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Executives

Ken Huseman - President and CEO

Alan Krenek - CFO

Sheila Stuewe - DRG&L

Analysts

Jeffrey Spittel - Global Hunter Securities

James West - Barclays Capital

Luke Lemoine - Capital One Southcoast

Joe Hill - Tudor, Pickering, Holt & Co.

James Rollyson - Raymond James & Associates

Michael Urban - Deutsche Bank

Michael Cerasoli - Goldman Sachs

Blake Hutchinson - Howard Weil

Doug Garber - Dahlman Rose

Neal Dingmann - SunTrust Robinson Humphrey

Jason Wangler - Wunderlich Securities

Daniel Burke - Johnson Rice & Company

John Keller - Stephens Inc.

Travis Bartlett - Simmons & Company

Jim Spicer - Wells Fargo & Company

Nigel Browne - Macquarie Securities

Trey Cowan - Clarkson Capital Markets

Matt Beeby - Williams Financial Group

Basic Energy Services, Inc. (BAS) Q3 2012 Earnings Call October 26, 2012 9:00 AM ET

Operator

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Basic Energy Services Third Quarter Earnings Conference Call. (Operator Instructions) This conference is being recorded today, Friday October 26, 2012. I would now like to turn the conference over to Sheila Stuewe. Please go ahead.

Sheila Stuewe - DRG&L

Thank you, and good morning, everyone. Welcome to the Basic Energy Services 2012 third quarter earnings conference call. We appreciate you joining us today.

Before I turn the call over to management, I have a few items to go over. If you'd like to listen to a replay of today's call, it is available via webcast by going to the Investor Relations section of the company's website at www.basicenergyservices.com, or by telephonic replay until November 9, 2012.

The information was provided in yesterday's earnings release. The information reported on this call speaks only as of today, October 26, 2012, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of the replay.

Before we begin, let me remind you that certain statements made by management during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations that include known and unknown risks and uncertainties and other factors, many of which the company is unable to predict or control, that may cause the company's actual results or performance to materially differ from any future results or performance expressed or implied by those statements. These risks and uncertainties include risk factors disclosed by the company in its registration statement or its Form 10-K for the year ended December 31, 2012 and subsequent Form 10-Qs filed with the SEC. Furthermore, as we start this call, please also refer to the statements regarding forward-looking statements incorporated in our press release issued yesterday, and please note that the contents of this conference call are covered by these statements.

At this point, I'll turn the call over to Ken Huseman, President and Chief Executive Officer.

Ken Huseman

Thank you, Sheila. Welcome to those joining us on the call today. Alan Krenek, our senior vice president, chief financial officer is on the call with me. And by the way, this is our initial call from Fort Worth office.

As stated in my comments in our earnings press release, business conditions became increasingly competitive over the course of the quarter as demands softened and new capacity entered already well supplied markets. As a result, our total revenue declined 6% sequentially, about twice the decline projected in our second-quarter conference call.

Our frac related services, namely stimulation and fluid logistics accounted for most of our revenue decline. The roughly 7% reduction in the active drilling count over the course of the quarter reduced demand and new capacity piling into those stagnant or shrinking markets drove pricing lower for those services.

Our well servicing, rental and fishing tools and other non-frac related services were much more stable. Despite the revenue drop, our margins held up fairly well. Total company direct margin dropped 80 basis points sequentially and our EBITDA margin declined by 140 basis points compared to the second quarter. That performance was much better than the 200 basis points drop in margins that we projected in our guidance last quarter.

Our management continues to do a great job of optimizing utilization and managing costs in a very competitive environment. A significant development this quarter was the relocation of our corporate offices to Fort Worth where as I said we’re conducting this call. I’d like to commend our corporate management group and their teams on getting the move completed ahead of schedule without any interruption in the support of our field operation.

Now I’ll turn the call over to Alan for a more in-depth review of the quarter.

Alan Krenek

Thanks Ken and good morning, First, I would like to review our $300 million, 7.75% senior notes due 2022 offering that we completed on October 16. The net proceeds were used to repay our $325 million 7.125% senior notes due 2016, tender and offering expenses and the remainder will be used for general corporate purposes. As a result of this, we do not have any principal repayments until 2019 which gives us flexibility to continue to grow.

In the fourth quarter, we will recognize a pretax charge of approximately $8 million for the early extinguishment of the 2016 bond. Interest expense will increase by $7 million on an annual basis, and we added about $62 million of cash to our balance sheet.

I will now review our third quarter financial results and balance sheet focusing discussion of sequential changes. Then I’ll turn the call over to Ken who will give us an update on the current operating environment.

As Ken said, third quarter revenue declined 6% to $340 million compared to $362 million in the first quarter. On a segment basis, completion and remedial revenue was down 8% due to pricing declines from increased competition in our busier oily markets for stimulation services.

For the third quarter, pumping services represented 60% of revenue in the segment while rental tools was 24%, coil 10%, snubbing and the remainder was other. Fluid services revenue decreased 7%. During the third quarter we saw a decline in drilling activity in the Permian basin and Eagle Ford shale as well as increased competition from startups and equipment that continues to move in from gas markets.

Our non-trucking revenue was also down in comparison to the second quarter as frac tank rentals and skim oil sales declined. In addition, revenue from the assets that were being prepared for sale in our Rocky Mountain region was approximately $2.4 million lower than in the second quarter.

Well servicing revenue decreased 1%. Our customers continued to spend to maintain their production. Rig utilization was down by 210 basis points to 73% while revenue per hour increased by $3 to $402 per hour. Our plugging activity increased versus the prior quarter, and we experienced an uptick in activity for our services in our Appalachian region which both have higher revenue per hour than the rest of our operation.

Our Taylor Rig manufacturing operation generated another strong quarter of results with revenue of $6.4 million, up from $6 million from the previous quarter. Contract drilling revenue declined 3% due mainly to delays on several of our rigs that are on well to well basis.

On segment profit margins, in our completion and remedial services segment, profit margin declined approximately 120 basis points to 39.3%, mainly due to lower pricing. Our fluid service segment experienced margin compression of approximately 370 basis points to 32% as pricing has come down due to increased competition and to lower revenue on the higher margin services in frac tank rentals and skim oil sales.

Our well servicing segment produced our strongest quarter-over-quarter results as margins increased 310 basis points to 30.3%. Pricing remained stable through the third quarter in the segment and our repair and maintenance costs were lower.

Contract drilling profit margins declined 360 basis points to 33.6% due to the volumes we mentioned earlier, which dropped down revenue. EBITDA in the third quarter was $77 million or 23% of revenue compared to $87 million or 24% of revenue in the second quarter.

Moving on to other parts of the income statement, G&A expense, excluding the $3 million of headquarters relocation expense, was $41.1 million or 12% of revenue compared to an adjusted $41.6 million or 11% of revenue for the second quarter. We anticipate that G&A, excluding headquarter relocation expenses, will be about 12.5% to 13% of revenue in the fourth quarter.

Depreciation and amortization increased to $48.3 million in the third quarter, up from $45.5 million in the prior quarter, mainly due to our capital expenditures program as well as a full quarter of depreciation from the Surface Stac acquisition which we purchased in mid-May. We expect depreciation and amortization to be $50 million in the fourth quarter.

Net interest expense was $15 million as expected in the third quarter, slightly higher than the second quarter. We expect the quarterly net interest expense to be $16.8 million per quarter on a go forward basis due to the increased interest expense from the bond offering that was closed on October 16.

Our third-quarter operating effective tax rate was 38%. We believe that our effective tax rate for the full year 2012 will also be 38%, excluding any impact related to our recent extinguishment of debt. We generated diluted earnings per share of $0.21 in the third quarter. As reported, diluted earnings-per-share, which included the headquarters relocation expenses was $0.16.

Weighted average shares outstanding for the third quarter were 40.4 million. As stated in our earnings release, we have repurchased approximately 1.2 million of our shares since May of this year at an average price of $9.51 per share. We now have 24 million left under our authorized share repurchase program.

To the balance sheet, we had a cash balance of $104 million at the end of the third quarter, same as last quarter end. Total liquidity, including availability under our revolver was $332 million at quarter end. There were no amounts drawn on our revolver. When we adjust for the bond offering we recently completed, pro forma cash and total liquidity at September 30 was $166 million and $394 million respectively.

During the first nine months of 2012, we generated $234 million of cash from operating activities. We used $165 million in investing activities, including $43 million for acquisitions and $127 million for cash capital expenditures. We used $44 million for financing activities, including $15 million for share repurchases.

Our DSO at the end of the third quarter was 66 days, up from 63 at the end of the second quarter. During the third quarter, total capital expenditures, including capital leases were $61 million, comprised of $16 million for expansion projects, $37 million for sustaining and replacement projects and $8 million for other.

Expansion capital spending included $8 million for completion and remedial segment, $5 million for the fluid services segment, $2 million for well servicing and $1 million contract drilling. We expect the capital expenditures for 2012 will be approximately $200 million. At September 30, we had $800 million of total debt consisting of the $225 million of senior notes due 2016, $477 million of senior notes due 2019 and $98 million of capital leases.

Our total debt to adjusted EBITDA at September 30 was 2.2 times and interest coverage ratio was six times. On a pro forma basis, at September 30 for the recent bond offering, we had total debt of $875 million with total debt to adjusted EBITDA of 2.5 times and interest coverage ratio of 5.3 times.

In October, we sold certain non-trucking assets in our Rocky Mount region at an auction. The sale of these assets do not represent an exit from a geographic market or service line. These assets generated approximate $600,000 and $5.7 million of revenue for the three and nine months ending 2012 respectively. These assets are classified in the fluid service segment. These assets were sold for $6.4 million and we will recognize a gain of approximately $2.7 million in the fourth quarter.

The relocation process in moving our corporate office to Fort Worth will be finalized in the fourth quarter. We have completed most of the hiring for replacing those personnel that will not moving to Fort Worth from Midland. We recognized relocation expenses of $1 million and $3 million in the second and third quarter respectively and we will incur an additional $3.2 million in the fourth quarter for a total of $7.2 million for the move.

I want to echo Ken’s comment regarding our corporate share including incoming and outgoing personnel for their efforts to ensure that we took care of daily business during the transition of our corporate office to Fort Worth and to our employees who did not like to move to Fort Worth, we greatly appreciate for service to Basic and wish them much success in the future.

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

Ken Huseman

Okay. Thanks Alan. I probably have less confidence in our near-term outlook than at any time over the last several years. I believe some of that uncertainty may get resolved with the elections in early November. Gas prices, however, will likely remain too low to support activity other than routine maintenance work and crude oil prices seem at risk of breaking below the level necessary to support current drilling activity.

In addition, competition continues to increase in many markets where we are seeing softening demand. With that in mind, we were updating the guidance for the fourth quarter we provided in last quarter’s conference call. We now believe the sequential revenue decline will be on the order of 5% to 7%. Each of our segments will experience sequential reductions in revenue due to seasonal factors, a continued decline in the drilling rig count and generally lower spending as many customers have expended their 2012 capital budget.

Our well servicing segment will likely see the greatest sequential reduction as fewer daylight hours and holiday disruptions drive utilization down to about 70% for the quarter. Pricing will be stable but the average rate will likely decline by 150 basis points as the work mix changes to a higher proportion of maintenance work and less of the higher rate workover activity. We think we can hold margins within 100 basis points of the third quarter performance.

The reduction in drilling activity and seasonal fiscal disruptions will cause fluid service utilization to decline. That lower activity and continued price competition will result in a 3% to 4% reduction in total revenue. Much of that revenue reduction will come in the form of reduced frac tank rentals and disposal fees, which are high margin components of the revenue stream in this segment. We’ll have to hustle to keep margins within 200 basis points of the third quarter result.

We expect to maintain a full calendar for our pumping assets and other sub-segment in our completion and remedial segment will be impacted by the reduced drilling activity and seasonal slowdown in maintenance related work. Spot pricing for pumping service has likely bottomed but the costs of guar and sand continue to drop and those savings will be passed on to our customers in the current competitive environment.

We would expect revenue in this segment to decline on the order of 5% to 7% but we think we can hold margins within 150 basis points of our third-quarter performance. We continue to seek ways to control costs, optimize our operations and profitably retain market share. Holiday interruption and winter weather lead to an unavoidable increase in unit costs during the fourth quarter and it’s difficult to flex the fixed cost structure with quarterly fluctuations in revenue. We expect our fourth quarter EBITDA margin to decline 200 basis points from third quarter result.

Looking to next year, discussions with our customers’ field representatives lead us to believe 2013 working capital budgets will approximate spending in 2012. But we’ve seen a limited official amounts into that effect. Regardless of the eventual accrued budget level, we do not get the sense that our customers will begin spending those budgets immediately as we cross year end. I would not be surprised if many of our customers take a wait-and-see attitude and hold spending in check until late in the first quarter or early in the second quarter. That timing provides the added advantage of getting beyond the worst of the winter weather, which can drive up the cost of many field operations.

We’ll certainly gain visibility between now and year-end and we will update our guidance in our monthly updates. As of today, however, we are planning on a modest sequential increase in revenue for the first quarter, sales in order to 2% to 3%. Margins will stay flat at best because of the impact of unemployment taxes which we said at the beginning of the year. I believe that sequential impact to margins from unemployment taxes in the first quarter of this year was about 130 basis points compared to the prior quarter.

Our capital budget for 2013 is being formulated now. Given the current lack of visibility, we anticipate our capital spending will be at a base level of about $185 million off. At this point expansion capital on the order of $50 million will be directed primarily toward expanding our network of disposal wells and increasing our rental tool capabilities. We will certainly continue to look for ways to grow our business and will increase our capital budget as we identify compelling opportunities to broaden our capabilities and geographic coverage.

We’ve seen quite an increase in acquisition deal flow recently. Valuations are coming in line and we expect to see many opportunities as we enter the new year. With the liquidity position Alan described in his comments, we’re very well positioned to capitalize with almost any we find compelling.

With that, operator let’s open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from the line of Jeffrey Spittel with Global Hunter Securities.

Jeffrey Spittel - Global Hunter Securities

It sounds like – I mean I think we are starting to hear this from some of your peers, your prognostication at least initially right now, what customers are saying is, budgets don’t look apocalyptic next year by any stretch but I guess what you are looking for is an evolution kind of like a mirror image of what we have seen this year where people are just going to be very cagy as I guess in the year after and the initial phase is 2013. Is that kind of a fair characterization of what you're expecting?

Ken Huseman

Yes, I think that’s just because there is some uncertainty right now. I think everybody is kind of pushing off expectations a little bit. But if budgets are of the same amount that they spent this year, I think it's going to be more back loaded than front loaded as it was in ’12.

Jeffrey Spittel - Global Hunter Securities

In any basins or across any of your product or service line, have you had any of your customers approach you, trying to tell him offer some capacity, and maybe a counter cyclical fashion and that’s not happening.

Ken Huseman

No.

Operator

The next question is from the line of James West with Barclays Capital.

James West - Barclays Capital

I am just curious about your outlook for ‘13 about this kind of mirror image of ‘12 and ramp up, is that specific to your key market of kind of the Permian basin or is that a more of a nationwide type of comment?

Ken Huseman

I would bet that it will be pretty much nationwide. Part of it is weather related, it costs money to operate in the winter. And so it wouldn’t surprise me to see customers just take a slow start to the year.

James West - Barclays Capital

And then with respect to your CapEx budget, I think you mentioned $50 million in expansion capital. Is that all committed at this point or is there some ability to flex that down?

Ken Huseman

Yeah, we could flex that down. We have a number of disposal wells that are in the permitting process, and I am sure we will follow through with those. Hopefully we will have even more than we have projected. Those permits are just pretty uncertain at this time. The other items are fairly short lead time items and we don’t have a large scale commitment to anything at this point.

James West - Barclays Capital

And then just last question from me on the M&A front, now you mentioned flow deal has definitely picked up and that is not surprising given the little bit of disarray we have in the market and a lot of the political uncertainty that’s out there. Are the deals that you are seeing now, are there deals that you – and valuations to come into, I guess you mentioned as well. Are the deals that you are seeing now, are they assets that you would like to acquire and to pick off, or is it a market where it’s maybe equipment or services, or product lines that you’re just not interested in just yet?

Ken Huseman

Pretty much across the spectrum, there are a number of deals though that have great assets that we’d be interested in, it’s just a matter of getting the deals done. And then of course, there is just a regular parade of other assets that we are less interested in. We get –we probably get to look at 90% of the deals are out there. And some are in business lines that we’re just not interested in developing.

Operator

Thank you. The next question is from the line of Luke Lemoine with Capital One Southcoast.

Luke Lemoine - Capital One Southcoast

Alan, could you give me the tailored OpEx for 3Q?

Alan Krenek

We had revenues of $6.4 million segment or gross profit of $1.4 million, 22%.

Luke Lemoine - Capital One Southcoast

And should revenues and margins be fairly similar for 4Q as well?

Alan Krenek

We would expect – maybe revenue not that high but margin should be right at the same amount.

Luke Lemoine - Capital One Southcoast

And then on the OpEx decline in 3Q for well service rig, it sounds like it was mainly just on lower on R&M. Is that correct?

Alan Krenek

That was mainly it, yes.

Luke Lemoine - Capital One Southcoast

And on the revenue per truck decline in 3Q, how much of that was pure trucking versus frac tank, SWDs?

Alan Krenek

Well, if you consider the revenue decline from the Rocky Mountains region sale of assets, that was about $2500 per truck decline. And then about similar amount for frac tank and skim oil sales combined.

Luke Lemoine - Capital One Southcoast

And then did I hear you correctly you that pressure pumping was 60% of your revenues in 3Q?

Alan Krenek

That is correct.

Operator

The next question is from the line of Joe Hill with Tudor, Pickering.

Joe Hill - Tudor, Pickering, Holt & Co.

Ken, can you give me what percentage of your pumping business was cementing versus steam in the quarter?

Ken Huseman

I think Alan could probably root that out.

Alan Krenek

Yeah, that’s – what we said in the past about 60% of that revenue has been frac and then remainder of it being cementing and acidizing. With the lower frac revenue now, that number probably changes to 50% frac and 50% cementing and acidizing.

Joe Hill - Tudor, Pickering, Holt & Co

And then Alan, how much was materials cost for pumping down in the quarter, percentage wise?

Alan Krenek

As far as sand and guar?

Joe Hill - Tudor, Pickering, Holt & Co

Yes.

Alan Krenek

Joe, we don’t have that information at our tip, we can get back to you on that.

Ken Huseman

I would say Joe that unit costs on guar dropped by probably 40% at least. Sand started coming in significantly again even more.

Joe Hill - Tudor, Pickering, Holt & Co

Okay. And then Ken, you, I think, referenced Appalachia actually doing okay, maybe for well service. Can you explore that a little bit and talk a little bit about it?

Ken Huseman

Yeah, the completion activity up there caught up – or resumed I guess in the third-quarter compared to where it was in the second quarter and it’s not going gangbusters but it’s steady for the equipment we have in that market.

Joe Hill - Tudor, Pickering, Holt & Co

And do you think that’s just gas price related?

Ken Huseman

Yes. Well, it’s a combination of little bit weather compared to earlier in the year but certainly the customers we work for have steady program and seem to be kind of level loading their activity.

Operator

The next question is from the line of James Rollyson with Raymond James.

James Rollyson - Raymond James & Associates

Ken, going back to your sequential revenue guidance, when you guys put out September report you kind of had one set of decline numbers. And obviously this morning it’s gotten a little bit worse. Is that decline more related to the sale of equipment that you had and the revenues associated with that, or is it the things and your view have gotten a bit worse from when you put out September report?

Ken Huseman

Well, we have been paying attention to Marcellus predictions for all prices. That registered to some extent but I think that as we exited the quarter, we just didn't see any positive indications that the fourth quarter was going to -- not continue to slow that. Particularly on the drilling related activity, we see the rig count continuing to gradually drop probably on a weekly basis through year end and into the first quarter.

Alan Krenek

But then we did consider that back in our September operating data release as far as the sales of assets in the Rockies.

Ken Huseman

Yeah, that’s been underway for several quarters. So that didn’t surprise, it’s just a –

Alan Krenek

Pure market.

Ken Huseman

Yeah, and the fact that – typically with relatively strong oil prices or commodity prices in one market and the other, customers start supplementing budget, and we’ve not been that this year and with being this close to the end of the year, I think it came pretty obvious that many of our customers are just going to Coast into next year.

James Rollyson - Raymond James & Associates

Any other assets you’ve acquired over the past few years that will be in consideration for sale?

Ken Huseman

No, I think we like what we have. The sale of those – that construction or berth load (ph) equipment actually is gravel pits and related was in the coal bed methane market. And it’s just been pretty weak and has the opportunity to exit in a pretty good market for used equipment. So we put it up for sale.

James Rollyson - Raymond James & Associates

Last one just on well servicing which seems to be one of the bright spots, I guess beyond the normal seasonal factors, let’s say work hours and holidays and what not, it sounds like demands holding up generally pretty strong. Is that what your read is as well and do you think that shift you mentioned towards more maintenance oriented work versus completion work? Is that trend going to continue or what do you think?

Ken Huseman

Yeah historically and we reconfirmed this a couple of weeks ago in our Permian operation, at least two-thirds of our well servicing rigs on any given day are on raw jobs, tubing changes, pump changes, that sort of thing. And that’s been the case since I have been in this business. That’s not going to change. What has changed is the proportion of equipment, rig hours that we derive from gas workovers, has dropped to an unusually low level. And so until gas prices support more of that activity, I think at least two-thirds of our rig hours are going to come in the form of oil well maintenance on existing wells.

The balance is workover and even to a lesser extent completion activity. If we get an improvement in gas price some time down the road, then we will see marked increase in gas related workover activity and we will probably get more balanced production versus capital spend revenue stream.

James Rollyson - Raymond James & Associates

Any sense of what gas price that might be?

Ken Huseman

I think if customers get comfortable that it's going toward $4 instead of the low $3 or toward $3, that will be business. We know there is a lot of pent-up suboptimal production in the Barnett shale and all the other fields, both unconventional and/or legacy gas. For instance, in Farmington, New Mexico, we are working it probably a third of the activity levels that we had over that market in 2008. And the customers told me a year or so ago that at $4 gas they will be back fully engaged. So I think it’s somewhere in that neighbourhood.

Operator

The next question is from the line of Michael Urban with Deutsche Bank.

Michael Urban - Deutsche Bank

Ken, on the pressure pumping side, it sounds like margins are at least going through the bottoming process here. Given the capacity that’s continuing to come into the market, what do you need to see those head back up again? In other words, is getting back to kind of a normalized level of activity at some point next year, as those budgets reset, is that enough or does that kind of hold you steady to see activity level build up or more activity in the gas plays for those margins to get back headed in the right direction?

Ken Huseman

I think the rig count would have to first go the other direction instead of declining. And that will absorb some of the idle capacity. I think most, virtually all of the new builds that have been delivered, some have probably been stacked. And then competitors across the spectrum are high-grading their fleet. So we will see a combination of attrition and increased demand over the next year or so and I will take the pressure off of rate. We don’t envision that occurring before the – certainly after the first quarter.

Michael Urban - Deutsche Bank

And have you stacked or idled or retired any equipment?

Ken Huseman

We replaced some equipment, we’ve not stacked capacity.

Michael Urban - Deutsche Bank

So you’re kind of net neutral in terms of capacity growth right now?

Ken Huseman

That’s correct.

Operator

The next question is from the line of Michael Cerasoli - Goldman Sachs

Michael Cerasoli - Goldman Sachs

In regards to your kind of bearish near term commentary, what gives you confidence that right now is the right time to purchase assets? Talking about in the press release about how you expect to close at least one traction before the end of the year. Is that just part of your acquisitive strategy or should we look at these deals as an underlying conviction in services as we head into 2013?

Ken Huseman

Well we’re in this business and we’re going to continue to look for ways to expand our capabilities and footprint with consideration that we need to make deals that benefit our shareholders. So we are being pretty selective. We certainly – if we were just growing for growth sake, you’d see us announce a lot more deals. The deals that we have under consideration strengthen our position in given markets. For instance on adding a disposal well here and there improves our competitive position. So we would have the opportunity to do a lot more deals if we weren’t so tough on valuation right now.

Michael Cerasoli - Goldman Sachs

Any thoughts on seller motivation or are they being motivated by market conditions or is it something more benign?

Ken Huseman

It just varies. There are deals out there, some are tax driven. We’ve got a couple of sellers trying to get a deal done before the end of the year in anticipation of tax changes. Others are state sales -- state driven issues and there are some that have gotten to a point where they feel like they've done all they can do with what they have, and are looking to team up with a larger group. So it’s pretty much across the spectrum. I think s valuations are always the key and matching their expectations with our willingness to pay is the challenge.

Michael Cerasoli - Goldman Sachs

And then just separately, I think you mentioned that guar prices have come in about 40%, and how much further do you think they can fall? And in connection to that, are you seeing operators picking up type of frac or changing the type of frac that they are kind of executing on?

Ken Huseman

In our market and whether guar prices go down more, I wouldn’t bet on it but they bet it might. But we’re not counting on that.

Operator

The next question is from the line of Blake Hutchinson with Howard Weil.

Blake Hutchinson - Howard Weil

Just in starting with the completion and remedial services, I just wanted to clarify your outlook there. The 40% of the business right now that's a coil, snubbing, rentals, other, is your outlook for that portion of the business stable or is that kind of another leg to the slack in the market that you see in the coming quarter?

Ken Huseman

I think the rental and fishing tool businesses is similar to our well servicing business. A lot the equipment in that sub-segment is related to workover rig activity or well servicing rig activity. So we will see some seasonal fluctuation there. Certainly the portion that's a drilling related could come down and that tempered our outlook for that overall segment. Coil tubing is competitive, it’s becoming more competitive. I have said in the past, I thought there was a lag down on pricing in that sub segment but that’s rolled into these overall numbers that we provided.

Blake Hutchinson - Howard Weil

Just around the kind of hedges of the model, you broke out Taylor for us but at some point I know they have been doing some business in California and internationally. Any concern that at some point you kind of hit a wall on Taylor as service companies themselves are reining in budgets as well?

Ken Huseman

No, I think that, that’s a fairly small part of our business. We have a great team in that business and a great product that seems to be gaining in demand. So early indications are that they’re going to have good 2013. And that’s on a replacement market, as we’re selling expansion rig.

Blake Hutchinson - Howard Weil

Just looking at the fluid services business and some of the dynamics you gave during the quarter, I guess given that the extreme move in the business even adjusting for the sale of the assets in the Rockies, it would appear that maybe fourth quarter would even be down a bit more than your guidance. Has the business actually maybe firmed up a bit in terms of your utilization of frac tanks and pricing in your opinion that kind of limits the sequential damage here to some extent, and so your exit rate from 3Q is kind of maintained for 4Q?

Ken Huseman

Well, there is a lot of moving parts in that business. For instance, because of the cold weather we will do more frac water heating in the fourth quarter than we did in the third quarter. And so that offset some further deterioration in the rental rates for tanks and utilization. So we are not saying that we’ve seen the bottom necessarily on frac tank rentals. We think we can keep our tanks fairly busy but it will take confession in pricing. But that will be offset by some other sub-segment parts of that segment that become busier this time of the year.

Blake Hutchinson - Howard Weil

So something is moving in the right direction. And then just finally just qualitatively, I know you mentioned the strength of the P&A business holding up well service pricing. Is that more a function of the acquisition, the recent acquisition or did you have a campaign during the quarter or how does that – does that continue to kind of contribute to the business model and mix?

Ken Huseman

Well, those services – or those hours are off P&A job type just bring in more revenue because it encompasses a broader array of services and equipment than a well servicing job, which is just rig and four people in a lot of cases. A P&A job is more into a larger workover spread and even bigger with – when the wireline truck, I have seen many truck and all that wrapped into the package. So that growth over the last year has certainly boosted the average rate per hour. But we didn’t do a campaign, we were just maintaining the workflow and it became a bigger part of our composite rate.

Operator

The next question is from the line of Doug Garber with Dahlman Rose.

Doug Garber - Dahlman Rose

Wanted to ask you about – I guess there is some increased cash after the offering on your balance sheet, and you are thinking about the share repurchase program, specifically if there is a threshold, where you guys think it’s a good price, or you just think you want to kind of take off some equity in this general range with prices being where they are?

Ken Huseman

Well, I think the average share price or average price we pay for those shares we purchased earlier in the year was 957 or something like that. So I would suggest that might give some indication where we thought the lag is. We are days price in the market.

Doug Garber - Dahlman Rose

And also on your Appalachia comments, can you quantify perhaps how much activity has increased quarterly in terms of rig hours in that specific region or is that something I should follow up with after?

Ken Huseman

I think we’re not going to provide regional breakout. That just adds more confusion to the model building but we’re fairly busy up there with the fleet we have. We are not expanding it, so we are (inaudible) probably change the impact that we’d get from the changes in that market, would be minimum.

Doug Garber - Dahlman Rose

You indicated the first quarter revenue, I know it’s long-term in this business, could be up a few percent. If that continues throughout the year when do you think you get pricing back in most of your markets if you kind of have sequential low single digit revenue increases and activity increases throughout the year in ‘13?

Ken Huseman

I think for most of our segments we’re going to need a drilling rig count that gets back to where we were earlier this year and then overall for balanced market between oil and gas.

Operator

The next question is from the line of Neal Dingmann with SunTrust.

Neal Dingmann - SunTrust Robinson Humphrey

Just on the question on the pressure pumping, was wondering, sort of two questions around that. One, would you consider I guess now with all the pressures there and the hit in the utilization, stacking some of your equipment? And then number two, I know some of the big guys like (inaudible) were talking about potentially laying down some of theirs. When do you see us a burning through most of the capacity and I would say most particular for you all in the Permian region?

Ken Huseman

Well, our Permian assets have a pretty full calendar. We've seen few missed job but generally pretty steady work program with those customers we have aligned ourselves with. So we think that we will see pretty good utilization, pricing is competitive obviously. As to when the industry is going to reabsorb or absorb the capacity, it’s well into next year I suspect, and that will come from a combination of attrition and the rig count—drilling rig count increase over the course of the year.

Neal Dingmann - SunTrust Robinson Humphrey

And then moving over the well servicing, just wondering kind of I guess with what you’re seeing out there with workover rigs, are you still – I think you will have just a few I guess – would you still think about bringing some of your – I guess you have a few rigs out there that you could bring back in, bringing those back in, just wondering what you are seeing just in that market right now in general as far as supply coming?

Ken Huseman

We have about three dozen rigs that are still in the cold stack status. We’ve earlier this year – in last quarter gave up on trying to put those out in the field and it’s just the current environment. We will resume that activity as we – as the new year unfolds and we see if there develops a sense of urgency regarding workover and of course drilling rig count increasing we will absorb a few more well servicing rigs for completion. But it will really be driven by the level of workover related spending that see whether in the oil markets that they have.

Neal Dingmann - SunTrust Robinson Humphrey

It seems like on the fluid services particularly in the lower margin area like trucking continues to get hit with you all, and everyone else, with just the new equipment continuing to come. Would you think about I guess just continuing to -- if you look at acquisitions and such, are you still considering I guess, Ken, in that fluid business just as far as some of the wells inside or is it just at this point basically nothing you would want to add in the fluid side of the services?

Ken Huseman

Well for the right price, we’d definitely be interested in picking up some truck assets, if they are fairly new, and we could then avoid replacing some of our own. We could consolidate operations in a given area, but driver in that business would certainly be a good quality well located disposal wells.

Operator

The next question is from the line of Jason Wangler with Wunderlich Securities.

Jason Wangler - Wunderlich Securities

Just a quick question on as far as labor are you seeing the slowdown of the increases there? I know earlier this year there was some competition there but kind of what we are seeing in the market, is that kind of flattening out and maybe it’s getting a lot easier?

Ken Huseman

Yeah across-the-board type pay increases have pretty much subsided. We still have targeted poaching of our more experienced people and we are proactively avoiding losing those sorts of people. But the labor inflation has moderated quite a bit.

Operator

The next question is from the line of Daniel Burke with Johnson Rice & Company.

Daniel Burke - Johnson Rice & Company

Appreciate the long term forecast on Q1 ’13. I just wanted to clarify, you all alluded to closing a Q4 transaction here. Was wondering if that was implicit in that Q1 ‘13 indication on revenue?

Ken Huseman

No, it’s not everything, we’ve done it on a same-store basis so to speak. Those acquisitions – even regardless of how close we think they are that’s just almost impossible to predict the closing date. So we never put those in prospectively.

Daniel Burke - Johnson Rice & Company

And then if you dole one another one, maybe Ken on that, that long term Q1 ’13 forecast, just directionally segment by segment, would all segments potentially see revenue top-line marginally (ph) higher Q1 ‘13 or do you see fluid continuing to drift a little lower offset by the other? Just trying to dole model here a little bit.

Ken Huseman

I think they would all benefit as we get past -- each of our segments have some sort of interruption from holiday period and we’d see each one benefit to some extent. Drilling probably the least and well servicing probably the most. And everybody else – the others in the middle.

Daniel Burke - Johnson Rice & Company

Not a big difference between the two numbers but CapEx for this years is $175 million to $200 million was kind of the prior guidance. Now you all are trending towards $200 million. Is that timing or can you think about how you – can you talk about how you end up towards the high end of that range?

Ken Huseman

Well, I think I have mentioned earlier in this call that we kind of have a base number right now, say $185 million. That certainly doesn’t address all of the opportunities our field people believe are in front of us. But given the current outlook we’ve reined in that spending to that level.

Daniel Burke - Johnson Rice & Company

That’s $185 million for 2013, correct?

Ken Huseman

That’s correct.

Daniel Burke - Johnson Rice & Company

Okay.

Ken Huseman

Or are you asking about 2013?

Daniel Burke - Johnson Rice & Company

That’s right.

Ken Huseman

Okay. That’s kind of where it looks like it will shake out right.

Operator

The next question is from the line of John Keller with Stephens Inc.

John Keller - Stephens Inc.

All my questions have been answered. Thank you.

Operator

The next question is from the line of Travis Bartlett with Simmons & Company.

Travis Bartlett - Simmons & Company

One is a follow up on one of the earlier questions on the Q4 guidance reduction. If you compare your current guidance versus your prior expectations, is there any way where that any incremental revenue decline is still good or was that pretty evenly excluded at this point?

Ken Huseman

I think probably more focus in fluid services and well servicing. I think people are going to take time off over the year end and that will reduce activity in our well servicing business.

Travis Bartlett - Simmons & Company

And just to follow up on that on the well servicing side, looks like you guys had some mix issues in the quarter that I guess some of the P&M work that helped out rig rates and margins during the quarter. Wanted to see if you guys could discuss the pricing trends in terms of your key markets like the Permian where you have pretty good portion of your fleet located and what’s the outlook into maybe next year?

Ken Huseman

I think that pricing is going to be pretty stable. What we’re seeing is just fewer add-ons. The base price is probably pretty stable but maybe a little bit fewer add-ons and the ability to recoup all the associated charges that we typically get to put on when business is pretty strong. So that didn’t affect the price decrease. I think on a sequential basis, pricing in that region was essential flat. That may be different than what you are hearing but that was the case in our business.

Travis Bartlett - Simmons & Company

And on the Taylor operation, what are the third party orders looked like at this point and how are they shaping up for 2013? Or is it still too early to tell?

Ken Huseman

No, I think our guys would state that they believe they will have a pretty full order book going into next year or in the early part of next year.

Operator

The next question is from the line of Jim Spicer with Wells Fargo.

Jim Spicer - Wells Fargo & Company

I am hoping you could maybe comment specifically on the Bakken, how you see the competitive environment up there evolving and your outlook there for 2013 in comparison to some of your other regions?

Ken Huseman

Well, I think the rig count is probably going to be flat for the next several quarters. What if services in that market is becoming more competitive I think as we go, because the growth in rig count has flattened if not declined and there is plenty of services chasing the available work. So it’s going probably busy, a good market but it’s going to be competitive, still a high cost area, still we’re having to import the people -- the industry has to import people. So it’s probably going to return to normal a little bit compared to where it was last couple of year.

Operator

The next question is from the line of Nigel Browne with Macquarie.

Nigel Browne - Macquarie Securities

Just wanted to clarify a couple of things, particularly starting with the 2013 CapEx, you guys guided to that 185 type number. You said of that 50 is expansions. So is that implying that 130 or so is maintenance CapEx? Is that your base level for maintenance or is there some flex in that as well to bring that lower?

Ken Huseman

There’s flex in that. We could bring it lower if we don’t hit our targets on activity. It can certainly be higher if we see activity really take off because we’d want to accelerate some replacement on trucks.

Nigel Browne - Macquarie Securities

So is there any thoughts or color that you could give on what is your view on sort of your baseline maintenance level?

Alan Krenek

That’s somewhere between $110 million to $120 million based on the current fleet.

Nigel Browne - Macquarie Securities

And then second, could you, if you don’t mind just refreshing us on your view of the share repurchase program, how much do you have left and any sort of indication if you have a view right now on whether you would actually go back to board increase that remaining allocation?

Alan Krenek

Nigel, we have $24 million left under our authorized plan, repurchase plan. As Ken said a little earlier the average price was under $10for the 1.2 million shares that we bought in the second and third quarters. As far as if our view changes, at the present time we’re not in the market with changes in the environment. We possibly could go back to the board and change your strategy. But at this time I think it's pretty much not in the market.

Nigel Browne - Macquarie Securities

And generally is the share repurchase decision, is it on a ad-hoc basis or is it periodically quarterly or annually, how do you guys usually look at that?

Ken Huseman

Well, we have a pretty regular decisions with the board regarding the timing and the price that we’d pursue those purchases. So it’s, I’d say, opportunistic based on share price.

Operator

The next question is from the line of Trey Cowan with Clarkson Capital Markets.

Trey Cowan - Clarkson Capital Markets

Looking like I am going to sneak one in under the wire. Looking at frac tank pricing, I believe you guys said that sequentially the pricing had dropped previously about 25% to 30%. Has that pricing stabilized?

Ken Huseman

It’s not dropping near that, to that extent but it’s still drifting down, I think.

Trey Cowan - Clarkson Capital Markets

So maybe my math was wrong. Didn’t you guys say that it was around $50 previously and are you seeing it around the $40 range?

Ken Huseman

$35 or so, yes.

Trey Cowan - Clarkson Capital Markets

So in the fourth quarter, you could see some trending down from that $35 to $40 range, is what you are seeing?

Ken Huseman

Yeah, that’s why we are projecting a further deterioration in the fluid services. It will come in the form of that, that rental and then just lower volumes, there are disposal wells and those sort of things, offset by as I said earlier some frac heating and other sub-segment.

Trey Cowan - Clarkson Capital Markets

And then on a totally different subject if I can. If you're looking at just kind of throw out a ballpark number that most of the publicly traded well searching firms are trading around call it four to five times EBITDA for next year. When you're looking at these private companies or assets to acquire, what's the valuation look like there, is it three times EBITDA or how do you guys gauge that?

Ken Huseman

Well, it’s really a more of business type driven. Some businesses trade at lower multiples than others. So we have to recognize that. Obviously we try to bring in businesses that help our overall profile and performance. But there is no one-size-fits-all for sure.

Trey Cowan - Clarkson Capital Markets

I understand. Is there any one business line right now that’s looking particularly distressed though as far as pricing, as far as attractive?

Ken Huseman

No.

Trey Cowan - Clarkson Capital Markets

All right. Thanks a lot guys.

Ken Huseman

But I am not going to tell you.

Operator

The next question is from the line of Matt Beeby with Williams Financial.

Matt Beeby - Williams Financial Group

I have just one real quick and really from me on the fluid side. Can you talk about – Alan, can you talk about the net additions to the truck through the end of this year and maybe your initial expectations as we -- early goings into 2013?

Alan Krenek

Yeah, we will have very few additions between now and the end of the year, probably counting them on one hand, but for next year we're still not through our review cycle on our CapEx. I would say at this point we are probably – we normally have 40 to 50 a year that it probably won't be that many unless things change.

Matt Beeby - Williams Financial Group

Okay. They will have at the disposal well side, I know it’s a longer term planning cycle for that. Can you talk about that for maybe next year as well?

Ken Huseman

Yeah, we are shooting to add about 10 whether we get it done or not. It will be either side of that aspect.

Operator

Thank you. That is all the time we have for questions. I will turn it back over to management for any closing comments.

Ken Huseman

Okay. Well, thanks everyone for joining the call and thank you operator. And we look forward to discussing our fourth quarter results.

Operator

Ladies and gentlemen, this does conclude the conference call. If you'd like to listen to a replay of today's conference, please dial 1 (800) 406-7325 or (303) 590-3030, and entering access code of 4567357. Thank you for your participation. You may now disconnect.

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