Basic Energy Services (BAS) Thomas Monroe Patterson on Q4 2015 Results - Earnings Call Transcript

| About: Basic Energy (BAS)

Call Start: 09:00

Call End: 09:51

Basic Energy Services, Inc. (NYSE:BAS)

Q4 2015 Earnings Conference Call

February 19, 2016 09:00 AM ET

Executives

Jack Lascar - President and Managing Partner, Dennard-Lascar Associates LLC

Thomas Monroe Patterson - President, CEO & Director

Alan Krenek - SVP, CFO, Treasurer & Secretary

Analysts

Brian Uhlmer - GMP Securities

Marshall Adkins - Raymond James & Associates

Waqar Syed - Goldman Sachs

Blake Hancock - Howard Weil

Dan Pickering - Tudor, Pickering, Holt & Co.

Ken Sill - Seaport Global Securities LLC

John Daniel - Simmons & Company

Jason Wangler - Wunderlich Securities, Inc.

Joshua Large - SunTrust Robinson Humphrey

Operator

Greetings and welcome to the Basic Energy Services Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to turn the conference over to your host, Jack Lascar. Please go ahead, sir.

Jack Lascar

Thank you, Kevin, and good morning, everyone. Welcome to the Basic Energy Services fourth quarter 2015 earnings conference call. We appreciate you joining us today. Before we begin, I’d like to remind everyone that today’s comments include forward-looking statements reflecting Basic Energy Services’ view of future events and therefore potential impact on performance. These views include the risk factors disclosed by the Company in its registration statement on Form 10-Q and Form 10-K for the year ended December 31, 2014.

Further, please refer to these statements regarding forward-looking statements incorporated in our press release from yesterday. Please also note that the contents of this conference call are covered by those statements. In addition, the information reported on this call speaks only as of today, February 19, 2016, and therefore you’re advised that time sensitive information may no longer be accurate as of the time of any replay.

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

Thomas Monroe Patterson

Thanks, Jack, and welcome to those of you dialing in for today’s call. We appreciate your interest in our Company. Joining me today is Alan Krenek, our Chief Financial Officer. Today, I’ll briefly recap our fourth quarter results and give a current overview. Alan will then discuss our financial results in more detail. I’ll then wrap things up with some final comments about what we’re currently anticipating for the first quarter and for the rest of 2016.

I won’t dive deeply into our operating segments on this call. I think the information is readily available in our release, in our public filings. This should allow more time for questions if necessary.

Let me start by saying that this is the -- most likely, the worst downturn we’ve experienced in the past 30 years or more in the oil and gas industry. While this current period holds different characteristics from the mid 80s or the late 90s, it is no less devastating.

Starting in late 2014 and continuing today, this pullback has been rapid and costly. In December of 2014, we were very clear that we expected this downturn to be severe and prolonged, but no one anticipated the unprecedented pace, depth, and length of this trough. Before 2015 even began, we took measures to control cost, limit capital spending, preserve liquidity and scale our business to fit any level of customer activity. As the reduction in activity mounted, like all service companies, we found it difficult to get ahead of the decline no matter how proactive we try to be.

I want to thank all of our employees for their tremendous efforts and sacrifices to help the Company in its efforts. I believe our aggressive approach has and will continue to pay dividends, especially, as the industry finds the bottom for activity, hopefully, in the first half of this year.

The measures we’ve put in place and continue to add extend our runway considerably putting us in a strong position upon recovery. We’ve a young fleet of equipment that has been well maintained. Even the units we’ve been forced to cold stack are in good shape. Because of this, our reactivation costs for these stacked assets should be lower than most service providers.

We also have protected market share in all of our legacy markets by striving to be the service company with the lowest cost structure, and therefore, one of the toughest competitors. This is a tribute to our local leaders and our field employees. We’ve even been able to grow in some markets and take positions as others have left for whatever reason. Our customers have also been loyal and we thank them as well.

The fourth quarter was a continuation of the declining activity levels we saw all year, compounded by customer budget curtailments and terminations, extreme weather and a meaningful holiday impact. Revenue fell by 15% sequentially which was the lower end of the guidance we gave.

Many customers have shut in low volume wells needing maintenance rather than performing work at today’s commodity prices. Because of this trend, there is a growing inventory of deferred maintenance and work over projects in all of our markets that should come back quickly if commodity prices begin to climb.

We’re pleased to have such a large portion of our fleet dedicated to these ongoing production services. This allows us to stay steadily busy when customers stop spending money at the drill bit or on frac work.

Reservation of liquidity has been and continues to be one of our highest priorities. We’ve spent less than $10 million on CapEx in the fourth quarter and we’ve continued to reduce CapEx into 2016.

From the beginning of this downturn, we’ve lowered our field level cost, received significant discounts from our suppliers, reduced head count by 35%, and reduced SG&A expenses by over $11 million per quarter by the end of the year. And we’re not done. We continue to create more efficiency and reduce our costs by streamlining our organization to fit these new activity levels. We hope and expect to get the Company to cash flow breakeven in the second half of 2016.

Our new senior term loan facility which Alan will explain in more detail is one step toward ensuring our liquidity position. While no one likes to add debt in times like this, we felt it was necessary to create as much runway as possible with so little visibility over the near-term.

We’re also considering all options available for delevering, including strategic combinations and debt restructuring. The implementation of any such steps would depend on what opportunities we find, how well the options maximize shareholder value and the preservation of our liquidity objectives.

With that, I’m going to turn the call over to Alan.

Alan Krenek

Thanks, Roe. This morning I’ll provide additional details on our fourth quarter income statement, as well as discuss selected balance sheet and cash flow items. I’ll also discuss our 2016 capital spending plan and discuss our recently signed term loan agreement. As customary, when making comparison, comments will focus on sequential changes unless otherwise noted.

First, I would like to cover a few components of our revenue and segment profit. In our well servicing segment, Taylor rig manufacturing generated $2.6 million in revenue compared to $4.1 million in the third quarter. Taylor’s segment net operating margin loss was $106,000 compared to a profit margin of $311,000 in the third quarter.

In the completion and remedial segment for the fourth quarter compared to the prior quarter, 53% of the revenue was generated from pumping services in both quarters; 22% from coil tubing compared to 17%; 20% from rental tools compared to 24%; and 5% from other services compared to 6%. The reported net loss for the fourth quarter was $55.2 million or $1.36 per share.

For the third quarter, excluding an $82 million or $1.37 per share goodwill impairment charge, the adjusted net loss was $50.6 million or $1.26 per share. Weighted average shares outstanding for the fourth quarter were $40.2 million. Adjusted EBITDA was a negative $7.5 million or 5% of revenue compared to a negative $1.6 million or 0.8% of revenue in the third quarter.

G&A expense in the fourth quarter was $32.6 million or 20% of revenue compared to $36 million or 19% of revenue in the prior quarter. The lower G&A was due to significant cost saving initiatives, including head count reductions and lower incentive compensation. It should be noted that we made significant progress in 2015 on lowering our G&A expense since the fourth quarter of 2014 when it was $43.3 million.

We expect G&A expense in the first quarter to be around $31.5 million as we benefit from cost savings that were implemented in mid fourth quarter. Additionally, we expect G&A expense to be further reduced to around $30 million for quarter subsequent to the first quarter from cost saving initiatives implemented during the first quarter. We will continue to make additional cost reductions during 2016 to further lower our overhead cost.

Depreciation and amortization expense was sequentially flat at $60 million compared to $60.3 million in the third quarter. We expect that depreciation and amortization expense in the first quarter to be around $58 million.

Net interest expense was $17 million in the fourth quarter, essentially flat to the third quarter. I’ll discuss the pro forma effect on interest expense from the new term loan later in my comments.

Our fourth quarter effective tax benefit rate was 35% compared to 37% in the prior quarter. We expect that the effective tax benefit rate for 2016 to be around 35%. Our cash balance was $46.7 million at December 31st, a decrease of $9.2 million from September 30th. In the fourth quarter, cash flow provided by operating activities was $2.5 million. Investing activities provided $2.8 million, and financing activities used $14.5 million.

Our DSO at the end of December was 65, down from 67 at the end of September over 90-day receivables represented 6% of our accounts receivable balance at December 31st and we continue to experience good collection results.

During the fourth quarter, total capital expenditures were $8.9 million which included $2.1 million for expansion projects, $5.5 million for sustaining and replacement projects and $1.3 million for other. Expansion spending included $1.3 million for well servicing segment and $866,000 for the completion and remedial segment.

We expect that our capital spending for 2016 will be $40 million, which includes $15 million of capital leases. These expenditures will be essentially all maintenance and sustaining in nature.

During the fourth quarter, we explored alternatives to increase liquidity in order to withstand a prolonged downturn scenario. On February 17, we’ve signed an agreement with a syndicate of lenders for a $165 million term loan commitment with an opportunity to secure up to an additional $15 million by April 29.

For additional details regarding availability under this commitment and its proceeds, please see the form 8-K that was filed this morning. This loan has a coupon of 13.5% and original issue discount of 7%. It has a term of five years with a three year no call. However, if our 2019 senior notes are not refinanced prior to November 17, 2018, then the maturity of this term loan springs to November 17, 2018.

Additionally, upon the initial closing of the term loan on February 26, we will amend and reduce our revolving credit facility to $100 million. Two things that will exist on the reduced revolver, first, the revolver will be secured by accounts receivable. And second, no leverage covenants apply unless the availability under the revolver is less than $15 million.

Other than these changes, the terms of the revolver remain essentially the same. The pro forma impact at December 31st of this new term loan and amended revolving credit facility is as follows: cash, $197.2 million, total liquidity of $220.3 million. Based on these changes to our debt, we expect net interest expense for the first quarter to be approximately $19 million and then $23 million for the subsequent quarters.

Our main focus as we move through 2016 continues to be preserving our liquidity by matching capital expenditures with cash flow, maximizing collections, and we will continue to adjust our infrastructure so we can operate as cost effective in order to deal with this different -- difficult operating environment.

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

Thomas Monroe Patterson

Thanks, Alan. I’d like to end this call with our view on where the industry heads from here and our primary goal is to weather this prolonged storm. First, our crystal ball isn’t any better than most. Commodity prices are extraordinarily low, but don’t appear to have much room to fall further. Though I’m sure we’re going to see some dips over time until the U.S. and global supply get more balanced with overall demand.

Watching the decline curves, project terminations, and listening to the talking heads out there, it would seem that this occur sometime in 2016. Even when this happens, activity levels won’t react until confidence and more importantly, credit, return to the E&P space. That could take some time. So, whether commodity prices bottom here or even start a gradual recovery, it will take months for activity levels to respond. We’re positioning the Company in the event that this recovery takes years rather than months.

The first half of 2016 seems to be shaping up for more of the same business environment that we’ve been in. So our main priorities are these. First, maintain a safe company that provides quality service, continues to employ great people to do outstanding jobs every day. Second, protect our liquidity and extend our runway. I think we’ve covered this thoroughly today on the call. Third, get the Company to cash flow breakeven or better in the second half of 2016. Lastly, aggressively work to improve our balance sheet and create shareholder value even in tough times like this.

We are blessed to have a team that has made it through periods like this in the past and I look forward to better times for our Company and our industry.

With that, we’ll turn the call over for questions.

Question-and-Answer Session

Operator

Thank you. At this time, we’ll be conducting a question-and-answer session [Operator Instructions] Our first question today is coming from Brian Uhlmer from GMP Securities. Please proceed with your question.

Brian Uhlmer

Hey. Good morning, gentlemen.

Alan Krenek

Hey, welcome back Brian.

Brian Uhlmer

Thanks, Alan. I had a quick question for you. I imagine more questions will come on the debt issue. You said that there is no covenants unless your availability goes under $15 million on the revolver, is that correct? You currently have $23 million, is that accurate?

Alan Krenek

That’s correct.

Brian Uhlmer

Okay. And what covenants come back into play when you go -- if you do …

Alan Krenek

Fixed charge coverage ratio.

Brian Uhlmer

Just a fixed charge, right? Okay.

Alan Krenek

Yes.

Brian Uhlmer

And then second, the covenants on the actual debt piece are primarily, I’d say as far as filings and things like that, doesn’t look like there is any major covenants there. Is that entirely accurate? Number one. And number two, how does this affect your relationship with Quantum and the ability to do anything that’s addressed in the debt filing? And I was curious just kind of your thoughts on that and where we’re on that JV or that JV?

Alan Krenek

Yes, these covenants are pretty typical of the term loan agreement. And like I said, the details of that will be in the 8-K filing this morning. But there is nothing that really restricts our ability to conduct business on a go-forward basis. So that’s good. And as far as the relationship with Quantum, it really doesn’t affect it that much.

Thomas Monroe Patterson

We’ve talked with those guys yesterday. I spoke with Bill Montgomery. And their attitude is that conditions are probably even more compelling for an investment with us than they’ve ever been. So, if we find something that we both think as compelling opportunity, then we will consider those JV type structures that make sense for them and for us. Once again, they’re not bound to do anything with us, and we’re not bound to do it with them necessarily. But we like the way they look at things and they like kind of how we look at it too. And I think those opportunities are starting to materialize. We will see more of that over the next six months. We’ve already had several that we’ve kind of said no to recently, but we will find some that we do like, I think, and then, we will make some decisions.

Brian Uhlmer

Okay. Now on the operational front for the follow-up, just curious if you see, specifically the well servicing, that we’ve already seen assets get turned back into the manufacturers and leasing companies and some auctions, et cetera. Can you give us a little bit of directional insight where you think rates could and margins could trend to as we go throughout the years? As my friend says, it’s a kind of full there and they’re trying to call the bottom on something, but I’m going to ask you to do it anyhow, specific to rates.

Thomas Monroe Patterson

Well, we’ll give you our version of reality or how we see it. But I think if you’ve seen the pace of the rate decline over the last few quarters, it’s really slowed down. So I don’t see rates continuing to slide significantly. I think they will slide about like they have been. I think they will decline about the same kind of pace they had been. They will bottom when crude bottom, and that’s how it’s been in the past. That’s how it would be this time. They also kind of bottom wherever the smaller operators kind of hit that cash flow breakeven point. That seems to be at the bottom most times because they will push costs until they can’t push -- push the price until they can’t push it anymore. And to the extent that we’ve a lower cost structure, we can just keep matching those rates as they come down. So I see it bottoming here probably sometime in the first part of the year. We’ve seen several exits of smaller players in the well servicing business as you mentioned. And I think that that is going to also take some of the pressure off of rates as we see some of those smaller players leave the market. So I don’t see margin improvement until utilization improves. So if we can see a little bit of utilization improvement, our fixed costs usually stay in pretty good shape. They don’t move much and will create some margin just through utilization if we can get to the point where customers are willing to do the work overs and willing to do that deferred maintenance that I spoke about in my comments.

Brian Uhlmer

Thanks, Roe. And along those lines, is that $4 per hour decrease in cost ex-Taylor, is that more due to overhead absorption, cutting costs, or direct labor cost or what’s that’s attributable to -- Jesus, you know what I’m trying to say. What can we attribute that to?

Thomas Monroe Patterson

More to labor than anything else.

Brian Uhlmer

Good deal. Thanks. I’ll turn it over.

Operator

Thank you. Our next question today is coming from Marshall Adkins from Raymond James. Please proceed with your question.

Marshall Adkins

I’ll try not to use any of those big words that Brian was using.

Thomas Monroe Patterson

Thank you.

Marshall Adkins

You are looking for about a 10% reduction in your comments and activity in the first quarter. It seems like, number one; the rigs are already trending at least nationwide a little lower than that. And I’m guessing, there is still some modest price deterioration. I’m just -- first of all, just curious how are you -- why are you so -- why are you comfortable that it’s only down 10%? I’d have thought it would have been more.

Alan Krenek

Well, because so much of our work isn’t tied to the drilling rig count. That’s primary reason. We’ve so many service lines that are just flat are not tied to the drilling rig count. Fluid services and well servicing are not going to be tied to the drilling rig count necessarily. So, those businesses that are tied to the drill bit, we’ve already seen huge reductions in and we’ve baked those into the 10% that we gave you for a continual decline in the first quarter and it could be more than that, Marshall, 10% is just the kind of what we see right now, kind of half way through the quarter. It could ramp up, but based on what we’ve seen so far, kind of activity levels have returned to the pre-storm level that we had before the holidays there and before the blizzard. So that’s good. But we’ve also seen a reduction in those businesses that are tied to drilling and completion. So 10% is just the best guess right now, but it could fall more. But I wouldn’t necessarily try to gauge our revenue decline strictly by the rig count because we’ve so many production only related services.

Thomas Monroe Patterson

Yes, I mean, if you look at well servicing and fluid services, we expect those two segments to be down in the low to mid -- low single digits. And then of course the completion remedial segment which is more drilling or completion related, it’s going to be -- taking a pretty good hit.

Marshall Adkins

Okay. That’s helpful. Are we still seeing a bleed off in pricing in some or is that pretty much stabilized?

Thomas Monroe Patterson

Well, its kind as I told Brian, it’s come down, but it’s -- there is a pace of those rate decreases has slowed, and so we kind of see it bottoming out here pretty quick.

Marshall Adkins

So, it will be -- pricing will be lower in Q1, but bottoming in the first half, is that a good interpretation?

Thomas Monroe Patterson

I think so.

Marshall Adkins

Okay. Last one from me. We -- the EBITDA was down $7.5 million roughly for the quarter. And things obviously are getting worse into the first half of the year. Let’s assume it does bottom in the first half. Well, the first, second quarter, I don’t think any of us know. How big is the cash bleed at that stage? If you all can just give us some range or thought process on what you’re doing, thinking internally on what the cash bleed is at the bottom?

Alan Krenek

Well, obviously, I mean, we’ve got this new interest expense coming in that adds roughly about $6 million or so additional interest expense. But with the combination of these cost-saving deals, initiatives that we’ve in the G&A and other areas, that will offset some of that additional interest expense. So we expect, like we said in the press release, for this cash to last two-year plus.

Marshall Adkins

Okay. All right, guys. Thank you.

Alan Krenek

Specific as you want, but, yes.

Marshall Adkins

Well, obviously, we want more specifics than that.

Alan Krenek

Our hope would be to. Our hope would -- right now would be if we can figure out a way to offset the new interest expense, that would be a great success. So that’s what we’re working to do right now. Try to find enough cost saving initiative to offset that new interest expense.

Marshall Adkins

Got it. Got it. Thanks, guys.

Alan Krenek

And therefore, cash burn stays flat.

Marshall Adkins

Got it. Got it. All right. Appreciate it.

Operator

Thank you. Our next question is coming from Waqar Syed from Goldman Sachs. Please proceed with your question.

Waqar Syed

Thank you for taking my question. Is your CapEx equally weighted across each quarter or one quarter is heavily weighted versus others?

Alan Krenek

No. It’s pretty consistent, since it’s a maintenance CapEx oriented spend. It’s going to be pretty equal throughout the year.

Waqar Syed

So when you say -- okay, so when you say cash flow breakeven by the third quarter, is your expectation that operating cash flow is going to be close to the $10 million book order mark or do you expect some working capital -- some cash flow from working capital as well coming in?

Alan Krenek

Now as far as working capital, I think -- I don’t think we should expect much benefit from that. We pretty much have done everything that we can on the payable side and on the receivable side to manage it. Now if revenue starts to pick up, then obviously that consumes working capital.

Thomas Monroe Patterson

There is two things, I think, to point out here, Waqar. One is that approximately $15 million, $16 million of that $40 million is capital leases.

Alan Krenek

Yes.

Thomas Monroe Patterson

The other thing to point out is that if we can get CapEx, we’re kind of telling you what we think right now, but if we can get CapEx even lower, that’s going to be our goal. So we’re on pace right now to even beat that $40 million. So, might not have to generate net 10 cash to be cash flow breakeven. But if that’s what it takes, then that’s what we’re going to try to do. And that comes through just a complete change in overhead and structure at the field level, trying to create as much efficiency as we can and right size our payrolls and crew accounts and all of our expenses so that we can generate more margin than we are today and get to that cash flow breakeven point.

Waqar Syed

Okay, great. And in terms of -- any guidance on the decremental margins for the three major business lines?

Thomas Monroe Patterson

Yes, really the only difference in the margins will probably be in the first quarter, we have this unemployment tax hit that usually occurs in the first quarter, and that’s somewhere between 100 to 150 basis points. Other than that, there will be some changes because we’re implementing some wage reductions and stuff like that, but for the most part, they should transition over pretty much like they did in the fourth quarter except there were some decremental margins in the fourth quarter that were related to the weather issues.

Alan Krenek

Weather and holiday.

Thomas Monroe Patterson

So just take all of that into consideration.

Waqar Syed

Okay, all right. Thank you very much. That’s all I have.

Operator

Thank you. Your next question is coming from Blake Hancock from Howard Weil. Please proceed with your question.

Blake Hancock

Hey, good morning, guys.

Thomas Monroe Patterson

Hey, Blake.

Alan Krenek

Good morning.

Blake Hancock

Roe, here -- as we think about the pricing commentary that we’ve heard, potentially bottoming 1Q and maybe early 2Q, are the thoughts now that if that’s the case, even if activity were to trend lower in 2Q, could you guys actually improve your margins within your segments if that’s the case despite activity continuing to trend lower?

Thomas Monroe Patterson

We could. We could. If we could get cost right, we actually could and if rates bottom. I think what typically happens in these cycles is as some of these competitors leave the space it creates more utilization for the survivors, and that really drives margin more than anything. But, yes, in a vacuum, if we can get our cost right and rates really bottom out, margins could improve.

Blake Hancock

That’s great. And then one just -- in the release you guys talk about exiting markets that aren’t profitable here. Can you maybe just discuss basins and product service lines, where you’re seeing that and just kind of give us an idea of where those pressures are being felt?

Thomas Monroe Patterson

Sure. It’s primarily in the pumping space where that comment applies, where margins have fallen below what we think it takes to generate sustaining CapEx. In other words, you can’t keep your fleet together and you can’t keep it in the same condition with the margins in those particular frac markets. The Permian Basin is probably the worst that I’ve seen in the country. It’s awful and it’s purely a function of the number of competitors that are there even still today bidding on jobs. Some of the bigger frac companies have maneuvered from market share and have been willing to bid at cash flow breakeven or even lower to hold on to market share. And so that’s driven those margins down. And we decided, you know what, we’ll stack our stuff and -- or we will move it to another market where we know we can make competitive margins or we will retract to those positions like the mid continent where we’re still seeing pretty -- they’re not great margins, but they’re better than what we see in the Permian. Another market I’ve said -- I would say, is the Rockies, Niobrara, frac margins there have also gotten pretty tough to deal with. So, we’ve just chosen to stack out that stuff and not stay.

Blake Hancock

That’s great. I appreciate it, guys.

Thomas Monroe Patterson

Okay. Thanks.

Operator

Thank you. Our next question is coming from Dan Pickering from TPH Asset Management. Please proceed with your question.

Dan Pickering

Good morning, guys.

Thomas Monroe Patterson

Hey, Dan.

Dan Pickering

Hi. Can you do me a favor and just tell me how you define cash flow breakeven, because there is a lot of different ways to interpret it. I just want to make sure I understand how to think about the math to get there. Does it include interest? Does it not include interest?

Alan Krenek

It would include enough cash flow to cover your CapEx, your maintenance CapEx.

Dan Pickering

Okay. So basically what you’re saying there, Alan is, is you would expect your EBITDA minus interest payments minus CapEx is going to get you to zero?

Alan Krenek

Correct.

Dan Pickering

Okay. And so to get there in the second half, I assume we got to get some revenue help to get there? Because, I mean, obviously, you got a big interest burn, $40 million of CapEx. So how much better does the market have to be on the top line do you think to get to that cash flow breakeven level assuming you make some of the hard choices you’re doing in the cost side?

Alan Krenek

Yes, probably somewhere in the 10% to 15% range.

Dan Pickering

Okay. So, second half would have to be 10% to 15% higher than the first half to generate enough operating cash flow that basically you don’t burn cash, is that right?

Alan Krenek

And then combined with the cost saving initiatives that we will be putting in play.

Dan Pickering

All right. Okay. That’s helpful. And then, Roe, you talked about the Quantum relationship, et cetera. At this point in time, would you use any cash to do acquisitions or joint ventures or everything you’re looking at would be cashless?

Thomas Monroe Patterson

Well, using cash it would have to be awfully compelling for us to use cash, because it’s so precious right now. So, I don’t see anything out there where that makes sense right now. I guess, the horizon would have to look a lot better as well. It would have to look like we’re climbing out of this mess before we’d get that brave. But -- so right now, I just -- I think something cashless using our equity possibly is about all we’d look at, and look, the reason we don’t have anything to talk about with those guys is because it’s so tough to make a deal happen, everyone’s got debt. A lot of these companies don’t have work or good cruise with them. They’re just stacked assets. So there is really nothing to buy. So, it’s hard to find a compelling investment at this point, but we’d be very stingy with our cash.

Dan Pickering

Okay, good. And then, Alan, you described the post revolver equity -- post revolver cash, at kind of $197 million. Does that include the $15 million extender? I haven’t read the document yet to know exactly what’s required on that.

Alan Krenek

It does not. It only includes the $165 million that we signed for.

Dan Pickering

Okay.

Alan Krenek

Like I said, the opportunity that we’ve to get an additional -- up to an additional $15 million by April 29.

Dan Pickering

Right. And then does -- when we think about -- looking back at my notes from the third quarter, I think you had something like $50 million drawn on -- sorry, you had a $111 million, net of $50 million letter of credit on your existing revolver.

Alan Krenek

That’s correct. That doesn’t change.

Dan Pickering

Can you kind of walk us through where that stands today, so it’s still $50 million letter of credit?

Alan Krenek

Yes.

Dan Pickering

Okay. So, you expect this, the delta kind of $23 million or so to be available from your revolver after you do the amendments?

Alan Krenek

That’s correct.

Dan Pickering

Okay, all right. And then Roe, I asked about acquisitions as a use of cash. How do you think about, I mean, your debt is obviously trading at a discount, same story here to cash too precious to buyback bonds or not?

Thomas Monroe Patterson

I think so. I just don’t see compelling argument to burn up your cash. When you can’t see the end of the runway, it just doesn’t make a lot of sense. We need to be better stewards of our cash than that, until we can find a time to buyback or capture discount. There’s other ways to capture discount without blowing your cash on it.

Dan Pickering

Yes, and I’m totally cheating on the two questions, I apologize. One of the things that we’ve seen discussed in the marketplace are folks going out and doing -- drawing down revolvers, pulling in a bunch of money and then trying to renegotiate and basically do some sort of a pre pack, obviously as an equity holder, that would be bad news for us. I assume you guys are going to fight this to the bitter end. That’s the purpose of the term loan. It’s expensive, but it lets you kind of live to fight another day.

Thomas Monroe Patterson

That’s exactly right. We were going to do pre pack; we wouldn’t have done this term loan because there is no reason to waste the timeline if you’re just going to go that route anyway. So this is -- should be a great big neon sign that we intend to make it.

Dan Pickering

Okay, great. Thank you.

Thomas Monroe Patterson

Okay.

Operator

Thank you. Our next question today is coming from Ken Sill from Seaport Global Securities. Please proceed with your question.

Ken Sill

Yes, Dan just asked a bunch of good ones. It’s good to hear his voice after a while. I want to make sure I understood this. So there is a 7% OID on this and a 7% fee that you guys owe on it is on the full $180 million availability on this term loan or is it just on the $165 million?

Alan Krenek

It’s on the full amount.

Ken Sill

Okay. So, that kind of works that -- who are the …

Alan Krenek

Excuse me, Ken, it’s only on the $165 million, I’m sorry.

Ken Sill

So, the 7% fee is just on what you’re drawing right away?

Alan Krenek

That’s the OID on the additional amount.

Ken Sill

So the 7% fee is OID. That’s how you’re paying the fee?

Alan Krenek

That is correct.

Ken Sill

Okay. Yes, yes. I was thinking that’s on top of that. I’m like, wow, that’s getting really expensive.

Alan Krenek

No, no, no, no.

Ken Sill

Okay.

Alan Krenek

There are a few other fees, but it is nothing near that amount.

Ken Sill

Yes. Well, yes, we will find those out shortly, I guess. So, kind of looking at this, who are the -- who is in this group of lenders? Is this private equity guys, financial institutions? Who are the …

Alan Krenek

The answer would be yes, but we’re not disclosing the names of the syndicate of lenders.

Ken Sill

Okay. That’s just curious. So, obviously this increase to the option value, two things. I was kind of surprised in the completion business that margins were screwed as they’re and people have asked this question already. I guess I’m just trying to get it at a different way. Your goal is to be one of the lowest cost providers in your main markets. So where you’re working I’m assuming that means that’s places where you either got good customers you want to keep or you’re trying to maintain market position or you really are a low cost provider. I mean, how much cost advantage do you think you’ve got versus a small regional player in some of these markets?

Thomas Monroe Patterson

Well, it depends on the business line. If you’re talking about pumping, there is not a lot of separation in cost structure really for anybody big or small unless you’ve gone out made materially better contracts for sand or chemicals or something like that, which I think the spot price out there has been a competitive one. And I don’t see anybody out there just to rip in it and getting a lot better price on those input costs than we are. So, the only time -- and on the pumping side, you’re any better is when you’re in a market where you’ve just got to lock on the work or there is less competitors. Some of the big boys have left a particular market and you kind of slip in there and stay under the radar. You asked about cost structure on these other lines of business. With well servicing, it’s all economies of scale. We’ve so many rigs, so many yards, and we’re positioned so much closer to the work or for any given call and for work, we’re probably literally 10, 15 miles closer to the work than the next competitor out because of our yard density in markets like the Permian and the Eagle Ford. So that -- that’s how you can beat them up on cost there. With fluid services, it’s simply the saltwater disposal well network. We have 85. I think that’s more than anyone else in the United States on the service side. So that makes us ultra competitive. We don’t pay to put our water away. We take it to our own SWDs. That’s just one -- that’s money back in our pocket that we’re not having to spend and therefore, we’re more competitive. So hopefully, that answers your question.

Ken Sill

That makes sense. I was just trying to get a feel for that. It’s a tough number. And on saltwater disposal, it’s just kind of a question prompted by your comments there. You read these press releases about earthquakes in Oklahoma and North Texas, is that an issue for anywhere where you guys are using these disposal wells?

Thomas Monroe Patterson

Not currently. Thank goodness.

Ken Sill

Yes. Yes. That one’s a curious one. All right, that’s all I’ve got. Thanks.

Thomas Monroe Patterson

Thank you, Ken.

Operator

Thank you. Our next question today is coming from John Daniel from Simmons & Company. Please proceed with your question.

John Daniel

Hey, Roe, Alan.

Thomas Monroe Patterson

Hey, John.

John Daniel

I want to follow-up on Dan’s line of question. It sounded like you agreed with his statement that you’re defining cash flow breakeven as EBITDA minus interest minus CapEx. And if that’s right, with the interest sort of low 20 …

Alan Krenek

No. That’s not …

John Daniel

That’s not right?

Alan Krenek

What I meant to say was EBITDA minus …

John Daniel

CapEx.

Alan Krenek

… maintenance CapEx.

John Daniel

Okay, good. I just want to clarify that.

Alan Krenek

That’s all right.

John Daniel

Okay. And then in your prepared remarks where you mentioned that you’re considering strategic combinations. I’m just curious, as you think about those transactions, do you have to restructure the senior notes prior to making any big deals? And how would that play out?

Thomas Monroe Patterson

Well, it depends on the size of the combinations. If it’s big enough, the answer is yes, we would …

John Daniel

Okay.

Thomas Monroe Patterson

… we’d have to go back and do a lot of whittling with our debt holders to make it work.

John Daniel

Okay. Fair enough.

Thomas Monroe Patterson

If it’s small enough, maybe not.

John Daniel

Okay. And then, one of the things that I had been thinking about with the Quantum JV was the concept, that one point, could you contribute assets into an entity, acquire something and have sort of new co [ph], if you will. But with the new agreement right now at this term loan, I’d assume you’re restricted from contributing any assets to any sort of new entity or no?

Thomas Monroe Patterson

We’re restricted in that. We got to go to them and talk to them about it. We’d have to get a waiver on it, but I mean it’s not off the table. We just have to …

John Daniel

Okay.

Thomas Monroe Patterson

… get an agreement to strip those assets out.

John Daniel

All right. Thanks for clarifying.

Thomas Monroe Patterson

That investment, whatever it would be -- whatever that investment would be would serve as that collateral. So it’s not undoable. I guess would be …

John Daniel

Okay.

Thomas Monroe Patterson

… the response, John.

John Daniel

Fair enough. Thanks, guys.

Thomas Monroe Patterson

Okay.

Operator

Thank you. Our next question is coming from Jason Wangler from Wunderlich Securities. Please proceed with your question.

Jason Wangler

Hey. Good morning, guys. Just was curious on, you mentioned in the release about the coil tubing side, you’re seeing some pretty good utilizations there. Is there something driving that, I was just wondering because that seemed like kind of an outlier not only for yourselves but just kind of the industry right now?

Thomas Monroe Patterson

You know, we’ve just been blessed to be in good spot with our coal. We’ve got good markets where we run our coal. We protected our market share there. We got great folks running those groups for us. And they’ve just been able to keep utilization higher. Now, they’ve to give up pricing as well. It’s competitive business like any other segment. But if you can maintain utilization and this is a case study for it, you offset all those fixed costs and you generate more margin, and that’s why it’s been a successful business. They’ve stayed busy and kept their units out in the field.

Jason Wangler

I appreciate it. And then on the fluid trucks, the numbers kind of come down a little bit. Is that just natural attrition, just kind of retiring some trucks, given the market stuff right now, or is there another way to think about that?

Thomas Monroe Patterson

That is the way to think about it.

Jason Wangler

Okay, great. I’ll turn it back. Thank you.

Thomas Monroe Patterson

Thank you, Jason.

Operator

Thank you. [Operator Instructions] Our next question is coming from Josh Large from SunTrust. Please proceed with your question.

Joshua Large

Hi. Good morning. So, I guess I had a question, you said year-end liquidity was around $223 million. In the press release, you talked about March 31st pro forma liquidity at $220 million, would that imply a $3 million cash burn? I guess, could you help us bridge the gap to that?

Alan Krenek

No, the …

Thomas Monroe Patterson

I think one’s a pro forma [indiscernible] and the others without so …

Alan Krenek

Yes, $220 million is the pro forma amount. There is some other fees that are coming out of the proceeds, like our legal fees, et cetera, for the debt issuance. So the $3 million is the delta. The delta of $3 million is related to other fees that have been incurred to get this term loan.

Joshua Large

Okay. So the pro forma is just the amount that the -- 4Q amount minus fee -- the fees?

Alan Krenek

Right.

Joshua Large

Okay. That’s helpful. And then, I guess, on the cost cutting and the infrastructure, can you help us understand, I guess, kind of how we should think about fixed versus variable for your business going forward or kind of how much of this is structural kind of thing?

Alan Krenek

Well, we’re working on variable cost daily. The structural piece is literally eliminating some of our field level and region level overhead by combining those management teams. And whenever you do that, you push various levels of leadership down in the organization. And you’re -- unfortunately, your greenest and newest employees are the ones that don’t have a chair when the music stops playing. So it’s a reduction in force by combining these administrative groups in the field.

Joshua Large

Okay, great. Then on -- I think previously you stated the max secured indebtedness that you could take is $300 million. Will that still be the case after all the amendments?

Alan Krenek

Actually, it will be a little lower than $300 million with the actual fourth quarter results. And that’s why you saw that this additional piece that we might be able to get is like $15 million. So 265 -- $165 million plus $15 million is $180 million plus the $100 million of revolver gets us to $280 million.

Joshua Large

Okay. And then, on the 2H -- this is my last question, 2H cash flow breakeven, should we -- you said working capital shouldn’t be meaningful. Is any tax benefit incorporated in that? And how should we think of stock comp? Should it be kind of flat year-over-year?

Alan Krenek

Yes, the stock comp should be flat. Again, in 2016, all of the tax expense will be deferred.

Joshua Large

Okay. That was my last one. Thank you.

Operator

Thank you. We’ve reached the end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments.

Thomas Monroe Patterson

All right. Well, thanks, everybody, for dialing in. Hopefully, we look forward to talking to you next quarter and maybe things will be a little better and the horizon will be a little better. We appreciate your time.

Operator

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.

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