Superior Energy Services Q3 2007 Earnings Call Transcript

Superior Energy Services, Inc. (SPN)

Q3 2007 Earnings Call

October 30, 2007 11:00 am ET

Executives

Greg Rosenstein - VP of IR

Terry Hall - Chairman and CEO

Ken Blanchard - President and COO

Robert Taylor - CFO

Analysts

Jim Rollyson - Raymond James

Joe Agular - Johnson Rice and Company

Robin Shoemaker - Bear Stearns

Byron Pope - Tudor Pickering

Dan Pickering - Tudor Pickering

Thomas Escott - Pritchard Capital

James West - Lehman Brothers

Scott Gill - Simmons

Joe Gibney - Capital One Southcoast

Presentation

Operator

Good morning ladies and gentlemen, and thank you for standing by and welcome to the Superior Energy's Third Quarter Conference Call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). This conference is being recorded today, Tuesday, October 30, 2007.

At this time, I would now like to turn the conference over to Mr. Greg Rosenstein. Sir, you may now begin your call.

Greg Rosenstein

All right, thank you, Craig and good morning and thank you everyone for joining today's call. Joining me today are Chairman and CEO, Terry Hall; President and COO, Ken Blanchard, and CFO Robert Taylor.

Before I turn it over to Terry, let me remind everyone that during today's call, management may make forward-looking statements regarding future expectations about the company's business, management's plans for future operations or similar matters. The actual results could differ materially due to several important factors, including those described in the company's filings with the Securities and Exchange Commission. Also, during the call management will refer to EBITDA, which is a non-GAAP financial measure and in accordance with Regulation G, the company does provide a reconciliation between net income and EBITDA on its website.

With that, I will now turn it over to Terry Hall.

Terry Hall

Good morning, everyone. Looking at the third quarter; revenue was $398.9 million, EBITDA $164.5, net income $75.1, $0.91 earnings per diluted share. Excluding non-recurring gains and sales of business, net income was $69.2 million, $0.84 diluted earnings per share when applying the new effective tax income rate of 35.5%.

I'm sure by now you've heard many companies talk about weather-related slowdowns in the Gulf of Mexico and the impact it had on their operations. In our case, we estimate weather impact to Superior was about $9 million in revenue and $0.04 in earnings per share.

I really think the main story for this quarter continues to be our geographic diversification. 46% of the business was from the Gulf of Mexico this quarter as compared to 50% in the second quarter and as compared to 90%, just a few short years ago. Just in the few years past, downtime in the Gulf of Mexico, the type of which we had recently, would've had a significant impact on the company. That's just not the case any more. I think these results prove it and validate the strategy.

We were able to somewhat offset the Gulf slowdown with additional work from the domestic land markets and international markets. The big increases on land were primarily in the Well Intervention segment where we saw strong activity increases in coiled tubing, fishing and well-control services.

Looking at the operating highlights by segment; in the Well Intervention Group, revenue was $202.8 million; income from operations was $47.6 million, as compared to the second quarter revenue was up 6% due to the domestic land activity increases I just mentioned.

I think the financial performance of this segment provides a great example of our geographic and product service diversification. A lot of this is attributable to our acquisition of Warrior Energy Services last December. As compared to the second quarter Warrior's revenue and gross profit increased in coiled tubing, fishing and electric line areas. Warrior averaged three addition coiled tubing units during the third quarter as compared to the second quarter and both the utilization and day rates were higher.

GulfCoast and Wyoming areas where some of our competitors experienced weaker demand for coiled tubing, we do not have a large concentration of equipments in those markets.

Our subsidiary, Wild Well Control, also had a busy quarter with a number of small well-control projects throughout the U.S., in addition to ongoing hurricane recovery work in the Gulf of Mexico. Coiled tubing, the well-controlled business was more than offset a decline in activity in the Gulf for plug and abandonment services, hydraulic workover, snubbing services and mechanical wireline. The margin improvement was due to the higher concentration of well-control revenue, primarily.

In the rental tool arena; revenue was $118.9 million and income from ops was $51.4 million. Our revenue was essentially unchanged quarter-over-quarter if you back out the revenue earned in the second and third quarters from [the tools] Small business that we just recently -- we just sold. Once again, geographic diversification is a factor. We were able to offset lower drill pipe rentals in the Gulf of Mexico with increased rentals of accommodations, stabilizers and drill pipe in other markets.

Stabil Drill, our subsidiary that rents stabilizers and drill collars to the very strong corridor in North America as horizontal drilling activity remained active. Also, we saw increased demand for drill pipe in international markets such as the North Sea, Russia, South America and West Africa.

Our gross profit and operating margins increased due primarily to business mix and as a result of the sale of drill pipe and accommodation units during the quarter. Just a note on business we've sold, was actually a service business that was started by one of our rental subsidiaries. The business we sold provided industrial services such as bolting, field machining and testing services to downstream companies in the oil and gas industry. It really didn't fit our mold. I don't want you to come away from your thinking, we're selling rental businesses because we're not, but we did sell this one business and we just bought one and we are about to close on two more. So, we're not liquidating here, folks. And I'll talk more about the three little acquisitions in a moment.

In our Marine segment, revenue was $26.3 million and income from ops was $8.1 million. This is the one segment where we are concentrated in the Gulf of Mexico and it is reflected in the results.

Utilization was 62% as compared to 72% in the second quarter, mostly due to the downtime associated with weather. We incurred 198 idle days due to weather during the quarter as compared to 13 idle days in the second quarter. Our average, day rates fell by about 4% as we gave rate concessions for weather.

I'm pleased to report that our liftboat utilization for October is at 75% and our average daily revenue is in excess of $329,000. What's significant here is that our average day rate was $356,000 in July, it was $224,000 in August, it was down to $227,000 September and it is now back to $329,000. Things change in the Gulf of Mexico.

The liftboat utilization by class for October is as follows; in the 145 to 155 Class, it's 67%; 160 to 170 Class, 74%; in the 200 Class, 78%; in the 230 to 245, 90%; in the 250, 94%. Note how, the larger boats enjoy the higher utilization, and again, that's part of our strategy and that's why we invest in the bigger boats.

In the Oil and Gas segment, revenues were $51.7 million; income from ops was $13.5 million. Third quarter production was approximately 899,000 barrels of oil equivalent or about 9,800 BOE per day, up from approximately 9,600 BOE per day in the second quarter of '07.

Our average realized price was 59.39 as compared to 56.79. For those of you who are wondering, our production is about half gas and half oil and that's why you end up with this blended rate based on a BOE.

In an effort to absorb some of our idle Gulf of Mexico assets during the summer, we were able to complete a number of projects for SPN resources, including two new drills, 13 workovers and 12 abandonment projects.

In Barrel Oil and Gas, during the quarter, Coldren Resources changed its name to Barrel Oil and Gas. The earnings from our equity investment there were $1.4 million. Production there was approximately 11,300 BOE per day, as compared to 11,000 BOE per day in the second quarter. We think things are turning around at the Barrel fairly quickly here. They've finally gotten themselves organized and staffed up in their offices, and they are beginning to exploit the properties and the first couple of things they have done have been successful. So we look for things to improve there, hopefully dramatically over time.

Looking at CapEx, expenditures during the quarter were $126 million, expansion CapEx represented 82% of these expenditures. We expect CapEx in the fourth quarter to be about $100 million to $110 million.

Looking at G&A, expenses increased about $3.3 million over the second quarter, primarily related to increased compensation and insurance costs. If you go back in the quarter, we had an insurance credit in the second quarter which we didn't have in the third quarter. So that's a big piece of it. We reclassified some salaries over in the Warrior Group, bringing -- properly classifying salaries that should have been in the G&A and they were being picked up on the service side of the business. So there's no real story here except reclassification, a little bit of change in insurance.

Fourth quarter G&A should be in the range of $59 million to $61 million. DD&A increased primarily as a result of additional oil and gas production at SPN, as well as our CapEx expenditures through September. We believe DD&A of 52 to 54 is a good run-rate for the fourth quarter.

Looking at the balance sheet, at the end of the quarter we had approximately $716 million in debt. The debt breakdown is as follows; convertible notes, $400 million; senior notes, $300 million; [another add] $16 million for a total of $716 million. Debt-to-EBITDA at the end of the quarter was 1.18. Debt-to-total cap was 43%.

We always get into an outlook part on these conference calls and today, I guess, I'm going to have to get on my soapbox for a minute and try to hopefully impress upon you how our company is a little bit different to some of our peers.

Our third quarter earnings grew by 24% over last year's third quarter. The earnings were lower by one penny as compared to the second quarter this year. I think you'll find that our results are better this quarter than many of our peers, and yet our stock price over the last 45 days has been trading down significantly. Now, I know it's moving up a little bit today and I'm thankful for that. But it just appears that every time someone else that's in our space or is often mentioned in our space has a problem and everybody takes a big hunk out of us. That's happened to us a couple of times and a lot of our shareholders call and ask, what's going on at the company? We really don't know what to tell. But I hope people start looking at these results and look at our results over time and historically and make your own decision as to whether or not diversification, really geographic diversification, really does separate us from many of the people that we tend to get lumped with.

Years ago, there was a time when a bad event in the Gulf Mexico would really take a big hunk out of us but we've worked really hard to get away from that. And today, we are a lot better able to withstand activity turndowns in any one market, whether it's the Gulf or North America or the international market.

I think the marketplace has underestimated this diversification and because of that we recently took advantage of these inefficiencies and what we perceived to be inefficiencies in our stock and we bought back about $34 million of stock which is about 10% of our authorized buyback.

This diversification strategy is ongoing. During the third quarter we mentioned, we have sold a Small business that wasn't core to our growth strategy. In October, we made one small acquisition and we are in the process of closing on two other small transactions. One earlier close was the tuck-in acquisition of Stabil Drill and diversifies its rental tools inventory into new complementary products.

Two other acquisitions are expected to close this week. Both provide us geographic diversification; one of the companies was a pipe inspection business in Colombia and will provide us with a distribution channel for drill pipe and other rental items in South America, as well as infrastructure for future expansion in this market. The other transaction is a tuck-in acquisition for international snubbing services. It provides hydraulic workover snubbing and well control in continental Europe and the U.K.

Collectively, we paid about $30 million at closing for these three acquisitions with a collective earn-out opportunity of $18 million. In '08, we expect these acquisitions to generate about $33 million in revenue and $11 million in EBITDA that is very conservative. This is without giving consideration to revenue synergies from pulling through some of our other existing products and services.

In terms of market outlook; we expect the Gulf of Mexico activity to bounce back this quarter, we are already seeing this in our liftboat utilization in October, as I mentioned earlier of course, now we have another storm out threatening the Bahamas, so who knows? But we think the Gulf has turned around rather nicely.

Again, contrary to what other companies are experiencing, our coiled tubing business on land is growing. The Warrior integration is accelerating and they are a big part of our domestic land growth. This is not because we are necessarily smarter or better. Sometime ago when people questioned going into this business, we said when the market gets tight the guys with the new equipment and the best employees tend to take market share, they do better. We do have the newest fleet out there. We think we've got the best staff of people working for us and so thus far we've gone through this little flat spot in activity and gained market share.

If we look at Warrior today, over the past 12 months, they have added many locations, about 300 people. Delays in equipment deliveries hurt their margins in the first six months of the year but now those deliveries are catching up, the margins are getting better. So, if we annualized the third quarter performance for Warrior, it's right about where we had forecasted it to be for '07 but there's been a lot of front-end expenses in this deal. They started up a couple of new businesses which are still losing a little bit of money. So, the Warrior story to us we think is a big win as we go forward. While we share the sentiment of many service companies that growth rates in certain businesses are slowing our crystal ball tells us that activity for many of our products and services in several geographic markets remains strong.

If there's a slowdown in some of our markets we are prepared to deal with it. If we need to, we can delay a slowdown in equipment orders and capital spending. If you are looking at land markets, all that stuff is on wheels; we can move it. When one market slows down, we can get to another. We have not made significant investments in infrastructure in any one of these little markets.

I think the main takeaway from this quarter is that our diversification provides some protection of earnings in the down market which should result in less powerful earnings that some of our peers may have experienced. At the same time, I'll think the geographic diversification strategy is probably further along to many other companies that you maybe comparing us to.

Now, I get out from soapbox and answer any questions you have.

Question-and-Answer Session

Operator

Thank you very much. At this time, we will now begin the question-and-answer session. (Operator Instructions). Our first question comes from the line of Jim Rollyson with Raymond James. Please, go ahead at this time.

Jim Rollyson - Raymond James

Your diversification strategy –

Terry Hall

Hey Jim, Jim, we just came on the air. I didn't hear the first part of your sentence. The first word I heard was diversification.

Jim Rollyson - Raymond James

I said good morning, everyone, and congratulations on the success of your diversification strategy.

Terry Hall

Well, thank you, Jim.

Jim Rollyson - Raymond James

You've always talked in the past about your international side of your growth and diversification in that you've always lead in with the rental side of the business and the expectation was then you kind of drive services in there over time. Last I had talked to you about that, I think you were still very heavily tilted towards the rental side about two-thirds rentals and maybe one-third service. Can you talk about where you are today and how you see that trending over the next year or so?

Terry Hall

Well, we're not a whole lot different today in the service to rental aspect, Jim. It's a little bit better than two-thirds, one-third. But I think, in the near-term, certainly our goal is to see a lot more growth in the service side of our business internationally than in the rental side. We've been telling the market for some time that to get into service business internationally, we probably have to make some acquisitions to get the workforce that you will need to operate in those markets and we've been looking, and we are aggressively looking if anybody has got any really good ideas, or calls. But we've been burning the woods and sifting the ashes looking for the deals internationally that will put us -- give us the better service presence in two primary markets; one would be in the Middle East market and the other in Asia-Pacific market. We are doing some small things. I mentioned little acquisitions that we are making here that give us a little more service exposure in Europe and more in South America. None of those things are really going to move the needle but we're still looking for the larger, perhaps, the more regional service player that is in one or two of the premium service lines that would allow us to get in there, add more services.

So that's the goal. We're trying to get there. I mean, ultimately we want this thing to be about one-third international, one-third North American land and one-third Gulf of Mexico. That's the goal. So in terms of growth rates going forward, I think the largest growth rate clearly is going to be international and within the international side, I would hope and our goal is to have more growth on the service side than the rental side.

Jim Rollyson - Raymond James

And I guess the need for making acquisitions there is more a function of needing the people as opposed to just the assets?

Terry Hall

Well, it's the people. The assets are not the issue; it's getting the people in the service business. That's why, I mean, you don't need people in the rental business and that's why we have been able to grow that business. I think we're quite confident at selling it, marketing the rental items, and we could also market the service items but when it comes time, you deliver services with people and you're going to need people to work in those markets.

Jim Rollyson - Raymond James

Understood. Then just as my follow-up, oil and gas side, are you guys still pretty much unhedged for going into the fourth quarter of next year?

Terry Hall

Yes, we are.

Jim Rollyson - Raymond James

Excellent, thanks Terry. Good job.

Terry Hall

Thank you Jim.

Operator

And our next question comes from the line of Joe Agular with Johnson Rice and Company. Please, go ahead at this time

Joe Agular - Johnson Rice and Company

Thank you. Good morning Terry.

Terry Hall

Good morning Joe.

Joe Agular - Johnson Rice and Company

My question, I want to focus in on I guess some of the comments you were making towards the end of your opening remarks and your Well Intervention Group business did exceptionally well this quarter and sequential gains were very, very impressive. And you mentioned that you had been, kind of, front-end loaded, I guess is the best way to put it, for some expenses on land in particular, some of your growth. And I was just wondering if you could maybe add some color here as to what -- is this kind of more like what we should expect going forward or are there still some gains to come as you get through some of the geographic expansion that you've had in that business segment?

Terry Hall

Well, Joe, you are right. We have opened -- Warrior has opened eight locations since we made that acquisition and closed that acquisition last year. They've added more than 300 people. All of those things are expensive undertakings; to open that many stores, add that many people, put them in the field, that's a big deal. They've brought in all manner of equipment, got it inspected, put it in the field and got it to work; very expensive undertaking. We've started a couple of new business lines within Warrior and a couple of them are -- we have very high hopes for, they are relatively small but nevertheless they are actually losing money right now, not a lot but we've probably got $1.5 million of losses in some little startup companies for them.

We look at our margins in the snubbing business and the margins in their snubbing business and we know there's a lot of potential for margin improvement there and we expect to achieve that margin improvement. We expect a lot of these expenses that you referred to as startup and I agree with you, they are, they are somewhat unusual. A lot of those expenses are going to go down and I think that just translates into better margins from the Warrior side, which will come straight down to the bottom line.

We've been in a very aggressive mode in Warrior. We have been spending a lot of money, buying a lot of equipment, getting it in the field. And thus far, it has been a very gratifying experience but the expenses are higher right now than you would normally expect. And I think that's purely associated with this rapid expansion, and a lot of that goes away, going forward.

Joe Agular - Johnson Rice and Company

Okay and within the business was there any coil, wireline snubbing? They all did well or was there one area that stood out more than the other, or just --

Terry Hall

I think coil and electric lines stand out. The snubbing business was still -- is not doing that well, that's a business that Warrior had acquired not long before we acquired them. We do know quite a bit about the snubbing business and based on our experience, we think there's a huge opportunity here to improve the margins in that business.

Joe Agular - Johnson Rice and Company

Okay and just as a follow-up, you mentioned the impact of the weather on the quarter in terms of revenues—

Terry Hall

Joe…

Joe Agular - Johnson Rice and Company

Yeah.

Terry Hall

For all of those who now may be listening in on this deal, you know, we've got international snubbing services which provides primarily, snubbing services although they do some other things. And Bobcat, which is truly a [rig assist systems], we refer to it as a snubbing business but it's really a rig assist systems, those things are very similar. They should generate similar margins but again, I don't want to create any confusion here. That's primarily a rig assist business, but their margins will improve I think, fairly dramatically, and that will come to the bottom line. And I think that's just a function of it's a recent acquisition that has to be worked on a little bit and it will get a lot better. I'm sorry, go ahead with your next question.

Joe Agular - Johnson Rice and Company

No, it was just -- what I was going to ask you was on the impact of the Gulf of Mexico weather in the quarter. It's pretty obvious what happened in liftboats, did you include any estimate from Rental Tools in there or is that something else that may have --

Terry Hall

We did a little bit, but we didn't lay a lot in there, Joe.

Joe Agular - Johnson Rice and Company

Understood.

Terry Hall

It's pretty easy to see, it's all in the liftboats but clearly, some of your things suffer, your rentals suffer, your services suffer, everything suffers. Plug and abandonment markets suffers, everything suffers when that happens. And we were able to offset some of it. It probably would have been worse were it not for having SPN Resources.

Joe Agular - Johnson Rice and Company

Great, thank you Terry.

Terry Hall

Huge factor but business is there. Thank you, Joe.

Greg Rosenstein

We are ready for our next question, Craig.

Operator

And our next question comes from the line of Robin Shoemaker with Bear Stearns. Please, go ahead at this time.

Robin Shoemaker - Bear Stearns

Yes, thanks. Terry, I wanted to ask you about the Gulf of Mexico outlook overall and are you still -- how much work are you still doing on hurricane recovery from 2005 hurricanes? And what is the prospect for 2008 for the Gulf of Mexico in light of this tremendous seasonality we are seeing even though, I mean, you describe a very kind of inactive hurricane season. It doesn't seem like it was really active but the oil companies are slowing down. Are they slowing down more than they used to as a precautionary step?

Terry Hall

Well, the answer to that question is yes. We've seen major shutdown with hurricanes in the Atlantic and they were category one hurricane in the Atlantic than they were shutting down production in the Gulf of Mexico. This year was crazy for that. I mean, after Hurricane Dean, they just never really did go back to work because there was always the potential for some little tropical disturbance somewhere around the world to maybe, possibly get into the Gulf of Mexico and so they didn't go back to work. Finally, I think that they got over that and we began to see activity pick up around the first of October because I think it was perceived as most of the weather issues were behind us.

So I think yes, they are far more sensitive than they ever have been in terms of shutting down and being very cautious. Your earlier comments concerning what do we see in the Gulf of Mexico, we see Gulf of Mexico activity coming back albeit the oil companies may be more sensitive to weather than they have in the past and who knows what they're going to do when the holiday season comes. But in general, I think the activity is coming back. The hurricane-related work, that's a very small part of what we have been doing of late. We still manage a couple of substantial projects but the management of those projects doesn't throw a lot to our bottom line. But we're still involved in several of the big, major projects going on and I expect that we will continue to be involved in those projects. But in terms of our product and service lines being involved in hurricane-related work that's been over for some time for us, as a story, that is why you have not heard us talk about that for a long time. I think the vast majority of that work was done -- finished quite some time ago.

Robin Shoemaker - Bear Stearns

Okay. Could I ask you kind of a general indication of what your capital spending plans are? You had a pretty significant step-up in capital spending this year, I'm wondering particularly about next year on the Rental Tools side, in terms of drill pipe collars and the things that you spent pretty heavily on this year. Are we looking at the same level of spending, or higher?

Terry Hall

We are in the process of budgeting that right now, Robin, but I wouldn't expect that it's going to go down. We are all about growing this business and I think that we will continue to grow the business and we will continue to grow it on the rental side and it will continue to soak up a lot of our free cash flow. And I think when you look at the service side, that's going to be probably more an acquisition story. There will be some equipment associated with it. But I don't think you should expect the rental to go down, because I really think our rental business is expanding around the globe as we open up in Colombia. We are opening up new places. We get more exposure in the European theatre. I think we will be putting more rental tools on the ground. We are not going to take it out of our U.S. inventories.

Robin Shoemaker - Bear Stearns

And is this Derrick barge that you're building -- when will it be delivered?

Terry Hall

Well, we are in to now, Robin, we've got three, okay? We have the DB1, which is on charter, come off charter in late December. We will be delivering the DB2 to the entity that we sold it to in the first quarter some time. And the DB3, which are building for our own account, we should get possession of that and be able to put it to work in September of '08. So I think the Derrick barge stories, thank you for asking, are very positive, because we've had the DB1 out there on a fairly low rate for some time now because the entity that chartered it was also buying something from us with a nice profit. As we look forward, we hope and expect to get a better rate for the DB1 in '08 than we've got for it in '07 and by September, we will have the DB3 put to work and we expect it to generate some nice revenue. So the Derrick barge story for us I think only gets better in '07.

Robin Shoemaker - Bear Stearns

Okay. Yes, in '08, right. So the plan is still to bring that third one to the Gulf of Mexico?

Terry Hall

Yes. We will bring one to the Gulf of Mexico, whether it's the DB1 or the DB3, one is going to end up in the Gulf and our plan is to leave the other one in the Asia-Pacific region.

Robin Shoemaker - Bear Stearns

All right, okay, thank you.

Terry Hall

Thank you Robin.

Operator

And our next question comes from the line of Byron Pope with Tudor Pickering. Please, go ahead at this time.

Byron Pope - Tudor Pickering

Hey Terry, it's Dan and Byron here.

Terry Hall

Good morning.

Dan Pickering - Tudor Pickering

As we look at SPN Resources unhedged 10,000 barrels a day equivalent something like that, are you looking to put more money into this business as the kind of Gulf of Mexico softness in rig count create opportunities to buy?

Terry Hall

We're not looking to increase that business, Dan. I think that we're more interested in our international story that was a nice bridge strategy for us. It still works and we made a lot of money with it and we will continue to make money with it, but that's not high on our priority list, just to take on more profits. Not to say that we wouldn't, you know, with the right transaction. But that's just not something we're looking to do now, I mean, it is got us to where -- it's done exactly what we wanted it to do.

Dan Pickering - Tudor Pickering

And with that sort of philosophy, does monetization of some of those reserves, while you still sort of maintain operatorship, is that a possibility or is that sort of too complicated and not enough buyers in this market?

Terry Hall

I don't know, Dan. I would have to call and ask you that question, but clearly, sure, we could potentially monetize that investment in many ways. We look at that from time to time.

Dan Pickering - Tudor Pickering

I got you. Then, share repurchase, I think $34 million, that was in the quarter, correct?

Terry Hall

The fourth quarter, this all happened in October, Dan.

Dan Pickering - Tudor Pickering

Okay, so you've done $34 million during the fourth quarter and again philosophically, you are telling us the stock is cheap with the share repurchase. Do you allocate more dollars to that? Would you prefer to do acquisitions? How do we think about share repurchase?

Terry Hall

Well, I'm not sure that I want you to know, but we -- any time we think it's ridiculously cheap, we will probably buy some. We've got an authorization for I think $300 million or $350 million, so we could get after, but that is not our preferred way of working our bottom line. The preferred way is just to grow the business organically and through acquisitions but at times you're just left with no choice. As I said, I just can't get over the way our stock has gotten beaten up because of some problems that other people had and somehow we got -- we were the baby that got thrown out of the bathwater twice. I don't know how we are ever going to regain that ground. But I think the quarter shows we really didn't deserve that, but it happened, it's over with. But thank God, we had the things in place, because I guess, if the market takes us down again for good or bad reasons, we will at least have the ability to respond to get in there and buy our stock. Because at the end of the day we think we're one of the cheapest stocks out there.

Dan Pickering - Tudor Pickering

Last question, you mentioned acquisitions a number of times, North America is softer, clearly, in general, do you sense that we've got the smaller niche companies now scared enough to the point that they become willing sellers? Is this becoming a buyer's market or is it still too early?

Terry Hall

I think it's still too early, Dan. I don't see that and really we're pretty happy with what we have. We've got an awfully nice platform now through Warrior and we are able to build it out and we are putting equipment in there every day and expanding those things. So, we don't really have a need. Probably could be, but I guess my answer is we're not actively out there looking for other tuck-in acquisitions on land. We think we've got a great vehicle to build out North America right now.

Dan Pickering - Tudor Pickering

So the acquisition side is really more international?

Terry Hall

It's international.

Dan Pickering - Tudor Pickering

Okay, thank you.

Terry Hall

Thank you, Dan.

Operator

(Operator Instructions) And our next question comes from the line of Thomas Escott with Pritchard Capital. Please, go ahead at this time.

Thomas Escott - Pritchard Capital

Good morning fellows.

Terry Hall

Good morning, Tom.

Thomas Escott - Pritchard Capital

I wanted to just circle back to this outstanding performance there in the Well Intervention Group, particularly the profit margins. Here, sequentially in the quarter, in a period when the rig count was flat, you post I think 13% sequential gain in U.S. land -- with revenue up $12 million and operating profits, gross profit up $10 million, so that's like an 80% incremental margin gain and which took the total margins in that Group to like 45%. Is that all due -- basically due to the operating start-up costs earlier on which are now behind you and better equipment utilization and then gaining share on jobs from these other companies with older equipment that weren't able to work that? Is that -- does that kind of all of sum up how those margins got to improve and do so well?

Terry Hall

Well, I think one of the things you left out is that we had more, well- control work in the quarter, which is probably the highest margin type of work you can do. And I think that's a business that we sort of gain market share in worldwide everyday as that team becomes more respected for what they do. But when they are active, when they have a lot of well control work it immediately shows up in the margins. So, that's a good piece of it. Part of it is clearly that, by the time you get into the third quarter all of the money we were spending in Warrior, getting equipment in, getting people trained, hiring people, some of that was behind us and we were actually able to go to work with this stuff. So that really drops a lot to your bottom line and I think that will continue to happen as we go forward.

So, it's taken a little market share. It's all of those things, but just don't forget the well control work and that always helps and comes along strong. But you're absolutely right, we look at the numbers, we look at our equipment on the land side, we believe we're taking market share on land. We are obviously are getting better in part because our expenses were -- a lot of it is heavily front-end loaded and has been loaded since first and second quarter. We would spend a lot of money and we were suffering a little bit there with Warrior, but we didn't -- we knew what was coming. Now you are beginning to see it pay off and it will only get better, I think, as we go forward.

Thomas Escott - Pritchard Capital

Well, we would be tempted to forecast 45% gross margins in this segment, you know, go-forward, which is a lot better than it used to be --

Terry Hall

You want to be careful unless you are also forecasting some contribution from the well control team, which is reasonable, I mean, there should be some. It's just that at times, it will go up and down, you know, one or two big blowouts, particularly, in some foreign arenas can generate an awful lot of revenues in a short period of time and cause some significant movement in margin.

Thomas Escott - Pritchard Capital

Did one or two blowouts in some region add $3 million or $4 million profit in this quarter?

Terry Hall

We had several smaller ones that might, probably contributed close to that.

Thomas Escott - Pritchard Capital

Okay, well, a terrific job in Well Intervention. Thank you.

Terry Hall

Thank you.

Operator

And our next question comes from the line of James West with Lehman Brothers. Please, go ahead at this time.

James West - Lehman Brothers

Hi, good morning, Terry.

Terry Hall

Good morning James.

James West - Lehman Brothers

Let me also congratulate you on an excellent quarter, particularly relative to expectations going into the quarter. Most of my questions have been answered at this point but I wanted to just ask you about pricing. We're hearing a lot about weakness in things like coiled tubing, fishing and rental tools, have you actually seen pricing weakness both in your land business and in the offshore markets outside of the liftboats?

Terry Hall

We hear a lot of talk about it. We really haven't experienced a lot of it. Clearly there is pressure, there's always pressure and the more the market talks about there being pressure then that more that becomes a self-fulfilling prophecy, I guess. Your customers love to hear it talked about and then they begin to raise it. But I don't think that we've seen any significant diminution in pricing on the coil side or on the rental side. I am not -- I don't have a crystal ball. I don't know what's going to happen in the future, but it just hasn't happened.

And I think it's kind of interesting to note if you look, the one thing we can look at and contract -- look at liftboats, that's not on land, but it's in the Gulf of Mexico, which is the other area that everybody is beaten up and saying it is once again the Dead Sea, you know, we're back. We really haven't had any rate attrition in the boats to speak of. Clearly, the market slowed down dramatically but the rates didn't get crushed and right now they're coming back. So we didn't get -- we didn't really get hurt there. So I'm not so sure that some of this rate attrition stuff is not being a little bit exaggerated. Again, I don't have a crystal ball, I don't know, but there still seems to be a fair amount of activity and demand for the types of services that we provide; the value-added and production-related services in the land and Gulf market.

James West - Lehman Brothers

Okay, great. That's all I had. Thanks, Terry.

Terry Hall

Thank you.

Operator

And our next question comes from the line of Scott Gill with Simmons. Please, go ahead at this time.

Scott Gill - Simmons

Yes, thank you, good morning, Terry.

Terry Hall

Hi Scott.

Scott Gill - Simmons

Terry, I just want to probe a little bit deeper on the Gulf of Mexico, a lot of questions here and clearly you're seeing the recovery as we look into the fourth quarter. But I was just wondering if you could find a crystal ball and kind of look into 2008. What do you think happens in the Gulf of Mexico market as it relates to your businesses, utilization-wise, as well as for example, rates on liftboats?

Terry Hall

Well, Scott, I don't know how to answer that. I'm not forecasting things to go down in '08 in the Gulf of Mexico. Internally, we don't expect them to go down and we're certainly not engaging in those types of discussions in our budgetary process. I guess it could happen but it's been doing this too long. I've heard about the Dead Sea too many times and I still think it's a cash cow for many of our customers. I still think it's where they have their best operating margins. I still think there's a future for the Gulf. And I think the last guys to get hurt, if it does slow down, will be the people who are necessary to maintain, enhance and extend production. That's what we do. And that's why we do what we do, because we are somewhat insulated from these activity slowdowns because people do continue to produce their product because that is their cash flow.

So, I don't know what may happen to rig rates and certain things but I do not expect deepwater activity to slow down in the Gulf of Mexico in '08. And really, our biggest exposure there is rental equipments, so we're expecting that market to be as good or better in '08 as it was in '07, from that standpoint. On the service side, production-related services, I do not expect there to be a decline in those services in '08, I really don't.

Now, you've got to watch what I'm talking about, because there's a lot of things that could decline that would not necessarily impact us, Scott. But in our service line, I do not expect there to be a downturn, I think our liftboats and demand for liftboats will continue to be pretty strong. We see a lot of things on the horizon that we believe will generate demand for the boats as well as for our services.

Scott Gill - Simmons

Okay, so it sounds like you know how to answer it just fine, Terry.

Terry Hall

Well, I mean, that's just the way we see it, Scott. I certainly would not want to hazard a guess about certain other service lines or the drill side of the business but I think on our side of the business, we expect that we do not expect it to turn down in '08.

Scott Gill - Simmons

Okay, thank you. Just a question on the barge rigs, just remind us, how do we account for the sale of the DB2, when that occurs?

Terry Hall

That's been going on a quarterly basis as a percentage of completion. So that will, for all intents and purposes, be over by the end of the fourth quarter. There will be some that will continue to come in, but we will pick up a couple of million dollars at most on that in the first quarter of '08 as the barge is delivered. So, that has been working through the financials on a percentage of completion basis from the time we started construction.

Scott Gill – Simmons

Okay and there have been no major adjustments up or down, as that work has progressed, right?

Terry Hall

There have been none.

Scott Gill – Simmons

Okay, great and my last question, you mentioned an acquisition in Colombia. What's kind of your view, I know you want to grow more in Middle East and Asia-Pacific, but what's your view towards Latin America as perhaps another growth market for Superior as we look into 2008-2009?

Terry Hall

Well, we like the market a lot, Scott. Clearly there's not as many social challenges or religious challenges or others or political challenges I think working in South America as it could be in some other areas. So, we just -- we take the opportunities where we can find them, it's not that we necessarily preferred South America, Latin market over the others, but we had an opportunity there and we seized upon it. But I do think there's great opportunity there, the longest times, we felt we were going to hit home runs in Mexico, we talked about it. It didn't happen. So I quit talking about it. But I still believe it's going to happen. So we still like Latin America. We like Brazil. And we like this Colombian market. I think the Colombian deal is going to be good for us because the gentleman whose business we acquired is a very, very bright, intelligent, very entrepreneurial gentleman. And I think we're going to be able to really do a fairly significant build-out from his platform. So we expect good things from that. And we keep good people on the ground in the Latin American market all the time looking for those opportunities. So, despite the fact that we speak of Asia-Pacific and Middle-East all of the time, clearly, I think those are bigger markets going forward. We certainly would love to get more exposure in the Latin markets.

Scott Gill - Simmons

Do you grow in Mexico through acquisitions or is that just organic growth?

Terry Hall

I think Mexico from a service standpoint, is going to have to be some type of acquisition. I think, on the rental side, we can grow organically. And we continue to do more and more business in there but the service side is going to require an acquisition.

Scott Gill – Simmons

Okay, thank you Terry.

Terry Hall

Thank you.

Operator

Our next question comes from the line Joe Gibini with Capital One Southcoast. Please, go ahead at this time.

Joe Gibney - Capital One Southcoast

Good morning guys.

Terry Hall

Hi Joe.

Joe Gibney - Capital One Southcoast

Most of my questions have been answered, just wanted to follow up on the liftboat side of the business. Terry, I was curious if you could give us an update maybe on the possibility of building any special-purpose liftboats whether or not you would consider redeploying some of your fleet outside of the Gulf of Mexico, especially considering some of the larger liftboats certainly holding the line on day rate and utilization.

Terry Hall

Well, the fact that they are holding their rate clearly makes it less attractive to send them off, but probably a rate that would be equivalent once you factored in all of the costs and expenses of going overseas with them, so. I think we're more inclined to consider building special-purpose boats. We've certainly been looking at that for some time and we are fairly far along with that investigation, for want of a better term. I think that is, at the end of the day, really the answer for liftboats in many of the markets whether it's Asia-Pacific or the Middle East. I think you would be a lot better off with special-built boats for those markets rather than trying to take a boat designed to work in the Gulf of Mexico and send it over there.

Clearly, the Gulf boats will work well in Trinidad, Mexico, Venezuela areas; that’s fine. But I think once you go to the other areas you probably need a little bit different designed boat. And I think we are fairly far along with investigating that. Again, big boats to redeploy them; there doesn't appear to be a need to do that now and I don't foresee that there will be one in the future. But you shouldn't be surprised if we come out and build some special-purpose boats to go to these markets because I think there's definitely a market for them, particularly if it's the right type of boat with the right deck space, the right quartering capacity, and the right crane capacity.

Joe Gibney - Capital One Southcoast

Okay, fair enough. Is that boat primarily the differential that you're seeing, I mean, would it be on the accommodation side, on the deck side there?

Terry Hall

Yes, I think when you go to these international markets, I mean, domestically everybody wants to have fewer people on the job, they think it's safer that way. There's less accidents, it's less costly, it's less people to feed. You know, everything about our culture is that to become more efficient by using fewer people. When you go overseas, that's not the case. People there like to create jobs. If there's a job that we would put 30 people on, they want to put 90 people on it. And when you go on with a boat that will only hold 50 people, they say, well, that doesn't work because we want to put 90 people on it. Well, you can tell them all day long that you want to do it with 30, but you're swimming upstream. They have their own culture and their way of doing things and it's time that we quit trying to change the way they do things and just accept their culture and go along with it. So, I think if you want to do that, you need boats primarily with more quartering space. They don't need the big cranes that we need here but they do need a lot more quarters and you need more deck space. So it's just a different type of vessel than what you would normally build for the Gulf of Mexico where you want big cranes, fairly good-sized decks. You want to have big workload capabilities and not necessarily anywhere near the quartering capacity that other people might want.

Joe Gibney - Capital One Southcoast

All right, fair enough. Thanks, guys. Good quarter.

Terry Hall

Thank you.

Operator

And our last question comes from the line of Joe Hill with Copia Capital. Please, go ahead at this time.

Joe Hill - Copia Capital

Hi Terry congratulations on a great quarter. Most of my questions have been answered. I just had a couple of quick ones. You kind of touched on coil, could you touch on the pricing outlook for e-line and slick-line? And I just went and looked at your map, do you have some assets up in the Wyoming and Gulf Coast areas, so -- you obviously did a hell of a lot better than your competition, I'm just trying to get a better sense of, other than newer equipment, what the Superior edge is? Thanks.

Terry Hall

Well, on e-line and coil, I really don't expect a lot of pricing changes, there, Joe. Maybe, it could happen; I don't expect it. I don't want you to think that we're bragging about beating our competitors because I'm not sure we are. We really don't have any coil in Wyoming. We have other things in Wyoming but we -- we've got accommodations and things up there. So, and I'm not saying we are smart or anything else but we just didn't put in coil assets in Wyoming.

So, I think that has been not such a good market for coil of late. It doesn't mean it won't be good later on; if it does get good, we will be able to go because we do have some infrastructure there. I think, again, the guy that's got the best equipment, which is typically defined as the newest equipment, typically has the better employees and typically does better in a flat market. And in fact, you start taking market share because a lot of guys, when the market is expanding, customers that is, are sort of forced to go to second and third choice because they just have to, because the guy they would like to have is fully utilized.

When you come into a market with a lot of new equipment and you get into a situation where it's going flat, I think you have a great opportunity to pick up market share, and I think we've seen some of that. I don't really expect a lot of rate attrition. If the rates do start coming down hard that will impact us, but I think it will impact us less than the other guys because at the end of the day our utilization will be higher. That’s -- and I know you've got some experience in this, Joe, and I think you'd have to agree, that is typically, what happens.

The guy with the newest, best equipment tends to gain market share in a declining market. You know, his utilization stays high, he may get hurt a little bit on the pricing but his utilization is higher, he takes market share. When the thing turns around, he is in a much better position than the other guys. So, we've been on the other side of that stick several times ourselves, so we're glad to be on this side today.

Joe Hill - Copia Capital

Well, it makes a lot of sense. Congratulations again, great quarter.

Terry Hall

Thank you, Joe.

Operator

And Mr. Hall, at this time, there are no further questions. Please, continue with any closing comments that you may have.

Terry Hall

That's it. Forgive me for the soapbox stuff and thanks for listening in.

Operator

Thank you. Ladies and gentlemen, this concludes the Superior Energy's third quarter conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3000. You'll need to enter the access code of 11099200. ACT would like to thank you for your participation. You may now disconnect your lines at this time.

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