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C&J Energy Services, Inc. (NYSE:CJES)

Q4 2012 Earnings Call

February 14, 2013 10:00 am ET

Executives

Joshua E. Comstock – Chairman and Chief Executive Officer

Randall C. McMullen Jr. – President, Chief Financial Officer, Treasurer, Director

Lisa Elliott – Investor Relations

Analysts

Byron K. Pope – Tudor Pickering Holt & Co. Securities, Inc.

Travis Z. Bartlett – Simmons & Company International

Brendan Dobell – William Blair & Co. LLC

Benjamin Swomley – Morgan Stanley & Co. LLC

James Stone – Baron Capital

Operator

Good day ladies and gentlemen, thank you for standing by. Welcome to C&J Energy Services’ Fourth-Quarter Earnings Conference Call. During today's presentation all parties will be in a listen only mode. Following the presentation the conference will be opened for questions. (Operator Instruction) This conference is being recorded today Thursday 14 February, 2013. I would now like to turn the conference over to Lisa Elliott, with Dennard-Lascar Associates. Please go ahead.

Lisa Elliott

Thank you, Luke, and good morning, everyone. We are pleased to have you joining us on this conference call to discuss C&J Energy's Fourth Quarter Results for 2012. Before we get started, I'd like to direct your attention to the forward-looking statements disclaimer contained in the news release that C&J put out yesterday afternoon, a copy of which is available on the company's website at www.cjenergy.com.

In summary, the cautionary note states that information provided in the news release and on this conference call that speaks to the company's expectations or predictions for the future, including projections, assumptions and guidance are considered forward-looking statements intended to be covered by the Safe Harbor provision under the Federal Securities Law. Although these forward-looking statements reflect management's current views and assumptions regarding future events, future business conditions and outlook based on current available information, these forward-looking statements are subject to certain risks and uncertainty, some of which are beyond the company's control that could impact the company's operations and financial results and cause C&J's actual results to differ materially from those expressed and/or implied by these statements.

I refer you to C&J's disclosures regarding risk factors and forward-looking statements in its SEC filings, for discussion of the known material factors that could cause actual results to differ materially from those in the forward-looking statements. Please note that the company undertakes no obligations to publicly update or revise any forward-looking statements, and as such, these statements speak only as of the date they are made. a replay of today's call will be available and accessible via webcast by going to the IR section of C&J's website and also by telephone replay. You can find the replay information for both in yesterday's news release. As a reminder information reported on this call speaks only as of today February 14, 2013 so any time-sensitive information may no longer be accurate at the time of the replay.

With that I’d like to turn the call over to Josh Comstock, C&J’s CEO and Chairman.

Joshua E. Comstock

Thank you Lisa. Good morning everyone, we appreciate you joining us for our fourth quarter 2012 earning conference call. With me today are Randy McMullen, our President and Chief Financial Officer and Don Gawick, our Chief Operating Officer.

I would like to start by discussing our 2012 achievements. Devoid that many challenges 2012 was an exceptional year for C&J as we grew our core businesses and made significant progress diversifying our service lines and increasing our geographic reach. The acquisition of Casedhole Solutions marked our expansion into wireline and to several additional basins across the U.S. Our marketing team has been very successful and cost selling our full set of complementary best-in-class completion services increasing our market share as well as our customer base.

On the international front we are encouraged by the progress we’ve made in the Middle East. We are still in the early stages as we worked through several pre-qualification processes, but we are excited about the many opportunities we see in the region, and we are strongly pursuing those that make sense operationally and financially. Through the course of the year, we also made key changes in additions to leadership and expanded the experience and knowledge of our executive management team.

These changes will enable us to better leverage our current successors as we explore opportunities across product offerings and pursue targeting expansion both domestically and internationally. In addition to these developments we have advance on a number of strategic initiatives including cost savings measures for all of our operations and technology enhancements to current products and services to our research and technology division.

Looking forward we are well positioned for the successful execution of our growth strategy as we focus on differentiating our services from those of our competitors based on our superior performance and enhanced offerings.

With respect to the fourth quarter, the hydraulic fracturing market continued to face difficult environment experiencing utilization declines and competitive pricing across the industry. Although pricing has stabilized, the sustained pressure on pricing throughout the year was primarily driven by low natural gas prices and a decline in rig count both of which resulted in excess hydraulic fracturing capacity across the industry.

Utilization in the fourth quarter was also negatively impacted by a typically long pause during the holidays in addition to year-end budget constraints. Despite challenging headwinds over the quarter, we achieved strong results by capitalizing on an operational efficiency in our superior execution.

Randy will now run through our fourth quarter results in more detail.

Randall C. McMullen Jr.

Thanks, Josh. Good morning everyone. We produced another solid quarter, generating $0.56 of earnings per share or adjusted earnings per share of $0.65, excluding the one-time impact of the final settlement of a legal dispute and also excluding additional income tax associated with the true up of our effected tax rate for the prior three quarters.

The legal dispute was with a former equity holder who has brought prior to our IPO and involved the company as well as certain other equity holders with only determined to settle the suite at this time. The settlement agreement provinces from providing additional detail, but we would like to clarify that the dispute was not in any way related to our operations, customers or vendors. We will be excluding the impact of these items as applicable in the results discussed today.

Our fourth quarter revenue was $286 million representing a 7% decrease from the prior quarter. The decrease was primarily driven by lower contractual utilization and increased spot market work for hydraulic fracturing as well as reduced pricing and utilization for wireline, partially offsetting these decreases was a slightly stronger performance from our core tubing operations.

As Josh stated, low utilization was driven by an extended holiday break as well as constrained operator budgets at year end. We anticipate to increase utilization as we ship toward more normalized activity levels in both fracturing and water line.

Turning to our other individual service lines; revenue for our hydraulic fracturing services declined 5% sequentially and accounted for approximately 65% of our fourth quarter revenue. This decrease is attributable to our greater percentage of spot work coupled with decreased utilization for certain contracted fleets.

We generated monthly revenue per unit of horsepower, approximately $256 in the fourth quarter, a decline of 5% from $270 in the third quarter. We completed 9% more fracturing stages during the fourth quarter compared to the third quarter. However, revenue per stage decreased by approximately 13% to 115,000 per stage as increased spot and vertical work generated lower revenue per stage.

As we've noted on previous calls, revenue per stage fluctuates based on the complexity of the job. So it can be difficult to compare these metrics quarter-over-quarter. As a result of a difficult price environment in hydraulic fracturing, we had a two-year contract roll off at the end of January. However, due to our history of strong operational performance for this long-standing customer, we were able to negotiate an agreement for continued work at a pricing discount of approximately 20% from the previous contracted rates. We anticipate that this leap will maintain consistent utilization levels moving forward.

We also recently deployed our eighth hydraulic fracturing fleet in the spot market and expect to deploy our ninth fleet in the Bakken at the end of first quarter. The addition of these fleets will bring our total horsepower capacities to just over 300,000 and broaden our geographic reach in oil rich basins.

Moving to our Coiled Tubing operations, our revenue increased 9% quarter-over-quarter to $38 million and we performed 8% more jobs during the fourth quarter. We introduced our services to a number of customers over the quarter, and pricing was relatively steady in those bases where we have an established presence. We expect to deploy six new CT units over the first half of 2013.

Wireline operations contributed $53 million of revenue during the fourth quarter. Wireline encountered lower activity levels and decreased pricing, both of which drove our quarter-over-quarter revenue decline. We have subsequently seen an improvement in utilization early in the first quarter and we are also steadily increasing our pump down market share and we will continue to add wireline and pump down equipment over the coming months. We have added 6 wireline units and 6 pump down units since November and currently plan to deploy one additional wireline unit and 40 pump down units in 2013.

Our manufacturing business generated $6 million of third-party revenue during the fourth quarter, compared to $11 million in the third quarter. These trends are likely to continue for the manufacturing business over the near-term due to the lack of equipment demand across the market. In 2013, we will continue to strategically utilize our manufacturing division to minimize the cost of our new equipment, and replacement parts. Our manufacturing capabilities also provide us with a platform for new product development and continued enhancement of our existing product lines.

Fourth quarter gross margin decreased to approximately 37% representing net decline of about 200 basis points from the third quarter. As previously mentioned, this change was driven by decline in utilization at year-end, as well as an increase in spot market revenue for hydraulic fracturing and competitive pricing for wireline.

SG&A costs increased 13% quarter-over-quarter to $34 million, primarily due to additional personal and administrative costs associated with the growth of our business.

As mentioned, this excludes the impact of the one-time legal settlement charge.

Depreciation and amortization expense was up 9% quarter-over-quarter to $15 million. Our adjusted EBITDA decreased to $71 million from $89 million in the third quarter of 2012 and adjusted EBITDA margin was 25% in the fourth quarter versus 29% in the third quarter. Now, let’s move on to the balance sheet. At the end of the fourth quarter, we had a cash balance of approximately $14 million with $230 million available under our $400 million revolving credit facility.

We currently have $165 million outstanding after repaying at $65 million of the $220 million drawn to partially fund the June 2012 acquisition of Casedhole Solutions giving us a debt-to-cap ratio of approximately 23%. Our strong balance sheet provides flexibility, which is a competitive advantage in this challenging environment.

Moving on to our cash flow statement. We generated $77 million of cash from operations during the fourth quarter, and $255 million for the full year of 2012. In terms of capital expenditures, we have $46 million of CapEx for the fourth quarter, and a $182 million for 2012. Our primary use of CapEx was for the growth of our business lines, including investments in new hydraulic fracturing, coiled tubing and wireline equipment.

We had $3 million of maintenance CapEx over the quarter with a total of $12 million for the year. We are expecting 2013 CapEx to range from $75 million to $100 million based on current growth estimates and previously disclosed equipment orders with the upper end of the range reflecting the 10 fleets that could potentially be added toward the end of the year.

Our ability to manufacture equipment in-house allows us to quickly build and deploy new fleets. Our current plan for free cash flow is to continue to reduce outstanding debts or actively monitoring opportunities for service line in geographic expansion.

At this point, I would turn the call back to Josh for closing remarks.

Joshua E. Comstock

Thanks, Randy. I am very proud of all that we achieved in 2012, and I am excited about the opportunities that lie ahead for 2013 as we continue to build on the foundation laid by our passed accomplishments. As we set for 2012 works for C&J it also saw the beginning of a number of strategic initiatives which set the stage for future development in 2013 and beyond.

I believe that 2013 will be a transformer view for C&J. We’re confident that our preventability to grow in any environment, we’re taking this company to the next levels we develop new products and implement new technologies across our service line. With respect to utilization estimates looking forward, we are not expecting a significant near-term increase in rig count, unless natural gas pricing improves.

However, we expect to see some increases in 2013 utilization, versus 2012 overall, which will be partially driven by recent industry wide rig efficiencies that will result in more completions per rig. As our customers look for ways to reduce completion costs, we believe that the value we offer through cost savings achieved through our efficiency, will make C&J an ideal partner. We believe that these efficiencies are most effectively realized through working with operators and focus on 24 hour jobs on multiple pads both of which will determine increasingly prevalent across our core basins.

We intend to continue to capitalize on these trends moving forward. We’re confident the variability they’re executing more effectively and efficiently than most of our competitors across all service lines, will drive demand for our services, and we will continue to take market share as our operational reach and reputation grow. We believe we have the best resources in place to continue to distinguish ourselves as a leading player providing the highest quality of work in the most efficient manner, bringing value-add services to our customers, delivering long-term value to our shareholders.

Lastly, I want to again thank our employees for another great year. Their striving efforts although even C&J continues to outperform our competition on all fronts and enable us to successfully grow year-over-year.

This point operator we would like to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) First question comes from the line of Byron Pope with Tudor, Pickering, Holt & Co. Please go ahead.

Byron K. Pope – Tudor Pickering Holt & Co. Securities, Inc.

Good morning guys.

Joshua E. Comstock

Good morning.

Byron K. Pope – Tudor Pickering Holt & Co. Securities, Inc.

In the context of your 2013 CapEx Josh you mentioned that you always understood on the pre-tendering pre-qualification process for the Middle East tenders, are there any long lead time items that are in your 2013 CapEx budget that might relate to those Middle East tenders?

Joshua E. Comstock

No, not at all.

Byron K. Pope – Tudor Pickering Holt & Co. Securities, Inc.

So if you were to prove successful on those tenders, could you give us a ballpark feel for the other magnitude of capital that might be deployed into whatever work you might win over there?

Joshua E. Comstock

Well I mean all this is going to the depend on the tender and how successful we are on it, but it could be as small as a few coiled tubing units and as large as a few fracturing, so again it just depends on the tenders, that number wound range anywhere from $10 million to $75 million.

Byron K. Pope – Tudor Pickering Holt & Co. Securities, Inc.

Okay. And then on the U.S. side and thinking about the eight practically when exactly did that pre go to work and it sounded like that, your previously thinking would be Western Oklahoma, but just curious as to when that we’d actually went to work, and which basin it’s currently working?

Joshua E. Comstock

It went to work the last week of January, it’s primarily working right now in West Texas and some in Eagle Ford, but it is going to Western Oklahoma we have work up there for already.

Byron K. Pope – Tudor Pickering Holt & Co. Securities, Inc.

Okay. And then last question from me as you think about essentially bringing or adding 10 frac fleets your overall fleet, what indicators are you looking for in your conversations with customers to make the go or no go decision or is it essentially a plan to go ahead in that by the end of the year?

Unidentified Company Representative

I mean right with what we’re seeing in increased utilization already in January, and early February, and the ability to get the A fleet to work, and it looks like that fleet is going to stay busy from a utilization standpoint.

Once we get that ninth fleet working in the Bakken then we’ll see what the utilization is there, we’ll make the final decision, but in budgeting and discussing with our sales team and operational team, they feel fairly confident that they could deploy a tenth fleet late in the year, probably fourth quarter.

Byron K. Pope – Tudor Pickering Holt & Co. Securities, Inc.

Okay, great. Thanks guys. I appreciate it.

Operator

Thank you. Our next question comes from the line of Travis Bartlett with Simmons. Please go ahead.

Travis Z. Bartlett – Simmons & Company International

Hey, good morning everyone.

Unidentified Company Representative

Hey, Travis.

Travis Z. Bartlett – Simmons & Company International

It looks like pressure pumping activity levels were reasonably well behaved during the quarter with stages completed up about 9%. First of all, can you talk about what drove that activity increase, and by the way, which certainly counted to what we’ve been hearing from some of the service guys in Q4. And then maybe talk about broadly what you’re seeing in terms of activity levels here in Q4?

Randall C. McMullen Jr.

Travis, it’s Randy here. For the fourth quarter, the primary driver stage increase was our ability to get our activity levels and utilization up in the stock market, and that was the primary drives, we noted in the call, our utilization was down slightly on the contract side, but we definitely increased our activity and utilization on the spot, and we’ve seen that continue into the first quarter.

Travis Z. Bartlett – Simmons & Company International

Okay. And then second one here on the contract renewal. Congratulations on getting that contract renewed here by the way. I think you said that this fleet was renewed at a 20% pricing discount?

Unidentified Company Representative

To be clear, when I said it was renewed under the existing contract, but we were able to sign an agreement with new terms at a 20% discount to what the existing contract pricing was. With those new terms, we expect the activity levels (inaudible) and we expect to continue to work at least to the next six months for the customers. But I just want to get it out there. We didn’t resign or extend the existing contract.

Travis Z. Bartlett – Simmons & Company International

Right okay and with that as a back drop, can you just talk about what kind of effect that has on margins for that fleet, yesterday versus when it was under contract?

Unidentified Company Representative

Well, I mean obviously the margin is going to be down due to the top line effect. I mean we're still with a high utilization of that fleet. We still generate obviously acceptable margins. But overall considering that we've got the 20% top line effect, the margins will be down.

Travis Z. Bartlett – Simmons & Company International

Okay perfect. That's it for me, thanks guys.

Operator

Thank you, Michael [Marioano] with Stephens Inc. Please go ahead with your question.

Unidentified Analyst

Good morning.

Unidentified Company Representative

(inaudible)

Unidentified Analyst

Just a follow up on that, I guess the contract renewal, what’s kind of the re-up there for six more months. If that’s but that's kind of the most recent pricing data point in the market right now, is that kind of pricing enough to make you deploy the 10 fleet.

Unidentified Company Representative

Yes. The pricing under that contract is still attractive pricing. I mean you keep in mind that contract was originally put in place in January of 2011 when pricing was significantly higher than it is yesterday. And as we said we were able to renegotiate the pricing at a 20% discount. So we answered the question, yes.

Unidentified Analyst

Okay great. And then, just kind of shifting gears to the wireline business. I guess, one of your competitors was talking about the Bakken being pretty competitive, and I think Casedhole is pretty big up there. Is the idea, I mean, what are kind of your plans on wireline is it to, are you moving equipment to help complement your frac services in other basins or just kind of give an idea maybe you have a Casedhole strategy plan out and if there has been any change on that front.

Donald J. Gawick

So, this is Don Gawick. We’re continuing to add wireline units as we mentioned earlier into a number of our different basins where we continue to gain market share. We are seeing that, although there is more competition moving into some of the early basins including the Bakken, we’re still able to continue to get more customers and continue to grow our portion of the market. So, we are going to see, additional units actually going in to both the Bakken, West Texas, South Texas et cetera. And we are dealing with a number of our customers as far as getting them exposed to our other service lines at this point. So, we’ve been able to take some of our existing wireline customers expand their utilization of our coil tubing units, and as well as some of our frac fleets and we expect to continue to do that moving forward. So, again there is a lot of room to move more of our services on the coil and frac side into the footprint we’ve got for the wireline group.

Unidentified Company Representative

And just to add, the utilization declines we saw wireline in the fourth quarter, we are already getting a significant recovery for January and February. Casedhole do have 60 plus wireline charts spread across the entire U.S. and most of that work is called out where when you have the year-end budget constraints that we saw on the holiday slowdowns that affected wireline more so than it affect frac and coiled tubing because those, both services are based in just a handful occasions where wirelines based, in several basins across the U.S. So we’re seeing an uptick already a recovery in January and February for wireline and so we’re pleased with that.

Unidentified Analyst

Okay. Just to follow-up on that, Randy have you tried to quantify how big the impact of maybe kind of holidays were on your business as a whole?

Randall C. McMullen Jr.

Well, just trending throughout the quarter, we saw revenue down from the first half of the quarter to the second half in excess of 10%, and that’s more related to frac and wireline and coal. But definitely there is a significant impact as far as the decrease in activity between the first half and second half of the quarter.

Unidentified Analyst

Just was kind of days missed, because of what do you think kind of holiday breaks are…

Randall C. McMullen Jr.

Yeah. And we would quantify that as far as quarter-over-quarter, probably anywhere from 6 to 8 loss workdays quarter-over-quarter.

Unidentified Analyst

Okay, great, that’s helpful. Thank you, guys.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Brendan Dobell with William Blair. Please go ahead.

Brendan Dobell – William Blair & Co. LLC

Thanks, good morning guys.

Randall C. McMullen Jr.

Good morning.

Brendan Dobell – William Blair & Co. LLC

Was hoping to get a little color around other or upcoming renewals or conversations you’re having now that you’ve got kind of a stake in the sand with one of the contracts, there’s a new signing, how do we think about what’s left this year in terms of conversations you’re going to have around existing contracts or has this new contract generate any kind of any inbound calls from your existing customers?

Joshua E. Comstock

Well, the next contract that rose off, we are in those discussions right now. We are expecting that it will renew in some form without much of a pricing decrease that they – because that was renewed last year. It’s an annual contract.

Brendan Dobell – William Blair & Co. LLC

Okay.

Joshua E. Comstock

This has been the supplier provider choice for that customer license, early 2007 and not much has changed there, so the third one that roll off, we would expect that one to roll off. We hope that we will continue to work with that customer as we have done with the first contract that rolled off earlier this year, but we don’t think that one will be under any type of agreement other than the pricing agreement.

And just to be clear, we think that that pricing, the existing pricing as a whole we have a contract minimum and then we work for that customer outside of the contract at a different rate than the contract. So when you look at it as a whole on a monthly basis, or a first case basis that particular contract is priced to close to current spot market.

So we are not expecting significant hits there unless we just don’t keep the current utilization level as high as it is, but still yet to be seen.

Brendan Dobell – William Blair & Co. LLC

Okay. And then kind of a broader question around your comments of kind of helping to trend in January and February. Do you think there is a little bit of a push, right, so people stop doing stuff at the back half of the December, they are kind of catching up and as you work in the March, you will see the things kind of normalize, so maybe a little artificial bump in utilization or do you think this is more sustainable just given the lack of industry capacity out there?

Joshua E. Comstock

No. I think this is more sustainable. What we have seen is more of a normalized. We are not seeing any exceptional utilization, we're seeing more of the normalized utilization, we are not seeing normalized back to what we saw in the first half of last year trending into the third quarter. Just fourth quarter as we said utilization although we were able to hold up utilization across the industry was pretty tough, and the six to eight was probably more like eight days around the holidays along with the budget constraints, but the utilization levels we are seeing today are more consistent with what we saw early third quarter of last year, and I think those are sustainable and we're also seeing just more pad drilling, and more zipper fracs, and that truly help. So that is an effective utilization on the equipment that allows us to generate strong return even at competitive pricing.

Brendan Dobell – William Blair & Co. LLC

Okay. And then final one from me, should we expect the manufacturing revenues in ‘13 to more closely track to just overall activity on hydraulic fracturing revenue line or do you think, it's just getting little bit divorce until you see kind of new build or consumable capacity requirements pickup?

Joshua E. Comstock

Requirement continue to trend down, I mean like this we're not seeing a lot of our competition, which assume clearly build for that that manufacturing facility outside of our sales, which generates for third-party revenue, and a lot of equipment orders, I don't think any of the manufacturers we are seeing competitors reduce the CapEx for 2013.

So from a third-party standpoint it’s going to be challenging, what we're actually doing around the manufacturing is bringing more and more of our own needs in-house, especially around research and technology, and some of the new service line that we're building organically like free tubing services and those types of things, and then we’re also focused on refurbishment service work for third parties, and we have seen an up tick in quotations for that work. and so we think that will be a significant business for the manufacturing for 2013. But from a third-party equipment sales perspective, it will be a tough business in 2013. We’re not expecting a lot.

Brendan Dobell – William Blair & Co. LLC

Okay, great. I appreciate it. Thanks.

Operator

Thank you. Our next question comes from the line of Ben Swomley with Morgan Stanley. Please go ahead.

Benjamin Swomley – Morgan Stanley & Co. LLC

Good morning.

Randall C. McMullen Jr.

Hi, Ben.

Unidentified Company Representative

Good morning, Ben.

Benjamin Swomley – Morgan Stanley & Co. LLC

I was just wondering if you could provide us the percent of your four key fracing revenue that came from the spot market versus the percent activity that came from the spot market?

Randall C. McMullen Jr.

On the revenue side, it was approximately 27%.

Benjamin Swomley – Morgan Stanley & Co. LLC

Okay. And close to 50% from the activity side or?

Randall C. McMullen Jr.

Yeah. As far as the horsepower split, that’s correct.

Benjamin Swomley – Morgan Stanley & Co. LLC

Okay. And can we and sorry if I missed this earlier in the call, but can you give us an EBITDA margin breakdown for the two segments for and for the fracing?

Randall C. McMullen Jr.

Yeah. For the stimulation.

Benjamin Swomley – Morgan Stanley & Co. LLC

Yeah.

Randall C. McMullen Jr.

And this is excluding corporate, we’re looking at around 31% on the stimulation and 24% on the wireline.

Benjamin Swomley – Morgan Stanley & Co. LLC

Perfect, that’s it from me.

Operator

Thank you. Our next question comes from the line of James Stone with Baron Capital. Please go ahead.

James Stone – Baron Capital

Good morning, guys. A couple of large E&P companies and some service companies in the last couple of weeks have been talking more about changing frac designs to essentially more cluster spacing putting more proppant in the well, can you just give us a sense of how, if that’s impacting your business, how it’s impact, how it may impact your business, and what you are seeing from your perspective?

Joshua E. Comstock

I mean right now we are not seeing any real shift, pretty much nothing changed in that regard, if that becomes the trend that no doubt helps our business. The more profit would come through so more of the fluids, frac fluids and chemicals that we pump, that just generates higher returns for us more revenue.

James Stone – Baron Capital

But Josh, you are not really seeing any shift in that direction yet?

Joshua E. Comstock

No, not yet. We have said, all along is more price fell, we would expect to see customers, primarily cross pump and cross jobs, they went to slickwater when oil prices rose, we see those customers trend back. We are seeing some interest there, but possibly we’re just way, way down, but we expect that current pricing of ore, allows them to shift it back to gasoline can hire larger amounts of profits per well going forward, but we are just not seeing that trend yet.

James Stone – Baron Capital

And do you expect that to be the case as we get into the second quarter perhaps as you get more visible stability in oil pricing?

Joshua E. Comstock

Yeah, I mean it will be for some definitely, others I think in slickwater for several years now when continue in slickwater.

James Stone – Baron Capital

Yeah. But those that switched away, I mean there was a visible switch away and you could see it in your revenue per stage and revenue per horsepower numbers in the second half of last year, so how much of that might come back you think this year?

Unidentified Company Representative

Yeah, I mean again it just depends on the customer, but if you look at 2012 and say out of six contract customers, three of those guys primarily at one point in time been cross-linked and they all switched to slickwater, probably two of the three would [swat] back.

James Stone – Baron Capital

Okay. Thank you.

Unidentified Company Representative

Okay.

Operator

And this concludes the question-and-answer session. Mr. Comstock, please go ahead with any closing remarks.

Joshua E. Comstock

Alright. We appreciate everybody joining us for the call and we will talk to you next quarter.

Operator

Ladies and gentlemen, this concludes C&J Energy Services' fourth quarter earnings conference call. If you'd like to listen to a replay of today's conference, please dial 303-590-3030 with the passcode 4590485. ACP would like to thank you for your participation. You may now disconnect.

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