Pioneer Energy Services' (PES) CEO Stacy Locke on Q2 2014 Results - Earnings Call Transcript

Aug. 1.14 | About: Pioneer Energy (PES)

Pioneer Energy Services Corp (NYSE:PES)

Q2 2014 Earnings Conference Call

July 31, 2014 10:00 AM ET

Executives

Anne Pearson - IR

Stacy Locke - CEO

Lorne Phillips - CFO

Red West - President of Drilling Services

Joe Eustace - President of Production Services

Analysts

Matt Marietta - Stephens Inc

Marshall Adkins - Raymond James & Associates

Dave Wilson - Howard Weil Incorporated

Jason Wangler - Wunderlich Securities

Operator

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

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

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 Web site and also by telephone replay. You can find the replay information for both in this morning’s news release. Also as a reminder, information reported on this call speaks only as of today, July 31, 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 these expectations 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 may contain references to non-GAAP measures. You’ll find a reconciliation to the GAAP measures in the 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 everyone. Joining me on the call this morning here in San Antonio is Red West, President of our Drilling Services segment; Joe Eustace, President of our Production Services segment; and of course Lorne Phillips, our Chief Financial Officer.

We had another quarter of steady revenue growth and increased profitability. Overall, revenues were up another 9% EBITDA was up 10% and EBITDA as a percentage of revenue had seen a steady improvement over the trailing four quarters to 27% of revenue in this second quarter. Overall, our best quarter ever in revenue and EBITDA. So we’re very pleased with that. It was another best quarter in our wireline services business, it was another best quarter in our well services business, and it was the best quarter in coil tubing and the past nine quarters. So overall we’re extremely pleased with our results for the second quarter.

As you may recall on the first quarter conference call approximately three months ago, we mentioned that there is a strengthening in the U.S. land drilling market that we would begin marketing newly built 1500 horsepower AC rigs. That effort has gone well for us so far. We have executed contracts to build three rigs so far; one will be going to the Eagle Ford and two will be going into the Permian, all three are on three-year term contracts at attractive days rates that will yield very attractive rates of return for the company.

Deliveries for these three rigs will be in the second and third quarter of 2015. And I would say that based on the level of ongoing conversations that we’re having with our clients we are highly confident that we will be executing additional contracts to build rigs in the future.

Looking at our existing land drilling market, day rates continue to creep up. I would say something on the order of two thirds of the rigs as they renew go up in day rate. It’s kind of the median range would be $500,000 per say although we have cases where they don’t go up in some cases where it’s than that. But overall I would say a healthy outlook for day rates. In addition, utilization continues to be very strong for the company overall. We were 87% utilized in the second quarter. We’re currently 90% utilized.

Just like on our call three months ago for the first quarter, we continue to be 100% utilized in West Texas, 100% utilized in the Bakken and we have one rig down in our South Texas operations. In Utah, we did have another 60 series rig go down and we possibly will have the last of our 60 series rigs in Utah go down later in the year but currently it’s still working. But offsetting that we did have one of our 60 series rig go back to work in Utah. So we do continue to struggle with keeping our 60 series stall rigs fully utilized. If you look at our six rigs that are down for the total company today, four of them are the 60 series rigs, three in Utah one in the Marcellus. But we continue to offer these rigs for sale to foreign markets where the rig might be more suitable as it was in the early days in the Barnett shale here in the U.S. So we’ll continue to struggle with that for a while longer but we do try to market them for sale and we do try to market them put them back to work.

Outside of the four 60 series rigs that are stacked in the U.S. we have the one in South Texas that I previously mentioned and then the other one is now in Columbia and it’s rig 52, it’s a rig that we upgraded for our client early in the year to a 1500 horsepower rig and that is still not started it’s under contract but still hasn’t started earnings it’s day rate.

We struggled with that rig and several other ones in the Columbia market as a result of our operator not staying out in front of their location preparations and they build very large concrete pads with multi-locations on them, multi-well locations. And they have been running way behind and that has caused us it -- has affected negatively our utilization and it’s affected our profitability because the rigs don’t earn with full day rate.

You probably noticed in the press release there was a scope of work agreement that was executed very favorable to Pioneer as a one-time event in this quarter to some degree that related to some of that stack rig time and loss profitability. But we view it as a non-recurring item and we’re hopeful that we’ll return to full potential profitability once these rigs have a runway of locations ready for them in the future.

So, turning now to our production services business. In well servicing, it was another record quarter in revenue. Well servicing has become our most profitable production service business, very pleased to see the development and growth there. It continues on a very steady slightly upward slope in trajectory. For the year we’ll add a total of nine well servicing rigs. We still have six more to be delivered and those will be delivered in this current quarter the third quarter and the fourth quarter. And so, we will end the year with 118 total well servicing rigs. And we placed an order for 16 additional well service rigs to be delivered throughout the 2015 year.

Wireline as with well service again another record quarter, it remains as our largest PPS segment but only slightly. And we are seeing some green shoots of opportunity on pricing there that gives us some optimism for future quarters. We’re still off significantly from the gross margin that we had in 2011 and 2012 as much as 8 percentage points of revenue still yet to regain. But it does look a little bit more promising there in that market. We will add a total six units in wireline in 2014, four have been received two more will be coming here I believe by about September. We’ll end the year with 125 wireline units. We do plan to order shortly eight additional wireline units for 2015 deliveries.

Turning now to our coil tubing business, as I previously mentioned, it is the best quarter we’ve had in the last nine quarters, showing very steady improvement. We will add a total of four units to coil tubing this year, two we received, two more to come. We’re very focused on three kind of core markets the Eagle Ford, Onshore Louisianan and Offshore Louisiana, the offshore be in the maintenance market a smaller diameter coil. And then we broaden our breadth of service offerings on the onshore to include sub two inch and two and three eight so we’re not able to fully service our client base in the onshore markets.

And I would say our service has improved significantly. I would say today that we are offering the consistent high quality service in coil tubing that we offer in wireline well service. So we’re extremely pleased with the progress that business line has made through the course of the year.

I’d like to turn the call over now to Lorne to give you a financial recap and then I’ll come back and briefly talk about kind of our outlook for the next quarter in the market. Thank you.

Lorne Phillips

Thanks Stacey. This morning we reported consolidated revenues of $259.8 million and adjusted EBITDA of $69.7 million. When excluding the after tax impact to the loss on early retirement of debt of $9.3 million, our adjusted net income was $8.9 million or $0.14 per share in the second quarter. That compares with net income of $2.4 million or $0.04 per share in the prior quarter which is also adjusted to remove the after tax impact of the earlier debt refinancing.

Our net loss as reported for the second quarter was close to breakeven at $319,000 or $0.01 per share. Our drilling revenue increased by $9.6 million from the first quarter to $127.6 million which reflects higher utilization of lower horsepower drilling rigs. Overall, reported drilling margin per day was 8,946. Our second quarter drilling margin includes a non-recurring benefit from the scope of work agreement in Columbia which resulted in additional revenue from earlier quarters of approximately $2.4 million or 480 per revenue day. Columbia revenue in the quarter was $25.5 million.

Currently, drilling rig utilization is 90% and average 87% in the second quarter, up from 83% in the first quarter. We currently have 62 drilling rigs in our fleet. Of these 56 are earnings revenues and 43 are under term contracts. Of the 35 on term contracts in the U.S., nine are up for renewal this quarter, nine are up for renewal in the fourth quarter, eight in the first quarter of 2015 and nine expire beyond that point. But Stacey mentioned all eight of our Columbia rigs are under term contracts through the end of the year with seven currently earning revenue.

We did increased our capital budget just in drilling to construct three 1500 horsepower AC rigs that will delivered in the second and third quarters next year and I’ll discuss the overall capital expenditure guidance after discussing production services. The revenues for this segment increased 9% from the prior quarter to $132.3 million. Gross margin as a percent of revenues was 38% versus 36% in the first quarter. Our average rate per hour for well servicing was 648 compared to 645 in the first quarter. Our other production service businesses experienced steady pricing during the second quarter as well.

Utilization for well servicing increased to 101% compared to 95% one quarter early which is the highest quarterly utilization level in our history. Coil tubing utilization increased slightly to 53% and we expect activity to continue increasing as we move through the rest of the year. The improvement in coil utilization was primarily in South Texas land-based work which is seeing an increase in demand. We plan to take delivery of six new well service units, two coil tubing units and four wireline units in the second half of this year, two of those four wireline units we’ve already received. For 2015, we plan to order an additional 16 well service units and eight additional wireline units.

Looking now at our overall company-wide expense trend, our general and administrative expenses were up slightly to $25.3 million and we expect G&A to be flat for the third quarter. Depreciation and amortization was $45.8 million, and with the planned unit growth through the rest of this year, our depreciation is expected to trend upwards in the second half of the year. For the third quarter, we expect D&A to be in the range of $47 million to $48 million.

Interest expense in the second quarter was $10.7 million, down from $12.4 million in the prior quarter. We have now redeemed a total of 300 million of the 9 and 78 senior notes with proceeds from the 6 and 18 senior notes that were issued in March. As a result we expect quarterly interest expense to decline further in the third quarter to approximately $9 million. In addition to the note refinancing, we reduced debt outstanding under our revolver by $10 million in June and another $10 million in July. We currently have $60 million drawn in our revolver for $14 million in letters of credit.

Due to a near breakeven loss for the quarter as reported, the foreign currency translation gains, state taxes and other permanent items had a amplified impact from the effective tax rate. Excluding the impact of foreign currency gain or loss and any other unusual items our effective tax rate is expected to be in the 36% to 38% range in future quarters. Cash, capital expenditures in the second quarter were approximately $43 million bringing our year-to-date spending to just under $75 million. Including the additional units we discussed earlier, our revised guidance for CapEx spending in 2014 is $185 million to $200 million.

Also, based on commitments we’re making for additional equipment to be delivered in 2015 and including estimated routines and maintenance cost, our preliminary 2015 spend today would be estimated in $190 million to $210 million. This number is preliminary and it could move higher if we signed up more rigs or/and also depends the market conditions. This time last year we were focused on repaying debt and given the strong demand we’re seeing today we believe the more balanced program of organic growth in the lower level of debt reduction will drive the greater shareholder value in the current environment.

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

Stacy Locke

Thank you, Lauren. Our outlook for the remainder of the year is very positive as I previously mentioned I do think we have more new builds in our future. Utilization looks like it’s going to continue to be strong but we still are playing with the 60 series and so we’ll guide drilling utilization slightly up to 86% to 89% for the third quarter. We do think average day rates in the U.S. are certainly trending up but that is been offset to some degree by little bit of margin softness down in Columbia until we get that operation lined out with locations out in front of us. So we’re going to hold our margins relatively flat at 85 to 87 -- 100 a day for drilling.

On the production service side, the outlook continues to be very strong there. I think after a quarter, a 7% growth, and at second quarter 9% growth. Unless we have additional units layering in, it’s going to be hard to continue that level of growth. So we went to slow that a little bit to 3% to 5%. We would expect more unit additions to impact the growth number in the fourth, and first, second, third quarter next year. That is still very positive outlook for revenues. And margins, as we stated before, I think we will continue to grow the margin slightly quarter-over-quarter, we are forecasting 0.5% to 1% for the upcoming quarter. So that’s very positive, and then we’ll be layering in these additions of units that I’ve outlined previously. So it gives us a pretty good outlook for 2015.

I think we’ll end the prepared remarks, and be happy to entertain any questions. 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 Matt Marietta with Stephens Inc

Matt Marietta - Stephens Inc

First I wanted to hit on a little bit on the drilling markets. If you can provide some color on where drilling spot rates are relative to contract roll-offs? And you look at the guidance, and I'm trying to get a sense for, is there any upside to that guidance when you consider the number of rigs that may be rolling off in the third quarter or have rolled off in the late second quarter, to offset some of the Colombia commentary?

Stacy Locke

The biggest factor would be, if we could get the Colombia rigs back to work center at full day rate, that we don’t think that’s likely based on the situation with locations. So there may be very-very limited upside there. I mean clearly the U.S. land market, it is improving. We talked about that, as I mentioned before most of the renewals are going up on the order of 500 to 1000 and the three of our new-builds from the last cycle that have renewed have all gone up over $1500 a day. So clearly it’s a positive impact to average margins, but Colombia is an important piece of that and it is weighting down on that average for now. So we just have to wait and see. And I would say the other competition there is -- we’re trying to estimate the impact of that kind of one-time settlement down in Colombia and Lorne has approximated that impact, but that's probably plus or minus $100 or $200 a day there as well. It’s just very hard to be specific on that. It's possible there is some upside but I think we are comfortable with our guidance as presented on drilling.

Matt Marietta - Stephens Inc

Thanks, and switching over to the Production Services side, there's obviously a little bit of variability in the service rig results between you guys and some data points from some of your peers in market commentary. Can you maybe speak to how much of the work you all are doing is completion versus rework or recompletion type work, work-over type work? And is this simply a capability benefit of your fleet having the high horsepower rig or is there something else that I'm missing there?

Stacy Locke

We have been doing a very steady maintenance and recompletion level of work for quite a long now. Certain markets that’s improving like in the Eagle Ford, now that we have a little more time on those boreholes, the Bakken we’ve been doing it for a long time. I think that mix is more or less 65%-35%, where 35% will be completion work. Is that right, Lorne, in that range?

Lorne Phillips

Yes.

Stacy Locke

So we are doing a lot of maintenance oriented work. With respect to the relative performance with us versus others, one distinguishing factor there is that we’re focused strictly on the higher and deeper markets which where we are able to package additional equipment with our base rig unit, like in the Permian, while that’s a very exciting growth margin market. We haven’t yet moved there because we can’t see the profitability opportunity there like we do in these other markets. Historically, you contract just your base well servicing unit there and you lose the benefit of providing these other equipment items that we typically package with our well service rig, which would be mud tank, mud pump, closing unit, BOP, swivel, that sort of thing. So that really helps our overall profitability and it’s a big benefit to the clients that want a complete service rig. So, that’s one distinction there. And of course I would also say I think our people are exceptional that’s probably the single biggest determinant they truly are very good at what they do. All of our growth is really based on the job that we’re doing for mostly existing clients, a lot of that demand we started the year with plans at three service units but demand from our clients causes to order six more. I’d say demand from our clients is what’s really precipitating the order for 16 additional units. So I think our guys are doing a very good job. They are the safest in the industry and we have the right equipment for the big shale play. So I think it’s just a combination of factors there.

Matt Marietta - Stephens

I appreciate the color. Congrats on the quarter.

Stacy Locke

Thank you, Matt.

Operator

We’ll now move to Marshall Adkins with Raymond James.

Marshall Adkins - Raymond James & Associates

The new workover rigs you're ordering, couple questions on those. One, are they all incremental or are they replacing older stuff? And what does the fully outfitted workover rig, high end one like you guys are ordering, run these days?

Stacy Locke

Well, the full package is running about 1.85 million in the field working kind of in that range. And the rigs that we’re ordering are like the ones we’ve ordered in the past there 550 or 600 horsepower all tall masted units we’ll have some that we’ll order at 104 some at 112, some at 116 foot. So in certain market particularly the Eagle Ford, where they put these monstrous BOP stacks, you need that 116 foot derrick to work those jobs. So, that’s basically what we’re providing there.

Marshall Adkins - Raymond James & Associates

And is it all incremental or are you placing some of the older stuff with this?

Stacy Locke

Yes, these are all incremental units. We have a kind of a active refurb program going on with the rest of the fleet. But no we don’t plan to replace any of our existing units.

Marshall Adkins - Raymond James & Associates

Colombia, you gave us some guidance, short-term, on the issues. Looking past this year, you have contracts rolling off of at the end of this year, if I remember correctly, how does that market look out into 2015 and beyond?

Stacy Locke

Well, we’re pretty optimistic about Columbia I guess the one of the bright spots is that they are running behind, even behind, their revised new quota for the year which they lowered. And they’re running behind that and so they have a need to drill and increase production. And so we’re confident that they’re going to need all eight of our rigs and they continue to request newly built rigs that we are entertaining. But we want to obtain the same recurrence that we make on those rigs at a minimum here in the U.S.

But we’re pretty confident we’ll renew those contracts, they’re good contracts. You remember last year there was a lot of consternation towards the end of the year about going to a new form of contract. They continue to want to evolve their service providers to that new form and we are looking at that form of contract today although it’s not a bid process like we went through last year. So, we’re working through the renewal now which is great as opposed to at the end of the year and doing the process that we had last year.

So I think the outlook is a little more favorable there. And then in addition to the one big client there, there are other opportunities developing there in the country that we have some U.S. based operators that have taken positions in Columbia that have yet to really start requesting rigs. And those will be focused more on the shale market. And so I think there is lot of excitement. We’ve been drilling horizontally there for quite some time but we’re not in the shale. And so we really would like to segway some of our work into work force these folks as they develop the tremendous shale opportunity that exist there in the country. So I think overall very bright feature.

Marshall Adkins - Raymond James & Associates

Thank you, Stacey.

Operator

We’ll now take the question from Dave Wilson with Howard Weil. Please go ahead with your question.

Dave Wilson - Howard Weil Incorporated

Stacy, I know you talked about the new-builds at the beginning of the conference call and you're having more conversations with other potential customers. You got the three rigs coming in next year, but as far as those additional conversations, could you give me a frame of reference of is an incremental three rigs, four rigs, or one or two? Put some parentheses around what conversations you're having and how many rigs that could represent?

Stacy Locke

Well that’s an unknown. Really I would say, for sure we are looking at a couple of more rigs that we could, what we’re really trying to do is figure out how many we could go to without increasing our debt to capitalization, and so I think we are very comfortable that we can go to the 7 to 8 particular newbuilds, so that having to increase our overall indebtedness and possibly more, possibly even up to 9 or 10 total newbuild units added alongside of production service growth. But that will just depend on the overall market conditions. And in terms of gauging how many specific rigs, it’s hard to say, we’re talking to some clients that could put in some multi-rig orders multi-year which would push us up fairly rapidly. Those are tough contracts to get. There's a lot of competition for it. We’re kind of demanding three year terms and we are also demanding higher day rates. We are at the absolute highest end of the day rate environment and so that makes us -- and of course we are not building in advanced. We are signing contract, we deliver approximately a year later. That puts us in a little bit of a competitive disadvantage. So I don’t really want to try that, to be too specific. But I think for modeling purposes you could were very conservatively model 2, 3 or more rigs. But we will have to see as the market develops going forward.

Dave Wilson - Howard Weil Incorporated

Sure, great. Thanks for the additional info there. That leads me to my next question. Lorne, regarding having a more balanced approach toward debt and new-builds, what targets are you setting, looking at 2015 to have debt levels and debt to cap, assuming no more additional new-builds?

Lorne Phillips

Assuming no additional over the 3, we would be in a position where we would pay down some additional debt in 2014, not a lot we’ve paid down 20, might be another 10 million to 20 million in ’14. I think in ’15, if we don’t sign up any additional rigs, then we would have a decent pays of debt pay downs next year and I don’t want to get too specific on that at this point. We would also measure that free cash flow against how production service is going and what the opportunities there in terms of unit growth. But I think if we didn’t sign up any more newbuilds, we would whittle away at the debt reduction, but it's just going to be balanced against what is the protection service market doing and what opportunities are there. Adding 16 well service rigs in 2015, that’s a good amount to add, and the question will be how much more could you add in the various figure.

Operator

(Operator Instructions) We will now take a question from Jason Wangler with Wunderlich Securities

Jason Wangler - Wunderlich Securities

I'm curious on the guidance for the Production Services side. Obviously, the utilization has been fantastic. Is there a ballpark number that you guys use when you look at that, as far as when you give us the guidance, just trying to see where your heads are at as far as utilization going forward?

Stacy Locke

I would say on the well servicing side we are pretty much at full utilization. I think if we can maintain utilization at 90% to 100%, we’re doing terrific there, so you can’t really expect to gain too much more in that business. In Wireline, in these summer months and the second quarter, third quarter, we're running also at very-very high utilization there. It’s hard to gain much more in the third quarter over the second quarter. We were very-very highly utilization there. So the gains in revenue come from a combination of a little bit of pricing and little bit of growth in unit count. Does that what you are kind of after?

Jason Wangler - Wunderlich Securities

That's helpful. Just obviously the numbers are great. Just seeing where you guys were thinking about it, given where they are at? And then just on coil...

Stacy Locke

Coil, just on that, I didn't touch coil. Coil we do expect the see some utilization, so that’s one where we do have capacity to run more business.

Jason Wangler - Wunderlich Securities

That's helpful and actually I was going to ask about that too. Just under the [guidance], you guys have seen the number come up lately, which has been great. Adding more units, is there just a different dynamic of how that business is utilized versus the others because obviously the utilization rates are so high in the others. Is it just a different dynamic where there is a peak utilization that's just a lower number and that's why you're still unable to add units or just maybe walk me through that?

Stacy Locke

Well, that’s exactly right. Well servicing without 24 hour work would be peaking Joe in the 75% range it kind of would be pretty good utilization but with 24 hour work it able to bring it up into the 80s and 90s and even above a 100. So coil is a little more like well servicing without 24 hour work. If you can hit 70%-75% utilization, there is not much more to gain because in order to provide that good service when you perform a job you need to bring your unit in, do preventive maintenance and have it prepared for the next job. You just can’t go from job to job to job to job without doing the preventive maintenance.

Jason Wangler - Wunderlich Securities

Sure. That's helpful. Thank you.

Operator

And Mr. Locke, there are no further questions at this time. Please continue.

Stacy Locke

Well, thank you all very much for joining the call and we will look forward to visiting…

Operator

Pardon me Mr. Locke we just had an additional person queue up for the question, would you like to take them now.

Stacy Locke

I bet that’s Marshall coming back.

Marshall Adkins - Raymond James & Associates

I'm your worst nightmare.

Stacy Locke

Yes, we love it, we love it.

Marshall Adkins - Raymond James & Associates

Sorry about that. I tried to push it before, but didn't get it right. Two more quick ones for me. As was mentioned earlier, your workover business, relative to your peer group, is crushing it. And I know you downplayed your guidance as slower growth from what you have been seeing. It is still meaningfully better than what most people in the industry have been guiding to. What's giving you the confidence that the workover business is going to keep chugging along and kicking butt like it seems have to been doing recently?

Stacy Locke

Well, that’s a great question and one that we ponder frequently and often. But as long as rig count stays steady as it’s staying Eagle Ford is down a little bit but it’s very steady, Bakken is down little bit but very steady, Permian is increasing and other markets are increasing. But even with the steady rig count the rig efficiencies have greatly improved. We’re drilling wells quicker and we’re drilling them on pads and that’s putting four holes into the ground at a faster pace. So, that is kind of the underlying reason that there is more work out there.

Plus I think that kind of a couple aspects there. One is its kind of hard to gauge the service intensity of a borehole we know that high decline rate oil wells drill horizontally or about the most service intense we all speculated that to be the most in service it’s in well bore out there and I think if anything we’ve underestimated that to some degree. So we think the service degree maybe greater.

The other good news is that I risk that we perceived a couple of years ago has not developed and that is that some of the service work could theoretically be performed by a lower horsepower well service rig the 400 horsepower the 350 horsepower rigs out there which we don’t have any of those. And you can get them cheaper but what we’re seeing that we’re pleased about is we’re working mostly for the big publicly traded operators and they want flexibility in the rig. In other words they’ll take the 550 or 600 horsepower rig and they’ll use it to do 24 hour work, they’ll run it overdue, two or three maintenance jobs go do more completion work. And they get’s comfortable with the crew and the rig can do anything that they want to have done.

And so we’re not seeing them switch over to a lower cost unit which is great. And I think that’s pardon parcel to the fact that we’re working for the bigger and publicly traded companies that have these massive campaigns they just want to grab a unit that they can stick with and so everything. So I think those two things are big positives for us. Anything Joe you want to add on that.

Joe Eustace

Yes, the other thing we found is with all these wells that they’re drilling so it seem that first year is for sure there is multiple jobs. You go in you do a completion and then with 90 to 120 days going back and possibly putting a long tall. So we think that every well borne is drilled has at least two jobs the first year and exit more in many cases. So that creates lots of shortfall.

Stacy Locke

And certainly markets like the Bakken remember to using the same example because it was a real eye opener to me Lorne and I were in the Bakken it’s been a couple of years and more now and we were on a well that was six months old, and I think it was our third trip out there with a well servicing rig, already. And the well servicing rig was on location when we were there. And that’s pretty service intense.

Marshall Adkins - Raymond James & Associates

That's great color. And then last one, final one for me. On these three new-builds and maybe this is a question for Red, give us a little bit of insight on -- you gave us detail on what these workover rigs are costing. How much are they costing -- I assume you're putting walking systems in them and whose equipment are you using for the major parts, all that stuff? Just give us an overview of what these rigs should look like?

Stacy Locke

We have engineering staff, and we design them ourselves, and then we subcontract out to have the rigs built. NOV gets $6 million to $7 million for a piece; VFD House, Drawworks, Amphion Operating System; were going to Gardner Denver for the pumps. We go to someone else to build the mast and the sub. So it’s a lot of different vendors there. And then we will assemble it in some yard. But these 1500 that we are building are, just they are similar to our 1500 horsepower of the last generation with a few optimal changes that we are limiting -- yes, last cycle we built eight 1500 horsepower rigs, and they were all the same. And then two that what we called our Marcellus glass. This rig that we're building now is going to limit the height and width and weight of our loads, more similar to the Marcellus glass, so we're going to have one rig fit all where it could work in the Marcellus, or the Utica, or in the Bakken, or the Eagle Ford, or the Permian. By doing so we also limiting the number of loads even further than our last generation of newbuilds, that performance is what’s driving the demand for these newbuilds. They have really performed exceptionally well. And these are all true walking rigs. They are all 2000 horsepower mud pumps, 7500 PSI fluid in which is kind of our signature on that last round of newbuilds and now you are seeing a lot of other contractors kind of gravitate the direction because it works, even penetrates faster, even clean your wellbore better and the operators have loved that. And then we think we made some further enhancements in the rig up – rig down procedures. So we think we have a very highly competitive rig, on a rig mover, anticipating three to four day maximum which moves on this new rig which is maybe a day quicker than our last rig. But even those we had some rig moves, under three days on that rig. But it’s going to be highly competitive rig. We think it’ll be an absolute top performer in the market and it will all in cost be in the 25 million range. That’s for an unwinterized rig and that's tax, title, license, tubulars, handling goods, everything on it. That may be a little higher than some of the other rigs just because not everybody puts -- we put 2000 horsepower Gardner Denver pumps on them which are little more expensive than, and we are putting a 7500 PSI fluid in mud system, that’s more expensive. That’s all in, that’s what it’s going to get around us. And that’s where we based our internal rate of return on.

Operator

There are no further questions at this time. Please continue

Stacy Locke

All right. Well, thank you very much for joining us on the call this morning and we will look forward to visiting again on the third quarter result. Thank you.

Operator

Ladies and gentlemen this concludes the Pioneer Energy Services second quarter earnings call. If you like to listen to a replay of this presentation, you may find the dial in information on this morning’s news release of the conference. And I would like to thank you for your participation. You may now disconnect.

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