Basic Energy Services, Inc. (BAS) Q2 2019 Results Conference Call August 1, 2019 9:00 AM ET
Trey Stolz - Vice President of Investor Relations
Roe Patterson - President and CEO
David Schorlemer - Senior Vice President and CFO
Conference Call Participants
Tommy Moll - Stephens
John Daniel - Simmons Energy
Daniel Burke - Johnson Rice & Company
Mike Urban - Seaport Global
Greetings, and welcome to Basic Energy Services second quarter earnings conference call. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Mr. Trey Stolz, Vice President of Investor Relations. Thank you, sir. You may begin.
Thank you, operator, and good morning, everyone. Welcome to the Basic Energy Services Second Quarter 2019 Earnings Conference Call. We appreciate you joining us today.
Before we begin, I'd like to remind everyone that today's comments include forward-looking statements reflecting Basic Energy Services' view of future events and therefore potential impact on performance. These views include the risk factors disclosed by the company in its Form 10-Qs and 10-K for the year ended December 31, 2018. Further, refer to these statements regarding forward-looking statements incorporated in our press release from yesterday. Please also note that the contents of this conference call are covered by these statements. In addition, the information reported on this call speaks only as of today, August 1, 2019, and therefore, you're advised that time-sensitive information may no longer be accurate at the time of any replay.
With that, I'll turn the call over to Roe Patterson, President and CEO.
Thank you, Trey, and welcome to our 2019 second quarter earnings conference call. We appreciate your interest in our company. Joining me on the call is David Schorlemer, our Senior Vice President and CFO.
Today, I plan to discuss our 2019 second quarter results, operational focus and strategies for the second half of the year. David will walk through some more detailed financial metrics for our recent quarter's performance and outlook.
The first half of 2019 has been more challenging than most expected. Crude prices have been stable but sentiment leans to the bear side because of strong U.S. oil supply and weaker global demand expectations. As these softer crude prices have persisted through the second quarter, a general lack of urgency remains among our client base. That outlook is unlikely to change in the near term as E&Ps continue to focus on their liquidity and efforts to operate within their cash flow abilities.
Active U.S. oil rig counts have fallen to a 17-month low recently, which weighs on the prospects for further growth in U.S. production in the second half of 2019. With this macro environment as a backdrop, we anticipate that our customers will continue to reduce growth spending with a focus on capturing measurable returns, enhancing existing production and generating cash for debt reduction or return on capital to investors. While slightly reducing demand for our completion businesses, these customer initiatives should greatly benefit our growing production-oriented businesses.
In 2018, we successfully refinanced our debt structure while undertaking a strategic realignment of certain assets and lines of businesses, two events that have, together, resulted in a strengthened balance sheet while continuing to expand margins across our segments. Our strategic initiatives are clearly showing positive results in 2019, and these initiatives, along with the continued internal actions as we adjust to the updated market outlook, are positioning our company for better resilience during these volatile times.
I want to briefly cover some of these actions, and we will continue to report on the progress of them throughout 2019. First, as I've previously mentioned, we are in the process of building stronger production service businesses, and in doing so, we are lessening our reliance on completion activities. Well Services and Water Logistics businesses currently make up 58% of our total revenue, up from 48% just a year ago. These businesses are primarily built to support long-lived production maintenance. This progression will continue to increase our ability to provide more stability in our revenue base and grow our emerging midstream water business. With the transition of produced water transportation from less truck barrels to more barrels moved via pipeline, we have responded with investments to better serve our customers and our shareholders. The goal is to best utilize our large network of saltwater disposal wells to support the rapidly increasing water volumes in the oil drilled today. I will discuss this midstream entity more in a moment.
In addition, we continue to invest in developing industry-leading technology as well as bundling high-spec services. These efforts are providing customers with dramatically better performance efficiencies. To this end, we have transitioned 17 of our stacked frac pumps to the Well Servicing operations where these pumps are performing both completion and work over activities as part of bundled 24-hour rig packages.
Staying on the subject of our high-spec 24-hour rig and equipment packages, we recently provided record-setting services to a Permian customer. On that job, Basic successfully drilled out frac plugs over a total horizontal displacement of 17,935 feet or approximately 3.4 miles. This event marks one of the longest known laterals completed in the Permian Basin, and we're proud of the work we did.
With the use of our 600-horsepower Well Servicing unit, coupled with twin 2,250-horsepower pumps, two of the aforementioned pumps transitioned from the frac operations, and other high-performance ancillary equipment, the drill out was completed safely and efficiently. These high-spec rig packages have day rates as high $30,000 per day compared to regular daylight Well Servicing packages that top out below $10,000 per day. We think this completion is a great example of our core competencies and are a key differentiation of our company. These packaged offerings designed for long lateral service work improves our competitiveness and provides efficiencies for our customers to take advantage of. It's these innovations and strategies that continue to provide industry-leading utilization in our rig fleet.
Finally, our management team continues to design and develop a leaner G&A structure, stronger balance sheet and better working capital management. Over the last 12 months, we have decreased both our corporate and field level G&A costs, applied technology solutions to tighten spending as well as headcount, and continued to apply best practices to our working capital management. These savings are impressive, and David will discuss these reductions to G&A and direct expense in greater detail.
Turning to the operational statistics for the second quarter. Although total revenues were down sequentially compared to the first quarter, with June marking a low for the quarter, Completion & Remedial revenues increased almost 2% in Q2 on strength in coiled tubing. We also saw a continuation of stability in the rental tool revenues for the second quarter.
Severe weather and holiday disruptions impacted Q2 revenues more than the first quarter, and we estimate that the overall impact to the top line was approximately $7 million. Similar to the first quarter, slowing of completion activity contributed to the buildup of drilled but uncompleted wells. Customers generally fulfilled their drilling commitments but some held off on completing wells to limit their quarterly spend. In the meantime, customers sought cheaper maintenance projects to grow their returns.
Bright spots in Q2 regarding business segment margins include Well Servicing margin expansion of 50 basis points. And although off from the first quarter high, Water Logistics segment's margins proved very stable at 30% compared to margins in the 26% to 29% range throughout 2018.
Completion & Remedial revenue grew sequentially from Q1 to Q2 by 2%, and more importantly, segment margins expanded over 600 basis points sequentially. We expect to continue to build from here with stability and strength in coiled tubing and rental tool revenues.
Well Servicing revenues were essentially flat with the first quarter. We marketed an average of 308 rigs in Q2, of which 274 are high-spec dominion. Average rig utilization was 70% for the quarter, and Well Servicing rig hours totaled 155,000 compared to 165,000 in Q1. With the current 24-hour rig count of 21, we have 15 large rig packages on multiyear dedicated customer agreements, and customer indications suggest this number will only increase. These agreements largely cover broad multi-well development projects with large operators in busy basins, such as the Permian.
Turning to Water Logistics segment. Saltwater disposal volumes grew to over 10 million barrels, a company record, with 32% of these volumes coming from pipelines. As customers continue to find the most efficient solution for produced barrels, we expect pipeline disposal to continue to increase significantly. While basic truck-based water disposal is still a very good business and we will be in the transportation method in many areas for years to come, this movement to pipeline has resulted in the total number of trucks declining to 814, which is down 2% year-to-date.
In our Water Logistics segment, the focus in 2019 has been twofold: adding contracted volumes to Basic owned disposals and increasing our third-party trucked volumes to Basic disposals. As I mentioned earlier, we stood up a separate legal entity which holds our best-in-class saltwater disposal well network but not our fleet of water transportation trucks,and have branded this new entity Agua Libre Midstream. On the first initiative, we have executed a small number of our first midstream contracts in July and have a queue of contracts that, if overall executed today, would represent approximately 80,000 barrels per day of contracted volume. Many of these contracts require very little CapEx from Basic, but all provide a strong return that competes with any other use of capital in the Basic portfolio. These agreements with upstream producers are a mix of volumetric- and acreage-based contracts but all have recourse to the customer if the contracts are breached, which protects our returns. Many of these projects are in the Permian Basin where we have 33 saltwater disposal wells currently.
On the second initiative, we expect third-party trucked volumes to double by the end of 2019, with the potential to double again in 2020. As a reminder, our saltwater disposal well network previously served only Basic water transportation trucks. A tool to add volumes from third-party truckers is signing basin-wide truck disposal pricing agreements with large upstream producers, which we have done in the Permian with multiple customers and we are negotiating in other basins today. This creates a strong upstream "push" to our disposals, in addition to our sales force "pull" of third-party water.
The adding of volume through pipelines and the third-party truck volumes will allow us to truly reap the rewards of operating leverage in this business. With this 2-pronged growth plan in addition to our industry-leading in-house fleet of Basic water trucks, we believe that Agua Libre Midstream will have the ability to grow significantly over the next few years. We're excited about this new and growing business. The fully branded launch, including marketing and a website, is projected for the end of August.
As we look into Q3 activity, we remain ready and able to quickly unstack equipment when margins are sufficient to support maintenance CapEx and drive positive free cash flow. As we discussed last quarter, a 2019 frac business rebound is not built into our numbers and remains a source of significant upside if well completions increase from current expectations.
Overall, we ended the quarter with positive adjusted EBITDA of $16.5 million, in line with our expectations despite a lower revenue trend and believe our strategic and tactical actions are materially contributing to this year's results.
In terms of our 2019 CapEx spend, we are constantly evaluating our spending, and we will remain disciplined in our approach to capital allocation this year. Based on results to date, we are trimming CapEx guidance from $69 million to approximately $58 million for the full year. Based on market demand, as well as recent customer feedback, we will continue to invest the majority of our 2019 growth CapEx in Permian-focused water infrastructure by way of Agua Libre Midstream . These long-lived, low-maintenance investments come with long-term contractual revenue. But even on these promising projects, we will remain diligent about capital decisions and we may defer some projects until 2020.
Under our updated lower capital expenditure plan, we are updating guidance for 2019 EBITDA and expect to finish the year with approximately $65 million of adjusted EBITDA. More importantly, for the second half of 2019, we expect to generate enough cash flow to meet all of our anticipated capital requirements and expenditures. David will discuss our previously announced share buyback program where we spent approximately $1 million during the quarter during his comments.
And with that, I'm going to turn the call over to you, David.
Thank you, Roe, and good morning, everyone. I plan to provide details on our second quarter financial performance compared to the sequential results from first quarter 2019, unless noted, and an outlook for the third quarter and second half of 2019.
Results for the second quarter were overall an improvement over first quarter. Basic reported a $27.8 million net loss and $1.02 per share loss. While Q2 revenues decreased sequentially 4% to $190 million, margin expansion efforts contributed to improvements in adjusted EBITDA, increasing 15% sequentially to $16.5 million as compared to $14.4 million in Q1. For the 6 months ended June 30, 2019, our weighted average shares outstanding were $217.2 million.
Now turning to our segment results. Our production-oriented businesses combine for 58% of total company revenues, with Well Servicing and Water Logistics representing 31% and 27%, respectively, consistent with the prior quarter. In these 2 core segments, revenues decreased $6.9 million sequentially on reduced activity, while direct margins decreased $3 million.
Completion & Remedial Services revenues were $78.1 million in the second quarter and represented 41% of total revenues, an increase of $1.3 million over the prior quarter, while margins increased $5 million sequentially to 23.6% compared to 17.4% in Q1 due largely to aggressive cost controls in our Pumping Services Division. More on C&R in a moment.
The Well Servicing segment generated second quarter revenues of $58.1 million, a sequential revenue decrease of 4% compared to Q1 on lower rig count and utilization. Segment profits decreased to $13.1 million or 22.5% in Q2 from $13.3 million or 22% in Q1. Our rig utilization rate was 70% in Q2, down slightly from 74% in Q1, mainly as a result of severe weather in June and holidays but also lower activity of our 24-hour rig packages.
The Water Logistics segment generated revenues of $51 million, a sequential decrease of $4.6 million. Segment profits were 30.4% or $15.5 million, a decrease of $2.8 million over the prior quarter primarily due to decreased completions-related activity and inclement weather. In spite of these headwinds and a continued decrease in our active fluid truck count, Water Disposal volumes reached a record 10 million barrels in the second quarter.
Our Completion & Remedial Services segment generated revenues of $78.1 million, an increase of $1.3 million from the first quarter. The increase was primarily related to a rebound in coiled tubing and pumping lines of business. Dramatically improved performance from our Pumping Services Division led the sequential improvement in C&R. Rental and fishing tool operations continue provide stability and strong margins at 37%. Overall, second quarter C&R segment profits increased to 23.6% of revenue compared to 17.4% in the first quarter. This increase resulted in a 400% sequential incremental margin.
We expect total company revenues to be essentially flat for the third quarter of 2019 and decrease in the fourth quarter based on fewer working days and normal seasonality.
Reported or unadjusted G&A expense decreased during the second quarter to $34.8 million, a decrease of $700,000 compared to the first quarter. Second quarter adjusted G&A expense of $30.3 million excludes $1.2 million of one-time professional fees related to a contemplated M&A deal that was not completed and $3.3 million of noncash stock compensation. Adjusted G&A decreased over $1 million sequentially or $4 million on an annualized basis. We are on track to achieve additional cost savings of approximately $3 million to $5 million on an annualized basis, which would bring total annualized G&A down over $12 million from first quarter of '19 levels. We expect G&A expense in the third quarter of 2019 to be approximately $33 million.
Second quarter depreciation and amortization expenses were $29 million compared to $27.5 million in Q1, and we anticipate depreciation and amortization expense for the third quarter to be flat. Reported net interest expense was $10.4 million in Q2, and we expect third quarter interest expense to be flat as well.
Our effective tax benefit rate was 3% for the 6-month period based on our $1.9 million tax refund in the first quarter.
As of June 30, 2019, the company had approximately $844 million of net operating loss carryforwards for federal income tax purposes, for which we carry a full valuation allowance. Due to our NOLs, we do not anticipate paying federal income taxes for the foreseeable future.
Cash capital expenditures for the quarter ended June 30, 2019, were $16.8 million compared to $17.9 million in the first quarter. Certain expenditures were funded by proceeds from dispositions during the second quarter, which were $2.3 million. Approximately $7 million of cash CapEx was spent on expansion projects, with the remaining for maintenance.
We had financed our capital lease additions for sustaining fleet replacements of $1.4 million in Q2 compared to $6 million in the first quarter, and we expect additions to finance leases to be minimal for the remainder of the year. Our finance lease balance was $51.2 million at quarter end, down from $60.9 million at 2018 year-end.
We currently expect 2019 full year CapEx to be approximately $58 million, including total lease additions for the year of $8 million, with estimated cash proceeds from dispositions for the year of $10 million to $15 million. This would result in cash CapEx net of proceeds of approximately $40 million for the year, and we expect our year-end finance leases balance to decline to approximately $40 million.
Net working capital decreased modestly sequentially as our DSO and DPO were 65 and 43 days, respectively. Our over 90-day receivables presented only 2% of our accounts receivable balance at June 30.
Technology initiatives are driving tangible cost savings in operational performance as we are targeting best-in-class field performance. We expect these and other initiatives underway to continue to enhance our capital and operational efficiency going forward.
As previously disclosed, we have authorization for a $5 million share repurchase program. Share repurchases have totaled 596,000 shares for $1.3 million in Q2, with total cumulative shares acquired through July 2019 of 1.7 million shares for $3.5 million. We will continue to execute repurchases opportunistically based on the value it represents to our shareholders.
Our cash and cash equivalents were $54 million and our borrowing capacity net of letters of credit was $60 million with no amounts drawn on the ABL at June 30. Total available liquidity at the end of the second quarter was $114 million, and our long-term debt net of discounts was $341 million compared to $350 million at year-end 2018.
Our balance sheet remains strong with no debt maturities through 2023. We will continue to follow a disciplined approach to capital allocations into 2020 and maintain our focus on generating operating cash flow, which we expect to be positive in the third and fourth quarters of 2019. We expect our cash balance at year-end to be approximately $50 million, which comes with some upside from the higher end of our divestiture target, and we expect total debt reduction during the year of approximately $20 million.
With that, I'll turn the call back to Roe for some concluding remarks
Thank you, David. With E&P capital forecast expected to be down year-over-year and customer consolidations on the rise, we anticipate upstream measures to continue to reduce contractors' lists and focus on rig and frac crew efficiencies for improved capital returns. We believe that we are well-positioned for large operators and a more consolidated customer base, which are the primary decision-makers for the bulk of U.S. activity. We believe Basic Energy Services delivers our compelling, valued upstream producers with its broad service offerings, many of which are highly differentiated.
As our work on the business over the last couple of years indicates, the production-related side of our business continues to represent an increasingly large percentage of our total revenues, which promises greater stability and, thus, higher cash flow generation. You can expect us to further transition assets and invest in technology and infrastructure to serve the production side of the industry.
We're particularly excited about Agua Libre Midstream and are deploying capital and resources to meet a rapidly growing disposal need in places like the Permian Basin. The midstream business model has benefits of more stable revenue streams, more predictable cost, and consequently, should command higher valuation multiples as we grow it.
We are working consistently on M&A opportunities that allow us to benefit from added scale, cost synergies and new or expanded business opportunities. While we have found many compelling transactions in terms of synergies and cost reductions, we have also found accomplishing such transactions in a deleveraging and accretive way is very difficult. Nevertheless, we will continue to push for these transactions as we feel they are probably the most important initiatives for the entire peer space in which we exist.
And with that, operator, I will turn the call over for questions
[Operator Instructions] Our first question comes from the line of Tommy Moll with Stephens Inc.
So the 600 basis point lift in margins for C&R was positive and notable. My sense is a lot of that was relating to the pumps you moved from Pumping Services over to the 24-hour package. But if you could walk us through the moving pieces there, and if there was anything else that drove the margin lift and anything additional going forward that we should keep in mind?
Yes. Certainly, moving those pumps over to the Well Servicing operations helped quite a bit. We do record those revenues and margins under C&R because it gets additive to our rental and fishing tool business. I think another strength was just streaking the white space in the frac calendar, moving our assets more to Mid-Con. We saw just some improved efficiencies there in the Mid-Con that was in respect to shrinking the white space. Our coiled tubing also improved in -- during the quarter. We saw less gaps in that work calendar as well. And then we did a lot of headcount reduction, moving equipment to larger yards, closing and shuttering some facilities, satelliting some offices and removing all the overhead in those particular areas. So just streamlining the business, working hard on initiatives that we kicked off at the first of the year, and we're finally starting to see some of the fruits from that.
And then pivoting a bit for a follow-up question. I wanted to touch on [Aqua Libre]. Help us understand the rationale for -- I think you said you're creating a new entity. It certainly makes sense from a branding and marketing perspective. Is there another angle you're playing there? I just want to make sure we understand the full strategy.
And then on a related point, there's a lot of private capital chasing water midstream, and I wonder if you guys maybe see an opportunity to partner in some fashion with some of the players there or if that's not really something under consideration.
I'll answer your last question first. It's certainly under consideration with your -- in the position that we're in where you have limited resources and somewhat liquidity constrained with a lot of growth opportunity in that particular business. I mean we're the second or third largest saltwater disposal well company in the nation. No one gives us much credit for that. A lot of these smaller saltwater disposal companies get a lot of credit for what they're doing in this business. People just seem to overlook the fact that we're the elephant in the room. The -- so certainly, we would be interested in partnering or looking for outside capital to continue our growth trajectory in that business. We see a lot of potential there for the footprint that we already have.
The branding and marketing approach is certainly sort of priority 1 right now for us. We think we can attract more third-party volumes being a separate entity, and we think third-party volumes are going to be important. We think truck barrels are going to be reported on a long-term basis. It's an important bridge between new wells and older wells, as are those truck barrels. Some customers can't afford to put in infrastructure for pipelines. So we view the truck barrels as an important piece, both our tracks and third-party trucks. And so it's part of a marketing approach to attract more of that water to our saltwater disposal wells.
I think the real meat of your question was would we ever do anything with it and monetize it or look for additional value from it. Answer to that is, yes, we certainly would. Given the right opportunity to present value to our shareholders, we'll take advantage of it. But what we want to do is break it out, show the water volumes by themselves, show the EBITDA by itself, show the potential for the business by itself. We think that the market should look at that and really place a higher multiple value on that compared to the way they value the rest of our business because looking at the way the market values some of these other operators and their EBITDA and the multiples on that EBITDA for the same exact business, there's no reason why we shouldn't be getting similar treatment.
Our next question comes from line of Mike Urban with Seaport Global.
I guess just a housekeeping question first. If you could give us the breakdown of the revenue in C&R, please?
Yes. Just a second there. C&R revenues for the quarter: frac were $23.3 million: coiled tubing, $16.3 million; pumping and other, $17.6 million; and RAFT, $19.8 million with snubbing at just a little over $1 million. So total C&R, $78.1 million. We're talking about a 30% increase for coiled tubing and that's really what drove some good recovery, as you mentioned earlier.
Yes. And wanted to follow up on the previous question, just to make sure we're clear on Aqua Libre. So that's essentially just for now a wholly owned subsidiary just as the SWDs and the midstream infrastructure but excluding your trucking operation?
That is correct.
Okay. Got you. And then just kind of shifting back, well, just to the business in general. No surprise to hear that operators are kind of scaling back a little bit here. I mean do you see this as kind of incremental over the course of the year? I mean there's a big fear out there, I think, in the market that you see this huge collapse along the lines of what you did last year. But it does seem like over the course of the second quarter, it looks like now into the third, that they're kind of incrementally ratcheting back. You kind of in your prepared comments described Q4 as just normal seasonality. Is that how kind of you see it as of right now? This kind of quarter -- moving to a more quarterly management of budgets on the part of your customers and just kind of, therefore, a more normal progression as we go through the latter part of the year?
Yes. I think so. I think what we normally expect for Q3 is somewhat of a ramp-up in utilization, better daylight hours, better weather. But what we're seeing right now is due to this sort of lethargy on part of some of these customers to really outspend cash flow, which is not happening, is that it's more flat rather than a ramp-up in Q3. So with that in mind and with normal Q4 seasonality in mind, I think that the rest of the year is just going to be pretty flat. Where we normally would see a tick up, a dramatic one in Q3, I'm not sure we're going to see that just yet. I would say that our calendars for September-August look very good. So the remainder of Q3 looks strong. We'll just have to see what happens in Q4. I think it will depend a lot on commodity prices and where it will land during that period of time. But as far as our crystal ball can see right now, it looks like a normal fourth quarter with a flatter-than-normal Q3.
[Operator Instructions] Our next question comes from the line of John Daniel with Simmons Energy.
So where I'm just curious is as you go to the midstream businesses, which does have a differentiated model than some of the other services, what's the right long-term strategy for the trucking assets?
Well, in my opinion, we're always going to need them. So even though we've reduced the fleet somewhat this year as we've increased the piped volumes, we still believe the trucking business is a healthy business. It generates a strong EBITDA, and we'll continue to maintain that business. So I think probably we've flattened out with the reduction. From here, we'll kind of hold the fleet capacity where it is today. Those trucks are very busy. Utilization is good and strong in that business. So I think we're always going to have that capacity. It's important capacity. It's an important differentiator from us and the guys that are SWD-only because they're only subject to the barrels that come to them, and they can't do anything to affect that other than to entice pipelines into their SWDs. We can go get barrels in multiples ways, which is important.
Okay. Fair enough. And I mean I'm hoping you might be able to take a stab at this, but if we just assume that Permian activities are roughly flat year-over-year in 2020, I mean, who the hell knows, right? But in that scenario, what would be a reasonable revenue desire for you for the water -- just your whole Water Logistics business?
It will be ticking up quite a bit based on a bunch of the CapEx that we are spending in '19. We won't see full cycle EBITDA from that until probably late in Q4 and then at the end of 2020. So we're spending a lot of money right now on infrastructure pipelines, building out transload facilities, tying in our SWDs together, building redundancies. We're not going to see some of that EBITDA until 2020, so this is a ramp year for us.
Okay. Very helpful. And then the final one for me and I'll turn it over. I think I heard you say this, correct me if I'm wrong, but I think you noted an expectation for higher 24-hour packages over time. And with activity, completion activity likely trending lower here in Q3, Q4, is that expectation -- is that growth coming from market share gains versus coiled tubing? Or is this just picking up new customers? If you could elaborate a little bit?
I think it's -- the packages that we have designed are highly differentiated from a lot of what's going on out there. I think some of the other drill out packages and completion packages you've seen don't have the same bundle of ancillary equipment that we have. So we're doing a good job putting a competitive, differentiated product on the market, that's number one. Number two is we're definitely seeing a shift in these long laterals away from coil and back to stick pipe because of the failure rates on coil. So I think the longer the laterals are, you're going to see more and more stick pipes be desired.
Our next question comes from line of Daniel Burke with Johnson Rice & Company.
I'll stay with the Water Logistics business for just a bit longer. Roe, I thought I heard you mention that if all the contracts you have signed or discussed are on the desk, we're -- you're talking about 80,000 barrels a day of potential volumes. And so I guess that's kind of a nice way of framing the opportunity set. But can you talk about how much capital it would take to kind of capture that business? And maybe also, how much of that business you can capture with this year's budget? Just trying to frame opportunity set versus what's already sort of coming together.
So all of the volume that I mentioned in my talking points, we already have the CapEx in place to bring out those volumes on. So I can't speak about barrels that we don't have under contract or don't have within our purview right now, but obviously, if they're coming into an existing facility, there's very little CapEx deployment for us. We just have to stub them in or tie them in. If we have to pipe it to them, that's fine. We're going to get a quick payback, usually less than 3 years, on the transmission cost of those barrels. So we'll spend that capital. But it's not -- those barrels are not in the number I gave you and that CapEx is not in the current plan. But for the number I did give you, that's all within our current CapEx estimation.
Okay. And sorry to be obtuse, so the number you gave, the 80,000 is all within this year's CapEx or the signed contracts that are a subset of the 80,000? Sorry if I'm misunderstanding.
No. It's within this year's CapEx.
Okay. Got it. All right. No, that's helpful. And then maybe just one other one, again, on the CapEx side. Could you talk a little bit about in terms of -- for a second straight quarter, taking the CapEx budget down? Where are you finding opportunities to do so? And should we think about that as really deferral of growth CapEx into '20? Or is this CapEx that you've just been able to squeeze out on the maintenance side that won't be expended?
So a small portion of it is reduction in maintenance CapEx due to reducing the frac fleet and stacking more of the frac assets. So that's a small portion of the reduction. The bigger part of the reduction, and has been since we started reducing CapEx in Q1, talking about lowering our CapEx budget, we started that in Q1 and then additional haircut here in Q2, had all been in deferral. Those are midstream projects that we would want to -- we want to do, we will do, but we're not going to do until we have a strong cash position to do it with. So we'll ramp up and build up our cash, and when we can, we'll deploy it on those projects. They're sitting in the queue. They're waiting for us. But it's probably a 2020 budgetary item rather than this year. So it's a deferral.
Our next question comes from the line of Mike Urban with Seaport Global.
I wanted to continue on the water theme. And sorry to beat a dead horse, but I think it's an important concept here. At the 80,000 barrels a day, I just want to make sure I understand it. That's kind of your -- with the CapEx that's out there today, your fully built out system on a fully utilized basis, which would imply if it's 80,000 a day for, call it, 90 days, 7.2 million barrels per quarter compared to -- you did 3.17 million, I think, in Q2 in terms of actual volumes. Is that the right way to think about it, I mean, in terms of thinking about framing the potential growth opportunity? Recognizing you'll never be fully utilized, but I just want to make sure I have kind of the scale roughly correct and thinking about it the right way.
Well, not all of the barrels are 100% additive, some of those barrels are already coming to us. What we are talking about was placing those barrels under contract. So it's shifting to barrels from just a spot barrel that comes to a contracted barrel. And those contracts, incidentally, where we do have to spend any kind of CapEx, which, as I said, is already in the budget, we're usually less than a 3-year payout on that. And the contracts are almost always longer than the payout. So there's lots of running room at the end of the contract for upside after payout. But this is -- so the 80,000, don't think of that as 100% additive barrels. Some of that is just taking barrels we're already getting and putting them on long-term contracts.
Yes. I'm just trying to get a sense of like your -- the capacity that you're adding and what could you potentially do. What's -- I was just -- if you're doing like 3.2 million, I'm just trying to understand like how much you could that grow by not saying, again, you'll get there and it obviously takes a while and then you never fully utilize them. I'm trying to get a sense of the order of magnitude of the opportunity.
Yes. So with the current SWD footprint right now, let's just use Permian as an example, we're probably running just under 50% optimized utilization. So we have a lot of running room. We can add -- we can double our barrels from here easily. So I hope that answers your question. We have a lot of capacity that we can take on.
Okay. And then you're obviously adding some through the incremental CapEx?
Yes. And does that -- is that the -- I guess earlier in the year, you talked about 2 additional midstream projects. Are those both still on track? Is that what still is in the CapEx budget?
The first one, yes. The second one, portions of that have moved to 2020.
Okay. Got you. And then last one for me. Just generally speaking, even though you saw maybe volumes just across your business activity, across your business come in maybe a little lighter than you would've hoped. It seemed like pricing actually was holding up, and I think you actually referenced a price increase in Well Service. At the leading edge here with activity kind of just flat to kind of grinding lower, is pricing generally holding? Are you seeing any pressure at all with the lower activity levels?
Right now, prices are holding. So it's very stable. I would say the price increase is probably due to more of these packages, these bundles that we're putting out and the reception that we're getting from our customers on those packages. It's just something that a lot of smaller operators and even some of our larger peers, they just don't have the capacity. They can't do what we can do. So that's allowed us to enhance our pricing, differentiate ourselves a little bit. But I would say overall pricing in every business is stable right now.
Since there are no further questions left in the queue, I would like to turn the floor back over to management for any closing remarks.
All right. Thank you, operator. Appreciate all of the questions, and we'll talk to you guys in the next quarter. Thanks.
This concludes today's presentation. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.