Tom Stoelk, our Chief Financial Officer and Chris Peracchi, our Director of Finance and Investor Relation. I'd like to remind all those participating on the call today that a replay of our conference call will be available to listen to through March 24 at 888-286-8010. The conference ID for the replay is 85437824. A replay will also be available on our website.

Before I begin with comments on our operating performance, I would like to make the following disclaimer regarding our call today. Except for historical information, statements made in this presentation, including those relating to acquisitions or expansion opportunities, future earnings, cash flow and capital expenditures are forward-looking statements within the meaning of Section 27 A of the Securities Act of 1933 and Section 21 E of the Securities Act of 1934. All statements other than statements of historical facts included in this presentation that address activities, events or developments that Superior expects, believes or anticipates will, or may occur in the future, are forward-looking statements.

These statements are based on assumptions made by Superior based on management's experience and perception of historical trends, current conditions, expected future developments and other factors that are believed to be appropriate in the circumstances. Such statements are subject to a number of assumptions, risk and uncertainty, many of which are beyond Superior's control which may cause Superior's actual results to differ materially from those implied or expressed by the forward-looking statements. These risks are detailed in Superior's Securities and Exchange Commission filings. The Company undertakes no obligation to publicly update or review any forward-looking statements.

Our call agenda is as follows. I will first provide an overview of our operations and then turn the call over to Tom, who will review our financial results. After Tom's review, I'll provide some closing remarks and open up the call to Q&A.

Activity levels in the fourth quarter ramped up as our customers gained visibility on the outlook for heating degree day withdrawals on natural gas storage. December was one of our busiest months of the year, even with the impact of weather and the holidays. As a percentage of gross revenue, sales discounts decreased marginally by 0.4% in the fourth quarter of 2009 as compared to previous quarter. While discounts decreased slightly in Q4, we have seen more significant pricing improvements and lower discounts in 2010 and expect pricing to continue to improve with increased utilization across multiple basins driving the pricing improvements.

During the fourth quarter, our activity levels and cost of revenue were impacted by the effects of weather on our operation, particularly in the Appalachian and Rocky Mountain operating regions. These two regions accounted for approximately 46% of our net revenues for the quarter. Appalachia was impacted by below normal temperatures and intermittent storms, bad weather in Appalachia can a significant impact on our operating efficiencies and fracturing material logistics given the topography and size of the area coupled with the drilling pad sizes and fluid requirements. In the Rockies, below normal temperatures, for example, Williston's December average temperature was six degrees fahrenheit, impacted operating efficiencies.

As our activity levels continue to shift to a higher percentage of shale based jobs, repair and maintenance for our equipment remains a significant focal point. The majority of Superior's fleet had been built in 2005 and 2008, and we remain committed to spending the necessary dollars on the ancillary components to keep our fleet up and running. The quarter repair costs as a percentage of net revenue increased by 2.6% due to repairs on ancillary components based on our shale-based activities. We added additional personnel to enhance the maintenance of our equipment base. We have the leading expertise on our team, which our customers and investors have come to rely upon in both up and down cycles.

This expertise was recently recognized when Hart's Energy Publishing, E&P's magazine, named Superior as the winner of two Hart meritorious awards for engineering excellence. Superior won the awards for two categories. Remediation for our exclusive GammaFRac slick water system and formation evaluation for our OptiB imaging system. Our GammaFRac slick water system utilizes our patented WFR 3B system which is a liquid environmentally responsible non-damaging friction inducer designed especially for application in shale formations which allows the use of brine water and previously used fracturing fluid, reducing the demand on local sources of fresh water and reducing the environmental burden of fracture water disposal. Our WFR 3 B system previously won World Oil magazine's best drilling completion and production fluids award at the 8th Annual World Oil Awards. The OptiB imaging system is a fracture identification logging tool utilized in a dry air drilled hole which gives us a distinct advantage over our competition who can only utilize their fools in a fluid-filled hole, which increases the potential for well damage. This exclusive system is particularly well suited the for shale reservoir evaluation and provides unprecedented resolution of rock characteristics and fractures.

Pressure pumping markets appears to have rebalanced more quickly than some anticipated. With the continued increase in the US land rig count and the consistent growth and percentage of horizontal rigs versus the percentage of vertical rigs, the ship to shale based drilling activity with longer horizontals and increasing number of frac stages has resulted in increased frac intensity essentially absorbing any capacity that was in the market.

Now let's turn the focus to our five operational regions. Our Appalachian service centers support the Marcellus, Huron and other shale plays. Revenues of $34.8 million in the Appalachian region were up 9% sequentially as Marcellus activity expanded across the region. We're currently running three simulation crews in the Marcellus, which includes the utilization of our crews from our mid-continent region. We have the capability to move more of our resources in the Marcellus if the demand and pricing for our services warrants doing so.

Our Marcellus shale team continues to make progress with new customers as confirmed by the increased diversity of our customer base and the increase of our Marcellus job count. We are developing solutions to help our customers respond to the environmental concerns in Appalachia. We are aggressively marketing or World Oil Award winning WFR 3B system utilized in our exclusive E&P award winning GammaFRac slick water system that reuses 25% to 50% of our customers' flowback water to all of our shale customers, including those in the Marcellus where fluid disposal is a significant regulatory and cost issue. Also, we're currently offering spill containment rentals. We're a leading provider of nitrogen services in southern Appalachia where nitrogen-based simulation treatments and water sensitive shale is the treatment of choice.

On the innovation front, we developed and marketed the OptiB imaging system for initial application in the Marcellus. We have successfully utilized the system in both vertical and horizontal dry air drilled wells for our customers and are marketing the system in other active shale areas. Having weathered the storm with our first winner of significant Marcellus activity levels, we're committed to fine tuning our operational and logistical model.

Given the Marcellus' geographic size, topography, material and fluid requirements and transportation and logistic challenges, we are focused on working with our customers to ensure that we can develop the play in the most profitable manner. While competition remains active in this area, the flow of new entrants and existing competitors moving equipment and crews into Appalachia in an attempt to pick up market share in the Marcellus has dropped off a bit with the increase in activity levels in other areas. Our strength of cementing work combined with our job performance and our reputation for frac service quality helps us maintain our first mover advantage and strong competitive position in our backyard. We also remain the conventional well leader in Appalachia. Revenues in the southeast region of $16.2 million decreased slightly, down 2% sequentially.

Our Haynesville technical sales team continues to demonstrate our proficiency in performing high quality completion in high pressure, high temperature down hole environments like those found in the Haynesville. They continue to provide innovative solutions that translate to better well performance and the preservation of economic returns to our customers. Simulation work in the Haynesville market remains equipment intensive, and we're improving on our mechanical operating efficiency as we gain more experience in the play. We remain focused on providing high tech cementing and stimulation solutions to existing and new customers that required in this high pressure, high temperature play. Revenues from the southwest region of $17 million also decreased slightly, down 3% sequentially.

The Permian rig count continues to improve with high oil prices. We've increased our oil presence over the last two years with the focus on the Permian market. Activity in the Barnett increased later in the quarter and our customers began to work through their drilled but not completed well inventory. We're currently monitoring activities in the eco shale as we evaluate how and when we may enter that market. Revenues in the mid-continent region of $18.5 million decreased slightly, down 0.5%.

We have historically been active in the Fayetteville and Woodford markets and are reviewing these markets as we look to optimize our pricing and overall returns. Revenues from the Rocky Mountain region of $9.3 million were up 52% sequentially. We have seen improvements in activity levels driven by increased gas activity to support the Rex pipeline and increased oil activity as we continue to deliver excellent service quality. Activity in the Bakken oil shale play in North Dakota have improved, and we've established a permanent crew in this active oil area while many competitors have exited the region. I'll now turn the call over to Tom for a review of our financial results.

Thanks, Dave. Revenues were $95.9 million for the fourth quarter of 2009. That was a 5.7% sequential increase. Revenues in our technical pumping services, which include stimulation, cementing and nitrogen, accounted for 86% or $82.6 million of our total revenues. Down hole surveying services, completion services and fluid logistics were responsible for 6%, 4% and 4% of the revenues, respectively. Revenue increases in our Appalachian region and Rocky Mountain operating regions more than offset slight revenue decreases in our southeast, southwest and mid-continent operating regions compared to the prior quarter.. Cost of revenues increased 9.2%, or $8.8 million for the fourth quarter of 2009 compared to the previous quarter. As a percentage of net revenue, cost of revenue increased by 3.5% to 108.7% in the fourth quarter of 2009 from 105.2% for the previous quarter due primarily to increases in the repair and materials as a percentage of net revenues. Repair costs as a percentage of net revenues increased by 2.6% due to higher equipment repairs related to repairs on ancillary components used in our shale-based activities.

Material costs as a percentage of net revenues increased by 0.4% in the fourth quarter of 2009 from 39.8% in the previous quarter due to higher freight and demurrage charges associated in large part with the logistics of moving materials in our unconventional work. Outside contractor and labor expense as a percentage of net revenue increased by 0.2% to 23% in the fourth quarter of 2009 as compared to 22.8% in the previous quarter due to using more contract employees in the fourth quarter of 2009 to support the higher activity levels. SG&A expenses decreased 1.7%, or $200,000 in the fourths quarter of 2009 compared to the previous quarter. As a a percentage of net revenue, SG&A expenses decreased by 0.9% to 11.7% in the fourth quarter of 2009 from 12.6% from the previous quarter, primarily due to lower labor expenses. Labor decreased 4% or approximately $300,000 in the fourth quarter of 2009 compared to the previous quarter. Adjusted EBITDA decreased by $2.3 million in the fourth quarter of 2009 as compared to the third quarter of 2008 to approximately $800,000.

Turning to the balance sheet, on a sequential basis, working capital increased by $13.1 million from $85.8 million at September 30, 2009 to $98.9 million at December 31, 2009, and that was driven by an increase in the income tax receivable related to the lost carry backs that are available to us. Accounts receivable increased $1.4 million sequentially to $69.5 million and our inventory levels decreased by $1.1 million. In the fourth quarter, we sold 6.9 million shares of common stock through a public offering and raised net proceeds of approximately $68.5 million, which was used to pay down a portion of our credit facility. At year end, we had debt to book capitalization of approximately 33.4%, and we intend on using our income tax receivable of approximately $36 million to reduce the outstanding borrowings under our credit facility, and we currently anticipate the receipt of that income tax receivable to occur sometime during the second quarter of 2010.

Total long-term debt at the end of December was approximately $163.6 million with $83 million outstanding on our amended $100 million syndicated credit facility, leaving us $10 million of availability after accounting for letters of credit. Our facility matures in 2013, and we are currently in compliance with all of our debt covenants. For the fourth quarter of 2009, we made capital expenditures of approximately $4.5 million. We plan to continue to focus on minimizing our discretionary spending, limiting our capital expenditures and managing working capital to maximize liquidity. At this point, I'd like to turn the call back over to Dave for some additional comments.

Thanks, Tom. We built Superior Well Services into the fifth largest pressure pumper in the US, and we are activity working to improve our competitive position.

We believe that our strengths of reliable equipment, high service quality and technical expertise in the key unconventional shale plays combine to help reduce risk and maximize returns for our customers. On the commodity front, we remain bullish on the outlook for crude oil and have focused on increasing our oil presence in the relevant activity areas. On the natural gas front, we remain cautious regarding the near term outlook. Winter did its job in terms of reducing natural gas storage to below year ago levels, approximating the five year average. Now it is up to other demand and supply factors to support natural gas prices and activity levels. With this in mind, we are focusing on continuing to manage our costs. For example, we selectively added headcount and increased utilization of outside contractors to augment our work force.

Our plan to remain a strong competitor includes repositioning employees and equipment to take advantage of areas with the highest margins within our broad geographic footprint. Aggressively manage costs at all level of the organization to align our cost structure with the realities of the current market environment, provide the highest levels of service quality and results to our diverse base of strong customers and acquire new customers on the basis of competitively priced, high quality service. Maintain our disciplined approach to managing liquidity and cash flow, strengthen our presence in the markets where we have a clear competitive advantage and in the plays with the most durable economics, prioritize capital investment to maintain the performance of our relatively new fleet, insuring high levels of service quality, safety and reliability. Continue to innovate and build on our technological advantages and maintain and strengthen our technical sales teams. Our crews have built a quality reputation one job at a time, and I'd like to thank all of our employees for their hard work, continued dedication and professionalism.

I would again like to mention that our primary focus is return to profitability and generate positive cash flow. Ours is a cyclical business, and we'll continue to make adjustments to position our people and assets with an eye towards making the most of the recovery. This concludes our prepared remarks. I'll now turn the call over to Erica to help coordinate the question-and-answer questions.

Thank you. (Operator Instructions) Our first question comes from the line of John Tasdemir with Canaccord Adams.

Good morning, guys. You guys talked a lot about some cost issues and bad weather in the fourth quarter impacting margins a bit. Can you help us try and triangulate what a better margin might have been, or how do we think about first quarter margins? I'm just trying to get rid of some of that noise. Can you give us any help?

I think a key thing in fourth quarter was when you look, pricing was heading down second and third quarter just started to make a turn, really late in fourth quarter. So we didn't have the pricing power to kind of help push some of the margins, because we're still going off the softer run rates second and third quarter.

I think the other thing we saw in the fourth quarter was October started off looking like fairly formal, and then we got into November and we had a really soft winter looking at us. Mid November, we were looking at 65 degrees in the northeast. And at that point, our customers started getting a little sluggish as far as should we sit back, wait for winter to kind of take hold, identify itself, that gas prices are going to firm up, and we saw at that point that they sat back a little bit and then once winter kicked in, Thanksgiving on, then activity started ramping back up. So I think the biggest impact is going to be pricing improvement. Also, we're getting a little smarter every day as far as logistics in some of these areas, especially Appalachia when you look at how spread out it is. Where a lot of the other areas are pretty compact, when you look at the Barnett, Fayetteville, Haynesville, Appalachia is pretty spread out, so there's a lot of challenges to be efficient in those area that we'll continue to work with.

Okay. Pretty broad, but we'll try to dial in a little bit. I guess follow-up to that is first quarter, or I guess January, February, any of the same issues with weather or other things realizing better pricing that might not show us your full potential yet?

Definitely seasonality. When you look at our mix now, we're roughly 50% between Appalachia and the Rockies, which would be seasonal areas. You look at the northeast, it's probably the snowiest winter that they've had in 50 years. So there's a lot of logistics shuffled that happened during first quarter. But as far as some of the other items, again, we're seeing that overall -- the overall market is pushing for a little better pricing, and we continue to monitor this in all our basins and decide whether we should ship our resources to.

Okay. And then final question and I'll shut up, you did talk about you're continuing to limit your expenditures, focusing on balance sheet here a little bit, what's the thought process now of, do you need more equity? Do you need to issue equity? Are you feeling comfortable with where you are? Can you grow? What's your thought on equity?

Our thought on that right now is we have about $10 million of liquidity. Our current credit facility limits us to about $6 million of CapEx. The majority of that CapEx right now is really to fund maintenance CapEx with a very modest build on that. We're cautious, I think, about the near term outlook on natural gas with respect to any sort of an equipment build, but we're watchful. As David commented in his earlier comments, just -- we're starting to see some movement kind of on the pricing end. And that's coming from a couple of different avenues.

One is that in the fourth quarter, you saw that our repairs and maintenance were up as a percentage of net revenues. They increased about 2.6%, and that's really a direct result of working in some of these shale areas, which are longer pump times, sometimes higher pressures and just generally, a little bit rougher on the equipment, which requires more preventive maintenance to be done on that equipment. We'll continue to kind of -- we've got teams that are obviously focused on that internally, but one of the things that our focus is on the pricing end is really to get paid for that type of work that we're doing.

On some of the shale activities that are more intense on our equipment is basically either trying to find ways to either line item that demurrage out to our customers, so some of it's education process. I don't know, we really haven't touch on it a whole lot, but freight and demurrage was also up in the fourth quarter compared sequentially for us. Part of that is a little bit of learning curve with respect to the play. A lot of our -- about half of our increase in freight and demurrage in the fourth quarter was really related to the Appalachian region. Marcellus, a lot of shale activity going on, a tremendous amount of logistics.

You're moving large amounts of material around in an area where the topography is kind of up and down. You're challenged with smaller -- sometimes smaller location sizes and things like that, so you've not only got the oil service companies struggling with that, but a lot of the infrastructure as well. So we really started to focus on that, and some of that is really in pricing, I guess, kind of on a go forward, where we try to line item a lot of the information out as well as reduce your discounts.

Right, and then just back to the need or benefit of doing equity, do you feel like you need to or just always out there?

I think it's an option that's always out there. I don't think we have a -- a need. Our liquidity if fine, really, at this point in time. You'll see it basically when we received a $36 million of income tax receivable, our -- we'll get a little liquidity pop there additionally. We will pay down our facility as agreed by about $25 million, or we'll lose about $25 million of our borrowing base so, it will string from $100 million to $75 million, but we'll pick up $36 million in funds, so our liquidity will go to low 20s, mid-20s at that point in time. Gives us some flexibility. At that point in time, I think we'll have a little bit more clarity as to how we come out of the winter and where natural gas is headed. So not necessarily near term, but we'll remain watchful.

Thank you very much.

Thanks, John.

Our next questions come from the line of William Conroy with Pritchard Capital Partners. Please proceed. Sir, your line is open. You may proceed.

Good morning, Dave and team.

Good morning, Bill.

First question, the repair and maintenance, was any of that increase that we saw a catch-up maybe from some deferred, or is that a baseline for the current operations?

It's obvious that there's definitely more maintenance intensive work going on today, and would have been minimal as far as catch-up. If we get a gap in the holiday season where we can maybe pick up on some extra stuff that we want to do, we take advantage that time period. Again, once we saw that winter was starting to kick in, gas prices were firming up, we could see that entering fourth quarter -- or excuse me, first quarter 2010, then activity levels were going to continue to be strong. At that point, we wanted to make sure that the fleet was ready. So seeing a little holiday break, it's good chance to catch up up on some of the stuff that maybe you delayed a little bit. But it's pretty close to a general run rate in that manner.

And, Dave, can you give us a comment maybe on the receptivity of customers to these expenses that you're mentioning on this call, whether it's the repair and maintenance or the logistics. Some of these areas, are they responding on pricing to those higher expenses at this point?

I think that customers have -- understand that service companies have to make some money, and they also understand that there's a lot of moving part,s and it's just a matter of working with your customers, identifying where the inefficiencies are, and then they'll work with you on that. Because again, they know to maintain a healthy service environment, that service companies have to get to the point that they're profitable again. That's reluctance early now that we're seeing the rebalance of equipment, that it's gotten tighter in a lot of different basins. There's a lot more receptiveness from the customers to work with you on some of these inefficient areas.

Just as a final one, Dave, how would you characterize the environment today as you're staring down the end of the first quarter versus, say, three months ago?

Winter goes a long way to perk everybody up when you see the gas storage level come down. You look at three months ago, again, we're just going into winter. Again, mid-November, the weather in the northeast was really soft, so everybody's pretty cautious at this point. Now that we've gone through a hard winter, it's pulled storage down.

I think our E&P guys are -- they're a lot more bullish. Again, they're somewhat cautious on where gas prices are going to level out. A lot of them are hedged, so therefore, they feel like they're going to continue to do their programs, even if gas prices soften some. A lot more bullish on the oily areas. Big change from a year ago when we were looking at $35 oil, now at $80 plus. The oily areas look pretty strong, look pretty active. So I think our outlook at this point is cautiously optimistic. We think the oily areas look strong, we think a lot of the gas areas, even if gas prices dip, look like they're going to continue to be pretty active. So looks a lot better than it did three months ago.

Thanks very much.

Thanks, Bill.

Our next question comes from the line of Joe Hill with Tudor Pickering. Please proceed.

Good morning, guys.

Good morning, Joe.

Dave, I just wanted to circle in on something you had said earlier about December being one of the busiest months of '09. You guys did $122 million worth of revenue in the first quarter of last year. And if December was one of the busiest months of the year with holidays and seasonality and whatnot, and you're starting to see price increases, does this mean your first quarter of this year can kind of hit that $120 million run rate?

That's probably on the high side, Joe. I think it's improving, but I don't think it's improving that rapidly. It's -- I'm not sure that's likely.

Okay. And then what level of price increases are you guys implementing and experiencing, and can you help us understand how fast those actually penetrate your realized price?

It's a basin by basin thing, and I would say that some areas are moving a little faster than other areas, and part that is going to be, again, driven by activity levels, shortages of crews, we have a strong position, strong service quality in certain areas. And then other areas are going to be a little more clouded as far as additional crews or a lot of equipment -- competitor equipment in those areas. Therefore, you get some movement, but you may not get as much movement as you will in some of the other areas that are less competitive.

Okay.

Really varies quite a bit.

And then finally, where did you guys shake out for fourth quarter fleet utilization, and where are you today?

We were roughly 60% in December and again, October and November would have been a little bit below that and then once again, once cold weather kicked in, things kind of picked up, especially when you start look as they're picking up some of the backlogs in Barnett, some of these other areas. We would say that equipment utilization first quarter, when you knock out some of the seasonality areas that are going to cause delays, we're going to see it a little bit higher, and it could probably -- in this market, really, you could lock in a lot of your fleet, but the pricing may not be very attractive. So we will hold back on the utilization a little bit to try to get some pricing improvement in some of our basins.

Okay. And just to get a little bit more clarity on that, how much of your book of business today is more callout or spot versus contracted up?

We think roughly 50% is semi locked -- pretty well locked in and again, there are some potential things that we can improve pricing and even in that 50%. The other 50%, we have a lot of activity looking at us for that -- for those crews. Again, we're trying to best decide where we should put those crews to make sure we can get better returns.

Got you. Okay, thanks, guys.

Our next question comes from the line of Waqar Syed with Macquarie Capital. Please proceed.

Good morning. In the past, you provided guidance or at least a breakdown of EBITDA on a month by month basis. And if you could share with us the progression of EBITDA on a monthly basis in the fourth quarter, and how does January and February stack up to those levels?

Yes, when you look at fourth quarter -- again, October, November, kind of flatish, and December picked up from there. So it was the best month of the quarter. Again, coming into January, February, again, still a little early as far as first quarter. Again, we see a lot of the signs as far as seeing pricing improvement, we still see some seasonality impact, certain market areas. So again, I would say at this point showing optimism, feel like things are heading in the right direction but still somewhat cautious as far as pace that things are going to ramp up.

Back in September, I believe you were in the $1.5 million, $2 million dollar EBITDA per month range. Then obviously, it dropped in December, January -- sorry, in October, November. Was December kind of in the $1.5 million to $2 million EBITDA range or higher than that, or?

I think you're in the range.

Okay. And then January and February would be a pickup over December?

We really don't provide guidance, but January is fairly flattish, slightly up. February is stronger than that. That's about all we want to say.

Okay. Sounds good. Thank you.

Thanks, Waqar.

Our next question comes from the line of Victor Marchon with RBC. Please proceed.

Hello, Victor?

Sir, your line is open, you may proceed.

I apologize. I had my cell phone on mute there. Good morning, guys.

Good morning, Victor.

First question was a follow-up on utilization. The number that you provided, a little bit higher in the first quarter. David, was that relative to that 60% in December, or was that relative to the fourth quarter average?

It would be -- we said December was roughly 60%, we think we're in that ballpark, a little bit higher going into first quarter. But again, we do have some missed days due to seasonality, heavy snows in the northeast and cold in the Rockies, but it looks like, again, utilization is picking up on an ongoing basis.

Okay. And then just as it relates to that number, from a labor perspective, how do you guys stand in relation to that, or are you guys hiring folks now? Sort of where are you at in that cycle?

We were cautious, picking up people in fourth quarter. Again, we were still -- early in the fourth quarter, we were still shrinking our work force. And we were staying a little cautious until we saw winter kick in. When you look at where we exited December, it was up about 11% from where we bottomed out. And again, most of those people would have been for the stem crews which, once we started getting visibility that the stimulation business was really starting to ramp up, then we saw at this point that it was time to start bringing the permanent people. We helped use contract people, some other third party services to help supplement. Again, that October, November. Expensive when you do that, but we wanted to make sure thatwe had visibility that activity levels really were going to pick up and sustain that level.

Okay. And the last one I had just relates to your gas-oil split today, just as it relates to a percent of revenue or percent of horsepower, do you guys have those numbers?

We think the oil split is roughly 20% now, and we see that actually continuing to increase. Again, we've been a -- probably a late participant into the Bakken. We're catching work up in the Bakken during fourth quarter, but it was mainly crews coming from other regions. Once we saw that activity levels appeared to increase, at that point we put a permanent crew in the Bakken earlier this year, so we see that level ramping up. Plus a lot of the other oily areas, we mentioned Permian has been a pretty active market for us, other places in the Rockies, then we have a few other oily areas that -- some of them of affected by seasonality, but we see them ramping up as the seasonality comes on. So we see the oily activity look pretty solid for the year, so we want to enhance our position in those markets.

Great. That's all I had. Thank you, guys.

Thanks, Victor.

Our next question comes from the line of Michael Marino with Stephens. Please proceed.

Hey, Dave. My question relates to pricing. You guys have talked a lot about potential -- or pushing pricing here, and can you help frame the pricing dynamic? I realize not every job is the same, and jobs have changed from call it Q3 '08, but what does pricing look like today versus where it was at the peak and where it was at the trough, if there is a typical job out there you can point to?

It took a pretty ugly drop, needless to say, in 2009. Everybody came off a strong year 2008. What we saw is, again, when you look at 2009, pricing remained somewhat firm first quarter, took a really nasty drop second quarter, continued to drop third quarter and then started a slight recovery in fourth quarter. As far as a dropoff from peak to valley, Tom? You got any --

Yes, year-over-year Michael, it's probably on -- a discount was probably a year-over-year drop of about 16%. That's just calendar -- or that's just comparable quarters, exit rates and things like that. So it's improving.

I think a couple of comments that I had alluded to on pricing was one is a -- just trying to get some more relief, not only on the discount side, but also on your ability to line item these extras out. When you're working in the Marcellus, and let's use demurrage and freight as an example, some of the areas that you're working in, you're limited to daylight hours to haul the material. Some of it you're limited on weight, so in certain circumstances, you can only maybe haul half of the materials, so you actually double the amount of trucks. That's also complicated by the fact of you've got large volumes that you're doing. And part of it's an education process.

This was really very active in shale activity in Appalachia, and a lot of people didn't have a lot of experience with that, I think. And part of it is an education process with your customer. But basically being aggressive with respect to getting that line item relieve with respect to it. Then on the discount side, trying to continue to move it up to get paid for the work that you're doing. If you're working in areas that is more intense on your equipment, you want to make sure that obviously the prices you're receiving for it, you're getting adequately compensated. And that's probably more kind of moving up your discount as a percentage of gross type thing. But I don't know if that answers your question or not.

I guess there's a lot of moving parts, but with all those moving parts, do you all feel like you can get back to the EBITDA margins that you put up in, call it Q3, Q2 '08 in the near term? How long do you think it takes before you get back to that kind of 20%, 25% EBITDA margin level?

I think it's going to take a little bit of time, only because -- and probably part of this is because we're still somewhat cautious on the gas prices. If gas prices take a dip, then it could affect rig count and could affect the pricing plans that we have. If rig count continues to stay strong, we continue to see the rig count boost up, we see the EBITDA margins continuing to improve through that cycle. So at this point, we see a lot of positive signs. But again, we stay somewhat cautious --

Near term I think that would be really challenging, Michael. Next couple of quarters, I think back end of 2010, if you get a little bit more clarity with respect to how we come out on gas price and things like that, that you can start to move up to closer to those levels, but we're not in that environment right now.

Right, okay, thanks. And one final one. The sale of the fluids business, is that still on the table, or do you feel like you need that business more, or how do you view that?

One of the things that as we were amending our bank agreement at the end of Q4 is, we wanted really the flexibility to do it. Fluids has historically not been a core a -- or a core business for us, and what we -- we'd had some interest in the increased activity in the Barnett area, and a lot of those -- those assets are very regionalized. So we had some inquiries, and it was one of those things as we went in to modify the agreement, we wanted to provide yourself some flexibility. We continue to have some interest levels with respect to that, and it's something that will continue to kind of evaluate because it would obviously provide some additional liquidity at the right price and things like that. But it's an option that we have. It's not something necessarily that we're going to be forced to have to do.

Okay. Great, thanks.

Thanks, Mike.

(Operator Instructions) Our next question comes from the line of Jack Aydin from KeyBanc Capital Markets. Please proceed.

Hi, Dave and team.

Hi, Jack.

Dave, regarding the pricing for services, some of the companies we talked to, they were -- E&P company was saying that prices for services to certain services are up 50% from the trough of year ago. Are you experiencing that type of increase in pricing? Or at least you are passing some kind of that?

I think that one pricing has got too drastic in several areas, so it needed some movement just to get back to maybe even close to breakeven cash flow-wise. And there's definitely some shortage of crews in some basins, and some of the spot pricing can be pretty aggressive. Customers may have a need where they need to get some wells competed to prove out an area to decide if they want to continue to drill those areas. With that, then they can get pretty aggressive as far as trying to pull you into and offering you some pretty decent pricing to do that. I'd like to see 50% overall. Definitely hasn't happened, but we're seeing pricing heading in the right direction, and we're seeing some spot areas where it's pretty good pricing.

The next question I have, again, like in the fourth quarter with this natural gas prices improving and the winter storage down, now that natural gas price is a little bit on the he soft side, do you see inquiries? What kind of strengths are you seeing from your customer base? Are they cautious, or are they hedging in a sense what they bidding for or negotiating a little bit harder? Or what kind of trends are you seeing?

I think at this point, they're all still -- they still seem to be pretty bullish, and it's not every market, but definitely a lot of the markets we're in, they see that there's a shortage of good service quality crews. They would like to lock up your good service quality crew because they know if they don't, then they might be getting somebody's second crew, which may not be as efficient. So at this point, we're still seeing that they're aggressive on their plans. Near term says they're going to continue to add rigs, but as gas prices continue to soften more, then that could change. But I think right now, we still see the E&P guys pretty optimistic.

Another question I have is in terms of maintenance, did you increase your percentage, in a sense you're baking in a little more cost for maintenance going forward than you have been in 2009?

I would think it would, Jack, just because of the nature of the plays that we're involved in, most of them being shale with longer pump times just require more maintenance with respect to it. It's a little tougher on the equipment.

Thanks a lot.

Thanks, Jack.

Our next question comes from the line of Shawn Boyd with Westcliff Capital Management. Please proceed.

Hi, Shawn.

Hi, David, hi, Tom. How you doing?

Good.

Just a couple of quick clarifications. I am assuming horsepower has not moved at all from from last quarter, so we're still at 430,000 horsepower?

That's correct.

And on pricing, if you could, remind me where we troughed in terms of discounts as a percentage of book and where we peaked on that and where we are today?

We talk about second quarter, we felt like was the trough as far as pricing and --

In May.

Yes, probably May. And at that point, some of the numbers we've heard is basically pricing dropped 40%, 50% from where it was at the end of the year in 2008. Might have been a little bit of negative price improvement fourth quarter 2008, but not much entering 2009. It really dropped. Some first quarter, heavy second quarter. Flattened out third quarter and then started slight recovery fourth quarter. As far as -- probably gives you an idea of where we think it was from kind of peak to trough.

Okay. At this point, would you say we're maybe 70% to 75% of book?

We look at stimulation as the biggest discount. That's the biggest part of our business. That's the one that's a pretty big focus. And it's probably even above 75% on stimulation at this point, off of book. Closer to 80%.

Okay, helpful. And where did that peak in '08?

'08 discounts were probably, I think Tom had a number that was what?

Mid-60s, probably.

Yes, mid-60s. So I think 16% difference is what you were saying, quarter-to-quarter. Year-over-year, yes. Year-over-year for the quarter.

Got it. Very good. Thank you.

Thanks, Shawn.

Our next question comes from the line of Bo McKenzie With Global Hunter. Please proceed.

Hey guys. Hey, I've got a friend with a foreign based pressure pumping company that's about the same size horsepower as you guys. He's telling me that they're quoting work out until May right now, their backlog is fairly big and that he's actually trying to push prices as hard as he can towards '07. Have you guys noticed the same kind of backlog builds in the market, and how would you characterize the different markets in terms of where your calendar is pretty full right now?

I think that you know, again, we talk about the rebalancing of equipment, I think at this point, if you wanted to lock in the majority of your crews at fixed pricing, you could do that. But we think that the pricing still has some positive momentum for our side, so therefore, we're hesitant to do that. We have some areas that again, we talked about 50% of our crews are pretty well on long-term projects and with that, there's still some potential escalators that we can try to trigger at some point. The other 50%, again, we're kind of evaluating the market, and they're changing quite a bit at this point. Again, coming out of a long winter, rig count's up, there's a shortage of (inaudible).

The other thing we haven't talked about much but with the overall activity picking up, and it's not just in a few basins, it's really pretty widespread throughout the US, one thing we're seeing is activity in the Marcellus was supported by a lot of personnel and equipment from mid-con, southwest regions. Now that those areas have picked up, those people want to go back home and work. So it's harder to -- we're seeing less equipment people shift into this area at this time period. Therefore, us having a strong presence in that area gives us a distinct advantage going forward. And so we're kind of looking at all the basins. There's been a lot of competition move out of the Rockies. Again, another area that kind of rebounded. So there's a lot of moving parts that we're evaluating to try to decide where we should place our resources to get the best margins going forward.

And along those lines, if you were to look at, to the extent that the sphere study that came out a year or so ago is largely in the ballpark of supply and demand, perhaps last year the industry got down to what, 50% or so utilization. How would you characterize your best guess right now as to what you see on the demand side in terms of horsepower versus your best guess on what the supply side is right now? Are we back up pushing towards 70% or 75% or 80% utilization again?

I think we are. And again, there's been several things that have changed that, is -- the biggest one is just more horsepower per job. We've talked about it, we see it. We've heard our competitors talk about it that the horsepower demands are probably 30%, 40% higher than what they've seen in the past. And a lot of that's due to shale versus -- or excuse me, horizontal versus vertical jobs.

Right.

Longer pump times, the laterals are getting longer. There's more -- they found that the more stages you can do in these laterals, the more gas it makes. So they just really increased the frac intensity on -- in shale well and really, in the industry. And with that, it's pretty well sucked up all the available horsepower. We need excess on location just to make sure you can keep your service quality up. So with that, it's just helped balance the supply, and now we're at the point that people are reluctant to invest in additional equipment because the margins haven't been there.

Well, that's my follow-up question. I've heard from a number of people that some of these markets, like the Haynesville particularly are putting a tremendous amount of wear and tear on the equipment and if you're shortening the lives of the equipment, isn't that a natural driver to bring prices back up to where people can afford to replace the equipment as it wears? And shouldn't that be the easiest place to push things back through?

I think you're hitting it, that there are several basins, again, kind of the overall shale look is more intensive. It's a matter of which one fits your capabilities and where you have the footprint to maximize your abilities in those areas.

Right.

So Haynesville is one. Like you said, definitely we outlined it in our call that it's one that's probably at the top of the list as far as highest pressure and probably the most demanding, and pricing is moving in that market to offset.

And one follow-up question, if you don't mind, Dave. I know from knowing BJ for a while that they had, I think was sort of like a frame agreement when they talked about pricing where that they had a commitment to a customer that if capacity was available, that they would perform the jobs at whatever the pricing was within the agreement. When you characterize that 50% of your long-term -- 50% of your work as being long-term, is it like that if you're not -- if they haven't called out a job and somebody else calls out a job, are you still committed to deliver that capacity back to that customer, or is it such that as long as they're working the stuff that's available to work, they're at that fixed price. So that you provide some wiggle room for the time between jobs for that capacity?

It's mostly project, and again, when you start looking at again, heavy horizontal and more stages per and then multi pad -- or multi wells on a pad, you can be on one location for several weeks. So it's not like when you were doing a lot of vertical work that somebody gets rained out, well, you can slide the crew over to somebody else for the day. They're pretty well committed for a long time on specific pads. So the game's changed quite a bit, but if there's gas in there, definitely you take advantage of that. We've even asked in certain situations that hey, we're going to miss a week because we need to go cover another project. So you work with your customer and again, you find out who kind of works with you to help you work through some of your efficiencies and improve your results.

All right, man. Thanks.

Thanks, Bo.

We have no further questions. I will now turn the call back over to David Wallace for any closing remarks.

Thanks, Erica. We appreciate everybody's participating today, and we look forward to talking to you again the end of first quarter. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. Everyone have a great day.