Superior Energy Services, Inc. (SPN)

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Superior Energy Services, Inc (SPN)

Q3 2010 Earnings Call

October 28, 2010 08:30 am ET

Executives

Greg Rosenstein - VP, IR

David Dunlap - CEO

Analysts

Joe Hill - Tudor Pickering & Company

Robin Shoemaker - Citigroup

Marshall Adkins - Raymond James

Geoff Kieburtz - Weeden & Co

James West - Barclays Capital

Bill Sanchez - Howard Weil

Stephen Gengaro - Jefferies & Company

Daniel Burke - Johnson Rice

Joe Gibney - Capital One Southcoast

William Conroy - Pritchard Capital Partners

Jeff Spittel - Madison Williams

Presentation

Operator

Good day ladies and gentlemen. Thank you for standing by. Welcome to the Superior Energy Services Third 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, October 28, 2010.

I’d now like to turn the conference over to Mr. Greg Rosenstein with Superior Energy Services. Please go ahead, sir.

Greg Rosenstein

Thank you. Good morning everyone and thank you for joining today’s conference call. Joining me today are Superior’s CEO, David Dunlap; and also Ross Burkenstock, our Vice President of Corporate Accounting who is sitting in for our CFO Robert Taylor who is out ill today.

Let me remind everyone that during this 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 this 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 on its website.

With that, I'll now turn the call over to David Dunlap.

David Dunlap

Thank you, Greg and good morning to everyone. Last night we reported revenue 435.4 million, EBITDA of 121.2 million and net income of 33.2 million or $0.42 per diluted share. The company continues to progress and our strategy to build out our core intervention and drilling products and services in the North American land and International Markets. During this quarter we relocated assets from our Gulf of Mexico drilling products business to land markets in the US and we took delivery of new assets to feed the growing demand for premium pipe rentals.

Our revenue and earnings from the North American land market continues to grow faster than the rig count, third quarter revenue from the North American landmark, it was a record 158 million, that’s an increase of 31% sequentially, and an increase of our 121% year-over-year. We experienced utilization gains for coiled tubing in almost every district and continue to see moderate price gains in some of the US markets.

As expected Gulf of Mexico revenue declined with revenue of 162 million which is a 16% decrease sequentially and a 27% decrease year-over-year. The deepwater drilling moratorium and the residual slowdown in shallow water coupled with less engineering and project management work lead to the decline. Our results include very little contribution from the wreck removal project which is just about complete and no P&As were performed on Bullwinkle due to the timing of Droshky coming online.

I'll discuss in more detail later some of these comments, the third quarter demonstrated why we like both product line and geographic diversification. We benefited from a strong rebound in the Marine segment as a result of support work on the Macondo oil spill and high utilization for the 250-foot class liftboats which were out of service from most of the second quarter. Our efforts in the quarter related to the Macondo spill response helped significantly to overcome the loss of revenue related to the deepwater drilling moratorium. International revenue was 116 million which is a 3% increase sequentially and 26% increase year-over-year. The biggest sequential gains were on well control, specialty tubulars and subsea services.

I'd now like to discuss our segment performance in detail starting with the subsea and Well Enhancement Segment. In the Subsea and Well Enhancement Segment revenue was 289 million and income from operations was 40 million which represents sequential increases of 2% and 22% respectively. The high incremental margin was primarily due to the increased activity in coiled tubing and cased-hole wire line. Revenue increased sequentially 31% to 111 million on land and 4% to 74 million internationally, while Gulf of Mexico revenue declined 19% to 105 million.

The product line showing the largest sequential increases in revenue were coiled tubing and cased-hole wire line services. In the US, coiled tubing revenue continues to demonstrate one of the strongest growth areas for the company. Revenue from the company's 33 coiled tubing units on land in the US has increased 155% over the third quarter of 2009 and 37% sequentially. Coiled tubing continues to benefit from the proliferation of multistage fracturing projects at horizontal wells where it is being used to drill out plugs and wash out profit from these frack jobs, which is the big step change from the traditional uses of coiled tubing and it is driving higher utilization.

We anticipate that this will continue into next year and demand for coil tubing should continue to expand as horizontal drilling and completion techniques are up five to more oil reservoirs in the US. Internationally, the revenue increase was driven primarily by subsea work and well control services. We have not seen any changes in Hallin Marine’s primary market and so our outlook for Hallin remains unchanged from last quarter.

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