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Superior Energy Services Q1 2009 Earnings Call Transcript

April 29, 2009 | about: SPN

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Superior Energy Services, Inc. (SPN)

Q1 2009 Earnings Call

April 29, 2009 11:00 AM ET

Executives

Greg Rosenstein - Vice President of Investor Relations

Terry Hall - Chairman and Chief Executive Officer

Analysts

James West - Barclays Capital

Robin Shoemaker - Citi

John Fitzgerald - Raymond James

Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc.

William Sanchez - Howard Weil

Joe Agular - Johnson Rice

Mark Brown - Pritchard Capital

Joe Gibney - CapitalOne Southcoast

Mark Thomas - Simmons & Company

Presentation

Operator

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Superior Energy Services First Quarter 2009 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, Wednesday, April 29, 2009.

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

Greg Rosenstein

Okay, thank you. Good morning everyone and thank you for joining today's call.

Joining me today are Chairman and CEO, Terry Hall; Superior's President and Chief Operating Officer, Ken Blanchard; 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 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 on its website.

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

Terry Hall

Good morning. Recapping the first quarter, revenue was $437 million, EBITDA $152 million, net income of $57 million or $0.72 diluted earnings per share.

A geographic and product, service lines, diversification helped offset the significant decrease in industry activity, we've seen through out the world. For instance, our domestic revenue including domestic land in Gulf of Mexico was collectively lowered by 11% as compared to the fourth quarter of '08. A contrast, the drilling rig count was down 30% as compared with the most recent quarter. Our U.S. land revenue was down 27% sequentially due to the rapid and significant decrease in activity, which impacted both pricing and utilization.

Total Gulf of Mexico revenue was down 3% due to general market slow down and typical seasonal factors including weather. International weather decreased 9% primarily as a result of decreases in well control, hydraulic workover and snubbing activity. We would anticipate international revenue in the well intervention segment to an increase during the year as we ramp up activity from two projects of the Coast of Angola, which we've recently commenced.

I will now review the operating highlights of our segments, and make comparisons to the fourth quarter of '08.

In the Well Intervention segment, revenue was 288 million and income from operations was 62 million, representing decreases of 5% and 9% sequentially.

As I mentioned earlier, production related activities lowered especially on land, which led to the decreases in prices and utilization and ultimately lower operating margins for our services. Some of the harder hit regions include the Rockies, Mid-Continent, and West Texas. Pricing for production related services such as coiled tubing, snubbing and cased hole wireline were down significantly, our utilization was down 5% to 20%, depending on the service line in geographic region.

The Gulf of Mexico performance was helped by a continued to work on the wreck removal project. We continue to execute project on the pace that is ahead of our original schedule. And as we indicated in our 10-K, we expect the project to be substantially completed in the first half of 2010.

In the Rental Tools segment, revenues were 126 million, and income operations was 35.3. This represents a 16% decrease in revenue and 30% in income from operations.

In the domestic land markets, the biggest decrease was in the accommodation business followed by rental for stabilization equipment. Both of these businesses are directly tied to drilling so as no surprise that drill activity fell off with the rig count. Rental stabilization equipments was also lower in the Gulf of Mexico, again an indication of severe drop in drilling activity.

In the Marine segment, revenue was 23.1 million, and income from operations was 2.8 million, both of which were down significantly from the fourth quarter. Market conditions and seasonality are the major factors that drove the Marine performance. Much of the non-discretionary hurricane work was completed in the fourth quarter and then fell off in the first quarter.

In addition, seasonal issues especially weather also contributed to a low utilization numbers. In addition, our 230-foot class liftobat within the shipyard for inspection and major upgrade for the entire third quarter. Nevertheless, this is the very typical first quarter in comparison to first quarter of last year, our revenues was the same and our income from operation was 8% higher.

A 230-foot class liftboat is recently completed its work and is now back working with the customer. First time in our history, we have a liftboat working in the Gulf of Mexico. One of our 240-foot class boat is there working on what is anticipated to be an 80 day project. We hope to find more work for it after that in the Mexican market, which is very, very hot as all of you know.

Looking to G&A, we've been aggressively pursuing cost reductions and expect that this is going to show up in the second quarter where we anticipate, G&A to be in the range of 62 to $64 million.

Looking to D&A, we believe D&A of 50 to 52 millions of good run rate for the second quarter. In the interest expense arena, first quarter results include 4.4 million of incremental non-cash interest expense as a result of one accounting rules for our 1.5% senior exchangeable notes.

Basically the debt and equity components of the notes were separated and the debt is reported at a discount to reflect its below market coupon interest rate, all prior periods have been adjusted for this accounting change, so when you compare this quarter's financial statements the past period, you will not estimate any adjustments.

The discounted debt portion would then be accretive back up to the original 400 million through the end of 2011 with the accretion recorded as non-cash interest expense. It has been determined that our regional debt discount and inception was 89.9 million.

Looking at CapEx, expenditures during the first quarter were 82.3 million; expansion CapEx represented about 90% of that number. Going forward, you should anticipate that our CapEx will be significantly reduced to several factors. Typically our CapEx is front end loaded, given the market conditions we have today, you should expect that some of the CapEx we have anticipated or budged for this year will probably be reduced if market conditions remain as they are today.

Looking a the balance sheet at the end of the first quarter, face value of our debt exclusive of discounts was approximately 848 million, the debt break down is as follows. Convertible notes exclusive of discounts, 400 million, senior notes exclusive of discounts 300 million, merit 15 million, 133 million drawn under revolver again for a total of 848. Our balance on the revolver today is 64 million.

There are few reasons why we access the revolver during the first quarter with the two major factors, where a potential acquisition and working capital support for our large scale wreck removal project. As we have been discussing for sometime, our strategy involves diversifying the company geographically and along products service lines with the focus on subsidy and deep water.

We were very close to closing an acquisition, so close that we drew on our revolver and that explains why our cash balance at March 31 is 110 million. The acquisition did not close, we have since used this cash to pay down the portion of the revolver, again explaining why the revolver balance was much lower today.

In terms of the wreck removal project, we continue to work ahead of schedule with billing and subsequent cash receipts are based on the completion of milestones. We did complete milestones during the quarter, which resulted in billings and cash receipts.

We are working on several aspects of the project at one time, so we continue to incur costs and recognize revenue in advance of completing milestones. This explains why the other assets account from the balance sheet increased to $293 million. Keep in mind that the other asset account can be viewed as unbilled revenue and represents a significant source of near term future cash flows.

Debt to EBITDA at the end of the first quarter, now I'm referring to net debt given the cash balance we are maintaining was 1.1 and debt to total capitals was 36%.

Looking forward, we realized and recognized that other management teams had different view of where the bottom is, the North America drilling and service activity, but the reality is no one really knows. A lot of factors have worked here is going to take some times for us to sort them out.

Given the speed at which pricing and utilization have fallen, one would logically assume that we are near a cycle bottom. However, vintage rate (ph) and how long we stay there is difficult to answer. In the Gulf of Mexico, activity should improve modestly in the second quarter for no other reason. In fact, the weather is typically better along to put more or liftboats and service crews to work.

Internationally, we will see a full quarter of results from our two Angola well intervention projects. Big wild card domestic land business; we've not yet seen any recent internal or external data points that we suggest, we are at both. We have lowered cost in several areas and will continue to do so.

We are not a big component of massive headcount reductions, however our headcount is 5% lower since year end with most of their production occurring in the domestic land markets. We view our employees as capital. We spend a lot of money for finding good people, training good people, and we hate to turn them loose just because the market has turned south.

Nevertheless, we will probably see more reductions through natural attrition and turnover. In this environment, our work force strategy is to keep our promotable employees, and we are possible upgrade our workforce when opportunity presents itself by adding people, who may have been let go from other companies.

We will continue to reduce overtime and contract labor. We are reducing our supply chain costs including consumables and direct costs associated with our product and service line. In terms to G&A, some of the areas where costs have come down include insurance, marketing, consulting, and expenses with other corporate service providers.

Cost reductions on going process, the impact of productions will show up in the second quarter and beyond. Much of our cost cutting efforts started in the mid first quarter like given the rapid rate at which activity is falling, it will be difficult to maintain profit margins just through cost cutting. The goal is to slow the pace of margin erosion. This is difficult to quantify this time.

As we have said on past calls, we like our position relative to other companies. Our diversification strategies should help us continue to medicate the down side relative to others. We remain optimistic and view our balance sheet as a source of strength, and competitive advantage that will allow us not only to manage through this down market, but allow us to take advantage of the opportunities that advanced our strategies.

That is all I have. We are happy to answer any questions you have.

Question-and-Answer Session

Operator

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

James West - Barclays Capital

Hey good morning, Terry.

Terry Hall

Good morning, James.

James West - Barclays Capital

First off congratulation on a great quarter.

Terry Hall

Thank you.

James West - Barclays Capital

You had indicated, I think, as we were looking at this down turn, unfolding here you had talked about in the land market in the U.S. You thought that you would maintain market share and perhaps grow market share, because you had mostly newer type equipment. Did that play out during the first quarter? And if so how much market share do you think you picked up?

Terry Hall

It has played out, and we are taking some market share. I can't give you any percentage on it really, but that scenario always works out. We gained a little market share, but to do that again you have to keep some stores open, you have to do things that allow you to maintain and gain market share. So it's always a two edge sword, lot of peoples attitude is to close stores and shut down and reduce employee count dramatically and get out the market. Ours thus far has been to... although we've some consolidation in some markets, we're trying to keep our stores open. We are trying to keep our good people. We are trying to stay in business and the mere fact is that we're able to stay there is allowing us to take markets as many of our competitors are leaving them.

James West - Barclays Capital

Okay. And then quickly on acquisitions, there's been a lot talk about acquisitions during this downturn. I know in past downturn, you've been very successful and consolidating companies. I think typically you've looked for companies, I think it's been your strategies to acquire companies, where you have a very entrepreneurial management team and that management team that will stay with you and grow the business.

I think during this downturn, perhaps some of those become available, but there is going to be a lot of companies that come available that might be distressed, but have newer assets. How do you balance and how you want to attack or approach acquisitions given those two different scenarios?

Terry Hall

Well, if we are approaching a new product line or a new geographic area, I think we will still tent to gravitate for the entrepreneurial guy. I think that's important. If you are talking about just adding equipment in an area, where you've got existing interest structure and you know the marketplace that entrepreneurial leadership may not be quite so important. But I think we totaled the market that our interest now is to expand and deepwater the subsea arena. And I think as we go into those areas, while we belief we have an extensive experience in those areas that will probably involve us going into new geographic areas. So, we will be looking in all probability, or the entrepreneurial management team as well as assets as we enter that market. And the acquisition, we'll be trying to close on and point it back did involve what we view to be a very entrepreneurial management team in some great assets and new geographic areas for us.

James West - Barclays Capital

And Terry, why that acquisition not close, was that a price issue?

Terry Hall

No, it really became an issue of financial issue on the side of the target. And inability to meet certain conditions and predict, we have to close in that. To some extent, we are outside of their control.

James West - Barclays Capital

Okay, that's very helpful. Thank, Terry.

Terry Hall

Thank you.

Operator

Thank you. Our next question comes from the line of Robin Shoemaker with Citigroup. Please go ahead.

Robin Shoemaker - Citi

Yes, good morning, Terry.

Terry Hall

Good morning, Robin.

Robin Shoemaker - Citi

I wanted to ask you if you could elaborate a little bit on this Angola project that you mentioned is coming up, the size and what is the scope of that project?

Terry Hall

Well, we've got our derrick barge over there, got into the arena in late February. It actually went on the payroll of April 1st. That's generating $67,000 a day in revenue, we've got 10 or $12,000 a day of expense against that revenue number.

So it's a variable charter working off the Angola coast. We are contracted to a very large diversified service provider, who is internally contracted to Angolan oil company over there. We've got that going on. We've also got a vessel doing some dock construction and maintains work over there, the amount of permanent working in the same market. That's not quite as big number, forget about exactly what that generates a day in revenue. That's about a $3 million a year, it's contract. It's not a big deal, but what this really represents, we think for us is we are beginning to get more and more exposure to that mark. We're getting a lot more boots on the ground in that area. And we expect to see some more business opportunities over there in the near term. So we've excited about our exposure to that market. We're generating significant revenues, and we expect to be there for quite while.

Robin Shoemaker - Citi

Okay, that's encouraging. And when you talk to your customers, it's a more broad question, about their CapEx budgets, we can see tremendous cutbacks in capital spending plans this year. With regard to the well intervention, well maintenance, the kind of production side of the business, your revenue drop clearly suggest, it's not as down as much as drilling, but what are you hearing from your customers regarding well maintenance and intervention, and how aggressively are they seeking price discounts from you for that kind of work, which is your specialty?

Terry Hall

Well, they're certainly seeking discounts as they are from all service providers or whether they'll be in the drilling or the production arena. But the expectations are not as aggressive as they are on the drilling side. Nevertheless, they're looking for 5%, 10% something in that arena in general, and trying to get at least that. They don't talk a whole lot about what their plans are vis-à-vis their expenditures in the production arena. And if they did, I wouldn't want to place a lot of the lines on it anyway.

I think the comfort you take is that their cash flow depends on their production, and they need to maintain their production and keep it up to the extent that they curtail drilling activity and then the only source of cash flow is the well there. So they typically stay with... remember, this is really OpEx, it's not CapEx. So, if it's hard to get any real commentary from them, but in the past and as long as I've been in the business, I've always seen and try to maintain their production and do things that maintain production, and that really does benefit someone, who is in the type of service lines that we are in. And again, that is their only source of cash flow as the market shrinks and you start shutting in, stopping the drilling across the board. It doesn't take long to the effected depletion to reach them as well.

Robin Shoemaker - Citi

Okay. And just finally, your CapEx budget, you indicated it could be down. I think you had indicated 275 million was an estimate for this year, and if current condition prevail, how much lower would it be than that?

Terry Hall

Well, that's really hard to predict. But it could be 30 40 million off of that number.

Robin Shoemaker - Citi

Okay.

Terry Hall

A lot of the CapEx we have is committed, but to the extend, again things stay the way they are, nothing we can probably knock 30 or 40 million off of that clearly easily. And potentially more now, we might get into some penalty situation if we try to get more aggressive than that. But I would think that we can take it down and you need to remember, maintenance CapEx is about 60 million a year, and there's not a lot we can do about that. So if we take 30 or 40 million out of the 275 that will be a fairly significant cut.

Robin Shoemaker - Citi

Yeah, okay. Thank you, Terry.

Terry Hall

Thank you.

Operator

Thank you. (Operator Instructions). And our next question comes from the line of John Fitzgerald with Raymond James. Please go ahead.

John Fitzgerald - Raymond James

Good morning guys.

Terry Hall

Good morning.

John Fitzgerald - Raymond James

Can we go through I guess sort of opportunities to pickup assets you've spoken in the past about well intervention vessel capability or sustaining rental presence, and you've historically, you tended to buy key (ph) at the bottom. Are there certain areas, where you guys think pricing is more attractive or closer to the bottom?

Terry Hall

I think this market is still in disarray. I think it's really hard to pick an area, we are certainly not looking to, at this point, to add more assets in the North American land market, nor are we necessarily looking to add more asset in the Gulf Mexico other than the deep water Gulf in Mexico. So, our focus is more of the international deep water sub sea arena that market is held up better than others, so you are not seeing as much a pressure on pricing on those assets although there is significant pressures that we anticipate will come to there as equipment that is being built real losses that is no home for from another shipyard, and I think people are beginning to deal with that. I think the pricing on equipment will begin to come down, and we expect that to happen. We also expect there to be meaningful opportunities in the arenas that we are trying to get into.

We were aggressively hold one, and we are aware of some others and we are working on those as well. But I think you should that our moves will probably be again deep water sub sea... and although deep water sub sea to this in Gulf of Mexico, we certainly want to participate in that. And move will make there will probably have more of an international flavors. And we do think the pricing and opportunities there are beginning to look much better than they did a year ago certainly.

John Fitzgerald - Raymond James

Okay, sounds good. And then I guess switching over to the liftboat side, the hurricane work fell off in the first quarter. Is that something that you kind of expect to come back a little bit more as the business returned seasonally?

Terry Hall

Yeah, we expect the liftboat market to improve... just a couple of things will improve in addition to seasonality. We've got a 230 boat back, which we lost in the whole first quarter. We've got a boat working down in Mexico, the first time in the company's history. And then seasonality always comes into play as we get into the summer. And fortunately or unfortunately depending on your point of view, we've got... hurricanes seems to be a factor that continues to raise head more and more frequently in the Gulf. I am not so sure that weather has really changed that much, but I am sure that most of the infrastructure in the shallow water Gulf of Mexico is very old, very rusty very tired. And it doesn't take a whole lot of marine disturbance to create and also lot of work to the lift of fleet.

So, I am not wishing that we have any issues like that, because they've certainly cut. They heart us in some ways, but nevertheless in think the liftboat markets over the last several years has definitely sort of tracked hurricane activities, and this volatility runs our long side of hurricane activity. So we would anticipate seasonal issues to help us going into second quarter, and early third quarter. And then after that a lot of it will depend on what happens in the tropical weather season. We've also got two new 265-foot class liftboats that we've just taken delivery of, and I think that's going to help us significantly as we go forward. So you haven't seen any revenue from those boats. All of that's going to begin to come into play now. And so I think liftboat business should improve seasonally at the very leased, and I think our international prospects are looking better now than they have in quite above us as well.

John Fitzgerald - Raymond James

And international, is that related to the new liftboats just been deployed?

Terry Hall

Yeah, new liftboats we felt were certainly built to class specification that will qualify the international work, and it seems to be quite a bit of interest in them right now. Again as I said, we've got one boat down in Mexico right now and there seems to be some interest in that as well others for these 265 class vessel. So, we are hoping that we'll be able to place one or both of them in the international market.

John Fitzgerald - Raymond James

All right. Thanks.

Terry Hall

Thank You.

Operator

Thank you. Our next question comes from the line of Jeff Tillery with Tudor Pickering & Co.

Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc.

Hi, Good morning.

Terry Hall

Good morning.

Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc.

The operating margins in you well intervention business held up very well in the quarter. And I am sure some of that though into the wreck removal project. Can you just talk about where you think margin trend kind of over the next quarter or two? Obviously there will be some price pressure in the land business, but just wanted to get a feel for what you guys are thinking on the margin front in that segment.

Terry Hall

I think margins are going to continue to be pressured. If the market stays in this mode, I think you should anticipate the margins are going to go down. That's what always happens in this market, the longer we stay where we are, the more people become desperate, and typically the reaction your comparators in trying to hold market share or get a job or generate cash flows below their price. And that leads to compression of margins for all others. So I fully expect that to happen as we go forward.

Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc.

Then just... you've got questions; in the past, you guys have given either in the rental tools of our engine segment, the pieces and how that performs U.S. land Gulf of Mexico and international for at least one of the segments can you give us some pieces (ph) and some back end of that segment?

Terry Hall

We're going to need to call you back with that.

Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc.

Okay; that's no problem.

Terry Hall

If that be okay, Greg Rosenstein will call you back right after the call.

Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc.

Okay, thank you.

Terry Hall

Thank you.

Operator

Thank you. Our next question comes from the line of Will Sanchez with Howard Weil. Please go ahead.

William Sanchez - Howard Weil

Good morning, Terry.

Terry Hall

Hi Bill.

William Sanchez - Howard Weil

Terry, just want to circle back on the WAND (ph) contract you have in the Gulf of Mexico, you've mentioned a potential completion there first half of next year. I guess when you initially signed that contract back in '08. It was a three year term thinking you'd have revenue recognition in the 2011. What are you doing right now, how active are you in trying to kind of fill out that second half 2010 revenue if you will as you can lose as this contract drop softness. Some of that going to be made up potentially by acquisitions you see making on the... in the well intervention business or is that going to be traditional WAND that you filled that back end with?

Terry Hall

But we fill the backend with new projects that we get a awarded all the time. With that, I think people are making way too much of that contact, Bill. Yeah, we're little bit ahead of schedule and if you look back in '08 and we've talked about, we tried to be very cautious. We always anticipated. Our goal always was to finish the job in a couple of years. It is never thought to take three years.

We tried to be careful, because we didn't know what might happen to us during the course of the things. Certain things could happen that will cause us to be along if you run into problems that we certainly didn't anticipate problems. And the things is really kind of long, long distance. We internally projected it, although externally we didn't tell you we thought we could do it in two years, because all I could do is get some trouble. But I don't want you to think it's going a lot faster really than we thought internally it would, because it's not. And you can imagine many reasons why we wouldn't want to say, we could do it a lot quicker particularly doing the sensitivity that our customers may have on the same go. So many of them... it's not going really a whole lot quicker than we anticipated.

It's going pretty much on schedule. We're making the type of margins that we anticipated to make, and we also anticipate that we will above the work to replace this when this contract lines down, and then we're beginning to see evidence of that right now. Early in the interim, we've added more assets up, and I think that we will be... we will see some sub sea and deep water exposure by mid '10 that we don't have now.

So in general, yes. We feel very confident that we'll be able to replace the revenue of that income stream that we made loose associated with this contract as we take on other contracts, this as we have throughout the history of the company. I think we've always demonstrated the ability to conclude projects or strategies and then move to something else and not see the business fall off. I mean we went from our oil and gas strategy with SP and resources.

We took that, we worked that strategy while we made significant revenues there. We decided to exit that business, but we exited at a time, but we're taking on is nice well abandonment projects. Otherwise you will see a really drastic reduction in our revenues and things that you didn't see there, because we found a way to do it, and I think our company has always found a way to do it, and I think we'll continue to do that in the future. So I don't expect that you're going to see us fall apart. Our performance have significantly changed as we finish this BP project. And then I think other work is there in place now or will be in place to replace it at similar margins.

William Sanchez - Howard Weil

Okay. And on the headcount front, Terry, you mentioned a 5% reduction, you didn't disclose, I didn't hear you in your comments nor on the press release what maybe the charge might have been in the quarter. And if there have been something perhaps to add back to your recurring results, and may if you talk little bit about that, I know you mentioned about a lower G&A outlook. Is that where we should just anticipate you getting the cost savings benefit from or will it get assigned back to the different operating divisions?

Terry Hall

Bill, we're not going to start trying to impact the first quarter financial statement by isolating cost associated with the headcount reduction. I know a lot of people do that that's just not our nature. We reduced our headcount and we are not trying to put over the cost associated with that might be. Clearly, we have some costs associated with it, and we're reducing it, but we're not going to try to take advantage of that at this time. We will probably continue to see the headcount go down. But and you will see that will really run through the subsidiary account and their operating expense side. On the G&A side, that will comedown significantly as I've projected impart. And you've certainly... payrolls are going down, bonus accounts are going down, reduced insurance costs, we've gone to the most of our suppliers and things, and expense things to fall within G&A.

And we've negotiated significant reductions. So, we're bringing G&A down pretty hard. And I think throughout the subsidiaries, they're bringing down their costs very hard. It's not the same percentage; this is not a cookie cutter operation, some can reduce expenses, a great deal more than others, and a lot of it depends on what markets and product lines they're focused on. And we're going to bring the cost down pretty hard, but we're not doing what we haven't done yet. And as compared to a lot of others, we haven't gone out and just really nearly closed doors right and left and had massive lay offs.

I'm not saying that that will never happen, because never say never, but we really try to protect our loyal work force, promotable work force. It's hard to attract those people and we don't like to lose them in a cyclical down turn. So we're trying to hold on to them. We hate to run out and just close stores every time business turns. Because that's a stand open by FIN and some more value you maintain and gain market share. So this could balance here. Obviously when things get really, really bad, you have to start doing things you don't want do. We haven't done that thus far, but we still have the option to do that. If we feel it's necessary to protect our business in the interest of our shareholders.

William Sanchez - Howard Weil

Sure. Thanks for the time, Terry.

Terry Hall

Thank you.

Operator

Thank you. Our next question comes from the line of Joe Agular with Johnson Rice.

Joe Agular - Johnson Rice

Thanks, Good morning.

Terry Hall

Good morning, Joe.

Joe Agular - Johnson Rice

Terry, the contract for the liftboat in Mexico, is it just for the boat or are there other services associated with that work?

Terry Hall

It's just the boat, just the boat. We went down there in a special project, you may remember, you're so go to the platform, the rate got on fire (ph) and we're working down there in connection with recovering those assets that are on the bottom. But it's a great... there haven't been a liftboat working in Mexico in many, many, many years. We've been trying to get in there sometime. And PEMEX actually was a little bit concerned about liftboats, because in the early '90s they had some bad experience, punch troughs and successive penetration and the boats weren't able to do the things that they said they could do. We've been trying to tell them for sometime that modern generation liftboats have much larger pads, the load per square foot, and those much less, the penetration won't be as great. We've got more quarters and deck space, more operating capacity that they really are a viable alternative for working in that market. And that's one thing that we're now proving with the project we're on and they are taking notice of it.

Joe Agular - Johnson Rice

So it seems given all the platforms down there, I guess they're doing all their workovers via drilling rigs then.

Terry Hall

Right.

Joe Agular - Johnson Rice

So, it seems like it could be a pretty big opportunity if you're able to maybe up sell them on some of your services to go along with liftboats.

Terry Hall

I think it's a great opportunity, Joe.

Joe Agular - Johnson Rice

Okay.

Terry Hall

What we're trying to tell them, you recall, we were down years ago trying to get into market. And then again begin to happen with more concerns over past experiences. And I think this is a great way for us to get a boat into market to get the exposure to our people and what the boat can do, and I can tell you that they are very impressed.

Joe Agular - Johnson Rice

Okay. I appreciate that's all I have. Thanks, Terry.

Terry Hall

Thanks, Joe.

Operator

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

Mark Brown - Pritchard Capital

Hi Terry. I wanted to ask on the derrick barge, I think in one of your past conference calls, you mentioned about the $67,000 day rate, I wanted to check what the current rates would be that you would be able to get on that barge?

Terry Hall

Well, we've got the one sitting in Angola, and that's the rate. And that's going to be the rate for a year, and we actually think it's going to... the contract could be extended as an option. So we expect that barge to be in that market for at least a year if not longer at that rate or greater.

Now the barge we have in the Gulf of Mexico is working in conjunction with our Phase A (ph) project, and so that's an internal company transaction there. But that barge, what it would worth today in the market? I don't really know in the spot market. I haven't... we don't really play in that market, so I can't really tell you. I mean my marine department could tell us, I'm sure, but I can't. I would hesitate to speculate what it might today.

Mark Brown - Pritchard Capital

Okay. And in just on the liftboat in Mexico, is that a real growth area that you think not only perhaps the new liftboat, but perhaps some of your existing... more of your existing liftboat could be moved over there going forward?

Terry Hall

We certainly would like to. I mean the boat it says, the 245 class of boat, we've got two brand new 265 for class boats that would certainly be better suited for that market, and we'd love to take them there as well as to several other markets in the world, but they certainly would be ideal to go into Mexico. And I think just a question of PEMEX has to decide is this a cost effective way to try to restore, enhance, and maintain production in those fields, because this is the better alternative to a drilling rig. And I think if you do the math, there is a very compelling argument to make that using liftboat and services boat and liftboat would be a far more attractive way to proceed.

Mark Brown - Pritchard Capital

All right, well, thank you very much.

Terry Hall

Thank you.

Operator

Thank you, our next question comes from the line of Joe Gibney with CapitalOne Southcoast. Please go ahead.

Joe Gibney - CapitalOne Southcoast

Thanks, good morning Terry.

Terry Hall

Good morning Joe.

Joe Gibney - CapitalOne Southcoast

Just one of the follow up on the rental to market, I certainly understand on the enter portions and the push back there. I'm curious if you could talk a little bit about what you are seeing in the trends in the deepwater portion Gulf of Mexico on your Rental Tools space be helpful?

Terry Hall

Well, I think the deepwater is stalling up pretty well as it usually does. So I think those markets don't change that much. Those projects are on the drawing board for a long time. And the commitments are very long term. So that has held up very well, and I think it's holding up internationally as well. So that's not the problem area. The problem area is more in shallow water and on land.

Joe Gibney - CapitalOne Southcoast

Well understood, okay. And just curious on liftboat pricing Gulf of Mexico, I understand certainly in the seasonal uptick from a utilization standpoint I know it's pretty bifurcated if you look at sort of 200-foot class boats and where you are in the upper end. But is pricing picking up along with utilization a little bit or just come general commentary there about expectations in the 2Q on the marine side be helpful?

Terry Hall

Well, utilization is clearly all... pricing hasn't been hurt that much yet. But again unless we get some more activity in the Gulf of Mexico, we certainly hope to see happen, which is normal in this time of year. And I would expect it to be some pressure on the pricing, because the pricing has not been really hurt that bad yet. It's been more of a utilization scenario thus far now.

Again, I think the area that's going to get hurt is going to be small boats most, and our real leverage exist within our long legged boats, and we've got more of those than anybody else. And those are typically the boats we favor using in our well intervention activity. So, I would expect that the longer legged boats are going to hold up much better than the shorter legged boats.

Joe Gibney - CapitalOne Southcoast

Al right, appreciate it. Thanks guys.

Terry Hall

Thank you.

Operator

(Operator Instructions). And our next question comes from the line of Mark Thomas with Simmons & Company. Please go ahead.