Superior Energy Services Inc (NYSE:SPN) Q2 2019 Earnings Conference Call Transcript
Jul 24, 2019 • 09:00 am ET
hydraulic fracturing continues to face significant challenges. And given what we believe will continue to be a volatile OPEC market. We elected to reduce the average number of operational fleets during the quarter to six, compared to an average of nine during the first quarter, and exited the quarter with six operational fleets.
In doing so, we expect these fleets to operate for a more consistent mix of customers at or above cash breakeven economics. This may come as a surprise to market observers, who believe us to be a "pressure pumping company". But during the quarter, EBITDA contribution from pressure pumping was less than 5% of our adjusted EBITDA. We expect a similar percentage contribution to EBITDA from the service line going forward, particularly as profitability improves in other areas.
I would further add, that we've been very open about our commitment to divest assets that do not support free cash flow growth or that will be unable to compete internally for investment. Much as we did during the second quarter, we will continue to work diligently to improve our capital structure and to further eliminate the concerns of our investors. While a reduction in active pressure pumping fleets resulted in lower U.S. land revenue for Superior Energy, most other U.S. land service lines met our expectations despite a declining rig count and customer hesitancy to increase activity.
Our U.S. offshore results improved sharply, as our completion tool business executed on projects that we had previously indicated had shifted from the first quarter to the second quarter. We expect to be in a period of strong completion activity mix in the Gulf of Mexico for the remainder of the year and our business has a robust backlog of customer orders that we will deliver on over the next several quarters.
The completion tool business, which has been a part of the Superior portfolio since 2010 has had some very important wins in recent years, and I believe we are on the verge of seeing this business increase substantially over the next several years. Since the acquisition in 2010, we have consistently funded R&D and product development and sand control completions, which is one of the most technically challenging segments of the oil and gas service industry. Our advances in Multi-Zone Single Trip tool technology resulted in Superior Energy being selected as the tool provider for Hess on their critical and challenging Stampede completions, which began in 2017. This project was very visible with other operators in the Gulf of Mexico and our technology and successful execution on Stampede have attracted other high potential customers to Superior.
This technology and manufactured product business is one that does not consume significant capital investment dollars, and is generally a solid free cash flow producer. In recent years, ROIC has been above cost of capital, and we believe this is a business that can consistently generate returns in the mid-20s or better. We have made an investment in additional machining capacity that will