Superior Energy Services Q4 2008 Earnings Call Transcript

Superior Energy Services, Inc. (SPN)

Q4 2008 Earnings Call

February 20, 2009 12:00 PM ET

Executives

Greg Rosenstein - Vice President of Investor Relations

Terry Hall - Chairman and Chief Executive Officer

Analysts

James West - Barclays Capital

Joe Agular - Johnson Rice

James Rollyson - Raymond James

Jeff Tillery - Tudor Pickering Holt & Co.

Joe Gibney - CapitalOne Southcoast

Mark Brown - Pritchard Capital Partners

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Superior Energy Services Fourth Quarter 2008 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Friday, February 20th of 2008.

I would now like to turn the conference over to Greg Rosenstein. Please go ahead.

Greg Rosenstein

Thank you. And thank you everyone for joining today's conference call. Joining me today are Chairman and CEO, Terry Hall; Senior Vice President, Pat Bernard; and Chief Financial Officer, Robert Taylor.

Before, I turn it over to Terry, let me remind everyone that during this call, management may make forward-looking statements regarding the future expectations about the company's business, management's plans for future operations or similar matters. The company's actual results could differ materially due to several important factors including those described in the company's filings with the Securities and Exchange Commission.

And during the call, management will refer to EBITDA, which is a non-GAAP financial measure and in accordance with Regulation G, the company provides a reconciliation between net income and EBITDA as well as net income and adjusted net income on the website.

With that, I will now turn it over to Terry Hall.

Terry Hall

Good morning. To recap our fourth quarter, revenue is $492 million, EBITDA was $183 million, net income of $85.8 million or $1.09 diluted earnings per share. Earnings release outlines the non-recurring and non-cash gains and losses that we netted out, show that the company had adjusted net income of $85.9 million or a $1.10 in adjusted diluted earnings per share.

Activity increased as compared with the third quarter in all segments and in all major geographic regions with the exception of the well intervention segment in Gulf of Mexico, which was adversely impacted by the annual effect (ph) from the hurricanes. After the hurricanes in the Gulf of Mexico, deepwater drilling resumed, which benefited our Rental Tools segment and our liftboats with basic supporting customers with the fair project, which benefited the Marine segment. But in well intervention work on pre-existing project stopped for a period of time, this is not unexpected. In fact, in our last call, we said you could expect post-hurricane we'll have to focus on construction, repair rather than typical well intervention work. Well intervention and drill activity increased in the domestic land and international markets as compared to the third quarter.

Turning to the well intervention segment, revenue was $304 million, income from ops was $67.5 million, which represents a decreases of 5% and 25% respectively as compared to the third quarter, with increases of 60% and 82% respectively over the fourth quarter of last year.

Some of the Gulf of Mexico services that you might expect will be busy post-hurricane recovery including plug and abandonment and mechanical wireline did see demand increase over the third quarter. However, activity gains for those business lines were more than offset by decreases for our production related services such as coiled tubing and cased hole wireline as well as reduced activity in October on the wreck removal project.

And speaking of that project, we continue to perform ahead of schedule and activity on the project ramped up very quickly in November and has remained there.

In the domestic land markets, well intervention revenue increased 4% over the third quarter to $91 million as the activity picked up for coiled tubing, well control and hydraulic workover. International well intervention revenue increased 3% to $38 million primarily due to increases in hydraulic workover and snubbing in Continental Europe.

In terms of current activity, January was a solid month for most of our production related services. However, in recent weeks, we have seen activity levels decline for coiled tubing and cased hole wireline in certain domestic land markets, including the Rockies, the Mid-Continent area, and West Texas, which has led the utilization decrease. We are also starting to see some price decline.

We're still experiencing strong activity levels at some of the unconventional resource plays and in some international markets, again Continental Europe.

The Rental Tools segment, revenue is $149.2 million, and income from ops is $50.7 million. This represents a 9% increase in revenue and 16% increase in income from ops over the third quarter. Activity increased across all three major geographic regions.

Gulf of Mexico revenue was up 18% to $56 million with the biggest increases coming in rentals in drill pipes, specialty tubulars, connecting iron and handling tools as well as stabilization equipment. We saw a good bounce back in drilling activity especially in the deepwater market.

Domestic land market revenues are up 8% to $51 million due to increased rentals to stabilization equipments and drill pipe. International revenue increased 2% to $43 million with increases in drill pipe and specialty tubular rentals in South America, partially offset by decreased rentals in drill pipe in the North Sea.

Higher operating margin reflects the business mix, as we saw an increase in higher margin rentals to drill pipe and stabilization equipment.

Current market environment for rentals offshore mimics what we are seeing in well intervention. Our primary rental items onshore are accommodation, stabilization and commodity type drill pipe. This point utilization for accommodations in the Rockies and Mid-Continent regions are decreasing in the two accounts which stabilizes about 70% of that was last fall.

Deepwater, Gulf of Mexico and international markets main strong for now with the exception in the North Sea. Drill pipe rentals in the North Sea were at compressed levels for most of 2008 but the business is not really falling from it's relative low base line.

In the Marine segment, revenue was $38 million and income from ops was $13 million, revenues were up 13% and our income from ops is up 103% in the third quarter. The story here is higher dayrates. As you recall we increased dayrates in October following the hurricanes.

Our average dayrate is 16,800 was 22% higher than the third quarter, the utilization decrease from 81% to 76%. Utilization was higher for our 245 class and 250 class liftboat. The largest utilization decreased due to activity declines was in the smaller 145 to 155 class.

Look forward this quarter, utilization is about 60%. We do have a couple of our larger liftboat the 200 class and 230 class in the ship guard to coast guard inspection. Rates haven't changed for most of the boat classes with the exception on the 145 to 155 class where the average rate is down about 10% from the fourth quarter.

Turning to SPN Resources and Beryl Oil & Gas, these are equity method investments, our press release mentions some non-recurring items that related to unrealized gains from hedging contracts and impairments related to lower commodity prices which impacted the result. Production is about 55% of pre-storm levels while we are ready to get back to 100% there are still a couple of fields waiting to third party pipelines to be prepared at the moment we are at about 90% at pre-storm levels. In addition to lower production during the quarter we obviously were impacted by lower commodity prices.

On the CapEx front expenditures during the fourth quarter were $130 million, expansion CapEx contributed about 80% of that total. For the year our CapEx was approximately $454 million.

Looking at G&A, it is $78.2 million higher over the third quarter due to the non-cash charge of $11.3 million related to our supplemental executive retirement plan. In the first quarter we expect G&A to be lower somewhere in the range of $68 million to $70 million.

On the D&A front, we think D&A of $49 million to $51 million is a good run-rate for the quarter ahead. At the end of the year we've approximately 715 million in debt, breaks down in the form of convertible notes $400 million, senior notes $300 million and may have debt associated to liftboats of $15 million for a total debt again of $715 million. Debt to EBITDA at the end of the quarter was 0.99, debt to total cap is 37%.

We've got some new rules for accounting, for our convertible debt. In '09, these new accounting rules will increase our non-cash interest expense in the range of $17 million to $19 million. And therefore, reduce our earnings per share approximately $0.17 to $0.19 for the year. Basically the debt and equity components of the convertible note will be separated. The debt will be recorded as discount to reflect this below market coupon interest rate.

Coupon rate on this convertible is 1.5%. Our market rate on similar debt at the time of the offering is just under 7%. The discounted debt portion will then be accredited backup to the original $400 million through the end of 2011, with the accretion being the non-cash interest portion of $17 million to $19 million.

Looking forward as you probably tell from our earlier comments we had some talks of weakness. But I think our geographic and product service diversification will serve us well through this down cycle. That's really our strategy, that's the way we organize the way we are.

We are taking some very proactive steps in playing both offence and defense to address the weaknesses we're seeing. From defensive standpoint, we are cutting cost in certain areas. We have challenged our business unit leaders to identify five or six areas where they can cheap cost reductions in both the rig and G&A cost.

Secondly, while we're not going through massive head count reductions or layoffs as you've heard many people talk about. We do think that we will significantly reduce our head count through natural attrition.

We're reducing our contract labor, cutting overtime, working down inventories and consolidating some locations to reduce the number of multiple facilities in certain markets. We have also implemented hiring freeze unless we identify an opportunity to upgrade our talent pool.

From an offensive standpoint, we intend to protect our market share. I think to a certain extent having new equipments especially new qualitative units will naturally help us protect our market share for production related services on land.

Customers will definitely like to work with new equipment and in this market the reliability and efficiency takes on greater importance owning and operating new equipment who work to our advantage. We will focus on asset utilization by moving assets to other markets. This will especially be true for Rental Tools.

Finally, our CapEx budget will be reduced by about 40% from last year to $275 million. And we could reduce it further, if conditions warrant.

If you have followed our company through the various cycles then you recall that it is in down markets, where we typically identify long-term growth opportunities. History has taught us that it is in these uncertain and volatile times, when opportunities are made and discovered.

Some of the largest, most transformational events in this company's history occurred when the energy industry was in the downturn. In 1999 we acquired Cardinal Services, which gave us liftboats and some additional production related services to complement our plug and abandonment and Rental Tool businesses. During the last major industry downturn, we built several large liftboats, expanded international Rental Tools projects with the acquisition of U.K.-based Premier Oilfield Ltd., both of those transactions did great things for this company overtime.

While we are prepared for the current downturn and manage our way through it, we firmly believe we are in an excellent position to execute our geographic diversification strategy. Specifically, we're targeting growth in the mid and deepwater well intervention market, which will provide us with additional opportunities around the world and bring higher component of technology and innovation to our portfolio. Our balance sheet is strong we have access to capital and our strategy is fundamentally sound.

I now will be happy to take any questions you may have.

Question-and-Answer Session

Operator

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). Our first question is from the line of James West with Barclays Capital. Please go ahead.

James West - Barclays Capital

Hi, good morning, Terry.

Terry Hall

Good morning, James.

James West - Barclays Capital

Terry, the last couple of years, you've been really ramping up international and now you've made some key hires, you've been allocating a lot of capital to that business, and you mentioned a minute ago that you would continue with this geographic diversification. But given the downturn, has any part of that strategy shifted or a different regions you're focused on now or you are pulling back in some areas, sort of kind of color you give around that?

Terry Hall

Well, I think James; our focus is going to be this mid-water and deepwater well intervention markets, primarily. So once you say that then you're looking North Sea, West Africa, Gulf of Mexico, I think those are probably the big target areas, we're pretty well positioned to work in those areas already, we've got some activity going on.

I think that, that really says it all, I don't want to give into this to much, but we are... the last few years we've been doing a lot of things that I think give us... but we just got a lot of experience in this midwater of well intervention market. And we want to try to level off of that and take that international, and its always been our plan, we set to talk a lot about it. But that's the natural place for us to expand our business and to hopefully achieve the benefits of being may be a little bit more technologically oriented then a lot of people realize who we are.

James West - Barclays Capital

Okay. And then just one follow-up for me, if you look at the, the acquisition market right now have multiples and sellers expectations come into a level where you're accountable making spinning acquisitions?

Terry Hall

Yes.

James West - Barclays Capital

Any particular areas, regions or product lines?

Terry Hall

Not really, but again I refer to my earlier comment. Our interest right now is going to be to further penetrate this midwater, deepwater well intervention market. We think that's the market is going to be very strong by '10, '11 going forward. So we're trying to position ourselves to really be ready for that. So that's the primary focus.

James West - Barclays Capital

And given that your debt to EBITDA is below one-time, how much additional leverage would you be willing to take on to do a sizable transaction?

Terry Hall

I hate when you are guys asking that. This is not the way we run our business. We don't sit here and say we will take some this percentage or that percentage. But we are clearly willing to take on a little more leverage, we feel pretty good about our business. I am sure it will be weak in some areas, as it will be for all people but we are diversified. We are solid among the production side of the business, we have been through these things before and taking out a little more leverage in the down market doesn't particularly scare us because we are confident that the market is going to return.

James West - Barclays Capital

Okay, fair enough. Thanks Terry.

Terry Hall

Thank you.

Operator

Thank you. Our next question is from the line of Joe Agular with Johnson Rice & Company. Please go ahead.

Joe Agular - Johnson Rice

Thank you. Terry, I know it's hard for anybody to give forecast for this year, for I mean the next year. But in looking at the market today and the way the company has changed in the recent years. Is there anything that you see in the way that you management feels this downturn is different today that may be you might have been in the previous down cycle from service either cost management standpoint or positing of assets or anything in that view noteworthy at lest in the way this is, the company's position today?

Terry Hall

The fact that we're more diversified Joe give us a little more opportunity to do things such as move equipment around or if you go just in the Gulf of Mexico you don't have the ability to move equipment in the land markets. You don't if you didn't have any international outlets to move things you are further limited. But now you've got a lot more options to move people around as well as equipment to move in the more attractive areas than others as this whole scenario plays out.

I think we're just a lot bigger company and we're not managing it differently, we just have more opportunity, I think to soften the downside of the no good period here. But, it's... we're no different than anybody else. It's going to impact us as it goes down, but I just think we're primarily positioned on the production side. We've got a substantial amount of our businesses is not really labor intensive, but I'm referring to the rental market there. It's diversified geographically. The whole company is fairly diversified geographically.

Now so, we're in a pretty good shape and that diversification gives us an opportunity to move our assets around, and achieve good utilization as we can under the circumstances. And it allows us also to got to hold on the market share and yes we want to hold on the market share. And I think we don't think any differently. Earlier in the fact that we have more opportunity that may move our people and the equipment around now than we've that in the past.

Joe Agular - Johnson Rice

Okay, thanks. And sort of my follow-up. I couldn't help it. Obviously, you have mentioned this in your press release. But it sort of stands out that you mentioned you have your land, domestic onshore activities, the things like hole tubing hydraulic workovers and other things and so forth. And the well intervention group increased in the fourth quarter from the third quarter, which seems kind of almost a little bit about what happened in the market, generally speaking.

Terry Hall

Well, we had an new equipment. We spend a lot of money in CapEx last year. Some of the equipment came in the market, which I'll discuss. But those markets are tightening up and slowing down, make no mistake.

Joe Agular - Johnson Rice

Yes, okay. I was just trying to figure out that fourth quarter. So that really would--

Terry Hall

They would... some of those land markets that really under performed, some in the third quarter. And really fourth quarter they got back, they're kind of where they have should have been. And again we had a little more equipment on the ground. We loosed up around we'll get better. We've got into these markets that were better than others. But those are just the things that we do I wouldn't read a lot into that Joe. And I certainly those markets were definitely getting soft.

Joe Agular - Johnson Rice

No, I am seeing that, I'm just was curious for a little bit more color on that one. Thank you very much.

Terry Hall

Thank you, Joe.

Operator

Thank you. Our next question is from the line of Jim Rollyson with Raymond James. Please go ahead.

James Rollyson - Raymond James

Good morning, Terry.

Terry Hall

Hi, Jim.

James Rollyson - Raymond James

Terry, you've got on the Marine side, I guess you have a benefit of a couple of new assets for kind of all '09 so you go through most of '09, on the big liftboat side. Can you kind of may be talk about a couple of things there like, number one just how you're looking at your downtime dry docking schedules for this year relative to say last year, kind of how much of the business right now is more geared towards hurricanes and kind of how you see that progressing as you go through the year or just kind of feel for the Marine side of the business?

Terry Hall

Well, we will get some new liftboats two or more come out pretty soon, that the market is not that great right now. But we've got them. They were suited for international work. They are service class boats. But the international market on those assets is also not that great at the moment. So I don't know whether they will spend them overseas, as we'll keep them in the Gulf it will be unique they have the ability to work in a war column that almost no other liftboat can work in.

So they will, I think be good assets, but somebody needs to do some work in a 190 feet of water, we'll pretty much going to have the only assets that can work in that 180 to 190, 175 to 190, column, that's good. So I think they will help us, don't forgive we've got a derrick barge, DD3 is sitting on the West Coast right now getting very close to Angola, and she goes on charter and we haven't been seeing revenue from that. So if that happens within the next week or so.

So those are from the Marine side those are things that will help us, we know that as we get into the liftboat business is volatile, you can price swings, you can have utilization swings overtime we try to reduce our exposure to the small boat fleet, I think we've done a good job of that. And we see the results are doing that, these longer legged boats with larger decks and more capacity, serve us better, they have better platforms for our services.

So I think we should do a little bit better than anybody else in the liftboat business, we always have from the utilization standpoint, we'll try to be a price leader, we'll try to defend our market nevertheless. So its hard to predict, you can't read a lot into what's going on in liftboats today. And we've got some credit slop in the Gulf of Mexico the last week or so and its projected to stay there within the next week or so.

So we don't want to evaluate the liftboat business in February or March for that matter. I still feel like that by the summer our liftboat business, by May, June, July, I think our liftboat business will be pretty good. Thanks the new boats will go to work and things will improve, may be not markedly, I don't expect the rates to go up, but I think utilization will improve as we get into the year and there will be enough work to keep our fleet reasonably busy.

James Rollyson - Raymond James

Okay. And thanks for that. Is a follow-up, geographic mix you guys break that all the time. May be thoughts on how that trend and obviously North America is presumably coming down given the... what's going on the oil and gas to recount et cetera. How do you see your breakdown between onshore Gulf of Mexico and international and may be one step from that is, is this mid and deepwater focus you have, where do you see that as a percentage of your mix by the time you get to the end of year?

Terry Hall

Well, James, I mean midwater and deepwater, that market is not going to really be there until '10 I don't believe I mean is a little bit of it there. But there is some technological challenges that lot of people are trying figure out. We think we're as close to have those solutions as anybody else, we're investing money and time and effort and trying to prepare to be in that market.

So I don't expect there to be anything in '09, it's going to impact our financials related significantly to deepwater or midwater depths. I think we'll be doing all the things in this down market to position ourselves to participate in what I believe it's going to be a great market going forward with the limited number of players. I think we've got some unique skill sets that give us an advantage as we approach that market.

So we'll be working on that. So '10, '11 I think you're going to see our business, the growth in our business will be posted heavily towards those markets. And by depth addition most of that growth will be international because it won't be in the Gulf of Mexico but I expect us to do a fair amount of this work in the Gulf of Mexico. But again most of the growth I think for us as you get into '10 and going forward will be midwater, deepwater and the majority of that will be in international markets.

James Rollyson - Raymond James

And just for contrast, what percentage of your business is in that market today?

Terry Hall

Almost none.

James Rollyson - Raymond James

Okay.

Terry Hall

I mean we've done some deepwater wells intervention work from time-to-time. But that's a market that's in the potential but you've read the data, there is a lot wells that are out there. That have got five, six years in all of them and they need an intervention and people are desperate to find alternatives to bring in drilled ships to do routine well intervention work. So that's our focus, that's what we do. We've executed some of the very first projects in midwater depths, in well intervention arena. So we continue to work and focus on it, we're relatively quite about it but that's where we want to go.

James Rollyson - Raymond James

Great, nice quarter. Thanks Terry.

Terry Hall

Thank you.

Operator

Thank you. Our next question is from the line of Jeff Tillery with Tudor Pickering Holt. Please go ahead.

Jeff Tillery - Tudor Pickering Holt & Co.

Hi, Good morning,

Terry Hall

Good morning

Jeff Tillery - Tudor Pickering Holt & Co.

I just wanted to stay on the middle order in deepwater intervention topic just for a second, just conceptually the technology challenge is that you guys are working towards is that more on the vessel side or more on the tools that you will use down hole?

Terry Hall

Well, I mean clearly vessels are interesting but you really need access to the well bores you've got to focus on lubricated systems that allow you access and address the issue of how can you bring coil to coil to the well bore which implies a razor technology. So I think we are focused on... we have doubled the lubricators and we are continuing to be focused on building lubricators that certainly allow well intervention. And we're also focused on razor technology that would lead to be interface with the vessel.

Clearly our business models in the past have typically involved having the service capability, having the tools necessary to access the well bore and perform the operation, having Rental Tools to support this operations and we get great success in delivering that package on our list of fleets.

So we think that same model will look well in the mid to deepwater arena. So that I am implying that you have to make a lot of sense for us to have. One or two vessels specifically designed for this market. And we need to be of a pretty good size. We need to be able to take precaution the well. And have been, that also could be used for light construction and installation and subsidy type work. But primarily design is the light well in invention vessels.

Jeff Tillery - Tudor Pickering Holt & Co.

Okay. That's very helpful. And my last question is, policy has been quality use now since there seems declines in the rental tool market like we're going to see kind of over the next couple of quarters. Just can you talk conceptually about how you see the domestic rental tool market playing out, anything different this time, and kind of conceptually how you think about the margins in that business?

Terry Hall

Surely not a lot we can do about it. I don't know how weak it will get. We'll move the equipment around as we deem appropriate. The good thing about the rental market it's not labor intensive, of our incentives, sort of like a warehouse. You don't really have to do much with the equipment. There is nothing going on, just turn off the light, and that's great. It's typically not much change in pricing there.

It's purely a utilization gain with very low fixed cost. So I'm not going to attempt to predict, what's going to happen over the next three months, six months, nine months or year. I don't know, how long this downturn it's going to last, it may not last that long. The other hand, it could be very protrusive. And I think, no one really knows the answer there. But, if you look at that rental market it's pretty well diversified. It's about a third on land, a third on Gulf and a third international.

So it's well diversified. We can move a step around, and we will. But nevertheless it's like everything else will be negatively impacted by after long down turn.

Jeff Tillery - Tudor Pickering Holt & Co.

All right. Thank you very much.

Terry Hall

Thank you.

Operator

Thank you. Our next question is from the line of Joe Gibney with CapitalOne. Please go ahead.

Joe Gibney - CapitalOne Southcoast

Thanks. Good morning, Terry.

Terry Hall

Good morning, Joe.

Joe Gibney - CapitalOne Southcoast

Just I want to follow-up a little bit to circle back around on the record you have decided, you said work picked back up again in November. I'm just curious your outlook there any other incremental charges, I'm looking out here post to recent hurricanes and general outlook on that space during '09?

Terry Hall

I think that space is pretty good for us. The issue you are going to have with that type of work is that, when your commodity prices go down where there are, operators could spend a money until the extent they can defer anything like that they will. So we've got that working against this. There are some opportunities out there we do, we are working on other things now.

And I expect that we will continue to work on. I don't foresee another contract besides the BP on the immediate horizon. But there are several smaller things that are playing out, I don't know that it will have the opportunity to do another on the turnkey anytime soon either. But, nevertheless we remain very, very busy in that marketplace in that space, both domestically as well as internationally.

Joe Gibney - CapitalOne Southcoast

All right. It's helpful. I appreciate it. And again in the quarter buying back some shares, just general thoughts on that and what's left on your authorization and how you are viewing that, I guess as you work away through in '09, and cash conservatives and et cetera.

Terry Hall

We've got a couple of $100 million left, I think we'll authorize up to 350 million, we've spend about 138 million, so 210, 212 left. Clearly as we've known it's going to go as low as it has, we were ready to buy but we bought it going down. I don't know we're going do there. We're more in a cash conservation mode I think right now to be able to take advantage of opportunities we're working on. So we'll more likely I think to do things to help grow our business in the downturn and buyback stock.

Joe Gibney - CapitalOne Southcoast

Understood. Great quarter, I appreciate it. I turn it back.

Terry Hall

Thank you.

Operator

Thank you. Our next question is from the line of Mark Brown with Pritchard Capital. Please go ahead.

Mark Brown - Pritchard Capital Partners

Hi, Terry. Just wondering on the derrick barge, that you are getting started with next week in West Africa, what kind of work is on top for that and how much revenue can you usually get on an annual basis out of a derrick barge based on your previous experience?

Terry Hall

Well, we've got this thing out on a variable charter, it's primarily construction work for a major operator, which we're not going to name, but any of that. We've got a variable charter into another entity they primary be doing construction type work, they are also using it for accommodation capacity and capability. I think, the rate we're getting on is about 67,000 a day, 365 a year. So that's pretty decent revenue for that investment. It may be there a while, but it is going to be there at least a year.

Mark Brown - Pritchard Capital Partners

Any consideration to build another or buy another derrick barge going forward?

Terry Hall

No, we've got two, we've got one on charter and we have the other one is in the Gulf of Mexico working on the wreck removal project with BP and we really haven't gone into that. I think, again our... not that we wouldn't under some circumstances, but I think our marine interest right now will probably more towards the well intervention vessels for mid to deepwater that's probably where we have more interest in and spending marine dollars right now.

Mark Brown - Pritchard Capital Partners

One more question on just going back to the midwater lake well intervention--

Terry Hall

And let me tell you what I'm sorry. I hate to interrupt you but there's a reason on this carry forward. We have never been people in the construction business, that's not what we do. That's not a space that we try to compete in, we are well intervention guys. We got in dead forest (ph) deals because we had enough removal to work to do for all the count that we could justify these derrick barge and we thought like it could make sense. We wanted to use it for our own account, we would just variable charter into other people and that's really what we've done. So that I don't want you to get to think and if we saw we won't be the derrick barge business, it's a big thing for our business, because that's not just not true.

Mark Brown - Pritchard Capital Partners

Okay. And just one more question on the mid... back on the lake well intervention midwater what competitors do you see out there that you would have to be going up against or do you consider your alternative approach with lubricators and razor technology is something that's sort of more on the cutting edge up and you really be the only one that can provide that.

Terry Hall

I don't believe we are the only one who can provide that. Obviously, there is a lot of big guys out there that can do a lot of things may be we can't do. But we certainly did with some of the performance into the very earliest jobs in midwater depths, with wireline interventions do with lubricators that we developed ourselves. Other people are doing it.

I think the unique thing about our approach is the same thing as unique about our entire business plans that we really have in-house welders, service expertise that's required for the well intervention where ever it may be, we have that expertise, we have all the equipment. If we were to get both and also have the lubricated technology as well as the technology I think we would the only people in the world ahead I will love it.

I think your, I think the big guys, I think to summarize in the world it appears really the press releases that they are focused on developing a lubricator or Roger technology, they really not interested in owing boats. And I can understand why they wouldn't be you've got an entity like Helix out there that has a lubricator access through a company they acquire out of Australia I believe a couple of years ago.

You got Ocker (ph) out there saying that they are working on getting in the market, they have made some... but they are primarily just building vessels and then they are trying to bring in another entity to develop to the lubricator and then they are trying to find someone else to be the service provider. So some of these guys may go with this trying to put together consortium to do the work. They are typically above that type of step, we like to be able to stand on our own.

We like to be -- half a complete integrated package, and that's probably the way we'll approach it and it -- again if the market plays out would have in the past will be unique in that regard but other people will definitely chase, gods will built both, other people will try to built lubricators and things, and if this -- but there is not that many of them really doing. I mean I would think that once you get passed Felix and Karen (ph) you got Allan to offshore that group out there, they're talking about it. SPN is trying to building the lubricators, I think they had a lubricator out now, they trying to modify. But there is a few people in the space but not other more really our direct competitor in the sense of title work that we try to do.

Mark Brown - Pritchard Capital Partners

Thanks Terry.

Terry Hall

Thank you

Operator

Thank you. (Operator Instructions). Our next question is from the line of Keira Denver with Nierenberg Investment Management. Please go ahead.

Unidentified Analyst

David for Keira here.

Terry Hall

Hi, David.

Unidentified Analyst

Congratulations on another growing nice quarter, Terry.

Terry Hall

Thank you.

Unidentified Analyst

I would come back all the way to your first question from James West of Barclays. How you might pay for an acquisition of midwater, deepwater player? I just wanted to remind everybody that in the past you have been able to monetize what you considered non-core investments, opportunistically both in oil and gas production and among smaller liftboats, and also we ask you to tell everybody about the cash that might be generated of the other current asset line on your balance sheet?

Terry Hall

You know, David I want to -- I got to be very careful about commenting on things that we might be able to sell. We continue, we always do, we don't -- take a big deal of that. But, assets, you know don't perform that well for us, when we don't necessarily fit our business plan, as with the smaller liftboats, there is nothing wrong to small liftboats but they just began to not fit out plan.

We'll sell them. We do got all the time that we've sold our interest and that's getting resource for the CapEx small fees and we're happy that we did. We try to do a lot of things and we've got pretty good bit of flexibility skill, we've got little bit money drawn on our revolver, but we expect that to go back down to zero, fair quickly.

We spend a lot of time talking with our banks, up to a relatively confident that if you wanted to have a little more liquidity right now, we could get it fairly easily and it wouldn't be that owner us. So, we feel pretty good about our ability going forward and we're generating and still some very strong cash flows certainly through '08 and we expect there will be a downturn. But I think we're in pretty good shape to take advantage of any opportunity that may present itself, and I think the opportunities that will present themselves may not be nearly as owner as in terms of cash or quality get in, as it might have been year or two ago, and we clearly like that scenarios.

So, I think we -- well we don't like to see a stock quality is, we don't like to see activity levels going down we also know that these are times of great opportunities. So, we fairly excited about it and we see some good opportunity and I think we've got plenty of financial flexibility onboard right now are readily available to us to access in the opportunity when need.

Unidentified Analyst

Well, we certainly agree with you, we haven't forgotten the date that you enhanced to Warrior acquisition, which was during another time of following commodity prices, your stock fell up at table. We excused ourselves from the call both 400,000 shares and sold them a year later for 2x what we paid for them. So, we've got a abundant phase and your ability to find and fund good acquisitions. Keep up the good work.

Terry Hall

Thank you very much for those kinds of work.

Operator

Thank you. Our next question is from the line of Katherine Soleski (ph) with Jefferies & Company. Please go ahead.

Unidentified Analyst

Hi. Could you breakout your CapEx budget for next year between maintenance CapEx and then your growth CapEx, between sort of committed capital and discretionary capital spending?

Terry Hall

Well. I tell you, I think about 60 million of it is maintenance CapEx and the remainder is going to be expansionary.

Unidentified Analyst

And of that expansion, are the spending is there certain amount that's already committed?

Terry Hall

There is a fair amount of it committed, the majority of it falls in the rental arena. But, we could scale this back, if we wanted to, but thus far we scale the back that the number we gave you earlier, which is about 275, 60 which is maintenance. So we've got fair amount of flexibility within that 200, so some is probably committed but we have the ability to pull it down if we want to, we also have build to ramp it up.

Unidentified Analyst

Okay. Great. Is there any particular trigger that would cause you guys to pull back your spending next year?

Terry Hall

Look, not that I'm aware. I mean clearly -- I don't know what's going to happen here in the world and the market. I guess that could be some unforeseen event that would piece of catastrophic that we would pull back. And we don't really have anything on our horizon right now that would cause us to think that we got to take some dramatic type of action. We just...

Unidentified Analyst

Great.

Terry Hall

I just think that our CapEx would be easily funded by our free cash flows. I think we'll have a substantial amount of cash flow still go afterwards. And again as I said just few months ago, we felt to need to go out and get more liquidity. I think it's readily available to us.

Unidentified Analyst

Speaking on cash on hand. I noticed that other current assets line increased at year-end versus the 9/30 date. Can you give us a little bit more color on why that and often maybe a little color on why cash seem to be a little lower than expected, maybe they're connected?

Terry Hall

Well, we skip $38 million for our secondary buds in the quarter. So that was a little bit unusual. And again sitting up top to coast bank over right now, get ready to go on a long-term project. We bought that 40 million stock in October, which we'll also mention. So that's part of the cash item that are a little bit unusual as you go back. And look at this increase in current asset. It looks more than 10 million, it's 224 million. That almost all of that we felt and work that we have completed during the quarter primarily on this big DP project that we finished, completed but we had not build quarter end.

So this represents again sort of the source of future cash inflows and earlier I've said that, still we have some money drawn on our revolver and I thought it will go down. I think now that we build and recollect that money you'll see the drawn in revolver go down. That's really where that big increase came from.

Unidentified Analyst

Okay, great. And if I could fill in one more question. Do you have your current revolver borrowings in your cash balance available?

Terry Hall

Well, let see. We've got 54 million drawn on our revolver of 250. And we've got 41 million in cash.

Unidentified Analyst

Okay, great. Thanks very much.

Terry Hall

Thank you.

Operator

Thank you. And there are no further questions in the queue at this time. I would like to turn it back to management for any closing remarks.

Terry Hall

That's it for us. Thank you very much for your interest.

Operator

Thank you. Ladies and gentlemen, this does concludes the Superior Energy Services fourth quarter 2008 earnings conference call. We thank you for your participation. You may now disconnect.

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