Superior Energy Services Management Discusses Q3 2012 Results - Earnings Call Transcript

Oct.25.12 | About: Superior Energy (SPN)

Superior Energy Services (NYSE:SPN)

Q3 2012 Earnings Call

October 25, 2012 11:00 am ET

Executives

Greg A. Rosenstein - Executive Vice President of Investor Relations & Corporate Development

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

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

Analysts

James C. West - Barclays Capital, Research Division

Marshall Adkins

Robin E. Shoemaker - Citigroup Inc, Research Division

Jeffrey Spittel - Global Hunter Securities, LLC, Research Division

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

Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division

William Sanchez - Howard Weil Incorporated, Research Division

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

Trey Cowan - Clarkson Capital Markets, Research Division

Brad Handler - Jefferies & Company, Inc., Research Division

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Superior Energy Services Third Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Thursday, October 25, 2012. I would now like to turn the conference over to Mr. Greg Rosenstein, Executive Vice President of Investor Relations and Corporate Development. Please go ahead, sir.

Greg A. Rosenstein

All right. Good morning, and thank you for joining today's conference call. Joining me today are Superior's 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 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 non-GAAP financial measures in accordance with Regulation G. The company provides a reconciliation of these non-GAAP financial measures on its website. Now I'll turn the call over to David Dunlap.

David D. Dunlap

Thank you, Greg, and good morning to everyone. Yesterday afternoon, we reported quarterly revenue of $1.2 billion, EBITDA of $308 million and adjusted net income from continuing operations of $95 million, or $0.60 per diluted share. The major difference between the $0.60 in earnings in the upper end of our pre-earnings guidance on October 2 comes from lower depreciation expense and better-than-expected international performance.

Our EBITDA was in line with the upper end of the guidance that was included in our pre-announcement press release. We really had 2 themes for the second half of 2012 that we talked about during our last conference call, and both are coming to reality.

The first theme, as we discussed last quarter, is that the slower customer spending and reduced rig count activity in the U.S. would impact utilization for completion-related services, especially pressure pumping, coiled tubing and fluid management services. This has been the case, although the utilization has certainly declined at a more rapid pace than we anticipated when we guided you in this direction last quarter.

The second theme is that while we anticipated a reduction in operating margins, those margins would still compare favorably to our North American peers. Operating margins for our U.S.-focused services are meeting expectations in this market environment, thanks to our contracted pressure pumping model, broad exposure to many bases and services and a strong presence in the high-margin drilling products and services space.

While our U.S. land revenue declined 11% from the second quarter, our Gulf of Mexico revenue increased 11% and our international revenue grew 7%.

Our Gulf of Mexico revenue was negatively impacted by Hurricane Isaac, which resulted in about 2 weeks of lower rental tool revenue and as much as 3 weeks of delays in intervention and P&A projects.

However, increases in deepwater drilling, 2 platform decommissioning projects and a stronger completions activity drove our revenue above second quarter levels. We are extremely pleased with the progress we made in our international results in Q3, especially coming off a strong second quarter.

We've spoken repeatedly during the past 2 years about international expansion being a key to our long-term growth, and results are now becoming more apparent.

Our efforts in Saudi Arabia, along with completion services inroads in Asia and West Africa, contributed to growth in the quarter.

In addition, we closed on a small acquisition in Argentina during the quarter, which I will discuss later, establishing our footprint in a country that will be emphasizing shale resource development in the years to come.

After Robert walks you through some of the financial details of the quarter, I will discuss our guidance and outlook. And with that, I now turn the call over to Robert Taylor.

Robert S. Taylor

Thank you, Dave. As we go through each segment, I'll make comparisons to the second quarter of 2012.

In the Subsea and Well Enhancement segment, revenue was $985 million and income from operations was $117 million, which represents a 6% sequential decline in revenue and 35% sequential decline in operating income.

In product lines, as Dave mentioned earlier, pressure pumping, fluid management and coiled tubing were collectively 14% lower from the second quarter. U.S. land revenue in this segment decreased 11% to $703 million. We experienced a slight decline in revenue from well service rigs, a product line that has held up better than most.

Gulf of Mexico revenue increased 16% to $128 million, primarily due to an increase in platform decommissioning projects and demand for completion tools and services in the deepwater. We estimate that downtime related to Hurricane Isaac resulted in lost or deferred revenue in this segment of approximately $13 million.

International revenue was $154 million which represents a 9% increase from the second quarter.

I will add to Dave's earlier comments about improving financial performance by mentioning that we received a completions tools order in Indonesia for our multi-zone Single Trip System. We also had sales of screens and tools in West Africa.

Our operating margin in this segment decreased about 534 basis points in the second quarter, primarily due to lower U.S. land activity, hurricane-related downtime and international well control work that did not repeat this quarter.

In the Drilling Products and Services Segment, revenue was $195 million and income from operations was $63 million, which represents a 2% sequential decrease in revenue but a 6% sequential increase in income from operations.

The operating margin of 32% was the highest since the fourth quarter of 2008, primarily due to business [indiscernible]. Gulf of Mexico revenue was $62 million, a 1% increase over the second quarter. And international revenue was $48 million, also 1% higher sequentially.

On the international front, we saw increased demand for bottomhole assemblies in Brazil and accommodations in Mexico.

U.S. land revenue declined 5% or roughly in line with the changes to the U.S. land rig count.

Turning to the balance sheet. At the end of the third quarter, our debt was $1.9 billion. Debt to EBITDA at the end of the quarter was 1.5x as compared to 1.6x at the end of the second quarter. Debt to total capital was 32%. At the end of the second quarter, we had $90 million drawn on our $600 million revolver.

We redeemed $150 million of our $300 million 6 7/8% senior notes during the third quarter, which is why we recorded a $2.3 million loss on early extinguishment of debt.

Capital expenditures during the third quarter were about $346 million. For the first 9 months of the year, capital expenditures have been about [ph] $934 million.

From a modeling perspective in the fourth quarter, we think you should model G&A in a range of $157 million to $161 million. With respect to DD&A, the third quarter was lower than our prior expectation due primarily to adjustments for depletion, timing of assets placed in services and adjustments to purchase accounting associated with our acquisition of Complete.

For the fourth quarter, we think you should model a range of $137 million to $142 million.

We anticipate net interest expense to be in the range of $30 million to $32 million. You should use a weighted average share count of about 159 million. And I will now turn the call back over to Dave.

David D. Dunlap

Thank you, Robert. As we mentioned in the earnings release, guidance for the fourth quarter is expected to be in a range of $0.48 to $0.52 per share, which means our annual guidance is at $2.62 to $2.66 per share. The drivers for the fourth quarter will be lower U.S. land service activity, reduced demand for intervention work due to seasonality and increases in international activity.

Also, as Robert mentioned, we will see an increase in depreciation of $9 million to $14 million from the third quarter.

In the U.S. land markets, we anticipate lower utilization for completion and intervention services from third quarter levels, as customer spending and rig count continue to migrate downward, albeit at a slower pace. We have seen some pricing pressure in coiled tubing and in elements of our fluid management business. And our guidance includes continued pricing headwinds in these product lines during Q4.

Also, the business mix in well service rigs is changing to more production-oriented work, which generally carries lower margins and completions works.

That being said, lower utilization continues to dominate our results in the U.S., and we do not anticipate a recovery in utilization until 2013. In the Gulf of Mexico, we anticipate slightly lower revenue due to normal seasonality in the shallow water market.

Activity in general has not increased to the levels we experienced prior to Hurricane Isaac. And there is no evidence that market conditions will improve during this quarter. On the other hand, deepwater drilling has resumed to pre-hurricane levels, and we anticipate our results there will pick up.

International will continue to be a bright spot as it has been all year. We have several projects and contracts that are either starting in Q4 or continuing from Q3.

Now let me run through some of the projects that we're working on. We recently started work on snubbing projects in Saudi Arabia and in Thailand. We will commence work on plug and abandonment projects in the Philippines and Malaysia.

We'll continue with accommodations rentals in Mexico. The offshore market there has seen an increase in the number of vessels that are working, many of which need additional crew quarters.

We'll start a pumping services contract towards the end of the quarter in Brazil. Also, we will benefit from a full quarter contribution from the Argentina acquisition I mentioned earlier.

We bought a company called GEOLOG, which is a leader in cased hole wireline, and we look to utilize their platform to bring in additional completion and intervention services.

I've spoken for some time about our desire to enter Argentina. Argentina is a market that has a strong motivation to produce its resources. The near-term focus will be on shale development, and service companies with a local presence and reputation will benefit. Overall, I still believe we will maintain the margin leadership position that we have established with our business model, which is based on a diversified mix of products, services and geographies. We expect to experience continued growth in the resurgent Gulf of Mexico deepwater market, with our high-margin drilling products and services, and increased penetration of mature and growing international markets.

Now that completes our prepared comments. I think we'll now open the line up for questions.

Question-and-Answer Session

Operator

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

James C. West - Barclays Capital, Research Division

Dave, curious about your thoughts on the U.S. land market as we head into 2013. I know you commented the Gulf will get better. International, obviously, is doing very well for you guys, and will next year. So how are you thinking about the U.S. land business and the potential for recovery there? And I guess there's been some postulated -- some are thinking second half, some people are thinking first quarter. How are you thinking about it in for this day and forward [ph]?

David D. Dunlap

Yes. Overall, what we're thinking about the U.S. land market is kind of a flat E&P spend from 2012 to 2013. And I know I've heard some people talk about that perhaps being conservative, but if it is, so be it. And so, if you think about a flat spend, we started the year in 2012 at high utilization. We began the third quarter with utilization trending downwards as it is to the end of the year. I don't expect to see that utilization turn on a dime on January 1. I expect to have it happen as kind of a slow movement upward on utilization, from a completions standpoint, at some point during the first half of the year. And so if you think about 2013 from an E&P spend standpoint being kind of a mirror image of what we saw in 2012, in this case, the first half of the year being a bit slower than the second half of the year in 2013.

James C. West - Barclays Capital, Research Division

Okay, that's helpful. And then as we think about some of your product lines, specifically coiled tubing had seen some pricing pressure recently. If we do see that mirror image unfold, is that enough to kind of stabilize pricing in those businesses?

David D. Dunlap

Well, we know that utilization in coiled tubing was extremely high in the first half of the year. And I would expect that as we see that utilization kick back up that there is some permits and maybe opportunities for price improvement. But more than anything, James, this is a utilization game. It is for us and nearly all of the completion-related services. Most of the margin downturn that we've seen has been related to utilization, not so much from a price standpoint. When you see that utilization kick up then you'll see pretty strong margins that come along with it.

Operator

Our next question is from the line of Marshall Adkins with Raymond James.

Marshall Adkins

Just want to continue along those -- the line of questioning there. I mean, you gave us really good guidance here for Q4, but I do want to kind of carry it into early next year, I guess. U.S., obviously, down this next quarter but it sounds like flat next year. Your Gulf of Mexico, though, should we expect that to start to recover seasonally in first quarter? It sounds like that's a real bright spot for you. And then the last part of that will be international. It sounds like that's obviously ramping up. Should...

David D. Dunlap

Gulf of Mexico clearly is a bright spot for us. We will probably be a bit -- of course, we haven't offered you 2013 guidance yet, but when we get to our next earnings call, we will do that. But Q1, it will be difficult to get too terribly optimistic about growth on the shelf during Q1, when typically that is a period where we see some seasonality and operators are a bit reluctant to start out optional projects related to intervention, plug and abandonment, and even decommissioning lower in that January and February weather window. So I don't -- I would not get too terribly optimistic about shelf growth in Q1. That being said, deepwater, we may see some growth from Q4 to Q1. And in fact, our expectations are that we see just kind of a continued ramp-up in overall deepwater activity as we move through the year in 2013.

Marshall Adkins

And likewise, I would guess the same for international, is it? It sounds like you've got a nice growth trajectory there, and that continue through '13 with what you know right now.

David D. Dunlap

It absolutely does, Marshall. And, I mean, we were -- I'm excited to start to see the results of our international efforts, and I think it's consistent with what I've talked to you guys about since I came onboard, that it takes a little bit of time to go build out the opportunities in these international markets, and we're really just beginning to see the results of that. So nice movement from Q2 to Q3 for us. Q4 looks strong internationally. We've got more new contracts that start up in Q1 and into the first half of 2013. So our visibility on new contracts in the second half of 2013 is not great at this point, but first half of 2013 we've got a number of deals we're starting up, so just keeps on moving in the right direction.

Operator

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

Robin E. Shoemaker - Citigroup Inc, Research Division

I wanted to ask you how you're thinking about capital spending for Superior in 2013. And I know you've shown a lot of discipline there. And what kind of capital is the business going to require and I submit will be down in -- from this year?

David D. Dunlap

Yes. We -- thank you, Robin. We've not finalized our 2013 budget yet. But it's pretty clear that capital spending will be down substantially from 2012 to 2013. And what we've said kind of publicly about that is that -- think about CapEx for this company being somewhere in the $600 million to $700 million range. And I'd say it probably favors something close to $600 million. We'll give you very clear indications of that when we report our fourth quarter results. But if you're thinking somewhere in the $600 million to $700 million range, that's about right, which is substantially lower than where our spend is in 2012.

Robin E. Shoemaker - Citigroup Inc, Research Division

Okay. And if I could ask you to update us and comment on the fluid management business, which you anticipated would hold up better through a period of slow North America kind of drilling activity. And is it performing to your expectations? Is it providing the kind of stability in margins and revenue that you were expecting?

David D. Dunlap

Yes. Overall, it absolutely is. I mean -- now remember that business for us is one that involves a number of different elements in both -- in handling both produced water as well as in handling completion-base water for fracturing. The elements of the business that are more oriented towards completions have certainly seen a bit of slowdown. But those elements related to produced water, particularly in disposal wells, has held up quite good. So now where we've experienced pressure during Q3 and really in Q4 is on pricing for frac tanks, which is one element of that business. And I expect that we'll continue to see kind of deflated prices in that arena as we go into 2013.

But overall, the business is performing as we anticipated. What actually -- we got certain elements of it that pick up in the winter as we get into some of our opportunities to heat water in some of the northernmost areas, which is good margin business.

Operator

Our next question is from the line of Jeff Spittel with Global Hunter Securities.

Jeffrey Spittel - Global Hunter Securities, LLC, Research Division

Maybe if we could follow up on Robin's question about CapEx ratcheting in a little bit through next year. You guys are going to be producing a nice slug of free cash flow. Could you maybe kind of remind us again what the rank orders are in terms of priorities? It's still retiring another tranche of debt, maybe revisiting dividends, share buybacks, that sort of thing. And of course, I'm sure there's some growth opportunities internationally.

David D. Dunlap

Yes. I mean I think as we think about this, that we've got $300 million in 6 7/8% notes that as Robert mentioned, we're in process of bringing in now. We brought in $150 million of those. And next use of free cash is to complete that debt repayment. And so that probably takes us through from a free cash standpoint at least the end of Q4, if not into Q1 and maybe all the way through Q1. We will continue to look for opportunistic acquisitions on the international side, but as far as being a real consumer of that free cash, don't expect it. Because most of the deals that we're looking at are fairly small, and this Argentina deal's a good example of it. These are under $50 million opportunities and I just -- I don't see that there will be a high volume of growth going forward. We'll -- but hopefully there are some. And so it does leave us with some nice free cash generation during 2013. And as I've been in conversation with the board over the last several quarters, clearly, as we begin to see some of that cash build, we'll look for ways to get it back to shareholders. And whether that's through a share repurchase or a dividend, kind of depend -- it's going to depend on where the stock price is at that point. And so I -- it's not a Q1 event for us, I think, in 2013, but as we kind of roll through the year, it's something we'll talking to you a bit more about. Did I answer your question?

Jeffrey Spittel - Global Hunter Securities, LLC, Research Division

Yes, absolutely. That was very helpful, Dave. And then maybe shifting gears back to pressure pumping. Could you remind us, I guess, versus last time we talked, have we parked any incremental crews? I think there's the one idle crew in the Marcellus. And I know you have limited transactional exposure, maybe some in West Texas, in the Bakken. Could you give us a sense of what's going on there?

David D. Dunlap

Yes, I mean, we've still got the 12 contracted fleets that are working. And remember, that's the bulk of our overall fracturing revenue, is based on those contracting fleets. I think there's about [ph] 5 call-out fleets that are still working today, spread out between Permian Basin, Mid-Continent and the Bakken. And we've got some horsepower on the fence, which will stay on the fence until we feel -- the better market condition. And we're fortunate to have -- as big a part of our fleet is on the long-term contracts, there's -- our utilization is down a bit on them as operators have gone from 7 to 5 days, but they continue to produce a pretty stable result for us.

Jeffrey Spittel - Global Hunter Securities, LLC, Research Division

You've only got one of them that gets repriced that's on contract by summer of next year. Is that correct?

David D. Dunlap

Yes, that's right. I mean, there's one that will come off contract next year. And it's kind of -- if you think about kind of a straight line of those 12 fleets coming offline between July of '13 and Q1 of 2015, that's kind of the way they fall off. They're not -- it's not lumpy, I guess, from that standpoint. It's pretty straight line.

Operator

Our next question is from the line of Joe Hill with Tudor, Pickering, Holt & Company.

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

I think we've beaten the CT fluid, and most of the other U.S. land businesses did. But the one I'm particularly interested in is your rental tools business and drill pipe. And you noted in the release that you were seeing maybe a little bit of price weakness. I think you associated it with gas basins. Can you give us your forecast for how that business looks, especially relative to the others for, say, the next 6 months?

David D. Dunlap

Yes. I mean, we've included in our guidance here the expectation of a bit of headwinds on -- in some of the U.S. areas. And it's mainly just a function of rig count weakening, which we think there'll be continued rigs coming out of the market between now and the end of the year. I wouldn't call it a dramatic impact, and it's pretty soft landing on the rental tools side, mainly because we had a market that was largely undersupplied for premium drill pipe. We've been, over the last 2.5 years, adding capacity to satisfy demand for the horizontal well drilling and premium drill piping. Now that's kind of flattened out a bit. And you see it tugging down just a bit, but it's not much of an impact, Joe.

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

Okay. And then my hearing is getting bad in my old age, but I thought you said you were going to do a pumping job in Brazil.

David D. Dunlap

You're not that old, Joe. You're hearing it correctly. I mean, pumping -- and don't think of horizontal well fracturing, by the way. Remember, there's a whole universe of pumping services related to remedial pumping and other things that we do, and that's what we'll be doing down in Brazil. We've got a couple of different contracts there, some that are stimulation-oriented, some that are remedial pumping-oriented that will be -- that we're starting up.

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

Okay. And my last question. One of your, and I'm going call it a kind of a moderate competitor, recently announced a deal with Chouest to do light well intervention that's probably going to end up in the Gulf of Mexico, West Africa or Brazil. What are your thoughts about the subsea intervention market at this point and your place in it in the next 3 years?

David D. Dunlap

Yes, sure. I mean, we -- I would love to have wild optimism about the subsea intervention market. I think that clearly this is an arena where our customers have not done a lot of work in recent years in the way of production enhancement related to intervention -- subsea intervention. That being said, we are reaching a point in time where many of the subsea wells that have been installed over the last 8 or 10 years have reached the end of their useful life. And so you may not intervene on these wells to improve production during their life, but you have to put them to rest. And we are beginning to see more and more opportunities related to plug and abandonment. We carried out some of that intervention work last year in Asia. We actually have some of that type of work going on today in West Africa. Remember, we have the large lubricator systems. We can also offer vessels, if that's part of the package. But I think more importantly, our downhole knowledge is what's going to separate us from the pack here. Most of the companies that are pursuing intervention are either boat companies or they're high-pressure lubricator-type builders. We can do both of those as well as add that element of well control engineering and downhole knowledge. So but I think -- that was kind of a long answer to your question. I'd love to be optimistic about this for reasons of improving production in some of these subsea reservoirs, but I can certainly be optimistic about it from a plug abandonment standpoint. And that's seems to be where [ph] the landscape's going here over the next year or so.

Operator

Our next question is from the line of Stephen Gengaro with Sterne Agee.

Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division

Two questions. One just quickly, on the $300 million of the 6 7/8% notes, how much of that has been repaid already?

David D. Dunlap

We brought in $150 million to this point. So we've got another $150 million left on those notes.

Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division

Okay, great. And then just as a sort of another follow-up to the margin questions. As we think about the businesses, and it's -- I'm not sure how much detail you'll get into. But when you look at the different businesses in the product line, can you give us a sense for the margin differential between the geographic regions and just sort of how we think about that direction? I mean, obviously we know what's going on with the U.S. land side. But I would imagine the Gulf, international, getting kind of slowly better from here?

David D. Dunlap

Yes, I mean, you've asked a pretty broad question there. But let me see if I can add a little color to it, Stephen. I mean, generally, what we see in the rentals business is highest margins in the Gulf of Mexico, very close to those same margins in international, albeit maybe slightly less, and international U.S. land margin's also fairly similar. But the highest margin's in the Gulf of Mexico on the rental business. On the -- on our intervention- and services-related businesses, overall margins are best at this point in Gulf of Mexico and U.S. land. There -- that business is still small for us internationally, but we expect as those contracts mature internationally, we'd price them and believe that they will produce margins that are similar to what we see in the U.S. So -- did I come close to answering...

Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division

No. That does help, David. And as I sort of think about -- as you kind of go forward here, it's always a little bit unclear. But as you think about 4Q, 1Q, it almost sounds like we should think almost steady-ish state except for U.S. land. I mean, is that reasonable?

David D. Dunlap

Yes, that's very reasonable.

Operator

Our next question is from the line of Bill Sanchez with Howard Weil.

William Sanchez - Howard Weil Incorporated, Research Division

Robert, just a follow-up question for you. You referenced $13 million in lost revenue due to the hurricanes in the Gulf. Was that strictly SW&E?

Robert S. Taylor

Yes, the $13 million. Overall, it's about a $15 million or so, I mean, in the rentals.

William Sanchez - Howard Weil Incorporated, Research Division

Okay. And so, Dave, so when I look at SW revenue coming in, at least better than we had anticipated, certainly Gulf of Mexico is much stronger. As far as just your base GOM business, x hurricane, certainly very good. Just how you're seeing that continue to unfold here. Did we start to see some pull-through from the Bullwinkle P&A activity perhaps in the quarter helping that Gulf of Mexico line?

David D. Dunlap

Well, actually, we didn't see any P&A activity on Bullwinkle down in [indiscernible] that's still an opportunity that sits out there for us over the course of the next few years. So it's not helped out by P&A activity. We had, as we mentioned before, a couple of good decommissioning projects, which were going on during Q3, and actually decommissioning business looks pretty solid in Q4. Completions was -- actually had very good quarter in Q3 in the Gulf of Mexico on the tools side. The vessel side was a bit hampered because of the 3 weeks -- basically, 3 weeks of downtime we had on completions relative to Isaac. So, yes. But, Bill, it was a lot of different elements of the business in the Gulf of Mexico that performed very well for us. And then, of course, the international intervention business, which performed well, too.

William Sanchez - Howard Weil Incorporated, Research Division

Sure. So Dave, as we think about the SWE margin line, which was down at least for us more that what we had modeled here. And clearly the loss of the hurricane-related revenue, I'm sure came at very high decrementals, which impacted those margins negatively. Can you walk us through how we should think about the progression, given the seasonality you're going to see fourth quarter, first quarter? Just think about overall SW&E margins, how those progress from here?

David D. Dunlap

Yes, sure. The other thing I'd point you to on those, on Q3 margins, they were impacted negatively by the Arctic containment system, which we had intended to carry a profit with during Q3, and actually wound up being a loss because we didn't get the system deployed before the end of the quarter. So that's part of what drags us down in that segment in Q3. I mean, as we go forward, that segment is going to continue to see kind of the margin pressure that we've talked to on U.S. land. But if you think about the other elements, the Gulf of Mexico piece and the international piece, they perform at, at least the same margin levels as we go forward, if not, in some cases, a little bit better. We'll lose that negative comparison on the Arctic containment system, so that kind of helps overall margins in that segment as you go forward. But it's -- I mean it's dominated by the U.S. drop.

William Sanchez - Howard Weil Incorporated, Research Division

Okay, that's helpful. I guess just one last one. I know it's a relatively small acquisition, but that Argentinian deal that you mentioned, Dave. Anything material from a revenue standpoint, just that is worth stripping out for us?

David D. Dunlap

It's not material in Q3 for sure, but it was a small acquisition. It's a company that, though, that has a long history in Argentina. As I mentioned before, they're the cased hole wireline leaders down there. And it's more given us that opportunity, from a footprint standpoint, when we start to see the unconventional market take off. And I don't want to get too aggressive about predicting when we're going to see that, Bill, but I like the idea that when it does begin to take off that we are positioned there. And we're positioned there with a known entity in the market that we can leverage off of. So you think about potential for fracturing or snubbing or premium drill pipe or coiled tubing, all of those become immediately available to us as the market picks up.

Operator

Our next question is from the line of Daniel Burke with Johnson Rice.

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

Let me ask a question on the pressure pumping side. I guess my impression, Dave, one of the reasons why you saw a relatively large revenue decline from Q2 to Q3 was that those term contracts were, in most cases, stepping down to minimum levels. And so what I'm wondering is looking forward over the next couple of quarters, with those contracts at more stabilized levels, is it presumable that your pressure pumping revenues on the whole should be relatively stable? I know there's a spot side of the business, and I know that'll factor into your answer as well. But just trying to dial in that Q4 number here in the model.

David D. Dunlap

Yes. Well, I mean leave the spot side off to the side for just a second, and let's just think through the contracted side. So we've seen a reduction in utilization on those contracted fleets as operators move from 7 days to 5 days, which is within their ability in those contracts. They will step back up, in many cases, we believe, to 7 days. Don't look for that in Q4. I think it's more likely to happen, at some point in the first half of the year as those horizontal well factory operators try and get back up to their 100% efficiency mark, which they're intentionally working at less than 100% efficiency today. So as I kind of think about that, we are probably at that -- we are at that low point from a utilization on contracted frac fleets. We've reached that low point during the third quarter and carry it through during the fourth quarter. And then at some point in the first half of the year, it starts to pick back up from there. At this point, we think we're going to continue with the 5 call-out fleets that we have placed out in the market. When the market does begin to get a bit busier in 2013, there may be opportunities to take some of what we have on the fence today and put it back to work. But we're strongly driven to only do that when we can generate reasonable margins on those frac fleets. So I wouldn't think of it as a first half of the year event. More likely second half of the year.

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

Okay, great. That's helpful. And then I guess my second one would be, you alluded to the completion business, or you directly referred to the completion business a couple of times. Sounded like you had a tool sale hit Q3. And I guess, I was curious, looking ahead to next year, the stimulation business in the Gulf and international, what kind of growth potential do you have year-over-year in the completion [ph] business?

David D. Dunlap

Pretty nice growth potential and opportunity for us, actually. I mean, the completion tool business, first off, they've done a great job of stepping out and establishing the product line in some international markets, which was clearly part of our strategy when we bought these assets from Baker Hughes 2 years ago. We had a nice sale in Indonesia during the third quarter. That was for Multi-Zone Single Trip tools, both 7-inch and 9 5/8, which is a real nice step forward for us there. We were also aided by some nice West African sales of tools and screens. As time goes on, exposure to that product line and to other international markets just continues to build on itself. So we're -- I think there'll be a point in time where in the not-too-distant future, where a majority of our completion tool revenue comes from international markets and not from the Gulf of Mexico. Today, it's still highly levered to the Gulf of Mexico, which as we begin to move into more of a completion cycle in 2013 on the deepwater rigs, which have been reactivated since the moratorium was lifted, 2013 is going to turn out to be a pretty strong year for deepwater completion tools. The vessel has largely been underutilized since we bought these assets. And we're down to 1 stimulation vessel. Well, actually, when we bought the assets, we had 2. We let one of those vessels go, I guess late last year, early this year. Today, there are only 5 stimulation vessels that work in the Gulf of Mexico market. Pre-Macondo, there were 11. As we reach a point where completions activity in the deepwater gets close to where we were at points prior to the moratorium and prior to the Macondo event, I think those 5 vessels are going to be very stretched. And I think that it's pretty clear to me that we're going to see some nice run-up in utilization on those vessels there during 2013.

Operator

[Operator Instructions] Our next question is from the line of from Trey Cowan with Clarkson Capital Markets.

Trey Cowan - Clarkson Capital Markets, Research Division

This is more of a remedial question. Just looking back, say, to 2009 versus 2011, can you talk to some of the major changes that have occurred within your company? Or how are you guys have changed the business, the strategies that you've fortaken? And what that implies for potential revenue generation whenever we're hitting a good point in the cycle versus where it was in 2009?

David D. Dunlap

Yes. Sure, Trey. I mean, the probably 2 most significant and fundamental things that have changed in our company since 2009, one, is our U.S. presence, which is a result of acquisitions being [ph] substantially higher than it was in 2009. And second, is international presence, which we continue to build out and will continue to build out over the next 5, 10 years. It's a long-term growth opportunity for us. And in 2009, we weren't quite as focused on international growth. So I think overall, what's changed in the company? We've added some product line as a result of acquisitions and we're exposing the company to significantly more marketplace from what, in 2009, was primarily a Gulf of Mexico business.

Trey Cowan - Clarkson Capital Markets, Research Division

Okay. And then, speaking of the Gulf of Mexico, I just wanted to kind of get a better understanding of how the rental tools, onshore versus offshore, shape up as far as contribution to your revenue? Is that something that you guys ever speak to?

David D. Dunlap

Yes, it's a -- we're close to 1/3, 1/3, and 1/3 on the rental tool business with exposure to Gulf of Mexico, U.S. land and international. So as time goes on, I think over the next few years, the best growth opportunities in international -- or for rental tools are probably in the international market. And Gulf of Mexico probably growing at a bit higher pace than U.S. land. But today, the contribution is about equal between those 3 major geographic areas.

Operator

Our next question is from the line of Brad Handler with Jefferies & Company.

Brad Handler - Jefferies & Company, Inc., Research Division

Can you speak to -- let's come back to the CapEx question, and I appreciate that you're still planning it out. So I'll just try to reach a little farther, I guess. Maybe how -- what was the split of capital in 2012 between U.S. land and other?

David D. Dunlap

About 70% of the CapEx was -- for 2012 is directed to the U.S. land market. That's 70% of, call it, a $1.1 billion number. And what you can think about for 2013 is that -- I'm not sure what the percentage'll wind up being, but it's probably an overall capital investment of -- in the $200 million to $250 million range [indiscernible] purposes [indiscernible]...

Brad Handler - Jefferies & Company, Inc., Research Division

Oh, $200 million, $250 million U.S. land?

David D. Dunlap

Yes, something like that. I mean, the services business in U.S. land are only going to be at a maintenance level next year. We don't have any major equipment additions that will be made on that side. On the rental side of the business, there may be some equipment additions, although I think they'll be fairly muted. So $200 million is probably about a reasonable number to think about for 2013. So our international spend will be up in 2013. We'll have some Gulf of Mexico CapEx in 2013 as -- primarily relating to rental tools. So that's -- in my mind, at this point, anyway, that's how I kind of build up to that 6%, $100 million overall spend.

Brad Handler - Jefferies & Company, Inc., Research Division

Got you. Got you. That's very helpful. Maybe just a related follow-up. And maybe it's a bit more medium-term or long-term, but in terms of your international growth, do you have a sense of what CapEx is required, sort of as a percentage of incremental revenue?

David D. Dunlap

As a percentage of incremental revenues, it varies somewhat between the product lines. I mean -- and generally if you look at -- if you think about the intervention- and pumping services-type product lines, and your capital investment in those product lines is generally going to result in somewhere between $1 and $1.5 of revenue. On the rental tool side, it's not quite that much. In the rental tools side, every $1 invested is probably more like $0.80 or $0.90 of revenue. That being said, it comes at a pretty high margin in return. So is that [ph] where you wanted to go?

Brad Handler - Jefferies & Company, Inc., Research Division

Yes, that's very helpful.

Operator

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

Yes. Well, we thank all of you for joining us this morning. And we'll see you out on the road.

Operator

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

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