Patterson-UTI Energy Inc (PTEN) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2015 Patterson-UTI Energy, Inc. earnings conference call. My name is Tia and I'll be your Operator for today.

(Operator Instructions)

I will now like to turn the call over to your host for today, Mike Drickamer, Director of Investor Relations. Please proceed.

Thank you, Tia. Good morning and on behalf of Patterson-UTI Energy, I'd like to welcome you to today's conference call to discuss the results of the three months ended march 31, 2015. Participating in today's call will be Mark Siegel, Chairman; Andy Hendricks; Chief Executive Officer; and John Vollmer, Chief Financial Officer.

Again, just a quick reminder that statements made in this conference call that state the Company's or Management's plans, intentions, beliefs, expectations or predictions for the future are forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities Exchange Act of 1934.

These forward-looking statements are subject to risk and uncertainties as disclosed in the Company's annual report on Form 10-K and other filings with the SEC. These risk and uncertainties could cause the Company's actual results to differ materially from those suggested in such forward-looking statements or what the Company expects.

The Company undertakes no obligation to publicly update or revise any forward-looking statement. The Company's SEC filings may be obtained by contacting the Company or through the SEC and are available through the Company's website and through the SEC's EDGAR system.

Statements made in this conference call include non-GAAP financial measures. The required reconciliations to GAAP financial measures are included on our website, www.patenergy.com and in the Company's press release issued prior to this conference call. And now it's my pleasure to turn the call over to Mark Siegel for some opening remarks. Mark?

Thanks, Mike. Good morning and welcome to Patterson-UTI's conference call for the first quarter of 2015. We are pleased you are able to join us today.

As is customary, I will start by briefly reviewing the financial results for the quarter ended March 31, and then I will turn the call over to Andy Hendricks who will share some detailed comments on each segment's operational highlights as well as our outlook. After Andy's comments, I will provide some closing remarks before turning the call over for questions.

Turning now to the first quarter, as set forth in our earnings press release issued this morning, we reported net income of $9.1 million, or $0.06 per share. The financial results for the three months ended March 31, 2015 include a pretax, non-cash charge of $3.4 million related to the impairment of certain oil and natural gas properties and a $12.3 million charge which is included in selling, general and administrative expenses and is related to our settlement with the EEOC. Collectively, these charges negatively impacted diluted earnings per share by $0.06 for the three months ended March 31, 2015.

We also had $15.8 million of revenues from the early termination of drilling contracts that increased diluted earnings per share by $0.06 for the three months ended March 31, 2015. Taken together, the charges and the early termination revenues reduced net income by less than $100,000. And diluted earnings per share remains $0.06 for the three months ended March 31, 2015 when the charges and early termination are excluded from the calculation.

Now turning to our market commentary, the industry is still adjusting to the current lower commodity price environment. The industry rig count has been cut in half and we saw a significant reduction in opportunities for profitable pressure pumping work in the latter half of the first quarter. On our last call, we discussed having limited visibility given how quickly market conditions were changing, and while the pace of the rig count decline has slowed, we believe it is not yet at the bottom.

I am pleased with how our rig count has performed on a relative basis thus far during the downturn. We have not been immune to the reduction in rig count, but we have gained market share as our rig count has held up better than that of the general industry. We attribute this relative outperformance to our term contract coverage where at the peak of the market we had a large percentage of our rigs under term contract. Of course ultimately the reasons we had such a large percentage of our rigs operating under term contract was the high demand for our APEX rigs and our quality people and operations. With that, I'll turn the call over to Andy.

Thanks, Mark. Adding to Mark's discussion of the downturn, since the peak in the rig count, at this time the total US land rig count is down approximately 50%. We have not been immune to this downturn, but we have gained market share in our Contract Drilling business as we have fared better than the industry on a relative basis with our US land rig count down 40% from the peak.

During the first quarter, our rig count averaged 165 rigs in the US and 8 rigs in Canada. With the sequential decrease in our rig count during the first quarter, the proportion of our rig count comprised of APEX rigs increased, positively impacting our average daily rig revenue.

Similarly, there was an increase in the proportion of rigs under term contract versus the spot market, which also positively impacted average daily rig revenue. Excluding the positive impact of $15.8 million of revenues from early contract terminations in the first quarter, average daily revenue increased $410 during the first quarter to $24,850.

In addition to the increase in average daily revenue, we remain focus on cutting costs. During the first quarter, we were able to reduce our average daily rig operating costs by $300 per day. As you can see in our financial results, we took action in a timely manner to scale our Drilling business in terms of CapEx, other spending, head count and overhead. Accordingly, excluding the positive impact of early termination revenues in the first quarter, total average rig margin per day increased $710 to $11,140.

At March 31, we had term contracts for drilling rigs providing for approximately $1.24 billion of future day rate drilling revenue. Based on contracts currently in place, we expect an average of 101 rigs operating under term contracts during the second quarter and an average of 83 rigs operating under term contracts during the last three quarters of 2015.

This expectation for rigs under term contract is net of the effect of 12 rigs that are expected to be early terminated during the second quarter, half of which have already gone idle. We also expect approximately $19 million of early termination revenues during the second quarter.

Focusing on the second quarter, we expect our total average rig count will be 120 rigs, including 2 rigs in Canada. To provide a little more color on our rig count expectation than we normally do, we expect to have approximately 110 rigs active in the US at the end of the second quarter. Let me just repeat that, we expect to have approximately 110 rigs active in the US at the end of the second quarter.

Excluding the positive impact of early termination revenues in both the first and second quarters, total average rig margin per day is expected to decrease almost $600 per day. We will continue to focus on reducing costs to partially offset the impact of lower spot rates going forward.

Turning to our APEX new build program, we completed 6 new APEX rigs during the first quarter, bringing our total APEX rig fleet at the end of the first quarter to 151 rigs. We plan to complete 10 additional APEX rigs this year, all of which are under contract.

Included among these remaining new build APEX rigs under term contract is our first APEX rig that will be delivered to work in Canada. APEX rigs have gained the reputation of being highly efficient and fast-moving rigs in the US and have caught the attention of Canadian operators as well. We are excited about this new opportunity for APEX rigs as the Canadian market continues the transition to more multi-well pad drilling in fields such as the Duvernay and the Montney.

Turning now to Pressure Pumping. During the latter half of the first quarter we experiences a dramatic decrease in activity due in part to the sharp reduction in the rig count which began late in the fourth quarter. Additionally as pricing came under pressure during the first quarter, we were unwilling to pursue work at what we consider extremely low margins. Accordingly, we were generally in line with our gross profit margin expectation, however, Pressure Pumping revenues declined during the first quarter to $250 million.

Looking forward, we will stay chose to our customers and continue to focus on the things that we have the ability to control. We have been successful in lowering costs for raw materials such as sand and chemicals, sand hauling and for capital items such as fluid ends. We will continue to focus on reducing costs and finding work at acceptable pricing, but to the extent that we are unable to do so, we will continue stacking equipment. To date we have stacked approximately one-third of our horsepower.

With the downturn in the industry, the scope of work for which we intended to activate a new spread with Tier 4 engines in the second quarter has changed. Our customers decide at this time to shift our work from the environmentally-sensitive area that required the technical aspects of this fleet to other traditional pads where we will use existing equipment. As such, we do not expect to use this fleet during the second quarter.

Turning to the second quarter, our activity and utilization continue to decline and we currently forecast second-quarter Pressure Pumping revenues to decrease approximately one-third sequentially. Pricing pressure in this segment is increasing with the decrease in industry utilization. And although we are achieving significant cost savings with our suppliers and continue to scale our business, we expect gross profit as a percentage of revenues to decrease to approximately 8%.

Before I turn the call back to Mark for his concluding remarks, let me provide an update on a couple of other Corporate financial matters. Our total CapEx for 2015 has been further reduced by $40 million and is now projected to be $710 million. This breaks down to $520 million for Drilling, $165 million for Pressure Pumping and $25 million for E&P and Other.

Depreciation expense during the second quarter is expected to be $175 million. SG&A during the second quarter is expected to be $20 million. We are currently projecting our effective tax rate to be approximately 42% in 2015. And with that I will now turn the call back to Mark for his concluding remarks.

Thanks, Andy. Last quarter I discussed that our playbook for downturns was to scale the Company as quickly as possible to align with lower levels of activity. This play book seems simple in concept, but the key is executing this plan effectively and efficiently. In what is a challenging market, I am pleased with how we executed this plan during the first quarter and I'm proud of what our team has been able to achieve in terms of cutting costs.

Operationally, we promptly scaled our cost structure and capital expenditures to the lower levels of activity as evidenced by the decreases in our average rig operating costs per day as well as our ability to meet our Pressure Pumping margin expectation despite a significant slowdown in activity.

Financially, we completed two debt offerings -- debt financings in the first quarter, including a $20 million -- pardon me, including a $200 million term debt facility that refinanced the borrowings that were outstanding under our revolving line of credit. We now have full availability under our $500 million revolving line of credit which increased our liquidity and has enhanced our ability to take advantage of future opportunities this downturn may create.

With that I am pleased to announce today the Company declared a quarterly cash dividend on its common stock of $0.10 per share to be paid on June 24, 2015 to holders of record as of June 10, 2015. Operator, we would now like to open the call to questions.

(Operator Instructions)

The first question comes from the line of Robin Shoemaker with KeyBanc.

Wanted to ask you about -- so you will have additional early termination payments and do you currently also have rigs that are stacked but on rate or on some kind of standby rate within your active rig count?

Yes, Robin, good morning. We have a few that are like that, we actually haven't called out that number. It's not a big number that really impacts the daily revenue or margins that we're reporting, but there are a few like that.

Okay. And in terms of the APEX construction program which you will deliver the 10 rigs, how important is it to you to maintain that capability as you get to the end of this -- that you deliver the 10th rig and presumably at that point there's really not a market for additional APEX rigs since we have quite a few high-end AC drive rigs available currently. And appreciate your comments on how you maintain that capability for a future business cycle at the point where after you've delivered this 10th rig.

So that's a good question, appreciate that. Certainly as everybody can see in the numbers, there will be a significant number of AC rigs as we work our way out of this down cycle, and we are still building rigs in our manufacturing process. We do feel strongly that we will hold on to our core capabilities in manufacturing, so we will be well positioned to manufacture when it's time to build new rigs, when we can put rigs out under term contract again. We'll also have some of the minimum inventory items required to do that. But we certainly plan to hold on to that core capacity that we have there to be able to manufacture in the future.

And if I may just ask about the -- it's a little hard to see what kind of pricing pressures are occurring on AC drive like your high-end APEX rigs because the -- it's not reflected in the average rig rate you report because that reflects more term and less spot rates. But could you describe what kind of pricing pressures or if you have an idle APEX rig, where that level of competition has brought rates compared to where we were a year ago, I mean, just in a rough percentage basis?

Yes, first off there's just no real demand for rigs. If you look at the numbers that we've said going into Q2, the rig count continues to come down for us. We think it continues to come down for the industry, and there's just not real demand out there for AC rigs. We're not really having those kind of discussions.

Certainly we'll be under pricing pressure as we work our way into this down cycle and there'll be some pricing challenges as we start to come out of this into some kind of recovery. But I think that will certainly improve after the first wave of rigs goes back to work in the recovery which will eventually come because it always does.

Right. Okay, understand. Thank you.

The next question comes from the line of Jeffrey Campbell with the Tuohy Brothers Investment Research.

Referring to the press release, can you give us some idea perhaps on a percentage basis of the level of Pressure Pumping price reduction request of operators that were unacceptable to Patterson?

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.

Well that's another data point from this morning, a large services peer said they're going to stack half of their pressure pumping fleet before the year is over, so a third sounds pretty good. If I could ask one other question, I thought it was noteworthy that in the first quarter your per rig revenue increased even without benefit of the early termination fees. Could you just give us a little color on how you managed those revenue gains, what they signified maybe about the fleet quality?

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.

If I could sneak one last one in, I'm referring back to Robin's earlier question about the APEX building but maybe from another angle. You are still a new building. The number of rigs in the new building program have been declining, but they're still there, and I was wondering if you could characterize the customers who continue to support your new building program?

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.

Okay great, thanks. I appreciate it.

The next question comes from the line of James West with Evercore.

Andy, in your conversations with customers now and admittedly I understand there's no -- not a lot of incremental rig demand, but are you starting to get there or see the early signs of customers seeking to upgrade their rig fleets that they're going to have going forward? I mean, I think as the dust settles out here, my expectation at least, is most of the AC rigs and certainly your rigs would go back to work. Are you seeing that trend at least start to evolve?

James, 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.

Okay, understandable. And then another question for me or follow up for me that's unrelated given that you've done a couple bond deals or done an increase in liquidity here, and I know Mark talked about in case opportunities arise, what's the appetite for M&A at this point, especially at this point in the evolution of Patterson where you now have with the APEX rig fleet a much more standardized fleet and any kind of M&A might take away from that standardization? Is it still as strong as it's been in prior cycles when Patterson was one of industry or has that changed?

I think that we're a Company that's historically looked at opportunities when they arise, and it's early in this cycle, as I see it, to be prejudging what the types of opportunities will be, James. I do think that you're making a good point in your question when you say that we have evolved to a very high-quality fleet both on the Drilling side and the Pressure Pumping side and that for that reason we don't wish to see a dilution on either the side of the -- on the rig side or on the Pressure Pumping side by buying in effect equipment that's less good than the equipment that we already have in terms of quality.

So we'd be a careful buyer and we want to be a smart buyer, and if things come up that are useful, then we'll be interested. But I don't feel that there's any great urgency on our part to do anything right now.

Sure, fair enough. Okay, thanks, guys.

The next question comes from the line of Dave Wilson with Howard Weil.

Andy, understanding that there's varied and if any incremental demand right now, but have you seen any of your competitors, the guys with smaller, less competitive rigs start to offer up any turn key work or is that something that could happen as demand returns that -- such that less competitor -- less competitive rigs will stick around a while in the market using turn key as an option?

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 West Texas, maybe Niobrara, but we're not involve in those discussions.

Okay, thanks for that. And Andy, following up on the previous question on the Pressure Pumping and not pursuing work at extremely low margins. Can you tell us what region that was in and maybe quantify the amount of work that was passed up on that?

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.

Got you. Well thanks for that and I'll turn the call back over.

The next question comes from the line of Byron Pope with Tudor Pickering Holt.

Andy, Mark, curious as to you touched on the fact that you've gotten a contract for your first APEX rig to go to work in unconventionals up in Canada. And I know you guys have been working toward getting the infrastructure resources in place to eventually be able to approach the international markets. And realize you guys have an organic thought process to entering the international markets, but given that we're looking at a downturn for the international land rig market as well, I'm curious as to whether or not this downturn accelerates from a timing perspective how you think about organically entering the international rig market?

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.

Okay. And then a question on the Pressure Pumping business, given that you guys manage your business to have scale in the regions where you operate, either southwest and the northeast, when you refer to your ability to having gotten some cost reductions on sand and chemicals and transport costs, I'm assuming that has been in both your key geographic regions, is that fair?

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.

Okay, very helpful. Thanks, guys, I appreciate it.

The next question comes from the line of Angie Sedita with UBS.

Hi, so Andy, if you think about -- how do you think this will all play out in frac? If you think about these companies here today at essentially break even to the loss margins, and obviously this is not a 2009 V-shape recovery. How long do you think they can last before they're going to have to start pulling back or consolidating or just shut down their operations? This is a very different cycle and clearly many of these companies aren't making money.

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.

So do you think the greater pain isn't until late this year or 2016 based on what you know today?

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.

And then for yourself in Pressure Pumping, do you think the bottom in margins is Q2 or more likely Q3?

Hard to know at this point.

Okay. And finally to go back to the M&A question, obviously you're building these APEX rigs that have been incredibly well received and there's no reason to consolidate there or look for opportunities there. In the past you focused on frac, I would assume -- is it fair to believe that if prices become more reasonable that you may be interested in frac again or not necessarily, and are there any other business segments that you are also considering?

Angie, I don't think there's much I can really add to the concept that I think you know well from having covered the Company for a number of years is we've always tried to be opportunistic. Oftentimes during down cycles and especially as we come out of down cycles there have been interesting opportunities.

The thought I think that the Management team and the Board really share is that we have a very good fleet both on the Drilling side and the fracking side of high-quality equipment, and we wouldn't wish to expand just to have greater numbers of rigs or greater amount of horsepower simply for that sake. If we would only be interested in acquisitions which would give us greater presence at the same or higher quality, and that's really where we see it.

So if those opportunities were to arise, and frankly as I said in the answer before, I think it's really early right now. I don't think this is the time in which these opportunities are most likely to be presented. But we're open to taking a look at whatever comes along.

Right, fair enough. Thanks, guys, I'll turn it over.

The next question comes from the line of Judd Bailey from Wells Fargo.

Question, I know understanding it's a difficult environment to try to make prediction and I appreciate the guidance you guys have given, but with 110 rigs you cited as your exit rate for the second quarter, based on your conversations with your customers, do you think at this point that's where your rig count can stabilize? Do you see down cycle risk from there, or do you think that's where a reasonable trough may be for your rig count?

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.

Okay, understood. And then if you think about your cost structure, are you -- you've been scaling down pretty aggressively and it's showing in your margins. Are you comfortable with where you are if that 110 level is in fact the bottom, are you comfortable with where your cost structure is if that is in fact where we bottom?

And on the other side, as aggressively as you've cut back if next year, late this year, whenever, if things start to actually improve, how quickly can you scale back up and react to increasing demand based on where your head count is today?

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, Judd, it's John. 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.

Thank you.

The next question comes from the line of Chuck Minervino with Susquehanna.

Wanted to talk, Andy, a little bit about the costs on the daily operating costs on the US rigs. Looks like you brought it down in 1Q and I think you made some comments that you think you can bring it down again in 2Q. I know you guys probably run that pretty lean, but is there more that you could potentially take down farther on that cost per day that can help you with maybe some of the downward pressure on the day rates?

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.

Okay and then a second question. As we get towards the end of the year and say because commodity prices have come up a little bit more than these E&Ps have budgeted for and services costs have come in below what they had budgeted for and they do have a little bit of excess cash, I mean, your best guess from your experience in this space, do you think that if they do put that excess cash back to work, do you think they choose to do it more on the Pressure Pumping side by completing maybe some of these uncompleted wells? Or do you see them putting it back maybe more and trying to grab some of these higher quality rigs that might be at lower prices than they would have been able to get before?

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.

All right, thank you very much.

The next question comes from the line of [Agada Bedalicky] with Simmons.

So there's been some growing chatter here recently about the refrac opportunity. At this point do you guys track internally whether you're refrac work is tied to new well completions versus the refrac opportunities? And then if so, could you possibly share with us the trend there?

And then maybe as a follow on to that, what's your longer term view of that refrac opportunity and is there any reason to believe that maybe that the refracs will or possibly create a risk to the land Drilling business?

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.

Okay. And in terms of those refracs, is there the same level of service intensity associated with them?

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.

Okay. Thanks, I appreciate the color on that. Could I -- if I could squeeze one more in, I wanted to circle back to the sand pricing concessions. Andy, would it be possible to get some color on the timing of the 15% to 30%, 35% that you had mentioned?

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.

Okay. Great, I'll turn it back. Thanks.

The next question comes from the line of Brad Handler with Jefferies.

Could you -- I guess I'm trying to noodle on something, you can probably help me, if you've decided not to pursue certain work because it doesn't make money, if we were in an environment where that persists for 12 months, for example, if it just takes a while for the supply-demand balance to change, you're obviously pursuing cost reductions in sand and it sounds like you've made some progress on the repair side. I did miss part of the call, so perhaps forgive me in advance, maybe there's some other things you addressed, but can you -- what's your optimism level about lowering the cost structure enough and maybe preferentially lowering it because of scale or anything else you can do so that you can see yourself putting fleets back to work and retaking some market share. Trying to put that back to work in what is otherwise this depressed market.

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.

Fair enough. But to press part of the question, do you think you have -- are there some other elements, perhaps within the mechanical side or on the repair maintenance side or something that you can anticipate lowering your cost structure perhaps further and then, again, relative to a lot of smaller providers that don't have that experience?

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.

Right, that makes sense. Okay, thanks, I'll turn it back.

The next question comes from the line of Jim Wicklund with Credit Suisse.

I like Brad, may have missed a little bit of this. A while back you guys said that your greatest growth potential could very well be international. You've got an office in Dubois, the Eurasia deal is going down, can you tell us about what your five-year growth plan is for international?

So Jim, I think our view about this matter is that we would like to do this carefully and appropriately. Obviously at the time when we announced the plan was not the time in which oil prices had diminished to the extent to which they have. We're keenly aware of the current state of the industry and we're considering how fast and how quickly to go forward.

We haven't changed our mind about the fact that an international expansion for the Company makes sense, but we're still going to do so in the careful, measured way that Patterson has done what it does.

Mark, I have no doubt whatsoever you'll do it careful and all. But I'm just wondering, where do you think -- five years, long enough that we can all be wrong, where do you anticipate being in five years that you've done carefully and --

I'll appreciate the opportunity, Jim, to make a five-year prediction, but I think I'm going to decline to do that.

Okay, okay. The second question, what is the spot market rate today for a Tier 1 rig?

Jim, 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.

That means you can't put a rig to work at any price?

Our rig count continues to come down in Q2.

Okay, okay. I know, I'm just trying to ask in a different way. Okay, gentlemen, thank you very much, best of luck.

Thanks, Jim.

There are no further questions in the queue at this time.

Okay. Thank you, everyone, for your participation. We look forward to speaking with you as we report our second quarter. Thanks, everybody.

Ladies and gentlemen, thank you for your participation in today's conference. That concludes the presentation, you may now disconnect. Have a great day.