Pioneer Energy Services' (PES) CEO Stacy Locke on Q1 2019 Results - Earnings Call Transcript

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About: Pioneer Energy Services Corp. (PES)
by: SA Transcripts
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Earning Call Audio

Pioneer Energy Services (NYSE:PDM) Q1 2019 Earnings Conference Call May 2, 2019 11:00 AM ET

Company Participants

Anne Pearson – Investor Relations-Dennard Lascar

Stacy Locke – Chief Executive Officer

Lorne Phillips – Chief Financial Officer

Brian Tucker – Chief Operating Officer

Carlos Peña – Chief Strategy Officer

Conference Call Participants

John Daniel – Simmons Energy

Mike Urban – Seaport Global

Steve Gengaro – Stifel

Tom Curran – FBR

Brad Handler – Jefferies

Sam McAllister – Raymond James

Operator

Welcome to the Pioneer Energy Services’ First Quarter Earnings Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Anne Pearson of Dennard Lascar Investor Relations. Thank you. Please go ahead.

Anne Pearson

Thank you, Brenda and good morning, everyone. Before I turn the call over to Pioneer’s CEO, Stacy Locke; and CFO, Lorne Phillips, for their formal introductory remarks, I have a few of the usual items to cover. First, a replay of today’s call will be available by webcast and also by telephone replay. You can find that information for both in this morning’s news release. Just as a reminder, information reported on this call speaks only as of today, May 2, 2019, so any time sensitive information may not be accurate at the time of a replay.

Management may make forward-looking statements that are based on beliefs, assumptions and information currently available to them. While they believe these expectations are reasonable, they can give no assurances they’ll prove to be correct. They’re subject to certain risks and uncertainties and assumptions described in today’s news release and also in recent public filings with the SEC. So if one or more of these risks materialize or should any underlying assumptions prove to be incorrect, the actual results may differ materially.

Also note that this conference call may contain references to non-GAAP measures. You’ll find a reconciliation to the nearest GAAP measures in this morning’s news release.

Now, I’d like to turn the call over to Stacy Locke, Pioneer President and CEO. Stacy?

Stacy Locke

Thank you, Anne, and good morning. Appreciate you all joining us on this call today. Here in San Antonio with me is Carlos Peña, our Chief Strategy Officer; Brian Tucker, our Chief Operating Officer; and of course Lorne Phillips, our Chief Financial Officer.

We had a good start to the 2019 year, both revenue and EBITDA was a little ahead of our expectations despite some very challenging weather in particular up in the Rockies this winter. Our drilling operations overall continue to be very strong and stable. U.S. drilling average margins per day improved to 10,944 up from 10,252 in the December quarter. These are some of the highest margins in the industry as they have been for the past year or longer. And the rigs continued to be fully utilized in the quarter. Rig 85, our newest built rig has now moved into the Permian and began daywork operations on March 19. It started a 3-year contract and we’ll be operating there in the Permian.

While the rig count has trended slightly lower, we have been able to renew contracts and/or find work for rigs that have been released. Day rates remain roughly flat to down, 1,000 to 2,000 a day, depending on the circumstances and depending on the markets they are located in. In Colombia, our seven rigs out of eight have remained busy and the market conditions continue to be very favorable there. Average margins per day were 88, 94 [ph], that was down from the prior quarter. However, the December quarter had a couple of one-time benefits that helped the margin in the fourth quarter. Day rates and activity levels look stable for the remainder of 2019 in Colombia.

Turning now to the production services side of the business, revenue was up 6% quarter-over-quarter and all three businesses contributed to that growth. But coiled tubing had the greatest impact with revenue increase of – in excess of 15%. There, again, despite adverse weather conditions in particular in the Rockies, that affected all three of our businesses there.

Wireline made – which is the largest segment of our production services businesses – wireline made modest improvement in the quarter as compared to the fourth quarter and each month during the quarter was better than the prior month. We expect improvements in wireline in the second and third and fourth quarters of the year. However, our largest component of work is related to completions, which is perforating and setting plugs and that business is trending lower. Non-completion work has actually been pretty steady. Wireline tends to be volatile due to the work being so customer-specific and it varies by market and it just makes it very difficult to predict as compared to well servicing and coiled tubing services and drilling, of course.

Well servicing has been steadily improving at a modest pace that’s kind of continued the trend from last year. Utilization has picked up a little bit to 54% in the first quarter from 50% in the prior quarter. And average hourly rate was down slightly to which is not due to pricing, it’s due more to rigs on the increase in areas where pricing is a little lower. But we have not lowered any pricing. Pricing tends to – seems to be firm. Both utilization and number of 24-hour jobs has been on the increase and our outlook is very positive for that business. We are doing more drill outs and we are utilizing the limited amount of equipment that we purchased, the pumps and swivels that are assisting us with the drill outs.

Coiled tubing, now that we’ve got the right equipment in the two markets that we serve, is on the move. We saw quite a bit of progress in the first quarter. We do anticipate that the second quarter will be a little softer, mostly related to the winter thaw and the continuation of the bird nesting stipulations there in the Rockies. But we do see – we – but we still saw improvement in this quarter. As we work at – second quarter as I say, will be slightly down but we’ll come to the end of the bird nesting period and the spring thaw will be over and we’re optimistic for the end of the second quarter and in particular, the third and fourth quarters of the year.

With that, I’ll turn it over to Lorne.

Lorne Phillips

Thanks, Stacy. Good morning, everyone. This morning, we reported revenues of $146.6 million and adjusted EBITDA of $19.9 million that compares to the previous quarter revenue of $141.5 million and adjusted EBITDA of $20.8 million. Reported net loss was $15.1 million or $0.19 per share, and our adjusted net loss was $10.5 million or $0.13 per share.

Adjusted EBITDA was down slightly quarter-over-quarter and was primarily impacted by – I’ll group them into three items. We experienced higher revenues and margins from our coiled tubing and U.S. drilling businesses as Stacy described as well as we saw an increased benefit from net gains on sale of assets of approximately $0.9 million. Those two items were offset by a $3.6 million negative impact relative to the prior quarter, related to the change in the fair value of our Phantom stock awards. We recognized a $2.8 million benefit in the prior quarter compared to a $0.8 million expense in the first quarter of 2019.

Stacy covered the high level results of the segments. I’m going to go to the rig roll off schedule. We currently have 16 of our 17 AC rigs in the U.S. and seven of our eight rigs in Colombia earning revenues. Of the 16 rigs that are earning revenues in the U.S., 13 of those are under term contracts. Our current contract roll-off is as follows: three in the third quarter of 2019; seven in the fourth quarter of 2019; one in the first quarter of 2020; one in the fourth quarter of 2020; and one in the first quarter of 2022.

Turning now to our company-wide expense items, G&A expense was $19.8 million. For Q2, we expect G&A expense to be approximately $20 million to $21 million, with respect to future fair value ranges for phantom stock is based on a March 31 stock price of $1.77. With respect to phantom stock expense, an increase or decrease of $1 in the stock price from the March 31 price is expected to result in a change of approximately $0.6 million.

Depreciation and amortization was $22.7 million in the first quarter and is expected to be up a little in the second quarter to around $23 million. Interest expense was $9.9 million and is expected to be approximately $10 million in the second quarter. Excluding the valuation allowance, the effect of foreign currency translation, state taxes and other permanent differences, our tax rate in the third quarter would have been in the 21% to 23% range. We had $9.7 million in committed letters of credit and $58.7 million available under our $75 million asset-based lending facility at the end of the quarter. The facility remains undrawn.

At the end of the quarter, our reported cash balance was $27.9 million, which includes $1 million of restricted cash. The first quarter did include our semiannual bond payment as well as certain annual incentive compensation payments. We also experienced a slower collection cycle in the first quarter so we do expect that to improve as we move forward through 2019, which should allow us to grow our cash balance.

To put a little more detail around it, the slower collection cycle, if you look at our receivables and inventory, less the change in accounts payable, it’s about a net $14 million increase in working capital for those items. And that is really a combination of probably three areas. One is we had a little more top line growth than we anticipated, which is obviously a positive thing. The other two and the majority of it, related to some in Colombia and some in the U.S., just a longer collection cycle. And we feel in Q2 that we will certainly make progress in Colombia in terms of reducing the working capital there. April, we are off to a good start and we expect to continue that. And in the U.S., we’ll continue to work on that as well. So over time, we think that working capital investment will be worked down through the year.

Cash capital expenditures in the first quarter were $16.8 million. We estimate 2019 capital expenditures to be approximately $55 million to $60 million, which includes approximately $7 million for the final payments on the construction of the new-build drilling rig that began operations in the first quarter. Also includes previous commitments on high-pressure pump packages for coiled tubing completion operations. Of the $7 million, for the rigs and the pump packages, we spent approximately $4 million in the first quarter. And the remainder of that $7 million should go out the door here in the second quarter.

With that, I’ll turn it back over to Stacy for final comments.

Stacy Locke

Thank you, Lorne. As we kind of look forward from here, I think it’s pretty clear that the improved oil prices, while they tend to still be a little volatile as we’re seeing today, it is constructive. And so we think that the higher oil prices will lead to higher cash flows with E&P companies and that could lead to some increased spending. We don’t anticipate a lot. We don’t anticipate increased spending to the point where we’ll have pricing power but we do think the activity levels will be good. And so we’re pretty optimistic on that front.

I think the challenge for us as I mentioned previously, is really around guiding for our wireline services. I think we have a pretty clear trend line on Colombia drilling operations, U.S. drilling operations, our coiled tubing operations and our well servicing businesses. And the wildcard is wireline. It just – it ebbs and flows and ups and downs and it’s hard to predict. So we feel the prudent thing3 is to kind of temper our guidance because of that uncertainty. So when you look at the production services segment, we are guiding a modest improvement of 1% to 4% in revenue growth and perhaps a modest improvement in margin as a percent of revenue to the range of 19% to 22%.

In U.S. drilling, we’re predicting utilization of 93% to 95% and average margins of $9,700 to $10,200. Now those margins are a little bit down from the current quarter. And that’s in part due to we have one rig that is down, waiting to start a two-year term contract. And what we anticipate will have a little bit higher supply – SR&M in the second quarter as we do all our inspections like we did last year at this time, coming out of winter. And then of course, our boiler revenues come off in the second quarter. So that’s why we guide a little bit lower.

The UTL is also little bit lower and that’s in part due to the accounting change that when compared to, say, last year when you move from – you made a move to any client, you counted every day as a utilized mobilization day. Under the new accounting rules when you’re moving to a different client, it’s not a revenue day. And so that’s affected our UTL a little bit but that’s just following the current accounting rules, so we have to just adjust to that. And because we have had several rigs, some in Appalachia, one in South Texas that are moving to different operators, that’s had an impact on the UTL number. In Colombia, regarding utilization, 83% to 86%. And their average margins of 85 to 95 [ph] a day.

So with that, I think we’ll conclude the prepared remarks and be happy to entertain any questions should you have them. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from the line of John Daniel with Simmons Energy.

John Daniel

Hey, thank you for putting me in.

Stacy Locke

You bet.

John Daniel

Stacy, just within production services, safe to assume Q2 and even Q3, rig hours, utilization for coil and work over rigs, up slightly Q2 and probably Q3, and of course, seasonal slowdowns. And then is that a fair assumption?

Stacy Locke

I think for well servicing, it’s pretty clear trend that we’ll continue what we saw in the first quarter of increased UTL and for that, looks good – I think that’s helped by the 24-hour work. In coil, you know I think we had a real good first quarter so we’re actually guiding that a little lower in the second quarter and part of that is due to the – we have just two districts, Cedarbrook, which has slowed down a little bit but more importantly, in the Rockies, we have the thaw and we have the bird nesting stipulations that are still in effect. And that will pretty much affect us through the month of May. And then – and it affected us in April. So then in June, we’ll start seeing great improvement there in the Rockies. And so that really sets you up for coiled for the more the third and fourth quarter of the year, whereas well services, we think it’s just a steady progression. Do you have anything to add to that, Brian?

John Daniel

And then within – the state of the wireline business and then I’ll let others jump in. What percent of your wireline units when you’re doing the completion work used the preloaded perk dome. And do you see that as an opportunity to transition to? Just walk me through how you’re approaching that.

Stacy Locke

Right. Well it’s – there’s a lot of excitement around that area. We’re certainly knowledgeable about it. I would say that we don’t use too much of it presently. We are aligned with vendors that are offering alternatives that have so far, been favorable to us. But we like the trends that we’re seeing. We think this going to be benefits coming long-term to the wireline services. And we certainly, when it make sense for us, we will certainly utilize it. And I got the couple of guys here that are a little more experts on that. Do you want to add to it? Carlos or Brian?

Brian Tucker

Well we do have a couple of districts where we use systems like that. And we’re certainly interested in expanding as we see fit.

John Daniel

Okay. But is that demand driven by the customers? Or driven by your…

Brian Tucker

It’s partly driven by the customers. Yes.

John Daniel

Okay. I’ll turn it over to other guys. Thank you.

Stacy Locke

You bet.

Operator

Our next question is from the line of Mike Urban with Seaport Global.

Mike Urban

Hey, good morning guys. So, as you look at your customer base and as you talk to them about the plan going forward, are you seeing any deviation out there, either by type of customer, public versus private? Regionally, or if you want to break it out, drilling versus completion production service in terms of the behavior going forward? So obviously, there’s this kind of dichotomy out there where the publics are under a lot of pressure to maintain capital discipline but you had a, as you discussed, a rising commodity price environment and therefore, a better cash flow profile which affects different parts of the customer base differently. Can you give us a little color on what the customers might be doing? And how that might vary by customer type or region or service?

Lorne Phillips

Yes. I can give you a little color on that. I mean certainly, it depends. It’s a little different across every base and on every client but so far, we are kind of seeing even its rising commodity price with completion and on the rigs side, being consistent with that and being disciplined, I think a lot of them are going through with the rig reductions that they had planned when we kind of had it last call. So as we see specifically, Appalachia is one area that we’ve seen some rig reductions and that’s an area we’ve worked hard to place rigs with other operators. But I think what we’re seeing as well is conversations with that same group that they will be looking for rigs here, the first quarter of 2020. You know one thing that I think is positive on that for us is the well service side, it’s been a consistent steady increase, we’re seeing some activity increases in our historically strong districts. And we are very pleased with that. So we hope that’s a trend that continues.

Mike Urban

Got you. And I wanted to follow up on one comment you made there about plans for next year recognizing it’s probably way too early in most cases, but is it your sense that the customer base as a whole – or if it’s region specific – planning to ramp up? I think – I’m not sure you’ve had this kind of many drilling holidays if you will this year but I don’t get the sense that, that’s sustainable longer-term. Are your customers thinking that far out or too early at this point?

Lorne Phillips

I think the answer is yes. That’s the feedback we’re getting, particularly when you’ve got really strong performing operations whether that’s in drilling or coil or wireline. If you’re having to let these units go, most of them are being – are with the comments around, we sure hope we can get you back, first of the year. So we’ve been successful in the rigs that we’ve had, get released, placing them with new clients. We hope that the one we do have currently stacked goes back to work third quarter, but even the ones that have had to drop the rigs are very interested in getting those operations back first quarter of 2020.

Stacy Locke

And I think you’ve seen a little bifurcation between the medium public guys versus some of the private oriented businesses. All those businesses used to grow fairly robustly and were rewarded for it. The public guys have kind of been encouraged to limit growth and buy stock back and reduce debt and increase dividends, but the private guys seem to be having a little bit of a different criteria. And they seem to be itching to grow a little bit and they seem to be hearing that they’ll be rewarded for that growth, the smaller private guys and public guys. And so with increased oil prices, cash flows for everybody are going up.

So I think, as I mentioned in my prepared remarks, activity levels will probably increase to some degree and maybe a little weighted on the smaller public and private companies. And we’ve certainly seen it a little bit in the well servicing side, a little more well servicing activity, which is encouraging. Just last year, there was less of that and the year before that. And so we’re seeing people want to reestablish production with a little bit higher pricing.

So I think the wildcard is whether the activity levels will be sufficient to allow a little pricing improvement. And it could be that it does but it’s just too soon to say in it that will probably be market specific, at least initially. Because certain markets might get a little more heated up and allow for some pricing opportunities. We’re not forecasting that. We are forecasting a little bit higher activity but not really the pricing.

Mike Urban

Okay. That’s really helpful. Thank you.

Stacy Locke

You bet.

Operator

Our next questions are from the line of Steve Gengaro with Stifel.

Steve Gengaro

Thank you and good morning gentlemen.

Stacy Locke

Good morning.

Steve Gengaro

Two things if you don’t mind, one, following up, I think it was on John’s question so I figured I’d follow up on it. The preloaded perf guns in your business. If it’s being pulled by the customers, will you benefit from any cost savings there? Or does it accrue to the E&P’s benefit? How do you think about that?

Stacy Locke

Well I think there is a variety of different strategies coming from the vendors on that front. About half of them are working through the existing wireline companies and offering alternatives that will be very competitive against those that are offering the products directly to the operator. And I think when they’re offered directly to the operator, at least presently, that benefit accrues primarily to the operator in a lower cost and to the provider of the prepackaged guns. So we would get potentially squeezed in that a little bit in terms of margin, although that’s still a little – you have to be determined. But there are a number of other vendors that are making very similar and competitive products that are working directly through the wireline company. So this is a rapidly evolving marketplace. I think it’s all a positive, probably, a net positive for the wireline industry and the E&P space. But there’s just a lot of competition and there is new competition here in that space, pretty – on a pretty regular basis. Carlos, you want to add a little?

Carlos Peña

I would just say that I think that the wireline companies do have opportunities to benefit because systems like this will make our operations more reliable, more efficient. And I think that as more of these systems come out, there will be price competition so the cost of the systems will go down. But as we implement these systems throughout more sectors of our business, we will be able to restructure the way we do business somewhat to achieve some efficiencies and cost savings. So I think there’s definitely opportunities for wireline companies.

Steve Gengaro

Great that’s helpful color. And then thinking about – and we appreciate the detail on the contract roll-offs on the domestic rigs. As you think about those assets, you think about the market. I know it’s crystal ball’s top specialty, several quarters out, much less a month these days. But when you look out towards the end of the year – and I know you mentioned earlier on the call sort of flat, a couple thousand dollars, maybe a price deterioration – how do you think that evolves as you go through the year and into next year based on kind of what you’re seeing from a supply/demand perspective?

Stacy Locke

I would say that the pricing would tend to be more flattish than going lower. I think early on, when the oil price dropped to $45, the operators had more instant leverage there. Now that it’s strengthened, there’s still quite a bit of demand. All of our rigs are in the very high spec top quartile of the AC market. And that’s why we generate the average margins that we generate, which are the top of the pack. And so the rigs are very highly performing rigs and they’re going to be in demand and I think as pricing – commodity pricing is firmed up, I think this – the day rates will firm as well. Brian, do you want to add?

Brian Tucker

I completely agree. I think as Lorne mentioned, our roll-off really is more of a third quarter and fourth quarter event. And particularly, the fourth quarter is kind of late in the quarter. So I think what we’re seeing and most of our clients have either made the rig reductions or will be making those rig reductions in the second quarter. And I think when ours come out to reprice, we’ll be in a continued, pretty tight market there at the high-end rigs. And some of the ones obviously being dropped are the less performing rigs. There’s certainly some high grading going on but I think by the time we reprice here, third and fourth quarter, I think flattish is a good way to look at it, maybe even a little slightly up in some cases.

Stacy Locke

Yes. I think initially when the oil price dropped, there was kind of a knee-jerk reaction and operators started cutting rigs via the first available rig cut – got cut, whether it was a top-performing rig or not. And now, it’s settled out a little bit and so I think it’s going to be more stable really, going forward.

Steve Gengaro

Very good, thank you for the answers. That’s helpful.

Stacy Locke

Yes. You bet.

Operator

Our next question is from the line of Tom Curran with FBR.

Tom Curran

Good morning.

Stacy Locke

Good morning.

Tom Curran

For the Welsh servicing replete, would you tell us how average hourly revenue has progressed month-by-month sequentially both in 1Q and then for 2Q to date? And are there any basins or types of work where pricing has proven – has outperformed or has proven to be significantly resilient?

Lorne Phillips

Yes. We don’t go into monthly rate increases but certainly, we track that quarterly. And there’s been some solid improvement going back over the last year, particularly fourth quarter was a great hourly rate for us. We also were solid in the first quarter as well. So I think that’s how we look at this. There’s a lot of factors involved in that. One of them obviously, we typically have higher pricing up in the northern areas, particularly in the North Dakota area, labor’s a part of that so you’ll see a high hourly rate. So that factors into it as well and so that was impacted a little bit in the first quarter. But overall, it’s a very consistent business. It’s been consistent, our utilization is driving up a little bit. But we – one of the things that we like about that business is the consistency of it, although we are seeing modest improvements on the pricing side, the utilization is coming up. We think there’s opportunity to continue to make some progress on the pricing side, particularly around the packages that Stacy mentioned on the completion side, with some drill out work that we’re having some success here in the second quarter. And we think that’s a positive trend for us going forward.

Stacy Locke

But the hourly rate fluctuations aren’t due to price reductions. The pricing is very firm. It’s just certain markets are a little lower than other markets and we are having success adding equipment to some of those markets. There’s demand there and so that’s really, it’s more the mix, geographic mix of assets than it is pricing. I think pricing is firm and probably trends upward as opposed to lower.

Tom Curran

Okay. That’s helpful and that’s exactly what I was trying to get at within that weighted average mix. So you confirmed what I suspected. Turning to potential asset dispositions, how has your exploration of a potential monetization of the Colombia operation progressed in terms of expressions of interest? Conversations? And whether in how any recent transactions have affected your thinking on that?

Stacy Locke

Well, what I’d say, generally, is that cash buyers of any businesses are pretty few and far out there. Everyone’s stocks are down. Most people are dealing with debt issues and would rather allocate their cash to debt reduction. And so there are just very limited cash buyers I would say broadly across the oil service space. And I just think that’s going to persist for a while until leverage has come down. But – and you know, as you saw from this quarter, our Columbian operations are doing extremely well. We’re hitting levels that we really have not experienced except for back in the 2014 timeframe so we’re very excited about that future opportunities there as well. But we do have some little, smaller asset packages that we continue to market. We do think with the increase in oil prices that we will – that maybe improves the probability of monetizing some of those smaller packages.

Tom Curran

And just to clarify, would those smaller asset packages be within the production services division?

Stacy Locke

Yes. And drilling.

Lorne Phillips

And drilling, both…

Tom Curran

Okay. Thank you. I’ll turn it back.

Stacy Locke

You bet.

Operator

Our next question comes from the line of Brad Handler with Jefferies.

Brad Handler

Hey, guys. Thanks.

Stacy Locke

Good morning.

Brad Handler

I feel a little apologetic as I ask this because I think you’ve laid out what you think will happen in each of the businesses and I have that down but I’m not sure I can – I’m not sure I kind of get some of the broader pieces and so I’m going to come back around. So forgive me. If you strip out – I guess what I’m trying to get at is your prognosis looks at, okay, we’ve got some additional equipment relative to where we were and so that gives us some tools to make some progress. And then you have seasonal issues that you’ve been clear about. But if you try to strip out those things, is it your general sense that your customer base is trying to invest more in production-oriented work than they did before? Are they – are you trying to say that they are turning attention to it in a way that they weren’t in the past and that may be part of their disciplined attitude?

Stacy Locke

It appears to us that they are. I mean we’re seeing a steady improvement in our well servicing activity that was really not present in 2018 and 2017. So we’ve been kind of wondering when some of that activity would come back to the market. You remember, in 2017, we were struggling to get to 45% utilization and then 2018, we were struggling to get to 50% utilization. And we’ve never done a large degree of completion work with those assets. We do a lot of 24-hour work-over work but not as much – well we do completion work but not drill-out. And we are seeing an opportunity, which is a newly developing trend, I’d say, over the last, for us, over the last say, six months. We are doing more drill-outs of plug. And we don’t have much equipment and we are limited on what we can spend and we basically, as Lorne mentioned, we’ve already spent what we’re going to spend and so we have the equipment that we have or the equipment that’s coming and that’s it. But operators are working over more wells. We’re seeing that and that’s probably part of the discipline that you’re referencing, broadly speaking.

Brad Handler

Okay. That’s good to hear, you kind of spell that out. And then on the completion side, you are sensing that there is still the ongoing discipline which is limiting completions. Is it – and I guess I want to try to make sure I – I don’t want to put some words in your mouth and correct me. Is it that you are seeing that you expect fewer completions in the second half say, than the first half? Or is it just you don’t – the visibility is poor?

Stacy Locke

Well you have a couple of things going on there. You have the benefit of better weather and longer daylight hours. So you have that seasonal benefit, third quarter in the production services space is historically the best, followed by the second, followed by the fourth, followed by the first, being the worst. And that’s just kind of the seasonality side of it so you generally always get some benefit from that seasonal aspect of it. The trend lines that I referenced earlier, specific to wireline. The wireline work that we do and frankly, the coil work that we do is completion weighted. Coil is almost 95% completion weighted and wireline is probably 70-ish-percent or more completion weighted. And that’s doing the perforations, it’s setting the plugs. So I think where we think the quarters will be better from a seasonal perspective in wireline and we’re optimistic at least, in particular due to the improving commodity price, that we will see completion activity improve later as well. So that’s – and does anybody have anything they want to add to that? Thought process?

Carlos Peña

Part of it is that I would expect completion activity to improve for the remainder of the year. I’d also add that it is kind of a little bit opaque. We can see what our level of completion activity is like but when you look at the data, regulatory reports for completions take some time to come in. And based on that, I think there was a decline in completion activity six months ago or a little before that. And I don’t know yet what those numbers will come in like for the most recent quarter or two. But based on what I’ve heard from other players in the industry, it does seem to me that there was declining completion activity.

Stacy Locke

Right.

Lorne Phillips

That’s right.

Brad Handler

How long…

Stacy Locke

Well just to add one more data point there, rig count has been gradually coming down this year and it will probably bottom here shortly. And then as Brian Tucker mentioned earlier, we expect that rig count is going to start trending upward again, probably this year but more towards the end of the year, and then continue into next year, assuming commodity prices stay somewhat reasonable. So I think that will lead to more completion activity as well. So...

Brad Handler

Understand, Stacy. That all makes sense and I have a better sense of your all’s perspective on the year. If I could sneak in one more unrelated, please. The – it feels like it’s hard to get a good handle on the supply, the availability of large diameter coil in the country. And I guess I’m curious, if you have any thoughts around that industry-wide number but is – do you sense that, if the world were different and maybe your balance sheet were different, do you sense that the industry could absorb a lot more large diameter coil units? Or are we – because several players are and have been adding large diameter coil. Is it getting closer to a point where there is more of a saturation in light of the current demand anyway?

Stacy Locke

Well, okay. Let me answer that in a couple of different ways. For us specifically, if we had the balance sheet, we, for sure, would be adding some amount of coil because we’re pretty confident in our markets and/or maybe even a new market, we could work additional coil. And that would be the newest, latest, greatest coil with the biggest reels and two 5/8 type coil. So we could definitely grow in our business by spending the capital to add it. And I think it would be a good return on investment.

Industry-wide, they are adding coil and it’s being built presently and some of it will be incremental. But it’s hard to know the exact amount. But a fair amount of it is going to be replacement coil. You know – and the reason I feel confident in saying that is because even our two 3/8 coil that we ordered just a few years ago, it’s still good and it’s still working and it’s competitive. But I would rather have a brand-new, two 3/8 or two 5/8 unit coil with a much bigger reel to give you more depth capacity. And I think that the newer equipment coming out has a competitive advantage. Like the equipment we just added two, two 3/8 units for the Rockies this year, that is very competitive equipment and it’s going to be in very high demand. Two 3/8 equipment from five years ago didn’t have the reel capacity, didn’t have its pump capacity and today, unless you change that on those piece of equipment, it’s less competitive. So the newer stuff is better. And so folks are going to be high grading their equipment and replacing a fair amount of older equipment. But there will be some incremental adds as well. It’s just hard to know the exact mix of that.

Brad Handler

Got it. Thank you. That was a – all right, I appreciate that color. That was helpful. Okay, I’ll turn it back. Let other people ask questions.

Stacy Locke

Hey, Thank you.

Operator

[Operator Instructions] Our next question is from the line of Sam McAllister with Raymond James.

Sam McAllister

Good morning guys and thanks for taking my questions.

Stacy Locke

You bet, Sam. Good morning.

Sam McAllister

So I wanted to get into a little bit more detail on Colombia. This is of course, been a bright spot in terms of your utilization and the outlook points towards a tightening in that market. And we’ve seen stabilization of activity in commodity prices. And so from here on out, as we head into the back half of 2019, could we see a closing of the gap on daily margins versus your U.S. fleet? And we’ve seen meaningful strides up to this point but I just wanted to hear your thoughts there and what the drivers would be.

Brian Tucker

Sam, I think there’s no doubt, we’re very encouraged by that business. If you look back a few years ago, we were working for one client in that area and we’ve changed significantly. We worked with four or five really strong clients there. Our teams are doing an exceptional job. Few things are trending very well for us. The 1,500-horsepower space, particularly walking rigs, is tight and those are the rigs that are in demand and that’s all of our eight rigs meet that definition. The other thing that we think is a really positive trend as well is movement towards more pads, really. It’s customer specific but a few of our big clients there are utilizing the rigs on pad development which is a win for everybody. We’ve historically been challenged when we mobilized those rigs in Colombia. So the less we do that, the less costs our clients see in margin improvements that we’ll see. So we continue to be encouraged by that business. We’ve got some long-term contracts that will be through the year. So I think the opportunity for pricing improvement is probably fairly modest. But I think some major cost reduction and margin improvements are a potential there, going forward.

Lorne Phillips

The other thing I’d add to that market is they do pretty well at $40 WTI. So in a $60 kind of realm, that’s going to stay very active. So the outlook is extremely positive there and as Brian mentioned, our team and our equipment is very well-positioned with really, all the key players there. And we’ll even have an opportunity to go back to echo patrol should we choose to do that. But – and we have the eight rigs there that we can activate at some point if we had the capital. But we’re not going to spend the money today but it would be a prudent thing from a return standpoint because we could probably get a cash payback in one year, 1.5 years on that upgrade and activating that rig. So we would like to do it but we are not able to do it right now. So – but the outlook is extremely positive there.

Sam McAllister

Okay. And as a follow-up on your commentary there, would it be reasonable to assume that the margin traction would be more predicated on cost efficiencies than kind of shaving back on mope costs?

Stacy Locke

That’s fair. Yes. Just the way to think about it is comparable rigs in the U.S., we move in two, 2.5 days. And there, Brian, 30, 50-mile move would be two to three weeks.

Brian Tucker

There’s clearly a lot of things that’s go into that mobilization. And typically, as we forecast, one of the things that we take into account is mobilizations in that quarter because we do see some margin contraction. So we’ve got about three of our rigs on pretty large significant pads that we think will keep us with no mobilizations for the quarter so I really do think that’s a great trend for us there. And we are seeing more interest from the operators to improve their mobilizations and we’ve hired an individual to help focus on that. The quicker we can move, last year’s example, at best, we were breaking even on these long rig moves. And now we are starting to make profit on them and the shorter we can make them, they win, we win. So we’re really encouraging improved efficiencies there.

Sam McAllister

Great. Well, that’s all I have guys. Thanks for the commentary.

Stacy Locke

Great. Thank you very much. Well that concludes our quarterly call. We appreciate the great questions and participation and we look forward to visiting next quarter. Thank you.

Operator

Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines and have a wonderful day.