Superior Energy Services, Inc. (SPN)
November 16, 2011 11:45 am ET
David D. Dunlap - Chief Executive Officer, President and Director
Robin E. Shoemaker - Citigroup Inc, Research Division
Robin E. Shoemaker - Citigroup Inc, Research Division
My name is Robin Shoemaker, and I'm the oilfield services analyst at Citi. It's my pleasure today to present Dave Dunlap, who’s the CEO of Superior Energy Services. Many of you may have known Dave for many years, over 20 years at BJ Services, and when BJ was acquired by Baker Hughes in the middle of last year, Dave came over and took on the role of CEO of Superior Energy, and a lot of changes since then, and a lot of new developments to talk about today. So I'm happy to introduce Dave Dunlap.
David D. Dunlap
Thank you, Robin, and it's good to be here with you. There are a lot of things going on in Superior Energy Services today, a lot of things that have been going on since I joined the company 16 months ago, and some pretty exciting things are going forward. And in fact, the basis for my presentation today is to talk about the acquisition that we announced back on October 10, where Superior Energy Services will be acquiring Complete Production Services. Perhaps before I do that, I could just give you a little bit of background into Superior. We are, if you're not familiar with us, we're a company that has been in oil and gas service business for about 20 years. Our legacy and our roots are Gulf of Mexico. In fact, as recently as 2003, nearly 100% of the company's revenue was derived from the Gulf of Mexico.
We have seen tremendous growth in our U.S. land business. Over the last several years, we've been expanding into the international markets. And the acquisition of Complete, we believe, is something that's going to help us actually in both of those, both the international and the U.S. land markets.
Let me walk through a few slides and talk some to start with about the transaction. So what we announced on October 10 was an acquisition of Complete Production Services. 0.945 shares of Superior Energy Services will be exchanged along with $7 in cash. It's about an 80% stock deal, just over 20% cash consideration. That represents an offer of $32.90 as of the closing price on the Friday before we announced. That's 29% premium to Complete's average price in the 2 months prior to the announcement, and you can see some of the applicable EBITDA multiples.
When we announced, if you think about the timeframe, October 10, it was a point in the market where there still was quite a bit of concern about oil prices, about spending levels in North America for 2012. Complete's price had been under severe pressure for about 6 weeks prior to the announcement. On the date that we announced, I think the premium caught people offguard, but the fact is that the price we felt like was very fair. And I think as time has gone on, the judgment as far as valuation goes has always been quite fair.
I’ve had a number of questions as we've been on the road talking about the acquisition regarding valuation. There's a lot of different ways to look at different types of valuation metrics. I think as I think about Complete and their diverse product line that I'll talk about here in just a moment, what I am most excited about is the fact that this is a company with 7,500 employees. And in oil and gas service universe these days, you can replicate equipment, you can place your orders with NOV or Stewart & Stevenson or any of those suppliers, but hiring 7,500 people is a real task. And it's probably the most rich asset that exists inside Complete Production Services.
The deal was unanimously approved by and recommended by the Superior and Complete's boards of directors. We have now received our Hart-Scott-Rodino approval, and so we got an early termination letter from DOJ about 2 weeks ago. So from an antitrust standpoint, we're clear. At the same time, about 2 weeks ago, we filed a proxy. So we're waiting to hear back from the SEC on that, but we do believe that the deal will close as soon as the end of this calendar year 2011.
Let me talk a little bit about some of these transaction highlights and what we see as being a really good fit between these 2 companies. So as I've mentioned Superior, really, it was not much of a presence -- did not have much of a presence in the U.S. land market until about the last 5 years. We did an acquisition in 2006 of a company called Warrior, which gave us some footprint in the U.S. in the electric line business. We expanded that footprint to include coiled tubing about 3 years ago and, then also last year, began to expand it to the premium pipe market, that’s premium drill pipe, building out our U.S. footprint.
And trailing 12 months, about 40% of our overall earnings as a company have come out of the U.S. land market. It's been the #1 driver for our earnings growth, and I believe it will continue to be a very strong driver of our earnings growth going forward. And so from a rationale standpoint, really, what we want with Complete is we wanted more exposure to the North American market sooner rather than later. We're investing about $300 million of our $500 million in CapEx this year in the U.S. land market. Acquisition of Complete essentially accelerates our overall position, a position that we would have otherwise been investing over time.
If you haven't noticed, I'm very bullish about the North American land market. It was not a very popular position a few months ago as oil prices were leaking south of $80 a barrel. And of course, we've all seen what's happened to oil prices since then.
What we see in the U.S. land market is a market that has gone through a dramatic transition over the last 3 years. North American land market has historically been a natural gas market. It has been since I started my career in this business 30 years ago.
We were always driven from a cyclical standpoint by changes in natural gas prices. And of course, natural gas is a local commodity. It's not a commodity that we export. It's not a commodity that crosses borders outside of the U.S., unlike oil. And so we saw these cycles in the U.S. land business for the last 30 years.
But beginning in 2010, we began to see our market in the U.S. land business migrate from a natural gas market to an oil market. Today, over 60% of the rigs that are drilling in the U.S. are drilling for oil. Only about 40% drilling for gas. And in the fact, the natural gas drilling count today is about 800 rigs. That's down from the September 2008 peak of about 1,850 rigs. And so what we're really in is we're in the depths of a very low down cycle from a natural gas standpoint. But what we see is a market that is quite strong, driven by oil.
Our belief is that, as we move forward, the North American land market will continue to become more and more leveraged to oil, a commodity that we believe is still in very early stages of operator exploiting a new price deck for oil. If you think about the old price deck that we worked under for 30 years, oil and gas companies worked in a price deck of about $10 to $30 a barrel. You can choose whatever price deck you want, if you believe it's $60 to $90, or $70 to $100, or $80 to $120, nonetheless, any of those is a significantly different price point than $10 to $30.
Now you may say, "Well, we saw higher oil prices 5 years ago." And it's true, we did. That was a point in time where our customers were focused on natural gas because we saw very high natural gas prices then as well. So our premise here is that we believe we are not in the late stages of a cycle in North America. We think we're still in very early stages of a cycle. We think there's still quite a bit of running room left in our operator's desire to exploit oil resources with pricing from an oil standpoint. As I said, pick your price deck, $60 to $90, $70 to $100, $80 to $120, whatever it may be.
So thinking about North America, this deal, and our acquisition of Complete gives us much more scale, much more size in the North American market where our customers have historically favored larger companies. That will help us as we continue to move through the cycle. It also creates what I think will be the only premier mid-cap diversified service company. Complete and ourselves, both small-cap companies. If you look at the universe of small cap companies in the oil and gas service universe, it's hard to see where the next mid cap otherwise would come from. So it puts us straight in that space, which we're excited about. And it will be accretive for us in 2012, which was probably the most important valuation metric that I considered as we look at this deal.
To think a little bit about product line, Superior was already a very well-diversified product company from a product line standpoint. And I always believe that we separated ourselves from some of the smaller companies in the diversity and breadth and product line that we have. With Complete, we become a much more well-rounded completion services company. Most of Superior's product line was more focused either on the drilling side of the business, production side of the business or what we refer to as the end-of-life businesses, decommissioning and plug and abandonment.
Complete's primary product lines, and there are 4, included fracturing -- hydraulic fracturing services, which is a service that Superior does not have; the water management business; and the well service rig business. Their coiled tubing and electric line business is one that will merge with the coiled tubing and electric line business that we have today in Superior, and I'll talk about that in just a moment.
Anyway, if you look at this overall product scope, very well diversified, very good exposure throughout the life cycle of the well. This is not the kind of product line that even looks like a mid-cap company. This is the kind of a product line that looks like a large-cap company. And I've said that for years, that we’ve got a product line that looks a lot more like Halliburton than it does at a small caps. And I still believe that's the case, and I think that what we get as a result of the Complete transaction is that an even more diversified product line.
This kind of walks through some of our history in Superior, where we've been and where we're heading from a pro forma standpoint after this acquisition is closed. You see, as recently as 2002, less than $500 million in revenue, nearly all of that revenue derived from the Gulf of Mexico where we stand today. And trailing 12 months, it's pretty well balanced from a revenue standpoint. Contribution of 39% from the U.S. land market, 27% from international and about 34% of our revenue from the Gulf of Mexico.
On a pro forma basis for 2011, you'll see that we've become much more exposed to the North American market, 65% of the company's revenue in North America. We believe in 2012 this will be a company that has in excess of $4 billion in revenue, in excess of $1 billion in cash flow, very strong from a financial standpoint, give us the opportunities to continue to grow.
And so as I think about all of the different metrics that led us to Complete as an acquisition target, this pie chart that I show you is probably the one -- single most -- one thing that really attracted me to Complete. And if I can kind of walk you through the time line here as to what caused us to have conversations with Complete, about this time last year, I began to develop, and as a company, we began to develop real confidence in this North American market driven by oil, still in the early stages of a cyclic uplift in North America about 1 year ago. I saw our budget come in for 2011 and saw that of the $300 million that we chose to invest in North American land market, I turned down as many investment opportunities as we executed. And those capital investment opportunities in North America are extremely attractive, extremely attractive.
Most of the things that we invested in this year from a CapEx standpoint have a payout of less than 2 years from a cash standpoint, very high return, very strong margin contributors. And so that was 2011’s budget. It kind of takes you through December.
And so beginning early this year, I started to think more about this overall thesis, gaining more exposure for the company in the North American market, and started thinking about companies. And I thought about public companies, a variety of private companies. Most of the public companies that I looked at were companies that had multi-basin exposure, which I found quite interesting. A lot of the private companies are in singular basins. They may be in South Texas, or they may be in the Bakken, or they may be in the Marcellus, but they tend not to be in multiple basins.
Whereas Complete was a company, multiple-basin exposure, fracturing capacity in 4 of the very best shale markets, very strong from a coiled tubing standpoint across the U.S., well-serviced rigs, water management business in all of the most important basins. And when you combine the Complete product line and their revenue with Superior's product line and revenue, then you get this pie chart, which I found extremely attractive. Every time I kept coming back to this, and this exercise has taken place in January and February. As I'm thinking about the types of acquisitions that may be available for us, I create these pie charts.
This one I found very attractive. So think about it. 22% of the revenue in North American land will be for fracturing services, hydraulic fracturing. It's the single largest oilfield service segment now, an over $30 billion global market. That's up from a $15 billion global market in 2006. I liked the idea of having some significant exposure to fracturing, but it's only 22% of pro forma revenue. It's not overexposed. 15% of revenue from coiled tubing. Now the coiled tubing market is one that I hear very few people talk about potential overcapacity problems in it. We've got about 600 coiled tubing units that work in the U.S. today.
I believe there's a demand for somewhere about -- between 1,100 and 1,200 coiled tubing today. And as an industry, we'll only add capacity of about 70, 80, 90 units a year. So quite a long ways from being able to satisfy demand for coiled tubing. 15% of this company's revenue will come from coiled tubing.
If you think about the intervention services, which includes service rigs, coiled tubing, electric line and snubbing, 36% of revenue is from those intervention services, and what I find particularly interesting about that is intervention services are typically not tied to the rig count. So the biggest piece of overall business is one that doesn't have exposure directly to the drilling rig count.
14% of revenue from fluid handling, that's water management. I think that is a new sector in this business that is still growing. We're still really trying to understand what service companies could contribute to the very challenging water management issues that we have in the oil and gas business today. About 9% exposure to drilling products and services. For us, that's primarily premium drill pipe, also includes stabilizers and accommodations, but very high return, very high margin segment. Anyway, you look at it, and you say, "What I saw in this was a very balanced revenue profile." In fact, I challenge you to create from scratch a North American services company and come up with a more compelling product mix than this. We've got terrific exposure to some of the most exciting parts of the oil and gas service business, but it's not too much exposure to any one, very balanced exposure.
Overall, 8% of the company's revenue will come from hydraulic fracturing, 8% on a global basis. So once again, very good exposure in what I believe will be a market that grows in the U.S. and outside of the U.S. in coming years as we see some of our international clients begin to develop more of their unconventional resources. Still overall, a very strong product mix.
I found this really compelling. It's really what led me to Complete. And in fact, I found it so compelling that after studying this mix and thinking about valuations for a period of time, I first approached Joe Winkler in March of last year. And Joe didn't want to sell the company. I don't think if any of you know Joe Winkler. He didn't want to sell the company. He wasn't looking to sell it. We spent 3 months socializing before I laid a number in front of him. We have a very descriptive history in the proxy, which I encourage you to read if you're interested. But we spent 3 months talking through social issues. And, really, I think during those 3 months as much as anything, the issue was Joe testing me to see how convicted I was in my belief about the North American market, which I guess I passed the test.
So I talked a little bit about the fracturing business. It’s a business that I do like our company having significant exposure to. Complete at year end will have about 430,000 horsepower, but that grows to nearly 650,000 horsepower by the end of 2012. The basins that Complete is exposed to from a fracturing standpoint today include the Bakken, the Barnett, the Eagle Ford and the Marcellus. They have been migrating equipment to the Permian Basin as we see operators in a real bind for fracturing capacity in the Permian.
The one basin that they don't have exposure to is in the Haynesville, which is a market that continues to be very busy from a completion standpoint, despite the fact that the rig count is down. But clearly it's a market at some point in 2012 or 2013, we'll begin to see a little bit lower activity from a fracturing standpoint.
Other than that, Complete is in the right basins, very strong multi-basin fracturing business. I've been out to see these operations now. Biggest fracturing operations is up in Gainesville, Texas, up in North Texas, very solid fracturing business now, which -- I've been around fracturing business for about 30 years, and what I saw from an operational standpoint from Complete's equipment and crews was just fantastic. I'm pretty excited about this exposure.
One of the things that I believe about pressure pumping is that as time goes on and we begin to see our operators around the world begin to develop some of their unconventional resources, this hydraulic fracturing business is something that we will be able to export. It fits with our plans from an international expansion standpoint, and it's really the only thing I believe Complete has that we'll export. I don't believe we'll try and export the well service rig business. Water management is a very local business, and so it's really not very exportable. And of course we're already in the coiled tubing business, which does go to the international markets.
Coiled tubing was something that I found extremely compelling as I looked at these 2 companies put together. And so the coiled tubing market is one that has changed dramatically in the last 3 years. It's historically an intervention business where we do work to maintain production in existing wellbores. Over the course of the last 2 years, it's become a business much more levered to completions, as coiled tubing is an operator’s tool of choice for cleaning out screened out frac stages and drilling out plugs following a frac job. And so basically, our entire coiled tubing fleet as an industry is now following frac crews around, which is something very different, and that's not what we used to do. We didn't do completion work. We did intervention work.
We see extremely high utilization in the coiled tubing business essentially across the industry for the last 2 years. On a combined basis, this data, which is produced by ICoTA and represents data points as of the end of December of 2010, on a pro forma basis, the company would have 70 coiled tubing units according to this data, making us the second largest coiled tubing company in the U.S.
Now a couple of interesting points here. We've added a Superior 8 coiled tubing units to our fleet since the end of December, and Complete has added 6. That will take the total company's coiled tubing unit count to 84 units when the transaction closes. And I believe that will probably have us in a position of being the largest coiled tubing supplier in the U.S.
I think as much as anything, that fleet is also very new. Essentially, all of Superior's units have been added to the fleet over the last 4 years. Complete’s units have largely been brought into the U.S. over the last 3 years. They represent a high percentage of large-diameter units, which are those units that are most favored for work in the long lateral sections that we see in the shale basins today. In fact of the 70 units that you see here based at the end of December 2010, 52 of those are 2-inch or larger units, and so very strong presence in the right part of the market.
So I’ve talked a little bit about my optimism for the North American market going forward. It's been a position I felt very strongly in for some time, and I certainly see evidence continue to stack up every day that our expectations going forward, I believe, are going to be correct. I expect that as we go into 2012, we'll see expansion of drilling rig count by somewhere between 3% and 7% during the course of 2012. That spread is going to be largely based on how successful companies are in hiring personnel.
In many of these businesses, particularly those that are very service-oriented, the primary governor to growth is people, not equipment. A good example of this, I think, is in our coiled tubing business in Superior. We added 8 coiled tubing units this year. And I mentioned to you, the market is dramatically undersupplied today. And so you may ask the question, "Well, why didn't you add more?" I could have built 20. Could’ve place orders for 20. That would have been easy to do, but we decided on 8.
I sat with our management team and asked our coiled tubing management group, "How many people can we hire? How many crews can we hire during the course of the year that are going to be at least as good as the crews we have working in the field today?" And we backed into the number of units based on that. That was 8. I would have loved to have bought 20 units. I'd have 12 of them parked on the fence if I did.
Hiring people is the biggest throttle to growth of any of the North American service business going forward. One of the things that we think we’ll be very effective in doing as a result of this transaction is we'll be generating more cash flow in the North American services business than we can reinvest in those businesses because it's so difficult to hire people. And so we'll be able to take some of that cash and either accelerate growth in our rental business, which is very low fixed cost, very low lever requirement or take some of that cash and accelerate our expansion of businesses internationally.
I think that's a big advantage that we have going forward. I think one of the common themes you'll see with service companies in 2012 is under investment and additional equipment during the course of the year because of a lack of access to people. I know that's a very strange thing. We listen to the news every day and hear about our 9.5% unemployment rate, and I'm sure we do have a 9.5% unemployment rate, but we don't in the oil patch. One of our challenges, I guess, as an industry is to try and attract people from outside of the oil patch to come in and work at some of these places where we are in drastic need of more people.
So I mentioned before, the result of the acquisition clearly separates Superior from the pack. We think on a pro forma basis, EBITDA in 2011 is out $1.2 billion. We think that expands to probably something close to $1.5 billion next year. I guess we'll be giving some guidance on that after the acquisition closes and probably when we do our Q4 conference call in February. But it clearly positions us in a place that separates us from the pack of small-cap guys.
The resulting transaction is one that leaves us with a very strong balance sheet. We saw -- our key credit and leverage statistic is still very comfortable to us because it's primarily a stock deal, 80% stock. We will be going to the market with some bonds, a bond issuance here before we go to close, to pay for some of the cash portion of the transaction. But overall, we're left with a balance sheet that's very strong, and I feel very comfortable with where it stands from a debt standpoint.
I brought up something a couple of times, and as we've talked about this transaction, a lot of times when you have companies like this that come together, we talk about consolidation savings and consolidation benefit. That was certainly not the driver of this transaction. I mean, there obviously will be some corporate costs that are saved, but it's not what drives us in this case. This is gaining access to product lines. It’s gaining access to people to execute those product lines. It's building scale and size above and beyond what either company could have done separately. I'm certain that there will be some consolidation savings at a corporate level. But we're really not looking for significant savings in the field. I don't think it's going to be available to us.
The only businesses that we compete in are coiled tubing. And in many cases, we're working right across the street from each other in facilities that are chockablock. Their facility is too small. Our facility is too small. I'm not sure where the consolidation benefit is in that. Somewhere along the line we'll go open a new facility that we'll both move into, but that's not something that happens overnight, something that takes a bit of time. It's not what made this transaction compelling to us.
So overall, just kind of hitting on some of the transaction highlights here, expansion and diversification, big driver for us. We do believe this North American market will stay strong. The enhanced scale and scope of the new company positions us in a place that really separates us from the other small-cap companies in the space, creating a very large mid-cap diversified company that's still positioned for quite a bit of growth. And as I mentioned, it will be an accretive transaction in 2012 for us.
And I think that completes our prepared remarks. Do we take questions, Robin?
Robin E. Shoemaker - Citigroup Inc, Research Division
Yes. We’ve got time for some questions.
Can you talk about your customer profile and customer concentration?
David D. Dunlap
Customer profile and customer concentration.
David D. Dunlap
Yes. We tend to work for very similar types and, in many cases, the same companies. The basins that Complete participates in are basins that we participate in today. And so what I find when I look at customer by product line, they tend to have -- if you looked at the top 10 list, there'd be 3 or 4 companies in any given basin that are common to us on that top 10 list. We tend to have a little bit different group in 1, 2 or 3 position than they would have in 1, 2 or 3 position, which is probably to be expected, so a very complementary mix from a customer standpoint.
Do you change that mix? Now that you sort of moved from fourth or fifth in the market to #1?
David D. Dunlap
I'm sorry could you just...
Do you change that customer mix in coiled tubing when now you become #1? I mean, do you emphasize the sort of top end or...
David D. Dunlap
I don't think so. I think the customer mix will probably remain the same. I mean coiled tubing, this is a business we operate at 75% to 80% utilization. They operate at 75% to 80% utilization. It's very similar throughout the industry today. And so any customer that can get their hands on a coiled tubing unit, they want to keep it. And so I don't -- I really -- I think the resulting customer mix is going to look a lot like the customer mix does today. I don't think there'd going to be much change.
Robin E. Shoemaker - Citigroup Inc, Research Division
Dave, I know that some investors have been asking you about the international strategy going forward. Since it is a smaller piece of the combined company now, what is your intention in terms of the international expansion? And would you talk about the Brazil and Australia, which I think were priorities for this year’s success there? And then apart from those countries, where would you like to be and which countries would you -- or markets do you not intend to compete in internationally?
David D. Dunlap
Okay. Well, let me start by talking just in general about the company’s strategy towards international. And although this transaction that I've talked to you about is really a North American transaction, Complete has a very, very small international business. They're nearly exclusively North American company. When I think about long term for Superior Energy Services, our greatest growth prospects still come from the international markets. And I believe that's one thing that's attracted me to come to Superior 1.5 year ago and believe that long term that's where most of our growth will come from. What this transaction does that facilitates international growth is in the way of cash flow. Generating larger cash flow in markets that, as I mentioned from a services standpoint, we won't reinvest 100% of cash in any of the North American services businesses in 2012 or probably beyond. It gives us more cash to accelerate expansion internationally. We started in 2011 -- actually in 2010 in Brazil, 2011 in Australia as we began to build out a footprint. And the way -- the strategy that we're following in, in building up the international business is one where we hire local managers in those markets, local managers, local management team, and let them pull the product lines through in those countries as opposed to having product managers that push those product lines through from the U.S. When we hire those local managers and their teams, one of the things that we say to them is we show them the kind of return expectations that we have, we show them what kind of margin expectations that we have and then we say, “Get aggressive. Find every opportunity you can that fits within those boundaries, and the company will fund those opportunities.” You can only say that to so many people at a time. And right now, we've said that to managers in Brazil and Australia. In 2012, we would have been opening probably 2 additional countries during 2012. What the additional cash flow as a result of this transaction does is it accelerates our pace. So instead of 2 countries opening in 2012, we'll probably open 3 or 4. And I can make that promise to more managers when the cash pool is overall higher. And so I really believe that this will allow us to accelerate a growth of the international business that was going to happen anyway, just we allow it to happen a bit faster. So Robin asked, what are some of those places? So Australia and Brazil are focus for 2011. In 2012, I know that we'll be opening in Saudi Arabia based on a negotiated pressure control contract that we have beginning in the early part of 2012. Some of the other places that we're doing some intelligence work in today that could be included as, I think 2 or 3 perhaps of these countries being included in our 2012 expansion would include Malaysia, Indonesia, India, Kazakhstan, Colombia, Argentina, all places that have very different types of opportunities available to us, and we won't be able to attack all of those in 2012 of that list that I just rattled off. There will probably be another 2 or 3 places. You didn't hear me mention Russia or Iraq or China or Mexico. I'm sure they're all fine markets, but they're not places that will be in our growth plans in the foreseeable future. And I mention those places because I know a lot of times when you talk to a larger service company, if you do, you hear about international margins being somewhat of a problem. And what I'd say to that is that's not really true. International margins overall are not a problem. Margins in those 4 countries that I mentioned as well as a few in West Africa that have been disappointing, that's where the international margin problems reside. If you could exclude Russia, China, Iraq and Mexico from international earnings of the large services companies, I think you'd see a better margin. We're just going to stay away from those places, so we don't have worry about it. One day I’ll probably have to talk to you about those 4 places, but it's not going to be anytime in the next couple of years. Did I cover all of it?
Do you guys probably expect a lot of -- sort of [indiscernible] for next year [indiscernible] in the areas [indiscernible].
David D. Dunlap
Well interesting thing has happened over the last 5 or 6 years in the U.S. market. I mean, we used to have this very interesting price leverage, and I know at my prior career at BJ, in 2004 or 2005, when we began to see this massive build-up in demand for hydraulic fracturing in the U.S., we saw our prices migrate to a point where our margins were in the very high 40s, in some cases, low 50s. We don't see that today. In a market that’s actually busier than the market was then, in a market that is undersupplied at least to the same point than it was in 2004 and 2005, you don't find anybody generating those types of margins. And I think the reason is that many of these service lines that are in very high demand are also now in a very fragmented market. I'll use the coiled tubing market as a good example here, and I'll answer your question in a second. I'm not dancing around it. I'll answer your question in a second. The coiled tubing market, we got very busy in the coiled tubing business about -- towards the end or early part of the second quarter in 2010. In fact, in January 2010, we were losing money in the coiled tubing business. By June of 2010, we were generating about a 30% margin. And it migrated up to about a 35% margin mid-summer 2010, and that's where it is today. And we've seen some price increases that we've been able to put through that have basically helped us recover our inflationary cost from a labor standpoint. But true pricing, we've really not seeing a lot of price impacting. So as busy as it is, why not? There's a lot of coiled tubing companies out there. And if I were going to one of my customers today and say, I've got a new price going in place on Monday. It's up 10%. You could pick up the phone and in 5 minutes have 5 pricing points from other companies. You may not be able to get a coiled tubing unit, but you'd certainly get the price points. I described the margins in those businesses today as being very well behaved. And on the services side of the business, where it's fracturing, coiled tubing, electrical line, any of the big service components today, generating 25% to 35% margin, which is a very strong margin level. It's one that will inspire reinvestment, but it's pretty well behaved. And I think that's what we have to look forward to. I think we'll continue to have some opportunities to get higher prices, but I think they'll be minimal. And I think that cost inflation is probably going to eat up most of the benefit of those price increases. And so we look at growing earnings as a function of growing volume, not necessarily expansion of price. Did I answer that? I know I danced around it a bit.
Robin E. Shoemaker - Citigroup Inc, Research Division
Well, David, our time's up now, but I'd like to thank you all for coming. And please feel free to ask Dave some questions on the way out. Thank you.
David D. Dunlap
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