Superior Energy Services, Inc. (SPN)

SPN 
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Superior Energy Services Inc. (SPN)

Q4 2009 Earnings Call

February 25, 2010 11:00 am ET

Executives

Greg Rosenstein - VP, IR

Terry Hall - Chairman & CEO

Ken Blanchard - President & COO

Robert Taylor - CFO

Analysts

James West - Barclays Capital

Jim Rollyson - Raymond James

Joe Hill - Tudor, Pickering Holt

Robin Shoemaker - Citi

Daniel Burke - Johnson Rice

William Conroy - Pritchard Capital

Terese Fabian - Sidoti & Company

John Daniel - Simmons & Company

Bill Sanchez - Howard Weil

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Superior Energy’s fourth quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator instructions). This conference is being recorded today, Thursday, February 25, 2010.

I’d now like to turn the conference over to Greg Rosenstein, Vice President of Investor Relations. Please go ahead sir.

Greg Rosenstein

All right, thank you. Thank you for joining today’s conference call. Joining me today are Chairman and CEO, Terry Hall; President and COO, Ken Blanchard and our CFO, Robert Taylor.

Before, I turn the call over to Terry, let me remind everyone that during today’s call, management may make forward-looking statements regarding future expectations about the company’s business, management’s plans for future operations or similar matters. The company’s actual results could differ materially due to several important factors including those described in the company’s filings with the Securities and Exchange Commission.

During the call, management will refer to EBITDA, which is a non-GAAP financial measure. And in accordance with Regulation G, the company provides a reconciliation between net income and EBITDA as well as net income and non-GAAP net income on its website.

And with that, I will now turn the call over to Terry Hall.

Terry Hall

Thanks, Greg, good morning.

Recap of the fourth quarter, revenue was $264 million, it would have been 333 excluding the impact from the cost adjustment on the wreck removal project. EBITDA excluding the charges outlined in our press release was $91.4 million, and core earnings were $16.5 million or $0.21 per diluted share.

We’ve communicated the special charges and unusual operational factors in two press releases and our pre-earnings call a few weeks ago, so I’ll really try to focus my remarks on our core business. If you have any questions about those items, we can address them during the Q&A portion of the call. I am down with cold here, so just bear with me. 2009 was probably the most difficult market I’ve seen in my, well let’s just call it too many years in this business.

Charges we took during the year reflect how difficult and challenging the market was. Although we managed to earn $1.44 per share in core earnings, generate $276 million in operating cash flow and advanced our international growth strategy.

Looking at fourth quarter from an operational standpoint, I think the primary driver was a steep decline in Gulf of Mexico activity. Excluding the impact from the wreck removal cost adjustment, our Gulf of Mexico revenue was down 22% in the third quarter.

This was not a total surprise now, in our second and third quarter calls, given the stable market at that time, we mentioned that we expected activity levels would fall significantly during the winter months given natural gas prices and the general state of the industry. The decline actually incurred early November with the onset of Hurricane Ida and really continues almost till today. So, there has been a significant seasonal drop.

I am pleased to see utilization increases in some of the domestic land markets, however, as revenue from the Subsea and Well Enhancement Segment increased 2% on land, while demand for our Drilling Products and Services were also up 2% on land. International revenue was down 5% primarily associated with the cessation of the contract in Angola, but those assets (inaudible) are now back to work, so that issue is behind us.

I’ll now review the operating highlights of our segment and make comparisons to third quarter of ’09. Again, we’ve renamed two of our segments to better reflect our focus on customer mix going forward. Well Intervention Segment is now called Subsea and Well Enhancement and the rental tool Segment now called Drilling Products and Services.

In the Subsea segment, revenues are $145 million or $214.5 million excluding the impact in the wreck removal cost adjustments. Our operating income excluding charges was $17.1 million. Activity from most of our Gulf of Mexico services decline with the biggest changes occurring in marine engineering, project management, wire line and plug and abandonment services.

We believe these declines are seasonal and we would expect activity in these business units to pickup as we exit the first quarter. Segment’s domestic land revenue increased 2% due to utilization increases to coiled tubing and cased hole wire line. This was the second consecutive quarter that domestic land revenue has increased, albeit slightly. So, hopefully this is a sign that activity has bottom in the U.S. market.

Coiled tubing increases were primarily in Pennsylvania and North Louisiana, while the cased holed wire line activity was a bit more broad based. I think there would be selective opportunities to increase pricing based on location as we move through the quarter. Clearly assets in the shale markets and more likely to increases first. International revenue in this segment decreased 1%.

In the Drilling Products and Services Segment, revenue was $97 million and an income from operations was $13.8 million. Operating margin was negatively impacted by approximately 4.3 million from the write-down of our accounts receivable in Venezuela. Excluding this adjustment, our income from operations was basically unchanged from the third quarter at $18.1 million.

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