Pioneer Energy Services' CEO Discusses Q1 2014 Results - Earnings Call Transcript

Apr.29.14 | About: Pioneer Energy (PES)

Pioneer Energy Services Corporation (NYSE:PES)

Q1 2014 Earnings Conference Call

April 29, 2014 10:00 AM ET

Executives

Anne Pearson – IR

Stacy Locke – President and CEO

Lorne Phillips – VP and CFO

Analysts

Jim Rollyson – Raymond James

Mike Urban – Deutsche Bank

Matthew Marietta – Stephens Inc

Daniel Burke – Johnson Rice & Company

Jason Wangler – Wunderlich Securities

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Pioneer Energy Services First Quarter Earnings Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Tuesday, April 29, 2014.

And I would now like to turn the conference over to Anne Pearson of Dennard Lascar, Investor Relations. Please go ahead.

Anne Pearson

Thank you, and good morning, everyone. Before I turn the call over to CEO, Stacy Locke; and CFO, Lorne Phillips for their formal remarks, I have a few of the usual items to cover.

First of all, a replay of today’s call will be available and accessible by webcast by going to the IR section of Pioneer’s website and also by the telephone replay. You can find the replay information for both in this morning’s news release. As a reminder, information reported on this call speaks only as of today, April 29, 2014, so any time sensitive information may no longer be accurate at the time of a replay.

Management may make forward-looking statements that are based on beliefs and assumptions and information currently available to them. While they believe the expectations in these statements are reasonable, they can give no assurance they’ll prove to be correct. They are subject to certain risks and uncertainties and assumptions described in this morning’s news release and also in recent public filings with the SEC. If one or more materialize or should underlying assumptions prove incorrect, actual results may differ materially. Also, please note this conference call may contain references to non-GAAP measures. You’ll find a reconciliation to the GAAP measures in this morning’s release.

Now I’d like to turn the call over to Stacy Locke, Pioneer President and CEO. Stacy?

Stacy Locke

Thank you, Anne, and good morning. I hope everybody has had a chance to review the press release. Joining me here in San Antonio on the call today is Red West, President of our Drilling Services segment; and Joe Eustace, President of our Production Services segment; and Lorne Phillips, Chief Financial Officer.

As you can see from our press release, we had a very good start to the New Year. The strength that we saw in the fourth quarter carried over into the first quarter, and activity levels were very robust, particularly in Production Services in what is normally a seasonal low quarter for us. So we’re very pleased to see that, as you can see revenues were up, EBITDA was up.

Our Production Services segment hit an all-time record of a $121 million in revenues. And that was on an improving margin over the prior quarter. So that’s terrific. It was the best ever quarter for the wireline business line and for the well service business line. And the second best quarter for our coil tubing business, which is extremely good news.

And for the first time ever, Production Services actually generated more revenue in the quarter than Drilling. However, with some of the developments we’ll be talking about today, Drilling will hopefully soon catch up as we move forward into 2015.

Taking a look at the Drilling segment in more detail. I’d say the U.S. drilling market was essentially unchanged from the last quarter. We’re still 100% utilized in our West Texas division with 18 rigs. We’re 100% utilized in the Bakken with 11 rigs. The same two rigs were down in Utah out of a total of seven rigs. The same two rigs were down in the Marcellus out of four rigs. Those four rigs that have been down are 60 series rigs.

We do have some hope of putting them back to work, or some of them back to work, but for the current time they remain down. And then we have one of the same rigs down in South Texas which is a rig that’s been kind of warm stacked, small cap at 750. And then we have one other rig down in South Texas just on a temporary basis. I think it’s going back to work either today or tomorrow.

But generally speaking and we have 14 total rigs in South Texas. Generally speaking the drilling market is strong, and we think has a very positive outlook. And due to that we have began our marketing efforts on a new generation 1500 AC design rig, that’s going to be very similar to the 10 rigs that we built most recently, which have performed extremely well, just a minor tweaks on them to improve rig-up, rig-down and mode [ph] times. So we’re excited about that new design, and we are having some good dialogs with clients on that rig.

As we did before, we are not trying to capture market share on these rigs, at least some, but we’re not trying to recoup market share, and mostly interested in a good investment. So we’re looking for a minimum three-year term and a very good rate of return on that rig.

Dayrates across the board have been firm and are beginning to improve a bit. I think in the first quarter, we really didn’t have any rate increases. However, we did improved some rates that we’ll start to see in – you were seeing them in the second quarter – or the rate adjustments occurred in the second quarter, and we’ll see the impact mostly in the third and fourth quarter, but with the strengthening environment, we’re confident we can secure the kind of dayrates that we’re looking for our newbuilds. And those rigs would be delivered in 2015.

In Columbia, as we talked about on the last call, all the rigs are contracted. However locations for two of the rigs still have not been completed. Rig 21 is going to be moving within the week. It’s now going to be moving not to Castilla field as we have previously thought, but up to the middle Magdalena valley. So it will be on a long move here beginning sometime next week. And then Rig 52, which is the rig that we upgraded from 1,000 horsepower to a 1,500 horsepower rig, the location has been delayed there. But we hope it will be moving on also starting the next week, it will take some time to rig it up. And then once its rigged up and accepted by our client, then it will go on full dayrate.

A change from last quarter, no revenue has actually been recorded for these two rigs in the first quarter. And this is part of a negotiation that we have ongoing with our client there, where we’re trying to work with them on the fact that they were unable to complete their location in exchange for an extension on the contracts for those eight rigs. So that is a negotiation in process that hopefully we’ll be able to update you on in the near future.

With those two rigs down in Columbia and the other rigs that I mentioned, that gives us an overall 87% utilization for our Drilling segment, which is still quite good.

Turning now to Product Services. Just did great in the quarter, and the outlook is very positive there. All of our core business lines are doing well. Well services has been very strong utilization, as you can see in the press release, and we’ve had firm pricing with an upward bias on pricing for the remainder of the year.

In the well servicing, we will be adding three rigs by the middle second quarter. And then, we are in the process of ordering six additional rigs at the earliest of which probably would arrive in about September and then into the fourth quarter. So we should end the year with 118 total units.

Wireline also doing very well, very busy active, and we are adding a few units there. We’ll add one in June and then a couple of more in the third quarter. So we’ll end the year in wireline with 122 units. In coil tubing, we had, as I mentioned, the second best quarter we’ve had since we’ve owned that business line.

Offshore market was actually soft in the first quarter, mostly due to weather. One northerner after another that chopped up the Gulf of Mexico. So it made hard to get out. And then – but on the onshore, after a slow start in January, which is customary, we’ve actually picked up quite a bit of activity there in February and March. So we ended the quarter in what I would call a major improvement over prior quarters.

And I think part of our reorganization there and focus in key markets as well as the addition of the 2.375 coil has really helped. We are actually going to be growing coil as well. We’re going to be adding another offshore sub two-inch unit for maintenance work in the second quarter, and then a second small pipe unit in the second quarter that will free up another unit to work more on the two-inch diameter coil market. And then we have a 2.375 unit that we should be adding approximately in September. So we will end the year with a total of 16 coiled units.

I’d like to turn the call over to Lorne now to review the financials.

Lorne Phillips

Thanks, Stacy. Good morning everyone. This morning we reported consolidated revenues of $239 million, and adjusted EBITDA of $63.3 million. Excluding the impact of costs associated with our recent debt financing, we had adjusted net income of $2.4 million or $0.04 per share in the first quarter. And that compares against a net loss of $0.04 per share in the prior quarter.

Our adjusted EBITDA and adjusted net income in the quarter benefited from combined gains of approximately $5 million from the sale of the trucking fleet and litigation settlement and reimbursement of fuel costs in Columbia.

Our Drilling segment revenue declined by $8 million from the fourth quarter to $118 million, reflecting more utilization of certain lower horsepower vertical rigs, primarily in South Texas. As Stacy explained, this has since improved and those rigs are back to work.

Drilling revenue was also impacted by reduced utilization in Columbia as Stacy described, resulting in revenue of $22.2 million for the quarter in Columbia. Utilization is currently at 87% and our average utilization was 83% in the first quarter compared to 86% in the fourth quarter.

Drilling margin per day increased by 6% sequentially to $8,987 and this was in part the result of the previously mentioned benefit from the sale of our trucking division and the fuel cost reimbursement. If you exclude those two items, our margin would have been about $400 per day lower, but still slightly ahead of the prior quarter.

We currently have 62 drilling rigs on our actively marketed fleet. Of these, 54 are earning revenues, and 40 of these earning revenue are under term contract. Of the 34 rigs currently on term contracts in the U.S., six are up for renewal in this quarter, 12 are up for renewal in the third quarter, one is up for renewal in the fourth quarter and 15 expire beyond that point. All eight Columbia rigs are under term contracts with six currently earning revenue and the remaining two rigs expected to start earning revenue again in early May.

The percentage of the total company’s gross margin from non-top drive mechanical rigs in the first quarter was 4%. And if you include all mechanical rigs, that number increases to approximately 10%.

Turning to Production Services. Revenues increased 8% from the prior quarter to $121 million, with the strongest performance improvement coming from well servicing. Gross margin for Production Services increased by 14% to $43.3 million. Our gross margin as a percentage of revenues was 35.8% versus 33.9% one quarter earlier.

Utilization for well servicing increased to 95% compared to 85% in the fourth quarter, and coil tubing utilization was flat at 50%. As Stacy mentioned, the coil tubing utilization was driven by improved land activity offset by a slower start to the offshore coil business. And we do expect to offshore coil activity to increase as the year progresses. Our average rate per hour for well servicing was basically flat at $645. Our other Production Services business experienced stable pricing during the first quarter as well.

Looking now at our overall expense trends. G&A costs in the first quarter were up slightly to $24.5 million. We expect G&A to be approximately $26 million for the second quarter. Depreciation and amortization was $45.5 million, which was down about $1.3 million from the prior quarter. As new equipment on order is delivered into our fleet, we expect depreciation to move up some during the year. For the second quarter, we expect D&A to be in a range of $47 million to $48 million.

As you are aware, in March we issued $300 million of 6.125% senior notes. The proceeds will be used to redeem $300 million of 9.875% senior notes. A $100 million of which was tendered on March 31 and the remaining $200 million will be redeemed on May 1. This will save us approximately $12 million in annualized interest expense.

Looking at our interest expense in the first quarter, it was $12.4 million and is expected to decrease to approximately $10.7 million in the second quarter as a result of the debt financing. That quarterly expense will decrease further in the following quarter since the $200 million of 9.875% notes will be redeemed on May 1.

As a result of the $100 million redemption of notes in the first quarter, we recognized $7.9 million of loss on extinguishment of debt. When we redeem the remaining $200 million of notes in May, we expect to recognize another loss on extinguishment of debt of approximately $14.6 million.

Since our pre-tax loss for the first quarter was not far from breakeven, the impact of the foreign currency loss, other permanent items and state income taxes had an amplified effect on our effective tax rate. Excluding the foreign currency gain or loss and other unusual items, we would expect our effective tax rate to be in the 36% range.

Capital expenditures in the first quarter were approximately $32 million. Including the additional units that Stacy discussed earlier on the call, our revised guidance for CapEx spending in the year is $135 million to $145 million. If we were to contract the new drilling rig, this CapEx guidance would increase.

Given the opportunities in the market, we think a balanced program of organic growth while continuing to focus on debt reduction is the best way to optimize shareholder value in the current environment.

And with that, I’ll turn it back over to Stacy.

Stacy Locke

Thank you, Lorne. I would say our outlook is positive for the remainder of the year. While dayrates were not up on the Drilling side in the first quarter, they are adjusting a bit now. And we do think that will be a gradual process, but we should see some positive impact to margins in the third and fourth quarter of the year.

In the second quarter, we will have a couple of long moves where we’ll have no or low margin. We have the rig in Columbia, that as I mentioned, that will be move into the middle Magdalena valley. That’s a long multi-week move. We also are going to be relocating two AC rigs from the Bakken down to West Texas, to start new contracts there. Those are going to be fairly long moves as well.

And then at some point, either late in the second quarter, most likely or still – and possibly spilling over into the third quarter, we will be installing walking systems on both of those rigs. So we’ll have a little downtime there. And those things contributing with the dayrates mostly impacting later in the year is why we’re guiding our average drilling margins in the $8,500 to $8,700 a day range for the second quarter. And utilization, kind of roughly in line at 85% to 88%.

On the Production Services side, that market continues to look very favorable. We do expect another quarter of increased revenues, something on the order of 5%, 6% range. And most likely a continuation of improvement in margin, maybe up another 1% to 2%. So looks like another good quarter ahead of us.

And we’ll end the prepared remarks, and be happy to entertain any questions at this time. Thank you.

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 Jim Rollyson with Raymond James. Please go ahead.

Jim Rollyson – Raymond James

Good morning guys.

Stacy Locke

Good morning, Jim.

Jim Rollyson – Raymond James

Stacy, 95% utilization in well servicing in 1Q, sounds a pretty good indicator of demand and historically high. Curious, as you think about that business going through the year, how you think about – you would suggest there is not a huge amount of upside in terms of utilization other than in new units. Can you maybe talk about what you’re seeing in terms of opportunities for pricing improvement, and how much of that might stick in terms of margins versus just what you’re kind of wage rate increases look like this year. So just maybe help all that businesses outlook is for the year from that perspective?

Stacy Locke

Okay. Yes, I think you’re right. There isn’t a lot of upside on the utilization front. And anytime you run in that 95% utilization, that has a lot to do with the amount of 24-hour work that we’re doing, which that percentage of total has creeped up over the last year or so. So it’s hard to get a lot of improvement in utilization, but I would say in certain markets there is just tremendous demand. I would say all the equipment available in certain markets is utilized, and that is leading to some pricing opportunity there.

And the demand is very strong or the higher quality assets out there. So I think that we’ll see pricing gradually improve throughout the remainder of the year, and enough to cause margins to also improve slightly as we progress this year.

Jim Rollyson – Raymond James

Okay. That’s very helpful. And then just as a follow-up on the coil side of things. It sounds like, at least in your mind, things are starting to get better. Utilizations picked up a bit. Can you maybe talk about kind of the supply demand dynamics there in terms of pricing, because obviously that’s been one of the markets that throughout the course of the last year or so had kind of got an oversupply and things weakened a bit. Just curious to your read on that market today?

Stacy Locke

Well, it’s a little hard to understand quite honestly. I think some of the improvement is unique to us, just because our operation has improved so much. Our team has really banded together. We’ve got strong management in the key positions. And we’re delivering the goods and services out there to the client safely. And that’s really what it’s all about. And if you can do that, you build up a steady clientele. And as you build up that clientele, the word spreads and the demand increases.

So I think some of our improvement is related to that, probably at least half of it, but overall I think the market is getting better. And I look around and listen to other folks as well. And it seems like everybody’s coil business has picked up a little bit. And so I know that there are some carcasses on the side of the road in that business line. So some folks have fallen out when things were rough. Those of us that are still in it, it can – if we continue to perform, I think definitely we’ll peak out some price improvement as well for the rest of this year.

So I think we have those two factors helping us. I think we’re going to see utilization improve, probably certainly in the second and third, possibly fourth quarter, as well as we’ll have some new additions to our fleet. And I think there is just pricing opportunity in the marketplace. So that is a pretty optimistic view I think.

Jim Rollyson – Raymond James

Great, Stacy. I appreciate the color.

Stacy Locke

You bet.

Operator

Thank you. Our next question comes from the line of Mike Urban with Deutsche Bank. Please go ahead.

Mike Urban – Deutsche Bank

Thanks. Good morning guys.

Stacy Locke

Good morning.

Mike Urban – Deutsche Bank

So, obviously a lot of the demand that we’ve seen so far in the U.S. in the current cycle has come from unconventionals and horizontal wells. Have you seen any pick-up in any of the conventional markets or vertical markets, gas markets or anything like that?

Stacy Locke

Well, there really hasn’t been an increase in gas vertical drilling. We are doing some drilling there, but I wouldn’t say that it’s been any market change. We have seen a little improvement on the Production Service side from gas that kind of enhanced production there, but on the Drilling side, it’s still oil demand. I would say, I keep saying last couple of quarters for us in West Texas after some instability during last year, the West Texas vertical oil market has been pretty strong. So we’re pleased there. We are cautious in the second and third quarter of last year as we look towards the end of ‘13 and end of ‘14. I would say now we feel like that’s a pretty stable market. And stable to the point that I think we’ll have some pricing opportunity there on the vertical rigs as well.

Mike Urban – Deutsche Bank

Okay. Great. And the only other thing I had was Columbia has started to look pretty good for you again. Again, I was acknowledging some of the delays again those rigs will be working. Any additional appetite there or any other international markets at this point?

Stacy Locke

I’m sorry. Say that again Mike?

Mike Urban – Deutsche Bank

Any additional international opportunities either in Columbia or elsewhere?

Stacy Locke

Well, I would say that right now we’re up actually higher in terms to the number of rigs that we ever intended to take to Columbia. We’ve got eight good rigs there, all top drive, walking, all 1,500 horsepower, heavy class. We don’t really envision – we possibly could look at a newbuild or two down the road there in Columbia, but really we would prefer to utilize our CapEx in the U.S.

We’ve had some great opportunity there. We’re pretty confident that we will have some newbuild opportunities here that we’ll be contracting through the rest of this year, and then probably more next year. So I think our preference is to focus on the U.S. market for now.

Mike Urban – Deutsche Bank

Okay, great. That’s all for me. Thank you.

Stacy Locke

Thank you.

Operator

Thank you. Our next question comes from the line of Matthew Marietta with Stephens. Please go ahead.

Matthew Marietta – Stephens Inc

Good morning guys.

Stacy Locke

Good morning.

Matthew Marietta – Stephens Inc

Congrats on another good quarter. I guess my question is more focused on how you prioritize debt reduction and grow CapEx, and the thought process there. And you see the improvement that we’ve seen in North America. Is that influencing a decision point to grow a little bit more as you look into 2014, and maybe talk around that capital allocation?

Lorne Phillips

Yes, this is Lorne. The market is definitely influencing our decision to slow down the debt reduction and add some more units. We still would like to be able to de-lever some, but it depends on our availability – our ability to sign up new drilling rigs at attractive terms and conditions, because with what safety outlined on the Production Service side, we can add those units and still reduce debt somewhere probably between the $40 million to $60 million through the year, to the extent that we sign up additional drilling rigs that would clearly – even though they wouldn’t be delivered until 2015, that would decrease our debt paydown cadence.

And so it’s one of those situations where we don’t intent to borrow in order to add new rigs. And ideally we’d be able to pay it down some, but if the right terms and conditions are available for newbuild rigs to us, then we will sign them and slowdown the debt paydown through the year.

Matthew Marietta – Stephens Inc

Okay.

Stacy Locke

When you think about it, signing contracts at this point for delivery roughly 12 months from now, we don’t speculate on building the rigs. Once we have the signed contract, like we have one signed contract now. Once we have that contract in hand, we will deliver approximately in 365 days. So a portion of that spend is going to be this year, but as we work on the newbuild marketing for the remainder of the year, the majority of the spend will be in 2015. So it will allow us to contract two, three, four newbuilds this year with the cash spend being predominantly in 2015.

And as I mentioned previously on that, it’s a market driven opportunity. We’re looking a minimum three-year terms. We’re not trying to put out a bunch of market share. We’re just trying to get a good return on investment, so we’re careful with good clients and we want a good return on the cash spend for the newbuild, because the rigs have been performing extremely well. And so we’re going to take it slowly and methodically and continue to work the market there.

Matthew Marietta – Stephens Inc

Thanks. That’s very helpful. And along the same lines, are you guys still looking at asset sales and kind of testing the waters there, or do you feel pretty comfortable with the asset portfolio as it sits today?

Stacy Locke

No, that’s a great question. I’m glad you brought it up. No, we are aggressively – I think you saw in this press release, we did sell some rig moving trucking assets in the quarter. We continue to market a number of other non-core or non-strategic assets. And we’re pretty confident that we will generate some cash from that as well, which that cash would flow immediately into debt reduction and then kind of ladled out overtime via organic growth.

Matthew Marietta – Stephens Inc

Great. Well, that’s all for me. I appreciate the time and congrats on another good quarter.

Stacy Locke

Thank you.

Operator

Thank you. Our next question comes from the line of Daniel Burke with Johnson Rice. Please go ahead.

Daniel Burke – Johnson Rice & Company

Good morning guys.

Stacy Locke

Good morning.

Daniel Burke – Johnson Rice & Company

Stacy, I thought I heard you address on the Columbia side that you were discussing extension of the contracts there. Did you mean on simply the two rigs that have been delayed, or for the group of eight rigs? And can you give us any indication on what level of extension, you could potentially get in those discussions [ph]?

Stacy Locke

Well, I don’t want to give too much because it’s an in-process kind of negotiation. But we did not book any revenue in this first quarter. So that should give you an indication, we’re fairly confident that we’ll reach satisfactory agreement, but it would be an extension on all eight of our rigs with the client.

And so that’s something we’ve been – you remember we’ve had that kind of exhaustive contracting process previously, but we obtained a one-year extension kind of in the last hour of 2013. And so we’ve been kind of working on improving that to a longer term program. And so that’s what’s at play here. I would say that order of magnitude, I’d say a year type extension on top of the year that we have currently in that range. It could be a good little more probably, but it will be somewhere in that range. We’re working on it.

Daniel Burke – Johnson Rice & Company

Okay, great. That’s helpful. And then just to stay on the Drilling side real quick. I think you had also said you were hopeful that Drilling could catch back up with Production Services here looking forward. I was just wondering if you saw that as possible in the second half of 2014, or if catching back up at this point was going to require newbuild rig additions, some incremental CapEx coming in on the Drilling side to catch back up with Production Services given how well that business is performing?

Stacy Locke

Well, we’ll continue to grow both businesses for sure. They are both doing extremely well. What I was really referring to, we’ll continue to sell some of the lower margin rigs when we have the opportunity as we’ve done in the past, I think rigs where we sold like 18 or 19 mechanical rigs over the last few years. We’re going to continue in that effort to sell any of those drilling assets that we feel like afford less opportunity in the future for us in terms of utilization and margin, and redeploy that capital into rigs more similar to the rigs that we’ve built more recently.

So what I was really referring to is I know we’ll sell additional newbuilds. And so I think that we will layer in some newly built rigs into the U.S. market in 2015, and that will allow Production Service – I mean Drilling to catch up, but we will have a little bit of a rate improvement later in the year on the Drilling side, but we are going to continue growing Production Services and we positively will grow it even more than we’ve outlined now at some point later in the year. But that too would impact mostly ‘15.

So both markets look extremely strong to us. We’re excited to have as much organic growth opportunity as we see in front of us. But we don’t want to – we’re not going to borrow, so we do have some limitation. It will be somewhat dependent on other asset sales as to total availability of cash.

Daniel Burke – Johnson Rice & Company

Okay. That’s helpful. Maybe last one, just to cram on. The comments on coil. Can you talk about where then your current utilization would be on the coil business in March and April, as particularly I guess offshore conditions should have improved somewhat?

Stacy Locke

Well, I’ll give you a flavor. Offshore is picking up, and I honestly don’t know the kind of the utilization range there, but I know its north of 50%. And then on onshore, February, March, we saw that utilization up in the 60% range as well. And it’s been very active in the current month. I don’t know exactly the utilization there of the different segments, but it’s definitely strengthening, no doubt about it.

Daniel Burke – Johnson Rice & Company

Great. All right. Thanks so much.

Stacy Locke

You bet.

Operator

Thank you. Our next question comes from the line of [indiscernible] With Simmons & Company. Please go ahead.

Unidentified Analyst

Good morning guys.

Stacy Locke

Good morning.

Unidentified Analyst

Really just one question for me and that is when you expect pricing to go higher, how much higher do you really expect it go? Any additional color you can kind of provide to that.

Stacy Locke

Well, on the Drilling side. Are you talking about Drilling or Production Services?

Unidentified Analyst

Both.

Stacy Locke

Both. Okay. I would say the Drilling – we’re seeing increases really anywhere say from $500 a day, in some cases up over $1,500, $2,000 a day in isolated cases. So average is going to be – it’s not every rig, it’s as contracts roll. So it takes time to have it affect the entire drilling fleet, and not all of the fleet will be affected.

So I would say the average margin change in third and fourth quarters is going to be maybe in the $100 to $200 a day range. It’s not going to a market improvement. And so it will be a gradual part of the cycle. Of course as you saw layering in, newbuilds in 2015, you will see that step-up and then of course, if we sell between now and then any of the lower margin rig, then that fleet average will improve as well.

So but I’ll tell you that’s order that we’re looking at the kind of the range. On the Production Service side, it’s also going to happen in pockets. It won’t be across the board until it will be averaged, but I would say we’d be real happy if we could see 1%, 2% margins growth for Production Services each quarter going forward. That would be terrific. Don’t know if we’ll that be high. We’re guiding for the second quarter 1% to 2%. That’s on top of a couple of improving quarters.

So we’re real pleased with that trend, but it’s – so I don’t think we’re going to pick up tremendous stain, but steady 1% to 2% increase would be wonderful.

Unidentified Analyst

Okay, great. I appreciate the color. Thank you.

Stacy Locke

You bet.

Operator

Thank you. Our next question comes from the line of Jason Wangler with Wunderlich Securities. Please go ahead.

Jason Wangler – Wunderlich Securities

Good morning, Stacy. Just had one. You talked a lot about the potential for newbuilds and that sounds great. Just curious because the market obviously seems pretty robust for these new higher spec grades, and I know you’re moving too over. Where are those contract terms look like as far as when do you have some of the existing 10 rolling offs, just curious when you may be able to see pricing increases on those?

Stacy Locke

Well, we’ve had one of the new – the last 10 block of newbuilds, we’ve had one rolled so far, and we went up several thousand a day on that one, due primarily to performance. We’ve got a second one rolling off in pretty soon here and that one will go up as well kind of on the range of $1,000, $1,500, $2,000 a day range. And so it’s definitely a strong market for the performing, no doubt about it.

Jason Wangler – Wunderlich Securities

That’s helpful. I appreciate it.

Stacy Locke

You bet.

Operator

Thank you. (Operator Instructions) Our next question is a follow-up question from the line of Matthew Marietta with Stephens. Please go ahead.

Matthew Marietta – Stephens Inc

Yes, I was just trying to circle back on kind of the outlook for 2015, either from an asset standpoint or a CapEx standpoint, how we can begin to look at kind of first take at 2015 CapEx?

Stacy Locke

Well, I know that Lorne hasn’t put any dollars to it, but generally speaking, I would say that we’re going to definitely add some newbuilds drilling rigs. I would say just in terms of scale thinking for now, I would start with three to four newbuilds. We’re certainly going to have more well service rigs in ‘15. You could be thinking of eight to 12, certainly probably going to add some additional large diameter coil, I’d say two to three. Definitely going to add some more wireline units, six to 12 there. So it’s going to be kind of steady growth across the business lines, organic growth.

And I still think, as Lorne pointed out, that we can do that definitely well within cash flow and still be able to reduce indebtedness.

Now, we might increase some of that CapEx depending on asset sales, but we’ll wait for appropriate time there.

Matthew Marietta – Stephens Inc

That’s perfect. That’s very helpful. Thank you.

Stacy Locke

You bet.

Operator

Thank you. And I am showing no further questions at this time. I’d like to turn conference back over to Mr. Locke for any closing remarks.

Stacy Locke

All right. Well, thank you all very much for joining us on this morning’s first quarter call, and we’ll look forward to visiting here in a couple of months on the second quarter. Thank you very much.

Operator

Thank you. Ladies and gentlemen this does conclude our conference for today. As a reminder, replay information for this call is available on today’s news release. Thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!