Basic Energy Services Management Discusses Q4 2013 Results - Earnings Call Transcript

Feb.20.14 | About: Basic Energy (BAS)

Basic Energy Services (NYSE:BAS)

Q4 2013 Earnings Call

February 20, 2014 9:00 am ET

Executives

Jack Lascar - President and Managing Partner

Thomas Monroe Patterson - Chief Executive Officer, President and Director

Alan Krenek - Chief Financial Officer, Senior Vice President of Finance, Treasurer and Secretary

Analysts

James M. Rollyson - Raymond James & Associates, Inc., Research Division

Michael Cerasoli - Goldman Sachs Group Inc., Research Division

Blake Allen Hutchinson - Howard Weil Incorporated, Research Division

Marc G. Bianchi - Cowen and Company, LLC, Research Division

Michael R. Marino - Stephens Inc., Research Division

Neal Dingmann - SunTrust Robinson Humphrey, Inc., Research Division

John M. Daniel - Simmons & Company International, Research Division

Michael W. Urban - Deutsche Bank AG, Research Division

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

Scott Justin Levine - Imperial Capital, LLC, Research Division

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

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Basic Energy Services Fourth Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, February 20, 2014. I would now like to turn the call over to Jack Lascar. Please go ahead, sir.

Jack Lascar

Thank you, George, and good morning, everyone. Welcome to the Basic Energy Services Fourth Quarter 2013 Earnings Conference Call. We appreciate you joining us today.

Before we begin, I would like to remind everyone that today's comments may include forward-looking statements reflecting Basic Energy Services' views about future events and their potential impact on performance. These views include the risk factors disclosed by the company in its registration statement on Form 10-K for the year ended December 31, 2012, and the subsequent 10-Qs filed with the SEC. The company plans to file next week its Form 10-K for the year ended December 31, 2013. Further, refer to the statements regarding forward-looking statements incorporated in our press release from yesterday. Please note that the contents of this conference call are covered by these statements. In addition, the information reported on this call is only as of today, February 20, 2014. Therefore, you are advised that time-sensitive information may no longer be accurate at the time of the replay.

With that, I'll turn the call over to Roe Patterson, President and CEO.

Thomas Monroe Patterson

Thanks, Jack. Welcome to everyone dialing in for today's call. Joining me today is Alan Krenek, our Chief Financial Officer.

Today, I'd like to begin by reviewing our 2013 achievements, provide an operational overview of the fourth quarter and update current activity levels. Alan will then discuss our financial results in more detail, and I'll wrap things up with some final comments.

2013 was a challenging year. Customers in active oilfields of our footprint were slow to start their capital campaigns in the first half of the year. Once they did begin to ramp activity, they generally held their spending within their cash flow levels, maintaining this discipline in the majority of the year. Compounding this sluggish pace was the continued migration of service assets out of our gassy markets and into these oily markets. While much of this equipment encountered extreme difficulties trying to compete in those markets, their downward effect on pricing was felt throughout the year.

We successfully maintained our market share by meeting pricing discounts, and our field operations continually provided our customers with the highest level of service. We implemented an aggressive cost reduction program early in the year that assisted us in holding margins relatively flat. So although pricing competition was intense, we managed our costs accordingly and generated an adjusted EBITDA of $235 million.

We're happy to report that our operating environment appears to be improving. Contrary to 2013, this year, our customers are actively scheduling projects, requesting additional capacity and seem to be executing their capital plans earlier in the year. This activity should inch revenue and utilization higher as we move through the year, but we do not expect a dramatic upward movement in price in the near term. As service capacity levels come into balance with activity levels, utilization usually improves enough to move rates. We've only seen this in a few markets so far. These increases are usually foreshadowed by rising wages, and we expect the same scenario in 2014.

In response to this current and anticipated increase in overall business, we've expanded our capital budget to $215 million for 2014. Alan will describe this budget in a moment, giving more detail to our expansion plans versus our maintenance needs. This budget increase is reflective of Basic's consistent strategy to quickly react to market conditions with respect to CapEx, deploying capital swiftly when growth opportunities arise and conserving cash when markets begin to soften.

In 2014, we spent almost half of our expansion capital in growing our integrated Fluid Services business. We made significant progress expanding our saltwater disposal well network, adding 10 facilities, ending the fourth quarter with 81 SWDs. We also added to our Fluid Service truck fleet, ended the year at 1,003.

The logistics of sourcing freshwater, transporting all types of water, recycling and, finally, the disposal of water is a growing business segment. Our strategy to meet this logistical demand has been an integrated business approach, providing our customers with the best options to fit their individual needs by using our extensive footprint of assets and facilities and maintaining experienced local operating teams to help customers manage the process. Nowhere does Basic create this benefit for customers better than the Permian Basin.

In 2013, we also expanded our Completion and Remedial Services segment. We added more assets to meet the growing number of horizontal wells within our footprint. Larger rental fluid pumps and power swivels for our rental stores, additional snubbing units and other ancillary pieces of equipment tailored for horizontals made up the bulk of the spending. While the true service intensity of newly drilled horizontal oil wells is yet unknown, Basic's suite of modern assets are in an ideal configuration to meet the demands of a growing number of horizontal wells. From our modern fleet of well servicing rigs, our coil tubing units, snubbing units, to our larger rental service fleet, we're in great shape to meet our customers' horizontal needs.

Now let's discuss the quarter. The fourth quarter of 2013 created a mixture of operating environments for us. Severe storms impacted most of our footprint in late November and early December. Strong customer activity during the fair-weather periods of the water allowed us to offset the weather impacts and holidays for the most part. This activity and the cost control measures I mentioned before allowed us to keep margins intact during the quarter. This result was better than anticipated.

Reviewing our individual operating segments. Completion and Remedial Services experienced a 3% decrease in revenue quarter-over-quarter. Pricing in our Pumping segment, especially frac work, was still competitive in the fourth quarter. Weather and holiday slowdowns were the primary headwinds for revenue in all service lines of the segment, especially during these severe storm intervals.

Our rental and fishing services segment, which has significant yard concentration in the Permian Basin and the Mid-Continent regions, was disproportionately impacted by the 2 largest storms of the quarter. However, our field operations were able to control costs and produce flat, sequential margins for the Completion and Remedial Services segment of 35% for the third consecutive quarter.

Looking forward, pricing will generally remain competitive in the segment in the near term, but we have seen some opportunities for rate improvement in selected markets. Attrition of excess pumping capacity has probably exceeded most industry estimates, and a strong 2014 domestic drilling campaign could bolster rates as the year unfolds. We will expand our coil tubing division in 2014, with 1 unit retrofitted for 2 3/8 inch coil and at least 2 more additional 2 inch units. We will also expand our pumping assets with additional blenders, hydration units, cementers and asset pumping equipment to meet current customer requests. Our margin in these business lines have remained stable and should benefit from increased utilization. Therefore, they justify additional growth capital this year.

Our Fluid Services segment saw increased revenue of about 2% in the fourth quarter. Trucking hours increased slightly as we added 16 trucks during the quarter, offsetting some of the weather impact. We also increased hot oiling and frac heating revenues during the cold weather. As I said before, we continue to add to our saltwater disposal well network, finishing the year with 10 adds, for a total of 81 wells. Segment margin was down 170 basis points from the third quarter to 29% in the fourth quarter. Weather-related delays in the truck-heavy Permian Basin affected margins, and we also experienced some downtime for a few disposal wells during the quarter. Impacts by weather interruptions and repairs caused our disposal costs to increase, putting pressure on margins. We expect this segment to remain price competitive in the near term. But we have maintained our market share well, and our disposal well network gives us a competitive advantage. Barring any late winter weather, we expect utilization to remain relatively stable, and so our margin should return to levels we saw in the second and third quarters of 2013 over time.

Our Well Servicing segment showed a 14% sequential decrease in revenue. Average utilization decreased to 66% from 75% last quarter, as weather, holidays and short daylight hours impacted the segment. Utilization in our inland barge fleet also decreased due to seasonal downtime. However, pricing overall remained flat quarter-over-quarter, finishing the year at $404 per hour. Margins in the segment remained generally flat with the third quarter at 28%, including Taylor Industries, and down only slightly to 27%, excluding Taylor's impact. Strong Well Servicing activity at the end of the quarter offset the weather-related interruptions, keeping margins at only a 60-basis-point reduction from the previous quarter.

Near term, and again barring any weather delays, we expect utilization to improve, with increased drilling and workover activity. This should move revenues higher and should bolster margins as well as we move throughout the year. Pricing improvement is probably a little far off. It's still too early in the year to forecast rates.

Our Drilling segment revenue was down 7% from that of the third quarter, at $12.8 million. Rates in this segment were basically flat, but utilization was down slightly from the prior quarter of 76% to 71%. Our 3,000-horsepower drilling rigs experienced weaker utilization as demand for mid-depth vertical drilling rigs decreased during the year. We do feel the shift from vertical to horizontal drilling in the Permian has less room to move in 2014 than it did in 2013. The vertical programs currently active in the Permian Basin are legacy drilling programs, with generally high returns for our customers, and we expect those to remain in place. Our shallower mechanical rigs and our larger horsepower electric rigs continue to maintain stable rates in utilization, and we don't expect this to change in 2014. Margins in this segment were up almost -- were up from 34% to 35%, and generally that was on lower repair and maintenance costs.

Now I'll turn the call over to Alan for a more in-depth review of the financial results from the quarter.

Alan Krenek

Thanks, Roe. This morning, I'll provide additional details on our fourth quarter income statement, as well as discuss balance sheet and cash flow items. In addition, I will detail our 2014 capital spending plans. As customary, when making comparisons comments, we'll focus on sequential changes, unless otherwise noted.

In our Well Servicing segment, Taylor Rig Manufacturing produced revenue of $3.4 million in the fourth quarter, down from $5.9 million. Segment profit declined to $624,000 compared to $780,000 in the third quarter.

For our Completion and Remedial Services segment, in the fourth quarter, 59% of revenue was generated from our pumping services, 21% from rental tools, 15% from coil tubing and 5% from snubbing services. We continue to generate the largest portion of our revenue from the Permian Basin.

During 2013, we generated approximately 43% of our revenue there. During 2013, our top 10 customers represented 35% of our total revenue, but no one customer was over 9%. Please keep in mind that at the beginning of each year, unemployment payroll tax is reset. This reset impacts our more labor intensive business lines, Fluid Services and Well Servicing, the most. As a percent of revenue, we expect the reset of the unemployment payroll tax will result in about 100 basis points reduction in consolidated EBITDA margin. After that -- after the first quarter, it returns to normal levels.

Our G&A expense for the fourth quarter was $37 million, which was below our guidance of $39 million. We realized that reduction in fourth quarter -- in the fourth quarter from a decrease in bad debt expense and true-ups of year-end accruals. More importantly, we were able to make substantial improvement in lowering G&A from our cost-saving initiatives, which began earlier in 2013. The majority of these cost reductions will continue into 2014. Our fourth quarter G&A was down from the comparable third quarter figure of $40 million, which excluded a $3.2 million pre-tax impact of special items. In both quarters, G&A was 12% of total revenue. We expect the G&A expense in the first quarter will be about $39 million.

Depreciation and amortization expense was $54 million in the fourth quarter, essentially the same as in the prior quarter. We expect depreciation and amortization expense for the first quarter will remain at about $54 million.

Net interest expense was $17 million in both the third and fourth quarters. We expect that the quarterly net interest expense will be $17 million going forward.

Our fourth quarter effective tax benefit rate was 39% versus 41% in the prior quarter. In the third quarter, we have projected a full year rate of 35% for 2013, and that's where it came in at. We expect that our tax rate for 2014 will be around 35% also.

Our net loss for the fourth quarter was $7.4 million, or $0.18 a share, for both basic and diluted shares. Weighted average shares outstanding were 40.3 million during the fourth quarter. We did not repurchase any shares in this quarter, and 20 million remains under our approved share repurchase plan.

At year-end, we had a cash balance of $112 million, up from $100 million at September 30 and down from $135 million at year-end 2012. During 2013, we generated $166 million of cash from operating activities, used $140 million in investing activities and used $49 million for financing activities.

Total liquidity, including availability under our revolver, was $324 million. No amounts were drawn on our revolver at December 31.

Our DSO at the end of the fourth quarter was 64 compared to 61 at September 30.

We ended the year with $888 million of debt, consisting of $300 million of senior notes due in 2022, $476 million of senior notes that are due in 2019 and $112 million of capital leases.

Our fourth quarter total debt-to-EBITDA ratio was 3.65x, well within our amended revolver covenant of 4.5x. For the first 2 quarters of this year, the maximum leverage ratio covenant decreases to 4.25x and then returns to 4x for the September 30 quarter.

During the fourth quarter, total capital expenditures were $48 million, including $14 million for expansion projects, $30 million for sustaining and replacement and $4 million for other. Expansion spending included $4 million for the Fluid Services segment, $8 million for the Completion and Remedial segment and $2 million for other. As Roe mentioned, our capital spending plan for 2014 is $215 million, consisting of $85 million for expansion projects, $122 million for maintenance and sustaining and $8 million for infrastructure and IT projects. The expansion capital of $85 million is allocated as follows: $45 million for our Completion and Remedial Services segment; $34 million for Fluid Services; $5 million for Well Servicing; and $1 million for Contract Drilling. More specifically, for Completion and Remedial Services, we plan to spend $17 million for additional frac and general pumping capacity, $17 million for 2-inch coil units and a conversion of an existing 2-inch unit to 2 3/8, $6 million for expansion of our rental fleet -- rental tool fleet to meet the growing demand for higher-spec equipment due to the increase in horizontal drilling activity. For Fluid Services, our plans include $20 million for expansion of our saltwater disposal well network and $9 million for expanding our truck fleet.

The spending for 2014 is planned to be first-half loaded. However, this can be changed quickly, either up or down, depending on the direction of the operating environment. We were disciplined in deploying capital, both CapEx and acquisitions, in 2013. This year, we will continue to be disciplined, waiting for those opportunities that offer good returns.

At this point, I'll turn the call back over to Roe.

Thomas Monroe Patterson

Thanks, Alan. Well, 2013 was a difficult year, but our company weathered the storm well. We reduced costs, held market share, expanded our modern fleet of equipment and put our assets in the position to capitalize on a better 2014. I'd like to thank all of our employees for a job well done.

Heading into the first quarter, we anticipate revenue will be up 4% to 5% sequentially as activity heats up. We expect the Permian to see high activity levels based on customer spending plans. Our position there gives us a unique opportunity to maximize any increase in demand for our services.

Throughout the company, our management teams have done a great job in the past of capitalizing on opportunities for growth as they present themselves. As we stated, we've increased our capital spending program this year, and we can adjust it further as demand dictates. We can also make cash available for acquisitions that we feel and find compelling. We expect 2014 to be a year of increased consolidation in the Service space. So we look forward to this coming year.

And with that, operator, we'll turn the call over for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Jim Rollyson with Raymond James.

James M. Rollyson - Raymond James & Associates, Inc., Research Division

Roe, at one point last year, you were talking about the potential for some of the gassier areas that have -- a little bit more mature, seeing operators go back in and do some well servicing that was getting to that point in time. Curious, given the run in gas, if you're seeing an activity or interest levels in that type of work and/or just gassy activity in general, what you're kind of hearing?

Thomas Monroe Patterson

Not really. So far, it's been pretty steady kind of how we finished the year. It just -- it's not moving much. I don't think many of our customers in these dry gas basins trust these gas prices just yet. I think they feel that it could be a cold weather anomaly and a reflection of what storage is doing right now. So I think they're watching to see if prices have legs coming out of the winter weather. And if that was to see some kind of stability above $4, I do think we could see some workover activity. We're certainly a long way from any kind of new drilling economics, but some workover and maintenance activity is certainly in the cards if we can stay stable in the mid-4s. So that's what we're hoping for and where we expect to see some increase, but we have not seen it yet.

James M. Rollyson - Raymond James & Associates, Inc., Research Division

Okay, that's helpful. And on the Fluid Service side, you guys obviously kind of bucked the trend last year in continuing to hold margins up with investments in SWDs and investing again there this year. Maybe a little bit of discussion on the landscape, how things are competitively, both in the trucking and injection rate, what people are charging per barrel, just a little bit of color there and how that is going -- trending going forward.

Thomas Monroe Patterson

Well, I think pricing has generally stabilized. It's still very competitive in most markets just because we have a lot of capacity. But it's -- prices are generally stable. What makes us a little different is that disposal well network, where we're able to gain a little margin there probably than people that are pure truckers, who have to pay for their disposal costs. So that's what makes us kind of ultra competitive in that environment, where we have a good disposal well network. But overall, pricing and activity has been generally stable.

Operator

Next is Michael Cerasoli with Goldman Sachs.

Michael Cerasoli - Goldman Sachs Group Inc., Research Division

Can we get a little more color on the higher CapEx spending? It sounds more like upgrades are a supplemental capacity than anything incremental. It makes sense to shift the -- your fleet to mirror the transition to horizontal. But will there be a revenue uplift from these investments or is it just about kind of helping you stay competitive?

Thomas Monroe Patterson

No, it's actually expanding in the markets that we're in. So, like I said, these expenditures will be first-half loaded, but revenue probably won't start coming in from these investments until sometime in the middle of the second quarter, and then we won't really won't have a full effect probably until more middle or towards the end of the third quarter, as those coil units will take a little bit of time to get those in and get them out in the field. The pumping capacity that we'll be bringing in has a shorter lead time, so that will come in earlier.

Michael Cerasoli - Goldman Sachs Group Inc., Research Division

Okay. And the balance achieved comment, and you talked about you're very kind of tentative on kind of saying pricing improvements will happen any time soon, so I understand that. And there is a process involved before you would see that. I think you mentioned wages being one of the first things that you need to see rise first. So I guess the natural question is are you seeing any wage pressures at this time, and those other kind of inputs that happen before pricing power comes back, where do we stand? Maybe a little more insight there.

Thomas Monroe Patterson

Well, where we've been able to move rates pretty much generally was in response to wage increases. So we really just kind of offset that wage increase right now. So we have -- I think it's still really early and too soon to predict any kind of traction that would -- that could generate additional or incremental margin. So right now, that is exactly what we have seen, is those wages kind of spurring that rate increase. And that's only happened in those markets where I said capacity's kind of balanced out with activity.

Operator

And next is Blake Hutchinson with Howard Weil.

Blake Allen Hutchinson - Howard Weil Incorporated, Research Division

Just wanted to hit on your commentary in the release and then your preamble regarding some of the investment in ancillary horizontal equipment. As we see the impact, and that was really through the course of '13 and into '14, as we see the impact, should we see that as compartmentalized to completion and remedial services? Or is this a commentary of kind of equipping your rig-based fleet with a better arsenal to address the horizontal world and we should kind of start to see maybe a mix shift towards either completion work in the rig fleet or remediation of horizontals in the rig fleet?

Thomas Monroe Patterson

Well, the rig fleet is set up already to handle the horizontal work. So it really doesn't need any kind of augmentation. Our rigs, by and large, can handle pretty much any kind of horizontal completion activity. And remember, the completion part of our Well Servicing business is relatively small. It's only 10% to 15%, just because it takes such a short time to complete a well and such a long time to drill it. You really only need 1 well servicing rig to keep up with 4 or 5 drilling rigs. So the bulk of our Well Servicing business is mainly maintenance and workover. As far as to the Completion and Remedial Services segment and those some additional assets, we need larger pumps to clean and sweep those holes where the long laterals exist and larger power swivels to be able to rotate our tubulars as we're drilling out plugs, et cetera. So we use those assets to help in that horizontal service business. From a remediation standpoint, as far as maintenance work down the road, the horizontal oil wells are too young and the process too new to really speculate on what that service intensity is going to look like.

Blake Allen Hutchinson - Howard Weil Incorporated, Research Division

Great, that's very helpful. And then, I guess, secondarily, I was intrigued by your commentary with regard to the level of attrition in the pressure pumping fleet maybe it being a little bit higher than would popularly be perceived in the industry. Is your commentary specifically related to the Permian as the mix of business changes? Or do you think this is probably prevalent throughout the kind of the basin-by-basin analysis?

Thomas Monroe Patterson

Well, I think that depends on the capacity overhang that existed in each basin, but I think it's probably more general than it is Permian-specific. And the reason for that is the longer laterals, the 24-hour work, the higher rates that a lot of service companies are being asked to pump at, it just creates a lot of additional wear and tear on assets. And what that's done is increase that rate of attrition over the last 18 to 24 months. And since the newbuild programs for additional pumping capacity was pretty slim over that same time frame, you can only speculate that we burn through a lot of that overhang just keeping up with the accelerated pace of what we've done in the pumping business, more sand, more rate and 24-hour jobs.

Operator

Next is Marc Bianchi with Cowen and Company.

Marc G. Bianchi - Cowen and Company, LLC, Research Division

Previously, you guys have given an expectation for kind of market demand growth or spending growth from your customers. I think, previously, you said 5% or mid-single digits. Where are you seeing that right now for 2014?

Thomas Monroe Patterson

I still think we're in that high- to mid-single digit, Marc. Kind of generally, we're talking about our entire footprint. I think you're looking at the Permian, it's probably 15% to 17% increase there specifically.

Marc G. Bianchi - Cowen and Company, LLC, Research Division

Okay. Do you see any areas where you're working where activity is decreasing?

Thomas Monroe Patterson

No, not right now. I mean, even these dry gas markets are generally stable. So where there's oil, we're generally seeing an uptick, increase in spending and -- or now spending plan. And where they're -- where it's predominantly gassy, we're just maintaining the current spend rate.

Marc G. Bianchi - Cowen and Company, LLC, Research Division

Okay. And on the 4% to 5% revenue growth for the first quarter, with what you can see right now in second quarter and kind of what you're hearing about in the back half, is that the kind of trajectory we should be expecting? Maybe on a year-over-year basis, I think it implies 6.5% year-over-year. Is that how we should think about the progression from here?

Alan Krenek

No, I think you would have to project that the second and third quarters would uptick a little bit more than the 4% to 5%, and then you'll have a seasonal downtick in the fourth quarter to kind of offset that. So the second and third quarters should realize a higher rate of growth.

Operator

Next is Mike Marino with Stephens.

Michael R. Marino - Stephens Inc., Research Division

Roe, you mentioned -- or I guess you weren't going to go out as far as to say you thought you'd see pricing in '14, but if -- I guess I'd be curious to know what your thoughts are from a product line or service standpoint, if you were to get pricing in any 1 service or 2 services, what do you think has got the most likelihood of happening in '14?

Thomas Monroe Patterson

I think it's Completion and Remedial Services. Kind of broadly across those service lines, those business lines, I think we'll see some potential for price, either -- it depends on the pace of acceleration for spending throughout the year. It could be as early as the latter part of the second quarter or mid-second quarter or it could be a second half of '14 type event, but I think that's where we'll see it first if and when we see it.

Michael R. Marino - Stephens Inc., Research Division

Okay. And then just kind of to follow up on that, the pumping adds that you talked about, are those regionally or specific to one region? And is it kind of more on spec or do you have a customer lined up ready to take another -- and is that 7 -- I guess that $17 million on the pumping side, is that for a crew or is that kind of split between some crews? I mean, could you just give us some detail on how that incremental spend falls into the fleet?

Thomas Monroe Patterson

It's spread out. It's probably more Permian weighted than anything else, but it's spread out. And it's not necessarily additional spread. It's spread out across all of our needs throughout the pumping piece. And we expect to -- probably, our Mid-Continent region will receive a piece of that, and the Rockies will receive a piece of that, and then also, like I said, the Permian is probably going to get a generous piece of it.

Operator

Next is Neal Dingmann with SunTrust.

Neal Dingmann - SunTrust Robinson Humphrey, Inc., Research Division

Roe, just wondering on the rig manufacturing side, I'm pleasantly surprised it's able to hold in there like it is. I guess, given kind of what you're saying about excess supply out there, what's your thoughts about sort of that business for at least the first half or most of this year as you sort of see demand right now in inventory for that business?

Thomas Monroe Patterson

Well, they're certainly entertaining more inquiries than they were in the third and early fourth quarter there, so that's good news. So we expect the pace to be flat in the first part of the year. But if those inquires start to turn into actual orders, they could accelerate and start to really grow in the second and third quarter. But right now, it's inquiries mainly, not a lot of firm orders.

Neal Dingmann - SunTrust Robinson Humphrey, Inc., Research Division

Okay, that makes sense. And then just to follow up, I know you're hearing a lot about the workover excess capacity. I was wondering -- again, I'm just wondering, some other areas, they're starting to develop. Is it still too early for, I guess, some of these, like a Utica or more in the Bakken, again, would you guys go into some of those areas or are you just going to kind of still stick with the Permian, where your core has been?

Thomas Monroe Patterson

Well, generally, on those developing trends, we wait until the well count gets a little higher because, as we said, 85-some-odd percent of the workover business is maintenance and workover type work. It's really not a lot of completion work. So we try to drive the growth in that business and the transplant of that business by well count rather than just a buzz around new drills. So we'll wait. As that well count grows and the density of projects grow in those areas, then we'll start to move in.

Operator

And next is John Daniel with Simmons & Company.

John M. Daniel - Simmons & Company International, Research Division

Roe, you mentioned the attrition, and I want to follow on Blake's question. At this point, has the attrition hit your fleet? Or maybe a better phrase is, what point will you have to start rebuilding your frac equipment?

Thomas Monroe Patterson

Well, we're a little different. We try to stick to the lower-rate, kind of 100-barrel-a-minute-or-less type jobs. We predominantly frac in the vertical market and the mid-range or mid-level horizontal. But since our business is predominantly vertical, frac oriented and low-rate oriented, we tend to wear our equipment out a little less than a lot of our larger competitors in that space. So we maintain those fleets. We constantly have to replace a transmission here, an engine there, a pump or a fluid in here. But generally, if you look at the life of those pumps, we get quite a bit more life out of our assets than they do theirs.

John M. Daniel - Simmons & Company International, Research Division

What would you say is a reasonable -- in the current environment, reasonable useful life for the vertical fleet versus the horizontal fleet?

Thomas Monroe Patterson

I wouldn't -- I'd hate to speculate on the horizontal side exactly when those guys are rolling over and having to turn over and completely replace a pump. I would say it's probably in a 2-year time frame type, and we probably are closer to a 4- to 5-year timeframe.

John M. Daniel - Simmons & Company International, Research Division

Okay. One of the things that is becoming a bit more evidenced we're seeing more signs of the companies increasing CapEx, really ahead of a real improvement in margins. Are you -- don't take this the wrong way, but are you concerned that the oil service industry is jumping the gun a bit here?

Thomas Monroe Patterson

No, I don't think so. I think you can look at the margins and the stability of the margins even during a period like the fourth quarter, with the large weather impacts, our typical holiday and seasonal impacts. And for margins to remain very stable, it looks like a lot of our peers saw similar results, and that's encouraging. So I don't think it's -- I think that that's probably reflective of what we hope to expect throughout the rest of the year and, hopefully, improvements through the rest of the year. And so I don't think it's really jumping the gun. I think it's probably right on pace.

John M. Daniel - Simmons & Company International, Research Division

Okay. Just last one, housekeeping. Saltwater disposal wells, I think you mentioned $20 million of spend there. Can you just quantify how many wells you think you'll get done this year?

Thomas Monroe Patterson

Yes, I mean, we have some in process now that that we budgeted last year and then with the money that we'll spend this year. So we're probably around 10 or so, kind of the same as we did last year.

Operator

And next is Mike Urban with Deutsche Bank.

Michael W. Urban - Deutsche Bank AG, Research Division

Roe, you'd mentioned that you thought this would be a year of consolidation in the industry. I mean, you guys have been active consolidators in the past and have always said you're eager to participate. But it seemed like there was a pretty significant gap between the bid-ask. It seems like that's changed a bit. What's driving that? And are there particular parts of the industry that you would expect to consolidate?

Thomas Monroe Patterson

Well, I think expectations on the seller side have definitely come more into balance with our evaluations. I think that's reflective of not only the business outlook but also a pretty tough '13. So when we were early in '13 and when it was hard to make a deal or find a deal that was compelling and we had a bid-ask separation that was a pretty wide gap, I think it was because people were generally trying to forecast and get paid on '12 -- early '12 results versus what we were seeing in the '13. So I think if the bandwidth is narrowing, it's probably because outlook is better and '13 was pretty rough on a lot of the smaller companies that might want to look to sell. As far as individual lines of business, we would probably look at anything that was compelling, that made good sense. But obviously, our Completion and Remedial Services segment would be kind of first in line. Fluid Services would be next. And then it would have to be very compelling to get us interested on the Well Servicing side because our organic growth capacity is so good there, and we already have a pretty good coverage. So it would have to be a really impressive tuck-in to get us interested there, but it's possible. And then Drilling would be last because the price of poker is so high there on the high-spec newbuilds. So for a company our size and our configuration, that's probably the toughest bet. And then we're always looking for a new business line that makes good sense and fits with our suite of assets.

Operator

And next is Daniel Burke with Johnson Rice.

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

Just wanted to ask a question on the Fluids business. It's a business you could continue to commit capital to. It's not necessarily one where you expect pricing. Roe, I think you talked about low-30% margins in the near term. But can you get that business to sort of that targeted mid-30s level by midyear without pricing?

Alan Krenek

Yes, that will probably be pretty tough, Daniel. We'll -- like you said, we'll get increased volumes, but that can only add kind of up to about a 100-basis-point margin just from the volume. We'll need that market to come more in the balance, so we can get better pricing, and that won't happen by the middle of the year.

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

Okay. And to the extent that market could become more balanced, would you be reliant -- would you expect to see strengthening in your core in the Permian or more broadly throughout the footprint? What's more likely?

Thomas Monroe Patterson

I think it would be pretty broad. Those assets move around easily. And so we saw a lot of the -- of those assets show up from these gassy markets, and we're just going to have to work through that capacity. And we don't really know at what point that's going to happen, but it'll probably be -- the Permian would certainly be a bellwether for the rest of those markets because it is so truck heavy. So we'll probably see it there first, and then it'll trickle to the rest of the basins across the country.

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

Okay, that's helpful. And then maybe just one other one. On the addition of the coil assets, do you all plan to deploy those into the Rockies or the Permian?

Thomas Monroe Patterson

Generally, we'll probably work those in the Rockies.

Operator

And next is Scott Levine with Imperial Capital.

Scott Justin Levine - Imperial Capital, LLC, Research Division

With regard to the balance sheet, you guys had said recently that you'd like to see your debt levels come down a little bit lower than where they've been. You got spending picking up and, conceivably, a pickup in M&A activity if the right opportunity presents itself. If you could update us with regard to your thoughts on the balance sheet comfort levels here and assuming, obviously, the buyback is still off the table, given where the stock is.

Alan Krenek

Yes, I would say that with regards to debt, I mean, it's more, but we don't want to increase the amount of debt that we have in the near term. And then at some point in time, when these bonds become callable, then we'll look for ways to pay down debt. But most of the deleveraging is going to happen through growth, either organically or by acquisition. But again, I think for the near term, we're not going to be increasing our debt level.

Scott Justin Levine - Imperial Capital, LLC, Research Division

Understood. And as my follow-up, not to -- well, I guess, if I could look for a little bit more color on the Fluids business, the investment there consistent to what you guys have done in the past. But maybe a little bit more color regionally. It sounds like there hasn't been any major change in trend within your markets. But within which market -- it sounds like the Permian would probably lead in terms of any improvement in supply/demand balance, but a little bit more color on whether you're getting more optimistic regarding competitive balance within that business than you were, say, 3, 6 months ago.

Thomas Monroe Patterson

Well, it's shown a lot of stability. We've seen some exits from some of the smaller competitors that just can't survive without their own disposal well capacity. So it gives us comfort that our strategy of growing market share and expanding our fleet around saltwater disposal wells is a good strategy. So we feel like the markets that are going to be generally busy are -- well, those are the places that we'll consider growth, that's going to be the Permian, the Eagle Ford, in some areas of the Mid-Continent and the Bakken. And we'll watch those and look for opportunities to grow. It's tough to do acquisitions in those markets, but because a lot of times the trucks, if they've been in a lean-margin environment, they're in pretty rough condition because the owner-operators couldn't maintain their repair and maintenance costs. So you could end up buying those trucks twice, and that's certainly something we want to stay away from. So the organic growth looks like the best opportunity to grow that business. And with stable rates and stable margins, it's a compelling venture.

Operator

[Operator Instructions] Next, we have Jeff Tillery with Tudor, Pickering, Holt.

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

Most of my questions have been asked. But as you think about the progression through the course of this year, just given the seasonal improvement in Q2, is that the point in time where you think the company overall turn -- returns to overall profitability on a net basis?

Alan Krenek

In our current plan, yes, that would be true, Jeff, that the second and third quarter would be regaining back toward a positive net -- positive income.

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

Great. And if I think about the year in its entirety, just the composition you talked about, kind of mid to high single digits overall spend growth, your exposure to the Permian with that higher level of growth, does it look like, I mean, at this point, kind of high single digits top line growth for you guys for the full year? Is that kind of best guess at this point?

Alan Krenek

Yes, that pretty much corresponds to our customer spending number that we've been talking about. That pretty much equates to the revenue growth that we expect for this year. And then, of course, you've got to take into consideration the cap -- the expansion CapEx number that we've talked about, although it's -- part of that is going to be spaced out. Like the Fluid Service piece, expansion is going to be pretty much pro rata. But when you get into, like, the coil, that's going to be -- the revenue production of that's going to be more back half. And then the frac and pumping adds will be middle of the second quarter and really not full effect until the third quarter.

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

And then just with revenues seasonally down in the fourth quarter in both the Completion and Remedial and Well Servicing businesses, yet margins hanging in there, I mean, is that evidence of the cost reductions you're taking out, I mean, or was it anything into the mix in businesses? I'm just trying to look for a little color on just kind of how well margins did stay supported in the fourth quarter?

Thomas Monroe Patterson

I think it's a reflection of a combination of what we did with our cost-cutting strategy and also the customer activity level. So there's a little better sense of urgency out there on the customer's part. And so when we did have those fair-weather conditions and breaks in the fourth quarter, where we could operate, customer demand was good. It was strong, so that was encouraging. And I think what we said about January operating data is that's rolled over into the first quarter and has stayed stable. So that's all good news for our business.

Operator

And I'm showing no further questions. I'll turn the call back to management for closing comments.

Thomas Monroe Patterson

All right. Thanks, everyone, for joining us. We really appreciate it, and we'll talk to you next quarter.

Operator

Ladies and gentlemen, this concludes our conference. Thank you for your participation. You may now disconnect.

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