SPN: increase in customer demand and service intensity for U.S. land markets
Superior Energy Services (ticker: SPN) released its Q3 Earnings today, announcing a net loss from continuing operations for the third quarter of 2017 of $57.2 million, or ($0.37) per share, on revenue of $506.0 million. This compares to a net loss from continuing operations of $62.0 million, or ($0.41) per share for the second quarter of 2017, on revenue of $470.1 million, and a net loss from continuing operations of $113.9 million, or ($0.75) per share for the third quarter of 2016, on revenue of $326.2 million.
Superior Energy Services President and CEO David Dunlap said, “With the exception of Hurricane Harvey, the third quarter progressed as we expected. While the company was spared any meaningful long-term damage from the storm, we did have a number of employees directly impacted in and around the Houston area. Our organization’s response in assisting those employees was immediate.”
E&Ps push technical limits for wells and completion designs
“Our customers continue to push the technical limits of their well and completion designs, and are also increasing activity levels as oil prices recover. It is not surprising that as a result, we began to observe supply chain stress and increased non-productive time as the quarter progressed, particularly in the Permian Basin. I expect these inefficiencies to diminish over time,” Dunlap said in a statement.
Superior Energy Services has a large presence in the Permian Basin and operates in other areas including the Rockies, the Gulf of Mexico, Latin America, Africa, Europe, and Australia.
In Q3 of 2017, no additional horsepower was added. A capital rebuild of 150,000 horsepower is underway for the third quarter. During the second quarter of 2017, Superior’s estimated deployed horsepower was 600,000. Total horsepower for Q1 2018 is estimated to be 750,000.
In the Gulf of Mexico Superior said revenue growth was driven primarily by its completion services business. The Gulf of Mexico’s drilling products and services segment revenue increased 5% to $23 million.
Earnings call Q&A
In the Superior Q3 earnings call Q&A, executives discussed operations in more detail:
Q: You had an onshore completions EBITDA margin in the second quarter of 6.7%. So is frac accretive to that margin, first of all? Secondly, what kind of runway do we have left for frac margin improvement?
Superior Energy Services President and CEO David Dunlap: There is room for margin improvement there. I think that we’ll continue to see price improvement opportunities primarily related to frac in that segment. Most of the price improvement we’ll see in that segment will be related to fracturing, and we’ll see price improvement in the fourth quarter.
It would have been more apparent if our sand volumes would have been higher in the third quarter. We had significantly fewer zipper frac operations that we were on in this third quarter than what we had in the second quarter. That has an impact on volume. When that volume diminishes, as it did for us in August and September, it had an impact on our expectations for what third quarter frac results would be.
Some of the inefficiencies that we experienced during the third quarter included trucking. Trucking was difficult for us during the third quarter; there’s been a shortage of trucking to deliver that last mile of sand transport, particularly in the Permian Basin.
I think a lot of that is related to the extreme ramp-up that we’ve had in activity in the Permian Basin over a short period of time. As we move forward, we should see the overall supply chain operating more efficiently. Those are really the primary things that, I think, cause margin improvement to continue in that fracturing business.
Q: These logistics issues you just talked about, how long does it take those to subside? Is this a one quarter deal or a full year deal?
Dunlap: Well, it’s not a one quarter deal. Trucking in the Permian Basin has been a challenge since we started ramping up activity about this time last year. What we see are intermittent challenges from day-to-day. But we’re also seeing more trucks show up in the basin as rates have gone up. When the trucking supply is tight and their prices go up, and that attracts drivers and trucks from other parts of the U.S., so we did see a rate increase that occurred between Q2 and Q3.
Q: What percentage of your pressure pumping revenues is sand?
Dunlap: Overall, sand revenue will vary from quarter-to-quarter, but in the range of 30%, 35%, 40% of overall revenue in any given quarter. That’s approximately what our overall sand revenue would be. We heard some of our competitors speak of lesser sand volumes in the second quarter, which we didn’t experience. We saw higher sand volumes per stage, higher sand volumes per well in the second quarter.
