Superior Energy Services' CEO Discusses Q1 2012 Results - Earnings Call Transcript

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Superior Energy Services (NYSE:SPN)

Q1 2012 Earnings Call

April 27, 2012 11:00 am ET

Executives

Greg A. Rosenstein - Executive Vice President of Investor Relations & Corporate Development and Member of Administrative Committee

David D. Dunlap - Chief Executive Officer, President and Director

Robert S. Taylor - Chief Financial Officer, Executive Vice President and Treasurer

Analysts

James C. West - Barclays Capital, Research Division

James M. Rollyson - Raymond James & Associates, Inc., Research Division

Robin E. Shoemaker - Citigroup Inc, Research Division

Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Joseph D. Gibney - Capital One Southcoast, Inc., Research Division

William Cornelius Conroy - Pritchard Capital Partners, LLC, Research Division

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

Operator

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Superior Energy Services First Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, April 27, 2012. I would now like to turn the conference over to Mr. Greg Rosenstein with Superior Energy Services. Please go ahead, sir.

Greg A. Rosenstein

Hi. Good morning, and thank you for joining today's conference call. Joining me today are Superior's President and CEO, David Dunlap; and Chief Financial Officer, Robert Taylor.

Let me remind everyone that during this conference 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 company's actual results could differ materially due to several important factors, including those described in the company's filings with the Securities and Exchange Commission.

During this call, management will refer to EBITDA, and also adjusted net income from continuing operations, both of which are non-GAAP financial measures. In accordance with Regulation G, the company does provide a reconciliation between net income and EBITDA on its website and net income and adjusted net income from continuing operations in the earnings release. And with that, I'll now turn the call over to David Dunlap.

David D. Dunlap

Thank you, Greg, and good morning, everyone. Robert Taylor reminded me yesterday that my 2-year anniversary with the company is coming up this weekend, and I'm here to tell you that there were no cupcakes by the coffee machine this morning or special gifts on my desk today. Instead, what the company has given me is a fantastic quarter to report to you this morning. We reported quarterly revenue last night of $967 million, EBITDA of $244 million and adjusted net income from continuing operations of $90 million or $0.71 per diluted share. Our Drilling Products and Services Segment experienced tremendous growth in both the U.S. land market and Gulf of Mexico markets, with our revenue increasing 15% over the fourth quarter in each of those markets.

In the Gulf of Mexico, premium drill pipe bottomhole assemblies and other rentals continue to benefit from the ongoing increase in deepwater drilling. In addition, shallow water drilling is also on the upswing, which resulted in higher demand for both drilling and completions work. Shallow water activity was better than expected for our intervention and abandonment services. While we did experience some seasonality in Q1, the pace of work was greater than forecasted. We think this bodes well as we move into the traditional season for intervention and decommissioning work during the spring and summer months.

In the U.S. land markets, the legacy Superior products and services grew 7%, highlighted by 15% growth in our drilling products and services. Our downhole drilling tools are located in the sweet spot of today's horizontal drilling markets with exposure in Oklahoma, the Eagle Ford, Permian and Bakken. These markets account for about 60% of the horizontal rig count in the U.S. Not coincidentally, the horizontal rig count in those markets has increased by about 15% since the end of 2011. The other big driver for us in Q1 was the post-merger results turned in by Complete, which contributed better results than our prior expectations.

To understand the balance and diversity in our new U.S. revenue mix, we estimated and compared our first quarter EBITDA margin in the U.S. land market to the fourth quarter and assumed that Complete was in that calculation for both periods. The analysis indicates that our U.S. EBITDA margin would've been flat as compared with fourth quarter. Slightly lower pressure pumping margins were offset by higher margins in many of our other U.S. land-oriented businesses. The revenue and margin balance in our diverse product line portfolio is working as designed to minimize the impact to total U.S. margins from pricing fluctuations in any one particular product line. After Robert walks you through some of the financial details of the quarter, I will discuss our guidance and outlook and some of the unique features of our business model that give us a level of comfort with the guidance. And with that, I'll now turn the call over to Robert Taylor.

Robert S. Taylor

Thank you, Dave. As we go through each segment, I will make comparisons to the fourth quarter of 2011. As you know, we have 2 significant content differences in the first quarter of 2012. Results from the legacy Complete were included beginning on February 8. Complete contributed to about $398 million in revenue and about $84 million in operating income for the 58% of the quarter for which they were with us. All their results are included in the Subsea and Well Enhancement Segment. The operating income from Complete is not burdened with corporate overhead for the transaction expenses.

We closed on the sale -- the liftboat business on March 30, 2012, the results from the sale of this business and from the sale of a derrick barge are included in discontinued operations.

In the Subsea and Well Enhancement Segment, revenue was $778 million, and income from operations excluding transaction expenses was $113 million. The legacy Superior services in this segment contributed $300 million in revenue. U.S. land revenue in this segment, excluding the contribution from Complete, increased 3% to $176 million. In this market area, we experienced higher demand across most of our intervention services with the largest increases coming from pressure control and coiled tubing services.

Gulf of Mexico revenue declined 6% to $102 million. We experienced seasonal declines in plug and abandonment, pressure control and intervention services. As support to Dave's comments regarding Gulf of Mexico's seasonality, we saw our first quarter Gulf of Mexico revenue for core services in this segment decline more than 20% from fourth quarter levels in 3 of the past 4 years prior to 2012. A 6% drop-off like we had this year is fairly low by comparison.

International revenue was $102 million, which excludes $22 million from Complete. This represents a 10% decline from the fourth quarter. As we mentioned on our last call, we expected revenue at Hallin Marine to be lower due to seasonality in Asia-Pacific. Their results were in line with our expectations. Revenue is higher for completion tools, snubbing and hydraulic workover services. Lower margins in this segment were primarily a function of the seasonal decline in Gulf of Mexico and Hallin Marine revenue.

In the Drilling Products and Services Segment, revenue was $189.4 million, and income from operations was $57 million, which represents an 11% sequential increase in revenue and a 31% sequential increase in income from operations. As Dave mentioned, revenue increased 15% in both the Gulf of Mexico and U.S. land markets. International revenue was essentially unchanged. As an indication of our post-Macondo recovery, this segment recorded $48 million in Gulf of Mexico revenue during the first quarter of 2010, which was the last full quarter prior to the oil spill. In the first quarter of 2012, we recorded $51 million in Gulf of Mexico revenue, and the rig count is not yet back to pre-Macondo level.

Turning to the balance sheet. At the end of the first quarter, the face value of our debt exclusive of discounts was $2 billion. Net debt to EBITDA at the end of the quarter was 1.6x as compared to 1.4x at the end of the fourth quarter. Net debt to total capital was 32%. We currently have nothing drawn on our $600 million revolver.

On April 17, SandRidge Energy closed on its acquisition of Dynamic Offshore Resources. We were a minority owner of Dynamic. We received from SandRidge, $34 million in cash and 7 million shares of standard stock valued at $51.6 million. We will recognize a gain of approximately $19 million due in the second quarter. As a result of the transaction, we will no longer have income from equity method investments to report on the income statement.

Capital expenditures in the first quarter were $291 million. From a modeling perspective in the second quarter, we think you should model G&A in a range of $150 million to $160 million. For DD&A, we think you should model a range of $135 million to $145 million. We anticipate net interest expense to be in the range of $31 million to $35 million.

The weighted average share count will be approximately 159 million shares. I'll now turn the call back over to Dave, who will discuss our earnings guidance and outlook for the rest of the year.

David D. Dunlap

Okay. Thank you, Robert. As we mentioned in the earnings release, guidance for 2012 is in the range of $3.30 to $3.60. We narrowed the guidance by increasing the lower end of the range to reflect the outperformance in Q1 while leaving the remainder of our guidance unchanged. We expect that the product line balance and diversity that I spoke of earlier will help us achieve our projected results in the U.S. I realized many of you have concerns over the direction of the pressure pumping market in the U.S. There are 4 main variables weighing on the market today: Supply-chain disruptions, repositioning of horsepower, cost inflation and basin-specific demand. Our contracted pressure pumping model minimizes our exposure to those 4 variables. While we are not immune to headwinds in the market, we are significantly protected within the shelter of our contract. And I will remind you that neither fracturing nor any other particular service line dominates our North American earnings.

Turning to the Gulf of Mexico. On our last earnings call, I said that there are a lot of reasons to be optimistic about the Gulf. Our first quarter results are proof that our optimism is justified, and I think activity will only get better as the year progresses. Deepwater market growth also looks good in the international markets, and I'm pleased with the progress that we're making to building out Superior's international footprint. We are building a portfolio of contracts in Brazil, which will allow us to deliver solid year-over-year growth. And we see an influx of more contract opportunities on the horizon. Our drilling products and services have successfully expanded into several niche markets in West Africa that are producing very good results for us. During a recent visit to Saudi Arabia, I toured our new well control training center in Al-Khobar and discussed with Aramco and our team the details of our pending start-up in the kingdom. We continue to be excited about our opportunities for other startups in Latin America and Asia as 2012 progresses.

From a capital expenditure standpoint, we are lowering our CapEx range by about $100 million. So the new range is $1 billion to $1.1 billion. As we continue to high-grade our internal investment options, we are choosing to delay certain items that do not contribute to 2012 earnings while eliminating items that are at the low end of our expected return threshold.

In closing, I want to thank the 13,000 employees worldwide for their efforts and dedication, particularly those employees in the U.S. involved in the integration between Complete and Superior, as well as our corporate staff who have worked tirelessly behind the scenes on the details related to our recent acquisition, divestitures and corporate integration. Our first quarter results indicate that this combination is off to a great start.

And we'll now open the line to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from the line of James West with Barclays Capital Management.

James C. West - Barclays Capital, Research Division

Dave, on your new CapEx guidance, understanding you're taking out some of the lower -- or eliminated some of the projects that might [indiscernible] earned. Is there a geographic shift in CapEx as well? And I guess, what I'm really trying to get out with this question is are you any less optimistic about North America than you were say, 3 months ago?

David D. Dunlap

Well, I mean, I think I wouldn't say that we're significantly less optimistic than we were 3 months ago but of the $100 million that we reduced from overall capital spend, the bulk of that is coming from the U.S. But there are things, James, that we looked at that weren't contributing for 2012, and we have a number of items in there that are related to CapEx that our non revenue-producing. And I guess what we've tried to do is just try and high-grade some of the investments overall so that we can get a bit more efficient with our overall capital spend. And it's an ongoing theme in the company to try and high-grade our overall investments. So...

James C. West - Barclays Capital, Research Division

Okay. But it's nothing like slowing down coiled tubing or drill pipe into North America?

David D. Dunlap

Coiled tubing has not slowed down. We're still on track and are taking the orders that we put in place. And the fact is that we're probably allocating a little bit more money towards drill pipe than what the original budget would've led us to believe.

James C. West - Barclays Capital, Research Division

Okay. Fair enough. And then, just a follow for me. On the Gulf of Mexico, we obviously have a large number of deepwater rigs running today. We're going to be probably above pre-Macondo levels perhaps by the end of this year. Has your market share on drill pipe shifted at all, or do you still dominate the drill pipe business? And then, are you seeing the benefits also of the businesses you acquired from Baker, the sand control business?

David D. Dunlap

So on the -- I wouldn't characterize it all as drill pipe on those deepwater rigs. We had a very high share of rental equipment on the 33 rigs that we're drilling pre-Macondo. And by all measures, our market share is holding to be about the same as the rigs resurface. So it's not all drill pipe, it's bottomhole assemblies and stabilizers and in some cases, it's service-related rentals. But our share seems to be holding strong there. On the completion side of the business, we expect as the market continues to return to pre-Macondo levels, that we'll have a market share in that business that's consistent with what that product line experienced in the past prior to acquiring it.

Operator

And our next question is from the line of Jim Rollyson with Raymond James.

James M. Rollyson - Raymond James & Associates, Inc., Research Division

One of your competitors noted issues on the labor front, availability, turnover, et cetera, on the coil tubing side of the business, I guess because things have been so strong and everyone's been adding equipment. Kind of curious to how you guys are managing through that given the market strength and capacity adds and just kind of how you've been seeing that going on.

David D. Dunlap

Well, I mean, labor has been the big throttle in being able to grow out the coiled tubing business. And what we have done is we've taken an approach to capital additions in coiled tubing that were within the confines of what we felt comfortable with from a labor standpoint. So we could have added a lot more coiled tubing units last year, we could probably add more coiled tubing units than what we've budgeted this year but are constrained by what we see is our ability to add the kind of quality labor that we want to have. To this point, we have been able to add the labor, and we've got people in the pipeline that are being trained for units that are coming out and seem to be holding pretty good from that front. But the challenge is not new, the challenge has been there for at least the last 6 quarters for us, and I just think we've managed it fine.

James M. Rollyson - Raymond James & Associates, Inc., Research Division

That's helpful. And just kind of one follow-up related to pressure pumping. You mentioned your position is from a contracted standpoint and being a smaller piece of your business. Remind us for one, kind of what percent the business that will end up being in terms of revenues this year. And number two, where you stand on percentage of your fleet that's contracted this year and into next.

David D. Dunlap

It's about 20% of our overall U.S. revenue and it's about 60% contracted. And our first contracts expire beginning in the summer of 2013. So we're pretty well set on contracts through 2012.

Operator

And our next question is from the line of Robin Shoemaker with Citigroup.

Robin E. Shoemaker - Citigroup Inc, Research Division

I wanted to ask about Gulf of Mexico activity as it's shaping up here for the balance of the year in terms of well intervention service work. And how busy are you? Is there any signs of any large decommissioning projects coming up and things like that?

David D. Dunlap

On the intervention side, Q1 is always a seasonally slow quarter for us. It was a little bit better from an intervention and abandonment standpoint in Q1 this year than what we've seen in recent years. And certainly, it looks like Q2 and Q3 are going to be active periods for this kind of optional work. And I think the same applies to the balance of decommissioning work. We've got what looks like a pretty nice backlog of business to carry us through the year from a decommissioning standpoint. So I mean, I characterize that business as looking solid for the rest of the year. And I think from an intervention and abandonment standpoint, we had a pretty good market in Q2 and Q3 of last year, and I will expect at least as good a market this year.

Robin E. Shoemaker - Citigroup Inc, Research Division

Okay. Returning to the pressure pumping question the, I guess, 40% of your capacity is not long-term contracted, and I guess that includes some fleets you're bringing out this year. So how is your -- how are you marketing kind of strategy? Could you describe your marketing strategy with respect to the fleets that are working under shorter-term arrangements?

David D. Dunlap

Yes. I mean, I think as much as anything, it's a matter of where those fleets are positioned. I think it's probably an important time to comment on the fact that when you look at the various basins out there, the various basins are acting differently. The Bakken is acting differently than the Marcellus, and the Permian Basin and Mid-Continent are acting different than the Haynesville. Where you see dry gas, you see certain market headwinds. Where you see markets that are largely weighted towards oil and liquids-rich, we're seeing expansion of activity. So the biggest factor here is where those fleets position. We're fortunate in that Complete had built out a multi-basin operation for fracturing before we acquired them, and it's got a strong weighting towards the oil and liquids-rich basins. So obviously, what we're trying to do with any of the new capacity that comes in, and we don't have very much that's coming in for the remainder of the year, but those will be positioned in those oil and liquids-rich basins, where we already have infrastructure, where we're already established with a customer base.

Robin E. Shoemaker - Citigroup Inc, Research Division

Okay. And in terms of -- so in those basins, I guess your implication is that the pricing pressures are not as great as in other basins you might have participated in.

David D. Dunlap

That is certainly the case.

Operator

And our next question is from the line of Joe Hill with Tudor, Pickering, Holt & Co.

Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

What parts of Complete's business exceeded your expectations in the quarter? Was it all pressure pumping or was their coil pretty good, fluid handling, et cetera?

David D. Dunlap

Yes. I mean, it was -- across the board, the Complete business really performed well, slightly better than what our expectations were. The water management business certainly was quite good. In fact, I mean, if I had to pick one, I'd say it was probably more in the water management fluids handling business than any others. But I mean they all performed pretty well.

Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Okay. And then, something that was pretty notable that you talked a little bit about was U.S. onshore DP&S outperforming the rig count, and you also mentioned that your capital budget for pipe is going up. Obviously, a favorable geographic mix is helping here, but how long do you think you can keep up this positive momentum as the rig count supplies go down a little bit, and you're obviously expanding aggressively in pipe. Where do you think you top out?

David D. Dunlap

Well, I don't know. I mean, it depends on what the rig count does. If you assume that what we're in for in the U.S. is a flat rig count to a maybe slight uptick on the oil side as we get into the second half of the year, then we still think there's room for us to expand some of our product lines. Remember, we're not market share constrained. Our market share overall in virtually all of our product and service lines really with the exception of coiled tubing is pretty low. And so we are able to take advantage of things from a growth standpoint by just small increments of market share growth which become available to us. So I mean, do you run an endgame on that in a flat market? Yes, you probably do, but it's not in our near-term vision.

Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Okay. And then we're starting to get some anecdotes of some of the larger frac guys beginning to use coil as kind of an incentive or loss leader for their frac business. Are you seeing any of that in the market yet?

David D. Dunlap

Well, I can't say that we've seen it specifically. Those are the kinds of things that you would expect to see in places where we have significant activity declines like the Haynesville and like the Marcellus, and I can't say that specifically in coil tubing we've seen specifically that case, but I wouldn't be surprised to see those kinds of things taking place in those markets. It's probably a lot less likely that you'll see those things happen in the busier and growing markets that are more oil and liquids-rich based.

Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Okay. And then finally, I believe you have The Derwent coming out in the fourth quarter. When would you expect that to be on rate? What market? And is there a possibility of a contract for that, or would you prefer to play the field a bit?

David D. Dunlap

There is a possibility for a contract for that. It's still a bit early to forecast that. I don't think it would be contracted until it's a little bit closer to delivery, but we've not projected any contribution from that vessel until 2013. So delivery in Q4 is as you suggested and probably, revenue generating for us in Q1. As far as where, I think that it's likely to be working somewhere in Asia initially. I mean, the Asian market is certainly one that we see a lot of opportunities for construction-related work as we go into 2013. That market is already looking stronger today. So if I had to handicap it, I'd say it's probably going to stay in Asia for a while.

Operator

And our next question is from line of Joe Gibney with Capital One.

Joseph D. Gibney - Capital One Southcoast, Inc., Research Division

Dave, I was wondering if you can talk a little bit about the workover market, your expectations there and capacity additions for you guys as you look into '12 a little bit.

David D. Dunlap

Yes. We've got a few capacity additions planned in that marketplace. It's a relatively minor relative to overall fleet size. Mid-Continent, Oklahoma is where our focus is in that business and what we're seeing there is a good market. I've heard of some people gaining some price expansion in certain places. I don't know that we're seeing a whole lot of price expansion there. You may see it in certain basins and you may see a little contraction in other places. Overall, we're seeing about flat margins in the business. But we'll have some capacity adds there this year, that's a good part of what Complete had in their overall portfolio in the U.S., and we've got good expectations for it in 2012.

Joseph D. Gibney - Capital One Southcoast, Inc., Research Division

Okay. That's helpful. And just on pumping, I'm curious, as we close the quarter, where you guys stood on horsepower in your installed fleet and if heading towards plus 170,000 was still the targeted trajectory for '12?

David D. Dunlap

Yes, it is. We're just north of 500,000-horsepower at this point. We had a couple of fleets that were delivered in Q1. We've got a few more fleets coming in during the course of the year. At this point, we cut back and actually, Brian Moore has suggested a cutback on horsepower before we actually closed the transaction with Complete for additions in the second half of the year. So those things that we could cancel without any penalties, we did. And I mentioned that in our last earnings call, and we haven't varied from that at this point.

Joseph D. Gibney - Capital One Southcoast, Inc., Research Division

Okay. Helpful. And last one for me. Just how Hallin outlook looks in terms of subsea construction activity, southeast Asia, you guys had advertised it would be down a little bit in the first quarter. Is it more second-half weighted in terms of your expectation for recovery? Do we start to get little bit back here in 2Q?

David D. Dunlap

I think we'll get a little bit back in the second quarter. I mean, it seems to be the pattern in that business in Southeast Asia for there to be a bit of a lull in activity during Q1. We certainly saw it last year, and it rebounded nicely in Q2. And I think our general expectations of what we see in book of business from those guys is that we're going to have a nice rebound in Q2 this year as well.

Operator

And our next question is from the line of William Conroy with Pritchard Capital Partners.

William Cornelius Conroy - Pritchard Capital Partners, LLC, Research Division

Dave, a couple for you, I think. Back to Complete but much more generally. Are there any major integration hurdles left in your view? And related to that and following onto an earlier question, have you seen much or any turnover from within the Complete organization?

David D. Dunlap

We've been able to hold onto employees and managers. And I talked about this when we announced acquisition that retention of management was extremely important for us. And so when you have a strategy where retention of management is important then and it is a driver, then the things that you do from an integration standpoint really have to be done at a pace, and that's part of what has to happen if you intend to retain management. And so we have integration exercises that are going on in the field, but they're really restricted to the IPS and Warrior businesses, which are the coiled tubing intervention businesses on land in the U.S. Those 2 businesses were in competition, and it's an area where we've really been the most focused from an integration standpoint. And I would describe this as being very much field-oriented integration. That's how do you take care of customers and who's going to carry out activities in the different service lines. We've got 2 guys that are really working for Brian Moore that have been leading that exercise. Listen, I don't want to give you the impression that this is easy to do, it's not. Field integration is something that -- it requires a tremendous amount of management time and attention. Is it progressing the way we thought it would? Yes. And are we minimizing some of the potential risk by keeping some of the corporate-related integration out of the way? I think the answer to that is yes. So I'm comfortable with the way it's being managed to this point. But it's not over with and it's not easy to do.

William Cornelius Conroy - Pritchard Capital Partners, LLC, Research Division

That's helpful. And another one really from up around 30,000 feet. If I think about your tenure here, and when you came in, I mean Superior didn't have the lift, the U.S. land focus that it does today. Complete was still probably coming out of being a much more gassy focused company. So as you've transitioned to being more focused in some of the oily basins, how far along do you think you are with that? And I guess another way to ask it is, do you feel that you've still got penetration or market share opportunities in the oily basins by virtue of the fact that they were not the previous focus of the 2 operations?

David D. Dunlap

Well, I mean, I think part of our premise for the acquisition of Complete was to gain a stronger foothold and a basin that was developing as an oil basin. And I think it's important to bring that up. Was Complete more focused on gas 2 years ago? Yes, they were. But the entire U.S. land market was focused more on gas 2 years ago. This evolution of the market towards more oil and liquids-rich is something that's occurred during the course of the last 2 years, and our general premise is that it's a market driver which will continue to gain momentum in the U.S. over the course of the next several years. So the basins transformed. The transformation in the basin is really what led us to the decision to transform the company towards one that was more U.S. land-based. Do we have more opportunities to grow in oil basins? I think the answer to that is yes. We've got good concentration of assets in some of the oily basins, but we're still growing in several of them. In the Permian Basin, for example, which neither Superior nor Complete had a strong foothold in, but we're building out a nice foothold there. We still haven't addressed anything in Canada at this point. And Canada is also, I think, in the early stages of becoming a more important oil and liquids-rich basin, and we don't have the footprint there. So as I think about it, there are several geographic areas that present growth opportunities for us in North America as we go forward.

Operator

[Operator Instructions] Our next question is from the line of Daniel Burke with Johnson Rice & Company.

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

Dave, a more specific version maybe of that last question. We can't see it in your results, given that margin in U.S. land has held quite well. But to what extent are you actively relocating assets other than pressure pumping across the U.S. right now? To what extent is that burdening you? And will that burden ease as we look forward, or is it really immaterial?

David D. Dunlap

No. We're trying to select those types of assets that don't come with the burden of relocation. And I think we'll have some coil tubing units that move from the gassier basins during the course of the year. We'll have some rental equipment that moves from the gassier basins during the course of the year. Those are generally assets that don't come along with an extreme relocation risk or cost. Certainly not to the extent that a fracturing fleet would. And so, part of what we're trying to do is to keep those equipment locations that would cause P&L interruptions to a minimum. I think we've -- I've talked about the frac fleet that was a callout frac fleet in the Marcellus that we've chosen to park on the fence and leave there. The thought process behind this is that we've got other fracturing fleets that are coming into the fleet -- coming into our total fleet this year that are going to oil basins as opposed to going through the cost and risk of relocating one fleet from the Marcellus. Our belief is that when gas prices rebound, which I don't think that happens in 2012, but they will at some point, the Marcellus is probably the first basin to respond. And so, we'll have a frac fleet that's there. And coincidentally, we'll have crews that are transferring to the Bakken for a period of time that'll be ready to come home. So we're trying to make some deliberate decisions here that minimize that impact of P&L disruptions as a result of relocation. And so, when we move things like frac stacks, a lot lower cost and a lot lower risk.

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

Okay. That's helpful. And switching gears, Wild Well, been mentioned a couple times lately, you got containment opportunities kind of emerging in the medium term and I'll appreciate that, that's not a business with a ton of visibility. I was wondering what the outlook is for some of those product lines maybe this year versus last year.

David D. Dunlap

Well, it's pretty good, actually. I mean, the Wild Well business is off to a good start. From a well control standpoint, they been pretty active here lately. Some of those incidents you read about in the press, a lot of them you don't. But they certainly have been active. The containment business is one that is progressing and proceeding as we planned. It's a business that's fairly predictable for us, and so we built the increases into our budget and earnings guidance that we gave to you guys relative to increases that we have in revenue and earnings from the containment systems, and that's all progressing just as we thought it would. I mean, I have to characterize all those things certainly as being better at this point in 2012 than they were at the same point in 2011.

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

Okay. Great. And then if I could squeeze one last one in. I thought when you addressed the CapEx change, you noted you were eliminating some non-revenue contributing capital.

David D. Dunlap

Yes.

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

Are you -- is that facility related? Are you changing plans with regard to facility expansions you were going to undertake?

David D. Dunlap

No. As a matter of fact, I don't think any of it's related to facilities. We have a significant number of non revenue-generating items that hurt our capital budget every year. I'll give you some examples, okay? Pickup trucks. We have a lot of pickup trucks. Pickup trucks don't generate revenue and so -- and looking at some of those, we realized there were some of them that we could probably delay into 2013, and I'm not talking just about pickup trucks but generally non revenue-generating assets or things that weren't contributing for us in 2012, and that's probably a better place to focus. I mean, as we continue to scrub capital spending budget, which is not something that we do once a year, it's something that we do all the time. We've found some things that you look and say, the overall return that we expect from that investment is really kind of on the low-end of where we'd like to make internal capital investments and it's not contributing to 2012, so they became kind of easy things to drop off ,and that's what we've chosen to do. As much as anything Daniel, I characterize it as just continual scrubbing.

Operator

And there are no further questions at this time. I would now like to turn the call back over to management for closing remarks.

David D. Dunlap

I want to thank all of you for joining us, and we'll talk to you again next quarter.

Operator

Ladies and gentlemen, that does conclude the Superior Energy Services First Quarter Earnings Conference Call. You may now disconnect. Thank you for using ACT Conferencing.

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